def14a-109072_terr.htm
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. ______)
Filed by
the Registrant ¢
Filed by
a Party other than the Registrant £
Check the
appropriate box:
£
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Preliminary
Proxy Statement
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£
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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¢
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Definitive
Proxy Statement
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£
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Definitive
Additional Materials
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£
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Soliciting
Material Pursuant to § 240.14a-12
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Territorial
Bancorp Inc.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
¢
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No
fee required.
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£
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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N/A
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(2)
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Aggregate
number of securities to which transactions applies:
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N/A
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(3)
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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):
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N/A
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(4)
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Proposed
maximum aggregate value of transaction:
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N/A
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(5)
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Total
fee paid:
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N/A
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£
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Fee
paid previously with preliminary materials.
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£
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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N/A
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(2)
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Form,
Schedule or Registration Statement No.:
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N/A
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(3)
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Filing
Party:
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N/A
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(4)
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Date
Filed:
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N/A
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July 12,
2010
Dear
Fellow Stockholder:
You are
cordially invited to attend the 2010 annual meeting of stockholders of
Territorial Bancorp Inc. The meeting will be held at 1132 Bishop
Street, Suite 611, Honolulu, Hawaii on August 17, 2010 at 8:30 a.m., local
time.
The
notice of annual meeting and proxy statement appearing on the following pages
describe the formal business to be transacted at the
meeting. Officers of the Company, as well as a representative of KPMG
LLP, the Company’s independent registered public accounting firm, will be
present to respond to appropriate questions of stockholders.
It is
important that your shares are represented at this meeting, whether or not you
attend the meeting in person and regardless of the number of shares you
own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card promptly. If you attend the
meeting, you may vote in person even if you have previously mailed a proxy
card.
We look
forward to seeing you at the meeting.
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Sincerely,
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/s/
Allan S. Kitagawa |
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Allan
S. Kitagawa
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Chairman
of the Board, President and
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Chief
Executive Officer
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1132
Bishop Street, Suite 2200
Honolulu,
Hawaii 96813
(808)
946-1400
______________________
NOTICE
OF 2010 ANNUAL MEETING OF STOCKHOLDERS
______________________
TIME AND
DATE
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8:30
a.m. on August 17, 2010
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PLACE
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1132
Bishop Street, Suite 611
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Honolulu,
Hawaii
ITEMS OF
BUSINESS
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(1)
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To
elect two directors to serve for a term of three
years.
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(2)
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To
approve the Territorial Bancorp Inc. 2010 Equity Incentive
Plan.
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(3)
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To
ratify the selection of KPMG LLP as our independent registered public
accounting firm for the year ending December 31,
2010.
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(4)
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To
transact such other business as may properly come before the meeting and
any adjournment or postponement
thereof.
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RECORD
DATE
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To
vote, you must have been a stockholder at the close of business on July 2,
2010.
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PROXY
VOTING
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It
is important that your shares be represented and voted at the
meeting. You can vote your shares by completing and returning
the proxy card or voting instruction card sent to you. Voting
instructions are printed on your proxy or voting instruction card and
included in the accompanying proxy statement. You can revoke a
proxy at any time before its exercise at the meeting by following the
instructions in the proxy
statement.
|
/s/
Vernon Hirata
Vernon
Hirata
Corporate
Secretary
July 12,
2010
Territorial
Bancorp Inc.
____________________________
Proxy
Statement
____________________________
This proxy statement is furnished in
connection with the solicitation of proxies by the Board of Directors of
Territorial Bancorp Inc. (the “Company” or “Territorial Bancorp”) to be used at
the annual meeting of stockholders of the Company. The Company is the
holding company for Territorial Savings Bank (the “Bank”). The annual
meeting will be held at 1132 Bishop Street, Suite 611, Honolulu, Hawaii on
Tuesday, August 17, 2010 at 8:30 a.m., local time. This proxy
statement and the enclosed proxy card are being mailed to stockholders of record
on or about July 12, 2010.
Voting
and Proxy Procedure
Who
Can Vote at the Meeting
You are entitled to vote your Company
common stock if the records of the Company show that you held your shares as of
the close of business on July 2, 2010. If your shares are held in a
stock brokerage account or by a bank or other nominee, you are considered the
beneficial owner of shares held in “street name” and these proxy materials are
being forwarded to you by your broker or other nominee. As the
beneficial owner, you have the right to direct your broker how to
vote.
As of the close of business on July 2,
2010, there were 12,233,125 shares of Company common stock
outstanding. Each share of common stock has one vote. The
Company’s Articles of Incorporation provide that, subject to certain exceptions,
a record owner of the Company’s common stock for a person who beneficially owns,
either directly or indirectly, in excess of 10% of the Company’s outstanding
shares, is not entitled to any vote in respect of the shares held in excess of
the 10% limit.
Attending
the Meeting
If you were a stockholder as of the
close of business on July 2, 2010, you may attend the
meeting. However, if your shares of Company common stock are held by
a broker, bank or other nominee (i.e., in “street name”), you
will need proof of ownership to be admitted to the meeting. A recent
brokerage statement or a letter from a bank or broker are examples of proof of
ownership. If you want to vote your shares of Company common stock
held in street name in person at the meeting, you will have to get a written
proxy in your name from the broker, bank or other nominee who holds your
shares.
Vote
Required
A majority of the outstanding shares of
common stock entitled to vote is required to be represented at the meeting to
constitute a quorum for the transaction of business. If you return
valid proxy instructions or attend the meeting in person, your shares will be
counted for purposes
of
determining whether there is a quorum, even if you abstain from
voting. Broker non-votes also will be counted for purposes of
determining the existence of a quorum. A broker non-vote occurs when
a broker, bank or other nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received voting instructions
from the beneficial owner.
In voting on the election of directors,
you may vote in favor of all nominees, withhold votes as to all nominees or
withhold votes as to specific nominees. There is no cumulative voting
for the election of directors. Directors are elected by a plurality
of the votes cast at the annual meeting. This means that the nominees
receiving the greatest number of votes will be elected. Votes that
are withheld and broker non-votes will have no effect on the outcome of the
election.
In voting to approve the Territorial
Bancorp Inc. 2010 Equity Incentive Plan, you may vote in favor of the proposal,
against the proposal or abstain from voting. To be approved, this
matter requires the affirmative vote of a majority of the votes cast at the
annual meeting. Broker non-votes and abstentions will not be counted
as votes cast and will have no effect on this proposal.
In voting to ratify the appointment of
KPMG LLP, as our independent registered public accounting firm, you may vote in
favor of the proposal, against the proposal or abstain from
voting. To be approved, this matter requires the affirmative vote of
a majority of the votes cast at the annual meeting. Broker non-votes
and abstentions will not be counted as votes cast and will have no effect on
this proposal.
Voting
by Proxy
The Company’s Board of Directors is
sending you this proxy statement to request that you allow your shares of
Company common stock to be represented at the annual meeting by the persons
named in the enclosed proxy card. All shares of Company common stock
represented at the meeting by properly executed and dated proxies will be voted
according to the instructions indicated on the proxy card. If you
sign, date and return a proxy card without giving voting instructions, your
shares will be voted as recommended by the Company’s Board of
Directors. The Board of Directors recommends that you
vote:
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•
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for each of the
nominees for director;
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•
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for
approval of the Territorial Bancorp Inc. 2010 Equity Incentive Plan;
and
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•
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for
ratification of the appointment of KPMG LLP as the Company’s independent
registered public accounting firm.
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If any matters not described in this
proxy statement are properly presented at the annual meeting, the persons named
in the proxy card will use their judgment to determine how to vote your
shares. This includes a motion to adjourn or postpone the meeting to
solicit additional proxies. The Company does not currently know of
any other matters to be presented at the meeting.
You may revoke your proxy at any time
before the vote is taken at the meeting. To revoke your proxy, you
must either advise the Corporate Secretary of the Company in writing before your
common stock has been voted at the annual meeting, deliver a later dated proxy
or attend the meeting and vote your shares in person by
ballot. Attendance at the annual meeting will not in itself
constitute revocation of your proxy.
If your Company common stock is held in
street name, you will receive instructions from your broker, bank or other
nominee that you must follow to have your shares voted. Your broker,
bank or other nominee may allow you to deliver your voting instructions via the
telephone or the Internet. Please review the proxy card or
instruction form provided by your broker, bank or other nominee that accompanies
this proxy statement.
If you have any questions about voting,
please contact Senior Vice President, Investor Relations Walter Ida at (808)
946-1400
Corporate
Governance
General
The Company periodically reviews its
corporate governance policies and procedures to ensure that the Company meets
the highest standards of ethical conduct, reports results with accuracy and
transparency and maintains full compliance with the laws, rules and regulations
that govern the Company’s operations. As part of this periodic
corporate governance review, the Board of Directors reviews and adopts what it
believes to be best corporate governance policies and practices for the
Company.
Code
of Ethics and Business Conduct
We have
adopted a Code of Ethics and Business Conduct that is designed to promote the
highest standards of ethical conduct by our directors, executive officers and
employees. The Code of Ethics and Business Conduct requires that our
directors, executive officers and employees avoid conflicts of interest, comply
with all laws and other legal requirements, conduct business in an honest and
ethical manner and otherwise act with integrity and in our best
interest. Under the terms of the Code of Ethics and Business Conduct,
directors, executive officers and employees are required to report any conduct
that they believe in good faith to be an actual or apparent violation of the
Code of Ethics and Business Conduct. A copy of the Code of Ethics and
Business Conduct can be found in the “Investor Relations—Corporate Governance”
section of our website, www.territorialsavings.net.
As a
mechanism to encourage compliance with the Code of Ethics and Business Conduct,
we have established procedures to receive, retain and treat complaints regarding
accounting, internal accounting controls and auditing matters. These
procedures ensure that individuals may submit concerns regarding questionable
accounting or auditing matters in a confidential and anonymous
manner. The Code of Ethics and Business Conduct also prohibits us
from retaliating against any director, executive officer or employee who reports
actual or apparent violations of the Code of Ethics and Business
Conduct.
In addition, we have adopted a Code of
Ethics for Senior Officers that is applicable to our senior financial officers,
including our principal executive officer, principal financial officer,
principal accounting officer and all officers performing similar
functions. A copy of the Code of Ethics for Senior Officers can be
found in the “Investor Relations—Corporate Governance” section of our website,
www.territorialsavings.net.
Meetings
of the Board of Directors
The Company conducts business through
meetings of its Board of Directors and through activities of its
committees. During 2009, the Board of Directors held nine meetings
(not including committee meetings), and one additional meeting of our
non-employee independent directors. No director attended fewer than
75% of the total meetings of the Board of Directors and the committees on which
such director served (held during the period for which the director has served
as a director or committee member, as appropriate).
Committees
of the Board of Directors
The following table identifies our
Audit, Compensation and Nominating and Corporate Governance committees and their
members. All members of each committee are independent in accordance
with the listing standards of the Nasdaq Stock Market, Inc. Each of
these committees operates under a written charter that is available in the
“—Investor Relations—Corporate Governance” section of the Company’s website,
www.territorialsavings.net.
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Nominating and
Corporate Governance
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Howard
Y. Ikeda*
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Harold
H. Ohama*
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Howard
Y. Ikeda*
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Richard
I. Murakami
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Howard
Y. Ikeda
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Harold
H. Ohama
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David
S. Murakami
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Kirk
W. Caldwell
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Richard
I. Murakami
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Number
of
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Meetings
in
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2009:
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1
|
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4
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4
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__________________________
Audit
Committee. Pursuant to Territorial Bancorp Inc.’s Audit
Committee Charter, the Audit Committee assists the Board of Directors in its
oversight of the Company’s accounting and reporting practices, the quality and
integrity of the Company’s financial reports and the Company’s compliance with
applicable laws and regulations. The Audit Committee, which is
comprised solely of non-employee directors, all of whom the Board has determined
are independent in accordance with the listing standards of the Nasdaq Stock
Market, Inc. and applicable regulations of the Securities and Exchange
Commission, is also responsible for engaging the Company’s independent
registered public accounting firm and monitoring its conduct and
independence. The Board of Directors has designated Howard Y. Ikeda
as an audit committee financial expert under the rules of the Securities and
Exchange Commission. The report of the Audit Committee required by
the rules of the Securities and Exchange Commission is included in this proxy
statement. See “Audit Committee Report.”
Compensation
Committee. Pursuant to Territorial Bancorp Inc.’s Compensation
Committee Charter, the Compensation Committee approves the compensation
objectives for the Company and Territorial Savings Bank and establishes the
compensation for the Chief Executive Officer and other executives. Our Chairman
of the Board, President and Chief Executive Officer, provides recommendations to
the Compensation Committee on matters of compensation philosophy, plan design
and the general guidelines for employee compensation. However, Mr.
Kitagawa does not vote on and is not present for any discussion of his own
compensation. These recommendations are then considered by the
Compensation Committee. Beginning in 2009, Mr. Kitagawa generally
ceased attending Compensation Committee meetings. The Compensation
Committee, which is comprised solely of non-employee directors, all of whom the
Board of Directors has determined are independent in accordance with the listing
standards of the Nasdaq Stock Market, Inc., reviews all compensation components
for the Company’s Chief Executive
Officer
and other highly compensated executive officers’ compensation including base
salary, annual incentive, long-term incentives and other
perquisites. In addition to reviewing competitive market values, the
committee also examines the total compensation mix, pay-for-performance
relationship, and how all elements, in the aggregate, comprise the executive’s
total compensation package. Decisions by the Compensation Committee
with respect to the compensation of executive officers are approved by the full
Board of Directors. The report of the Compensation Committee required
by the rules of the Securities and Exchange Commission is included in this proxy
statement. See “Compensation Committee Report.”
Nominating and
Corporate Governance Committee. Pursuant to the Territorial
Bancorp Inc. Nominating and Corporate Governance Committee charter, the
Company’s Nominating and Corporate Governance Committee assists the Board of
Directors in identifying qualified individuals to serve as Board members, in
determining the composition of the Board of Directors and its committees, in
monitoring a process to assess Board effectiveness and in developing and
implementing the Company’s corporate governance guidelines. The
Nominating and Corporate Governance Committee also considers and recommends the
nominees for director to stand for election at the Company’s annual meeting of
stockholders. The procedures of the Nominating and Corporate
Governance Committee required to be disclosed by the rules of the Securities and
Exchange Commission are included in this proxy statement. See
“Nominating and Corporate Governance Committee Procedures.”
Attendance
at the Annual Meeting
The Board of Directors encourages each
director to attend annual meetings of stockholders. The 2010 Annual
Meeting of Stockholders is our first annual meeting of stockholders as a public
company.
Board
Leadership Structure
The Board of Directors currently
combines the position of Chairman of the Board with the position of Chief
Executive Officer, coupled with a lead independent director to further
strengthen the governance structure. The Board of Directors believes
this provides an efficient and effective leadership model for the Company.
Combining the Chairman of the Board and Chief Executive Officer positions
fosters clear accountability, effective decision-making, a clear and direct
channel of communication from senior management to the full Board of Directors
and alignment on corporate strategy. To further strengthen the
leadership of the Board of Directors, the Board selects a lead independent
director on an annual basis, currently Director Richard Murakami. The
responsibilities of the lead independent director include leading all Board
meetings of “non-management” Directors. The Board of Directors
believes its administration of its risk oversight function is not affected by
the Board of Directors’ leadership structure. To assure effective independent
oversight, the Board has adopted a number of governance practices, including
holding executive sessions of the independent directors at least twice a year or
more often as needed. In addition, the Compensation Committee, which
consists only of independent directors, evaluates the performance of our
Chairman of the Board and Chief Executive Officer and presents its findings to
our independent directors.
Risk
Oversight
The Board of Directors has an active
role, as a whole and also at the committee level, in overseeing management of
the Company’s risks. The Board of Directors satisfies this responsibility
through reports by each committee chair regarding such committee’s
considerations and actions, as well as through regular reports directly from
officers responsible for oversight of particular risks within our
organization. The Board of Directors regularly reviews information
regarding the Company’s credit, liquidity and operations, as well as the risks
associated with such areas. The Company’s Compensation Committee is responsible
for overseeing the management of risks relating to the Company’s executive
compensation plans and arrangements. The Audit Committee oversees management of
financial risks. The Nominating and Corporate Governance Committee manages risks
associated with the Company’s corporate governance, including independence of
the Board of Directors and potential conflicts of interest. While each committee
is responsible for evaluating certain risks and overseeing the management of
such risks, the entire Board of Directors is regularly informed about such
risks. The Board of Directors annually reviews our conflicts of
interest policy to ensure all directors are in compliance with the
policy.
Risks relating to the direct operations
of Territorial Savings Bank are further overseen by its Board of Directors, who
are the same individuals who serve on the board of directors of Territorial
Bancorp Inc. The Board of Directors of Territorial Savings Bank also
has additional committees that conduct additional risk
oversight. Further, the Board of Directors oversees risks through the
establishment of policies and procedures that are designed to guide daily
operations in a manner consistent with applicable laws, regulations and risks
acceptable to the organization, such as the requirement that all loan
relationships in excess of $2.0 million must be submitted to the full Board of
Directors for approval.
Stock
Ownership
The following table provides
information as of July 2, 2010, with respect to persons known by the Company to
be the beneficial owners of more than 5% of the Company’s outstanding common
stock. A person may be considered to own any shares of common stock
over which he or she has, directly or indirectly, sole or shared voting or
investing power. Percentages are based on 12,233,125 shares of
Company common stock issued and outstanding as of July 2, 2010.
Name and Address
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Number of
Shares Owned
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Percent
of Common Stock
Outstanding
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Wellington
Management Company, LLP (1)
75
State Street
Boston,
MA 02109
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1,211,067 |
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9.9 |
% |
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Territorial
Savings Bank Employee Stock Ownership Plan
1132
Bishop St., Suite 2200
Honolulu,
Hawaii 96813
|
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978,650 |
|
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8.0 |
% |
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Capital
World Investors (2)
333
South Hope Street, 55th
Floor
Los
Angeles, CA 90071
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782,500 |
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6.4 |
% |
_________________________
(1)
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Based
exclusively on a Schedule 13G filed by Wellington Management Company, LLP
with the Securities and Exchange Commission on February 12,
2010.
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(2)
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Based
exclusively on a Schedule 13G filed by Capital World Investors with the
Securities and Exchange Commission on February 10,
2010.
|
Proposal
1 — Election of Directors
The Board of Directors of Territorial
Bancorp Inc. is presently composed of six members. The Board is
divided into three classes, each with three-year staggered terms, with
approximately one-third of the directors elected each year. The
nominees for election this year are Kirk W. Caldwell and Harold H. Ohama, both
of whom are current directors of the Company and the Bank.
The Board
of Directors has determined that each of our directors, with the exception of
Chairman of the Board, President and Chief Executive Officer Allan S. Kitagawa,
is “independent” as defined in the listing standards of the Nasdaq Stock
Market. Mr. Kitagawa is not independent because he is one of our
executive officers.
In
determining the independence of the directors listed above, the Board of
Directors reviewed the following transactions, none of which are required to be
reported under “—Transactions With Certain Related Persons,”
below. Director Kirk Caldwell previously served as a partner of a law
firm that performs legal services for Territorial Savings
Bank. Director Caldwell also has a mortgage loan with Territorial
Savings Bank. Director David Murakami performs appraisal services for
Territorial Savings Bank. Director David Murakami also has a mortgage
loan, a home equity line of credit and overdraft protection with Territorial
Savings Bank. Director Richard Murakami has a mortgage loan and
overdraft protection with Territorial Savings Bank.
It is intended that the proxies
solicited by the Board of Directors will be voted for the election of the
nominees named below. If any nominee is unable to serve, the persons
named in the proxy card will vote your shares to approve the election of any
substitute proposed by the Board of Directors. Alternatively, the
Board of Directors may adopt a resolution to reduce the size of the
Board. At this time, the Board of Directors knows of no reason why
any nominee might be unable to serve.
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Position(s) Held With
Territorial Bancorp Inc.
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Shares
Beneficially
Owned as of
July 2, 2010
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NOMINEES
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Kirk
W. Caldwell
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Director
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57 |
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2007 |
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2010 |
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9,236 |
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* |
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Harold
H. Ohama
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Director
|
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74 |
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1996 |
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2010 |
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10,000 |
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* |
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CONTINUING
DIRECTORS
|
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Allan
S. Kitagawa
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Chairman
of the Board,
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64 |
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1986 |
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2012 |
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61,378 |
(3) |
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* |
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President
and Chief Executive
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Officer
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Howard
Y. Ikeda
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Director
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64 |
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1988 |
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2011 |
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28,735 |
(4) |
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* |
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David
S. Murakami (5)
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Director
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70 |
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2006 |
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2011 |
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10,900 |
(6) |
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* |
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Richard
I. Murakami (5)
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Director
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82 |
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1981 |
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2012 |
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10,000 |
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* |
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EXECUTIVE
OFFICERS
WHO
ARE NOT DIRECTORS
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Vernon
Hirata
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Vice
Chairman, Co-Chief
|
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57 |
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51,233 |
(7) |
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* |
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Operating
Officer, General
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Counsel
and Corporate
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Secretary
|
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Ralph
Y. Nakatsuka
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|
Vice
Chairman and Co-Chief
|
|
|
54 |
|
|
|
|
|
|
|
|
51,227 |
(8) |
|
|
* |
|
|
|
Operating
Officer
|
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Karen
J. Cox
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Senior
Vice President-
|
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|
64 |
|
|
|
|
|
|
|
|
13,576 |
(9) |
|
|
* |
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|
|
Administration
|
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Richard
K.C. Lau
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|
Senior
Vice President and Chief
|
|
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67 |
|
|
|
|
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32,958 |
(10) |
|
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* |
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|
Lending
Officer
|
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Melvin
M. Miyamoto
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Senior
Vice President and
|
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56 |
|
|
|
|
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14,469 |
(11) |
|
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* |
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Treasurer
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All
Directors and Executive Officers
as
a Group (11 persons)
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|
|
|
|
|
|
|
|
|
|
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293,712 |
|
|
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2.40 |
% |
(1)
|
As
of December 31, 2009.
|
(2)
|
Includes
services with Territorial Savings
Bank.
|
(3)
|
Includes
25,151 shares held through the Territorial Savings Bank Profit Sharing and
401(k) Plan, 1,227 shares held through the Territorial Savings Bank
Employee Stock Ownership Plan and 10,000 shares held by Mr. Kitagawa’s
spouse.
|
(4)
|
Includes
3,200 shares held by an individual retirement account, 10,022 shares owned
by Mr. Ikeda’s spouse, 4,000 held jointly with Mr. Ikeda’s child and 513
shares owned by Mr. Ikeda’s child.
|
(5)
|
David
S. Murakami and Richard I. Murakami are not
related.
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(6)
|
Includes
900 shares held jointly by David S. Murakami’s spouse and his
children.
|
(7)
|
Represents
34,406 shares held through the Territorial Savings Bank Profit Sharing and
401(k) Plan, 1,227 shares held through the Territorial Savings Bank
Employee Stock Ownership Plan and 15,600 shares held in
trust.
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(8)
|
Includes
1,227 shares held through the Territorial Savings Bank Employee Stock
Ownership Plan.
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(9)
|
Includes
12,684 shares held through the Territorial Savings Bank Profit Sharing and
401(k) Plan and 892 shares held through the Territorial Savings Bank
Employee Stock Ownership Plan.
|
(10)
|
Includes
10,420 shares held through the Territorial Savings Bank Profit Sharing and
401(k) Plan, 1,038 shares held through the Territorial Savings Bank
Employee Stock Ownership Plan and 1,500 shares held by a
corporation.
|
(11)
|
Includes
13,585 shares held through the Territorial Savings Bank Profit Sharing and
401(k) Plan and 884 shares held through the Territorial Savings Bank
Employee Stock Ownership Plan.
|
The
Board of Directors recommends a vote “FOR” the election of all
nominees.
The business experience for the past
five years of each of our directors and executive officers is set forth
below. The biographies of each of the nominees and continuing board
members below contain information regarding the person’s business experience and
the experiences, qualifications, attributes or skills that caused the Nominating
Committee and the Board of Directors to determine that the person should serve
as a director. Each director is also a director of Territorial
Savings Bank. Unless otherwise indicated, directors and executive
officers have held their positions for the past five years.
All of the nominees and directors
continuing in office are long-time residents of the communities served by
Territorial Bancorp Inc. and its subsidiaries and many of such individuals have
operated, or currently operate, businesses located in such
communities. As a result, each nominee and director continuing in
office has significant knowledge of the businesses that operate in Territorial
Bancorp Inc.’s market area, an understanding of the general real estate market,
values and trends in such communities and an understanding of the overall
demographics of such communities. Additionally, as residents of such
communities, each nominee and continuing director has direct knowledge of the
trends and developments occurring in such communities. As the holding
company for a community banking institution, Territorial Bancorp Inc. believes
that the local knowledge and experience of its directors assists Territorial
Bancorp Inc. in assessing the credit and banking needs of its customers,
developing products and services to better serve its customers and assessing the
risks inherent in its lending operations, and provides Territorial Bancorp Inc.
with greater business development opportunities. As local residents,
our nominees and directors are also exposed to the advertising, product
offerings and community development efforts of competing institutions which, in
turn, assists Territorial Bancorp Inc. in structuring its marketing efforts and
community outreach programs.
Nominees
for Election of Directors
The nominees standing for election
are:
Harold H.
Ohama is a licensed real estate broker and currently acts as a real
estate consultant. Mr. Ohama has also served as a trustee for
businesses in bankruptcy. Through his business contacts, he is aware
of many of the major business transactions and real estate developments and
transactions in the State of Hawaii. Mr. Ohama’s experience with real
estate provides him with extensive insights into Territorial Savings Bank’s
challenges and opportunities in its lending activities.
Kirk W.
Caldwell was appointed the Managing Director of the City and County of
Honolulu, Hawaii in January 2009. Prior to this appointment, Mr.
Caldwell was a partner with the law firm of Ashford & Wriston, where he had
worked since 1984. Much of his practice consisted of representing
financial institutions, including Territorial Savings Bank. Prior to
his appointment as Managing Director of the City and County of Honolulu, Mr.
Caldwell also served as the majority leader of the State of Hawaii House of
Representatives, and had served as a state representative since
2002. Because of his current and past positions, Mr. Caldwell is
uniquely positioned to advise the Board of Directors on community and economic
developments affecting the State of Hawaii and the localities in which we
operate.
Directors
Continuing in Office
The
following directors have terms ending in 2011:
Howard Y.
Ikeda is the President of Ikeda and Wong, CPA, Inc., an independent
public accounting firm in the State of Hawaii. Mr. Ikeda is a
Certified Public Accountant licensed to practice in the State of
Hawaii. He has been in public accounting for 39 years. Mr.
Ikeda’s professional and business experience provide the Board of Directors with
valuable insight into the accounting issues Territorial Bancorp Inc. faces and
in assessing strategic transactions involving Territorial Bancorp Inc. and
Territorial Savings Bank. His experience as a Certified Public
Accountant qualifies him to be a member of the Audit Committee as a “financial
expert” for purposes of the rules and regulations of the Securities and Exchange
Commission.
David S.
Murakami is a Certified Residential Appraiser in the State of Hawaii, and
has been the owner of DSM Appraisal Company since 1982. Mr. Murakami
previously worked as a Senior Vice President-Loan Administrator with financial
institutions in the State of Hawaii beginning in 1962. Mr. Murakami’s
employment experience, both with financial institutions and as a Certified
Residential Appraiser, gives him extensive insights into Territorial Savings
Bank’s challenges and opportunities in its overall operations and lending
activities. He is also well known in the local community as he was a
long-time assistant coach for the highly visible University of Hawaii-Manoa
baseball program.
The
following directors have terms ending in 2012:
Allan S.
Kitagawa has served as Chairman of the Board and Chief Executive Officer
of Territorial Savings Bank since 1986, and was named President in
2007. Mr. Kitagawa worked with American Savings and Loan Association
from 1974 to 1986, including service as Executive Vice President and Chief
Executive Officer of the Hawaii Division. Mr. Kitagawa is a Certified
Public Accountant. Under Mr. Kitagawa’s leadership, Territorial
Savings Bank has grown from $282 million in assets at December 31, 1986 to $1.4
billion at December 31, 2009, while Territorial Savings Bank’s conservative
lending practices have resulted in continued low levels of non-performing assets
at a time when many financial institutions are experiencing significant asset
quality issues.
Richard I.
Murakami is the retired President of a major building, material and
bonding company and previously was employed for 20 years as a Vice President of
a Hawaii based commercial bank. Mr. Murakami is a well-known and
respected member of the Japanese-American community. He also provides
insight into the traditional savings and loan depositor as these customers
constitute a significant part of the customer base of Territorial Savings
Bank.
Proposal
2 — Approval of the Territorial Bancorp Inc. 2010 Equity Incentive
Plan
The Board of Directors has approved for
submission to stockholders for approval the Territorial Bancorp Inc. 2010 Equity
Incentive Plan (the “Equity Incentive Plan”). The Equity Incentive
Plan is designed to provide officers, employees and directors of Territorial
Bancorp and Territorial Savings Bank with additional incentives to promote the
growth and performance of Territorial Bancorp. The Equity Incentive
Plan is subject to stockholder approval and will
become
effective upon its implementation by the Board of Directors subsequent to
satisfaction of applicable stockholder approval requirements. Most of
the companies that we compete with for directors and management-level employees
are public companies that offer equity compensation as part of their overall
director and officer compensation programs. The Equity Incentive Plan
will give us the flexibility we need to continue to attract and retain highly
qualified individuals by offering a competitive compensation program that is
linked to the performance of our common stock.
The following is a summary of the
material features of the Equity Incentive Plan, which is qualified in its
entirety by reference to the provisions of the Equity Incentive Plan, attached
hereto as Appendix A.
General
Subject
to permitted adjustments for certain corporate transactions, the Equity
Incentive Plan authorizes the issuance or delivery to participants of up to
1,712,637 shares of Company common stock (which equals 14% of the outstanding
shares of Company common stock as of the date hereof) pursuant to grants of
restricted stock awards, incentive stock options, and non-qualified stock
options; provided, however, that no more than 1,712,637 shares may be issued or
delivered in the aggregate pursuant to the exercise of stock options, and no
more than 856,318 shares (which equals 7% of the outstanding shares of Company
common stock as of the date hereof) may be issued or delivered pursuant to
restricted stock awards.
The
Equity Incentive Plan will be administered by the members of Territorial
Bancorp’s Compensation Committee who are “Disinterested Board Members,” as
defined in the Equity Incentive Plan (the “Committee”). The Committee
has full and exclusive power within the limitations set forth in the Equity
Incentive Plan to make all decisions and determinations regarding the selection
of participants and the granting of awards; establishing the terms and
conditions relating to each award; adopting rules, regulations and guidelines
for carrying out the Equity Incentive Plan’s purposes; and interpreting and
otherwise construing the Equity Incentive Plan. The Equity Incentive
Plan also permits the Board of Directors or the Committee to delegate to one or
more officers of Territorial Bancorp the power to: (i) designate officers and
employees who will receive awards; and (ii) determine the number of awards to be
received by them, provided that such delegation is not prohibited by applicable
law or the rules of the stock exchange on which our common stock is
traded. Awards intended to be “performance-based” under Section
162(m) of the Internal Revenue Code must be granted by the Committee in order to
be exempt from the $1.0 million limit on deductible compensation for tax
purposes.
The
Committee may grant an award under the Equity Incentive Plan as an alternative
to or replacement of an existing award under the Equity Incentive Plan or any
other plan of Territorial Bancorp or its subsidiaries, or as the form of payment
for grants or rights earned or due under any other plan or arrangement of
Territorial Bancorp or its subsidiaries, including the plan of any entity
acquired by Territorial Bancorp or its subsidiaries.
The
Equity Incentive Plan may be funded with authorized but unissued shares or with
shares repurchased in open market transactions. Depending on market
and financial conditions
at the
time of the establishment and implementation of the Equity Incentive Plan, we
expect to fund awards under the Equity Incentive Plan with shares repurchased in
open market transactions.
Eligibility
Employees
and directors of Territorial Bancorp and Territorial Savings Bank are eligible
to receive awards under the Equity Incentive Plan, except that non-employees may
not be granted incentive stock options.
Types
of Awards
The
Committee may determine the type and terms and conditions of awards under the
Equity Incentive Plan, which shall be set forth in an award agreement delivered
to each participant. Each award shall be subject to conditions
established by the Committee that are set forth in the recipient’s award
agreement, and shall be subject to vesting conditions and restrictions as
determined by the Committee. Awards may be granted in a combination
of incentive and non-qualified stock options or restricted stock, as
follows:
Stock
Options. A stock option
is the right to purchase shares of common stock at a specified price for a
specified period of time. The exercise price may not be less than the
fair market value of a share of our common stock on the date the stock option is
granted. Fair market value for purposes of the Equity Incentive Plan
means the final sales price of Territorial Bancorp’s common stock as reported on
the Nasdaq stock market on the date in question, or if Territorial Bancorp’s
common stock was not traded on such date, then on the day prior to such date or
on the next preceding day on which Territorial Bancorp’s common stock was
traded, and without regard to after-hours trading activity. The
Committee will determine the fair market value of the common stock, in
accordance with Section 422 of the Internal Revenue Code, if it cannot be
determined in the manner described above. Further, the Committee may
not grant a stock option with a term that is longer than 10 years.
Stock
options are either “incentive” stock options or “non-qualified” stock
options. Incentive stock options have certain tax advantages that are
not available to non-qualified stock options, and must comply with the
requirements of Section 422 of the Internal Revenue Code. Only
employees are eligible to receive incentive stock options. Outside
directors may only receive non-qualified stock options under the Equity
Incentive Plan. Shares of common stock purchased upon the exercise of
a stock option must be paid for at the time of exercise either (i) by personal,
certified or cashiers check, (ii) by tendering stock of Territorial Bancorp
owned by the participant in satisfaction of the exercise price, or (iii) by a
“cashless exercise” through a third party. The total number of shares
that may be acquired upon the exercise of a stock option will be rounded down to
the nearest whole share.
Restricted
Stock. A restricted
stock award is a grant of common stock, subject to vesting requirements, to a
participant for no consideration or such minimum consideration as may be
required by applicable law or regulation. Restricted stock awards may
be granted only in whole shares of common stock and are subject to vesting
conditions and other restrictions established
by the
Committee as set forth in the Equity Incentive Plan or the award
agreement. Prior to vesting of the restricted stock award, unless
otherwise determined by the Committee, the recipient of a restricted stock award
may exercise any voting rights with respect to common stock subject to an award
and receive any dividends and distributions with respect to the common
stock.
Prohibition
Against Repricing of Options. The Equity
Incentive Plan provides that neither the Committee nor the Board is authorized
to make any adjustment or amendment that reduces or would have the effect of
reducing the exercise price of a stock option previously granted.
Limitation
on Awards Under the Equity Incentive Plan
The
following limit applies to awards under the Equity Incentive Plan:
|
·
|
the
maximum number of shares of stock, in the aggregate, that may be issued or
delivered to any one employee participant pursuant to the exercise of
stock options is 428,159 shares (or 25% of the shares available for stock
option awards), all of which may be issued during any calendar
year;
|
|
·
|
the
maximum number of shares of stock, in the aggregate, that may be issued or
delivered to any one employee participant pursuant to restricted stock
awards is 214,080 shares (or 25% of the shares available for restricted
awards), all of which may be issued during any calendar
year;
|
|
·
|
the
maximum number of shares of stock that may be issued or delivered to any
one individual non-employee director pursuant to the exercise of stock
options, in the aggregate, shall be 85,630 shares or (5% of the shares
available for stock option awards), and the maximum number of shares that
may be issued or delivered to any one individual non-employee director
pursuant to restricted stock awards, in the aggregate, shall be 42,815
shares (or 5% of the shares available for restricted stock awards);
and
|
|
·
|
the
maximum number of shares of stock that may be issued or delivered to all
non-employee directors, in the aggregate, pursuant to the exercise of
stock options shall be 513,791 shares (or 30% of the shares available for
stock option awards), and the maximum number of shares that may be issued
or delivered to all non-employee directors in the aggregate pursuant to
restricted stock awards shall be 256,895 (or 30% of the shares available
for restricted stock awards).
|
To the
extent any shares of stock covered by an award (including restricted stock
awards) under the Equity Incentive Plan are not delivered to a participant or
beneficiary for any reason, including because the award is forfeited or canceled
or because a stock option is not exercised, then such shares shall not be deemed
to have been delivered for purposes of determining the maximum number of shares
of stock available for delivery under the Plan. To the extent (i) a
stock option is exercised by using an actual or constructive exchange of shares
to pay the
exercise
price, or (ii) shares of stock covered by an award are withheld to satisfy
withholding taxes upon exercise or vesting of the award, the number of shares of
stock available shall be reduced by the gross number of stock options exercised
rather than the net number of shares of stock issued.
In the
event of a corporate transaction involving the stock of Territorial Bancorp
(including, without limitation, any stock dividend, stock split, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination or exchange of shares), the foregoing share
limitations and all outstanding awards will automatically be adjusted
proportionally and uniformly to reflect such event to the extent that the
adjustment will not affect the award’s status as “performance-based
compensation” under Section 162(m) of the Internal Revenue Code, if applicable;
provided, however, that the Committee may adjust awards to preserve the benefits
or potential benefits of the awards, including the prevention of automatic
adjustments if appropriate.
Performance
Features
General. A
federal income tax deduction for Territorial Bancorp is generally unavailable
for annual compensation in excess of $1.0 million paid to its chief executive
officer and three other most highly compensated officers (other than its chief
financial officer) named in the summary compensation table. However,
amounts that constitute “performance-based compensation” (under Section 162(m)
of the Internal Revenue Code) are not counted toward the $1.0 million
limit. The Equity Incentive Plan is designed so that stock options
will be considered performance-based compensation. The Committee may
designate whether any restricted stock awards granted to any participant are
intended to be performance-based compensation. Any restricted stock awards
designated as performance-based compensation will be conditioned on the
achievement of one or more performance measures, to the extent required by
Section 162(m) of the Internal Revenue Code.
Performance
Measures. The performance measures that may be used for such awards will
be based on any one or more of the following performance measures, as selected
by the Committee: basic earnings per share; basic cash earnings per share;
diluted earnings per share; diluted cash earnings per share; net income; cash
earnings; net interest income; non-interest income; general and administrative
expense to average assets ratio; cash general and administrative expense to
average assets ratio; efficiency ratio; cash efficiency ratio; return on average
assets; cash return on average assets; return on average stockholders’ equity;
cash return on average stockholders’ equity; return on average tangible
stockholders’ equity; cash return on average tangible stockholders’ equity; core
earnings; operating income; operating efficiency ratio; net interest rate
spread; growth in assets, loans, or deposits; loan production volume;
non-performing loans; cash flow; strategic business objectives, consisting of
one or more objectives based upon meeting specified cost targets, business
expansion goals, and goals relating to acquisitions or divestitures, or goals
relating to capital raising and capital management; or any combination of the
foregoing. Performance measures may be based on the performance of Territorial
Bancorp as a whole or of any one or more subsidiaries or business units of
Territorial Bancorp or a subsidiary and may be measured relative to a peer
group, an index or a business plan. The Committee may adjust performance
measures after they have been
set, but
only to the extent the Committee exercises negative discretion as permitted
under applicable law for purposes of an exception to Section 162(m) of the
Internal Revenue Code. In establishing the performance measures, the Committee
may provide for the inclusion or exclusion of certain items. Additionally, the
grant of an award intended to be performance-based compensation and the
establishment of any performance-based measures shall be made during the period
required by Section 162(m) of the Internal Revenue Code.
Vesting
of Awards
The
Committee may specify vesting requirements on any award. If the
vesting of an award under the Equity Incentive Plan is conditioned on the
completion of a specified period of service with Territorial Bancorp or its
subsidiaries, without the achievement of performance measures or objectives,
then the required period of service for full vesting shall be determined by the
Committee and evidenced in an award agreement. Unless the
Committee specifies otherwise, awards may not vest at a rate exceeding 20% per
year commencing one year after the date of grant; subject to acceleration of
vesting in the event of death and substantial disability. The
Committee may determine that all stock options then held by a participant shall
become fully exerciseable (subject to expiration provisions otherwise applicable
to such award) and all restricted stock awards shall be fully earned and vested
immediately. Unless the Committee specifies that an unvested award
will be forfeited on retirement (as defined in the Equity Incentive Plan), any
unvested award will continue to vest following retirement in accordance with the
vesting schedule set forth in the award agreement.
Change
in Control
Unless
otherwise stated in an award agreement as determined by the Committee, upon the
occurrence of a change in control of Territorial Bancorp, all stock awards then
held by a participant will become fully vested and all stock option awards shall
become fully exercisable. For the purposes of the Equity Incentive Plan, a
change in control occurs when: (a) any person is or becomes the beneficial
owner, directly or indirectly, of securities of Territorial Bancorp representing
25% or more of the combined voting power of Territorial Bancorp’s then
outstanding voting securities; (b) the Incumbent Directors (as defined in the
Equity Incentive Plan) cease, for any reason, to constitute a majority of the
Whole Board (as defined in the Equity Incentive Plan); or (c) a plan of
reorganization, merger, consolidation or similar transaction involving
Territorial Bancorp and one or more other corporations or entities is
consummated, other than a plan of reorganization, merger, consolidation or
similar transaction that is defined in the Equity Incentive Plan as an Excluded
Transaction, or the stockholders of Territorial Bancorp approve a plan of
complete liquidation of Territorial Bancorp, or a sale, liquidation or other
disposition of all or substantially all of the assets of Territorial Bancorp or
the Bank is consummated; or (d) a tender offer is made for 25% or more of the
outstanding voting securities of Territorial Bancorp and the stockholders owning
beneficially or of record 25% or more of the outstanding voting securities of
Territorial Bancorp have tendered or offered to sell their shares pursuant to
such tender offer and such tendered shares have been accepted by the tender
offeror.
Forfeiture
The
Committee may specify that rights and benefits with respect to any award may be
subject to reduction, cancellation, forfeiture or recoupment upon the occurrence
of certain events in addition to any otherwise applicable vesting or performance
conditions. Such events include termination for cause; termination of
service, violations of material policies; breach of noncompetition,
confidentiality or other restrictive covenants; or any other conduct that is
detrimental to Territorial Bancorp’s business or reputation, its affiliates
and/or its subsidiaries.
If
Territorial Bancorp is required to prepare an accounting restatement due to the
material noncompliance of Territorial Bancorp, as a result of misconduct, with
any financial reporting requirement under the securities laws, any participant
who is subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley
Act of 2002 shall reimburse Territorial Bancorp the amount of any payment in
settlement of an award earned or accrued during the twelve-month period
following the first public issuance or filing with the Securities and Exchange
Commission of the financial document embodying such financial reporting
requirement. In addition, in the event of an accounting restatement, the
Committee, in its sole and exclusive discretion, may require that any
participant reimburse Territorial Bancorp for all or any part of the amount of
any payment in settlement of any award granted hereunder.
Amendment
and Termination
The Board
of Directors may, at any time, amend or terminate the Equity Incentive Plan or
any award granted under the Equity Incentive Plan, provided that, except as
provided in the Equity Incentive Plan, no amendment or termination may adversely
impair the rights of an outstanding award without the participant’s (or affected
beneficiary’s) written consent. The Board of Directors may not amend the
provision of the Equity Incentive Plan related to repricing, materially increase
the original number of securities that may be issued under the Equity Incentive
Plan (other than as provided in the Equity Incentive Plan), materially increase
the benefits accruing to a participant, or materially modify the requirements
for participation in the Equity Incentive Plan, without approval of
stockholders. Notwithstanding the foregoing, the Board may, without stockholder
approval, amend the Equity Incentive Plan at any time, retroactively or
otherwise, to ensure that the Equity Incentive Plan complies with current or
future law and the Board of Directors may unilaterally amend the Equity
Incentive Plan and any outstanding award, without participant consent, in order
to maintain an exemption from, or to comply with, Section 409A of the Internal
Revenue Code, and its applicable regulations and guidance.
Effective
Date and Duration of Plan
The
Equity Incentive Plan will become effective when established and implemented by
the Board of Directors subsequent to the satisfaction of the applicable
stockholder approval requirements at this annual meeting. The Equity
Incentive Plan will remain in effect as long as any awards under it are
outstanding; however, no awards may be granted under the Equity Incentive Plan
on or after the 10-year anniversary of the effective date of the Equity
Incentive Plan. At any time, the Board of Directors may terminate the
Equity Incentive Plan. However, any termination of the Equity Incentive Plan
will not affect outstanding awards.
Federal
Income Tax Considerations
The
following is a summary of the federal income tax consequences that may arise in
conjunction with participation in the Equity Incentive Plan.
Non-Qualified
Stock Options. The grant of a non-qualified option will not result in
taxable income to the participant. Except as described below, the participant
will realize ordinary income at the time of exercise in an amount equal to the
excess of the fair market value of the shares acquired over the exercise price
for those shares, and Territorial Bancorp will be entitled to a corresponding
deduction for tax purposes. Gains or losses realized by the participant upon
disposition of such shares will be treated as capital gains and losses, with the
basis in such shares equal to the fair market value of the shares at the time of
exercise.
Incentive Stock
Options. The grant of an incentive stock option will not result in
taxable income to the participant. The exercise of an incentive stock option
will not result in taxable income to the participant provided the participant
was, without a break in service, an employee of Territorial Bancorp or a
subsidiary during the period beginning on the date of the grant of the option
and ending on the date three months prior to the date of exercise (one year
prior to the date of exercise if the participant is disabled, as that term is
defined in the Internal Revenue Code).
The
excess of the fair market value of the shares at the time of the exercise of an
incentive stock option over the exercise price is an adjustment that is included
in the calculation of the participant’s alternative minimum taxable income for
the tax year in which the incentive stock option is exercised. For purposes of
determining the participant’s alternative minimum tax liability for the year of
disposition of the shares acquired pursuant to the incentive stock option
exercise, the participant will have a basis in those shares equal to the fair
market value of the shares at the time of exercise.
If the
participant does not sell or otherwise dispose of the shares within two years
from the date of the grant of the incentive stock option or within one year
after the exercise of such stock option, then, upon disposition of such shares,
any amount realized in excess of the exercise price will be taxed as a capital
gain. A capital loss will be recognized to the extent that the amount realized
is less than the exercise price.
If the
foregoing holding period requirements are not met, the participant will
generally realize ordinary income at the time of the disposition of the shares,
in an amount equal to the lesser of (i) the excess of the fair market value of
the shares on the date of exercise over the exercise price, or (ii) the excess,
if any, of the amount realized upon disposition of the shares over the exercise
price, and Territorial Bancorp will be entitled to a corresponding deduction. If
the amount realized exceeds the value of the shares on the date of exercise, any
additional amount will be a capital gain. If the amount realized is less than
the exercise price, the participant will recognize no income, and a capital loss
will be recognized equal to the excess of the exercise price over the amount
realized upon the disposition of the shares.
Restricted Stock.
A participant who has been granted a restricted stock award will not
realize taxable income at the time of grant, provided that that the stock
subject to the award is not delivered at the time of grant, or if the stock is
delivered, it is subject to restrictions that constitute a “substantial risk of
forfeiture” for federal income tax purposes. Upon the later of delivery or
vesting of shares subject to an award, the holder will realize ordinary income
in an amount equal to the then fair market value of those shares and Territorial
Bancorp will be entitled to a corresponding deduction for tax
purposes. Gains or losses realized by the participant upon
disposition of such shares will be treated as capital gains and losses, with the
basis in such shares equal to the fair market value of the shares at the time of
delivery or vesting. Dividends paid to the holder during the restriction period,
if so provided, will also be compensation income to the participant and
Territorial Bancorp will be entitled to a corresponding deduction for tax
purposes. A participant who makes an election under Section 83(b) of
the Internal Revenue Code will include the full fair market value of the
restricted stock award in taxable income in the year of grant at the grant date
fair market value.
Withholding of
Taxes. Territorial Bancorp may withhold amounts from participants to
satisfy withholding tax requirements. Except as otherwise provided by
the Committee, participants may have shares withheld from awards or may tender
previously owned shares to Territorial Bancorp to satisfy the minimum tax
withholding requirements.
Change in
Control. In
the event of a change in control, outstanding unvested awards under the Equity
Incentive Plan may be considered parachute payments that would cause an “excess
parachute payment” under the Internal Revenue Code. An excess
parachute payment may subject the participant to a 20% excise tax and preclude
deduction by Territorial Bancorp.
Deduction
Limits. Section 162(m) of the Internal Revenue Code generally
limits Territorial Bancorp’s ability to deduct for tax purposes compensation in
excess of $1.0 million per year for its chief executive officer and the three
other most highly compensated executives (excluding the chief financial officer)
named in the summary compensation table (“covered
employees”). Restricted stock awards, other than performance-based
restricted stock awards, and other awards that are not subject to performance
goals may be subject to this deduction limit if income recognized on the awards
plus other compensation of the executive that is subject to the limit exceeds
$1.0 million. “Qualified performance-based compensation” is not
subject to this limit and is fully deductible by Territorial
Bancorp. “Qualified performance-based compensation” is compensation
that is subject to a number of requirements such as stockholder approval of
possible performance goals, and objective quantification of those goals in
advance. Stock options available for award under the Equity Incentive
Plan will be considered “qualified performance-based compensation” even if such
awards vest solely due to the passage of time during the performance of
services. Accordingly, if an award is not exempt from Section 162(m),
income recognized on such award by a covered employee will be subject to the
$1.0 million deduction limit on compensation.
In the
case of performance-based awards granted to a covered employee that are not
distributed until after the covered employee’s retirement or other termination
of employment, the $1.0 million deduction limit will not apply and the award
will be fully deductible. Performance awards may provide for
accelerated vesting upon death, disability, or a change in control and
still
be
considered exempt from the $1.0 million deduction limit. The Equity
Incentive Plan is designed so that stock options and performance-based
restricted stock awards that are subject to performance goals may qualify as
qualified performance-based compensation that is not subject to the $1.0 million
deduction limit. Territorial Bancorp expects that the Committee will
take these deduction limits into account in setting the size and the terms and
conditions of awards. However, the Committee may decide to grant
awards that result in executive compensation that exceeds the deduction
limit.
Tax
Advice. The preceding discussion is based on federal tax laws
and regulations presently in effect, which are subject to change, and the
discussion does not purport to be a complete description of the federal income
tax aspects of the Equity Incentive Plan. A participant may also be subject to
state and local taxes in connection with the grant of awards under the Equity
Incentive Plan. Territorial Bancorp suggests that participants consult with
their individual tax advisors to determine the applicability of the tax rules to
the awards granted to them in their personal circumstances.
Accounting
Treatment
Under
Financial Accounting Standards Board Accounting Codification Standards Topic
718, Territorial Bancorp is required to recognize compensation expense on its
income statement over the requisite service period or performance period based
on the grant date fair value of stock options and restricted stock.
Awards
to be Granted
The Board
of Directors adopted the Equity Incentive Plan, and the Compensation Committee
intends to meet promptly after stockholder approval to determine the specific
terms of the awards, including the allocation of awards to executive officers,
employees and non-employee directors. At the present time, no
specific determination has been made as to the grant or allocation of
awards.
Required
Vote
In order
to approve the Equity Incentive Plan, the proposal must receive the affirmative
vote of a majority of the votes cast at the annual meeting.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2010 EQUITY
INCENTIVE PLAN.
Proposal
3 —Ratification of Independent Registered Public Accounting Firm
The Audit Committee of the Board of
Directors has appointed KPMG LLP to be the Company’s independent registered
public accounting firm for the year ending December 31, 2010, subject to
ratification by stockholders. A representative of KPMG LLP is
expected to be present at the annual meeting to respond to appropriate questions
from stockholders and will have the opportunity to make a statement should he or
she desire to do so.
If the ratification of the appointment
of KPMG LLP is not approved by a majority of the votes cast by stockholders at
the annual meeting, other independent registered public accounting firms may be
considered by the Audit Committee of the Board of Directors.
The Board of Directors recommends that
stockholders vote “FOR” the ratification of the appointment of KPMG LLP as the
Company’s independent registered public accounting firm.
Audit
Fees
The
following table sets forth the fees we paid to KPMG LLP for the years ended
December 31, 2009 and 2008.
|
|
2009
|
|
|
2008
|
|
Audit
fees (1)
|
|
$ |
472,000 |
|
|
$ |
690,000 |
|
Audit-related
fees (2)
|
|
$ |
186,000 |
|
|
$ |
31,000 |
|
Tax
fees (3)
|
|
$ |
66,000 |
|
|
$ |
47,000 |
|
All
other fees
|
|
$ |
— |
|
|
$ |
— |
|
_________________
(1)
|
Audit
fees relate to the audit of Territorial Bancorp Inc.’s consolidated
financial statements and to SEC registration
statements.
|
(2)
|
Audit-related
fees pertain to the audit of the financial statements of certain employee
benefit plans. For 2009, fees also pertain to the documentation
of internal control policies and procedures over financial
reporting.
|
(3)
|
Tax
fees consist of tax return preparation and other tax
matters.
|
Pre-Approval
of Services by the Independent Registered Public Accounting Firm
The Audit
Committee is responsible for appointing, setting compensation and overseeing the
work of the independent registered public accounting firm. In
accordance with its charter, the Audit Committee approves, in advance, all audit
and permissible non-audit services to be performed by the independent registered
public accounting firm. Such approval process ensures that the
external auditor does not provide any non-audit services to us that are
prohibited by law or regulation.
In
addition, the Audit Committee has established a policy regarding pre-approval of
all audit and permissible non-audit services provided by the independent
registered public accounting firm. Requests for services by the
independent registered public accounting firm for compliance with the audit or
services policy must be specific as to the particular services to be
provided. The request may be made with respect to either specific
services or a type of service for predictable or recurring
services. During each of the years ended December 31, 2009 and 2008,
100% of audit services were approved, in advance, by the Audit
Committee.
Audit
Committee Report
The Company’s management is responsible
for the Company’s internal controls and financial reporting
process. The Company’s independent registered public accounting firm
is responsible for performing an independent audit of the Company’s consolidated
financial statements, issuing an opinion on the conformity of those financial
statements with generally accepted accounting principles, and issuing a report
on internal control over financial reporting. The Audit Committee
oversees the Company’s internal controls and financial reporting process on
behalf of the Board of Directors.
In this context, the Audit Committee
has met and held discussions with management and the independent registered
public accounting firm. Management represented to the Audit Committee
that the Company’s consolidated financial statements were prepared in accordance
with generally accepted accounting principles and the Audit Committee has
reviewed and discussed the consolidated financial statements with management and
the independent registered public accounting firm. The Audit
Committee discussed with the independent registered public accounting firm
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees), including the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments and the clarity of the disclosures in the financial
statements.
In addition, the Audit Committee has
received the written disclosures and the letter from the independent registered
public accounting firm required by the Independence Standards Board Standard No.
1 (Independence Discussions With Audit Committees) and has discussed with the
independent registered public accounting firm the firm’s independence from the
Company and its management. In concluding that the registered public
accounting firm is independent, the Audit Committee considered, among other
factors, whether the non-audit services provided by the firm were compatible
with its independence.
The Audit Committee discussed with the
Company’s independent registered public accounting firm the overall scope and
plans for their audit. The Audit Committee meets with the independent
registered public accounting firm, with and without management present, to
discuss the results of their audit, their evaluation of the Company’s internal
controls, and the overall quality of the Company’s financial
reporting.
In performing all of these functions,
the Audit Committee acts only in an oversight capacity. In its
oversight role, the Audit Committee relies on the work and assurances of the
Company’s management, which has the primary responsibility for financial
statements and reports, and of the independent registered public accounting firm
who, in their report, express an opinion on the conformity of the Company’s
financial statements to generally accepted accounting principles. The
Audit Committee’s oversight does not provide it with an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or policies, or appropriate internal controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee’s
considerations and discussions with management and the independent registered
public accounting firm do not assure that the Company’s financial statements
are
presented
in accordance with generally accepted accounting principles, that the audit of
the Company’s financial statements has been carried out in accordance with
generally accepted auditing standards or that the Company’s independent
registered public accounting firm is in fact “independent.”
In reliance on the reviews and
discussions referred to above, the Audit Committee recommended to the Board of
Directors, and the Board has approved, that the audited consolidated financial
statements be included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009, for filing with the Securities and Exchange
Commission. The Audit Committee also has approved, subject to
stockholder ratification, the selection of KPMG LLP as the Company’s independent
registered public accounting firm for the year ending December 31,
2010.
Audit
Committee of the Board of Directors of
Territorial
Bancorp Inc.
Howard Y.
Ikeda (Chairman)
Harold H.
Ohama
Richard
I. Murakami
Information
about Executive Officers
The following provides information
regarding our executive officers who are not directors of the
Company.
Vernon
Hirata has served as Territorial Savings Bank’s Vice Chairman, Co-Chief
Operating Officer, General Counsel and Corporate Secretary since
2007. Mr. Hirata joined Territorial Savings Bank in 1986 as Senior
Vice President/General Counsel, and was named Executive Vice President/General
Counsel and Corporate Secretary in 1987. Previously, Mr. Hirata was
employed at American Savings and Loan Association from 1978 to 1986, including
service as Senior Vice President and General Counsel.
Ralph Y.
Nakatsuka joined Territorial Savings Bank in 2007 as Vice Chairman and
Co-Chief Operating Officer, and was employed at American Savings Bank from 1980
to 2007, including service as Executive Vice President of Lending and Chief
Lending Officer from 1997 to 2007 and Chief Financial Officer from 1987 to 1997.
Mr. Nakatsuka is a Certified Public Accountant.
Karen J.
Cox has served as Senior Vice President of Administration of Territorial
Savings Bank since 1984, and has been employed by Territorial Savings Bank since
1968. Ms. Cox previously worked with other financial institutions in
the State of Hawaii beginning in 1964.
Richard K.C.
Lau has served as Senior Vice President and Chief Lending Officer of
Territorial Savings Bank since 1985. Mr. Lau was employed at other
financial institutions in the State of Hawaii beginning in
1970.
Melvin M.
Miyamoto has served as Senior Vice President and Treasurer of Territorial
Savings Bank since 1986, and has been employed by Territorial Savings Bank since
1984. Mr. Miyamoto is a Certified Public Accountant.
Executive
Compensation
Director
Fees
Each of
Territorial Savings Bank’s outside directors receives an annual retainer for
board meetings of $32,000 per year and an annual retainer for committee meetings
of $2,400 per year. Each of Territorial Bancorp Inc.’s outside
directors receives an annual retainer for board meetings of $5,000 per year and
an annual retainer for committee meetings of $600 per year. The
retainer fees are increased to the following amounts for the following
committees: the Chairman of Territorial Savings Bank’s Audit Committee receives
a committee retainer of $2,600 and the Chairman of Territorial Bancorp Inc.’s
Audit Committee receives a committee retainer of $8,400; the Chairman
of Territorial Savings Bank’s Compensation Committee receives a committee
retainer of $4,800; the Chairman of Territorial Bancorp Inc.’s Compensation
Committee receives a committee retainer of $1,200; and the Vice-Chairman of
Territorial Savings Bank’s Compensation Committee receives a committee retainer
of $3,200 and the Vice-Chairman of Territorial Bancorp Inc.’s Compensation
Committee receives a committee retainer of $800. Receipt of full
retainer payments is based upon a director attending at least 75% of board or
committee meetings, as applicable, with reductions for the failure to attend
such number of board or committee meetings.
The
following table sets forth for the year ended December 31, 2009 certain
information as to the total remuneration we paid to our
directors. Beginning in 2009, Mr. Kitagawa no longer received
separate director fees. Information with respect to director fees
paid to Mr. Kitagawa for the years ended December 31, 2008 and 2007 is included
below in “Executive Officer Compensation—Summary Compensation
Table.”
Director Compensation Table For the Year Ended
December 31, 2009
|
|
|
Fees earned or paid in
cash ($)
|
|
|
David
S. Murakami
|
|
$ |
42,548 |
|
|
$ |
42,548 |
|
Richard
I. Murakami
|
|
|
43,898 |
|
|
|
43,898 |
|
Howard
Y. Ikeda
|
|
|
51,632 |
|
|
|
51,632 |
|
Harold
H. Ohama
|
|
|
46,948 |
|
|
|
46,948 |
|
Kirk
W. Caldwell
|
|
|
44,312 |
|
|
|
44,312 |
|
Compensation
Discussion and Analysis
Compensation
Philosophy and Objectives. Our Compensation
Committee has the responsibility for establishing and reviewing our compensation
philosophy and objectives. In this role, the Compensation Committee
has sought to design a compensation structure that attracts and retains
qualified and experienced officers and, at the same time, is reasonable and
competitive, taking into account both short and long-term
incentives. Prior to our initial public offering, our compensation
consisted primarily of cash compensation, salary and bonuses, and retirement
benefits. We intend to adopt a stock-based benefit plan, subject to
stockholder
approval
at this year’s annual meeting of stockholders. We expect that this
stock-based plan will help us to attract and retain employees consistent with
our growth plans as well as providing longer term incentives. We also
expect that this stock-based benefit plan will play a significant role in our
future compensation considerations, particularly for our named executive
officers (we refer to Allan S. Kitagawa, Chairman of the Board, President and
Chief Executive Officer, Melvin M. Miyamoto, Senior Vice President and
Treasurer, Vernon Hirata, Vice Chairman, Co-Chief Operating Officer, General
Counsel and Corporate Secretary, Ralph Y. Nakatsuka, Vice Chairman, Co-Chief
Operating Officer and Richard K.C. Lau, Senior Vice President and Chief Lending
Officer, as our named executive officers).
Role of Executive
Officers and Management. Mr. Kitagawa, our
Chairman of the Board, President and Chief Executive Officer, provides
recommendations to the Compensation Committee on matters of compensation
philosophy, plan design and the general guidelines for employee compensation,
however, Mr. Kitagawa does not vote on and is not present for any discussion of
his own compensation. These recommendations are then considered by
the Compensation Committee. During 2009, consistent with our amended
Compensation Committee Charter, Mr. Kitagawa did not attend Compensation
Committee meetings where his compensation was discussed. Certain
members of our management team participate in the Compensation Committee
meetings to provide information to the committee on an as-needed
basis.
During
2009, we retained Amalfi Consulting, LLC, a nationwide benefits consulting firm,
to review our compensation structure and levels of
compensation. Amalfi Consulting reviewed our compensation practices,
including salary and bonus in comparison to a number of different peer groups
including approximately 14 bank and thrift institutions. Amalfi
Consulting also assisted the Compensation Committee in reviewing our cash bonus
program and supplemental executive retirement plans. We believe these
programs properly allocate cash compensation between long-term and currently
paid compensation. The Compensation Committee considered Amalfi
Consulting’s review of compensation levels in establishing the compensation
amounts for the named executive officers in 2009.
Elements of
Executive Compensation. The compensation we provide to our
named executive officers and other employees primarily consists of the
following:
|
·
|
annual
cash bonuses which, for certain executives, are based on specified goals
and benchmarks designated each year and for other executives are
discretionary;
|
|
·
|
retirement
benefits, which are determined without regard to gains from other elements
of compensation; and
|
|
·
|
perquisites
and other personal benefits.
|
When
setting the compensation of Messrs. Kitagawa, Hirata and Nakatsuka, the
Compensation Committee generally seeks to provide total compensation (base
salary, incentive payments under our Equity Incentive Plan, accruals under our
Supplemental Executive
Retirement
Agreements and our Pension Plan, and all other compensation) for these executive
officers at the 50th to
the 75th
percentiles of total compensation for our peer group. Subjective
adjustments can be made based on Territorial Savings Bank’s financial
performance or an officer’s experience or proven contribution to Territorial
Savings Bank over time. Compensation for Messrs. Miyamoto and Lau is
determined without reference to targets or peer group information.
For 2009, the Compensation Committee
reviewed publicly available information for the three highest paid officers of
the Coast Peer Group companies (described below in “—Peer Group Information”)
paid during the year ended December 31, 2007 (aged to reflect a 4% general
market increase in compensation), as provided by Amalfi
Consulting. Total compensation (including salary, annual cash
bonuses/incentives, equity awards, all other compensation and retirement
benefits) for the three highest paid officers of these companies, for each of
the 50th and 75th percentiles, were as
follows:
|
|
Total Peer Group Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest
Paid
|
|
$ |
1,293,900 |
|
|
$ |
1,698,300 |
|
Second
Highest Paid
|
|
|
730,000 |
|
|
|
898,300 |
|
Third
Highest Paid
|
|
|
490,700 |
|
|
|
725,100 |
|
Total
|
|
$ |
2,514,600 |
|
|
$ |
3,321,700 |
|
The
following table provides the potential total compensation that could have been
received by Messrs. Kitagawa, Hirata and Nakatsuka for 2009 based upon estimates
prepared by Amalfi Consulting as of January 2009.
|
|
Total Compensation Based Upon Incentive
Payments of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
S. Kitagawa
|
|
$ |
1,807,400 |
|
|
$ |
2,195,500 |
|
Vernon
Hirata
|
|
|
605,800 |
|
|
|
744,400 |
|
Ralph
Y. Nakatsuka
|
|
|
534,200 |
|
|
|
672,800 |
|
Total
|
|
$ |
2,947,400 |
|
|
$ |
3,612,700 |
|
In
reviewing the reasonableness of the potential compensation for our officers for
2009 compared to the compensation of the peer group for 2007 aged to reflect a
4% general market increase in compensation, the Compensation Committee
considered that officer compensation would be paid one year after the peer group
information. The peer group information was not adjusted to reflect
regular salary increases, inflation or other adjustments that would have
increased the peer group compensation during this one-year
period. Additionally, in reviewing the reasonableness of the
potential compensation for Mr. Kitagawa, the Compensation Committee considered
non-formula criteria discussed under “—Base Salary.” For a discussion
of the determination of the individual components, see “—Base Salary,” “—Cash
Bonuses under our Executive Incentive Compensation Plan,” “Pension
Benefits—Supplemental Executive Retirement Agreements,” “Pension
Benefits—Pension Plan” and “Retirement Plans and Other
Benefits—Perquisites.”
Base
Salary. Base salary is the primary source of compensation for
services performed during the year for all employees. Base salary
ranges for named executive officers are determined based on the executive’s
position and performance and, for Messrs. Kitagawa, Hirata and Nakatsuka,
compensation levels paid by our peers to executives in similar
positions.
During
its review of base salaries for executives, the Compensation Committee primarily
considers:
|
·
|
market
data for peer institutions, direct competitors and publicly held
businesses located in Hawaii;
|
|
·
|
internal
review of the executive’s compensation, both individually and relative to
other officers;
|
|
·
|
individual
performance of the executive;
|
|
·
|
qualifications
and experience of the executive;
and
|
|
·
|
our
financial condition and results of operations, including the tax and
accounting impact of particular forms of
compensation.
|
Base
salaries are reviewed annually and adjusted from time to time to realign
salaries with market levels after taking into account individual
responsibilities, performance and experience.
For 2009,
Amalfi Consulting provided peer group information with respect to the three
highest paid officers of the peer group companies. Base salaries for
each of the 50th and
75th
percentiles were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest
Paid
|
|
$ |
477,800 |
|
|
$ |
556,500 |
|
Second
Highest Paid
|
|
|
273,000 |
|
|
|
312,000 |
|
Third
Highest Paid
|
|
|
229,900 |
|
|
|
241,500 |
|
Total
|
|
$ |
980,700 |
|
|
$ |
1,110,000 |
|
Base
salaries established for Messrs. Kitagawa, Hirata and Nakatsuka for 2009 were
$801,954, $282,555 and $282,555, respectively. Mr. Kitagawa’s base
salary significantly exceeds the 75th
percentile of base salaries set forth above for the highest paid officer of the
peer group companies. The Compensation Committee’s determination to
pay this level of base salary was based upon non-formula criteria, including Mr.
Kitagawa’s considerable experience in the banking industry and his contribution
to Territorial Savings Bank as Chairman of the Board and Chief Executive Officer
over the course of more than 20 years. Mr. Hirata’s base salary was
near the 75th percentile
of base salaries set forth above for the second highest paid officer of the peer
group companies, and reflects his considerable experience in the banking
industry and his contribution to Territorial Savings Bank over the course of
more than 20 years. Mr. Nakatsuka’s base salary was established at
the same level as Mr. Hirata’s base salary, reflecting Mr.
Nakatsuka’s
position with Territorial Savings Bank as well as his considerable experience in
the banking industry.
Cash Bonuses
under our Executive Incentive Compensation Plan. Messrs.
Kitagawa, Hirata and Nakatsuka are eligible to receive an annual cash bonus
under our Executive Incentive Compensation Plan. Messrs. Miyamoto and
Lau do not participate in the Executive Incentive Compensation
Plan. The amount of the bonuses paid for 2009 under the Executive
Incentive Compensation Plan is included in the Summary Compensation Table in the
column labeled “Non-Equity Incentive Plan Compensation.” For 2009, under the
Executive Incentive Compensation Plan, the amount of the incentive cash bonus
could range from 0% to 70% of an executive’s salary, based on the following
three components:
|
·
|
an
award of up to 35% of the executive’s salary amount based on return on
assets and return on equity targets (for the first six months of 2009),
equally weighted between these two measurements, and return on assets
targets for the second six months of
2009;
|
|
·
|
an
award of up to 21% of an executive’s salary based on non-financial goals
for each year; and
|
|
·
|
an
award of up to 14% of an executive’s salary based on our long-term
performance.
|
The
target and maximum bonus opportunities are established so that the total
compensation package for Messrs. Kitagawa, Hirata and Nakatsuka described above
under “—Elements of Executive Compensation” may fall between the 50th to
the 75th
percentiles of total compensation for our peer group, such that satisfying
target performance goals would generally result in total compensation of
approximately the 50th
percentile of peer group total compensation, while superior performance would
generally result in total compensation of approximately the 75th
percentile of peer group total compensation.
For 2010,
the Compensation Committee has determined to increase the maximum amount payable
under the long-term performance component under the Executive Incentive
Compensation Plan from 14% of base salary to 44% of base salary, thus increasing
the maximum bonus payable under the Executive Incentive Compensation Plan from
70% of base salary to 100% of base salary.
For the
first half of 2009, return on assets and return on equity targets were
established at the 50th
percentile of Territorial Savings Bank’s peer groups (as described below in
“—Peer Group Information”), calculated at a bank-only level. For the
first half of 2009, peer group information was provided in Federal Deposit
Insurance Corporation Quarterly Reports. For the second half of 2009,
return on assets targets were established at the 50th
percentile of Territorial Savings Bank’s peer groups, calculated at a holding
company consolidated level. For the second half of 2009, Amalfi
Consulting, LLC provided peer group information that was published in earnings
releases and other publicly available information as of February 23, 2010,
resulting in certain peer group information that was not yet publicly available
being excluded from the calculation of the performance ranges. Performance goals are
calculated at a threshold, target
and
maximum achievement level. No award is paid if actual results are
below the threshold level. For 2009, the Compensation Committee
reviewed peer groups information weighted as follows: Coast Peer
Group - 40%, Loan Composition Peer Group - 30% and OTS Peer Group -
30%. Peer group information was calculated for both financial
institution-only performance and for holding company performance, allocated to
reflect that we were in the holding company structure for only a portion of the
year.
These
weightings resulted in the following performance ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank-only
Return on Assets for First Six
|
|
|
0.43 |
% |
|
|
0.50 |
% |
|
|
0.58 |
% |
Months
of 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank-only
Return on Equity for First Six
|
|
|
3.05 |
% |
|
|
3.59 |
% |
|
|
4.13 |
% |
Months
of 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Return on Assets for
|
|
|
0.32 |
% |
|
|
0.38 |
% |
|
|
0.44 |
% |
Second
Six Months of 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Territorial
Savings Bank’s return on assets and return on equity for the first six months of
2009 were 0.80% and 8.61%, respectively, and Territorial Bancorp Inc.’s
consolidated return on assets for the second six months of 2009 was
0.54%. Therefore, our Compensation Committee awarded $280,684,
$98,894 and $98,894 to Messrs. Kitagawa, Hirata and Nakatsuka,
respectively. These amounts represent the maximum amount
payable for this portion of the bonus (35% of base salary for Messrs. Kitagawa,
Hirata and Nakatsuka, respectively).
In 2008,
Territorial Savings Bank also paid the maximum bonus to Messrs. Kitagawa, Hirata
and Nakatsuka under this portion of the Executive Incentive Compensation Plan,
which was 35% of their 2008 base salary.
For 2010,
it is expected that this portion of the cash incentive award will be based only
on a return on assets target, which will continue to be established at the
50th
percentile of Territorial Savings Bank’s peer group, calculated for holding
company performance.
For 2009,
Messrs. Kitagawa, Hirata and Nakatsuka were eligible to earn a bonus up to 21%
of base salary by meeting each of the following non-financial goals (with a
maximum bonus of 10.5% of salary for meeting each of the following
goals):
|
·
|
successful
completion of Territorial Mutual Holding Company’s mutual-to-stock
conversion; and
|
|
·
|
achieving
actions outlined for 2009 in our interest rate risk reduction
plan. Specifically, the improvement of Territorial Savings
Bank’s interest rate risk position by one classification according to
calculations provided by the Office of Thrift Supervision on a quarterly
basis (which is one component of an interest rate classification
established by an Office of Thrift Supervision regulatory examination
report).
|
The
Compensation Committee determined that each of these goals was
met. Based on this performance, our Compensation Committee awarded
$168,410, $59,337 and $59,337 to
Messrs.
Kitagawa, Hirata and Nakatsuka, respectively. These amounts represent
the maximum amount payable for this portion of the bonus (21% of base salary for
Messrs. Kitagawa, Hirata and Nakatsuka, respectively).
In 2008,
Territorial Savings Bank also paid the maximum bonus to Messrs. Kitagawa, Hirata
and Nakatsuka under this portion of the Executive Incentive Compensation Plan,
which was 21% of their 2008 base salary.
For 2010,
non-financial goals will consist of achieving actions outlined for 2010 in our
interest rate risk reduction plan (which would be maintaining our current
interest rate risk classification according to calculations provided by the
Office of Thrift Supervision on a quarterly basis) and conducting the testing of
internal controls by year-end 2010 as required by the Sarbanes-Oxley Act of
2002.
For 2009,
long-term goals consisted of achieving a three-year average return on assets
with a target equal to the 50th
percentile of Territorial Savings Bank’s peer group over the same three-year
period, and includes performance goals at a threshold, target and maximum
achievement level. No award is paid if actual results are below the
threshold level. Threshold, target and maximum achievement levels are
based upon peer group information, and the peer groups were weighted in the same
manner as described above for determining return on assets and return on equity
targets, including an allocation for 2009 for both financial institution-only
performance and for holding company performance, which resulted in the following
range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on Assets
|
|
|
0.37 |
% |
|
|
0.44 |
% |
|
|
0.51 |
% |
Territorial
Savings Bank’s three-year average return on assets for 2007, 2008 and 2009 was
0.69%. Based on this performance, which exceeded the maximum target
for 2009, our Compensation Committee awarded $112,274, $39,558 and $39,558 to
Messrs. Kitagawa, Hirata and Nakatsuka, respectively. These amounts
represent the maximum amount payable for this portion of the bonus (14% of base
salary for Messrs. Kitagawa, Hirata and Nakatsuka, respectively).
In 2008,
Territorial Savings Bank also paid the maximum bonus to Messrs. Kitagawa, Hirata
and Nakatsuka under this portion of the Executive Incentive Compensation Plan,
which was 14% of their 2008 base salary.
For 2009
return on assets, the Compensation Committee adjusted the return on assets to
reflect prior reductions for other-than-temporary impairment charges for trust
preferred securities, which charges were recognized in two different years
because of changes in accounting rules.
The
Compensation Committee has determined that the terms of the Executive Incentive
Compensation Plan are appropriate in comparison to the bonuses paid to employees
with the same position at comparable organizations, as reported in publicly
available salary surveys, as well as in the 2009 Amalfi Consulting Survey that
was specifically prepared for us. The
Compensation
Committee also considers the overall market for executive officer level
positions at publicly held businesses located in Hawaii. Cash bonuses
paid under the Executive Incentive Compensation Plan are approved by the
Compensation Committee.
Discretionary
Cash Bonuses. Messrs. Miyamoto and Lau are eligible to receive
an annual cash bonus, the amount of which is discretionary and is not determined
by a written cash bonus plan. Messrs. Kitagawa, Hirata and Nakatsuka
do not receive any discretionary cash bonuses. The amount of the
bonuses paid for 2009 to Messrs. Miyamoto and Lau are included in the Summary
Compensation Table in the column labeled “Bonus.” These discretionary
cash bonuses are recommended by the President and Chief Executive Officer and
approved by the Compensation Committee. The President and Chief
Executive Officer’s recommendation was based on subjective consideration of each
of these senior executive’s contribution to our organization, and was not based
on a formula or other pre-established criteria.
Peer Group
Information. A peer group survey prepared for us in 2007
contained data from four peer groups that we use as a reference to assess our
competitive position with respect to the overall compensation paid to Messrs.
Kitagawa, Hirata and Nakatsuka. For 2009, we used this 2007 peer
group, revised only to reflect financial institutions that were no longer
operating entities, either due to mergers or otherwise. This survey
utilized data from the following peer groups of $1 billion to $5 billion in
assets:
|
·
|
an
Office of Thrift Supervision peer group that consists of 27
organizations,
|
|
·
|
a
coast peer group, that consists of banks that are located on either the
east or west coast (consisting of 14 institutions, which are a sub-set of
the OTS peer group),
|
|
·
|
a
loan composition peer group, comprised of financial institutions that have
the highest concentration of loans secured by residential real estate and
consumer loans (consisting of 14 institutions, which are a sub-set of the
OTS peer group), and
|
|
·
|
Hawaiian
public organizations, that consists of 11 publicly traded organizations
located in Hawaii.
|
The coast
peer group consisted of the following institutions:
Boston
Private Financial Holdings, Inc.
|
Kearny
Financial Corp. (MHC)
|
Brookline
Bancorp, Inc.
|
OceanFirst
Financial Corp.
|
Charter
Financial Corporation (MHC)
|
Provident
Financial Holdings, Inc.
|
Dime
Community Bancshares, Inc.
|
Provident
New York Bancorp
|
First
Financial Holdings, Inc.
|
TrustCo
Bank Corp NY
|
Flushing
Financial Corporation
|
United
Financial Bancorp, Inc.
|
Harrington
West Financial Bancorp, Inc.
|
WSFS
Financial Corporation
|
The loan
composition peer group consisted of the following institutions:
Bank
Mutual Corporation
|
OceanFirst
Financial Corp.
|
Boston
Private Financial Holdings, Inc.
|
Provident
Financial Holdings, Inc.
|
Brookline
Bancorp, Inc.
|
Provident
New York Bancorp
|
Charter
Financial Corporation (MHC)
|
Pulaski
Financial Corp.
|
First
Financial Holdings, Inc.
|
TrustCo
Bank Corp. NY
|
First
Place Financial Corp.
|
United
Financial Bancorp, Inc.
|
Kearny
Financial Corp. (MHC)
|
ViewPoint
Financial Group (MHC)
|
The
Office of Thrift Supervision peer group consisted of the following
institutions:
Anchor
BanCorp Wisconsin Inc.
|
Kearny
Financial Corp. (MHC)
|
BankFinancial
Corporation
|
NASB
Financial, Inc.
|
Bank
Mutual Corporation
|
OceanFirst
Financial Corp.
|
Boston
Private Financial Holdings, Inc.
|
Provident
Financial Holdings, Inc.
|
Brookline
Bancorp, Inc.
|
Provident
New York Bancorp
|
CFS
Bancorp, Inc.
|
Pulaski
Financial Corp.
|
Charter
Financial Corporation (MHC)
|
Superior
Bancorp
|
Dime
Community Bancshares, Inc.
|
TierOne
Corporation
|
First
Defiance Financial Corp.
|
TrustCo
Bank Corp NY
|
First
Financial Holdings, Inc.
|
United
Financial Bancorp, Inc.
|
First
Place Financial Corp.
|
United
Western Bancorp, Inc.
|
Flushing
Financial Corporation
|
ViewPoint
Financial Group (MHC)
|
Harrington
West Financial Group, Inc.
|
WSFS
Financial Corporation
|
HMN
Financial, Inc.
|
|
The
Hawaiian public organization peer group consisted of the following
institutions:
Alexander
& Baldwin, Inc.
|
Hawaiian
Holdings, Inc.
|
Bank
of Hawaii Corp.
|
Hawaiian
Telcom Communications, Inc.
|
Barnwell
Industries
|
Hoku
Scientific, Inc.
|
Central
Pacific Financial Corp.
|
Maui
Land & Pineapple Co.
|
Cyanotech
Corp.
|
MI
Macadamia Orchards -LP
|
Hawaiian
Electric Industries
|
|
Employment
Agreements. We maintain employment agreements with Messrs.
Kitagawa, Hirata and Nakatsuka, which provide severance payments in the event of
involuntary or good reason termination of employment or termination following a
change in control. The rationale for providing these payments is to
provide security for our key executives and stability among our senior
management team. For a discussion of these agreements and the
payments that would be received by the named executive officers under certain
scenarios with respect to those agreements, see “—Employment Agreements”
below.
Retirement
Plans and Other Benefits
401(k)
Plan. We
also provide all of our employees, including our named executive officers, with
tax-qualified retirement benefits through our 401(k) plan. All
employees who meet the age and service requirements may participate in the
401(k) plan on a non-discriminatory
basis. We
provide a 401(k) match equal to at least 5% of a participant’s salary deferral
and we may exercise our discretion to increase the amount of the
match.
Employee Stock
Ownership Plan. In connection with our stock offering, we
implemented an employee stock ownership plan (“ESOP”), using the proceeds of a
loan from Territorial Bancorp Inc. to purchase Territorial Bancorp Inc. common
stock pursuant to applicable regulatory guidelines. The ESOP provides
our employees with additional retirement savings in the form of our common stock
and encourages employee ownership in Territorial Bancorp Inc. See
“—Tax-Qualified Benefit Plans—Employee Stock Ownership Plan” for further
description of the terms of the employee stock ownership plan.
Supplemental
Employee Stock Ownership Plan. Territorial Savings Bank
adopted the Supplemental Employee Stock Ownership Plan (“Supplemental ESOP”)
effective January 1, 2009 to provide certain executives with benefits that they
otherwise would be entitled to under the tax-qualified ESOP, but for limitations
imposed by the Internal Revenue Code. During 2009, three employees
participated in the Supplemental ESOP. The Compensation Committee of
the Board of Directors of Territorial Savings Bank administers the Supplemental
ESOP. Each year, participants in the Supplemental ESOP are credited
with a dollar amount equal to the difference between the value of the shares of
Territorial Bancorp Inc. common stock that would have been allocated to the
participant under the tax-qualified ESOP, but for the limitations imposed by the
Internal Revenue Code, and the actual value of shares of Territorial Bancorp
Inc. common stock allocated to the participant under the ESOP for the relevant
plan year. Participants in the Supplemental ESOP may direct the
investment of their Supplemental ESOP accounts among a select group of broadly
diversified mutual funds selected by the Compensation
Committee. Benefits are generally payable in a cash lump sum within
90 days of the first to occur of (i) the participant’s separation from service;
(ii) the participant’s death; (iii) the participant’s disability; or (iv) a
change in control of Territorial Savings Bank or Territorial Bancorp Inc., but,
in order to comply with Section 409A of the Internal Revenue Code, payments will
be delayed for six months for any “specified employee” (as defined in Section
409A of the Internal Revenue Code).
Supplemental
Executive Retirement Agreement. We provide supplemental
executive retirement benefits for Messrs. Kitagawa, Hirata and
Nakatsuka. We provide these retirement benefits in order to remain
competitive and to attract and retain these executive officers. See
“—Pension Benefits — Supplemental Executive Retirement Agreements” for further
description of the terms of the agreements.
Perquisites. We offer various fringe
benefits to all of our employees, including our named executive officers,
including group policies for medical insurance. We provide individual
coverage to employees, with the employee being responsible for a portion of the
premium. Our named executive officers are provided with an automobile
or automobile allowance, life insurance, long-term care insurance and long-term
disability insurance. In addition, for some of our named executive
officers (Messrs. Kitagawa, Hirata and Nakatsuka) we pay club dues and provide
cellular phone reimbursement and spousal travel. The Compensation
Committee believes these benefits are appropriate and assist these officers in
fulfilling their employment obligations.
Pension
Plan. In 2008, we froze our tax-qualified defined benefit plan
such that no further benefit accruals will be earned after December 31, 2008;
however, participants will continue to earn vesting credit. We made
this change because many of our peer banks have also frozen or terminated their
defined benefit pension plans, and we have found that a 401(k) plan is a more
attractive retirement vehicle in recruiting employees.
Tax and
Accounting Implications. In consultation with our advisors, we
evaluate the tax and accounting treatment of each of our compensation programs
at the time of adoption and on an annual basis to ensure that we understand the
financial impact of the program. Our analysis includes a detailed
review of recently adopted and pending changes in tax and accounting
requirements. As part of our review, we consider modifications and/or
alternatives to existing programs to take advantage of favorable changes in the
tax or accounting environment or to avoid adverse consequences. To
preserve maximum flexibility in the design and implementation of our
compensation program, we have not adopted a formal policy that requires all
compensation to be tax deductible. However, to the greatest extent
possible, it is our intent to structure our compensation programs in a tax
efficient manner.
Review of Risk
Related to Compensation Policies and Procedures. The
Compensation Committee of the Board of Directors is responsible for the
oversight of employee compensation policies and procedures, including the
determination of whether any material risk is imposed on Territorial Bancorp
Inc. from our compensation policies and procedures. The Compensation
Committee has reviewed our compensation policies and procedures, including those
related to the payment of commissions and bonuses, and believes that any risks
arising from our compensation policies and practices for our employees are not
reasonably likely to have a material adverse effect on Territorial Bancorp Inc.
and Territorial Savings Bank.
Executive
Officer Compensation
Summary
Compensation Table. The table below summarizes the total
compensation paid to or earned by our named executive officers for the years
ended December 31, 2009, 2008 and 2007.
Name and principal
position
|
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive Plan
Compensation (3)
|
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
S. Kitagawa
|
|
2009
|
|
$ |
801,954 |
|
|
$ |
— |
|
|
$ |
561,368 |
|
|
$ |
716,517 |
|
|
$ |
147,489 |
(5) |
|
$ |
2,227,328 |
|
Chairman
of the Board,
|
|
2008
|
|
|
766,080 |
|
|
|
— |
|
|
|
527,436 |
|
|
|
661,907 |
|
|
|
22,297 |
|
|
|
1,977,720 |
|
President
and Chief
|
|
2007
|
|
|
738,800 |
|
|
|
— |
|
|
|
152,880 |
|
|
|
613,212 |
|
|
|
25,508 |
|
|
|
1,530,400 |
|
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
M. Miyamoto
|
|
2009
|
|
$ |
130,208 |
|
|
|
45,572 |
|
|
|
— |
|
|
|
33,945 |
|
|
|
34,794 |
(6) |
|
|
244,519 |
|
Senior
Vice President and
|
|
2008
|
|
|
123,073 |
|
|
|
37,560 |
|
|
|
— |
|
|
|
33,945 |
|
|
|
19,395 |
|
|
|
213,973 |
|
Treasurer
(principal
|
|
2007
|
|
|
118,619 |
|
|
|
14,513 |
|
|
|
— |
|
|
|
31,621 |
|
|
|
19,713 |
|
|
|
184,466 |
|
financial
officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vernon
Hirata
|
|
2009
|
|
$ |
282,555 |
|
|
|
— |
|
|
|
197,789 |
|
|
|
158,035 |
|
|
|
67,464 |
(7) |
|
|
705,843 |
|
Vice
Chairman,
|
|
2008
|
|
|
269,100 |
|
|
|
— |
|
|
|
188,370 |
|
|
|
123,912 |
|
|
|
23,662 |
|
|
|
605,044 |
|
Co-Chief
Operating
|
|
2007
|
|
|
260,000 |
|
|
|
— |
|
|
|
54,600 |
|
|
|
169,589 |
|
|
|
26,200 |
|
|
|
510,389 |
|
Officer,
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph
Y. Nakatsuka
|
|
2009
|
|
$ |
282,555 |
|
|
|
— |
|
|
|
197,789 |
|
|
|
123,766 |
|
|
|
62,570 |
(8) |
|
|
666,680 |
|
Vice
Chairman and
|
|
2008
|
|
|
269,100 |
|
|
|
— |
|
|
|
188,370 |
|
|
|
111,820 |
|
|
|
16,985 |
|
|
|
586,275 |
|
Co-Chief
Operating
|
|
2007
|
|
|
121,333 |
|
|
|
— |
|
|
|
54,600 |
|
|
|
— |
|
|
|
12,792 |
|
|
|
188,725 |
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
K.C. Lau
|
|
2009
|
|
$ |
152,776 |
|
|
|
45,832 |
|
|
__
|
|
|
|
55,128 |
|
|
|
40,836 |
(9) |
|
|
294,572 |
|
Senior
Vice President and
|
|
2008
|
|
|
144,057 |
|
|
|
44,070 |
|
|
|
— |
|
|
|
49,375 |
|
|
|
20,695 |
|
|
|
258,197 |
|
Chief
Lending Officer
|
|
2007
|
|
|
138,752 |
|
|
|
16,946 |
|
|
|
— |
|
|
|
44,343 |
|
|
|
19,826 |
|
|
|
219,867 |
|
(footnotes
begin on following page)
(footnotes
from previous page)
(1)
|
For
Mr. Kitagawa, includes fees relating to service as Chairman of the
Board. Mr. Nakatsuka was hired on July 12, 2007 and his annual
base salary for 2007 was $260,000.
|
(2)
|
The
amounts in this column represent discretionary cash
bonuses.
|
(3)
|
The
amounts in this column represent the dollar value of the cash bonus
incentives earned under the executive incentive compensation
plan.
|
(4)
|
For
2009, the amounts in this column for Mr. Kitagawa represent a change in
value of $65,529 for the pension plan, $618,722 for the supplemental
executive retirement agreement and $32,266 for above-market earnings
(defined for these purposes as the difference between 7%, which is the
annual amount of interest paid on the deferred account balances, and
5.02%, which is 120% of the applicable federal long-term rate), for Mr.
Miyamoto a change in value of $33,945 for the pension plan, for Mr. Hirata
a change in value of $53,796 for the pension plan, $98,338 for the
supplemental executive retirement agreement and $5,901 for above-market
earnings, for Mr. Nakatsuka a change in value of $1,939 for the pension
plan, $121,827 for the supplemental executive retirement agreement and $0
for above-market earnings and for Mr. Lau a change in value of
$55,128 for the pension plan. For 2008, the amounts
in this column for Mr. Kitagawa represent a change in value of $65,529 for
the pension plan, $571,249 for the supplemental executive retirement
agreement and $25,129 for above-market earnings (defined for these
purposes as the difference between 7%, which is the annual amount of
interest paid on the deferred account balances, and 5.35%, which is 120%
of the applicable federal long-term rate), for Mr. Miyamoto a change in
value of $33,945 for the pension plan, for Mr. Hirata a change in value of
$53,796 for the pension plan, $65,520 for the supplemental executive
retirement agreement and $4,596 for above-market earnings, for Mr.
Nakatsuka a change in value of $1,939 for the pension plan, $109,881 for
the supplemental executive retirement agreement and $0 for above-market
earnings and for Mr. Lau a change in value of $49,375 for the
pension plan. For 2007, the amounts in this column for Mr. Kitagawa
represent a change in value of $61,695 for the pension plan, $550,032 for
the supplemental executive retirement agreement and $1,485 for
above-market earnings (defined for these purposes as the difference
between 7%, which is the annual amount of interest paid on the deferred
account balances, and 5.51%, which is 120% of the applicable federal
long-term rate), for Mr. Miyamoto a change in value of $31,621 for the
pension plan, for Mr. Hirata a change in value of $49,962 for the pension
plan, $119,355 for the supplemental executive retirement agreement and
$272 for above-market earnings and for Mr. Lau a change in value of
$44,343 for the pension plan. Mr. Miyamoto and Mr. Lau do not
participate in a supplemental executive retirement
agreement.
|
(5)
|
Includes
$1,660 for 401(k) plan matching contributions, $1,533 for long-term care
premiums, $4,465 for health insurance premiums, $1,323 for long-term
disability insurance premiums, $755 for basic life insurance premiums,
$2,612 for personal use of company automobile, $9,453 for club dues and
fees, $1,339 for cell phone reimbursement, $3,774 for spousal travel
expense, $22,146 for ESOP allocations, and $98,429 for non-qualified
supplemental ESOP allocations.
|
(6)
|
Includes
$1,660 for 401(k) plan matching contributions, $772 for long-term care
premiums, $4,465 for health insurance premiums, $631 for long-term
disability insurance premiums, $505 for basic life insurance premiums,
$7,200 for automobile allowance, $3,600 for parking, and $15,961 for ESOP
allocations.
|
(7)
|
Includes
$1,660 for 401(k) plan matching contributions, $1,195 for long-term care
premiums, $3,167 for health insurance premiums, $1,323 for long-term
disability insurance premiums, $755 for basic life insurance premiums,
$12,410 for personal use of company automobile, $1,572 for club dues and
fees, $1,008 for cell phone reimbursement, $1,730 for spousal travel
expense, $22,146 for ESOP allocations, and $20,498 for non-qualified
supplemental ESOP allocations.
|
(8)
|
Includes
$1,660 for 401(k) plan matching contributions, $1,231 for long-term care
premiums, $6,312 for health insurance premiums, $1,323 for long-term
disability insurance premiums, $755 for basic life insurance premiums,
$2,589 for personal use of company automobile, $3,571 for club dues and
fees, $540 for cell phone reimbursement, $1,781 for spousal travel
expense, $22,146 for ESOP allocations, and $20,662 for non-qualified
supplemental ESOP allocations.
|
(9)
|
Includes
$1,660 for 401(k) plan matching contributions, $1,185 for long-term care
premiums, $4,465 for health insurance premiums, $741 for long-term
disability insurance premiums, $379 for basic life insurance premiums,
$7,200 for automobile allowance, $4,500 for parking, $1,967 for club dues
and fees and $18,739 for ESOP
allocations.
|
Plan-Based
Awards. The following
table sets forth for the year ended December 31, 2009 certain information as to
grants of plan-based awards for the named executive officers under the terms of
the Executive Incentive Compensation Plan. For the year ended
December 31, 2009, payments were paid in February 2010 in the amounts listed in
the “Summary Compensation Table.” For a discussion of this plan, see
“Compensation Discussion and Analysis—Cash Bonuses under our Executive Incentive
Compensation Plan” and “Executive Officer Compensation—Executive Incentive
Compensation Plan.”
|
|
|
|
|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
S. Kitagawa
|
|
(1) |
|
|
$ |
— |
|
|
$ |
280,683 |
|
|
$ |
561,368 |
|
Melvin
M. Miyamoto
|
|
― |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vernon
Hirata
|
|
(1) |
|
|
|
— |
|
|
|
98,894 |
|
|
|
197,789 |
|
Ralph
Y. Nakatsuka
|
|
(1) |
|
|
|
— |
|
|
|
98,894 |
|
|
|
197,789 |
|
Richard
K.C. Lau
|
|
― |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
_______________
(1)
|
On
an annual basis, Messrs. Kitagawa, Hirata and Nakatsuka are eligible to
receive incentive cash bonuses under the Executive Incentive Compensation
Plan. Mr. Miyamoto and Mr. Lau do not participate in the
plan.
|
Employment
Agreements. Territorial Savings Bank has entered into separate
employment agreements with Messrs. Kitagawa, Hirata and Nakatsuka (referred to
below as the “executives” or “executive”). Upon completion of the
conversion, Territorial Bancorp Inc. entered into separate employment agreements
with each executive, which have essentially identical provisions as the
Territorial Savings Bank agreements, except that the employment agreements will
provide that Territorial Bancorp Inc. will make any payments not made by
Territorial Savings Bank under its agreements with the executives and that the
executives will not receive any duplicate payments. Our continued
success depends to a significant degree on the skills and competence of these
officers, and the employment agreements are intended to ensure that we maintain
a stable management base following the offering. The discussion below
addresses the employment agreements for each executive with Territorial Savings
Bank and Territorial Bancorp Inc.
The
employment agreements each provide for three-year terms, subject to annual
renewal by the Board of Directors for an additional year beyond the then-current
expiration date. The 2009 base salaries under the employment
agreements are $801,954 for Mr. Kitagawa, $282,555 for Mr. Hirata and
$282,555 for Mr.
Nakatsuka. The agreements also provide for participation in employee
benefit plans and programs maintained for the benefit of senior management
personnel, including discretionary bonuses, participation in stock-based benefit
plans, and certain fringe benefits as described in the agreements.
Upon
termination of an executive’s employment for cause, as defined in each of the
agreements, the executive will receive no further compensation or benefits under
the agreement. If we terminate the executive for reasons other than
for cause or if the executive terminates voluntarily under specified
circumstances that constitute constructive termination, the executive will
receive an amount equal to the base salary and cash bonus and employer
contributions to benefit plans that would have been payable for the remaining
term of the agreement. We will also continue to pay for each
executive’s life, health and dental coverage for up to three years, with the
executive responsible for his share of the employee premium.
If the
executive terminates employment for any reason other than for cause within 12
months following a change in control, the executive will receive the greater of
(a) the amount he would have received if we terminated the executive for a
reason other than for cause or if the executive voluntarily terminated under
specified circumstances that constitute constructive termination (as described
in the immediately preceding paragraph), or (b) three times his prior five-year
average of taxable compensation less one dollar. We will also
continue to pay for each executive’s life, health and dental coverage for up to
three years, with the executive responsible for his share of the employee
premium.
Upon
termination of employment (other than a termination in connection with a change
in control), each executive will be required to adhere to a one-year
non-competition provision. The executive will be required to release
us from any and all claims in order to receive any payments and benefits under
their agreements. We will agree to pay all reasonable costs and legal
fees of the executives in relation to the enforcement of the employment
agreements, provided the executives succeed on the merits in a legal judgment,
arbitration proceeding or settlement. The employment agreements also
provide for indemnification of the executives to the fullest extent legally
permissible.
Separation Pay
Plan. The
Territorial Savings Bank Separation Pay Plan provides severance benefits to
eligible employees whose employment is involuntarily terminated within 24 months
after a change in control of Territorial Bancorp Inc. All regular
employees who do not receive severance pay under an employment or change in
control agreement are participants in this plan. Terminated employees
will receive a severance payment of one month of base compensation for each year
of service, up to a maximum of 24 months of base compensation, and employees who
are at the level of Senior Vice President or above will receive a minimum
severance payment of 12 months of base compensation. In addition,
terminated employees who are at the level of senior vice president and above
will also be eligible to continue to participate in our health insurance plan
for up to one year, with the employee responsible for his share of the employee
premium.
Executive
Incentive Compensation Plan. Territorial Savings Bank maintains the
Executive Incentive Compensation Plan (the “EICP”). Messrs. Kitagawa,
Hirata and Nakatsuka are currently the only participants in the
EICP. The purpose of the EICP is to provide structured annual bonuses
to key management personnel for their contributions to the achievement of
strategic organizational objectives of Territorial Savings Bank. The
participants’ bonuses are determined based on bank-wide performance measures,
non-financial goals and Territorial Savings Bank’s long-term
performance. For 2009, the bank-wide performance measures are based
on Territorial Savings Bank’s return on assets and return on
equity. The amount of the bonus for the participants is the sum of
the bank-wide performance measures, non-financial goals and Territorial Savings
Bank’s long-term performance. The amount of bonus awarded shall be
determined as a percentage of the participants’ base salary, where such
percentage shall, for 2009, not exceed 70% of base salary, and beginning in
2010, 100% of base salary. At the end of each fiscal year, the
Compensation Committee will calculate each participant’s
award. Bonuses, if any, are paid in a single cash lump sum
distribution within 75 days of the close of the fiscal year or as soon as the
performance data is available to compute the amount of the
awards.
Pension
Benefits
The
following table sets forth the actuarial present value of each named executive
officer’s accumulated benefit under our pension plan, along with the number of
years of credited service, and for Messrs. Kitagawa, Hirata, and Nakatsuka, the
value of their benefits in each of their supplemental executive retirement
agreements.
Pension Benefits At And For The Year Ended
December 31, 2009
|
|
|
|
|
Number of Years
Credited Service
|
|
Present Value of
Accumulated
Benefit (1)
|
|
Payments During
Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
S. Kitagawa
|
|
Pension
Plan
|
|
|
22 |
|
|
$ |
685,287 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Executive
|
|
|
N/A |
|
|
|
5,384,722 |
|
|
|
— |
|
|
|
Retirement
Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
M. Miyamoto
|
|
Pension
Plan
|
|
|
25 |
|
|
|
206,583 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vernon
Hirata
|
|
Pension
Plan
|
|
|
22 |
|
|
|
347,693 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Executive
|
|
|
N/A |
|
|
|
621,950 |
|
|
|
— |
|
|
|
Retirement
Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph
Y. Nakatsuka
|
|
Pension
Plan
|
|
|
2 |
|
|
|
10,461 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Executive
|
|
|
N/A |
|
|
|
231,708 |
|
|
|
— |
|
|
|
Retirement
Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
K.C. Lau
|
|
Pension
Plan
|
|
|
26 |
|
|
|
546,866 |
|
|
|
— |
|
___________________
(1)
|
Present
value of accumulated benefits under the pension plan and the supplemental
executive retirement agreement as of December 31, 2009, determined using
interest rate and mortality rate assumptions consistent with those used
for our financial reporting purposes, assuming that the executive’s normal
retirement age is his retirement date. The valuation method and
all material assumptions applied in quantifying the present value of the
current accrued benefit are set forth in the footnotes to the consolidated
financial statements.
|
Pension
Plan. Territorial Savings Bank
sponsors the Territorial Savings Bank Employee Retirement Plan, a defined
benefit pension plan that covers substantially all of our
employees. Employees become eligible for participation in the pension
plan on the first day of the calendar month on or after completing one year of
service and attaining age 21. Effective December 31, 2008, the
pension plan was frozen, such that no further benefit accruals will be earned
after that date; however, participants will continue to earn vesting
credit.
Participants
in the pension plan become fully vested in their retirement benefits upon
completion of five years of service. They also become 100% vested
upon attaining age 65 or upon death. A participant who terminates
employment on or after reaching age 65 is entitled to the full retirement
benefit. A participant’s normal retirement benefit is generally based
on a formula that takes into account the amount credited under the pension plan
for service before January 1, 1984 and the amount credited under the pension
plan for service from 1984 to 1998 and the amount credited from 1998 to 2008, as
well as salary and certain other compensation. The plan does not
grant additional years of service for any purpose.
The
pension plan permits early retirement at age 55. Participants who
retire after age 65 will be entitled to the full amount of their benefit,
generally calculated through their late retirement date. Eligible
participants who elect an early retirement benefit will receive a reduced normal
retirement benefit. As of December 31, 2009, each named executive
officer was eligible for early retirement, and Mr. Lau was eligible for normal
retirement.
The
normal form of retirement for participants who are not married is a single life
annuity. The normal form of retirement benefit for participants who
are married is a 50% joint and survivor annuity. Other optional forms
of benefit are available, such as an early retirement benefit, and all optional
forms of benefit are the actuarial equivalent of the normal form (e.g., a
participant does not receive more or less by selecting an optional form of
benefit). In the event of the participant’s death, benefits normally
will be paid to the participant’s spouse unless the spouse consents to an
alternative beneficiary in writing. In the event of death any time
after a participant is vested or eligible for a pension benefit, provided the
participant has been married for at least one year and provided that benefits
have not commenced at the time of death, the participant’s spouse may either
receive the full benefit when the participant would have reached age 65 or
receive a reduced benefit anytime after the deceased participant would have
attained age 55.
For the
2009 plan year, we made no contributions to the pension plan.
Supplemental
Executive Retirement Agreements. We have entered into a
supplemental executive retirement agreement with each of Messrs. Kitagawa,
Hirata and Nakatsuka. Under Mr. Kitagawa’s agreement, the executive
is entitled to receive an amount equal to the present value of $600,000 per year
for 15 years payable in a lump sum on the first day of the month upon retirement
after attaining age 66. Under the agreements with Messrs. Hirata and
Nakatsuka, the executive will receive an annual benefit upon retirement after
age 66 equal to 65% of the average of his compensation for the three years
immediately preceding his termination of employment reduced by the sum of the
benefits payable under the pension plan and Social Security
benefits. Mr. Hirata’s benefits will be paid in monthly installments
for 15 years and Mr. Nakatsuka will receive a lump sum.
Each
executive may also retire early, before attaining age 66, and receive a reduced
benefit. Mr. Kitagawa will receive the amount accrued for accounting
purposes as of the end of the calendar year before his termination of
employment, payable in a lump sum. Messrs. Hirata’s and Nakatsuka’s
benefits are reduced by a fraction, the numerator of which is completed years of
service and the denominator of which is the executive’s potential years of
service if he had remained employed until age 66, with such benefits paid by
lump sum for Mr. Nakatsuka and in installments for Mr. Hirata over 15
years.
For Mr.
Kitagawa, if his employment is terminated within three years following a change
in control, he will receive his normal retirement benefit. Messrs.
Hirata and Nakatsuka will each receive 65% of their final average compensation
projected to age 66, without any reduction for amounts payable under the pension
plan or Social Security. All amounts are paid as a lump sum except
Mr. Hirata will receive installments for 15 years. The agreements
contain change of control “tax gross up” provisions such that if a payment to
any of the three executives exceeds the limit on such payments pursuant to
Internal Revenue Code Section 280G, and thereby
imposes
an excise tax on the officer, Territorial Savings Bank, or its successor, will
pay such executive additional amounts to compensate for the excise
tax.
In the
event of disability or death, Messrs. Hirata and Nakatsuka will receive the same
benefit as if they had terminated employment following a change in
control. Upon death, Mr. Kitagawa will receive a lump-sum payment
equal to the present value of his projected normal retirement benefit and upon
disability Mr. Kitagawa will receive a lump sum equal to the amount accrued for
accounting purposes under the plan.
No
benefits are payable in the event of a termination for cause.
Nonqualified
Deferred Compensation Plans
The
following table provides information with respect to each nonqualified deferred
compensation plan in which the named executive officers participated in
2009.
Nonqualified Deferred Compensation At And For The
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Contributions
in Last Fiscal
Year
|
|
|
Registrant
Contributions
in Last Fiscal
Year
|
|
|
Aggregate
Earnings in
Last Fiscal
Year (1)
|
|
|
Aggregate
Withdrawals/
Distributions
|
|
|
Aggregate
Balance at Last
Fiscal Year End
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
S.
|
|
Executive
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kitagawa
|
|
Incentive Agreement
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
114,072 |
|
|
$ |
— |
|
|
$ |
1,743,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vernon
|
|
Executive
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hirata
|
|
Incentive Agreement
|
|
|
— |
|
|
|
— |
|
|
|
20,861 |
|
|
|
— |
|
|
|
318,888 |
|
________________________
(1)
|
The
amounts in this column include above-market earnings for the executive
deferred incentive agreements in the amount of $32,266 and $5,901 for
Messrs. Kitagawa and Hirata, respectively, which amounts have been
reported as compensation for the year ended December 31, 2009 in the
Summary Compensation Table. The account balances accrue
interest at the rate of 7% per year. We ceased making
contributions to the agreements for calendar years beginning after 2006
(other than the interest
crediting).
|
(2)
|
Amounts
attributed to above-market earnings have been reported as compensation for
the years ended December 31, 2009, 2008 and 2007 in the Summary
Compensation Table.
|
Executive
Deferred Incentive Agreement. We have entered into an
executive deferred incentive agreement with each of Mr. Kitagawa and Mr.
Hirata. Each agreement was frozen effective August 29,
2007. Before the agreements were frozen, each agreement provided for
the grant of annual cash awards equal to a specified percentage of base salary,
based on the attainment of established criteria. Payment of all
awards is deferred until the earlier of:
|
·
|
separation
from service within three years following a change in
control,
|
|
·
|
termination
due to disability, or
|
|
·
|
death,
when the executive will receive a lump
sum.
|
Potential
Payments on Termination or Change in Control
Assuming
that each of our named executive officers terminated employment as of December
31, 2009, they would be entitled to certain payments and
benefits. The following tables set forth payments that would have
been made to Messrs. Kitagawa, Hirata and Nakatsuka pursuant to their employment
agreements had their employment been terminated for the following reasons as of
December 31, 2009. No other named executive officer was a party to an
employment agreement as of December 31, 2009. There are no payments
or benefits payable solely on account of a change in control.
Allan
S. Kitagawa
|
|
Voluntary
Termination or
Retirement
|
|
|
Involuntary
Termination
|
|
|
Involuntary Termination
Without Cause or
Termination by the
Executive for
|
|
|
Change in Control
With Termination of
|
|
|
Termination Upon
Death (3)
|
|
|
Termination Upon
Disability (4)
|
|
Severance
Pay (1)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,026,126 |
|
|
$ |
4,139,309 |
|
|
$ |
131,828 |
|
|
$ |
373,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health,
Dental, Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Continuation (2)
|
|
|
— |
|
|
|
— |
|
|
|
15,474 |
|
|
|
15,474 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,041,600 |
|
|
$ |
4,154,783 |
|
|
$ |
131,828 |
|
|
$ |
373,891 |
|
Vernon
Hirata
|
|
Voluntary
Termination or
Retirement
|
|
|
Involuntary
Termination
|
|
|
Involuntary Termination
Without Cause or
Termination by the
Executive for
Good Reason
|
|
|
Change in Control
With Termination of
|
|
|
Termination Upon
Death (3)
|
|
|
Termination Upon
Disability (4)
|
|
Severance
Pay (1)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,826,991 |
|
|
$ |
1,013,256 |
|
|
$ |
46,447 |
|
|
$ |
2,722,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health,
Dental, Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Continuation (2)
|
|
|
— |
|
|
|
— |
|
|
|
11,634 |
|
|
|
11,634 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,838,625 |
|
|
$ |
1,024,890 |
|
|
$ |
46,447 |
|
|
$ |
2,722,535 |
|
Ralph
Y. Nakatsuka
|
|
Voluntary
Termination or
Retirement
|
|
|
Involuntary
Termination
|
|
|
Involuntary Termination
Without Cause or
Termination by the
Executive for
Good Reason
|
|
|
Change in Control
With Termination of
|
|
|
Termination Upon
Death(3)
|
|
|
Termination Upon
Disability(4)
|
|
Severance
Pay (1)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,687,673 |
|
|
$ |
799,887 |
|
|
$ |
46,447 |
|
|
$ |
3,855,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health,
Dental, Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Continuation (2)
|
|
|
— |
|
|
|
— |
|
|
|
21,027 |
|
|
|
21,027 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,708,700 |
|
|
$ |
820,914 |
|
|
$ |
46,447 |
|
|
$ |
3,855,698 |
|
(footnotes
begin on following page)
(footnotes from previous
page)
(1)
|
These
severance payments are payable if
the executive’s employment is terminated either (i) by Territorial Savings
Bank or Territorial Bancorp Inc. for any reason other than cause, death or
disability or (ii) by the executive if Territorial Savings Bank or
Territorial Bancorp Inc. takes certain adverse actions (a “good reason”
termination). The Involuntary Termination Without Cause or
Termination by the Executive for Good Reason column represents a lump sum
payment equal to the base salary and bonus and retirement benefits the
executive would have received for the remaining term of his employment
agreement, which is 2 years and 10 months for each of Messrs. Kitagawa,
Hirata and Nakatsuka. The Change in Control With Termination of
Employment column represents the greater of (a) the amount shown in the
Involuntary Termination Without Cause or Termination by the Executive for
Good Reason column, or (b) a lump sum payment equal to three times the
executive’s prior five-year average of taxable compensation less one
dollar, provided that the amount may not exceed three times the
executive’s average taxable income for the five years ended December 31,
2008 (the “280G Threshold”). The amounts in the Change in
Control With Termination of Employment column for Mr. Kitagawa are reduced
by $15,474, for Mr. Hirata are reduced by $11,634 and for Mr. Nakatsuka
are reduced by $21,027 due to the 280G Threshold. The amounts
are not discounted to present value. The severance payments are
lower if the termination of employment occurs concurrently with or
subsequent to a change in control due to the 280G
Threshold. The amounts shown in the above tables are based on
the terms of the amended Territorial Savings Bank employment agreements,
which were adopted on October 29, 2008, and the new Territorial Bancorp
Inc. employment agreements adopted on November 13,
2009.
|
(2)
|
Represents
the estimated cost of continuing medical, dental and life insurance
premiums for three years for each executive. The estimated
costs do not assume an increase in current premiums and the amounts have
not been discounted to present
value.
|
(3)
|
If
the executive’s employment is terminated due to death, the executive’s
beneficiaries or estate will receive an amount equal to sixty days of the
executive’s current base salary.
|
(4)
|
If
an executive’s employment is terminated due to disability, Mr. Kitagawa
would receive disability benefits of $83,087 per month, Mr. Hirata would
receive disability benefits of $29,433 per month and Mr. Nakatsuka would
receive disability benefits of $29,433 per month until they reach their
normal retirement age of 65. Territorial Savings Bank is
required to pay these monthly amounts, less the amount of monthly
disability income insurance benefits which are $15,000 for Mr. Kitagawa,
$15,000 for Mr. Hirata and $15,000 for Mr. Nakatsuka. The
Termination Upon Disability column represents the total amount of
disability benefits payable and the amount has not been discounted to
present value.
|
The above
table does not include the value of the benefits to be paid under the
supplemental employee retirement agreement in the event an executive terminates
employment due to early retirement, disability, change in control or death,
which had an estimated present value of $5,384,722 for early retirement and
$6,349,107 for disability, change in control and death for Mr. Kitagawa,
$519,649, $1,803,970, $1,803,970 and $2,775,338, respectively, for Mr. Hirata
and $146,689, $1,783,104, $1,783,104 and $2,743,237, respectively, for Mr.
Nakatsuka as of December 31, 2009. None of Mr. Kitagawa, Mr. Hirata
of Mr. Nakatsuka would have been entitled to a normal retirement benefit as of
December 31, 2009. Messrs. Kitagawa and Nakatsuka’s benefits are
payable by lump sum and Mr. Hirata’s benefits are payable over 15
years. The present value amounts shown for Mr. Hirata represent the
present value of the 15 years of payments to be made to him. In
addition, the above table does not include the value of the benefits to be paid
under the executive deferred incentive agreement in the event the executive
terminates employment due to normal or early retirement, disability, change in
control or death, which was $1,743,678 for Mr. Kitagawa and $318,888 for Mr.
Hirata. Mr. Nakatsuka does not participate in the executive deferred
incentive agreement.
Messrs.
Miyamoto and Lau would not have been entitled to any severance or continued
insurance coverage if their employment terminated as of December 31,
2009. Under our pension plan, Messrs. Miyamoto and Lau would have
been entitled to $2,829 and $4,594, respectively, if their employment terminated
as of December 31, 2009; under our long-term disability insurance plan, Messrs.
Miyamoto and Lau would have been entitled to $7,233 and $8,487, respectively, if
their employment terminated as of December 31, 2009; and under life insurance
policies, Messrs. Miyamoto and Lau would have been entitled to $196,000 and
$149,500, respectively, if their employment terminated as of December 31,
2009.
Tax-Qualified
Benefit Plans
Territorial
Savings Bank Profit Sharing and 401(k) Plan. We sponsor the
Territorial Savings Bank Profit Sharing and 401(k) Plan, a tax-qualified defined
contribution plan, for all employees who have satisfied the plan’s eligibility
requirements. Employees may begin deferring their compensation and
are eligible to receive matching contributions and profit sharing contributions
as of the first day of the month following the completion of 12 months of
employment during which they worked at least 1,000 hours. All
contributions are 100% vested.
Employee Stock
Ownership Plan. Effective January 1, 2009, Territorial Savings Bank
adopted an employee stock ownership plan for eligible
employees. Eligible employees who have attained age 21 and were
employed by us as of January 1, 2009 will begin participation in the employee
stock ownership plan on the later of the effective date of the employee stock
ownership plan or upon the first entry date commencing on or after the eligible
employee’s completion of 1,000 hours of service during a continuous 12-month
period.
The
employee stock ownership plan trustee purchased, on behalf of the employee stock
ownership plan, 978,650 shares of Territorial Bancorp Inc. common stock issued
in the offering. The employee stock ownership plan funded its stock
purchase with a loan from Territorial Bancorp Inc. equal to the aggregate
purchase price of the common stock. The loan will be repaid
principally through Territorial Savings Bank’s contribution to the employee
stock ownership plan and dividends payable on common stock held by the employee
stock ownership plan over the anticipated 20-year term of the
loan. The interest rate for the employee stock ownership plan loan is
an adjustable rate equal to the prime rate, as published in The Wall Street
Journal, which
adjusts annually.
The
trustee holds the shares purchased by the employee stock ownership plan in an
unallocated suspense account, and shares will be released from the suspense
account on a pro-rata basis as we repay the loan. The trustee will
allocate the shares released among participants on the basis of each
participant’s proportional share of compensation relative to all
participants. Participants become 100% vested upon the completion of
three years of service. Participants who were employed by Territorial
Savings Bank immediately prior to the offering will receive credit for vesting
purposes for years of service prior to adoption of the employee stock ownership
plan. Participants also will become fully vested automatically upon
normal retirement, death or disability, a change in control, or termination of
the employee stock ownership plan. Generally, participants will
receive distributions from the employee stock ownership plan upon separation
from service. The employee stock ownership plan reallocates any
unvested shares forfeited upon termination of employment among the remaining
participants.
The
employee stock ownership plan permits participants to direct the trustee as to
how to vote the shares of common stock allocated to their
accounts. The trustee votes unallocated shares and allocated shares
for which participants do not provide instructions on any matter in the same
ratio as those shares for which participants provide instructions, subject to
fulfillment of the trustee’s fiduciary responsibilities.
Under
applicable accounting requirements, Territorial Savings Bank will record a
compensation expense for the employee stock ownership plan at the fair market
value of the shares as they are committed to be released from the unallocated
suspense account to participants’ accounts. The compensation expense
resulting from the release of the common stock from the suspense account and
allocation to plan participants will result in a corresponding reduction in
Territorial Bancorp Inc.’s earnings.
Supplemental
Employee Stock Ownership Plan. Territorial Savings
Bank adopted the Supplemental Employee Stock Ownership Plan (“Supplemental
ESOP”) effective January 1, 2009 to provide certain executives with benefits
that they would otherwise be entitled to under the tax-qualified employee stock
ownership plan, but for limitations imposed by the Internal Revenue
Code. See “Compensation Discussion and Analysis-Retirement Plans and
Other Benefits—Supplemental Employee Stock Ownership Plan” for further
information about the Supplemental ESOP.
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis that is required by the rules established by the Securities and
Exchange Commission. Based on such review and discussions, the
Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this proxy
report.
Compensation
Committee of the Board of Directors of
Territorial
Bancorp Inc.
Harold H.
Ohama (Chairman)
Howard Y.
Ikeda
Kirk W.
Caldwell
Compensation
Committee Interlocks and Insider Participation
Our
Compensation Committee determines the salaries to be paid each year to the Chief
Executive Officer and those executive officers who report directly to the Chief
Executive Officer. The Compensation Committee consists of Directors
Ohama, who serves as Chairman, Caldwell, who serves as Vice-Chairman and
Ikeda. None of these individuals was an officer or employee of
Territorial Bancorp Inc. during the year ended December 31, 2009, or is a former
officer of Territorial Bancorp Inc. For the year ended December 31,
2009, none of the members of the Compensation Committee had any relationship
requiring disclosure under “Transactions with Certain Related
Persons.”
During
the year ended December 31, 2009, (i) no executive of Territorial Bancorp Inc.
served as a member of the Compensation Committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire Board of Directors) of another entity, one of whose executive officers
served on the Compensation Committee of Territorial Bancorp Inc.; (ii) no
executive officer of Territorial Bancorp Inc. served as a director of another
entity, one of whose executive officers served on the Compensation Committee of
Territorial Bancorp Inc.; and (iii) no executive officer of Territorial Bancorp
Inc. served as a member of the Compensation Committee (or other board committee
performing equivalent
functions
or, in the absence of any such committee, the entire Board of Directors) of
another entity, one of whose executive officers served as a director of
Territorial Bancorp Inc.
Section
16(a) Beneficial Ownership Reporting Compliance
Our
executive officers and directors and beneficial owners of greater than 10% of
the outstanding shares of common stock are required to file reports with the
Securities and Exchange Commission disclosing beneficial ownership and changes
in beneficial ownership of our common stock. Securities and Exchange
Commission rules require disclosure if an executive officer, director or 10%
beneficial owner fails to file these reports on a timely basis.
Based solely on the review of copies of
the reports we have received and written representations provided to us from the
individuals required to file the reports, we believe that each of our executive
officers and directors has complied with applicable reporting requirements for
transactions in Territorial Bancorp Inc. common stock during the year ended
December 31, 2009.
Transactions
with Certain Related Persons
The
Sarbanes-Oxley Act of 2002 generally prohibits us from making loans to our
executive officers and directors, but it contains a specific exemption from such
prohibition for loans made by Territorial Savings Bank to our executive officers
and directors in compliance with federal banking regulations.
At
December 31, 2009, all of our loans to directors and executive officers were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable loans with persons not related to Territorial Savings Bank, and
did not involve more than the normal risk of collectability or present other
unfavorable features. These loans were performing according to their
original terms at December 31, 2009, and were made in compliance with federal
banking regulations.
Pursuant
to Territorial Bancorp Inc.’s Policy and Procedures for Approval of Related
Person Transactions, the Audit Committee periodically reviews, no less
frequently than twice a year, a summary of transactions in excess of $50,000
with our directors, executive officers and their family members, for the purpose
of determining whether the transactions are within our policies and should be
ratified and approved. Additionally, pursuant to our Code of Ethics
and Business Conduct, all of our executive officers and directors must disclose
any existing or emerging conflicts of interest to our Chairman of the Board and
Chief Executive Officer. Such potential conflicts of interest
include, but are not limited to, the following: (i) our conducting business with
or competing against an organization in which a family member of an executive
officer or director has an ownership or employment interest and (ii) the
ownership of more than 1% of the outstanding securities or 5% of total assets of
any business entity that does business with or is in competition with
us.
Nominating
and Corporate Governance Committee Procedures
General
It is the policy of the Nominating and
Corporate Governance Committee of the Board of Directors of the Company to
consider director candidates recommended by stockholders who appear to be
qualified to serve on the Company’s Board of Directors. The
Nominating and Corporate Governance Committee, which is comprised solely of
non-employee directors, all of whom the Board has determined are independent in
accordance with the listing standards of the Nasdaq Stock Market, Inc., may
choose not to consider an unsolicited recommendation if no vacancy exists on the
Board of Directors and the Nominating and Corporate Governance Committee does
not perceive a need to increase the size of the Board of
Directors. To avoid the unnecessary use of the Nominating and
Corporate Governance Committee’s resources, the Nominating and Corporate
Governance Committee will consider only those director candidates recommended in
accordance with the procedures set forth below.
Diversity
Considerations
In identifying candidates for Director,
the Nominating and Corporate Governance Committee and the Board of Directors
takes into account (1) the comments and recommendations of Board members
regarding the qualifications and effectiveness of the existing Board of
Directors or additional qualifications that may be required when selecting new
Board members, (2) the requisite expertise and diversity of the Board of
Directors’ overall membership composition, (3) the independence of outside
Directors and other possible conflicts of interest of existing and potential
members of the Board of Directors and (4) all other factors it considers
appropriate. The Company does not have a written policy for executing this
responsibility because it believes that the most appropriate process will depend
on the circumstances surrounding each such decision.
Procedures
to be Followed by Stockholders
To submit a recommendation of a
director candidate to the Nominating and Corporate Governance Committee, a
stockholder should submit the following information in writing to the main
office of the Company, addressed to the Chairman of the Nominating and Corporate
Governance Committee, care of the Corporate Secretary, 1132 Bishop Street, Suite
2200, Honolulu, Hawaii 96813:
|
(1)
|
A
statement that the writer is a stockholder and is proposing a candidate
for consideration by the Committee;
|
|
(2)
|
The
name and address of the stockholder as they appear on the Company’s books,
and number of shares of the Company’s common stock that are owned
beneficially by the stockholder (if the stockholder is not a holder of
record, appropriate evidence of the stockholder’s ownership will be
required);
|
|
(3)
|
The
name, address and contact information for the candidate, and the number of
shares of common stock of the Company that are owned by the candidate (if
the candidate is not a holder of record, appropriate evidence of the
candidate’s share ownership should be
provided);
|
|
(4)
|
A
statement of the candidate’s business and educational
experience;
|
|
(5)
|
Such
other information regarding the candidate as would be required to be
included in the proxy statement pursuant to Securities and Exchange
Commission Regulation 14A;
|
|
(6)
|
A
statement detailing any relationship between the candidate and any
customer, supplier or competitor of the
Company;
|
|
(7)
|
Detailed
information about any relationship or understanding between the proposing
stockholder and the candidate; and
|
|
(8)
|
A
statement that the candidate is willing to be considered and willing to
serve as a Director if nominated and
elected.
|
To be
timely, the submission of a candidate for Director by a stockholder must be
received by the Corporate Secretary at least 180 days prior to the anniversary
date of the proxy statement relating to the preceding year’s annual meeting of
stockholders
Process
for Identifying and Evaluating Nominees
The process that the Nominating and
Corporate Governance Committee follows to identify and evaluate individuals to
be nominated for election to the Board of Directors is as follows:
Identification. For
purposes of identifying nominees for the Board of Directors, the Nominating and
Corporate Governance Committee relies on personal contacts of the committee
members and other members of the Board of Directors, as well as its knowledge of
members of the communities served by Territorial Savings Bank. The
Nominating and Corporate Governance Committee will also consider director
candidates recommended by stockholders in accordance with the policy and
procedures set forth above. The Nominating and Corporate Governance
Committee has not previously used an independent search firm to identify
nominees.
Evaluation. In
evaluating potential nominees, the Nominating and Corporate Governance Committee
determines whether the candidate is eligible and qualified for service on the
Board of Directors by evaluating the candidate under certain criteria, which are
described below. If such individual fulfills these criteria, the
Nominating and Corporate Governance Committee will conduct a check of the
individual’s background and interview the candidate to further assess the
qualities of the prospective nominee and the contributions he or she would make
to the Board of Directors.
Qualifications
The Nominating and Corporate Governance
Committee has adopted a set of criteria that it considers when it selects
individuals to be nominated for election to the Board of Directors. A
candidate must meet the eligibility requirements set forth in the Company’s
bylaws, which include the following:
|
·
|
A
person is not qualified to serve as director if he or she: (1) is under
indictment for, or has ever been convicted of, a criminal offense
involving dishonesty or breach of trust and the penalty for such offense
could be imprisonment for more than one year, (2) is a person against whom
a banking agency has, within the past ten years, issued a cease and desist
order for conduct involving dishonesty or breach of trust and that order
is final and not subject to appeal, or (3) has been found either by a
regulatory agency whose decision is final and not subject to appeal or by
a court to have (i) breached a fiduciary duty involving personal profit,
or (ii) committed a willful violation of any law, rule or regulation
governing banking, securities, commodities or insurance, or any final
cease and desist order issued by a banking, securities, commodities or
insurance regulatory agency.
|
|
·
|
No
person may serve on the Board of Directors and at the same time be a
director or officer of another co-operative bank, credit union, savings
bank, savings and loan association, trust company, bank holding company or
banking association (in each case whether chartered by a state, the
federal government or any other jurisdiction) that engages in business
activities in the same market area as the Company or any of its
subsidiaries.
|
A candidate also must meet any
qualification requirements set forth in any Board or committee governing
documents.
Selection
Considerations
If the
candidate is deemed eligible for election to the Board of Directors, the
Committee will consider the following criteria in selecting nominees, as
described in more detail in the Committee’s Criteria for Director
Nominees:
|
·
|
familiarity
with and participation in local
community;
|
|
·
|
stockholder
interests and dedication; and
|
The
Committee will also consider any other factors it deems relevant to a
candidate’s nomination, including the extent to which the candidate helps the
Board of Directors reflect the diversity of the Company’s stockholders,
employees, customers and communities. The Committee also may consider
the current composition and size of the Board of Directors, the balance of
management and independent directors, and the need for audit committee
expertise.
The
Committee may weight the foregoing criteria differently in different situations,
depending on the composition of the Board of Directors at the
time. The Committee will maintain at least one director who meets the
definition of “audit committee financial expert” under Securities and Exchange
Commission regulations.
With respect to nominating an existing
director for re-election to the Board of Directors, the Nominating and Corporate
Governance Committee will consider and review an existing director’s board and
committee attendance and performance; length of board service; experience,
skills and contributions that the existing director brings to the board; and
independence.
Submission
of Business Proposals and Stockholder Nominations
The Company must receive proposals that
stockholders seek to include in the proxy statement for the Company’s next
annual meeting no later than March 14, 2011. If next year’s annual
meeting is held on a date more than 30 calendar days from May 24, 2011, a
stockholder proposal must be received by a reasonable time before the Company
begins to print and mail its proxy solicitation for such annual
meeting. Any stockholder proposals will be subject to the
requirements of the proxy rules adopted by the Securities and Exchange
Commission.
The
Company’s Bylaws generally provides that any stockholder desiring to make a
proposal for new business at an annual meeting of stockholders or to nominate
one or more candidates for election as directors must submit written notice
filed with the Secretary of the Company not less than 80 days nor more than 90
days prior to any such annual meeting; provided, however, that if less than 90
days’ notice or prior public disclosure of the date of the annual meeting is
given to stockholders, such written notice shall be delivered or mailed to and
received by the Secretary of the Corporation at the principal executive office
of the Corporation not later than the tenth day following the day on which
notice of the meeting was mailed to stockholders or such public disclosure was
made. The 2011 annual meeting of stockholders is expected to be held
May 24, 2011. For the 2011 annual meeting of stockholders, the notice
would have to be received between February 23, 2011 and March 7,
2011. The stockholder must also provide certain information in the
notice, as set forth in the Company’s Bylaws. Failure to comply with
these advance notice requirements will preclude such nominations or new business
from being considered at the meeting.
Nothing
in this proxy statement or our Bylaws shall be deemed to require us to include
in our proxy statement and proxy relating to an annual meeting any stockholder
proposal that does not meet all of the requirements for inclusion established by
the Securities and Exchange Commission in effect at the time such proposal is
received.
Stockholder
Communications
The
Company encourages stockholder communications to the Board of Directors and/or
individual directors. All communications from stockholders should be
addressed to: Board of Directors, Territorial Bancorp Inc., 1132
Bishop Street, Suite 2200, Honolulu, Hawaii 96813. Communications to
individual directors should be sent to such director at the Company’s
address. The letter should indicate that the author is a stockholder
and if shares are not held of record, should include appropriate evidence of
stock ownership. Depending on the subject matter, the Corporate
Secretary will:
|
·
|
forward
the communication to the director or directors to whom it is
addressed;
|
|
·
|
attempt
to handle the inquiry directly (for example where it is a request for
information about the Company or a stock-related matter);
or
|
|
·
|
not
forward the communication if it is primarily commercial in nature, relates
to an improper or irrelevant topic, or is unduly hostile, threatening,
illegal or otherwise inappropriate.
|
At each
Board meeting, the Corporate Secretary will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
Miscellaneous
The Company will pay the cost of this
proxy solicitation. The Company will reimburse brokerage firms and
other custodians, nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy materials to the beneficial owners of the
Company. Additionally, directors, officers and other employees of the
Company may solicit proxies personally or by telephone without receiving
additional compensation. The Company has retained Laurel Hill
Advisory Group, LLC to assist the Company in soliciting proxies, and has agreed
to pay Laurel Hill Advisory Group, LLC a fee of $7,000 plus reasonable expenses
for these services.
The Company’s Annual Report to
Stockholders has been included with this proxy statement. Any
stockholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Corporate Secretary of the Company. The Annual
Report is not to be treated as part of the proxy solicitation material or as
having been incorporated by reference into this proxy statement.
If you and others who share your
address own your shares in “street name,” your broker or other holder of record
may be sending only one annual report and proxy statement to your
address. This practice, known as “householding,” is designed to
reduce our printing and postage costs. However, if a stockholder
residing at such an address wishes to receive a separate annual report or proxy
statement in the future, he or she should contact the broker or other holder of
record. If you own your shares in “street name” and are receiving
multiple copies of our annual
report
and proxy statement, you can request householding by contacting your broker or
other holder of record.
Whether or not you plan to attend the
annual meeting, please vote by marking, signing, dating and promptly returning
the enclosed proxy card in the enclosed envelope.
Important
Notice Regarding the Availability of Proxy Materials
The
Company’s Proxy Statement, including the Notice of the Annual Meeting of
Stockholders, and the 2009 Annual Report to Stockholders are each available on
the internet at www.cfpproxy.com/6679.
|
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
|
|
/s/
Vernon Hirata |
|
Vernon
Hirata
|
|
Corporate
Secretary
|
Honolulu,
Hawaii
July 12,
2010
APPENDIX
A
TERRITORIAL
BANCORP INC.
2010
EQUITY INCENTIVE PLAN
ARTICLE 1 –
GENERAL
Section 1.1
Purpose,
Effective Date and Term. The purpose of this Territorial
Bancorp Inc. 2010 Equity Incentive Plan (the “Plan”) is to promote the long-term
financial success of Territorial Bancorp Inc., a Maryland corporation (the
“Company”), and its Subsidiaries, including Territorial Savings Bank (the
“Bank”), by providing a means to attract, retain and reward individuals who
contribute to such success and to further align their interests with those of
the Company’s stockholders. The “Effective Date” of the Plan shall be
the date the Plan is implemented by the Board subsequent to the satisfaction of
the applicable shareholder approval requirements. The Plan shall
remain in effect as long as any Awards are outstanding; provided, however, that no
Awards may be granted under the Plan after the ten-year anniversary of the
Effective Date.
Section 1.2
Administration. The
Plan shall be administered by the Compensation Committee of the Company’s Board
of Directors (the “Committee”), in accordance with Section 5.1.
Section
1.3 Participation. Each
Employee or Director of the Company, or any Subsidiary of the Company who is
granted an Award in accordance with the terms of the Plan shall be a
“Participant” in the Plan. Awards shall be limited to Employees and
Directors of the Company or any Subsidiary.
Section 1.4
Definitions. Capitalized
terms used in this Plan are defined in Article 8 and elsewhere in this
Plan.
ARTICLE 2 -
AWARDS
Section
2.1
General. Any
Award under the Plan may be granted singularly, in combination with another
Award (or Awards). Each Award under the Plan shall be subject to the
terms and conditions of the Plan and such additional terms, conditions,
limitations and restrictions as the Committee shall provide with respect to such
Award and as evidenced in the Award Agreement. Subject to the
provisions of Section 2.7, an Award may be granted as an alternative to or
replacement of an existing Award under the Plan or any other plan of the Company
or any Subsidiary or as the form of payment for grants or rights earned or due
under any other compensation plan or arrangement of the Company or its
Subsidiaries, including without limitation the plan of any entity acquired by
the Company or any Subsidiary. The types of Awards that may be
granted under the Plan include:
(a)
Stock Options. A
Stock Option means a grant under Section 2.2 that represents the right to
purchase shares of Stock at an Exercise Price established by the
Committee. Any Stock Option may be either an Incentive Stock Option
(an “ISO”) that is intended to satisfy the requirements applicable to an
“Incentive Stock Option” described in Code Section 422(b), or a Non-Qualified
Stock Option (a “Non-Qualified Option”) that is not intended to be an ISO;
provided, however, that no ISOs may be granted: (i) after the ten-year
anniversary of the Effective Date; or (ii) to a
non-Employee. Unless otherwise specifically provided by its terms,
any Stock Option granted to an Employee under this Plan shall be an
ISO. Any ISO granted under this Plan that does not qualify as an ISO
for any reason (whether at the time of grant or as the result of a subsequent
event) shall be deemed to be a Non-Qualified Option. In addition, any
ISO granted under this Plan may be unilaterally modified by the Committee to
disqualify such Stock Option from ISO treatment such that it shall become a
Non-Qualified Option;
provided,
however, that any such modification shall be ineffective if it causes the Award
to be subject to Code Section 409A (unless, as modified, the Award complies with
Code Section 409A).
(b)
Restricted Stock
Awards. A Restricted Stock Award means a grant of shares of
Stock under Section 2.3 for no consideration or such minimum consideration as
may be required by applicable law, either alone or in addition to other Awards
granted under the Plan, subject to a vesting schedule or the satisfaction of
market conditions or performance conditions.
Section
2.2 Stock Options.
(a)
Grant of
Stock Options. Each Stock Option shall be evidenced by an
Award Agreement that shall: (i) specify the number of Stock Options covered by
the Award; (ii) specify the date of grant of the Stock Option; (iii) specify the
vesting period or conditions to vesting; and (iv) contain such other terms and
conditions not inconsistent with the Plan, including the effect of termination
of a Participant’s employment or Service with the Company as the Committee may,
in its discretion, prescribe.
(b)
Terms and
Conditions. A Stock Option shall be exercisable in accordance
with such terms and conditions and during such periods as may be established by
the Committee. In no event, however, shall a Stock Option expire later than ten
(10) years after the date of its grant (or five (5) years with respect to ISOs
granted to an Employee who is a 10% Stockholder). The “Exercise
Price” of each Stock Option shall not be less than 100% of the Fair Market Value
of a share of Stock on the date of grant (or, if greater, the par value of a
share of Stock); provided,
however, that the Exercise Price of an ISO shall not be less than 110% of
Fair Market Value of a share of Stock on the date of grant if granted to a 10%
Stockholder; provided
further, that the Exercise Price may be higher or lower in the case of
Stock Options granted or exchanged in replacement of existing Awards held by an
Employee or Director of an acquired entity. The payment of the
Exercise Price of a Stock Option shall be by cash or, subject to limitations
imposed by applicable law, by such other means as the Committee may from time to
time permit, including: (i) by tendering, either actually or
constructively by attestation, shares of Stock valued at Fair Market Value as of
the day of exercise; (ii) by irrevocably authorizing a third party, acceptable
to the Committee, to sell shares of Stock (or a sufficient portion of the
shares) acquired upon exercise of the Stock Option and to remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise Price and any
tax withholding resulting from such exercise; (iii) by personal, certified or
cashiers’ check; (iv) by other property deemed acceptable by the Committee; or
(v) by any combination thereof. The total number of shares that may
be acquired upon the exercise of a Stock Option shall be rounded down to the
nearest whole share.
Section
2.3 Restricted Stock
Awards.
(a)
Grant
of Restricted Stock Awards. Each Restricted Stock Award shall
be evidenced by an Award Agreement that shall: (i) specify the number of shares
of Stock covered by the Restricted Stock Award; (ii) specify the date
of grant of the Restricted Stock Award; (iii) specify the vesting period; and
(iv) contain such other terms and conditions not inconsistent with the Plan,
including the effect of termination of a Participant’s employment or Service
with the Company, as the Committee may, in its discretion, prescribe. All
Restricted Stock Awards shall be in the form of issued and outstanding shares of
Stock that shall be either: (x) registered in the name of the Participant and
held by the Company, together with a stock power executed by the Participant in
favor of the Company, pending the vesting or forfeiture of the Restricted Stock
Award; or (y) registered in the name of, and delivered to, the Participant. In
any event, the certificates evidencing the Restricted Stock Award shall at all
times prior to the applicable vesting date bear the following
legend:
The Stock
evidenced hereby is subject to the terms of an Award Agreement with Territorial
Bancorp Inc. dated [Date], made pursuant to the terms of the Territorial Bancorp
Inc. 2010 Equity Incentive Plan, copies of which are on file at the executive
offices of Territorial Bancorp Inc., and may not be sold, encumbered,
hypothecated or otherwise transferred except in accordance with the terms of
such Plan and Award Agreement,
or such
other restrictive legend as the Committee, in its discretion, may
specify. Notwithstanding the foregoing, the Company may in its sole
discretion issue Restricted Stock Awards in any other approved format (e.g. electronically) in order
to facilitate the paperless transfer of such Awards. In the event
Restricted Stock Awards are not issued in certificate form, the Company and the
transfer agent shall maintain appropriate bookkeeping entries that evidence
Participants’ ownership of such Awards. Restricted Stock Awards that
are not issued in certificate form shall be subject to the same terms and
conditions of the Plan as certificated shares, including the restrictions on
transferability and the provision of a stock power executed by the Participant
in favor of the Company, until the satisfaction of the conditions to which the
Restricted Stock Award is subject.
(b)
Terms and
Conditions.
(i)
Dividends. Unless
the Committee determines otherwise with respect to any Restricted Stock Award
and specifies such determination in the relevant Award Agreement, any dividends
or distributions declared and paid with respect to shares of Stock subject to
the Restricted Stock Award, other than a stock dividend consisting of shares of
Stock, shall be immediately distributed to the Participant. If the
Committee determines to delay the distribution of dividends to a Participant
until the vesting of a Restricted Stock Award, the Committee shall cause the
dividend (and any earnings thereon) to be distributed to the Participant no
later than two and one-half months following the date on which the Restricted
Stock Award vests.
(ii)
Voting Rights. Unless the Committee
determines otherwise with respect to any Restricted Stock Award and specifies
such determination in the relevant Award Agreement, voting rights appurtenant to
the shares of Stock subject to the Restricted Stock Award shall be exercised by
the Participant in his or her discretion.
(iii) Tender
Offers and Merger Elections. Each Participant to whom a
Restricted Stock Award is granted shall have the right to respond, or to direct
the response, with respect to the related shares of Stock, to any tender offer,
exchange offer, cash/stock merger consideration election or other offer made to,
or elections made by, the holders of shares of Stock. Such a direction for any
such shares of Stock shall be given by proxy or ballot (if the Participant is
the beneficial owner of the shares of Stock for voting purposes) or by
completing and filing, with the inspector of elections, the trustee or such
other person who shall be independent of the Company as the Committee shall
designate in the direction (if the Participant is not such a beneficial owner),
a written direction in the form and manner prescribed by the
Committee. If no such direction is given, then the shares of Stock
shall not be tendered.
Section
2.4
Performance-Based
Compensation. Any Award under the Plan that is intended to be
“performance-based compensation” within the meaning of Code Section 162(m) shall
be conditioned on the achievement of one or more objective performance measures,
to the extent required by Code Section 162(m), as may be determined by the
Committee. The grant of any Award and the establishment of
performance measures that are intended to be performance-based compensation
shall be
made
during the period required under Code Section 162(m) and shall comply with all
applicable requirements of Code Section 162(m).
(a)
Performance
Measures. Such performance measures may be based on any one or
more of the following:
(1)
basic earnings per
share;
(2)
basic cash earnings per share;
(3)
diluted earnings per share;
(4)
diluted cash earnings per share;
(5)
net income;
(6)
cash
earnings;
(7)
net interest
income;
(8)
non-interest
income;
(9)
general and administrative
expense to average assets ratio;
(10) cash
general and administrative expense to average assets ratio;
(11) efficiency
ratio;
(12) cash
efficiency ratio;
(13) return
on average assets;
(14) cash
return on average assets;
(15) return
on average stockholders' equity;
(16) cash
return on average stockholders' equity;
(17) return
on average tangible stockholders' equity;
(18) cash
return on average tangible stockholders' equity;
(19) core
earnings;
(20) operating
income;
(21) operating
efficiency ratio;
(22) net
interest rate spread;
(23) growth
in assets, loans, or deposits;
(24) loan
production volume;
(25) non-performing
loans;
(26) cash
flow;
(27) strategic
business objectives, consisting of one or more objectives based upon meeting
specified cost targets, business expansion goals, and goals relating to
acquisitions or divestitures, or goals relating to capital raising and capital
management; or
(28) any
combination of the foregoing.
Performance
measures may be based on the performance of the Company as a whole or on any one
or more Subsidiaries or business units of the Company or a Subsidiary and may be
measured relative to a peer group, an index or a business plan. In
establishing any performance measures, the Committee may provide for the
exclusion of the effects of the following items, to the extent identified in the
audited financial statements of the Company, including footnotes, or in the
Management’s Discussion and Analysis section of the Company’s annual report or
in the Compensation Discussion and Analysis Section, if any, of the Company’s
annual proxy statement: (i) extraordinary, unusual, and/or
nonrecurring items of gain or loss; (ii) gains or losses on the disposition of a
business; (iii) changes in tax or accounting principles, regulations or laws; or
(iv) mergers or acquisitions. To the extent not specifically
excluded, such effects shall be included in any applicable performance
measure.
(b)
Adjustments. Pursuant
to this Section 2.4, in certain circumstances the Committee may adjust
performance measures; provided, however, no
adjustment may be made with respect to an Award that is intended to be
performance-based compensation within the meaning of Code Section 162(m), except
to the extent the Committee exercises such negative discretion as is permitted
under applicable law for purposes of an exception under Code Section
162(m). If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company or the
manner in which the Company or its Subsidiaries conducts its business or other
events or circumstances render current performance measures to be unsuitable,
the Committee may modify such performance measures, in whole or in part, as the
Committee deems appropriate. If a Participant is promoted, demoted or
transferred to a different business unit during a performance period, the
Committee may determine that the selected performance measures or applicable
performance period are no longer appropriate, in which case, the Committee, in
its sole discretion, may: (i) adjust, change or eliminate the performance
measures or change the applicable performance period; or (ii) cause to be made a
cash payment to the Participant in an amount determined by the
Committee.
Section 2.5
Vesting
of Awards. (a) If
the right to become vested in an Award under the Plan (including the right to
exercise a Stock Option) is conditioned on the completion of a specified period
of Service with the Company or its Subsidiaries, without achievement of
performance measures or other performance objectives being required as a
condition of vesting, and without it being granted in lieu of, or in exchange
for, other compensation, then the required period of Service for full vesting
shall be determined by the Committee and evidenced in the Award Agreement
(subject to acceleration of vesting, to the extent permitted by the Committee,
including in the event of the Participant’s death, Disability, or to the extent
not prohibited by applicable law or regulations, a Change in Control); provided, however, that to
the extent required by applicable law or regulations, no Awards under the Plan
shall vest at a rate exceeding twenty percent (20%) per year, commencing one
year after the date of grant. Unless otherwise provided by the
Committee, Service as a director emeritus or advisory director shall constitute
Service for purposes of vesting.
(b)
Notwithstanding Section 2.8 and Article IV
hereof, to the extent permitted by applicable law or regulations, or pursuant to
an applicable regulatory waiver, the Committee may determine that all Stock
Options then held by the Participant shall become fully exercisable (subject to
the
expiration
provisions otherwise applicable to the Stock Option), and all Restricted Stock
Awards described in Section 2.1(b) shall be fully earned and vested
immediately.
Section 2.6
Deferred
Compensation. If any Award would be considered “deferred
compensation” as defined under Code Section 409A (“Deferred Compensation”), the
Committee reserves the absolute right (including the right to delegate such
right) to unilaterally amend the Plan or the Award Agreement, without the
consent of the Participant, to maintain exemption from, or to comply with, Code
Section 409A. Any amendment by the Committee to the Plan or an Award
Agreement pursuant to this Section 2.6 shall maintain, to the extent
practicable, the original intent of the applicable provision without violating
Code Section 409A. A Participant’s acceptance of any Award under the
Plan constitutes acknowledgement and consent to such rights of the Committee,
without further consideration or action. Any discretionary authority
retained by the Committee pursuant to the terms of this Plan or pursuant to an
Award Agreement shall not be applicable to an Award which is determined to
constitute Deferred Compensation, if such discretionary authority would
contravene Code Section 409A.
Section
2.7
Prohibition
Against Option Repricing. Except for adjustments pursuant to
Section 3.4, and reductions of the Exercise Price approved by the Company’s
stockholders, neither the Committee nor the Board shall have the right or
authority to make any adjustment or amendment that reduces or would have the
effect of reducing the Exercise Price of a Stock Option previously granted under
the Plan, whether through amendment, cancellation (including cancellation in
exchange for a cash payment in excess of the Stock Option’s in-the-money value)
or replacement grants, or other means.
Section
2.8
Effect of
Termination of Service on Awards. The Committee shall
establish the effect of a Termination of Service on the continuation of rights
and benefits available under an Award or the Plan and, in so doing, may make
distinctions based upon, among other things, the cause of Termination of Service
and type of Award. Unless the Committee shall specifically state
otherwise at the time an Award is granted, all Awards to an Employee or Director
shall vest immediately upon such individual’s death or
Disability. Unless otherwise provided in an Award Agreement, the
following provisions shall apply to each Award granted under this
Plan:
(a)
Upon a Participant’s Termination of Service for any
reason other than Retirement, Disability, death or termination for Cause, Stock
Options shall be exercisable only as to those shares that were immediately
exercisable by such Participant at the date of termination, and Stock Options
may be exercised only for a period of three months following termination; provided, however, that upon a
Participant’s Termination of Service due to Retirement, the Participant’s vested
Stock Options shall remain exercisable for the duration of the term set forth in
the Award Agreement. Unless the Committee specifies that an unvested
Award shall be forfeited on Retirement, any Stock Options and/or Restricted
Stock Awards that have not vested as of the date of Termination of Service due
to Retirement shall continue to vest in accordance with the schedule set forth
in the Award Agreement. No Stock Options will be considered ISOs
unless exercised within 3 months of Termination of Service, except to the extent
set forth in 2.8(c) hereof.
(b)
In the event of a Termination of Service for Cause, all Stock
Options and Restricted Stock Awards granted to a Participant under the Plan not
exercised or vested shall expire and be forfeited.
(c)
Upon Termination of Service for reason of
Disability or death, all Stock Options shall be exercisable as to all shares
subject to an outstanding Award, whether or not then exercisable, and all
Restricted Stock Awards shall vest as to all shares subject to an outstanding
Award, whether or not otherwise immediately vested, at the date of Termination
of Service, and Stock Options may be exercised for a period of one year
following Termination of Service, provided, however, that no
Stock Option shall be eligible for treatment as an ISO in the event such Stock
Option is exercised more than one year
following
Termination of Service due to Disability and provided, however, in order
to obtain ISO treatment for Stock Options exercised by heirs or devisees of an
optionee, the optionee’s death must have occurred while employed or within three
(3) months of Termination of Service.
(d)
Notwithstanding anything herein to the
contrary, no Stock Option shall be exercisable beyond the last day of the
original term of such Stock Option.
(e)
Notwithstanding the provisions of this Section 2.8, the
effect of a Change in Control on the vesting/exercisability of Stock Options and
Restricted Stock Awards is as set forth in Article 4.
ARTICLE 3 - SHARES SUBJECT TO
PLAN
Section
3.1
Available
Shares. The shares of Stock with respect to which Awards may
be made under the Plan shall be shares currently authorized but unissued,
currently held or, to the extent permitted by applicable law, subsequently
acquired by the Company as treasury shares, including shares purchased in the
open market or in private transactions.
Section
3.2
Share
Limitations.
(a)
Share
Reserve. Subject to the following provisions of this Section
3.2, the maximum number of shares of Stock that may be delivered to Participants
and their beneficiaries under the Plan shall be equal to One Million Seven
Hundred Twelve Thousand Six Hundred Thirty Seven (1,712,637) shares of Stock,
which represents fourteen percent (14%) of the Shares outstanding as of the
Effective Date of this Plan. The maximum number of shares of Stock
that may be delivered pursuant to the exercise of Stock Options (all of which
may be granted as ISOs), in the aggregate, is One Million Seven Hundred Twelve
Thousand Six Hundred Thirty Seven (1,712,637) shares of Stock. The
maximum number of shares of Stock that may be issued as Restricted Stock Awards
shall be Eight Hundred Fifty-Six Thousand Three Hundred Eighteen (856,318)
shares of Stock, which is seven percent (7%) of the Shares outstanding on the
Effective Date of this Plan. The aggregate number of shares available
for grant under the Plan and the number of shares of Stock subject to
outstanding Awards shall be subject to adjustment as provided in Section
3.4.
(b)
Computation of Shares
Available. For purposes of this Section 3.2 and in connection
with the granting of a Stock Option or a Restricted Stock Award, the number of
shares of Stock available for the granting of additional Stock Options and
Restricted Stock Awards shall be reduced by the number of shares of Stock in
respect of which the Stock Option or Restricted Stock Award is granted or
denominated. To the extent any shares of Stock covered by an Award
(including Restricted Stock Awards) under the Plan are not delivered to a
Participant or beneficiary for any reason, including because the Award is
forfeited or canceled or because a Stock Option is not exercised, then such
shares shall not be deemed to have been delivered for purposes of determining
the maximum number of shares of Stock available for delivery under the
Plan. To the extent (i) a Stock Option is exercised by using an
actual or constructive exchange of shares of Stock to pay the Exercise Price, or
(ii) shares of Stock are withheld to satisfy withholding taxes upon exercise or
vesting of an Award granted hereunder, the number of shares of Stock available
shall be reduced by the gross number of Stock Options exercised rather than by
the net number of shares of Stock issued.
Section
3.3
Limitations
on Grants to Individuals.
(a)
Options.
The maximum number of shares of Stock, in the aggregate, that may be
subject to Stock Options granted to any one Employee Participant under the Plan
shall be Four Hundred Twenty-Eight Thousand One Hundred Fifty-Nine (428,159)
shares (or 25% of the shares available for Stock Options), all of which may be
granted during any calendar year.
(b)
Restricted Stock Awards. To the extent required
by applicable law or regulations or in the absence of an applicable regulatory
waiver, the maximum number of shares of Stock that may be subject to Restricted
Stock Awards described under Section 2.1(b) that are granted to any one Employee
Participant under the Plan shall be Two Hundred Fourteen Thousand and Eighty
(214,080) shares (or 25% of the shares available for Restricted Stock Awards),
all of which may be granted during any calendar year.
(c)
Director
Awards. To the extent required by applicable law or
regulations or in the absence of an applicable regulatory waiver, the maximum
number of shares of Stock that may be covered by Awards granted to any one
individual non-Employee Director pursuant to Section 2.1(a) (relating to Stock
Options) shall be 85,630 shares, which is equal to five percent (5%) of all
shares of Stock that may be granted pursuant to Section 2.1(a), and the maximum
number of shares that may be covered by Awards granted to any one individual
non-Employee Director pursuant to Section 2.1(b) (relating to Restricted Stock
Awards) shall be 42,815 shares, which is equal to five percent (5%) of all
shares of Stock that may be granted pursuant to Section 2.1(b). In
addition, to the extent required by applicable law or regulations or in the
absence of an applicable regulatory waiver, the maximum number of shares of
stock that may be covered by Awards granted to all non-Employee Directors, in
the aggregate, pursuant to Section 2.1(a) (relating to Stock Options) shall be
513,791 shares, which is equal to thirty percent (30%) of all shares of Stock to
be granted pursuant to Section 2.1(a), and the maximum number of shares of stock
that may be covered by Awards granted to all non-Employee Directors, in the
aggregate, under Section 2.1(b) (relating to Restricted Stock Awards) shall be
256,895 shares, which is equal to thirty percent (30%) of all shares of Stock to
be granted pursuant to Section 2.1(b).
Section
3.4
Corporate
Transactions.
(a)
General. In the
event any recapitalization, forward or reverse stock split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or exchange of shares
of Stock or other securities, stock dividend or other special and nonrecurring
dividend or distribution (whether in the form of cash, securities or other
property), liquidation, dissolution, or other similar corporate transaction or
event, affects the shares of Stock such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of Participants under the
Plan and/or under any Award granted under the Plan, then the Committee shall, in
an equitable manner, adjust any or all of (i) the number and kind of securities
deemed to be available thereafter for grants of Stock Options and Restricted
Stock Awards in the aggregate to all Participants and individually to any one
Participant, (ii) the number and kind of securities that may be delivered or
deliverable in respect of outstanding Stock Options and Restricted Stock Awards,
and (iii) the Exercise Price of Stock Options. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Stock Options and Restricted Stock Awards (including,
without limitation, cancellation of Stock Options and Restricted Stock Awards in
exchange for the in-the-money value, if any, of the vested portion thereof, or
substitution or exchange of Stock Options and Restricted Stock Awards using
stock of a successor or other entity) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence) affecting the Company or any parent or Subsidiary or the financial
statements of the Company or any parent or Subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles. Unless otherwise
determined by the Committee, any such adjustment to an Award
intended
to qualify as “performance-based compensation” shall conform to the requirements
of Code Section 162(m) and the regulations thereunder then in
effect.
(b)
Merger in
which Company is Not Surviving Entity. In the event of any merger,
consolidation, or other business reorganization (including, but not limited to,
a Change in Control) in which the Company is not the surviving entity, unless
otherwise determined by the Committee at any time at or after grant and prior to
the consummation of such merger, consolidation or other business reorganization,
any Stock Options granted under the Plan which remain outstanding shall be
converted into Stock Options to purchase voting common equity securities of the
business entity which survives such merger, consolidation or other business
reorganization having substantially the same terms and conditions as the
outstanding Stock Options under this Plan and reflecting the same economic
benefit (as measured by the difference between the aggregate Exercise Price and
the value exchanged for outstanding shares of Stock in such merger,
consolidation or other business reorganization), all as determined by the
Committee prior to the consummation of such merger; provided, however, that the
Committee may, at any time prior to the consummation of such merger,
consolidation or other business reorganization, direct that all, but not less
than all, outstanding Stock Options be canceled as of the effective date of such
merger, consolidation or other business reorganization in exchange for a cash
payment per share of Stock equal to the excess (if any) of the value exchanged
for an outstanding share of Stock in such merger, consolidation or other
business reorganization over the Exercise Price of the Stock Option being
canceled.
Section
3.5
Delivery
of Shares. Delivery of shares of Stock or other amounts under
the Plan shall be subject to the following:
(a)
Compliance with Applicable
Laws. Notwithstanding any other provision of the Plan, the
Company shall have no obligation to deliver any shares of Stock or make any
other distribution of benefits under the Plan unless such delivery or
distribution complies with all applicable laws (including, the requirements of
the Securities Act), and the applicable requirements of any securities exchange
or similar entity.
(b)
Certificates. To the
extent that the Plan provides for the issuance of shares of Stock, the issuance
may be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
ARTICLE 4 - CHANGE IN
CONTROL
Section
4.1
Consequence
of a Change in Control. Subject to the provisions of Section
2.5 (relating to vesting and acceleration) and Section 3.4 (relating to the
adjustment of shares), and except as otherwise provided in the Plan or as
determined by the Committee and set forth in the terms of any Award
Agreement:
(a)
In the event of a Change in Control, all Stock Options then held by the
Participant shall become fully vested and exercisable (subject to the expiration
provisions otherwise applicable to the Stock Option) whether or not the
Participant has a Termination of Service (other than for Cause).
(b)
In the event of a Change in Control, all Restricted Stock Awards
described in Section 2.1(b) shall become fully vested whether or not the
Participant has a Termination of Service (other than for Cause).
Section
4.2
Definition
of Change in Control. For purposes of the Plan, unless
otherwise provided in an Award Agreement, a “Change in Control” shall be deemed
to have occurred upon the earliest to occur of the following:
(a)
any “person,” as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (a “Person”), is or becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing twenty five percent (25%) or more of the combined voting
power of the Company’s then outstanding Voting Securities, provided that,
notwithstanding the foregoing and for all purposes of this Plan: (a) the term
“Person” shall not include (1) the Company or any of its Subsidiaries, (2) an
employee benefit plan of the Company or any of its Subsidiaries (including the
Plan), and any trustee or other fiduciary holding securities under any such plan
(but only with respect to securities held under any such plan), or (3) a
corporation or other entity owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of Stock
of the Company; (b) no Person shall be deemed the beneficial owner of any
securities acquired by such Person in an Excluded Transaction; and (c) no
Director or officer of the Company or any direct or indirect Subsidiary of the
Company (or any affiliate of any such Director or officer) shall, by reason of
any or all of such Directors or officers acting in their capacities as such, be
deemed to beneficially own any securities beneficially owned by any other such
Director or officer (or any affiliate thereof); or
(b)
the Incumbent Directors cease, for any reason, to constitute a majority
of the Whole Board; or
(c)
a plan of reorganization, merger, consolidation or similar transaction
involving the Company and one or more other corporations or entities is
consummated, other than a plan of reorganization, merger, consolidation or
similar transaction that is an Excluded Transaction, or the stockholders of the
Company approve a plan of complete liquidation of the Company, or a sale,
liquidation or other disposition of all or substantially all of the assets of
the Company or any bank Subsidiary of the Company is consummated;
or
(d)
a tender offer is made for 25% or more of the outstanding Voting
Securities of the Company and the stockholders owning beneficially or of record
25% or more of the outstanding Voting Securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired beneficial ownership of more than the
permitted amount of the then outstanding common stock or Voting Securities as a
result of a change in number of shares of Stock or Voting Securities then
outstanding which thereby increases the proportional number of shares
beneficially owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Stock or Voting Securities by the Company, and
after such share acquisition by the Company, the Subject Person becomes the
beneficial owner of any additional Stock or Voting Securities which increases
the percentage of the then outstanding Stock or Voting Securities beneficially
owned by the Subject Person, then a Change in Control shall occur. In
the event that an Award constitutes Deferred Compensation, and the settlement
of, or distribution of benefits under, such Award is to be triggered solely by a
Change in Control, then with respect to such Award, a Change in Control shall be
defined as required under Code Section 409A, as in effect at the time of such
transaction.
ARTICLE 5 -
COMMITTEE
Section
5.1
Administration.
The Plan shall be administered by the members of the Compensation Committee of
the Company who are Disinterested Board Members. If the Committee
consists of fewer than three Disinterested Board Members, then the Board shall
appoint to the Committee such additional Disinterested Board Members as shall be
necessary to provide for a Committee consisting of at least three Disinterested
Board Members. Any members of the Committee who do not qualify
as
Disinterested
Board Members shall abstain from participating in any discussion to make or
administer Awards that are made to Participants who at the time of consideration
for such Award: (i) are persons subject to the short-swing profit rules of
Section 16 of the Exchange Act, or (ii) are reasonably anticipated to be Covered
Employees during the term of the Award. The Board (or those members
of the Board who are “independent directors” under the corporate governance
statutes of any national securities exchange on which the Company lists its
securities) may, in its discretion, take any action and exercise any power,
privilege or discretion conferred on the Committee under the Plan with the same
force and effect under the Plan as if done or exercised by the
Committee.
Section
5.2
Powers of
Committee. The Committee’s administration of the Plan shall be
subject to the following:
(a)
Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Company’s and its
Subsidiaries’ Employees and Directors those persons who shall receive Awards, to
determine the time or times of receipt, to determine the types of Awards and the
number of shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions (including without limitation, provisions
relating to non-competition, non-solicitation and confidentiality), and other
provisions of such Awards (subject to the restrictions imposed by Article 6) to
cancel or suspend Awards and to reduce, eliminate or accelerate any restrictions
or vesting requirements applicable to an Award at any time after the grant of
the Award.
(b)
The Committee will have the authority and discretion to interpret the
Plan, to establish, amend and rescind any rules and regulations relating to the
Plan, and to make all other determinations that may be necessary or advisable
for the administration of the Plan.
(c)
The Committee will have the authority to define terms not otherwise
defined herein.
(d)
Any interpretation of the Plan by the Committee and any decision made by
it under the Plan is final and binding on all persons.
(e)
In controlling and managing the operation and administration of the Plan,
the Committee shall take action in a manner that conforms to the charter and
bylaws of the Company and applicable corporate law.
Section
5.3
Delegation
by Committee. Except to the extent prohibited by applicable
law, the applicable rules of a stock exchange or the Plan, or as necessary to
comply with the exemptive provisions of Rule 16b-3 promulgated under the
Exchange Act or Code Section 162(m), the Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its members and
may delegate all or any part of its responsibilities and powers to any person or
persons selected by it, including: (a) delegating to a committee of
one or more members of the Board who are not “outside directors” within the
meaning of Code Section 162(m), the authority to grant Awards under the Plan to
eligible persons who are not persons with respect to whom the Company wishes to
comply with Code Section 162(m); and/or (b) delegating to a committee of one or
more members of the Board who are not “non-employee directors,” within the
meaning of Rule 16b-3, the authority to grant Awards under the Plan to eligible
persons who are not then subject to Section 16 of the Exchange
Act. The acts of such delegates shall be treated hereunder as
acts of the Committee and such delegates shall report regularly to the Committee
regarding the delegated duties and responsibilities and any Awards so
granted. Any such allocation or delegation may be revoked by the
Committee at any time.
Section
5.4
Information
to be Furnished to Committee. As may be permitted by
applicable law, the Company and its Subsidiaries shall furnish the Committee
with such data and
information
as it determines may be required for it to discharge its duties. The
records of the Company and its Subsidiaries as to a Participant’s employment,
termination of employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined by the Committee to be manifestly
incorrect. Subject to applicable law, Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.
Section
5.5
Committee
Action. The
Committee shall hold such meetings, and may make such administrative rules and
regulations, as it may deem proper. A majority of the members of the Committee
shall constitute a quorum, and the action of a majority of the members of the
Committee present at a meeting at which a quorum is present, as well as actions
taken pursuant to the unanimous written consent of all of the members of the
Committee without holding a meeting, shall be deemed to be actions of the
Committee. All actions of the Committee shall be final and conclusive and shall
be binding upon the Company, Participants and all other interested parties. Any
person dealing with the Committee shall be fully protected in relying upon any
written notice, instruction, direction or other communication signed by a member
of the Committee or by a representative of the Committee authorized to sign the
same in its behalf.
ARTICLE 6 - AMENDMENT AND
TERMINATION
Section
6.1
General. The
Board may, as permitted by law, at any time, amend or terminate the Plan, and
may amend any Award Agreement, provided that no amendment or termination (except
as provided in Section 2.6, Section 3.4 and Section 6.2) may cause the Award to
violate Code Section 409A, or, in the absence of written consent to the change
by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely impair the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board; provided, however, that, no
amendment may (a) materially increase the benefits accruing to Participants
under the Plan; (b) materially increase the aggregate number of securities which
may be issued under the Plan, other than pursuant to Section 3.4, or (c)
materially modify the requirements for participation in the Plan, unless the
amendment under (a), (b) or (c) above is approved by the Company’s
stockholders.
Section
6.2
Amendment
to Conform to Law and Accounting Changes. Notwithstanding any
provision in this Plan or any Award Agreement to the contrary, the Committee may
amend the Plan or an Award Agreement, to take effect retroactively or otherwise,
as deemed necessary or advisable for the purpose of (i) conforming the Plan or
the Award Agreement to any present or future law relating to plans of this or
similar nature (including, but not limited to, Code Section 409A), or (ii)
avoiding an accounting treatment resulting from an accounting pronouncement or
interpretation thereof issued by the Securities and Exchange Commission or
Financial Accounting Standards Board subsequent to the adoption of the Plan or
the making of the Award affected thereby, which, in the sole discretion of the
Committee, may materially and adversely affect the financial condition or
results of operations of the Company. By accepting an Award under
this Plan, each Participant agrees and consents to any amendment made pursuant
to this Section 6.2 or Section 2.6 to any Award granted under the Plan without
further consideration or action.
ARTICLE 7 - GENERAL
TERMS
Section
7.1
No
Implied Rights.
(a)
No Rights to Specific Assets. Neither
a Participant nor any other person shall by reason of participation in the Plan
acquire any right in or title to any assets, funds or property of the Company or
any Subsidiary whatsoever, including any specific funds, assets, or other
property which the Company or any Subsidiary, in its sole discretion, may set
aside in anticipation of a liability under the
Plan. A
Participant shall have only a contractual right to the shares of Stock or
amounts, if any, payable or distributable under the Plan, unsecured by any
assets of the Company or any Subsidiary, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary shall be
sufficient to pay any benefits to any person.
(b)
No