Home
Federal Bancorp
501
Washington Street
Columbus,
Indiana 47201
(812)
376-3323
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Notice
of Annual Meeting of Shareholders
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To
Be Held On April 22, 2008
The
Annual Meeting of Shareholders of Home Federal Bancorp will be held at the
Hampton Inn, 12161 N. U.S. 31, Edinburgh, Indiana 46124, on Tuesday,
April 22, 2008, at 3:00 p.m., local time.
The
Annual Meeting will be held for the following purposes:
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1.
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Election of Directors
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Election of two directors of Home Federal to serve three-year terms
expiring in 2011.
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2.
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Amendment to Articles of
Incorporation
. To consider and act upon approval of a
proposed amendment to our articles of incorporation to change Home
Federal’s name to “Indiana Community
Bancorp.”
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3.
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Ratification of
Auditors
. Approval and ratification of the appointment of BKD, LLP
as auditors for Home Federal for the fiscal year ended December 31,
2008.
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4.
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Other Business
. Other
matters as may properly come before the meeting or at any
adjournment.
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You can
vote at the meeting or any adjournment of the meeting if you are a shareholder
of record at the close of business on March 10, 2008.
We urge
you to read the enclosed Proxy Statement carefully so you will have information
about the business to come before the meeting or any adjournment. At your
earliest convenience, please sign and return the accompanying proxy in the
postage-paid envelope furnished for that purpose.
A copy of
our Annual Report for the fiscal year ended December 31, 2007, is enclosed.
The Annual Report is not a part of the proxy soliciting material enclosed with
this letter.
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By
Order of the Board of Directors
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John
K. Keach, Jr.
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Chairman
of the Board, President and
Chief
Executive Officer
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Columbus,
Indiana
March 25,
2008
It is
important that you return your proxy promptly. Therefore, whether or not you
plan to be present in person at the Annual Meeting, please sign, date and
complete the enclosed proxy and return it in the enclosed envelope, which
requires no postage if mailed in the United States.
Home
Federal Bancorp
501
Washington Street
Columbus,
Indiana 47201
(812)
376-3323
for
Annual
Meeting of Shareholders
April 22,
2008
The Board
of Directors of Home Federal Bancorp, an Indiana corporation, is soliciting
proxies to be voted at the Annual Meeting of Shareholders to be held at 3:00
p.m., local time, on Tuesday, April 22, 2008, at the Hampton Inn, 12161 N. U.S.
31, Edinburgh, Indiana 46124, and at any adjournment of the meeting. Home
Federal’s principal asset consists of 100% of the issued and outstanding shares
of Common Stock of Indiana Bank and Trust Company (previously named HomeFederal
Bank). We expect to mail this Proxy Statement to our shareholders on or about
March 25, 2008.
Items
of Business
At the
Annual Meeting, shareholders will:
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vote
on the election of two directors to serve three-year terms expiring in
2011;
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vote
on the amendment to our articles of incorporation to change our name to
Indiana Community Bancorp.
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ratify
the selection of BKD, LLP, as auditors for Home Federal for 2008;
and
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transact
any other matters of business that properly come before the
meeting.
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We do not
expect any other items of business, because the deadline for shareholder
nominations and proposals has already passed. If other matters do properly come
before the meeting, the accompanying proxy gives discretionary authority to the
persons named in the proxy to vote on any other matters brought before the
meeting. Those persons intend to vote the proxies in accordance with their best
judgment.
Voting
Information
Who
is entitled to vote?
Shareholders
of record at the close of business on March 10, 2008, the record date, may
vote at the Annual Meeting. On the record date, there were 3,358,079 shares of
the Common Stock issued and outstanding, and Home Federal had no other class of
equity securities outstanding. Each share of Common Stock is entitled to one
vote at the Annual Meeting on all matters properly presented.
How
many votes are required to elect directors?
The two
nominees for director receiving the most votes will be elected. Abstentions,
broker non-votes, and instructions to withhold authority to vote for a nominee
will result in the nominee receiving fewer votes but will not count as votes
against the nominee.
How
many votes are required to approve the amendment to our articles of
incorporation to change our name to Indiana Community Bancorp?
More
votes cast in favor of this proposition than are cast against it are required to
approve Home Federal’s change of name.
How
many votes are required to ratify the selection of BKD, LLP as auditors of Home
Federal for 2008?
More
votes cast in favor of this proposition than are cast against it are required to
ratify BKD, LLP as our auditors for 2008.
How
do I vote my shares?
If you
are a “shareholder of record,” you can vote by mailing the enclosed proxy card.
The proxy, if properly signed and returned to Home Federal and not revoked prior
to its use, will be voted in accordance with the instructions contained in the
proxy. If you return your signed proxy card but do not indicate your voting
preferences, the proxies named in the proxy card will vote on your behalf for
the two nominees for director listed below. If you do not give contrary
instructions, the proxies will vote for each matter described below and, upon
the transaction of other business as may properly come before the meeting, in
accordance with their best judgment.
If you
have shares held by a broker or other nominee, you may instruct the broker or
other nominee to vote your shares by following the instructions the broker or
other nominee provides to you.
Proxies
solicited by this Proxy Statement may be exercised only at the Annual Meeting
and any adjournment and will not be used for any other meeting.
How
do I vote shares held in Home Federal’s 401(k) Plan?
We
maintain a 401(k) Plan which owns approximately 2% of Home Federal’s Common
Stock. Employees of Home Federal and its subsidiaries may participate in the
Plan. Each Plan participant instructs the trustee of the Plan how to vote the
shares of Home Federal Common Stock allocated to his or her account under the
Plan. If a participant properly executes the voting instruction card distributed
by the trustee, the trustee will vote such participant’s shares in accordance
with the shareholder’s instructions. Where properly executed voting instruction
cards are returned to the trustee with no specific instruction as how to vote at
the Annual Meeting, the trustee will vote the shares “FOR” the election of each
of management’s director nominees, “FOR” the amendment to our articles of
incorporation, and “FOR” the ratification of BKD, LLP as our auditors for 2008.
The trustee will vote the shares of Home Federal Common Stock held in the Plan
but not allocated to any participant’s account and shares as to which no voting
instruction cards are received in the same proportion as the allocated shares in
the Plan are voted with respect to the items being presented to a shareholder
vote.
Can
I change my vote after I have mailed my proxy card?
You have
the right to revoke your proxy at any time before it is exercised by (1)
notifying Home Federal’s Secretary (Mark T. Gorski, 501 Washington Street,
Columbus, Indiana 47201) in writing, (2) delivering a later-dated
proxy, or (3) voting in person at the Annual Meeting.
Can
I vote my shares in person at the meeting?
If you
are a shareholder of record, you may vote your shares in person at the meeting.
However, we encourage you to vote by proxy card even if you plan to attend the
meeting.
If your
shares are held by a broker or other nominee, you must obtain a proxy from the
broker or other nominee giving you the right to vote the shares at the
meeting.
What
constitutes a quorum?
The
holders of over 50% of the outstanding shares of Common Stock as of the record
date must be present in person or by proxy at the Annual Meeting to constitute a
quorum. In determining whether a quorum is present, shareholders who abstain,
cast broker non-votes, or withhold authority to vote on one or more director
nominees will be deemed present at the Annual Meeting.
Principal
Holders of Common Stock
The
following table provides information as of March 10, 2008, about each
person known by Home Federal to own beneficially 5% or more of the Common
Stock.
Name
and Address of Beneficial Owner
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Number
of Shares of Common Stock Beneficially Owned
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John
K. Keach, Jr.
501
Washington Street
Columbus,
IN 47201
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198,794 (1)
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5.8%
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Thomson
Horstmann & Bryant, Inc.
Park
80 West, Plaza One
Saddle
Brook, NJ 07663
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186,498
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5.6%
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Financial
Edge Fund, L.P.
Financial
Edge-Strategic Fund, L.P.
Goodbody/PL
Capital, L.P.
PL
Capital, LLC
PL
Capital Advisors, LLC
Goodbody/PL
Capital, LLC
John
W. Palmer
Richard
J. Lashley
PL
Capital/Focused Fund, L.P.
20
East Jefferson Avenue, Suite 22
Naperville,
Illinois 60540
PL
Capital Offshore, Ltd.
One
Capital Place
P.O.
Box 847GT
Grand
Cayman, Cayman Islands
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232,751
(2)
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6.9%
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(1)
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Includes
51,457 shares held jointly by Mr. Keach and his wife, 19,562 shares
held jointly by his wife and children, 91,447 shares subject to stock
options granted under Home Federal’s stock option plans, and 20,375 whole
shares allocated as of December 31, 2007, to Mr. Keach’s account
under the Home Federal Bancorp Employees’ Savings and Profit Sharing Plan
and Trust (the “401(k) Plan”). 14,995 of these shares are pledged to
secure a bank loan to Mr. Keach and his wife. Does not include stock
options for 11,103 shares which are not exercisable within a period of 60
days following the record date.
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(2)
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According
to their Schedule 13D, filed April 3, 2006, includes (1) 92,599,
46,100, and 42,000 shares owned by Financial Edge Fund, L.P., Financial
Edge-Strategic Fund, L.P., and PL Capital/Focused Fund, L.P.,
respectively, each of which is advised by PL Capital Advisors, LLC,
and has PL Capital, LLC as its general partner, (2) 46,379
shares held by Goodbody/PL Capital, L.P., whose general partner is
Goodbody/PL Capital, LLC, and whose investment advisor is PL Capital
Advisors LLC, (3) 5,573 shares held by PL Capital Offshore,
Ltd., whose investment manager is PL Capital Advisors, LLC, and 100
shares beneficially owned by Richard J. Lashley in his individual
capacity. Richard J. Lashley and John W. Palmer are managing
members of PL Capital, LLC, Goodbody/PL Capital, LLC, and
PL Capital Advisors, LLC, and members of the Board of PL Capital
Offshore, Ltd.
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Proposal
1 — Election of Directors
The Board
of Directors currently consists of seven members. The By-Laws provide that the
Board of Directors is to be divided into three classes as nearly equal in number
as possible. The members of each class are elected for a term of three years
(unless a shorter period is specified) and until their successors are elected
and qualified. One class of directors is elected annually.
The
nominees for director this year are John K. Keach, Jr. and David W. Laitinen,
MD, each of whom is a current director of Home Federal. If the shareholders
elect these nominees at the Annual Meeting, the terms of Messrs. Keach and
Laitinen will expire in 2011. No nominee for director is related to any other
director or executive officer of Home Federal or nominee for director by blood,
marriage, or adoption, and there are no arrangements or understandings between
any nominee and any other person pursuant to which the nominee was
selected.
The
following table provides information on the nominees for the position of
director of Home Federal and for each director continuing in office after the
Annual Meeting, including the number and percent of shares of Common Stock
beneficially owned as of the record date. The table also includes information on
the number of shares of Common Stock beneficially owned by executive officers of
Home Federal who are not directors, and by all directors and executive officers
of Home Federal as a group.
The
Board recommends that you vote FOR the two nominees.
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Positions
Held With
Home
Federal
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Director
of the Bank Since
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Director
of Home Federal Since
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Shares
of Common Stock Beneficially Owned on 3/10/08 (1)
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Director
Nominees
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John
K. Keach, Jr.
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56
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Chairman
of the Board, President and Chief Executive Officer
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1990
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1990
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2011
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198,794
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(2)
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5.8%
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David
W. Laitinen, MD
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55
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Director
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1990
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1990
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2011
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35,624
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(3)
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1.1%
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Directors
Continuing In Office
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John
T. Beatty
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57
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Director
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1991
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1992
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2010
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28,310
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(4)
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*
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William
J. Blaser
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58
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Director
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2006
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2006
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2010
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11,000
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(5)
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*
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Harold
Force
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56
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Director
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1991
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1992
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2010
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32,957
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(6)
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1.0%
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John
M. Miller
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57
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Director
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2002
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2002
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2009
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17,100
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(7)
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*
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Harvard
W. Nolting, Jr.
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68
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Director
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1988
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1990
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2009
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63,421
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(8)
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1.9%
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Executive
Officers
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Charles
R. Farber
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58
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Executive
Vice President
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40,302
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(9)
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1.2%
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Mark T.
Gorski
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43
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Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
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42,375
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(10)
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1.3%
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All
executive officers and directors as a group (9 persons)
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469,883
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(11)
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13.2%
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_________________________
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(1)
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Includes
shares beneficially owned by members of the immediate families of the
directors, director nominees, or executive officers residing in their
homes. Unless otherwise indicated, each nominee, director or executive
officer has sole investment and/or voting power with respect to the shares
shown as beneficially owned by him or
her.
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(2)
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Includes
51,457 shares held jointly by Mr. Keach and his wife, 19,562 shares
held jointly by his wife and children, 91,447 shares subject to stock
options granted under Home Federal’s stock option plans, and 20,375 whole
shares allocated as of December 31, 2007, to Mr. Keach’s account
under the 401(k) Plan. 14,995 of these shares are pledged to
secure a bank loan to Mr. Keach and his wife. Does not include stock
options for 11,103 shares which are not exercisable within a period of 60
days following the record date.
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(3)
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Includes
25,475 shares held jointly by Dr. Laitinen and his wife, 1,563 shares
held by Mrs. Laitinen for their children, and 8,586 shares subject to
stock options granted under Home Federal’s stock option plans. 25,475 of
these shares have been pledged to secure a joint brokerage account of
Dr. and Mrs. Laitinen.
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(4)
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Includes
19,724 shares held jointly by Mr. Beatty and his wife, and 8,586
shares subject to stock options granted under Home Federal’s stock option
plans.
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(5)
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Includes
1,000 shares jointly held by Mr. Blaser and his wife, and 10,000
shares subject to stock options granted under one of Home Federal’s stock
option plans.
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(6)
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Includes
24,371 shares held jointly by Mr. Force and his wife, and 8,586
shares subject to stock options granted under Home Federal’s stock option
plans.
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(7)
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Includes
700 shares held by children who reside with Mr. Miller, and stock
options for 13,500 shares granted under one of Home Federal’s stock option
plans.
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(8)
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Includes
7,155 shares subject to stock options granted under Home Federal’s stock
option plans.
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(9)
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Includes
37,794 shares subject to stock options granted under Home Federal’s stock
option plans and 1,475 whole shares allocated as of December 31,
2007, to Mr. Farber’s account under the 401(k) Plan. Does not include
stock options for 2,206 shares which are not exercisable within a period
of 60 days following the record
date.
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(10)
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Consists
of 20,000 shares subject to stock options granted under Home Federal’s
stock option plans, 22,322 shares held by Mr. Gorski’s spouse, who is
a former executive officer of Home Federal, and 53 whole shares allocated
as of December 31, 2007, to Mr. Gorski’s account under the
401(k) Plan.
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(11)
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Includes
205,654 shares subject to stock options granted under Home Federal’s stock
option plans and 21,903 whole shares allocated as of December 31,
2007, to the accounts of participants in the 401(k) Plan. Does not include
stock options for 13,309 shares which are not exercisable within a period
of 60 days following the record
date.
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Presented
below is information concerning the director nominees and directors continuing
in office of Home Federal:
John T. Beatty
is President
and Treasurer of Beatty Insurance, Inc.
William J. Blaser
is Managing
Partner of L.M. Henderson & Company, LLP (certified public accountants and
consultants), in Indianapolis, Indiana.
Harold Force
has been
President of Force Construction Company, Inc. since 1976. He also serves as
Executive Vice President of Force Design, Inc.
John K. Keach, Jr.
has
been employed by the Bank since 1974. In 1985, he was elected Senior Vice
President - Financial Services; in 1987 he became Executive Vice President, and
in 1988 he became
President
and Chief Operating Officer. In 1994, he became President and Chief Executive
Officer. In 1999, he was appointed Chairman of the Board of Directors of Home
Federal.
David W. Laitinen, MD
has
been an orthopedic surgeon in Seymour, Indiana since 1983.
John M. Miller
has served as
President of Best Beers, Inc. (beer distributor) in Bloomington, Indiana, for
more than five years.
Harvard W. Nolting, Jr.
was a co-owner of Nolting Foods, Inc. (grocery chain) for over 30 years
before his retirement in 1994.
Corporate
Governance
Director Independence.
All of
the directors except John K. Keach, Jr., meet the standards for independence of
Board members set forth in the Listing Standards for the Nasdaq Stock Exchange.
Moreover, all members of Home Federal’s Audit Committee, Compensation Committee,
Stock Option Committee, and Nominating and Governance Committee meet those
independence standards. The Board of Directors of Home Federal considers the
independence of each of the directors under the Listing Standards of the Nasdaq
Stock Exchange which, for purposes of determining the independence of Audit
Committee members, also incorporate the standards of the Securities and Exchange
Commission included in Reg. § 240.10A-3(b)(1). Among other things, the Board
considers current or previous employment relationships as well as
material transactions or relationships between Home Federal or its subsidiaries
and the directors, members of their immediate families, or entities in which the
directors have a significant interest. The purpose of this review is to
determine whether any relationships or transactions exist or have occurred that
are inconsistent with a determination that the director is
independent.
Meetings of the Board of
Directors
. During the fiscal year ended December 31, 2007, the Board
of Directors of Home Federal met or acted by written consent eight times. No
director attended fewer than 75% of the aggregate total number of meetings
during the last fiscal year of the Board of Directors of Home Federal held while
he served as director and of meetings of committees on which he served during
that fiscal year.
Board Committees
. Home
Federal’s Board of Directors has an Audit Committee, a Compensation Committee, a
Stock Option Committee, and a Nominating and Governance Committee, among its
other Board Committees. All committee members are appointed by the Board of
Directors.
The Audit
Committee, the members of which are Messrs. Blaser (Chairman), Beatty,
Force, Nolting, and Dr. Laitinen, recommends the appointment of Home
Federal’s independent accountants in connection with its annual audit, and meets
with them to outline the scope and review the results of the audit. In addition,
the Board of Directors has determined that William J. Blaser is a “financial
expert” as that term is defined in Item 401(h)(2) of Regulation S-K promulgated
under the Securities Exchange Act of 1934. The Audit Committee met four times
during the fiscal year ended December 31, 2007. The Board of Directors has
adopted a written charter for the Audit Committee, which is posted on Home
Federal’s website at http://www.myindianabank.com. The Board of Directors
reviews and approves changes to the Audit Committee Charter
annually.
The
Compensation Committee reviews payroll costs and salary recommendations and
determines the compensation of Home Federal’s officers. The Compensation
Committee met or acted by written consent one time during fiscal 2007. The
members of this Committee are Messrs. Nolting (Chairman), Miller and
Dr. Laitinen. The Compensation Committee has a separate charter which is
posted on Home Federal’s website at http://www.myindianabank.com.
Home
Federal’s Stock Option Committee administers Home Federal’s stock option plans.
It did not meet during the year ended December 31, 2007. Its members are
all of the directors except Mr. Keach, Jr.
The
Nominating and Governance Committee, referred to here as the “Nominating
Committee,” selects the individuals who will run for election to Home Federal’s
Board of Directors each year. Its members for this Annual Meeting were
Messrs. Force (Chairman), Nolting and Beatty. It met one time during 2007.
The Nominating Committee’s charter is available at
http://www.myindianabank.com.
The
Nominating Committee will consider the director nomination of any shareholder of
Home Federal entitled to vote for the election of directors at the meeting who
has given timely notice in writing to the Secretary of Home Federal as provided
in Home Federal’s By-laws. To be timely, a shareholder’s notice must be
delivered to or mailed and received by the Secretary of Home Federal not less
than 60 days prior to the meeting, unless less than 70 days’ notice or prior
public disclosure of the date of the meeting is given or made to shareholders
(which notice or public disclosure shall include the date of the Annual Meeting
specified in publicly-available By-laws, if the Annual Meeting is held on such
date), in which case the notice by a shareholder must be received no later than
the close of business on the 10th day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was
made.
Although
the Nominating Committee will consider nominees recommended by shareholders, it
has not actively solicited recommendations for nominees from shareholders nor
has it established procedures for this purpose, as it will address nominations
on a case-by-case basis. When considering a potential candidate for membership
on Home Federal’s Board of Directors, the Nominating Committee considers
diversity, age, skills, relevant business and industry experience, and
independence under the Listing Standards of the Nasdaq Stock Exchange. The
Nominating Committee does not have specific minimum qualifications that must be
met by a Nominating Committee-recommended candidate other than those prescribed
by the By-laws, and it has no specific process for identifying the candidates.
There are no differences in the manner in which the Nominating Committee
evaluates a candidate that is recommended
for
nomination for membership on Home Federal’s Board of Directors by a shareholder.
The Nominating Committee has not received any recommendations from any of Home
Federal’s shareholders in connection with the Annual Meeting.
Communications with
Directors
. Home Federal has adopted a policy for its shareholders to send
written communications to Home Federal’s directors. Under this policy,
shareholders may send written communications in a letter by first-class mail
addressed to any director at Home Federal’s main office. Home Federal has also
adopted a policy that strongly encourages its directors to attend each Annual
Meeting of shareholders.
All of Home Federal’s
directors at the time attended the Annual Meeting of Shareholders on
April 24, 2007.
Compensation Committee Interlocks
and Insider Participation
. All of the members of the Compensation
Committee are independent and no member of the Compensation Committee has served
as an officer or employee of Home Federal or the Bank. None of the members of
the Compensation Committee is an executive officer of another entity at which
one of our executive officers serves as a member of the Board of Directors. No
member of the Compensation Committee has had any relationship with Home Federal
requiring disclosure under Item 404 of SEC Regulation S-K, which requires the
disclosure of certain related person transactions.
Executive
Compensation
Compensation
Discussion and Analysis
Overview of Executive Compensation
Program
. The Compensation Committee of the Board of Directors was
comprised during the year ended December 31, 2007, of Messrs. Nolting
(Chairman), Miller and Dr. Laitinen. The Compensation Committee reviews
payroll costs, establishes policies and objectives relating to compensation, and
approves the salaries of all employees, including executive officers. All
decisions by the Compensation Committee relating to salaries of Home Federal’s
executive officers are approved by the full Board of Directors. In the year
ended December 31, 2007, there were no modifications to Compensation
Committee actions and recommendations made by the full Board of
Directors.
In
approving the salaries of all employees except executive officers, the
Compensation Committee receives recommendations from the Executive Vice
Presidents, the Chief Executive Officer and the Human Resources Senior Vice
President. The Executive Vice Presidents are responsible for making
recommendations regarding compensation for non-executive officers within their
areas of responsibility. In determining the level of compensation for such
employees, the Executive Vice Presidents consider recommendations from
supervisors, performance reviews and salary grade ranges for each position. The
compensation recommendations from the Executive Vice Presidents are compiled and
reviewed by the Chief Executive Officer and the Human Resources Senior Vice
President. The Chief Executive Officer is responsible for submitting the
recommendations to the Compensation Committee for review and
approval.
In
approving the salaries of executive officers, the Chief Executive Officer
submits a recommendation for each executive officer (other than the Chief
Executive Officer), along with a summary of the executive officer’s performance,
to the Compensation Committee for review. The Compensation Committee
periodically reviews compensation data for comparable financial institutions in
the Midwest based on banking industry compensation surveys. In addition, from
time to time, the Compensation Committee reviews information provided by
independent compensation consultants in making its decisions. The Compensation
Committee has authority under its charter to retain outside consultants or
advisors to assist the Committee.
The Stock
Option Committee of the Board of Directors was comprised during the year ended
December 31, 2007, of all of the Board members except John K.
Keach, Jr. The Stock Option Committee administers Home Federal’s stock
option plans, including determining the amount, term, and vesting of stock
options. All members of the Stock Option Committee are outside directors of Home
Federal.
Objectives of Executive Compensation
Program
. The objectives of the Compensation Committee and the Stock
Option Committee with respect to executive compensation are the
following:
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(1)
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provide
compensation opportunities comparable to those offered by other similarly
situated financial institutions in order to be able to attract and retain
talented executives who are critical to Home Federal’s long-term
success;
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(2)
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reward
executive officers based upon their ability to achieve short-term and
long-term strategic goals and objectives and to enhance shareholder value;
and
|
|
(3)
|
align
the interests of the executive officers with the long-term interests of
shareholders by granting stock options which will become more valuable to
the executives as the value of Home Federal’s shares
increases.
|
2007 Executive Compensation
Components.
Home Federal’s executive compensation program is currently
comprised of the following components:
|
·
|
annual
incentive compensation
|
|
·
|
long-term
incentive awards
|
|
·
|
retirement
benefit plans
|
|
·
|
post-employment
compensation
|
|
·
|
perquisites
and personal benefits
|
Base Salary.
The base salary
component of the executive compensation program is designed to recognize the
experience, skills and knowledge necessary to fulfill the responsibilities of
each executive management position. Base salary levels of Home Federal’s
executive officers are established based on the responsibilities of each
executive officer while also taking into account individual experience and
performance. Base salary levels for key management positions are intended to be
competitive within the banking industry for organizations of similar size to
allow Home Federal to compete for and retain qualified executive officers. Base
salary levels are reviewed annually, or more frequently if necessary, based on a
promotion or change in responsibilities. Annual increases in base salary are
primarily driven by the performance of the individual executive officer.
However, consideration is also given to competitive factors within Home
Federal’s market area.
Annual Incentive
Compensation
. The annual incentive compensation component of the
executive compensation program is designed to tie a portion of annual executive
compensation to the achievement of annual financial and business objectives that
are communicated to the affected employees. Key executives, selected by the
Compensation Committee, are provided the opportunity to earn annual incentive
compensation based on the achievement of the strategic goals specified in the
award. In 2007, one executive officer, Mr. Farber, was eligible for annual
incentive compensation under the Indianapolis Market Growth Plan. The annual
incentive compensation earned under the Plan established for Mr. Farber is
determined based on a percentage of the total loan and deposit balances in the
Indianapolis market. See “Indianapolis Market Growth Plans.” While Home Federal
previously awarded annual bonuses to all
executive
officers, this bonus program was replaced by the Indianapolis Market Growth
Plans for selected employees and the long-term incentive awards described
below.
Stock Option Plans
. The stock
option component of the executive compensation program is designed to serve as
long-term incentive for executive officers and other key employees. These plans
align executive and shareholder long-term interests by creating a strong and
direct link between executive pay and shareholder return and by enabling
executives to acquire an ownership position in Home Federal’s Common Stock.
Stock options are granted at the prevailing market price and will only have a
value to the executives if the stock price increases. The Stock Option Committee
determines the number of option grants to be made to executive officers based on
the practices of comparable financial institutions as well as the executive’s
level of responsibility and contributions to Home Federal. The Stock Option
Committee typically considers grants of stock options in the first quarter of
the year in conjunction with the review of officer and executive officer
compensation. The release of market information is not taken into account for
purposes of timing the grants of stock options. In 2007, stock
options were not awarded by the Stock Option Committee, as compensation under
Home Federal’s long-term incentive awards replaced stock option grants as a form
of long-term incentive compensation in that year.
Long-Term Incentive Awards
.
The long-term incentive component of the executive compensation program is
designed to provide executives with an opportunity to earn incentive
compensation based upon their achievement of long-term strategic goals. The
Compensation Committee determines the amount of long-term incentive awards based
on annual calculations which reflect Home Federal’s performance relative to the
performance criteria established by the Compensation Committee. The measurement
criteria, target ranges and peer group comparisons are designed to align
executive interests with owners’ interests, recognize team achievement and
facilitate attracting, motivating and retaining key executives. In 2007, the
performance period for the first three-year incentive award ended, and in 2008
awards were calculated and paid for the three-year period ending in
2007. For a description of Home Federal’s long-term incentive awards,
see “Home Federal Bancorp Long-Term Incentive Plan.”
Retirement Benefit Plans
. The
retirement benefit plan component of the executive compensation program is
designed to provide executives with a package of retirement benefits that is
attractive and similar to other financial institutions. Each executive officer
has the opportunity to participate in Home Federal’s defined benefit pension
plan and Home Federal’s defined contribution plan, subject to Internal Revenue
Code limitations. These plans are available to all eligible employees. Home
Federal intends to freeze its defined benefit pension plan in April
2008. For a description of Home Federal’s defined benefit pension
plan and defined contribution plan, see “Pension Benefits for 2007” and “401(k)
Plan.”
Post-Employment Compensation
.
The post-employment compensation component of the executive compensation program
is designed to provide executives with a degree of financial security. The Board
of Directors believes this security is necessary to allow the executives to
objectively consider possible mergers, business combinations or other
transactions involving a change of control of Home Federal. On August
17, 2007, the Bank paid to S. Elaine Pollert $753,431 (less applicable
withholding and employment taxes) pursuant to an Agreement, General Release and
Confidentiality Statement entered into in connection with her termination of
employment as of February 16, 2007. On January 22, 2008, Home
Federal and the Bank received and accepted the voluntary surrender and
termination by Mark T. Gorski and Charles R. Farber of their employment
agreements in exchange for the execution of new change in control agreements for
those individuals. These agreements provide benefits to these individuals upon a
change in control of Home Federal or the Bank. See “Change in Control
Agreements” below. Home Federal also provides executive officers with
other post-employment compensation plans. For a description of these plans
providing for post-employment compensation, see “Supplemental Retirement Income
Program” and “Excess Benefit Plan.” In addition, certain stock options held by
the executive officers listed in the Summary Compensation Table on page 13 (the
“Named Executive Officers”) will vest in full upon a change in control of Home
Federal. See “Outstanding Equity Awards at December 31, 2007.”
Perquisites and Personal
Benefits
. Minimal perquisites and personal benefits were awarded to Home
Federal employees in 2007, but the incremental cost of providing such
perquisites did not exceed $10,000 for any Named Executive Officer. Home Federal
believes that the perquisites and personal benefits it offers to its executives
are reasonable and consistent with its overall executive compensation
program.
Compensation of Named Executive
Officers
. Mr. Keach, Jr. was Home Federal’s Chief Executive
Officer throughout the years ended December 31, 2007 and 2006.
Mr. Keach, Jr.’s salary was $352,052 for the year ended
December 31, 2007 and $366,301 for the year ended December 31, 2006.
In determining Mr. Keach, Jr.’s salary for these years, the Compensation
Committee considered Home Federal’s financial performance for the respective
fiscal years as well as the other factors described under “Base Salary” above.
The Compensation Committee considers the reduction in salary appropriate in
light of the amount of Mr. Keach, Jr.’s total compensation for
2007. Mr. Keach, Jr. was not paid annual incentive compensation
during 2007 or 2006. During 2005, the Compensation Committee elected to
implement a long-term incentive plan to replace annual incentive compensation.
Mr. Keach, Jr. received no stock option grants in 2007. On
March 20, 2006, Mr. Keach, Jr. was awarded stock options for 15,000 shares
with a term of ten years and a price of $25.6595 per share. These options vest
in various years through 2011. In determining Mr. Keach, Jr.’s
stock option grants for 2006, the Stock Option Committee considered Home
Federal’s financial performance for that year. In addition, consideration was
given to the impact of Financial Accounting Standard 123(R) which requires
expense recognition for options granted by Home Federal which vest on or after
January 1, 2006. Home Federal’s long-term incentive plan was
established in 2005 with payouts determined based on financial performance over
a three year period with the first eligible payment to be awarded in January
2008 based on performance for 2005-2007. Mr. Keach received an award of
$269,143 in January 2008 with respect to the 2005-2007 performance
period. In 2006, a new award was made under that plan based on
performance for 2006-2008. In 2007, a new award was made under the
plan based on performance for 2007-2009. Mr. Keach, Jr. was not
paid amounts during 2007 or 2006 related to any of Home Federal’s retirement
benefit plans. During 2006, Home Federal changed the formula used to calculate
the defined benefit of all eligible pension plan participants. The effect of
this change was to reduce the amount of future retirement benefits earned for
all eligible pension plan participants including executive
officers. The Bank intends to freeze the defined benefit pension plan
in April 2008. For a summary of the changes to the defined benefit
pension plan, see “Pension Benefits for 2007.” Mr. Keach, Jr. was not paid
amounts during 2007 or 2006 related to any post-employment compensation plans.
Mr. Keach, Jr. is eligible for post-employment compensation under various
plans. No changes were made to any post-employment compensation plans related to
Mr. Keach, Jr. during 2007 or 2006. See the following for a
summary of post-employment compensation plans applicable to Mr. Keach, Jr.
– “Excess Benefit Plan,” “Supplemental Retirement Income Program” and
“Outstanding Equity Awards at December 31, 2007.”
Mr. Gorski
was Home Federal’s Chief Financial Officer throughout the years ended
December 31, 2007 and December 31, 2006. Mr. Gorski’s salary was
$190,003 for 2007 compared to $179,502 for 2006. In determining
Mr. Gorski’s salary for these years, the Compensation Committee considered
Home Federal’s financial performance for the respective fiscal years as well as
the other factors described under “Base Salary” above. The salary increase in
2007 was considered to be above the range of a normal salary increase based on
the guidelines established for all employees. In determining the salary increase
for 2007, the Compensation Committee considered the additional responsibilities
assumed by Mr. Gorski during 2006. Mr. Gorski was not paid
annual incentive compensation during 2007 or 2006. During 2005, the Compensation
Committee elected to implement a long-term incentive plan to replace annual
incentive compensation. Mr. Gorski received no stock option grants in
2007. On March 20, 2006, Mr. Gorski was awarded stock options
for 10,000 shares with a term of ten years and a price of $25.6595 per share.
These options vested on January 1, 2007. In determining Mr. Gorski’s stock
option grants for 2006, the Stock Option Committee considered Home Federal’s
financial performance for that year. In addition, consideration was given to the
impact of Financial Accounting Standard 123(R) which requires expense
recognition for options granted by Home Federal which vest on or after January
1, 2006. Home Federal’s
long-term
incentive plan was established in 2005 with payouts determined based on
financial performance over a three year period with the first eligible payment
to be awarded in January 2008 based on performance for 2005-2007. In January
2008, Mr. Gorski received an award of $82,881 under that plan. In 2006, a new
award was made under that plan based on performance for 2006-2008. In 2007, a
new award was made under the plan based on performance for
2007-2009. Mr. Gorski was not paid amounts during 2007 or 2006
related to any of Home Federal’s retirement benefit plans. During 2006, Home
Federal changed the formula used to calculate the defined benefit of all
eligible pension plan participants. The effect of this change was to reduce the
amount of future retirement benefits earned for all eligible pension plan
participants including executive officers. The Bank plans to freeze the
retirement plan in April 2008. For a summary of the changes to the
defined benefit pension plan, see “Pension Benefits for
2007.” Mr. Gorski was not paid amounts during 2007 or 2006
related to any post-employment compensation plans. Mr. Gorski is eligible
for post-employment compensation under various plans. In 2008 Mr. Gorski entered
into a change in control agreement with the Bank, and his existing employment
agreement was terminated. See the following for a summary of post-employment
compensation plans applicable to Mr. Gorski – “Supplemental Retirement
Income Program,” “Change in Control Agreements,” and “Outstanding Equity Awards
at December 31, 2007.”
Mr. Farber
was an Executive Vice President of Home Federal throughout the years ended
December 31, 2007 and 2006. Mr. Farber also serves as Indianapolis Region
President of Home Federal. Mr. Farber’s salary was $180,000 for the year
ended December 31, 2007 compared to $179,456 for the year ended
December 31, 2006. In determining Mr. Farber’s salary for these years,
the Compensation Committee considered Home Federal’s financial performance for
the respective fiscal years as well as the other factors described under “Base
Salary” above. Mr. Farber’s salary did not change during
2007. Based on Mr. Farber’s eligibility under two incentive
plans described below, changes in his total compensation will be tied to
performance under those incentive plans. Mr. Farber earned
annual incentive compensation of $47,999 for 2007 and $34,579 during 2006 based
on the financial performance of the Indianapolis Region. During 2006, Home
Federal established an Indianapolis market incentive plan to provide annual
incentive compensation to key management personnel, including Mr. Farber as
Region President, relative to performance of the Indianapolis Region. For
further details concerning this annual incentive plan, see “Indianapolis Market
Growth Plans.” Mr. Farber received no stock option
grants in 2007. On March 20, 2006, Mr. Farber was awarded stock
options for 10,000 shares with a term of ten years and a price of $25.6595 per
share. These options vest in various years through 2009. In
determining Mr. Farber’s stock option grants for 2006, the Stock Option
Committee considered Home Federal’s financial performance for that year. In
addition, consideration was given to the impact of Financial Accounting Standard
123(R) which requires expense recognition for options granted by Home Federal
which vest on or after January 1, 2006. Home Federal’s long-term
incentive plan was established in 2005 with payouts determined based on
financial performance over a three year period with the first eligible payment
to be awarded in January 2008 based on performance for 2005-2007. In January
2008, Mr. Farber received an award of $96,535 under that
plan. In 2006, a new award was made under that plan based on
performance for 2006-2008. In 2007, a new award was made under that plan based
on performance for 2007-2009. Mr. Farber was not paid amounts
during 2007 or 2006 related to any of Home Federal’s retirement benefit plans.
During 2006, Home Federal changed the formula used to calculate the defined
benefit of all eligible pension plan participants. The effect of this change was
to reduce the amount of future retirement benefits earned for all eligible
pension plan participants including executive officers. The Bank intends to
freeze the defined benefit plan in April 2008. For a summary of the
changes to the defined benefit pension plan, see “Pension Benefits in
2007.” Mr. Farber was not paid amounts during 2007 or 2006
related to any post-employment compensation plans. Mr. Farber is eligible
for post-employment compensation under various plans. No changes were made to
any post-employment compensation plans related to Mr. Farber during 2007 or
2006. In 2008, Mr. Farber entered into a new change in control agreement with
the Bank and terminated his existing employment agreement with the Bank. See the
following for a summary of post-employment compensation plans applicable to
Mr. Farber
–
“Supplemental Retirement Income Program,” “Change in Control Agreements,” and
“Outstanding Equity Awards at December 31, 2007.”
Payments Upon Termination or Change
in Control
. Home Federal has entered into agreements and maintains plans
that will require the payment of compensation to the Named Executive Officers in
the event of their termination of employment, change in their responsibilities,
or a change-in-control of Home Federal. Certain of these agreements and plans
are discussed in “Supplemental Retirement Income Program,” and “Change in
Control Agreements.” In addition, certain stock options held by the Named
Executive Officers will vest in the event of a change in control. See
“Outstanding Equity Awards at December 31, 2007.”
Ms.
Pollert was an Executive Vice President of Home Federal throughout the year
ended December 31, 2006 and through February 16, 2007, when her
employment was terminated. Her compensation is being included in the table in
this Proxy Statement because she was an executive officer of Home Federal from
January 1, 2007 to February 16, 2007. But her compensation in 2007
consisted largely of amounts paid under her severance agreement which have been
described in Home Federal’s Form 8-K filed with the Securities and Exchange
Commission on February 16, 2007 as well as Home Federal’s proxy statement for
last year’s annual meeting of shareholders filed with the Securities and
Exchange Commission on April 2, 2007.
Section 162(m).
Finally,
Section 162(m) of the Internal Revenue Code, in certain circumstances, limits to
$1 million the deductibility of compensation, including stock-based
compensation, paid to top executives by public companies. None of the
compensation paid to the executive officers named in the compensation table
below exceeded the threshold for deductibility under section
162(m).
The
Compensation Committee and the Stock Option Committee believe that linking
executive compensation to corporate performance results in a better alignment of
compensation with corporate goals and the interests of Home Federal’s
shareholders. As performance goals are met or exceeded, most probably resulting
in increased value to shareholders, executives are rewarded commensurately. The
Committees believe that compensation levels for the year ended December 31,
2007, for executives and for the Chief Executive Officer, adequately reflect
Home Federal’s compensation goals and policies.
Summary
Compensation Table
The
following table presents information for compensation awarded to, earned by, or
paid to the Named Executive Officers for 2007 and 2006.
Name
and
Principal
Position
|
|
|
|
Non-Equity
Incentive Plan Compensation
($)(3)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)(4)
|
All
Other Compensation
($)(5)
|
|
|
John
K. Keach, Jr.
Chairman
of the Board, President and Chief Executive Officer
|
2007
2006
|
$352,052
366,301
|
$27,626
38,245
|
$269,143
—
|
$130,320
168,684
|
$3,090
3,296
|
$782,231
576,526
|
|
|
|
|
|
|
|
|
|
|
Mark
T. Gorski
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
2007
2006
|
190,003
179,502
|
—
58,405
|
82,881
—
|
10,938
9,295
|
1,689
—
|
285,511
247,202
|
|
|
|
|
|
|
|
|
|
|
Charles
R. Farber
Executive
Vice President
|
2007
2006
|
180,000
179,456
|
15,421
33,544
|
144,534
34,579
|
48,089
53,750
|
2,389
2,109
|
390,433
303,438
|
|
|
|
|
|
|
|
|
|
|
S.
Elaine Pollert
Executive
Vice President
|
2007
2006
|
27,180
198,831
|
1,935
32,839
|
70,753
—
|
369,489
33,014
|
753,839 (6)
2,952
|
1,223,196
267,636
|
|
(1)
|
Includes
any amounts earned but deferred, including amounts deferred under the
Bank’s 401(k) Plan.
|
|
(2)
|
The
amounts reflect the dollar amount Home Federal recognized, before
forfeitures, for financial statement reporting purposes for the fiscal
years ended December 31, 2006 and December 31, 2007, in accordance with
FAS 123(R) and thus may include amounts from awards granted in and prior
to 2006. Assumptions used in the calculation of these amounts are included
in footnote 13 to Home Federal’s audited financial statements for the
fiscal year ended December 31, 2007, included in Home Federal’s Annual
Report on Form 10−K for 2007.
|
|
(3)
|
This
column represents amounts that were earned for services under Home
Federal’s Long-Term Incentive Plan for the three-year period
2005-2007. Such amounts were based on performance criteria that
were satisfied over the three-year period ending in 2007, and were paid in
January 2008. It also includes, for Charles R. Farber, bonuses paid under
the Indianapolis Market Growth
Plans.
|
|
(4)
|
This
column includes the increase in actuarial value of the Named Executive
Officer’s interest in the Bank’s defined benefit plan, between
December 31, 2006 and December 31, 2007, and between
December 31, 2005 and December 31, 2006, and the increase in
actuarial value of the Named Executive Officer’s interest in the Bank’s
Supplemental Retirement Income Program between December 31, 2006 and
December 31, 2007, and between December 31, 2005 and December 31, 2006.
For Mr. Keach, Jr. it also includes the increase in actuarial value of his
interest in his Excess Benefit Plan. There are no nonqualified deferred
compensation earnings to report in this
column.
|
|
(5)
|
Includes
the Bank’s matching contributions and allocations under its 401(k) Plan.
The Named Executive Officers received certain perquisites during 2007 and
2006, but the incremental cost of providing those perquisites did not
exceed the $10,000 disclosure
threshold.
|
|
(6)
|
Includes
$408 in matching contributions and allocations under the Bank’s 401(k)
Plan and $753,431 paid to Ms. Pollert under the Agreement, General
Release and Confidentiality Statement dated February 16,
2007. See “Payments Upon Termination or Change in
Control.”
|
Option
Plans
1995 Option Plan
. On
August 29, 1995, the Board of Directors of Home Federal approved the Home
Federal Bancorp 1995 Stock Option Plan, which became effective on
October 24, 1995, when the shareholders approved the 1995 Option Plan. The
Compensation Committee, which is composed of non-employees, administers the 1995
Option Plan.
The 1995
Option Plan provides for the grant of incentive and non-qualified options and
reserved 495,000 shares of Common Stock for issuance pursuant to options grants.
As of the record date, options for 139,509 shares of Common Stock remain
outstanding under the 1995 Option Plan with an average price per share of
$23.3205 and 39,125 shares of Common Stock are reserved for future issuance
under the 1995 Option Plan. Home Federal’s Board of Directors may terminate the
1995 Option Plan at any time, but termination of the 1995 Option
Plan may not adversely affect the validity of options previously
granted under the 1995 Option Plan. No incentive options may be granted under
the 1995 Option Plan after October 23, 2005.
The
Compensation Committee may grant options under the 1995 Option Plan to officers
and other key employees of Home Federal or its subsidiaries who are materially
responsible for the management or operation of the business of Home Federal or
its subsidiaries and have provided valuable services to Home Federal or a
subsidiary. An individual may be granted more than one option under the 1995
Option Plan.
Options
are generally granted for terms of 10 years (in the case of incentive options)
or 10 years and one day (in the case of non-qualified options), at an option
price per share equal to the fair market value of the shares on the date of the
grant of the stock options. Options may be subject to a vesting period
established by the Committee, but will be subject to early vesting in the event
of death, disability, or a change in control of Home Federal. Options granted
under the 1995 Option Plan are adjusted for capital changes such as stock splits
and stock dividends.
The
option price of each share of stock is to be paid in full in cash at the time of
exercise. Under circumstances specified in the 1995 Option Plan, optionees may
deliver a notice to their broker to deliver to Home Federal the total option
price in cash and the amount of any taxes to be withheld from the optionee’s
compensation as a result of any withholding tax obligation of Home Federal.
Payment of the option price may also be effected by tendering whole shares of
Home Federal’s Common Stock owned by the optionee and cash having a fair market
value equal to the cash exercise price of the shares with respect to which the
option is being exercised. In the event an option recipient terminates his or
her employment or service as an employee or director, the options will terminate
during specified periods.
The
Compensation Committee may permit an optionee under the 1995 Option Plan or any
other stock option plan adopted by Home Federal or any of its subsidiaries, to
surrender for cancellation any unexercised outstanding stock option and receive
in exchange therefor an option for a number of shares of Common Stock designated
by the Compensation Committee.
1999 Option Plan
. On
August 24, 1999, the Board of Directors of Home Federal approved the Home
Federal Bancorp 1999 Stock Option Plan, effective as of October 26, 1999,
the date the shareholders of Home Federal approved the Plan. The 1999 Option
Plan is administered by the Compensation Committee.
Two
hundred fifty thousand (250,000) shares were reserved for issuance pursuant to
options to be granted under the Plan. As of the record date, options for 98,625
shares of Common Stock are outstanding under the 1999 Option Plan with an
average price per share of $21.6854 and 375 shares of Common Stock were reserved
for future issuance under the 1999 Option Plan. Home Federal’s Board of
Directors may terminate the Plan at any time. However, no termination of the
Plan may adversely affect the validity
of
options or cash awards previously granted under the Plan. No incentive stock
options may be granted under the Plan after October 25,
2009.
Options
and cash awards may be granted under the Plan to officers, directors and other
key employees of Home Federal or of a subsidiary who, in the opinion of the
Committee, are materially responsible for the management or operation of the
business of Home Federal or a subsidiary and have provided valuable services to
Home Federal or a subsidiary. Those persons may be granted more than one option
under the Plan. However, no employee may be granted options for more than 30,000
shares of Common Stock in any calendar year.
The price
to be paid for shares of Common Stock upon the exercise of each stock option may
not be less than the fair market value of the shares on the date on which the
option is granted.
Options
are generally granted for terms of 10 years (in the case of incentive options)
or 10 years and one day (in the case of non-qualified options), and at an option
price per share equal to the fair market value of the shares on the date of the
grant of the stock options. Options granted under the 1999 Option Plan are
adjusted for capital changes such as stock splits and stock
dividends.
The
option price of each share of stock is to be paid in full in cash at the time of
exercise. Under circumstances specified in the 1999 Option Plan, optionees may
deliver a notice to their broker to deliver to Home Federal the total option
price in cash and the amount of any taxes to be withheld from the optionee’s
compensation as a result of any withholding tax obligation of Home Federal.
Payment of the option price may also be effected by tendering whole shares of
Home Federal’s Common Stock owned by the optionee and cash having a fair market
value equal to the cash exercise price of the shares with respect to which the
option is being exercised. In the event an option recipient terminates his or
her employment or service as an employee or director, the options will terminate
during certain specified periods.
The
Compensation Committee may grant to optionees who are granted non-qualified
stock options the right to receive a cash amount which is intended to reimburse
the optionee for all or a portion of the federal, state and local income taxes
imposed upon the optionee as a result of the exercise of a non-qualified stock
option and the receipt of a cash award.
In the
event of a change in control of Home Federal, outstanding options which are not
otherwise exercisable will become immediately exercisable.
2001 Option Plan
. On
August 28, 2001, the Board of Directors of Home Federal approved the Home
Federal Bancorp 2001 Stock Option Plan, effective as of October 23, 2001,
the date the shareholders of Home Federal approved the Plan. The 2001 Option
Plan is administered by the Compensation Committee.
Four
hundred twenty-five thousand (425,000) shares were reserved for issuance
pursuant to options to be granted under the Plan. As of the record date of this
Proxy Statement, options for 161,094 shares of Common Stock are outstanding
under the 2001 Option Plan with an average price per share of $23.8083, and
192,162 shares of Common Stock were reserved for future issuance under the 2001
Option Plan. Home Federal’s Board of Directors may terminate the Plan at any
time. However, no termination of the Plan may adversely affect the validity of
options or cash awards previously granted under the Plan. No incentive stock
options may be granted under the Plan after October 23, 2011.
Options
and cash awards may be granted under the Plan to officers, directors and other
key employees of Home Federal or of a subsidiary who, in the opinion of the
Committee, are materially responsible for the management or operation of the
business of Home Federal or a subsidiary and have provided valuable services to
Home Federal or a subsidiary. Those persons may be granted more than one option
under the Plan. However, no employee may be granted options for more than 30,000
shares of Common Stock in any calendar year.
The price
to be paid for shares of Common Stock upon the exercise of each stock option may
not be less than the fair market value of the shares on the date on which the
option is granted.
Options
are generally granted for terms of 10 years (in the case of incentive options)
or 10 years and one day (in the case of non-qualified options), and at an option
price per share equal to the fair market value of the shares on the date of the
grant of the stock options. Options granted under the 2001 Option Plan are
adjusted for capital changes such as stock splits and stock
dividends.
The
option price of each share of stock is to be paid in full in cash at the time of
exercise. Under circumstances specified in the 2001 Option Plan, optionees may
deliver a notice to their broker to deliver to Home Federal the total option
price in cash and the amount of any taxes to be withheld from the optionee’s
compensation as a result of any withholding tax obligation of Home Federal.
Payment of the option price may also be effected by tendering whole shares of
Home Federal’s Common Stock owned by the optionee and cash having a fair market
value equal to the cash exercise price of the shares with respect to which the
option is being exercised. In the event an option recipient terminates his or
her employment or service as an employee or director, the options will terminate
during certain specified periods.
The
Compensation Committee may grant to optionees who are granted non-qualified
stock options the right to receive a cash amount which is intended to reimburse
the optionee for all or a portion of the federal, state and local income taxes
imposed upon the optionee as a result of the exercise of a non-qualified stock
option and the receipt of a cash award.
In the
event of a change of control of Home Federal, outstanding options which are not
otherwise exercisable will become immediately exercisable.
Home
Federal Bancorp Long-Term Incentive Plan
On
May 24, 2005, the Board of Directors of Home Federal adopted the Home
Federal Bancorp Long-Term Incentive Plan (the “LTIP”) effective for the
three-year period beginning January 1, 2005. Eligibility to participate in
the LTIP is limited to key executives of the Company or its subsidiaries who
have the opportunity to significantly affect the achievement of the Company’s
strategic objectives.
At the
time Home Federal’s Compensation Committee grants an award, it will establish
performance goals related to one or more performance criteria at which the
incentive payment for each award level shall be earned for the relevant
performance period. The performance period may be any period of years
established by the Committee up to but not in excess of five years. The final
award, if earned, will be paid in a lump sum in cash to a participant who is and
has been an active employee at all times during the performance period, with the
award being subject to pro rata adjustment and payment in the event of
retirement, death, or disability during that period. The maximum payment to any
participant for any performance period under the LTIP is $750,000.
In the
event of a change in control of Home Federal (as defined in the LTIP) prior to
the end of a performance period and/or the payment of a final award, the
Committee has the discretion to accelerate the calculation and payment of any
final award, which may include the payment of the maximum final
award.
The
following table sets forth information concerning Home Federal’s LTIP for the
2006-2008 performance period. For the 2006-2008 performance period, the
Committee established performance measures based on earnings per share growth
(average annual growth expressed as a percentage of the diluted earnings per
share of Home Federal during the performance period, provided that the
Compensation Committee may exclude special charges or extraordinary items) and
total shareholder return (the percentage that the average annual total change in
stock price plus dividends on a share of Common Stock of Home Federal during the
performance period falls within the Stifel, Nicolaus Midwest Peer Group with
assets less than $2.5 billion or a successor peer group selected by the
Compensation Committee):
|
|
Number
of Shares,
|
Performance
or Other Period Until
|
Estimated
Future Payouts Under
Non-Stock
Price-Based Plans
|
|
|
|
|
|
|
|
|
John
K. Keach, Jr.
|
50%
of Average Base Salary for the Performance Period
|
2006-2008
|
$49,500
|
$178,000
|
$356,000
|
|
Mark
T. Gorski
|
35%
of Average Base Salary for the Performance Period
|
2006-2008
|
16,500
|
66,000
|
132,000
|
|
S.
Elaine Pollert (1)
|
35%
of Average Base Salary for the Performance Period
|
2006-2008
|
6,592
|
26,368
|
52,736
|
|
Charles
L. Farber
|
35%
of Average Base Salary for the Performance Period
|
2006-2008
|
15,750
|
63,000
|
126,000
|
|
(1)
|
Elaine
Pollert’s employment with Home Federal and the Bank terminated on
February 16, 2007. She is only entitled to receive the pro-rata
portion (based on her employment through February 16, 2007) of the
benefit under this plan that she would have received had she remained
employed through December 31, 2008. This pro-rata portion is shown in
the table above.
|
Annual
calculations are prepared and submitted to the Compensation Committee which
summarize Home Federal’s performance relative to the performance measures
established by the Compensation Committee. For the 2006-2008 performance period,
the calculation of the performance measures has been completed and submitted to
the Compensation Committee for 2007 and 2006. Based on the results for 2006 and
2007, the Named Executive Officers listed in the table above would be eligible
to receive a payout for the LTIP approximately equal to the “target” column
listed in the table above. However, as the LTIP specifies that the payouts are
based on the cumulative performance for the designated three-year period, the
actual payout could be significantly impacted either positively or negatively by
the results for 2008.
The
following table sets forth information concerning Home Federal’s LTIP for the
2007-2009 performance period. For the 2007-2009 performance period, the
Committee established performance measures based on earnings per share growth
(average annual growth expressed as a percentage of the diluted earnings per
share of Home Federal during the performance period, provided that the
Compensation Committee may exclude special charges or extraordinary items) and
total shareholder return (the percentage that the average annual total change in
stock price plus dividends on a share of Common Stock of Home Federal during the
performance period falls within the Stifel, Nicolaus Midwest Peer Group with
assets less than $2.5 billion or a successor peer group selected by the
Compensation Committee):
|
|
Number
of Shares,
|
Performance
or Other Period Until
|
Estimated
Future Payouts Under
Non-Stock
Price-Based Plans
|
|
|
|
|
|
|
|
|
John
K. Keach, Jr.
|
50%
of Average Base Salary for the Performance Period
|
2007-2009
|
$43,750
|
$175,000
|
$350,000
|
|
Mark
T. Gorski
|
35%
of Average Base Salary for the Performance Period
|
2007-2009
|
16,875
|
67,500
|
135,000
|
|
Charles
L. Farber
|
35%
of Average Base Salary for the Performance Period
|
2007-2009
|
15,750
|
63,000
|
126,000
|
Annual
calculations are prepared and submitted to the Compensation Committee which
summarize Home Federal’s performance relative to the performance measures
established by the Compensation Committee. For the 2007-2009 performance period,
the calculation of the performance measures has been completed and submitted to
the Compensation Committee for 2007. Based on the results for 2007, the Named
Executive Officers listed in the table above would be eligible to receive a
payout for the LTIP approximately equal to the “target” column listed in the
table above. However, as the LTIP specifies that the payouts are based on the
cumulative performance for the designated three-year period, the actual payout
could be significantly impacted either positively or negatively by the results
for 2008 and 2009.
Indianapolis
Market Growth Plans
On
November 28, 2006, the Board of Directors of Home Federal adopted an
Indianapolis Market Growth Plan and entered into Award Agreements under the Plan
with Charles R. Farber, an Executive Vice President of Home Federal. The Plans
will provide key executives of Home Federal who are selected by the Compensation
Committee to receive an award under the Plans with the opportunity to earn
annual incentive compensation based on the achievement of the strategic goals
specified in the award. Once Home Federal has certified that the performance
goals have been obtained for the performance period specified in an award, Home
Federal will pay the award in cash to the executive as provided in the award
agreement.
The
awards granted to Mr. Farber under the Plan for 2007 and 2006 for incentive
payments are comprised of three components: Override, which is calculated as a
percentage of the balance of loans and deposits (other than residential mortgage
loans and public fund certificates of deposit) associated with the Indianapolis
market locations on the day preceding the first day of the performance period;
Growth, which is calculated as a percentage of the increase during the
performance period in the balance of all loans and deposits (other than
residential mortgage loans and public fund certificates of deposit) associated
with the Indianapolis market locations; and Credit Quality Modifier, which
reduces payouts pursuant to the Override and Growth components if the credit
quality standards of the Indianapolis commercial portfolio are not maintained at
target levels. Mr. Farber’s 2007 and 2006 award provided for an Override
percentage of .0125 percent and a Growth percentage of .0125 percent. The Credit
Quality Modifier was equal to $0 for the 2006 and 2007 awards.
For 2006
Mr. Farber earned incentive awards totaling $34,579 related to
the Indianapolis Market Growth Plan, which was paid in January
2007. For 2007, Mr. Farber earned incentive awards totaling
$47,999 related to the Indianapolis Market Growth Plan which was paid in January
2008.
401(k)
Plan
Employees
who are over 21 years of age with at least one month of service may participate
in the Bank’s 401(k) Savings Plan. Participants may elect to make monthly
contributions up to 75% of their salary, subject to any applicable limits under
the Internal Revenue Code. The Bank makes a matching contribution of 50% of the
employee’s contribution that does not exceed 3.0% of the employee’s salary with
respect to employees who have at least six months of
service. The 3% limit was increased in 2008 from the prior 1.5%
limit, in connection with Home Federal’s decision to freeze its defined benefit
pension plan. These contributions may be invested at each employee’s
direction in one or more of a number of investment options available under the
Plan. Matching employer contributions may also be invested at an employee’s
direction in a fund which invests in Home Federal’s Common Stock. Employee
contributions to the 401(k) Plan are fully vested upon receipt. Matching
contributions generally vest over a 3-year period, with 100% vesting after the
third year of service. The normal distribution is a lump sum upon termination of
employment, although other payment options may be selected.
Grants
of Plan-Based Awards for 2007
The
following table sets forth information related to non-equity based awards
granted during fiscal year 2007 to the Named Executive Officers under plans
adopted by Home Federal and the Bank. No equity awards were granted
to the Named Executive Officers during 2007.
|
|
|
Estimated
Future Payouts Under
Non-Equity
Incentive Plan Awards (1)
|
|
|
|
|
|
|
|
John
K. Keach, Jr.
|
April
24, 2007
|
$43,750
|
$175,000
|
$350,000
|
|
Mark
T. Gorski
|
April
24, 2007
|
16,875
|
67,500
|
135,000
|
|
Charles
R. Farber
|
April
24, 2007
|
15,750
|
63,000
|
126,000
|
|
(1)
|
The
awards were made under Home Federal’s Long-Term Incentive Plan, and the
amounts listed are based upon the assumption that the performance goals in
the Plan for the indicated levels are
satisfied.
|
|
(2)
|
The
grant date is the date the Compensation Committee or the full Board of
Directors of Home Federal took action to make the
awards.
|
Home
Federal’s Long-Term Incentive Plan is described in “Home Federal Bancorp
Long-Term Incentive Plan.” For a description of Home Federal’s Option Plans, see
“Option Plans.”
Outstanding
Equity Awards at December 31, 2007
The
following table presents information on stock options held by the Named
Executive Officers on December 31, 2007.
|
|
|
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable
(1)
|
|
|
|
John
K. Keach, Jr.
|
10,000
|
—
|
$25.23000
|
03/28/2015
|
|
John
K. Keach, Jr.
|
15,050
|
—
|
$23.00000
|
12/22/2008
|
|
John
K. Keach, Jr.
|
32,500
|
—
|
$23.06250
|
12/21/2009
|
|
John
K. Keach, Jr.
|
5,000
|
—
|
$15.90625
|
12/19/2010
|
|
John
K. Keach, Jr.
|
25,000
|
—
|
$18.48500
|
12/18/2011
|
|
John
K. Keach, Jr.
|
—
|
15,000
(2)
|
$25.65950
|
03/19/2016
|
|
Mark
T. Gorski
|
10,000
|
—
|
$24.45000
|
06/05/2015
|
|
Mark
T. Gorski
|
10,000
|
—
|
$25.65950
|
03/20/2016
|
|
Charles
R. Farber
|
20,000
|
—
|
$20.90000
|
03/17/2012
|
|
Charles
R. Farber
|
10,000
|
—
|
$25.23000
|
03/28/2015
|
|
Charles
R. Farber
|
3,897
|
6,103
(3)
|
$25.65950
|
03/19/2016
|
|
(1)
|
The
shares represented could not be acquired by the Named Executive Officers
as of December 31, 2007.
|
|
(2)
|
3,897
of these shares vest on each of January 1, 2008, 2009, and 2010, and 3,309
of these shares vest on January 1,
2011.
|
|
(3)
|
3,897
of these shares vest on January 1, 2008, and 2,206 of these shares vest on
January 1, 2009.
|
The
unexercisable options listed in the table above would become exercisable in full
upon a change in control of Home Federal.
Option
Exercises for 2007
The
following table presents information on the exercise by Named Executive Officers
of stock options during 2007 held by the Named Executive Officers during
2007.
|
|
|
|
|
Number
of Shares
Acquired
on Exercise (#)
|
Value
Realized
on
Exercise ($)(1)
|
|
John
K. Keach, Jr.
|
—
|
—
|
|
Mark
T. Gorski
|
—
|
—
|
|
S.
Elaine Pollert
|
78,744
|
$575,729
|
|
Charles
R. Farber
|
—
|
—
|
|
(1)
|
Amounts
reflecting value realized upon exercise of options are based on the
difference between the closing price for a share on the date of exercise
($29.10) and the exercise price per share for the stock options
($21.7886). These shares were purchased by Home Federal from Ms. Pollert
on the date of exercise for $28.75 per
share.
|
Pensio
n Benefits for 2007
The
following table provides information on each plan that provides for payments or
other benefits in connection with a Named Executive Officer’s retirement,
excluding tax-qualified and nonqualified defined contribution
plans.
|
|
|
Number
of
Years
Credited
Service
(#)(2)
|
Present
Value of
Accumulated
Benefit
($)(3)
|
Payments
During
Last
Fiscal
Year ($)
|
|
John
K. Keach, Jr.
|
Pentegra
Group Pension Plan (1)
|
33.67
|
$652,000
|
—
|
|
|
Supplemental
Executive Retirement Agreement
|
|
577,796
|
—
|
|
|
Excess
Benefit Plan
|
|
464,415
|
|
|
Mark
T. Gorski
|
Pentegra
Group Pension Plan (1)
|
1.58
|
8,000
|
—
|
|
|
Supplemental
Executive Retirement Agreement
|
|
15,677
|
—
|
|
Charles
R. Farber
|
Pentegra
Group Pension Plan (1)
|
4.75
|
90,000
|
—
|
|
|
Supplemental
Executive Retirement Agreement
|
|
156,320
|
—
|
|
S.
Elaine Pollert
|
Pentegra
Group Pension Plan (1)
|
20.42
|
185,000
|
—
|
|
|
Supplemental
Executive Retirement Agreement
|
|
446,664
|
—
|
|
(1)
|
The
plan is a noncontributory, multi-employer comprehensive pension
plan.
|
|
(2)
|
The
number of years of credited service are computed as of December 31,
2007, the same pension plan measurement date used for financial statement
reporting purposes in Home Federal’s Annual Report to
shareholders.
|
|
(3)
|
This
information is calculated as of December 31, 2007, the same pension
plan measurement date used for financial statement reporting purposes in
Home Federal’s Annual Shareholder Report, assumes that the Named Executive
Officer retires at age 65, the normal retirement age specified in the
plan, and is based on compensation currently being paid to the Named
Executive Officer. The interest rate assumptions used are the same ones
used in making disclosures about this plan in Home Federal’s 2007 Annual
Shareholder Report.
|
The
Pentegra Group defined benefit pension plan is a noncontributory, multi-employer
comprehensive pension plan. Employees are eligible to participate in that plan
once they have completed one year of service for the Bank, have attained the age
of 21 years, if they were hired before April 1, 2006. Separate actuarial
valuations are not made for individual employer members of the Pension Plan. An
employee’s pension benefits are 100% vested after five years of
service.
The
Pension Plan provides for monthly retirement benefits determined on the basis of
the employee’s years of service and base salary for the five consecutive years
of his or her employment producing the highest average. Early retirement,
disability, and death benefits are also payable under the Pension Plan,
depending upon the participant’s age and years of service. The Bank recorded
expenses totaling $1,179,000 for the Pension Plan during the fiscal year ended
December 31, 2007. Benefits are currently subject to maximum Internal
Revenue Code limitations of $185,000 per year.
The Bank
intends to freeze the Pension Plan as of April 1, 2008.
Excess
Benefit Plan
On
April 1, 2001, the Bank entered into an excess benefit plan agreement with
John K. Keach, Jr. Under this agreement, Mr. Keach, Jr. is provided
retirement benefits equal to the annual benefits he would have received under
the Bank’s pension plan had he received full credit for his annual salary and if
the pension plan did not have to make certain reductions in benefits required
under § 415 and § 401 of the Internal Revenue Code of 1986, as amended, less the
annual benefits he is entitled to under the pension plan. The benefits are to be
paid on an annual basis for the life of Mr. Keach, Jr. The projected
annual
benefit
payable to Mr. Keach, Jr. under this agreement is approximately $100,000.
Death benefits are also provided in the agreement.
The
benefits are paid from the general assets of the Bank. The Bank has secured key
person life insurance which is expected to provide the Bank with the funds
necessary to provide the benefits described above.
Supplemental
Retirement Income Program
The Bank
has entered into supplemental retirement agreements with its executive officers
and with nine other current or former employees deemed by the management of the
Bank to be key employees. These agreements provide each of the executive
officers of the Bank with supplemental retirement benefits after the employee
terminates his employment for any reason, unless such termination is for cause;
provided that in no event will such retirement benefits commence before the
employee has reached age 50.
The
annual benefits for the Named Executive Officers are equal to the amounts
specified below:
|
|
John
K. Keach, Jr.
|
$82,664
|
|
|
|
S.
Elaine Pollert
|
$50,000
|
|
|
|
Charles
R. Farber
|
$50,000
|
|
|
|
Mark
T. Gorski
|
$50,000
|
|
The
annual benefits are payable to those persons for a period of 15 years. The
agreements also provide for death and burial benefits, and for some employees,
disability benefits prior to specified ages.
If
Mr. Gorski or Mr. Farber ceases to be an employee following a change
in control of Home Federal, they will receive increased benefits under their
supplemental executive retirement agreements. Had Mr. Gorski been
terminated at December 31, 2007, following a change in control of Home Federal,
he would have been entitled to a benefit of $21,167 payable over a 15-year
period beginning 60 days after his separation from service. If Mr. Farber
had been terminated at December 31, 2007, following a change of control of Home
Federal, he would have been entitled to a benefit of $275,247 payable in one
lump sum within 30 days following his termination of
employment. These amounts are subject to possible reductions under
§280G of the Internal Revenue Code. Under these agreements a change
in control occurs if:
|
·
|
a
person or group acquires ownership of stock representing more than 50% of
the Bank’s or Home Federal’s total fair value or total voting power of the
stock of the Bank or Home Federal and stock of the Bank or Home Federal
remains outstanding after the
transaction;
|
|
·
|
a
person or group acquires ownership of stock representing 30% or more of
the total voting power of the stock of the Bank or Home
Federal;
|
|
·
|
during
a twelve-month period, a majority of the directors of Home Federal is
replaced by directors whose appointment or election is not endorsed by a
majority of the members of Home Federal’s Board in office before the date
of the appointment or election, unless another corporation is a majority
shareholder of Home Federal; or
|
|
·
|
a
person or group, other than shareholders of the Bank or an entity
controlled by shareholders of the Bank, acquires more than 40% of the
total gross fair market value of the Bank’s assets, unless the person or
group owns 50% or more of the total value or voting power of the Bank’s
stock.
|
Mr. Keach,
Jr. may receive benefits upon a change of control, but since his retirement
benefits are already fully vested, those benefits will not increase as a result
of a change in control of Home Federal.
The
accumulated benefits as of December 31, 2007, for the Named Executive Officers
are set forth in the table entitled “Pension Benefits for 2007” on page
20.
The
benefits are paid from the general assets of the Bank. The Bank has secured key
person life insurance in order to provide the Bank with the funds necessary to
provide the benefits described above. Under the supplemental retirement
agreements, if an executive officer or employee is terminated for cause, all
benefits under his agreement are forfeited.
Change
in Control Agreements
On
January 22, 2008, the Board of Directors of Home Federal considered and approved
Change in Control Agreements between the Bank and Mark T. Gorski and Charles R.
Farber. The agreements terminate, supersede and replace previously disclosed
employment agreements between Messrs. Gorski and Farber and the
Bank.
Each of
the agreements has an initial term continuing until January 1, 2009. The Board
of Directors, in its discretion, may review each agreement and authorize
additional one-year extensions of the term at each January 1 anniversary date
thereafter. The agreements provide that the officer will receive
certain payments and welfare benefits upon the occurrence of a “change in
control” (as defined in the agreements) of the Bank or Home Federal followed
within 12 months by a voluntary termination or an “involuntary termination” (as
defined in the agreements) of the officer’s employment with the Bank, whether or
not such termination occurs during the term of an agreement.
Generally,
a change in control within the meaning of the agreements occurs upon the
following events (i) acquisition of ownership of stock of the Bank or Home
Federal constituting more than 50% of the total fair market value or total
voting power of the stock; (ii) change in the effective control of the Bank or
Home Federal by acquisition of 30% or more of the total voting power of the
stock or replacement of a majority of the members of Home Federal’s Board of
Directors in certain circumstances; or (iii) change in ownership of a
substantial portion of the Bank’s assets.
When a
change in control is followed within 12 months by either a voluntary termination
or an involuntary termination, then the Bank will pay the officer in a lump sum
in cash within 31 business days after the termination an amount equal to 300% of
the officer’s base amount of compensation and will cause substantially identical
life, health and disability coverage to be continued on the officer’s behalf for
a 12-month period following termination. If the officer obtains substantially
identical coverage from another employer during that 12-month period, then the
life, health and disability coverage provided by the Bank may
cease. As of December 31, 2007, Mr. Gorski and
Mr. Farber would have been entitled to lump sum payments of $579,000 and
$540,000, respectively, and continued insurance coverage with an estimated value
of $11,367 and $834, respectively, if their employment had terminated as of that
date within 12 months following a change in control of Home
Federal.
All the
benefits prescribed in the agreements are subject to specific definitions and
compliance requirements imposed by the Internal Revenue Code of 1986, as amended
(the “Code”), including without limitation certain payment reductions to prevent
the payments from being nondeductible by the Bank for federal income tax
purposes under Section 280G of the Code and certain limitations to insure that
the timing of the payments complies either with (i) short-term deferral payment
treatment rules or voluntary window program exceptions under the Code, or (ii)
with Section 409A of the Code.
Under the
agreements, the Bank must require any successor or assign to assume and agree to
perform the agreements. The agreements also include a binding arbitration
provision for the resolution of any disputes.
The
existence of these contracts may make a merger, other business combination or
change in control of the Bank more difficult or less likely. This is because,
unless the employees are allowed to maintain their positions and authority with
the Bank, they will be entitled to payments which in the aggregate
may
be deemed
to be substantial. However, the agreements provide security to the employees,
and the Board of Directors believes that the agreements will encourage their
objective evaluation of opportunities for mergers, other business combinations
or other transactions involving a change in control of Home Federal or the Bank
since they will be in a position to evaluate such transactions without
significant concerns about the manner in which such transactions will affect
their financial security.
Compensation
of Directors
The
following table provides information concerning the compensation paid to or
earned by the members of Home Federal’s Board of Directors other than John K.
Keach, Jr. for Home Federal’s last fiscal year, whether or not
deferred:
|
|
Fees
Earned or Paid in Cash ($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
|
All
Other Compensation ($)(4)
|
|
|
John
T. Beatty
|
$24,925
|
|
—
|
$7,244
|
|
—
|
$32,169
|
|
|
William
J. Blaser
|
32,475
|
|
$49,775
|
—
|
|
—
|
82,250
|
|
|
Harold
Force
|
25,475
|
|
—
|
8,045
|
|
—
|
33,520
|
|
|
David
W. Laitinen,
|
25,925
|
|
—
|
8,143
|
|
—
|
34,068
|
|
|
John
M. Miller
|
24,500
|
|
—
|
—
|
|
—
|
24,500
|
|
|
Harvard
W. Nolting, Jr.
|
25,925
|
|
—
|
6,101
|
|
—
|
32,026
|
|
|
(1)
|
Information
on Mr. Keach, Jr., who is a Named Executive Officer, is included in
the Summary Compensation Table.
|
|
(2)
|
The
amounts reflect the dollar amount Home Federal recognized, before
forfeitures, for financial statement reporting purposes for the fiscal
year ended December 31, 2007, in accordance with FAS 123(R) and thus may
include amounts from awards granted in and prior to 2007. Assumptions used
in the calculation of these amounts are included in footnote 13 to Home
Federal’s audited financial statements for the fiscal year ended December
31, 2007, included in Home Federal’s Annual Report on Form 10−K for 2007.
Mr. Blaser’s ten-year nonqualified stock option has an option
exercise price of $28.49 per share, expires on November 28, 2016, and
vested in full on November 28,
2007.
|
|
(3)
|
This
column includes any above-market earnings on deferred compensation to
which the directors are entitled under the Directors Deferred Compensation
Plan for Outside Directors. Directors Beatty, Force and Laitinen received
interest under the plan in 2007 at the rate of 8.0% and Director Nolting
(whose benefits are currently in pay status) received interest under the
Plan in 2007 at the rate of 12%. The market rate for this plan for 2007
was 5.56% for Messrs. Beatty, Force and Laitinen and 9.12% for Mr.
Nolting. There are no changes in pension values to include in this
column.
|
|
(4)
|
The
directors received certain perquisites during 2007, but the incremental
cost of providing those perquisites did not exceed the $10,000 disclosure
threshold.
|
At
December 31, 2007, John M. Miller had outstanding a fully vested nonqualified
stock option for 13,500 shares with an option price of $22.89 which expires on
July 23, 2012. At December 31, 2007, William J. Blaser had an option for 10,000
shares with an exercise price of $28.49 per share that vested on November 28,
2007.
All of
the other non-employee directors had the following fully vested nonqualified
stock options outstanding at December 31, 2007:
|
·
|
A
stock option for 1,431 shares with an exercise price of $23.125 per share
which expires on October 27, 2008.
|
|
·
|
A
stock option for 1,431 shares with an exercise price of $21.8125 per share
which expires on October 26, 2009.
|
|
·
|
A
stock option for 1,431 shares with an exercise price of $17.575 per share
which expires on October 23, 2011.
|
|
·
|
A
stock option for 1,431 shares with an exercise price of $21.875 per share
which expires on October 22, 2012.
|
|
·
|
A
stock option for 1,431 shares with an exercise price of $27.40 per share
which expires on October 28, 2013.
|
Messrs.
Beatty, Force and Laitinen also held a stock option for 1,431 shares with an
exercise price of $15.375 per share which expires on October 24,
2010.
Directors
of Home Federal do not receive director fees. The Bank pays its directors a
quarterly retainer of $4,200 plus $550 for each regular meeting attended and
$250 for each committee meeting attended. The Chairman of Home Federal’s Audit
Committee receives a $2,000 quarterly retainer. If a director misses more than
three consecutive meetings, he is removed from the Board. Total fees paid to
directors, including director emeritus John K. Keach, Sr., for the year ended
December 31, 2007 were $173,175. Also directors with deferred compensation
agreements accrued total interest of $108,696 during 2007.
Deferred Compensation for Outside
Directors.
As of January 1, 2006, the Bank entered into deferred
compensation agreements with three of its outside directors: Harold Force, John
Beatty and David Laitinen. Under these agreements, the balance of director fees
and accrued interest for each director under a superseded deferred director fee
agreement was allocated to a separate account as of January 1, 2006. This
amount accrues interest at the annual rate prescribed by the plan which shall be
no less than 8% and no more than 12%. The balance of the director’s account
under the plan will be paid in 180 monthly installments after the director
attains age 60. Upon separation of service of a director before that time,
similar benefits will be paid after the director attains age 60. Death benefits
are also provided for in the agreement. Upon termination for cause, the director
will be entitled only to the director fees he had previously deferred, without
any interest credited thereon.
As of
December 31, 2007, the balance held in each account for each such director
was as follows:
|
|
Name of Individual
|
Balance
of Account at
December 31,
2007
|
|
|
|
David
W. Laitinen, MD
|
$339,713
|
|
|
|
Harold
Force
|
$335,623
|
|
|
|
John
T. Beatty
|
$302,209
|
|
Harvard W.
Nolting, Jr. is currently receiving benefits under a similar deferred
compensation agreement of $31,308 per year. These payments continue until
2019.
Transactions
with Related Persons
Home
Federal has adopted a Policy and Procedures With Respect to Related Person
Transactions. The Policy provides that executive officers, directors,
five-percent shareholders and their family members, and entities for which any
of those persons serve as officers or partners or in which they have a ten
percent or greater interest, must notify Home Federal’s Chief Financial Officer
before entering into transactions or other arrangements with Home Federal or any
of its affiliates (other than loans subject to Regulation O promulgated by the
Board of Governors of the Federal Reserve System) if the amount exceeds
$120,000. The Chief Financial Officer will determine whether under the
guidelines in the Policy the transaction or arrangement should be submitted to
the Audit Committee for approval. In determining whether to submit proposed
transactions to the Audit Committee for consideration, the Chief Financial
Officer will consider the relevant facts and circumstances, including the
aggregate value of the proposed
transaction,
the benefits to Home Federal of the proposed transaction and whether the terms
of the proposed transaction are comparable to the terms available to an
unrelated third party and employees generally. The Policy also includes
provisions for the review and possible ratification of transactions and
arrangements that are entered into without prior review under the
Policy.
The Bank
follows a policy of offering to its directors, officers, and employees real
estate mortgage loans secured by their principal residence, consumer loans, and,
in certain cases, commercial loans. Current law authorizes the Bank to make
loans or extensions of credit to its executive officers, directors, and
principal shareholders on the same terms that are available with respect to
loans made to all of its employees. At present, the Bank offers loans to its
executive officers, directors, and employees with an interest rate that is
generally available to the public with substantially the same terms as those
prevailing for comparable transactions. All loans to directors and executive
officers must be approved in advance by a majority of the disinterested members
of the Board of Directors. Loans to directors, executive officers and their
associates totaled approximately $1,395,850 or 2.1% of equity capital at
December 31, 2007.
During
2007, Home Federal made certain payments to S. Elaine Pollert in connection with
her termination of employment as of February 16, 2007. See “Executive
Compensation--Compensation Discussion and Analysis--Payments Upon Termination or
Change in Control” for description of those payments.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included above. Based on that review and
discussion, the Compensation Committee has recommended to Home Federal’s Board
of Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement and incorporated by reference into Home Federal’s 2007 Annual
Report on Form 10-K.
This
Report is respectfully submitted by the Compensation Committee of Home Federal’s
Board of Directors: Harvard W. Nolting, Jr., David W. Laitinen, and John M.
Miller and by the Stock Option Committee of Home Federal’s Board of Directors:
John T. Beatty, William J. Blaser, John M. Miller, Harold Force, David W.
Laitinen and Harvard W. Nolting, Jr.
Proposal
2 — Proposal to Amend our
Articles
of Incorporation to Change our Name
What
am I voting on?
Shareholders
are being asked to approve a proposed amendment to Article I of our Articles of
Incorporation to change our company’s name from “Home Federal Bancorp” to
“Indiana Community Bancorp.” Our board of directors has adopted resolutions
setting forth the proposed amendment, declaring its advisability and directing
that the proposed amendment be submitted to our shareholders for their
consideration and approval at the annual meeting. The text of the proposed
amendment is as follows:
“ARTICLE
I
NAME
The name
of the Corporation is Indiana Community Bancorp.”
What
are the purposes and effects of the proposed amendment?
Home
Federal became part of our bank’s name in 1950 when we acquired a federal thrift
charter and changed our name to Home Federal Savings and Loan Association. At a
meeting held on January 22, 2008, our board of directors concluded that the time
had come to change our name. Home Federal’s management and Board of
Directors decided to change Home Federal Bancorp’s name to Indiana Community
Bancorp because it better reflects the Bank’s service to the south central
Indiana market and the products the Bank offers its
customers. Consistent with this proposed change, the Bank’s name was
changed from HomeFederal Bank to Indiana Bank and Trust Company effective
March 1, 2008.
If the
proposed amendment is adopted by our shareholders, our company will cause
articles of amendment consistent with the text of the proposed amendment to be
filed with the office of the Indiana Secretary of State. It is anticipated that
such filing would be made promptly following the annual meeting.
After
such filing is made and the name change occurs, the trading symbol for our
Common Stock on the Nasdaq Global Market may be changed. As of the date of this
proxy statement we have reserved the trading symbol “INCB”. If the
proposed amendment is adopted by our shareholders and the name change is made,
it will not affect the validity of currently outstanding shares of our Common
Stock. The stock certificates representing such shares will remain valid, and it
will not be necessary for shareholders to surrender or exchange any stock
certificates in connection with the name change.
How
does our board of directors recommend that I vote?
Our board
of directors recommends that you vote “FOR” approval of the proposed amendment
to our articles of incorporation.
Proposal
3 — Ratification of Auditors
The Board
of Directors proposes for the ratification of the shareholders at the Annual
Meeting the appointment of BKD, LLP, certified public accountants, as
independent auditors for the fiscal year ended December 31, 2008. BKD,
LLP was engaged to serve as auditors for Home Federal for the first time in
2008. Deloitte & Touche LLP had served as our auditors since
1984 and performed the 2007 audit of our consolidated financial statements. A
representative of Deloitte is expected to be present at the Annual Meeting with
the opportunity to make a statement if he so desires. He will also be available
to respond to any appropriate questions shareholders may have.
Changes
in and Disagreements With Accountants on
Accounting
and Financial Disclosure
On
January 22, 2008, Home Federal’s Audit Committee engaged the accounting firm of
BKD, LLP to examine the consolidated financial statements of Home Federal as of
and for the year ended December 31, 2008 and Home Federal’s Board of
Directors ratified this decision. Deloitte & Touche LLP
(“Deloitte”), which had acted as the independent public accountants for the Bank
since 1984 was notified on January 18, 2008, of the Audit Committee’s
decision not to re-engage Deloitte to examine the 2008 financial statements of
Home Federal.
The audit
reports issued by Deloitte, with respect to Home Federal’s consolidated
financial statements as of and for the years ended December 31, 2006 and
December 31, 2007, did not contain an adverse opinion or disclaimer of
opinion, and were not qualified as to uncertainty, audit scope or accounting
principles. During the years ended December 31, 2006 and
December 31, 2007, or any subsequent period, there had been no disagreements
between Home Federal and Deloitte on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which
disagreements,
if not resolved to the satisfaction of Deloitte would have caused it to make a
reference to the subject matter of the disagreement in connection with its audit
report. Moreover, none of the events listed in Item 304(a)(1)(v) of
Regulation S-K occurred during the years ended December 31, 2006 and
December 31, 2007, or any subsequent period.
Prior to
its engagement, BKD, LLP had not been consulted by Home Federal as to the
application of accounting principles to a specific completed or contemplated
transaction or the type of audit opinion that might be rendered on Home
Federal’s financial statements.
Audit
Committee Report
The Audit
Committee reports as follows with respect to the audit of Home Federal’s
financial statements for the fiscal year ended December 31, 2007, included
in Home Federal’s Shareholder Annual Report accompanying this Proxy Statement
(“2007 Audited Financial Statements”):
The
Committee has reviewed and discussed Home Federal’s 2007 Audited Financial
Statements with Home Federal’s management.
The
Committee has discussed with its independent auditors for 2007, Deloitte &
Touche LLP, the matters required to be discussed by Statement on Auditing
Standards 61, as amended, which include, among other items, matters related to
the conduct of the audit of Home Federal’s financial statements.
The
Committee has received written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (which relates
to the auditor’s independence from Home Federal and its related entities) and
has discussed with the auditors the auditors’ independence from Home Federal.
The Committee considered whether the provision of services by its independent
auditors, other than audit services including reviews of Forms 10-Q, is
compatible with maintaining the auditors’ independence.
Based on
review and discussions of Home Federal’s 2007 Audited Financial Statements with
management and with the independent auditors, the Audit Committee recommended to
the Board of Directors that Home Federal’s 2007 Audited Financial Statements be
included in Home Federal’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
This
Report is respectfully submitted by the Audit Committee of Home Federal’s Board
of Directors.
Audit Committee
Members
William
J. Blaser
John T.
Beatty
Harold
Force
David W.
Laitinen
Harvard
W. Nolting, Jr.
Accountant’s
Fees
Audit Fees
. The firm
of Deloitte & Touche LLP served as Home Federal’s independent registered
public accounting firm for the fiscal years ended December 31, 2006, and
December 31, 2007. The aggregate fees billed by Deloitte & Touche
LLP for the audit of Home Federal’s financial statements included in its annual
report on Form 10-K; for the attestation of management’s assessment of internal
control, as required by the Sarbanes-Oxley Act of 2002, Section 404; and for the
review of its financial statements included in its quarterly reports on Form
10-Q for the fiscal years ended December 31, 2006, and December 31,
2007, were $338,044 and $392,305, respectively.
Audit-Related Fees
.
The aggregate fees billed in each of the fiscal years ended December 31,
2006, and December 31, 2007, for assurance and related services by
Deloitte & Touche LLP that are reasonably related to the audit or
review of Home Federal’s financial statements and that were not covered in the
Audit Fees disclosed above were $16,520 and $32,902, respectively.
Tax Fees
. The
aggregate fees billed in each of the fiscal years ended December 31, 2006,
and December 31, 2007, for professional services rendered by
Deloitte & Touche LLP for tax compliance, tax advice or tax planning
were $43,920 and $58,743, respectively.
All Other Fees
. There
were no fees billed in fiscal 2006 and fiscal 2007 for professional services
rendered by Deloitte & Touche LLP, except as disclosed above.
Audit Committee
Pre-Approval
. Home Federal’s Audit Committee formally adopted resolutions
pre-approving the engagement of Deloitte & Touche LLP to act as Home
Federal’s independent registered public accounting firm for the fiscal years
ended December 31, 2006, and December 31, 2007. The Audit Committee
has not adopted pre-approval policies and procedures in accordance with
paragraph (c) (7) (i) of Rule 2-01 of Regulation S-X, because it anticipates
that in the future the engagement of BKD, LLP will be made by the Audit
Committee and all non-audit and audit services to be rendered by BKD, LLP will
be pre-approved by the Audit Committee. One hundred percent of audit-related and
tax services for the fiscal years ended December 31, 2006 and 2007, were
pre-approved by the Audit Committee. Home Federal’s independent auditors
performed substantially all work described above with their respective
full-time, permanent employees.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires that Home Federal’s
officers and directors and persons who own more than 10% of Home Federal’s
Common Stock file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish Home Federal with copies
of all Section 16(a) forms that they file.
Based
solely on its review of the copies of the forms it received and/or written
representations from reporting persons that no Forms 5 were required for those
persons, Home Federal believes that during the fiscal year ended
December 31, 2007, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners with respect to Section 16(a)
of the 1934 Act were satisfied in a timely manner, except that David W. Laitinen
reported the sale of 2,000 shares for $28.9893 on March 5, 2007, about 5 days
late.
Shareholder
Proposals
If a
shareholder wishes to have a proposal presented at the next Annual Meeting of
Home Federal and included in the Proxy Statement and form of proxy relating to
that meeting, Home Federal must receive the proposal at its main office no later
than 120 days in advance of March 25, 2009.
A
shareholder proposal being submitted for presentation at the Annual Meeting but
not for inclusion in Home Federal’s proxy statement and form of proxy will
normally be considered untimely if it is received by Home Federal later than 60
days in advance of April 22, 2009. If, however, less than 70 days notice or
prior public disclosure of the date of the next annual meeting is given or made
to shareholders (which notice or public disclosure of the date of the meeting
shall include the date of the Annual Meeting specified in publicly available
By-Laws, if the Annual Meeting is held on such date), such proposal shall be
considered untimely if it is received by Home Federal later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. If Home Federal
receives notice of such proposal after such time, each proxy that
Home
Federal
receives will confer upon it discretionary authority to vote on the proposal in
the manner the proxies deem appropriate, even though there is no discussion of
the proposal in Home Federal’s proxy statement for the next Annual
Meeting.
Proposals
should be sent to the attention of the Secretary of Home Federal at 501
Washington Street, Columbus, Indiana 47201. All shareholder proposals are
subject to the requirements of the proxy rules under the Securities Exchange Act
of 1934 and Home Federal’s Articles of Incorporation, By-Laws and Indiana
law.
Other
Matters
Management
is not aware of any business to come before the Annual Meeting other than
those described in the Proxy Statement. However, if any other matters
should properly come before the Annual Meeting, the proxies solicited by this
Proxy Statement will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
Home
Federal will bear the cost of the solicitation of proxies. Home Federal will
reimburse brokerage firms and other custodians, nominees and fiduciaries for the
reasonable expenses they incur in sending proxy material to the beneficial
owners of the Common Stock. In addition to solicitation by mail, directors,
officers, and employees of Home Federal may solicit proxies personally or by
telephone without additional compensation.
We urge
each shareholder to complete, date and sign the proxy and return it promptly in
the enclosed envelope.
|
|
By
Order of the Board of Directors
|
|
|
|
|
|
John
K. Keach, Jr.
Chairman
of the Board, President and Chief Executive
Officer
|
March 25,
2008