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Capitol Federal Financial DEF 14A 2012

Documents found in this filing:

  1. Def 14A
  2. Graphic
  3. Graphic
  4. Graphic
cffn-def14a2013.htm







 December 20, 2012




Dear Fellow Stockholder:

On behalf of the Board of Directors and management of Capitol Federal Financial, Inc. we cordially invite you to attend our annual meeting of stockholders.  The meeting will be held at 10:00 a.m. local time on Tuesday, January 22, 2013, at the Bradbury Thompson Center, 1700 S.W. Jewell, located on the Washburn University Campus, in Topeka, Kansas.
 
We encourage you to attend the meeting in person.  Whether or not you plan to attend, however,please read the enclosed proxy statement and then complete, sign and date the enclosed proxy card and return it in the accompanying postpaid return envelope as promptly as possible.>  Alternatively, you may vote over the Internet or by telephone if the enclosed proxy card so indicates.  Your prompt response will save us additional expense in soliciting proxies and will ensure that your shares are represented at the meeting.
 
Your Board of Directors and management are committed to the success of Capitol Federal Financial, Inc. and the enhancement of your investment.  As Chairman of the Board, I want to express my appreciation for your confidence and support.
 
 
 
Very truly yours,
 
 
/s/ John B. Dicus
 
JOHN B. DICUS
Chairman of the Board, President and Chief Executive Officer


 
 
 
 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 22, 2013


NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Capitol Federal Financial, Inc. will be held as follows:
 
 
 
TIME
 
10:00 a.m. local time
Tuesday, January 22, 2013
 
 
PLACE
 
Bradbury Thompson Center
Washburn University Campus
1700 S.W. Jewell
Topeka, Kansas
 
 
ITEMS OF BUSINESS
 
(1)
 
The election of three directors.
   
(2)
An advisory (non-binding) vote on executive compensation as disclosed in the accompanying proxy statement.
   
(3)
The ratification of the appointment of Deloitte & Touche LLP as Capitol Federal Financial, Inc.’s independent auditors for the fiscal year ending September 30, 2013.
 
 
RECORD DATE
 
Holders of record of Capitol Federal Financial, Inc. common stock at the close of business on December 7, 2012 are entitled to vote at the annual meeting or any adjournment or postponement thereof.
 
 
PROXY VOTING
 
It is important that your shares be represented and voted at the annual meeting.  You can vote your shares by completing and returning the enclosed proxy card.  Registered stockholders, that is, stockholders who hold their stock in their own name, can also vote their shares over the Internet or by telephone.  If Internet or telephone voting is available to you, voting instructions are printed on the proxy card sent to you. Regardless of the number of shares you own, your vote is very important.  Please act today.

 
 
BY ORDER OF THE BOARD OF DIRECTORS
 
 
/s/ John B. Dicus
 
JOHN B. DICUS
Chairman of the Board, President and Chief Executive Officer

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be held on January 22, 2013:

The proxy statement and annual report to stockholders are available at
http://ir.capfed.com/docs.aspx?iid=4044379

Topeka, Kansas
December 20, 2012



 
 
 
 

CAPITOL FEDERAL FINANCIAL, INC.
700 S. Kansas Avenue
Topeka, Kansas 66603
(785) 235-1341
_______________________________

PROXY STATEMENT
_______________________________

INTRODUCTION

The Capitol Federal Financial, Inc. Board of Directors is using this proxy statement to solicit proxies from the holders of the Company’s common stock for use at the Company’s upcoming annual meeting of stockholders.  The annual meeting of stockholders will be held at 10:00 a.m. local time on Tuesday, January 22, 2013 at the Bradbury Thompson Center, 1700 S.W. Jewell, located on the Washburn University Campus, in Topeka, Kansas.  At the meeting, stockholders will be asked to vote on three proposals.  The proposals are set forth in the accompanying Notice of Annual Meeting of Stockholders and are described in more detail below.  Stockholders also will consider any other matters that may properly come before the meeting, although the Board of Directors knows of no other business to be presented.  Capitol Federal Financial, Inc. is referred to in this proxy statement from time to time as the “Company,” “we,” “us” or “our.”  Certain of the information in this proxy statement relates to Capitol Federal Savings Bank (“Capitol Federal Savings” or the “Bank”), a wholly owned subsidiary of the Company.
 
On December 21, 2010, the Company completed its conversion (the “Conversion”) from the mutual holding company structure and related public stock offering and became a stock form holding company that is 100% owned by public stockholders.  As a result of the Conversion, the Company, a newly formed Maryland corporation, became the holding company for Capitol Federal Savings, and Capitol Federal Financial (formerly the mid-tier holding company of Capitol Federal Savings) and Capitol Federal Savings Bank MHC (a mutual holding company that owned a majority of the stock of Capitol Federal Financial) have ceased to exist. All outstanding shares of Capitol Federal Financial common stock (other than those owned by Capitol Federal Savings Bank MHC, which have been cancelled) were converted into the right to receive 2.2637 shares of Company common stock (the “Conversion Exchange Ratio”).  References in this proxy statement to the Company prior to the date of the Conversion refer to Capitol Federal Financial.
 
By submitting your proxy, either by executing and returning the enclosed proxy card or by voting electronically via the Internet or by telephone, you authorize the Company’s Board of Directors to represent you and vote your shares at the meeting in accordance with your instructions.  The Board of Directors also may vote your shares to adjourn the meeting from time to time and will be authorized to vote your shares at any adjournments or postponements of the meeting.
 
This proxy statement and the accompanying materials are first being sent to stockholders on or about December 20, 2012.
 
Your proxy vote is important.  Whether or not you plan to attend the meeting, please submit your proxy promptly in the enclosed envelope, via the Internet or by telephone.
 
INFORMATION ABOUT THE ANNUAL MEETING

What is the purpose of the annual meeting?
 
At the annual meeting, stockholders will be asked to vote on the following proposals:
 
 
Proposal 1.
The election of three directors of the Company.
 
Proposal 2.
An advisory (non-binding) vote on executive compensation as disclosed in this proxy statement.
 
 
 
 
 
 
 
 

 
 
Proposal 3.
The ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending September 30, 2013.
     
Stockholders also will transact any other business that may properly come before the meeting.  Members of our management team will be present at the meeting to respond to appropriate questions from stockholders.
 
How does the Board of Directors recommend that I vote?
 
The Board of Directors recommends that you vote “FOR” the election of the director nominees named in this proxy statement, “FOR” the advisory vote on executive compensation and “FOR” the ratification of the appointment of Deloitte & Touche LLP.
 
Who is entitled to vote?
 
The record date for the meeting is December 7, 2012.  Only stockholders of record at the close of business on that date are entitled to notice of and to vote at the meeting.  The only class of stock entitled to be voted at the meeting is the Company’s common stock.  Each outstanding share of common stock is entitled to one vote for all matters before the meeting; provided, however, that pursuant to Section D of Article 5 of the Company’s charter, no person who beneficially owns more than 10% of the shares of the Company’s common stock outstanding as of that date may vote shares in excess of this amount.  At the close of business on the record date there were 152,115,857 shares of common stock outstanding.
 
What if my shares are held in “street name” by a broker?
 
If you are the beneficial owner of shares held in “street name” by a broker, your broker, as the record holder of the shares, is required to vote those shares in accordance with your instructions.  If you do not give instructions to your broker, your broker nevertheless will be entitled to vote the shares with respect to “discretionary” items, but will not be permitted to vote your shares with respect to any “non-discretionary” items.  In the case of non-discretionary items, the shares will be treated as “broker non-votes.”  Whether an item is discretionary is determined by the exchange rules governing your broker.  It is expected that the ratification of the appointment of Deloitte & Touche LLP will be considered a discretionary item and that all other matters being voted upon will be considered non-discretionary items.
 
What if my shares are held in the Company’s employee stock ownership plan?
 
We maintain an employee stock ownership plan which beneficially owned approximately 6.4% of the Company’s common stock as of the record date.  Employees of the Company and Capitol Federal Savings participate in the employee stock ownership plan.  Each participant may instruct the trustee of the plan how to vote the shares of common stock allocated to his or her account under the employee stock ownership plan.  If a participant properly executes the voting instruction card distributed by the trustee, the trustee will vote the participant’s shares in accordance with the instructions.  Where properly executed voting instruction cards are returned to the trustee with no specific instruction as to how to vote at the annual meeting, the trustee will vote the shares “FOR” the election of the director nominees named in this proxy statement, “FOR” the advisory vote on executive compensation and “FOR” the ratification of the appointment of Deloitte & Touche LLP.  In the event the participant fails to give timely voting instructions to the trustee with respect to the voting of the common stock that is allocated to his or her employee stock ownership plan account, and in the case of shares held in the employee stock ownership plan but not allocated to any participant’s account, the trustee will vote such shares in the same proportion as directed by the participants who directed the trustee as to the manner of voting their allocated shares in the employee stock ownership plan with respect to each proposal.
 
How many shares must be present to hold the meeting?
 
A quorum must be present at the meeting for any business to be conducted.  The presence at the meeting, in person or by proxy, of the holders of at least one-third of the shares of the Company’s common stock outstanding on the record date will constitute a quorum.  Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.
 

 
2
 
 

What if a quorum is not present at the meeting?
 
If a quorum is not present at the scheduled time of the meeting, the stockholders who are represented may adjourn the meeting until a quorum is present.  The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given.  An adjournment will have no effect on the business that may be conducted at the meeting.
 
How do I vote?
 
 
 
 
4.  You may vote in person at the meeting>.  If you plan to attend the annual meeting and wish to vote in person, we will give you a ballot at the annual meeting.  However, if your shares are held in the name of your broker, bank or other nominee, you will need to obtain a proxy form from the institution that holds your shares indicating that you were the beneficial owner of the Company’s common stock on December 7, 2012, the record date for voting at the annual meeting.
 
Can I vote by telephone or on the Internet if I am not a registered stockholder?
 
If your shares are held in “street name” by a broker or other nominee, you should check the voting form used by that firm to determine whether you will be able to vote by telephone or on the Internet.
 
Can I change my vote after I submit my proxy?
 
If you are a registered stockholder, you may revoke your proxy and change your vote at any time before the polls close at the meeting by:
 
 
·
signing another proxy with a later date;
 
·
voting by telephone or on the Internet -- your latest telephone or Internet vote will be counted;
 
·
giving written notice of the revocation of your proxy to the Secretary of the Company prior to the annual meeting; or
 
·
voting in person at the annual meeting.

If you have instructed a broker, bank or other nominee to vote your shares, you must follow directions received from your nominee to change those instructions.
 
What if I do not specify how my shares are to be voted?
 
If you are a registered stockholder and you submit an executed proxy but do not indicate any voting instructions, your shares will be voted:
 
 
·
FOR the election of the three director nominees named in this proxy statement;
 
·
FOR the advisory vote on executive compensation; and
 
·
FOR the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending September 30, 2013.

 
3
 
 

Will any other business be conducted at the annual meeting?
 
The Board of Directors knows of no other business that will be conducted at the meeting.  If any other proposal properly comes before the stockholders for a vote at the meeting, however, the proxy holders will vote your shares in accordance with their best judgment.
 
How many votes are required to approve the proposals?
 
Directors are elected by a plurality of the votes cast, which means that the director nominees who receive the highest number of votes for the positions to be filled will be elected.  The advisory vote on executive compensation and the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors each requires the affirmative vote of the majority of votes cast on the matter.
 
How will withheld votes and abstentions be treated?
 
If you withhold authority to vote for one or more director nominees or if you abstain from voting on either of the other proposals, your shares will still be included for purposes of determining whether a quorum is present.  If you abstain from voting on the advisory vote on executive compensation or the ratification of the appointment of the independent auditors, your shares will be included in the number of shares voting on that proposal and, consequently, your abstention will have the same practical effect as a vote against that proposal.
 
How will broker non-votes be treated?
 
Shares treated as broker non-votes on one or more proposals will be included for purposes of calculating the presence of a quorum.  Otherwise, shares represented by broker non-votes will be treated as shares not entitled to vote on a proposal.  Consequently, any broker non-votes will have the following effects:
 
 
Proposal 1.
Broker non-votes will have no effect on the election of directors.
     
 
Proposals 2
and 3.
Broker non-votes will not be counted in determining the number of shares necessary for approval of the advisory vote on executive compensation or for the ratification of the appointment of the Company’s independent auditors and will, therefore, reduce the absolute number, but not the percentage, of the affirmative votes required for the approval of each of these proposals.
     
STOCK OWNERSHIP
 
The following table presents information regarding the beneficial ownership of the Company’s common stock, as of December 7, 2012, by:
 
 
·
each beneficial owner of more than 5% of the outstanding shares of the Company’s common stock known to the Company;
 
 
·
each director of the Company and nominee for election;
 
 
·
each executive officer of the Company named in the “Summary Compensation Table” appearing below; and
 
 
·
all of the executive officers, directors and director nominees as a group.
 
Except as indicated below, the address of each of the beneficial owners is the same address as that of the Company.  An asterisk (*) in the table indicates that the individual beneficially owns less than one percent of the outstanding common stock of the Company.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”).  As of December 7, 2012, there were 152,115,857 shares of the Company’s common stock outstanding.
 

 
4
 
 


 
Name of Beneficial Owner
 
Beneficial
Ownership(1) (11)
   
Percent of
Common Stock
Outstanding
Greater than Five Percent Beneficial Owners
         
American Century Companies, Inc. et al.
4500 Main Street, 9th Floor
Kansas City, Missouri  64111
 
15,562,542
(2)
 
10.2%
Capitol Federal Financial, Inc. Employee Stock Ownership Plan
 
9,744,720
(3)
 
6.4%
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, Maryland  21202
 
8,892,690
(4)
 
5.8%
Directors, Director Nominees and Executive Officers
         
John B. Dicus, Chairman, President, Chief Executive Officer
 and Director
 
1,417,951
(5)
 
*
Morris J. Huey, II, Director
 
254,408
   
*
Jeffrey M. Johnson, Director
 
166,835
(6)
 
*
James G. Morris, Director Nominee
 
0
   
*
Michael T. McCoy, M.D., Director
 
148,044
   
*
Reginald L. Robinson, Director
 
8,750
   
*
Jeffrey R. Thompson, Director
 
162,288
(7)
 
*
Marilyn S. Ward, Director
 
181,088
   
*
R. Joe Aleshire, Executive Vice President for Retail Operations
 
136,412
   
*
Larry K. Brubaker, Former Executive Vice President for Corporate Services
 
498,529
(8)
 
*
Rick C. Jackson, Executive Vice President and Chief Lending
 Officer
 
202,014
 (9)
 
*
Kent G. Townsend, Executive Vice President,
 Chief Financial Officer and Treasurer
 
244,709
(10)
 
*
Directors, director nominees and executive officers of
 the Company as a group (15 persons)
 
3,631,905
   
2.4%
___________________
 
(1)
Included in the shares beneficially owned by the directors, director nominees and executive officers named in the table are options to purchase shares of the Company’s common stock which are currently exercisable or which will become exercisable within 60 days after December 7, 2012, as follows: Mr. Dicus – 33,425 shares; Mr. Huey – 3,750 shares; Mr. Johnson – 116,935 shares; Dr. McCoy – 116,935 shares; Mr. Robinson – 3,750 shares; Mr. Thompson – 116,935 shares; Ms. Ward – 3,750 shares; Mr. Aleshire – 15,000 shares; Mr. Brubaker – 15,400 shares; Mr. Jackson – 85,182 shares; and Mr. Townsend – 49,664 shares.
(2)
As reported in a Schedule 13G amendment filed with the SEC on December 7, 2012 by American Century Companies, Inc., American Century Investment Management, Inc., American Century Capital Portfolios, Inc. and Stowers Institute for Medical Research.  With respect to the shares listed in the table, American Century Companies, Inc., American Century Investment Management, Inc. and Stowers Institute for Medical Research each reported having sole voting power as to 15,157,766 shares and sole dispositive power as to 15,562,542 shares and American Century Capital Portfolios, Inc. reported having sole voting power and sole dispositive power as to 12,617,937 shares.
(3)
Of the 9,744,720 shares held by the employee stock ownership plan as of December 7, 2012, 4,732,384 were allocated to participant accounts.  Each participant may instruct the trustee of the plan how to vote the shares of common stock allocated to his or her account.  In the event the participant fails to give timely voting instructions to the trustee with respect to the voting of the common stock that is allocated to his or her employee stock ownership plan account, and in the case of shares held in the employee stock ownership plan but not allocated to any participant’s account, the trustee will vote such shares in the same proportion as directed by the participants who directed the trustee as to the manner of voting their allocated shares in the employee stock ownership plan with respect to each proposal.
(4)
As reported in a Schedule 13G filed with the SEC on February 14, 2012 by T. Rowe Price Associates, Inc. (“Price Associates”).  With respect to the shares listed in the table, Price Associates reported having sole voting power as to 990,092 shares and sole dispositive power as to 8,892,690 shares.  According to Price Associates, these securities are owned by various individual and institutional investors for which Price Associates serves as an investment advisor with the power to direct investments and/or sole power to vote the securities.  For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims beneficial ownership of such securities.
 (5)
Mr. Dicus has pledged 40,000 of his shares for a line of credit with a third party financial institution unaffiliated with the Company.

 
5
 
 



(6)
Of the shares beneficially owned by Mr. Johnson, 49,900 are held in brokerage accounts pursuant to which they may serve as security for margin loans.
(7)
Of the shares beneficially owned by Mr. Thompson, 22,862 are held in a brokerage account pursuant to which they may serve as security for a margin loan.
(8)
Includes 398,956 shares held in family trusts of which Mr. Brubaker is a co-trustee, 4,239 shares held solely by Mr. Brubaker’s spouse and 742 shares which Mr. Brubaker holds jointly with his son.  Mr. Brubaker served as an executive officer through his retirement date of September 30, 2012.
(9)
Of the shares beneficially owned by Mr. Jackson, 51,698 are held in a brokerage account pursuant to which they may serve as security for a margin loan.
(10)
Mr. Townsend has pledged 97,339 of his shares as collateral for a loan from a third party financial institution unaffiliated with the Company.
(11)
In the case of directors, director nominees and executive officers, both individually and as a group, includes shares held directly, as well as shares held by and jointly with certain family members, shares held in retirement accounts, shares held by trusts of which the individual or group member is a trustee or substantial beneficiary or shares held in another fiduciary capacity with respect to which shares the individual or group member may be deemed to have sole or shared voting and/or investment powers.  The shares beneficially owned by directors, director nominees and executive officers as a group also include an aggregate of 646,408 shares of common stock issuable upon exercise of stock options which are currently exercisable or which will become exercisable within 60 days after December 7, 2012.
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
6
 
 

PROPOSAL I
 
ELECTION OF DIRECTORS
 
The Company’s Board of Directors is currently composed of seven members, each of whom is also a director of Capitol Federal Savings.  The number of directors of the Company will increase to eight as of the time of the annual meeting.  Approximately one-third of the directors are elected annually.  Directors of the Company are elected to serve for a three-year term or until their respective successors are elected and qualified.  The Company’s bylaws provide that no person who has reached age 75 may be elected or re-elected to the Board of Directors.
 
The following table sets forth certain information regarding the composition of the Company’s Board of Directors, including each director’s term of office.  The Board of Directors, acting on the recommendation of the Nominating Committee, has recommended and approved the nominations of John B. Dicus, James G. Morris and Jeffrey R. Thompson to serve as directors, each for a term of three years to expire at the annual meeting of stockholders to be held in 2016.  It is intended that the proxies solicited on behalf of the Board of Directors (other than proxies in which the authority to vote for a nominee is withheld) will be voted at the annual meeting “FOR” the election of these director nominees.  If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute nominee as the Board of Directors, acting on the recommendations of the Nominating Committee, may recommend.  At this time, the Board of Directors knows of no reason why any nominee might be unable to serve if elected.  Except as disclosed in this proxy statement, there are no arrangements or understandings between any nominee and any other person pursuant to which the nominee was selected.
 
Name
 
Age(1)
 
Position(s) Held in the
Company
 
Director
Since(2)
 
Term of
Office
Expires
                 
NOMINEES
                 
John B. Dicus
 
51
 
Chairman of the Board, President
and Chief Executive Officer
 
1989
 
2016
James G. Morris
 
58
 
Nominee
 
---
 
2016
Jeffrey R. Thompson
 
51
 
Director
 
2004
 
2016
 
DIRECTORS REMAINING IN OFFICE
                 
Jeffrey M. Johnson
 
46
 
Director
 
2005
 
2014
Michael T. McCoy, M.D.
 
63
 
Director
 
2005
 
2014
Marilyn S. Ward
 
73
 
Director
 
1977
 
2014
Morris J. Huey, II
 
63
 
Director
 
2009
 
2015
Reginald L. Robinson
 
55
 
Director
 
2012
 
2015
_________________________

(1)
As of September 30, 2012.
(2)
Includes service as a director of Capitol Federal Savings.

Business Experience and Qualifications of Our Directors
 
The Board believes that the many years of service that our directors collectively have at the Company and Capitol Federal Savings is one of their most important qualifications for service on our Board.  This service has given them extensive knowledge of the banking business and of the Company.  Furthermore, their service on our Board committees, especially in areas of audit, compensation and stock benefits is critical to their ability to oversee the management of Capitol Federal Savings by our executive officers.  Service on the Board by our Chief Executive Officer is critical to aiding the outside directors’ understanding of the issues that are common in the banking business.  Each outside director brings special skills, experience and expertise to the Board as a result of their other business activities and associations.  The business experience of each of our directors and nominees for at least the past five years and the experience, qualifications, attributes, skills and areas of expertise of each director and
 

 
7
 
 

nominee that further supports his or her service as a director are set forth below. Unless otherwise indicated, each director has held his or her current position for the past five years.
 
  John B. Dicus.> Mr. Dicus became Chief Executive Officer of Capitol Federal Savings and the Company effective January 1, 2003 and became Chairman of the Board of Directors of Capitol Federal Savings and the Company in January 2009.  Prior to his appointment as Chief Executive Officer, he served as President and Chief Operating Officer for Capitol Federal Savings since 1996 and for the Company since its inception in March 1999.  Before that, he served as Executive Vice President of Corporate Services for Capitol Federal Savings for four years.  He has been with Capitol Federal Savings in various other positions since 1985.  Mr. Dicus’s many years of service in all areas of the operations of Capitol Federal Savings and his duties as President and Chief Executive Officer of the Company and Capitol Federal Savings bring a special knowledge of the financial, economic and regulatory challenges the Company faces and he is well suited to educating the Board on these matters.  
 
James G. Morris.>  Mr. Morris, a certified public accountant, retired from KPMG LLP on September 30, 2012 after having served as partner-in-charge of the financial services practice of the firm’s Kansas City office.  Mr. Morris joined the firm in 1976 (when it was known as Peat Marwick Mitchell & Co.) as an auditor and was promoted to partner in 1988.  At KPMG, Mr. Morris served a wide range of financial services clients, including banks, thrifts, mortgage companies, investment advisors and real estate companies.  Mr. Morris’s accounting and auditing background and extensive experience working with companies in the financial services industry would make him a valuable addition to the Board.  Mr. Morris was recommended to the Nominating Committee by John B. Dicus, the Company’s President and Chief Executive Officer.
 
Jeffrey R. Thompson.>  In 2007, Mr. Thompson became Chief Executive Officer of Salina Vortex Corp., a Salina, Kansas-based manufacturing company, after having served as Chief Financial Officer of that company since 2002.  From 2001 to 2002, he served as Vice President, Supply Chain, for The Coleman Company, Wichita, Kansas, a manufacturer and marketer of consumer products.  From 1992 to 2001, he served in a variety of capacities for Koch Industries, Inc., Wichita, Kansas, including President of Koch Financial Services, Inc. from 1998 to 2001.  From 1986 to 1992, he worked in several positions for Chrysler Capital Public Finance, Kansas City, Missouri, primarily in the areas of originating, underwriting and servicing tax-exempt municipal leases.  Mr. Thompson has over 25 years of business experience, including 20 years in the financial services business and 15 years with profit and loss responsibility in manufacturing companies.  He brings general business, financial and risk management skills to Capitol Federal Savings, including knowledge of compensation matters, which is important to his service on our Compensation Committee.  Mr. Thompson is a certified public accountant and his accounting knowledge and experience is important to his service on our Audit Committee.  His participation in the Wichita, Kansas business community for over 19 years brings knowledge of the local economy and business opportunities for Capitol Federal Savings.
 
Jeffrey M. Johnson.>  Mr. Johnson is President of Flint Hills National Golf Club, Andover, Kansas, a position he has held since March 2003.  From March 1997 until joining Flint Hills, Mr. Johnson was an investment advisor with Raymond James Financial Services in Wichita, Kansas.  Mr. Johnson’s extensive knowledge of investments and the regulated financial services industry supports the Board’s and the Audit Committee’s knowledge in those areas.  Before 1997, he served in a variety of restaurant management positions with Lone Star Steakhouse & Saloon, Inc. and Coulter Enterprises, Inc.  Mr. Johnson is also part-owner of several restaurants in Lawrence, Manhattan and Wichita, Kansas and parts of Texas.  He brings general business, financial and risk management skills to Capitol Federal Savings, including knowledge of compensation matters, which is important to his service on our Compensation Committee.  His participation in the Wichita, Kansas business community and his service on local non-profit boards for over 15 years bring knowledge of the local economy and business opportunities for Capitol Federal Savings.
 
 

 
8
 
 

Medical Society, the American Academy of Orthopedic Surgeons and the American Orthopedic Society for Sports Medicine.
 
Marilyn S. Ward.> From 1985 until her retirement in 2004, Ms. Ward was Executive Director of ERC/Resource & Referral, a family resource center located in Topeka, Kansas, where she was responsible for financial operations, including fund-raising, budgeting and grant writing.  Ms. Ward is a past president of the board of Child Care Aware of Kansas, a state-wide organization that oversees the Kansas network of child care resource and referral agencies, where she was involved in overseeing financial and accounting matters.  Ms. Ward also is a past president of the board and the executive committee of the Kansas Children’s Service League Foundation, which oversees and manages the foundation funds of the organization.  She brings general business, financial and accounting skills to Capitol Federal Savings, including knowledge of compensation matters, which is important to her service on our Audit and Compensation Committees.  
 
Morris J. Huey, II.>  Mr. Huey retired from Capitol Federal Savings in January 2010.  From June 2002 until his retirement, Mr. Huey served as Executive Vice President and Chief Lending Officer of Capitol Federal Savings and President of Capitol Funds, Inc., a wholly owned subsidiary of Capitol Federal Savings.  From August 2002 until his retirement, he also served as President of Capitol Federal Mortgage Reinsurance Company, a wholly owned subsidiary of Capitol Funds, Inc.  Prior to that, he served as the Central Region Lending Officer since joining Capitol Federal Savings in 1991.  Mr. Huey’s many years of service in various areas of Capitol Federal Savings’s operations and his duties as Executive Vice President and Chief Lending Officer of Capitol Federal Savings bring a special knowledge of the financial, economic and regulatory challenges the Company faces and he is well suited to educating the Board on these matters.
 
Reginald L. Robinson.  >Since 2010, Mr. Robinson has served as a Professor of Law at the Washburn University School of Law and as the Inaugural Director of the school’s Center for Law and Government.  Between 2002 and 2010, Mr. Robinson served as President and Chief Executive Officer of the Kansas Board of Regents, which governs the state’s six universities, 19 community colleges, six technical colleges and municipal university.  From 1998 to 2002, Mr. Robinson held dual positions at the University of Kansas, serving as Chief of Staff to the Chancellor and as a Visiting Associate Professor of Law.  From 1993 to 1998, Mr. Robinson held several senior positions with the United States Department of Justice.  From 1988 to 1993, Mr. Robinson served as an Associate Professor of Law at the University of Kansas.  Mr. Robinson’s strong legal background and executive experience make him a valuable member of the Board.
 
Director Independence
 
The Company’s Board of Directors has determined that the following directors, constituting a majority of the Board, are “independent directors,” as that term is defined in Rule 5605 of the Marketplace Rules of the NASDAQ Stock Market (“NASDAQ”): Directors Johnson, McCoy, Robinson, Thompson and Ward.  If he is elected at the annual meeting, Mr. Morris also will be considered an “independent director.”  Mr. Huey, who retired as an executive officer of the Company in January 2010, will be considered an “independent director” following the third anniversary of his retirement date in January 2013.
 
Board Leadership Structure and Role in Risk Oversight
 
The Company currently combines the positions of Chief Executive Officer and Chairman into one position.  The Company does not have a lead outside director.  The Company believes that this structure is appropriate because of the primarily singular operating environment of the Company, with the Company’s focus on being a provider of retail financial services.  Having the Chief Executive Officer and Chairman involved in the daily operations of this focused line of operations improves the communication between management and the Board and ensures that the Board’s interest is represented in the daily operations of the Company, particularly with regard to risk management.
 
Risk is inherent with the operation of every financial institution, and how well an institution manages risk can ultimately determine its success.  The Company faces a number of risks, including but not limited to credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk.  The Company’s risk areas
 

 
9
 
 

primarily involve the retail component of the Bank through its retail financial services and focus on single-family lending, including originated and purchased loans.
 
Management is responsible for the day-to-day management of the risks the Company faces, while the Board has ultimate responsibility for the oversight of risk management.  The Board oversees risk through the annual review of all policies of the Bank and Company.  In addition, monthly, quarterly and annual reports are prepared for, presented to and reviewed with the Board addressing all major risk and compliance areas.  Policies of the Board require risk assessments to be completed, the results of which are generally summarized and presented to the Board or a committee of the Board.  The executive officers responsible for managing the various risks in the Bank and Company present reports to the Board as required by policy or as needed.
 
The Board has integrated the oversight of certain risk areas with the responsibilities of the Audit Committee and the Compensation Committee. The Audit Committee works with the independent Director of Internal Audit to structure risk-based audits, the reports of which are presented to the Audit Committee, and progress toward the approved audit plan is reviewed and the committee is updated at least quarterly.   In attempting to determine the appropriate levels and forms of compensation provided to the Bank’s and the Company’s officers and employees, the Compensation Committee considers whether compensation or incentive plans encourage excessive risk taking.
 
Board Meetings and Committees
 
Meetings of the Company’s Board of Directors are generally held on a quarterly basis. Meetings of Capitol Federal Savings’s Board of Directors, the membership of which is identical to the Company’s Board of Directors, are generally held on a monthly basis.  During the fiscal year ended September 30, 2012, the Board of Directors of the Company held nine meetings and the Board of Directors of Capitol Federal Savings held 12 meetings.  During fiscal year 2012, no incumbent director attended fewer than 75% of the aggregate of the total number of meetings of each Board during the period he or she was a director and the total number of meetings held by the committees of each Board on which committees he or she served during the period in which he or she served.
 
The Company’s Board of Directors has standing Executive, Compensation, Stock Benefit, Audit and Nominating Committees.  The following is a summary of these committees.
 
The Executive Committee is currently comprised of Directors Dicus (Chairperson), Robinson, Thompson and Ward.  The Executive Committee meets on an as needed basis and exercises the power of the Board of Directors between Board meetings, to the extent permitted by applicable law.  This committee is responsible for formulating and implementing policy decisions, subject to review by the entire Board of Directors.  The Executive Committee did not meet during fiscal year 2012.
 
The Compensation Committee is currently comprised of Directors Thompson (Chairperson), Johnson, McCoy, Robinson and Ward, each of whom is an “independent director,” as that term is defined in the NASDAQ Marketplace Rules.  The Compensation Committee is responsible for reviewing and evaluating executive compensation and administering the Company’s compensation and benefit programs.  The Compensation Committee also is responsible for:
 
 
·
reviewing from time to time the Company’s compensation plans and, if the Committee believes it to be appropriate, recommending that the Board amend these plans or adopt new plans;
 
 
·
annually reviewing and approving corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluating the Chief Executive Officer’s performance in light of these goals and objectives and recommending to the Board the Chief Executive Officer’s compensation level based on this evaluation;
 
 
·
overseeing the evaluation of management, and recommending to the Board the compensation for  executive officers and other key members of management.  This includes evaluating performance following the end of incentive periods and recommending to the Board specific awards for executive officers;
 

 
10
 
 

 
·
recommending to the Board the appropriate level of compensation for directors;
 
 
·
administering any benefit plan which the Board has determined should be administered by the Committee; and
 
 
·
reviewing, monitoring and reporting to the Board, at least annually, on management development efforts to ensure a pool of candidates for adequate and orderly management succession.
 
The Compensation Committee operates under a formal written charter, a copy of which is available on the Company’s website, at www.capfed.com, by clicking “Investor Relations” and then “Corporate Governance.”  In fiscal year 2012, this committee met five times at the holding company level; the Compensation Committee for Capitol Federal Savings, which serves the same function and has the identical makeup, also met five times during fiscal year 2012.
 
The charter of the Compensation Committee does not specifically provide for delegation of any of the authorities or responsibilities of the committee.  For a discussion of the role of executive offers in setting executive pay, see “Compensation Discussion and Analysis—Role of Management.”
 
The Stock Benefit Committee is currently comprised of Directors Johnson (Chairperson), McCoy, Robinson, Thompson and Ward.  The Stock Benefit Committee is principally responsible for administering the Company’s 2012 Equity Incentive Plan, 2000 Stock Option and Incentive Plan and 2000 Recognition and Retention Plan.  Effective upon the approval of the 2012 Equity Incentive Plan at the Company’s last annual meeting of stockholders, no future awards may be granted under the 2000 Stock Option and Incentive Plan or the 2000 Recognition and Retention Plan.  This committee met six times during fiscal year 2012.
 
The Audit Committee is currently comprised of Directors Ward (Chairperson), Johnson, McCoy, Robinson and Thompson, each of whom is “independent,” as independence for audit committee members is defined in the NASDAQ Marketplace Rules.  The Company’s Board of Directors has determined that Mr. Thompson is an “audit committee financial expert,” as defined in the SEC’s rules.  If he is elected at the annual meeting, Mr. Morris also will qualify as an “audit committee financial expert.”
 
The Audit Committee operates under a written charter adopted by the full Board of Directors, a copy of which is available on the Company’s website, www.capfed.com, by clicking “Investor Relations” and then “Corporate Governance.” The Audit Committee is appointed by the Company’s Board of Directors to provide assistance to the Board in fulfilling its oversight responsibility relating to the integrity of the Company’s consolidated financial statements and the financial reporting processes, the systems of internal accounting and financial controls, compliance with legal and regulatory requirements, the annual independent audit of the Company’s consolidated financial statements, the independent auditors’ qualifications and independence, the performance of the Company’s internal audit function, the performance of the independent (external) auditors and any other areas of potential financial risk to the Company specified by its Board of Directors.  The Audit Committee also is responsible for hiring, retaining and terminating the Company’s independent auditors.  The Audit Committee met eight times in fiscal year 2012.
 
The Nominating Committee is comprised of Directors McCoy (Chairperson), Johnson, Robinson, Thompson and Ward, each of whom is an “independent director,” as that term is defined in the NASDAQ Marketplace Rules.  The Nominating Committee is responsible for identifying and recommending director candidates to serve on the Board of Directors.  Final approval of director nominees is determined by the full Board, based on the recommendations of the Nominating Committee.  The nominees for election at the meeting identified in this proxy statement were recommended to the Board by the Nominating Committee.  The Nominating Committee met three times during fiscal year 2012.
 
The Nominating Committee operates under a formal written charter adopted by the Board, a copy of which is available on the Company’s website, www.capfed.com, by clicking “Investor Relations” and then “Corporate Governance.”   The Nominating Committee has the following responsibilities under its charter:
 

 
11
 
 
 
 


 
(i)
recommend to the Board the appropriate size of the Board and assist in identifying, interviewing and recruiting candidates for the Board;
     
 
(ii)
recommend candidates (including incumbents) for election and appointment to the Board of Directors, subject to the provisions set forth in the Company’s charter and bylaws relating to the nomination or appointment of directors, based on the following criteria: business experience, education, integrity and reputation, independence, conflicts of interest, diversity, age, number of other directorships and commitments (including charitable organizations), tenure on the Board, attendance at Board and committee meetings, stock ownership, specialized knowledge (such as an understanding of banking, accounting, marketing, finance, regulation and public policy) and a commitment to the Company’s communities and shared values, as well as overall experience in the context of the needs of the Board as a whole.  The Company’s Board of Directors looks for diversity among its members by ensuring directors have backgrounds with diverse business experience, living in our different local geographic markets with sound business experience in many areas of operations of business.  The Board looks for experience from individuals with business experience from the top levels of a business, understanding of financial concepts, human resource, marketing and customer service common among all businesses;
     
 
(iii)
review nominations submitted by stockholders, which have been addressed to the Company’s Secretary, and which comply with the requirements of the Company’s charter and bylaws.  Nominations from stockholders will be considered and evaluated using the same criteria as all other nominations;
     
 
(iv)
annually recommend to the Board committee assignments and committee chairs on all committees of the Board, and recommend committee members to fill vacancies on committees as necessary; and
     
 
(v)
perform any other duties or responsibilities expressly delegated to the Committee by the Board.

 
Nominations of persons for election to the Board of Directors may be made only by or at the direction of the Board of Directors or by any stockholder entitled to vote for the election of directors who complies with the notice procedures.  Pursuant to the Company’s bylaws, nominations for directors by stockholders must be made in writing and received by the Secretary of the Company at the Company’s principal executive offices no earlier than 120 days prior to the meeting date and no later than 90 days prior to the meeting date. If, however, less than 100 days’ notice or public announcement of the date of the meeting is given or made to stockholders, nominations must be received by the Company not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting was mailed or otherwise transmitted or the day on which public announcement of the date of the meeting was first made. In addition to meeting the applicable deadline, nominations must be accompanied by certain information specified in the Company’s bylaws.
 
Stockholder Communications with Directors
 
Stockholders may communicate with the Board of Directors by writing to: James D. Wempe, Investor Relations, Capitol Federal Financial, Inc., 700 S. Kansas Avenue, Topeka, Kansas 66603.
 
Board Member Attendance at Annual Stockholder Meetings
 
Although the Company does not have a formal policy regarding director attendance at annual stockholder meetings, directors are expected to attend these meetings absent extenuating circumstances.  All directors of the Company attended last year’s annual meeting of stockholders.
 

 
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Director Compensation
 
The members of the Boards of Directors of Capitol Federal Savings and the Company are identical. Each non-employee director receives an annual retainer, paid monthly, one-half of which is for his or her service on Capitol Federal Savings’s Board of Directors and one-half of which is for his or her service on the Company’s Board of Directors.  During fiscal year 2012, the combined annual retainer was $50,000 ($25,000 for service on Capitol Federal Savings’s Board of Directors and $25,000 for service on the Company’s Board of Directors). No additional fees are paid for attending Board or Board committee meetings.  Ms. Ward receives $1,000 for serving as the Audit Committee chair.  Each outside director receives $1,000 for each meeting attended concerning Capitol Federal Savings and/or Company business that is outside of board meetings.  During fiscal year 2012, John B. Dicus, Chairman, President and Chief Executive Officer, was paid $12,000 by Capitol Federal Savings and $12,000 by the Company ($24,000 in total) for his service as a director of Capitol Federal Savings and the Company.
 
The following table sets forth certain information regarding the compensation earned by or awarded to each director, other than Mr. Dicus, who served on the Board of Directors of the Company in fiscal year 2012.  Compensation payable to Mr. Dicus for his service as a director is included in the “Salary” column of the Summary Compensation Table, under “Executive Compensation.”
 
Name
 
Fees Earned
or Paid in
Cash
($)(1)
 
Stock Awards
($)(2)
 
Option
Awards
($)(3)
 
All Other
Compensation
($)(4)
 
Total
($)
                     
B.B. Andersen(5)
 
$12,500
 
---
 
---
 
$1,000
 
$13,500
Morris J. Huey II
 
$50,000
 
$59,550
 
$28,006
 
$3,375
 
$140,931
Jeffrey M. Johnson
 
$50,000
 
$59,550
 
$28,006
 
$3,375
 
$140,931
Michael T. McCoy, M.D.
 
$50,000
 
$59,550
 
$28,006
 
$1,375
 
$138,931
Reginald L. Robinson(5)
 
$50,000
 
$59,550
 
$28,006
 
$3,375
 
$140,931
Jeffrey R. Thompson
 
$50,000
 
$59,550
 
$28,006
 
$1,375
 
$138,931
Marilyn S. Ward
 
$51,000
 
$59,550
 
$28,006
 
$1,375
 
$139,931

_______________
(1)
Includes annual retainers for service on the Boards of Directors of the Company and Capitol Federal Savings, as well as additional fees discussed above.  For Ms. Ward, also includes $1,000 for serving as the Audit Committee chair.
(2)
Represents the grant date fair value under Accounting Standards Codification Topic No. 718, Compensation-Stock Compensation (“ASC Topic 718”), of an award on May 14, 2012 of 5,000 shares of restricted stock, which are scheduled to vest in 25% annual increments on January 10, 2013, 2014, 2015 and 2016, respectively.  The assumptions used in the calculation of the grant date fair value amount are included in Note 10 of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the Securities and Exchange Commission.  As of September 30, 2012, each director listed in the table held 5,000 unvested shares of restricted stock, other than Mr. Andersen, who retired as a director effective January 24, 2012 and held no unvested shares of restricted stock as of September 30, 2012.
(3)
Represents the grant date fair value under ASC Topic 718, as estimated by using the Black-Scholes pricing model, of an award on May 14, 2012 of an option to purchase 15,000 shares of the Company’s common stock at an exercise price of $11.91 per share.  The option is scheduled to vest in 25% annual increments on January 10, 2013, 2014, 2015 and 2016, respectively.  The assumptions used in the calculation of the grant date fair value amount are included in Note 10 of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the Securities and Exchange Commission.  As of September 30, 2012, the total number of shares underlying the stock options held by each director listed in the table was as follows: Mr. Andersen – 0 shares; Mr. Huey – 15,000 shares; Mr. Johnson – 128,185 shares; Dr. McCoy – 128,185 shares; Mr. Robinson – 15,000 shares; Mr. Thompson – 128,185 shares; and Ms. Ward – 15,000 shares.
(4)
Represents dividends paid on unvested shares of restricted stock of $375 to each director listed in the table other than Mr. Andersen plus fees for attending conferences of $1,000 in the case of each of Messrs. Andersen and Thompson, Dr. McCoy and Ms. Ward and $3,000 in the case of each of Messrs. Huey, Johnson and Robinson.
(5)
Mr. Andersen retired as a director of the Company and the Bank effective January 24, 2012.  Mr. Robinson became a director of the Company and the Bank effective January 24, 2012, but attended Board meetings during fiscal year 2012 prior to becoming a director.


 
13
 
 

EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
This section discusses the Company’s compensation program, including how it relates to the executive officers named in the compensation tables which follow this section (who we sometimes refer to below and elsewhere in this proxy statement as the “named executive officers,” or “NEOs”), consisting of:
 
 
·
John B. Dicus, our Chairman, President and Chief Executive Officer,
 
·
Kent G. Townsend, our Executive Vice President, Chief Financial Officer and Treasurer,
 
·
R. Joe Aleshire, our Executive Vice President for Retail Operations,
 
·
Larry K. Brubaker, our Executive Vice President for Corporate Services through September 30, 2012 (Mr. Brubaker’s retirement date) and
 
·
Rick C. Jackson, our Executive Vice President and Chief Lending Officer.

Set forth below is an analysis of the objectives of our compensation program, the material compensation policy decisions we have made under this program and the material factors that we considered in making those decisions.
 
Overview of Compensation Program
 
The Compensation Committee of our Board of Directors (the “Committee”), which consists solely of our independent directors, has responsibility for developing, implementing and monitoring adherence to the Company’s compensation philosophies and program.  The Stock Benefit Committee (the “Sub-Committee”), also comprised entirely of independent directors, administers and grants stock-based compensation awards from time to time.  Grants currently are made under our 2012 Equity Incentive Plan, which was approved in January 2012 at our last annual meeting of stockholders.  One NEO has outstanding restricted stock and option awards granted under our 2000 Stock Option and Incentive Plan and our 2000 Recognition and Retention Plan, both of which were approved by our stockholders in 2000, which will continue to vest over the next two years.  No future awards will be made under the 2000 Stock Option Plan or the 2000 Recognition and Retention Plan.  See “Stock Incentive Plans” below.  The Committee is mindful of the Company’s corporate structure and business strategies, and strives to provide a complete compensation program that provides an incentive to executive officers to maximize the Company’s performance with the goal of enhancing stockholder value.  The Company’s compensation program is based upon the following philosophies:
 
 
·
preserve the financial strength, safety and soundness of the Company and the Bank;
 
 
·
reward and retain key personnel by compensating them in the midpoint of salary ranges at comparable financial institutions and making them eligible for annual cash bonuses based on the Company’s performance and the individual officer’s performance;
 
 
·
focus management on maximizing earnings while managing risk by maintaining high asset quality, managing interest rate risk within Board guidelines, emphasizing cost control, and maintaining appropriate levels of capital; and
 
 
·
provide an opportunity to earn additional compensation if the Company’s stockholders experience increases in returns through stock price appreciation and/or dividends.
 
The Company’s primary forms of current compensation for executive officers include base salary, short-term incentive compensation and long-term incentive compensation.  The Company provides long-term compensation in the form of stock option and restricted stock awards and an employee stock ownership plan (“ESOP”). The Company also has a tax-qualified defined contribution retirement plan, health and life insurance benefits and paid time off benefits.  The Company offers insurance benefits, and flexible spending accounts for
 

 
14
 
 

unreimbursed medical expenses and child care expenses, on a pre-tax basis, which executive officers may participate in with the same eligibility requirements as all other employees.
 
The Company does not have an employment agreement with any officer or employee.  The Company currently believes that its named executive officers receive sufficient incentives from the existing compensation program that employment agreements are not necessary to induce them to remain with the Company.  The Company has entered into change in control severance agreements with each of the NEOs.  Each agreement entitles the executive to a severance payment if the executive’s employment is terminated under certain circumstances within six months before or within 24 months after a change in control of the Company.  The Company believes that these agreements will help incentivize the executives to continue their employment with the Company amid the uncertainty that may arise in the event of a change in control.  See “Payments Upon Termination or Change in Control.”
 
The Committee meets as needed during the year to consider all aspects of the Company’s compensation program, including a review at least once per year of a tally sheet for each NEO quantifying every component of the NEO’s compensation package, in order to satisfy itself that the total compensation paid to the NEO is reasonable and appropriate.  As discussed in greater detail below under “Role of Management,” the Committee meets with management to receive their analyses and recommendations, as requested by the Committee, considers the information provided to the Committee and makes decisions accordingly.
 
Base Salary
 
The Committee sets the base salary for all executive officers of the Company.  The Committee seeks to set fair and reasonable compensation levels throughout the Company by taking into account the influences of market conditions on each operational area of the Company and the relative compensation at different management levels in the Company within each operational area.  The Committee recognizes that base salary is the only element of the compensation package provided by the Company that is fixed in amount before the fiscal year begins and is paid during the year without regard to the Company’s performance.  The base salary for each NEO reflects the Committee’s consideration of a combination of factors, including: competitive market salary, the officer’s experience and tenure, overall operational and managerial effectiveness and breadth of responsibility for each officer.  Each named executive officer’s base salary and performance is reviewed annually.  Base salary is not targeted to be a percentage of total compensation, although the Committee does give consideration to the total amount of compensation being paid to each NEO when setting NEO base salaries.
 
The Committee has not used third party consultants or other service providers to present compensation plan suggestions or market compensation data.  Instead, the Committee has directed the President and CEO to provide comparable market salary data for executive officers based upon a selected population of comparable financial institutions.
 
The most recent comparison information was compiled from information reported in the most recent proxy statements of the financial institutions listed below.  The financial institutions selected for comparison purposes were based upon the President and CEO’s knowledge of the selected financial institutions, the comparability of their operations, corporate structure and/or size as appropriate comparisons to the Company.  Financial institutions selected for comparison purposes may be added or removed from the list each year as a result of acquisitions, closings, operating in a distressed mode or because another financial institution more appropriately compares to the operations of the Company than a previously listed financial institution.
 
The financial institutions in the most recent comparison included the following publicly held financial institutions with total assets between $3 billion and $20.6 billion: Commerce Bancshares, UMB Financial, TFS Financial (MHC), Washington Federal, United Bancshares, Northwest Bancshares, Community Bank System, BancFirst, Investors Bancorp (MHC), Beneficial Mutual Bancorp, Flushing Financial Corporation, Provident Financial, Provident New York Bancorp and Dime Community Bancshares.
 
The comparison provided shows how our executive officer salaries and annual compensation compare on a national scale and local scale to other financial institutions, which reflect institutions among which we would most likely compete for executive talent, with a slightly greater weighting to regional institutions.  The Committee
 

 
15
 
 

received information showing the base compensation of the CEO, CFO and the next three NEOs in each company’s proxy statement.  The level of compensation paid to our CEO and CFO are compared directly to the equivalent positions in the listed companies.  The compensation paid the first highest NEO within each of the listed companies above, not including the CEO or CFO, is compared to compensation paid to our first most highly compensated NEO, not including the CEO or CFO.  The compensation paid to the second highest NEO within each of the listed companies above, not including the CEO or CFO, is compared to compensation paid to our second most highly compensated NEO, not including the CEO or CFO.  The compensation paid to the third highest NEO within each of the listed companies above, not including the CEO or CFO, is compared to compensation paid to our third most highly compensated NEO, not including the CEO or CFO.
 
The Committee reviews the market data provided and does not attempt to set the base salaries of our NEOs at specific target percentiles of the market data provided.  The Committee uses this data in conjunction with setting the base salary of each NEO, whose salary is discussed below, in light of the range of base salaries paid among the comparable financial institutions.  Because the positions other than the CEO and CFO may not be directly comparable between financial institutions, the Committee exercises its judgment in determining where in the salary ranges of the comparison financial institutions the compensation for our other NEOs should fall.  The salaries for the CEO and CFO, in general, fall in the middle of the range of comparable salaries based upon a review of the comparison companies.  In general, the range of salaries for the NEOs other than the CEO and CFO is narrow because the comparison in range of salaries among the other NEO executive officer positions in the various market comparisons reviewed is not considered significantly different by the Committee to warrant a wider spread in base salary.  The salary of the CEO is established to reflect his hands-on approach to leadership and the involvement he provides the Company on a daily basis, the leadership roles he fills in local, regional and national industry-related activities and his direct involvement in addressing stockholder value and stockholder relations.  The salaries of the CFO and each of the other NEOs are established to reflect their respective roles in the management structure of the Company.
 
The Committee does not put as much emphasis on the market comparison information when considering bonus or other incentive compensation as it does on base salary for the Company’s executive officers. This is primarily because of the divergence in practice regarding the structure of bonus plans and the types of incentives offered executive officers.
 
Bonus Incentive Plans
 
All officers of the Company are eligible to receive cash bonuses on an annual basis under the Short Term Performance Plan (“STPP”), based upon the Company’s financial performance and the individual officer’s performance during the fiscal year.  The cash awards are made in January of the year following the fiscal year end of September 30 (i.e., in January 2013, in the case of the STPP award for the fiscal year ended September 30, 2012).  A participant’s STPP award may not exceed the percentage of salary specified in the plan for his or her position level.  For the Chairman, President and CEO, the maximum percentage is 60%, and for each of the other NEOs, the maximum percentage is 40%.  The STPP is intended to:
 
 
·
promote stability of operations and the achievement of earnings targets and business goals;
 
 
·
link executive compensation to specific corporate objectives and individual results; and
 
 
·
provide a competitive reward structure for officers.
 
Generally, in November of each fiscal year, after considering management’s company performance recommendations (see “Role of Management” below), the Committee sets target, maximum and minimum performance levels for that year.  The targeted performance level is the most likely performance level forecasted for the Company in the ensuing fiscal year given the operational considerations described below.  As discussed below, the Committee considers three targets in order to focus management on the performance of the Company as a whole: efficiency ratio; basic earnings per share and return on average equity.  By focusing on the overall performance of the Company, over time the Committee believes the value to the stockholder from management’s performance will be maximized.  In seeking to maximize the performance of the Company, management focuses on all critical risks and objectives of the Company.  By not taking excessive credit risk and keeping interest rate risk below levels
 

 
16
 
 

established by the Board it is believed that the earnings of the Company likely will remain strong over time.  By managing the amount of capital of the Bank, the Company benefits by having a proper amount of leverage which improves the opportunities to enhance earnings.  Focusing on cost control helps to mitigate risks that operating expenses will rise beyond the level at which they are supportable by the Bank’s operating income.
 
The areas of Company performance targeted consist of the efficiency ratio, basic earnings per share and return on average equity.  The efficiency ratio is computed by dividing total non-interest expense by the sum of net interest and dividend income and total other income.  Basic earnings per share is calculated by dividing net income for the fiscal year by the average basic shares outstanding for the fiscal year. Return on average equity is computed by dividing net income for the fiscal year by the average month end balance of total stockholders’ equity for the thirteen monthly time periods from the prior fiscal year end through the current fiscal year end, ending September 30th.  The efficiency ratio, basic earnings per share and return on average equity are equally weighted.
 
In general, the Company performance targets for the STPP are based upon the ensuing year’s forecast of business activity, interest rates, pricing assumptions, operating assumptions and forecasted net income.  The Committee requires that the target efficiency ratio for each fiscal year be no worse than the actual efficiency ratio of the just completed fiscal year. The purpose of the efficiency ratio performance target is to focus management on keeping operating expenses under control and at the lowest level possible, regardless of the impact of interest rates on the operations of the Company.  The targets for earnings per share and return on average equity are established based upon the forecasted performance of the Company and anticipated capital management plans for the Company.  Except as noted above with regard to the target efficiency ratio, the targets for each of the performance goals are independent of the prior year’s results.  Forecasted performance may include the Company’s internal forecasts and the forecasts of outside analysts.  For fiscal year 2012, the targets were established based upon internally generated (budgeted) performance results and externally generated performance results from analysts who cover the Company.  The results were weighted 80% for the internally generated results and 20% for the external results.
 
There are two “scales” for each performance target: (i) a “target” scale, which includes increments between the target level of performance and a maximum level of performance, and decrements between the target level of performance and a minimum level of performance; and (ii) an “award scale,” which proceeds at one percent increments beginning at 20% in correspondence to the minimum performance level on the target scale, through 60% in correspondence to the target level of performance on the target scale, and up to 100% in correspondence to the maximum level of performance on the target scale.  Plan participants will earn a percentage on the award scale for a particular performance target of between 20% (if performance is at the minimum level of performance on the target scale) and 100% (if performance is at or above the maximum level of performance on the target scale).  The percentage earned on the award scale for a particular performance target will be zero if performance is below the minimum level of performance on the target scale.  The average of the percentages earned on the award scales for the three performance targets represents the total percentage of the maximum possible STPP award each participant has earned for the Company performance component of the STPP award.  In order to pay the full amount of an award under the STPP based on performance above the target level, the Committee must determine that the Company had actual net income for the fiscal year in excess of targeted net income for the fiscal year equal to at least five times the aggregate dollar amount of the portion of the total STPP awards for that year that would be made above the target level.
 
Below is a table showing the targets established and the performance achieved for fiscal years 2012, 2011, and 2010.  The “percent of total” columns represent, for each performance target (efficiency ratio, basic earnings per share and return on average equity), the percentage earned on the award scale for that target, based on the level of achievement on the target scale.  The “total” column represents the average of the award scale percentages earned for the three performance targets, which, as noted above, represents the total percentage of the maximum possible STPP award that has been earned for the Company performance component of the STPP award.  For fiscal year 2012, the level of achievement for all performance targets were between the target level and the maximum level of performance on the target scale.  For fiscal year 2011, the level of achievement for return on average equity and basic earnings per share was between the target level and the maximum level of performance on the target scale while the level of achievement for the efficiency ratio was between the target level and the minimum level of performance on the target scale.  For fiscal year 2010, the level of achievement for each performance target was between the target level and the maximum level of performance on the target scale.
 
 
 
17
 
 
 
 
 
   
Target
 
Performance
 
Percent of total
   
Fiscal
Year
 
Efficiency
Ratio
 
Basic
EPS
 
ROAE
 
Efficiency
Ratio
 
Basic
EPS
 
ROAE
 
Efficiency
Ratio
 
Basic
EPS
 
ROAE
 
Total
2012
 
45.69%
 
$0.46
 
3.83%
 
43.55%
 
$0.47
 
3.93%
 
88%
 
78%
 
75%
 
80%
2011
 
43.99%
 
$0.38
 
3.48%
 
47.65%
 
$0.40
 
3.68%
 
34%
 
84%
 
89%
 
69%
2010
 
45.62%
 
$0.90
 
7.02%
 
43.99%
 
$0.93
 
7.12%
 
81%
 
74%
 
68%
 
74%

Each NEO receives 90% of his STPP award based upon the achievement of the three pre-established financial performance targets of the Company discussed above.  This is intended to focus each named executive officer on maximizing the overall performance of the Company and not on achievement of goals in a particular operational area.  Because of the predominance of the focus of the NEO bonuses on the overall performance of the Company, specific individual performance goals are not usually set for named executive officers. Instead, each NEO’s individual contribution to the Company’s performance is a subjective determination by the Committee following discussion with the President and CEO, giving consideration to each NEO’s response to the Company’s changing operational needs during the year.
 
In fiscal year 2010, the calculated payout was above the target level; however, it was not supported with the appropriate level of actual net income above target net income as described above (i.e., excess of net income above target net income equal to at least five times the aggregate dollar amount of the portion of the total STPP awards for that year that would be made above the target level).  As a result, the total amount available for bonus awards under the STPP was reduced 2.9%.
 
During fiscal year 2010, the Committee approved a clawback provision for the STPP that is applicable to all participants in the STPP.  Under this provision, any payment made under the STPP which was based upon materially inaccurate financial statements which requires a restatement or was a result of fraud in determining an individual or company performance metric must be paid back if discovered within 24 months of the filing of the inaccurate financial statement(s) or the discovery of the fraud.  The repayment, in whole or in part, is at the discretion of the Committee.
 
The Committee has the authority under the STPP to reduce bonus awards to executive officers that would otherwise be earned, for any reason the Committee believes appropriate.  This may be done for all executive officers or for individual executive officers.  The Committee did not exercise any such negative discretion with respect to STPP awards for fiscal years 2012, 2011 or 2010.
 
The Company also maintains a deferred incentive bonus plan (“DIBP”) for executive officers in conjunction with the STPP.  The DIBP is administered as an unfunded plan of deferred compensation with all benefits expensed and recorded as liabilities as they are accrued.  The purpose of the two plans working together is to provide incentives and awards to executive officers to enhance the Company’s performance and stockholder value over a four year time horizon.  Each named executive officer has the opportunity to defer a minimum of $2,000 and up to 50% (up to a maximum of $100,000) of their cash award under the STPP.  The amount deferred receives a 50% match that is accrued over a three year mandatory deferral period.  The amount deferred plus the 50% match is deemed to have been invested in Company stock on the last business day of the calendar year preceding the receipt of the STPP award at the closing price on that date (e.g., on December 31, 2012, in the case of the STPP award for fiscal year 2012 paid in January 2013), in the form of phantom stock.  The number of shares of phantom stock deemed purchased receives dividend equivalents as if the stock were owned by the named executive officer.  At the end of the mandatory deferral period, the DIBP is paid out in cash and is comprised of the initial amount deferred, the 50% match, the amount of the dividend equivalents on the phantom shares over the deferral period and the increase in the market value of the Company’s stock over the deferral period, if any on the phantom shares.  There is no provision for the reduction of the DIBP award at the end of the mandatory deferral period if the market value of the Company’s stock at that time is lower than the market value at the time of the deemed investment.
 
For participants in the STPP, it is generally required that the recipient be employed by the Bank through the last day of the fiscal year to receive an award.  For participants in the DIBP the recipient must be employed by the Bank through the last day of the deferral period to receive the Company match, dividend equivalents on the phantom shares over the deferral period and the increase in the market value of the Company’s stock over the deferral period, if any, on the phantom shares.  In the event that an NEO leaves the company during the deferral period for reasons other than a change in control, the NEO would be entitled to receive his deferred funds six months after his date of
 

 
18
 
 

termination, but without the Company match or any earnings (including dividend equivalents) on the deferred funds or on the Company match.
 
Stock Incentive Plans
 
The Company’s Stock Incentive Plans are designed to provide incentives for long-term positive performance of the executive officers by aligning their interests with those of our stockholders by providing the executive officer the opportunity to participate in the appreciation, if any, in the Company’s stock price which may occur after the date options or restricted stock awards are granted.  Awards of stock options and restricted stock currently are made under our 2012 Equity Incentive Plan, which was approved by stockholders in January 2012 at our last annual meeting of stockholders. The Sub-Committee administers this plan, determines eligibility and grants awards.  During fiscal year 2010, under prior stock incentive plans, Mr. Jackson was awarded 11,319 shares of restricted stock and options to purchase 90,547 shares of stock (each as adjusted for the Conversion Exchange Ratio).  There were no grants of options or restricted stock during fiscal year 2010 to any other NEO and there were no grants of options or restricted stock to any NEO during fiscal year 2011.
 
During fiscal year 2012, following approval of the 2012 Equity Incentive Plan by stockholders in January 2012, awards of stock options and restricted stock were made to each of the NEOs in May 2012.  The awards are reflected below in the Summary Compensation Table and the Grants of Plan-Based Awards Table.
 
As required by the 2012 Equity Incentive Plan, stock options have an exercise price that is equal to the closing price as of the date of the grant.  We do not coordinate the timing of options and stock awards with the release of material non-public information.
 
Role of Management
 
The Committee makes all decisions regarding the compensation of our executive officers.  The Committee has asked the President and CEO to provide, in addition to the comparable market salary data based upon a selected population of comparable financial institutions at both the regional and national levels, reviews of the performance of each NEO except for himself and recommendations for the salaries of each NEO except for himself and any recommendations for stock awards.  Management recommends the target, minimum and maximum performance goals for the Company and the related bonus targets under the STPP to be approved by the Committee.  In addition, management may from time to time recommend changes to the compensation program in response to changes in the marketplace in which the Company competes for executive talent and in light of the absolute performance level of the Company.  The compensation of the CEO is determined by the Committee without prior recommendations from him.  The Committee makes all decisions in light of the information provided and the Committee members’ experience and expectations for all NEOs.
 
Stockholder “Say on Pay” Vote
 
Beginning with our annual meeting of stockholders held in February 2011, we are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to include a non-binding, advisory “say on pay” vote in our annual meeting proxy statement at least once every three years, and, at least once every six years, a non-binding, advisory vote on the frequency of future say-on-pay votes, with stockholders having the choice of every year, every two years or every three years.   At the February 2011 annual meeting, stockholders cast the most votes in favor of a frequency of every year for future say-on-pay votes.  Our Board of Directors determined, in light of those results, that we will include a say-on-pay vote in our annual meeting proxy materials every year until the next required frequency vote is held (in 2017).  See “Proposal II. Advisory Vote on Executive Compensation.”
 
At our last two annual meetings of stockholders, which were held in January 2012 and February 2011, stockholders approved the compensation of the Company’s executives, as disclosed in the Company’s proxy statement for those meetings, with approximately 96% of the votes cast in favor at each meeting.  The Committee considered the results of these votes in setting the compensation of the NEOs for fiscal 2013 and fiscal 2012.
 

 
19
 
 

Perquisites and Other Personal Benefits
 
For fiscal 2012, no NEO received any perquisites or other personal benefits in excess of $10,000 in the aggregate.
 
Retirement and Other Benefits
 
The Company provides an ESOP and a defined contribution plan to all employees who qualify for participation under each plan.  The ESOP provides for the allocation of shares of the Company’s common stock annually among all participants based upon each employee’s qualifying compensation as a percentage of the total of all qualifying compensation for all participants.  Each NEO participates in the ESOP and the defined contribution plan.
 
The defined contribution plan provides for a match from the Company of $2 for every $1 dollar contributed by each participant based upon the required percentage of base salary as determined by the Board. If the participant does not make his or her required contribution, the Company does not make a contribution to the plan.  For our 2012, 2011 and 2010 fiscal years, the Company match was 0.5% of each participant’s base salary if the participant contributed 50% of this match amount.  Participants in the plan, including NEOs, may make additional contributions to the plan of up to 10.0% of their qualifying compensation.
 
The Company does not offer any defined benefit plan or post-retirement benefit plan that requires expense to the Company following the termination of employment of any NEO.
 
The Company provides a life insurance benefit for every employee who works on average more than 20 hours per week.  The benefit is 1.5 times the base salary with a cap of $500,000 in total death benefit.  Benefits for all employees in excess of $50,000 result in taxable income.  Each of the NEOs participates in this benefit program.
 
The Company has provided for the purchase of a life insurance annuity for the CEO.  The salary of the CEO has been grossed up for the cost of the annuity and the income tax associated with the resulting imputed taxable income.  The Company has provided this gross up because the Company wished to provide the life insurance annuity benefit to the CEO without him having to bear the associated tax obligation.  The gross up for this benefit is not included in the base salary of the CEO, but is included in the “All Other Compensation” column of the Summary Compensation Table.
 
In September 2007, the Bank purchased Bank Owned Life Insurance.  Under the terms of the Bank Owned Life Insurance, each insured employee was provided the opportunity to designate a beneficiary to receive a death benefit equal to the insured employee’s base salary as of August 27, 2007 if the insured dies while employed by the Bank.  All NEOs are insured under the Bank Owned Life Insurance and have designated beneficiaries.  Once the NEO’s employment with the Bank terminates, the death benefit to the beneficiary of the NEO terminates as well.
 
Termination or Change in Control Payments
 
As noted above under “-Overview of Compensation Program,” the Company does not currently have an employment agreement with any of its NEOs, but the Company entered into agreements with each of the NEOs to provide a severance payment if their employment is terminated within six months before or 24 months after a change in control of the Company.  See “Payments Upon Termination or Change in Control.”
 
The terms of our stock options and restricted stock awards provide for accelerated vesting only in the case of a change in control.  See “Payments Upon Termination or Change in Control.”
 
Stock Ownership Guidelines
 
In November 2011, the Company’s Board of Directors adopted stock ownership guidelines, effective January 1, 2012, which are applicable to the Company’s directors and executive and senior officers.  It is the Board’s intention to encourage recipients of future equity-based awards to retain ownership of the shares relating to
 

 
20
 
 

those awards to further align their interests with the interests of the Company’s stockholders.  The guidelines provide as follows:
 
 
·
The CEO shall own five times his salary, directors shall own four times their annual fee, executive vice presidents and senior vice presidents shall own three times their salaries and first vice presidents shall own one times their salary, in each case in shares of the Company’s common stock.    Each director and officer shall have five years to attain the ownership guidelines.
 
 
·
Shares owned directly or by immediate family members of the director or officer shall be included in determining the amount of common stock owned for purposes of the guidelines.
 
 
·
If, at the end of five years, a director or an officer does not comply with the ownership guidelines, he or she shall not receive future awards under the Company’s stock benefit plans until he or she complies with the guidelines.
 
Other Tax Considerations
 
Section 162(m) of the Internal Revenue Code limits the corporate federal income tax deduction for compensation paid to a publicly held corporation’s  “covered employees” (defined, per the guidance of the Internal Revenue Service, as the principal executive officer and the three most highly compensated executive officers named in the Summary Compensation Table other than the principal executive officer and the principal financial officer) to $1.0 million per year, to the extent such compensation is not “performance-based compensation” under a plan approved by stockholders.  The Company believes that income recognized by executives upon the exercise of stock options granted by the Sub-Committee under the 2000 Stock Option and Incentive Plan and the 2012 Equity Incentive Plan constitutes “performance-based compensation” that is exempt from the 162(m) limitation.  However, we have in the past awarded, and may in the future award, compensation that causes a portion of one or more of our executive’s total compensation for a particular year to not be tax deductible.  The Committee has reviewed and will continue to review on an ongoing basis our executive compensation programs, and propose appropriate modifications to these programs, if the Committee deems them necessary to implement our compensation programs in a manner that avoids or minimizes any disallowance of tax deductions under Section 162(m).  The Committee will balance these considerations against the need to be able to compensate executives in a manner commensurate with performance and the competitive environment for executive talent.
 

 

 

 
21
 
 

Summary Compensation Table
 
The following table sets forth information concerning the compensation paid to or earned by the named executive officers for fiscal year 2012:
 
Name and
Principal Position
 
Year
 
Salary
 ($)(2)
   
Bonus
($)(3)
   
Stock
Awards
($)(4)
   
Option
Awards
($)(5)
   
Non-Equity Incentive Plan Compensation
($)(6)
   
Change in Pension Value and Nonqualified Deferred Compensation Earnings
($)
   
All
Other
Compensation
($)(7)
   
Total Compensation
($)
 
                                                     
John B. Dicus, Chairman
 
2012
  $ 539,865     $ ---     $ 531,186     $ 238,592     $ 297,538     $ ---     $ 176,051     $ 1,783,232  
  President and Chief Executive
 
2011
    533,117       ---       ---       ---       261,800       ---       200,736       995,653  
  Officer
 
2010
    530,414       ---       ---       ---       264,394       ---       146,997       941,805  
                                                                     
Kent G. Townsend, Executive
 
2012
  $ 272,308     $ ---     $ 357,300     $ 157,002     $ 108,675     $ ---     $ 78,382     $ 973,667  
  Vice President, Chief
 
2011
    247,656       ---       ---       ---       85,920       ---       70,710       404,286  
   Financial Officer and Treasurer
 
2010
    232,916       ---       ---       ---       85,534       ---       57,116       375,566  
                                                                     
R. Joe Aleshire, Executive
 
2012
  $ 236,815     $ ---     $ 119,100     $ 40,410     $ 75,734     $ ---     $ 67,955     $ 540,014  
  Vice President for Retail
 
2011
    232,867       ---       ---       ---       64,352       ---       57,280       354,499  
  Operations
 
2010
    228,008       ---       ---       ---       64,611       ---       49,703       342,322  
                                                                     
Larry K. Brubaker, Former
 
2012
  $ 236,815     $ ---     $ 61,039     $ 12,350     $ 75,734     $ ---     $ 67,580     $ 453,518  
  Executive Vice President
 
2011
    232,867       ---       ---       ---       63,434       ---       57,681       353,982  
    for Corporate Services(1)
 
2010
    227,558       ---       ---       ---       64,611       ---       49,888       342,057  
                                                                     
Rick C. Jackson, Executive
 
2012
  $ 197,308     $ ---     $ 202,470     $ 84,187     $ 78,488     $ ---     $ 63,189     $ 625,642  
  Vice President and  Chief
 
2011
    187,689       ---       ---       ---       64,380       ---       57,749       309,818  
   Lending Officer
 
2010
    163,690       ---       163,300       141,187       53,384       ---       41,781       563,342  
                                                                     
_____________________
(1)
Mr. Brubaker served as an executive officer through his retirement date of September 30, 2012.
(2)
For 2012, 2011 and 2010, includes director fees of $24,000 for Mr. Dicus.
(3)
Bonus amounts are reported under the “Non-Equity Incentive Plan Compensation” column.
(4)
The amounts in this column are calculated using the grant date fair values of the awards under ASC Topic 718, based on the number of restricted shares awarded and the fair market value of the Company’s common stock on the date the award was made. The assumptions used in the calculation of this amount are included in Note 10 of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the SEC.
(5)
The amounts in this column are calculated using the grant date fair values of the awards under ASC Topic 718, based on the fair value of the stock option awards, as estimated using the Black-Scholes option-pricing model. The assumptions used in the calculation of these amounts are included in Note 10 of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012 filed with the SEC.
 (6)
Represents incentive bonus amounts awarded for performance in fiscal years 2012, 2011 and 2010 under the STPP.  The bonuses for fiscal year 2012 have been approved by the Compensation Committee of the Company’s Board of Directors but will not be paid until January 2013. The bonus amounts include Capitol Federal Savings’s matching contributions under the Company’s DIBP to those named executive officers who elected to defer receipt of a portion of their bonus for fiscal years 2012, 2011and 2010, as follows:

                   
                   
   
2012
   
2011
   
2010
 
                   
John B. Dicus
  $ 50,000     $ 50,000     $ 50,000  
Kent G. Townsend
  $ 21,735     $ 17,184     $ 17,107  
R. Joe Aleshire
  $ ---     $ ---     $ ---  
Larry K. Brubaker
  $ ---     $ ---     $ ---  
Rick C. Jackson
  $ 15,698     $ 12,876     $ 10,094  

 
The amount deferred, if any, plus the matching contribution on the deferred amount is deemed to be invested in the Company’s common stock through the purchase of phantom stock units.  There will not be any reduction to the payout amount of the phantom stock units if the stock price has depreciated from the beginning of the deemed investment period of the phantom stock units to the end of such period.  Receipt of the matching contribution is contingent on the executive officer remaining employed with the Company for a period of three years following the award of the phantom stock units.  For additional information regarding this plan, see “Non-Qualified Deferred Compensation” below.
 (7)
Amounts represent matching contributions under Capitol Federal Savings’s profit sharing plan, values (based on the closing price of the Company’s common stock on September 28, 2012 of $11.96) of allocations under the ESOP, term life insurance premiums, earnings (in the form of Company stock price appreciation (depreciation) and dividend equivalents during the last fiscal year) accrued by the Company on outstanding phantom stock units awarded under the DIBP and dividends paid on unvested shares of restricted stock.  For 2012, these include $1,225, $68,074, $840, $17,950 and $3,345 for Mr. Dicus; $1,225, $68,074, $685, $6,148 and $2,250 for Mr. Townsend; $1,184, $65,800, $596, $0 and $375 for Mr. Aleshire; $1,184, $65,800, $596, $0 and $0 for Mr. Brubaker; and $986, $54,823, $496, $3,402 and $3,482 for Mr. Jackson.  For Mr. Dicus, also includes premium on universal life insurance policy of $66,376 and the amount reimbursed for all or part of the tax liability resulting from the payment of such premium of $18,241.

 

 
22
 
 

Grants of Plan-Based Awards
 
         
Estimated Possible Payouts Under
Non-Equity Incentive Plan
Awards
   
Estimated Future Payouts Under
Equity Incentive Plan Awards
                         
Name
 
Grant
Date
   
Threshold
($)(1)
   
Target
($)(1)
   
Maximum
($)(1)
   
Threshold
($)
   
Target
($)
   
Maximum
($)
   
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)(2)
   
Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
   
Exercise
Price of
Option
Awards
($/Sh)(3)
   
Grant
Date
Fair
Value of
Stock
and
Option
Awards(4)
 
                                                                   
John B. Dicus
    n/a     $ 61,500     $ 184,500     $ 307,500       ---       ---       ---       ---       ---       ---       ---  
   
05/14/12
      ---       ---       ---       ---       ---       ---       44,600       ---       ---     $ 531,186  
   
05/14/12
      ---       ---       ---       ---       ---       ---       ---       133,700     $ 11.91     $ 238,592  
                                                                                         
Kent G. Townsend
    n/a     $ 21,600     $ 64,800     $ 108,000       ---       ---       ---       ---       ---       ---       ---  
   
05/14/12
      ---       ---       ---       ---       ---       ---       30,000       ---       ---     $ 357,300  
   
05/14/12
      ---       ---       ---       ---       ---       ---       ---       90,000     $ 11.91     $ 157,002  
                                                                                         
R. Joe Aleshire
    n/a     $ 18,816     $ 56,448     $ 94,080       ---       ---       ---       ---       ---       ---       ---  
   
05/14/12
      ---       ---       ---       ---       ---       ---       10,000       ---       ---     $ 119,100  
   
05/14/12
      ---       ---       ---       ---       ---       ---       ---       30,000     $ 11.91     $ 40,410  
                                                                                         
Larry K. Brubaker
    n/a     $ 18,816     $ 56,448     $ 94,080       ---       ---       ---       ---       ---       ---       ---  
   
05/14/12
      ---       ---       ---       ---       ---       ---       5,125       ---       ---     $ 61,039  
   
05/14/12
      ---       ---       ---       ---       ---       ---       ---       15,400     $ 11.91     $ 12,350  
                                                                                         
Rick C. Jackson
    n/a     $ 15,600     $ 46,800     $ 78,000       ---       ---       ---       ---       ---       ---       ---  
   
05/14/12
      ---       ---       ---       ---       ---       ---       17,000       ---       ---     $ 202,470  
   
05/14/12
      ---       ---       ---       ---       ---       ---       ---       51,000     $ 11.91     $ 84,187  
______________
(1)
For each named executive officer, represents the threshold (i.e. lowest), target and maximum amounts that were potentially payable for fiscal year 2012 under the Company’s STPP.  The actual amounts earned under these awards for fiscal year 2012 are reflected in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.  For additional information regarding the STPP, see “Compensation Discussion and Analysis—Bonus Incentive Plans.”
(2)
Represents a restricted stock award to the named executive officer with the following vesting schedules: for Messrs. Dicus, Townsend and Jackson, 25% annual increments commencing January 10, 2013; for Mr. Aleshire, 50% on the grant date and 50% on the first anniversary of the grant date; and for Mr. Brubaker, 100% on the grant date.
(3)
Represents a stock option award granted to the named executive officer with the following vesting schedules: for Messrs. Dicus, Townsend and Jackson, 25% annual increments commencing January 10, 2013; for Mr. Aleshire, 50% on the grant date and 50% on the first anniversary of the grant date; and for Mr. Brubaker, 100% on grant date.
(4)
Represents the grant date fair value of the awards determined in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of these awards are included in Note 10 of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the SEC.


As noted under “Compensation Discussion and Analysis,” none of the named executive officers have an employment agreement with us, but the Company entered into agreements with each of the named executive officers to provide a severance payment if their employment is terminated within six months before or 24 months after a change in control of the Company.  See “Payments upon Termination or Change in Control.”
 

 
23
 
 

Outstanding Equity Awards at September 30, 2012
 
The following table provides information regarding the unexercised stock options and stock awards held by each of the named executive officers as of September 30, 2012.  All share and per share amounts have been adjusted for the Conversion Exchange Ratio.
 
   
Option Awards
 
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   
Option
Exercise
Price ($)
 
Option
Expiration
Date
 
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
   
Market
Value of
Shares or
Units of
Stock That Have Not
Vested ($)
   
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
   
Equity
Incentive
Plan Awards:
Market or
Payout Value
of
Unearned
Shares, Units
or
Other Rights
That Have Not
Vested ($)
 
                                                   
John B. Dicus
    ---       33,584 (1)     ---     $ 11.91  
05/14/2022
    44,600 (13)   $ 533,416       6,487 (18)   $ 14,538 (18)
      ---       100,116 (2)     ---     $ 11.91  
05/14/2027
           ---                ---       12,594 (19)     16,058 (19)
      ---                ---       ---                 44,600     $ 533,416       12,998 (20)       8,384 (20)
Total
    ---       133,700       ---                                 32,079     $ 38,980  
                                                                   
Kent G. Townsend
    13,360 (3)     ---       ---     $ 14.96  
08/23/2015
    30,000 (14)   $ 358,800       1,964 (18)   $ 4,402 (18)
      13,804 (4)     ---       ---     $ 14.96  
08/23/2020
    ---       ---       4,309 (19)     5,494 (19)
      ---       33,584 (1)     ---     $ 11.91  
05/14/2022
    ---       ---       4,467 (20)     2,881 (20)
             ---       56,416 (5)     ---     $ 11.91  
05/14/2027
           ---                ---              ---              ---  
Total
    27,164       90,000       ---                 30,000     $ 358,800       10,740     $ 12,777  
                                                                   
R. Joe Aleshire
    8,396 (6)     8,396 (6)     ---     $ 11.91  
05/14/2022
    5,000 (15)   $ 59,800       ---       ---  
      6,604 (7)       6,604 (7)     ---     $ 11.91  
05/14/2027
           ---                ---              ---              ---  
Total
    15,000       15,000       ---                 5,000     $ 59,800       ---       ---  
                                                                   
Larry K. Brubaker
    8,396 (8)     ---       ---     $ 11.91  
05/14/2022
    ---       ---       ---       ---  
      7,004 (9)     ---       ---     $ 11.91  
05/14/2027
           ---                ---              ---              ---  
Total
    15,400       ---       ---                 ---       ---       ---       ---  
                                                                   
Rick C. Jackson
    20,778 (10)     13,852 (10)     ---     $ 14.43  
01/26/2020
    4,528 (16)   $ 54,155       249 (18)   $ 558 (18)
      33,546 (11)     22,364 (11)     ---     $ 14.43  
01/26/2025
    17,000 (17)     203,320       2,542 (19)     3,241 (19)
      ---       33,584 (1)     ---     $ 11.91  
05/14/2022
    ---       ---       3,347 (20)     2,159 (20)
             ---       17,416 (12)     ---     $ 11.91  
05/14/2027
           ---                ---              ---              ---  
Total
    54,324       87,216       ---                 21,528     $ 257,475       6,138     $ 5,958  
_______________
(1)
Represents option having the following vesting schedule: 8,396 shares on each of January 10, 2013, 2014, 2015 and 2016.
(2)
Represents option having the following vesting schedule: 25,029 shares on each of January 10, 2013, 2014, 2015 and 2016.
(3)
Represents remaining unexercised portion of option having the following vesting schedule: approximately 6,680 shares on each of August 23, 2006, 2007, 2008, 2009 and 2010.
(4)
Represents remaining unexercised portion of option having the following vesting schedule: approximately 6,902 shares on each of August 23, 2006, 2007, 2008, 2009 and 2010.
(5)
Represents option having the following vesting schedule: 14,104 shares on each of January 10, 2013, 2014, 2015 and 2016.
(6)
Represents option having the following vesting schedule: 8,396 shares on May 14, 2012 and 8,396 shares on May 14, 2013.
(7)
Represents option having the following vesting schedule: 6,604 shares on May 14, 2012 and 6,604 shares on May 14, 2013.
(8)
Represents option having the following vesting schedule: 8,396 shares on May 14, 2012.
(9)
Represents option having the following vesting schedule: 7,004 shares on May 14, 2012.
(10)
Represents option having the following vesting schedule: approximately 6,926 shares on each of January 26, 2010, 2011, 2012, 2013 and 2014.
(11)
Represents option having the following vesting schedule: approximately 11,182 shares on each of January 26, 2010, 2011, 2012, 2013 and 2014.
(12)
Represents option having the following vesting schedule: 4,354 shares on each of January 10, 2013, 2014, 2015 and 2016.
(13)
Represents unvested portion of restricted stock grant on May 14, 2012 having the following vesting schedule: 11,150 shares on each of January 10, 2013, 2014, 2015 and 2016.
(14)
Represents unvested portion of restricted stock grant on May 14, 2012 having the following vesting schedule: 7,500 shares on each of January 10, 2013, 2014, 2015 and 2016.
(15)
Represents unvested portion of restricted stock grant on May 14, 2012 having the following vesting schedule: 5,000 shares on each of May 14, 2012 and May 14, 2013.
(16)
Represents unvested portion of restricted stock grant on January 26, 2010 having the following vesting schedule: approximately 2,263 shares on each of January 26, 2010, 2011, 2012, 2013 and 2014.

 
24
 
 

(17)
Represents unvested portion of restricted stock grant on May 14, 2012 having the following vesting schedule: 4,250 shares on each of January 10, 2013, 2014, 2015 and 2016.
(18)
Represents phantom stock award under Company’s DIBP as a result of deferring the named executive officer’s annual bonus for fiscal year 2009 under the Company’s STPP.  The number of phantom stock units was determined by the portion of the bonus deferred plus the Company’s 50% match thereon, divided by the Company’s stock price on December 31, 2009.  The phantom stock award will be paid in cash by the second business day following the regularly scheduled board meeting in January 2013, in an amount equal to the appreciation, if any, in the Company’s stock price from December 31, 2009 to December 31, 2012, plus the amount of dividend equivalents credited during that period.  The payout value shown in the far right column represents the stock price appreciation from December 31, 2009 through September 30, 2012, plus the amount of dividend equivalents credited during that period.  See “Non-Qualified Deferred Compensation” below.
(19)
Represents phantom stock award under Company’s DIBP as a result of deferring the named executive officer’s annual bonus for fiscal year 2010 under the Company’s STPP.  The number of phantom stock units was determined by the portion of the bonus deferred plus the Company’s 50% match thereon, divided by the Company’s stock price on December 31, 2010.  The phantom stock award will be paid in cash by the second business day following the regularly scheduled board meeting in January 2014, in an amount equal to the appreciation, if any, in the Company’s stock price from December 31, 2010 to December 31, 2013, plus the amount of dividend equivalents credited during that period.  The payout value shown in the far right column represents the stock price appreciation from December 31, 2010 through September 30, 2012, plus the amount of dividend equivalents credited during that period.  See “Non-Qualified Deferred Compensation” below.
(20)
Represents phantom stock award under Company’s DIBP as a result of deferring the named executive officer’s annual bonus for fiscal year 2011 under the Company’s STPP.  The number of phantom stock units was determined by the portion of the bonus deferred plus the Company’s 50% match thereon, divided by the Company’s stock price on December 31, 2011.  The phantom stock award will be paid in cash by the second business day following the regularly scheduled board meeting in January 2015, in an amount equal to the appreciation, if any, in the Company’s stock price from December 31, 2010 to December 31, 2014, plus the amount of dividend equivalents credited during that period.  The payout value shown in the far right column represents the stock price appreciation from December 31, 2011 through September 30, 2012, plus the amount of dividend equivalents credited during that period.  See “Non-Qualified Deferred Compensation” below.




Option Exercises and Stock Vested
 
The following table sets forth information about stock options exercised and shares of restricted stock that vested during the fiscal year ended September 30, 2012 with respect to each named executive officer:
 
   
Option Awards
   
Stock Award
 
Name
 
Number of
Shares
Acquired on
Exercise (#)
   
Value
Realized on
Exercise
($)(1)
   
Number of
Shares
Acquired on
Vesting (#)
   
Value
Realized on
Vesting ($)(2)
 
                         
John B. Dicus
    ---     $ ---       ---     $ ---  
Kent G. Townsend
    ---     $ ---       ---     $ ---  
R. Joe Aleshire
    ---     $ ---       5,000     $ 59,550  
Larry K. Brubaker
    ---     $ ---       5,125     $ 61,039  
Rick C. Jackson
    ---     $ ---       2,263     $ 26,092  
______________________                                 
 
(1)
Represents amount realized upon exercise of stock options, based on the difference between the market value of the shares acquired at the time of exercise and the exercise price.
(2)
Represents the value realized upon vesting of restricted stock award, based on the market value of the shares on the vesting date.






 
25
 
 

Non-Qualified Deferred Compensation
 
The following table sets forth information about compensation payable to each named executive officer under the Company’s DIBP.
 
   
Executive
   
Registrant
   
Aggregate
   
Aggregate
   
Aggregate
 
   
Contributions
   
Contributions
   
Earnings
   
Withdrawals/
   
Balance
 
Name
 
in Last FY(1)
   
in Last FY(2)
   
in Last FY (3)
   
Distributions(4)
   
at Last FYE
 
                               
John B. Dicus
  $ 100,000     $ 50,000     $ 17,950     $ 172,542     $ 368,326  
Kent G. Townsend
  $ 34,368     $ 17,184     $ 6,148     $ 71,745     $ 122,199  
R. Joe Aleshire
  $ ---     $ ---     $ ---     $ ---     $ ---  
Larry K. Brubaker
  $ ---     $ ---     $ ---     $ ---     $ ---  
Rick C. Jackson
  $ 25,752     $ 12,876     $ 3,402     $ ---     $ 64,415  
_______________
(1)
Represents portion of bonus for fiscal year 2011 (otherwise payable in fiscal year 2012) under the STPP deferred by the named executive officer.  This amount was previously reported as compensation for fiscal year 2011.
(2)
Represents match by Capitol Federal Savings on portion of bonus for fiscal year 2011 (otherwise payable in fiscal year 2012) under the STPP deferred by the named executive officer.  For each named executive officer, the match by Capitol Federal Savings was 50% of the amount deferred, which was previously reported as compensation for fiscal year 2011.  The named executive officer was awarded phantom stock units under the DIBP in an amount equal to the bonus amount deferred plus the match, divided by the closing price of the Company’s common stock on December 31, 2011.
(3)
Represents stock price appreciation (depreciation) and dividend equivalents on phantom stock units from deferrals (and matches thereon) of STPP bonuses for fiscal year 2011 and prior years.  This amount is reported as compensation for fiscal year 2012 under the “All Other Compensation” column of the Summary Compensation Table.  As noted below, there will not be any reduction to the payout amount of the phantom stock units if the stock price has depreciated from the beginning of the deemed investment period of the phantom stock units to the end of such period.
(4)
Represents cash payout during fiscal year 2012 of phantom stock units for deferral (and 50% match thereon) of the STPP bonus for fiscal year 2008. The payout was comprised of appreciation in the Company’s stock price from December 31, 2008 through December 31, 2011 plus dividend equivalents credited during that period.
 
 
Under the DIBP, a participating NEO may defer from $2,000 to as much as 50% (up to a maximum of $100,000) of their award under the STPP, which is typically made in the January following the end of the fiscal year for which the STPP award is earned.  The total amount deferred plus a 50% match by Capitol Federal Savings is deemed to be invested, in the form of phantom stock units, in Company common stock as of December 31st in the year prior to the STPP award at the closing price on that date (e.g., December 31, 2012, in the case of the STPP award for fiscal year 2012 paid in January 2013).  On the third anniversary date (e.g., December 31, 2015, in the case of the award for fiscal year 2012), the phantom stock units are deemed sold and each participant will receive shortly thereafter a cash payment equal to the amount deferred, the company match, the dividend equivalents paid on Company common stock during the three-year period, plus the appreciation, if any, of Company common stock.   There will not be any reduction to the amount of the cash payment if the deemed investment in Company common stock has depreciated in value from the beginning of the deemed investment period to the end of such period.  The payment of these benefits (except for the amount deferred) is subject to the participant’s continued employment through the end of the deferral period.
 
Payments upon Termination or Change in Control
 
As noted above, the Company does not currently have employment agreements with any of the named executive officers or any other employees.  As a result of the Conversion however, with the Company no longer being majority owned by a mutual holding company, the Company entered into change in control severance agreements with each of the NEOs in January 2011.  Each agreement entitles the executive to a severance payment if, within six months before or 24 months after a change in control of the Company, the executive’s employment is terminated by the Company without cause, is terminated as a result of the executive’s death, disability or retirement or is terminated by the executive for “good reason.”  The Company believes that these agreements will help incentivize the executives to continue their employment with the Company amid the uncertainty that may arise in the event of a change in control.
 
The amount of the severance payment under each change in control severance agreement is 2.99 times the executive’s average annual W-2 compensation during the five full calendar years prior to the date of termination of
 

 
26
 
 

employment.  If their employment had been terminated as of September 28, 2012 (the last business day of fiscal year 2012) under circumstances entitling them to severance payments under their change in control severance agreements, the amounts of the payments to Messrs. Dicus, Townsend, Aleshire, Brubaker and Jackson would have been approximately $4.1 million, $894 thousand, $1.2 million, $1.0 million and $495 thousand, respectively.  The agreements provide that severance and other payments that are subject to a change in control will be reduced as much as necessary to ensure that no amounts payable to the executive will be considered excess parachute payments under Section 280G of the Internal Revenue Code.
 
Under the general terms of stock options granted under the Company’s 2012 Equity Incentive Plan and 2000 Stock Option and Incentive Plan and restricted stock granted under the Company’s 2012 Equity Incentive Plan and 2000 Recognition and Retention Plan, upon the occurrence of a change in control of the Company, all unvested stock options and unvested shares of restricted stock will vest.  As of September 28, 2012, the unvested stock options and unvested shares of restricted stock held by each of the NEOs was as follows: Mr. Dicus – options to purchase 133,700 shares at an exercise price of $11.91 per share and 44,600 unvested shares of restricted stock; Mr. Townsend – options to purchase 90,000 shares at an exercise price of $11.91 per share and 30,000 unvested shares of restricted stock; Mr. Aleshire - options to purchase 15,000 shares at an exercise price of $11.91 per share and 5,000 unvested shares of restricted stock; Mr. Brubaker – no unvested options and no unvested shares of restricted stock; and Mr. Jackson – options to purchase 51,000 shares at an exercise price of $11.91 per share, options to purchase 36,216 shares at an exercise price of $14.43 per share and 21,528 unvested shares of restricted stock.  If a change in control of the Company had occurred on September 28, 2012, the aggregate values that would have been realized by Messrs. Dicus, Townsend, Aleshire and Jackson as a result of the acceleration of the vesting of their unvested stock options and unvested shares of restricted stock, respectively based on the closing price of the Company’s common stock on that date of $11.96 and the exercise prices of their unvested stock options, are as follows: Mr. Dicus - $6,685 and $533,416; Mr. Townsend - $4,500 and $358,800; Mr. Aleshire - $750 and $59,800; and Mr. Jackson - $2,550 and $257,475.
 
The Company’s STPP provides that if, within two years following a change in control of the Company, a participant’s employment is terminated other than due to death, disability, retirement, cause or resignation by the participant (other than resignation due to reassignment to a job that is not reasonably equivalent in responsibility or compensation, or that is not in the same geographic area, or resignation within 30 days following a reduction in pay), then the participant will be paid a pro rata award for the performance year in which his or her termination of employment occurs, with the award amount determined assuming all individual and corporate performance targets have been met.  Had any of Messrs. Dicus, Townsend, Aleshire, Brubaker or Jackson experienced such a termination of employment on September 28, 2012, they would have been entitled to the regular bonus earned for the year, rather than a pro rata award with assumed maximum achievement of performance targets, since the performance period for the year actually ended on that date.  The bonus amounts for fiscal year 2012 are set forth in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.
 
The Company’s DIBP provides that if, within two years following a change in control of the Company, a participant’s employment is terminated other than due to death, disability, retirement, cause or resignation by the participant (other than resignation due to reassignment to a job that is not reasonably equivalent in responsibility or compensation, or that is not in the same geographic area, or resignation within 30 days following a reduction in pay), then the participant will become fully vested in his or her plan account, which shall be paid to him or her within 90 days after the termination date.  If Messrs. Dicus, Townsend, Aleshire, Brubaker or Jackson had experienced such a termination of employment on September 28, 2012, the amounts of their DIBP accounts that would have vested and been payable within 90 days would have been $368,326, $122,199, $0, $0 and $64,415, respectively.
 
As discussed under “Compensation Discussion and Analysis—Retirement and Other Benefits,” in September 2007 the Bank purchased Bank Owned Life Insurance.  Under the terms of the Bank Owned Life Insurance, each insured employee was provided the opportunity to designate a beneficiary to receive a death benefit equal to the insured employee’s base salary as of August 27, 2007 if the insured dies while employed by the Bank.  All NEOs are insured under the Bank Owned Life Insurance and have designated beneficiaries.  Had Messrs. Dicus, Townsend, Aleshire, Brubaker or Jackson died on September 28, 2012, the death benefit payable would have been $489,000, $210,000, $214,000, $214,000 and $94,000, respectively.
 

 
27
 
 

Compensation Committee Report
 
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained above with management and, based on such review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.