SOUTH STATE Corp DEF 14A 2014
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Statement Pursuant to Section 14(a) of
FIRST FINANCIAL HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 22, 2014
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of the Shareholders (the "Annual Meeting") of First Financial Holdings, Inc., a South Carolina corporation (the "Company"), will be held at the Company's headquarters in the Orangeburg Conference Room on the second floor, 520 Gervais Street, Columbia, South Carolina at 2:00 p.m., on April 22, 2014, for the following purposes:
Only record holders of Common Stock of the Company at the close of business on February 26, 2014, are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited and urged to attend the Annual Meeting in person. Whether or not you plan to attend the Annual Meeting in person, you are requested to promptly vote by telephone, internet, or by mail on the proposals presented, following the instructions on the Proxy Card for whichever voting method you prefer. If you vote by mail, please complete, date, sign, and promptly return the enclosed proxy in the enclosed self-addressed, postage-paid envelope. If you need assistance in completing your proxy, please call the Company at 800-277-2175. If you are a record shareholder, attend the meeting, and desire to revoke your proxy and vote in person, you may do so. In any event, a proxy may be revoked by a record shareholder at any time before it is exercised.
By Order of the Board of Directors
Renee R. Brooks
Columbia, South Carolina
This Proxy Statement is furnished to shareholders of First Financial Holdings, Inc., a South Carolina corporation (herein, unless the context otherwise requires, together with its subsidiaries, the "Company"), in connection with the solicitation of proxies by the Company's Board of Directors for use at the Annual Meeting of Shareholders to be held at the Company's headquarters in the Orangeburg Conference Room on the second floor, 520 Gervais Street, Columbia, South Carolina at 2:00 p.m., on April 22, 2014 or any adjournment thereof (the "Annual Meeting"), for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Directions to the Company's headquarters may be obtained by contacting Cathy Turner at 803-231-5037.
Solicitation of proxies may be made in person or by mail, telephone or other means by directors, officers and regular employees of the Company. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the common stock, par value $2.50 per share (the "Common Stock"), of the Company held of record by such persons, and the Company will reimburse the reasonable forwarding expenses. The cost of solicitation of proxies will be paid by the Company. This Proxy Statement was first mailed to shareholders on or about March 14, 2014.
The Company has its principal executive offices at 520 Gervais Street, Columbia, South Carolina 29201. The Company's mailing address is P.O. Box 1030, Columbia, South Carolina 29202, and its telephone number is 800-277-2175.
The Annual Report to Shareholders (which includes the Company's Annual Report on Form 10-K containing, among other things, the Company's fiscal year ended December 31, 2013 financial statements) accompanies this proxy statement. Such Annual Report to Shareholders does not form any part of the material for the solicitation of proxies.
Any record shareholder returning the accompanying proxy may revoke such proxy at any time prior to its exercise (a) by giving written notice to the Company of such revocation, (b) by voting in person at the meeting, or (c) by executing and delivering to the Company a later dated proxy. Attendance at the Annual Meeting will not in itself constitute revocation of a proxy. Any written notice or proxy revoking a proxy should be sent to First Financial Holdings, Inc., P.O. Box 1030, Columbia, South Carolina 29202, Attention: Renee R. Brooks. Written notice of revocation or delivery of a later dated proxy will be effective upon receipt thereof by the Company.
The Company's only voting security is its Common Stock, each share of which entitles the holder thereof to one vote on each matter to come before the Annual Meeting. At the close of business on February 26, 2014 (the "Record Date"), the Company had issued and outstanding 24,104,396 shares of Common Stock, which were held of record by approximately 5,000 persons and beneficially owned by approximately 9,900 persons. Only shareholders of record at the close of business on the Record Date
are entitled to notice of and to vote on matters that come before the Annual Meeting. Notwithstanding the Record Date specified above, the Company's stock transfer books will not be closed and shares of the Common Stock may be transferred subsequent to the Record Date. However, all votes must be cast in the names of holders of record on the Record Date.
The presence in person or by proxy of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. If a share is represented for any purpose at the Annual Meeting by the presence of the registered owner or a person holding a valid proxy for the registered owner, it is deemed to be present for the purposes of establishing a quorum. Therefore, valid proxies which are marked "Abstain" or "Withhold" or as to which no vote is marked, including proxies submitted by brokers who are the record owners of shares but who lack the power to vote such shares (so-called "broker non-votes"), will be included in determining the number of votes present or represented at the Annual Meeting. If a quorum is not present or represented at the Annual Meeting, the shareholders entitled to vote, present in person or represented by proxy, have the power to adjourn the Annual Meeting from time to time until a quorum is present or represented. If any such adjournment is for a period of less than 30 days, no notice, other than an announcement at the Annual Meeting, is required to be given of the adjournment. If the adjournment is for 30 days or more, notice of the adjourned Annual Meeting will be given in accordance with the Company's Bylaws. Directors, officers and regular employees of the Company may solicit proxies for the reconvened Annual Meeting in person or by mail, telephone or other means. At any such reconvened Annual Meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the Annual Meeting as originally noticed. Once a quorum has been established, it will not be destroyed by the departure of shares prior to the adjournment of the Annual Meeting.
Provided a quorum is established at the Annual Meeting, directors will be elected by a majority of the votes cast at the Annual Meeting. Shareholders of the Company do not have cumulative voting rights.
Approval of the proposal to approve an amendment to the Company's Articles of Incorporation to change the name of the Company (Proposal No. 2) requires the affirmative vote of holders of two-thirds of the outstanding shares of the common stock. Abstentions, broker non-votes and the failure to return a signed proxy will have the same effect as votes against -this proposal.
All other matters to be considered and acted upon at the Annual Meeting, including the proposal to ratify, as an advisory, non-binding vote, the exclusive forum selection provision in the Company's bylaws (Proposal No. 3), the proposal to approve, as an advisory, non-binding vote, the compensation of the Company's named executive officers (Proposal No. 4), the proposal to ratify, as an advisory, non-binding vote, the appointment of Dixon Hughes Goodman LLP, Certified Public Accountants, as independent registered public accounting firm for the Company for the fiscal year ending December 31,2014 (Proposal No. 5), and the proposal to grant the Chairman of the Annual Meeting the authority to adjourn or postpone the Annual Meeting, if necessary, in order to solicit additional proxies in the event that there are not sufficient affirmative votes present at the Annual Meeting to adopt the amendment to the Company's Articles of Incorporation to change the name of the Company from First Financial Holdings, Inc. to South State Corporation (Proposal No. 6), require that the number of shares of Common Stock voted in favor of the matter exceed the number of shares of Common Stock voted against the matter, provided a quorum has been established. Abstentions, broker non-votes and the failure to return a signed proxy will have no effect on the outcome of such matters.
Brokers are generally permitted by their regulatory authorities to vote shares held by them for their customers on matters considered by the regulatory authorities to be routine, even if the brokers have not received voting instructions from their customers. If the regulatory authorities do not consider a matter routine, then a broker is generally prohibited from voting a customer's shares on the matter
unless the customer has given voting instructions on that matter to the broker. Because Proposal No. 1 to elect directors, Proposal No. 2 to approve an amendment to the Company's Articles of Incorporation to change the name of the Company, Proposal No. 3 to ratify, as an advisory, non-binding vote, the exclusive forum selection provision in the Company's bylaws, Proposal No. 4 to approve, as an advisory, non-binding vote, the compensation of the Company's named executive officer, and Proposal No. 6 to grant the Chairman of the Annual Meeting the authority to adjourn or postpone the Annual Meeting, if necessary, in order to solicit additional proxies in the event that there are not sufficient affirmative votes present at the Annual Meeting to adopt the amendment to the Company's Articles of Incorporation to change the name of the Company from First Financial Holdings, Inc. to South State Corporation, are not considered to be routine matters, it is important that you provide instructions to your bank or broker if your shares are held in street name so that your vote with respect to these matters is counted. Banks and brokers holding shares for their customers will not have the ability to cast votes with respect to these matters unless they have received instructions from their customers. Your bank or broker will not vote on these non-routine matters if you do not give voting instructions with respect to these matters.
This Proxy Statement and the Company's 2013 Annual Report to Shareholders (which includes its 2013 Annual Report on Form 10-K) are available at http://www.envisionreports.com/SCBT.
Each proxy, unless the shareholder otherwise specifies therein, will be voted according to the recommendations of the Board of Directors as follows:
In each case where the shareholder has appropriately specified how the proxy is to be voted, it will be voted in accordance with his or her specifications. As to any other matter of business that may be brought before the Annual Meeting, a vote may be cast pursuant to the accompanying proxy in accordance with the best judgment of the persons voting the same. However, the Board of Directors does not know of any such other business.
Any shareholder of the Company desiring to include a proposal in the Company's 2015 proxy materials for action at the 2015 Annual Meeting of Shareholders must deliver the proposal to the executive offices of the Company no later than November 21, 2014 if such proposal is to be considered for inclusion in the 2015 proxy materials. Only proper proposals that are timely received will be included in the Company's 2015 Proxy Statement and Proxy. In addition, a shareholder who desires to nominate a person for election to the Board of Directors of the Company or to make any other proposal for consideration by shareholders at a shareholders' meeting must deliver notice of such proposed action to the secretary of the Company no less than 45 days before such meeting. For a nominee for director, such notice should be addressed to the Governance Committee of the Company at P.O. Box 1030, Columbia, South Carolina 29202. The recommendation must set forth the name and address of the shareholder or shareholder group making the nomination; the name of the nominee; his or her address; the number of shares of Company stock owned by the nominee; any arrangements or
understandings regarding nomination; the five-year business experience of the recommended candidate; legal proceedings within the last five years involving the candidate; a description of transactions between the candidate and the Company valued in excess of $120,000 and other types of business relationships with the Company; a description of any relationships or agreements between the recommending shareholder or group and the candidate regarding nomination; a description of known relationships between the candidate and the Company's competitors, customers, business partners or other persons who have a business relationship with the Company; and a statement of the recommended candidate's qualifications for Board membership. For any other shareholder proposal, such notice must set forth the name and address of the shareholder making the proposal and the text of the resolution to be voted on.
The Company does not have a formal process by which shareholders may communicate with the Board of Directors. Historically, however, the chairman of the Board or the Governance Committee has undertaken responsibility for responding to questions and concerns expressed by shareholders. In the view of the Board of Directors, this approach has been sufficient to ensure that questions and concerns raised by shareholders are adequately addressed. Any shareholder desiring to communicate with the Board may do so by writing to the Secretary of the Company at P.O. Box 1030, Columbia, South Carolina 29202.
The following table sets forth the number and percentage of outstanding shares that exceed 5% beneficial ownership (determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934) by any single person or group, as known by the Company:
The following table sets forth, as of February 26, 2014, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) each director and nominee for director of the Company, (ii) each executive officer named in the Summary Compensation Table, and (iii) all executive officers and directors of the Company as a group.
shares owned by Patten Seed Company, of which Mr. Roquemore is a 29% owner and management affiliate. For Mr. Burns, includes 2,137 shares owned by J.E. Burns Holdings, Inc., of which Mr. Burns is an 86% owner and has the ability to direct the voting and disposition of the shares.
The Articles of Incorporation of the Company provide for a maximum of twenty directors; to be divided into three classes with each director serving a three-year term, with the classes as equal in number as possible. The Board of Directors has currently established the number of directors at twenty.
PROPOSAL 1: Robert R. Hill, Jr., Luther J. Battiste, III, Ralph W. Norman, Jr., and Alton C. Phillips all of whom currently are directors of the Company and whose terms expire at the Annual Meeting, have been nominated by the Board of Directors for re-election by the shareholders. If re-elected, Messrs. Hill, Battiste, Norman, and Phillips will serve as directors of the Company for a three-year term, expiring at the 2017 Annual Meeting of Shareholders of the Company.
Paula Harper Bethea and Thomas J. Johnson were appointed to the Board of Directors effective July 26, 2013. Under South Carolina law, Mrs. Bethea and Mr. Johnson's terms expire at the Annual Meeting, and we ask that you re-elect Mrs. Bethea and Mr. Johnson to our Board of Directors. If re-elected, Mrs. Bethea and Mr. Johnson will serve as directors of the Company for a three-year term, expiring at the 2017 Annual Shareholders Meeting of the Company.
Richard W. Salmons, Jr. and B. Ed Shelley, Jr. were appointed to the Board of Directors effective July 26, 2013. Under South Carolina law, Messrs. Salmons and Shelley's terms expire at the Annual Meeting, and we ask that you re-elect Messrs. Salmons and Shelley to our Board of Directors. If re-elected, Messrs. Salmons and Shelley will serve as directors of the Company for a two-year term, expiring at the 2016 Annual Shareholders Meeting of the Company.
R. Wayne Hall was appointed to the Board of Directors effective July 26, 2013. Under South Carolina law, Mr. Hall's term expires at the Annual Meeting, and we ask that you re-elect Mr. Hall to our Board of Directors. If re-elected, Mr. Hall will serve as a director of the Company for a one-year term, expiring at the 2015 Annual Shareholders Meeting of the Company.
The Board of Directors unanimously recommends that shareholders vote "FOR" these nominees.
The table below sets forth for each director's name, age, when first elected and current term expiration, business experience for at least the past five years, and the qualifications that led to the conclusion that the individual should serve as a director.
There are no family relationships among any of the directors and executive officers of the Company.
During 2013 the Board of Directors of the Company held seven meetings. All directors attended at least 85% of the aggregate of (a) the total number of meetings of the Board of Directors held during the period for which he or she served as a director, and (b) the total number of meetings held by all committees of the Board of Directors of the Company on which he or she served.
There is no formal policy regarding attendance at annual shareholder meetings; however, such attendance has always been strongly encouraged. All of the directors attended the 2013 Annual Shareholders Meeting.
The Board of Directors has adopted a Code of Ethics that is applicable to, among other persons, the Company's chief executive officer, chief financial officer, principal accounting officer and all managers reporting to these individuals who are responsible for accounting and financial reporting. The Code of Ethics is located on the Company's website at www.scbtonline.com under Investor Relations. We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards on our website promptly as practicable, as and to the extent required under NASDAQ Stock Market listing standards and applicable SEC rules.
The Board of Directors of the Company maintains executive, audit, compensation, governance, risk, and wealth management and trust committees. The composition and frequency of meetings for these committees during 2013 were as follows:
Note: All directors other than Robert R. Horger, Robert R. Hill, Jr., John C. Pollok, and R. Wayne Hall meet the independence requirements of The NASDAQ Stock Market. Therefore, under
these requirements, a majority of the members of the Company's Board of Directors is independent.
The functions of these committees are as follows:
Executive CommitteeThe Board of Directors of the Company may, by resolution adopted by a majority of its members, delegate to the executive committee the power, with certain exceptions, to exercise the authority of the Board of Directors in the management of the affairs and property of the Company. The Executive Committee has the authority to recommend and approve new policies and to review and approve present policies or policy updates and changes.
Audit CommitteeThe Board of Directors has determined that all members of the Audit Committee are independent directors under the independence requirements of The NASDAQ Stock Market. The Board of Directors has also determined that Kevin P. Walker is an "Audit Committee financial expert" for purposes of the rules and regulations of the SEC adopted pursuant to the Sarbanes-Oxley Act of 2002. The primary function of the Audit Committee is to assist the Board of Directors of the Company in overseeing (i) the Company's accounting and financial reporting processes generally, (ii) the audits of the Company's financial statements and (iii) the Company's systems of internal controls regarding finance and accounting. In such role, the Audit Committee reviews the qualifications, performance, effectiveness and independence of the Company's independent accountants and has the authority to appoint, evaluate and, where appropriate, replace the Company's independent accountants. The Audit Committee also oversees the Company's internal audit department and consults with management regarding the internal audit process and the effectiveness and reliability of the Company's internal accounting controls. The Board of Directors has adopted a charter for the Audit Committee, a copy of which is located on the Company's website at www.scbtonline.com under Investor Relations.
Compensation CommitteeThe Board of Directors has determined that all members of the Compensation Committee are independent directors under the independence requirements of The NASDAQ Stock Market applicable to directors who do not serve on the Audit Committee. The Compensation Committee, among other functions, has overall responsibility for evaluating, and approving or recommending to the Board for approval, the director and officer compensation plans, policies and programs of the Company. The full Board of Directors is then responsible for approving or disapproving compensation paid to the CEO and each of the other executive officers of the Company. The committee, which currently consists of five independent directors, is required to be made up of no fewer than three independent directors who are recommended by the Chairman of the Board of Directors and approved by the Board. The Compensation Committee's processes and procedures for considering and determining executive compensation are described below under "Compensation Discussion and Analysis." The Compensation Committee charter can be found on the Company's website at www.scbtonline.com under Investor Relations.
Governance CommitteeThe Board of Directors has determined that all members of the Governance Committee are independent directors under the independence requirements of The NASDAQ Stock Market applicable to directors who do not serve on the Audit Committee. The Governance Committee identifies and recommends individuals qualified to become Board members, reviews the corporate governance practices employed by the Company and recommends changes thereto, and assists the Board in its periodic review of the Board's performance. The Governance Committee charter can be found on the Company's website at www.scbtonline.com under Investor Relations.
The Governance Committee acts as the nominating committee for the purpose of recommending to the Board of Directors nominees for election to the Board. The Governance Committee has not established any specific, minimum qualifications that must be met for a person to be nominated to
serve as a director, and the Governance Committee has not identified any specific qualities or skills that it believes are necessary to be nominated as a director. The Governance Committee charter provides that potential candidates for the Board are to be reviewed by the Governance Committee and that candidates are selected based on a number of criteria, including a proposed nominee's independence, age, skills, occupation, diversity, experience and any other factors beneficial to the Company in the context of the needs of the Board. The Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, Governance Committee members consider and discuss diversity, among other factors, with a view toward the needs of the Board of Directors as a whole. The Governance Committee members generally conceptualize diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities or attributes that contribute to Board heterogeneity when identifying and recommending director nominees. The Governance Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the Committee's goal of creating a Board of Directors that best serves the needs of the Company and the interest of its shareholders.
The Governance Committee has performed a review of the experience, qualifications, attributes and skills of the Board's current membership, including the director nominees for election to the Board of Directors and the other members of the Board, and believes that the current members of the Board, including the director nominees, as a whole possess a variety of complementary skills and characteristics, including the following:
Each individual director has qualifications and skills that the Governance Committee believes, together as a whole, create a strong, well-balanced Board. The experiences and qualifications of our directors are found in the table on pages 8-14.
The Governance Committee will consider director nominees identified by its members, other directors, officers and employees of the Company and other persons, including shareholders of the Company. The Governance Committee will consider nominees for director recommended by a shareholder if the shareholder provides the committee with the information described in Paragraph 7 under the caption "Committee Authority and Responsibilities" of the Governance Committee's charter.
The required information regarding a director nominee is also discussed in general terms within the first paragraph of the "Shareholder Proposals and Communications" section on page 4 of this proxy statement.
Wealth Management and Trust CommitteeThe primary purpose of the wealth management and trust committee is to monitor and oversee the wealth management and fiduciary activities of the
Company's subsidiary bank, including the business, products, services, operations and financial performance and results of such activities.
Risk CommitteeThe Risk Committee of the Board of Directors of the Company was organized during the latter half of 2013 and began holding formal meetings as of January 1, 2014. The Risk Committee provides assistance to the Board of Directors in fulfilling its responsibility to the Company and its shareholders by striving to identify, assess, and monitor key business risks that may impact the Company's operations and results.
While the Risk Committee oversees and reviews the Company's risk functions to monitor key business risks, management is ultimately responsible for designing, implementing, and maintaining an effective risk management program to identify, plan for, and respond to the Company's material risks. The Risk Committee charter acknowledges that the Audit Committee of the Board is primarily responsible for certain risks, including accounting and financial reporting. Although the Risk Committee does not have primary responsibility for the risks which are subject to the jurisdiction of the Audit Committee, it is anticipated that on occasion certain results from audit functions will be reviewed by the Risk Committee.
Duties and responsibilities of the Risk Committee include, but not limited to, the following:
Code of EthicsThe Board of Directors of the Company and the Board of Directors of the Company's subsidiary bank have adopted a Code of Ethics to provide ethical guidelines for the activities of agents, attorneys, directors, officers, and employees of the Company and its subsidiaries. The Code of Ethics will promote, train, and encourage adherence in business and personal affairs to a high ethical standard and will also help to maintain the Company as an institution that serves the public with honesty, integrity and fair-dealing. The Code of Ethics is designed to comply with the Sarbanes-Oxley Act of 2002, and certain other laws that provide guidelines in connection with possible breaches of fiduciary duty, dishonest efforts to undermine financial institution transactions and the intent to corrupt or reward a Company employee or other Company representative. A copy of the Code of Ethics can be found on the Company's website at www.scbtonline.com under Investor Relations.
Board of Directors' Corporate Governance GuidelinesThe Board of Directors of the Company and the Board of Directors of the Company's subsidiary bank have each adopted certain guidelines governing the qualifications, conduct and operation of the Board. Among other things, these guidelines outline the duties and responsibilities of each director, and establish certain minimum requirements for director training. Each director is required to read, review and sign the corporate governance guidelines on an annual basis. A copy of these guidelines can be found on the Company's website at www.scbtonline.com under Investor Relations.
We are focused on the Company's corporate governance practices and value independent Board oversight as an essential component of strong corporate performance to enhance shareholder value. Our commitment to independent oversight is demonstrated by the fact that, except for four directors
(our Chief Executive Officer, our Chief Financial Officer and Chief Operating Officer, our President, and our Chairman of the Board) all of our directors are independent. In addition, all of the members of our Board's Audit, Compensation, Risk, and Governance Committees are deemed independent based on a Board evaluation.
See the discussion entitled Certain Relationships and Related Transactions on page 63 for additional information concerning Board independence.
Our Board believes that it is preferable for Mr. Horger to serve as Chairman of the Board because of his strong institutional knowledge of the Company's business, history, industry, markets, organization and executive management gained in his nearly 20 years of experience in a leadership position on the Board. We believe it is the Chief Executive Officer's responsibility to manage the Company and the Chairman's responsibility to guide the Board as the Board provides leadership to our executive management. As directors continue to have more oversight responsibility than ever before, we believe it is beneficial to have separate individuals in the role of Chairman and Chief Executive Officer. Traditionally, the Company has maintained the separateness of the roles of the Chairman and the Chief Executive Officer. In making its decision to continue to have a separate individual as Chairman, the Board considered the time and attention that Mr. Hill is required to devote to managing the day-to-day operations of the Company. We believe that this Board leadership structure is appropriate in maximizing the effectiveness of Board oversight and in providing perspective to our business that is independent from executive management.
The Board of Directors oversees risk through the various Board standing committees, principally the Risk Committee and the Audit Committee, which report directly to the Board. The Risk Committee seeks to identify, assess, and monitor key business risks that may impact the Company's operations and results. Our Audit Committee is primarily responsible for overseeing the Company's accounting and financial reporting risk management processes on behalf of the full Board of Directors. The Audit Committee focuses on financial reporting risk and oversight of the internal audit process. It receives reports from management at least quarterly regarding the Company's assessment of risks and the adequacy and effectiveness of internal control systems, and also reviews credit and market risk (including liquidity and interest rate risk), and operational risk (including compliance and legal risk). Our Chief Risk Officer, Chief Financial Officer, and Chief Credit Officer meet with the Audit Committee on a quarterly basis in executive sessions to discuss any potential risks or control issues involving management.
Each of the Board's standing committees, as described above, is involved to varying extents in the following:
The full Board of Directors focuses on the risks that it believes to be the most significant facing the Company and the Company's general risk management strategy. The full Board of Directors also seeks to ensure that risks undertaken by the Company are consistent with the Board of Directors' approved risk management strategies. While the Board of Directors oversees the Company's risk management, management is responsible for the day-to-day risk management processes. We believe this division of responsibility is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.
We recognize that different Board leadership structures may be appropriate for companies in different situations. We will continue to reexamine our corporate governance policies and leadership structures on an ongoing basis in an effort to ensure that they continue to meet the Company's needs.
The Company's wholly owned subsidiary, SCBT currently operates in South Carolina, North Carolina and Georgia under the following brands: First Federal, North Carolina Bank and Trust (NCBT), Community Bank & Trust (CBT), The Savannah Bank, and South Carolina Bank and Trust (SCBT). Many of these brand names are legacies of organizations that we have acquired as we have expanded and transformed into a regional bank. The Company's current name, First Financial Holdings, Inc., was adopted as part of our merger with First Financial Holdings, Inc. of Charleston, South Carolina, which was completed in July of 2013.
We believe that it is desirable to adopt new names for the Company and the Bank so that the Company and the Bank will operate under a single, unified brand that reflects our current strength and focus. As a result, we plan to combine our five bank brands under one unified name, South State Bank, and propose to change the Company's name to South State Corporation.
We believe that the names South State Corporation and South State Bank convey the sound, straightforward approach to business for which we are known and more accurately reflect our current geographic focus. We believe that these names will better position us to continue toward our goal of building the best regional bank in the Southeast.
The Board of Directors believes that the new name for the Company will help to avoid confusion about the relationship between the Company and the Bank, and will better identify the Company with the Bank, following the Bank's name change.
The Board of Directors recommends that shareholders vote "FOR" approval of the amendment to the Company's Articles of Incorporation to change the name of the Company from First Financial Holdings, Inc. to South State Corporation.
Effectiveness of the Proposed Amendment
If the proposed amendment to the Company's Articles of Incorporation to change the name of the Company from First Financial Holdings, Inc. to South State Corporation is approved by the affirmative vote of two-thirds of the shares of Common Stock outstanding on the Record Date, the amendment will become effective if, and when, Articles of Amendment are filed with the Secretary of State of South Carolina. Approval of the name change amendment to the Company's Articles of Incorporation by the shareholders will not require that the Articles of Amendment be filed, as our Board of Directors has the right to elect not to file the name change amendment to the Company's Articles of Incorporation after shareholder approval. If the proposed amendment to the Company's Articles of Incorporation to change the name of the Company is approved by shareholders, the Company expects to file the Articles of Amendment with the Secretary of State of South Carolina and to have the name change be effective as of June 30, 2014.
On July 25, 2013, the Board of Directors approved and adopted a new bylaw designating, with certain exceptions, South Carolina as the exclusive forum for certain legal actions (the "Exclusive Forum Bylaw").
The text of the Exclusive Forum Bylaw is as follows:
"Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation's shareholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the South Carolina Business Corporation Act or the Corporation's Certificate of Incorporation or Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of South Carolina (or, if no state court located within the State of South Carolina has jurisdiction, the federal district court for the District of South Carolina)"
In view of the Board of Directors' firm commitment to communicating openly with our shareholders and to adhering to high standards of corporate governance, the Board of Directors has determined to seek an advisory vote of the Company's shareholders with regard to the Exclusive Forum Bylaw and has unanimously adopted a resolution recommending that the shareholders vote in favor of ratifying, as an advisory, non-binding vote, the Exclusive Forum Bylaw. Although the shareholder vote is non-binding on the Board of Directors, in the event that the number of shares of Common Stock voted against the ratification of the Exclusive Forum Bylaw exceeds the number of shares of Common Stock voted in favor of the ratification of the Exclusive Forum Bylaw, the Board of Directors intends to rescind the Exclusive Forum Bylaw.
Reasons for the Proposed Amendment
The Exclusive Forum Bylaw is intended to assist the Company in avoiding costly and unnecessary recent trends in lawyer-driven litigation, where multiple lawsuits are being filed in multiple jurisdictions regarding the same matter.Although some plaintiffs might prefer to litigate matters in a forum outside of South Carolina because another court may be more convenient or viewed as being more favorable to them (among other reasons described below), the board of directors firmly believes that benefit of providing for South Carolina as the exclusive forum for the types of disputes covered by the Exclusive Forum Bylaw are of significant value to, and in the best interests of, the Company and its shareholders and outweigh these concerns.
The Board of Directors believes that the ability to require such claims to be brought in a single forum will help to assure consistent and proper consideration of the issues, while also promoting efficiency and costs-savings in the resolution of such claims. The board of directors believes that South Carolina courts are best suited to address disputes involving these matters given -that the Company is incorporated in South Carolina and its corporate affairs are governed by South Carolina law. Accordingly, the Company is firmly of the view that lawsuits relating to corporate matters should be heard by South Carolina courts, which the Company believes are the best versed in and most capable of correctly applying South Carolina law. Defending these lawsuits outside of South Carolina, as the Company has done in recent years in connection with acquisition-related litigation, requires a court less familiar with the laws of South Carolina to interpret and apply South Carolina laws, often under a very tight timeframe. Litigation in forums unaccustomed to South Carolina laws can be and has proven to
be, both costly and time-consuming to the Company, and can lead to inconsistent results. The Board of Directors believes that the cost of defending against these lawsuits in South Carolina should generally be significantly less, and, therefore the benefits of the proposed Exclusive Forum Bylaw will accrueto the Company and, indirectly to shareholders. At the same time, the board of directors believes that the Company should retain the ability to consent to an alternative forum on a case-by-case basis where the Company determines that its interest and those of its shareholders are best served by permitting such a dispute to proceed in a forum other than South Carolina courts.
The Board of Directors is aware that certain proxy advisors take the view that they will not support an exclusive forum clause until the company requesting it can show it already has suffered material harm as a result of shareholder suits outside its jurisdiction of incorporation. Notwithstanding that the board of directors believes that the Company has experienced material harm as a result of the acquisition related litigation described above, the board of directors feels that this position fails to adequately take into account a variety of important considerations, including recent trends in lawyer-driven shareholder litigation. Accordingly, the Board of Directors believes that it is prudent to take preventive measures before the Company and its shareholders are further harmed by the increasing practice of lawsuits being filed in plaintiffs' lawyers' favored jurisdictions.
Although the Board of Directors strongly believes the objectives of the Exclusive Forum Bylaw are of significant value to, and in the best interests of, the Company and its shareholders, shareholders should note that there are certain disadvantages that may ensue from the Exclusive Forum Bylaw. One potential disadvantage is that the Exclusive Forum Bylaw, by limiting the ability of third parties and the Company's shareholders to file lawsuits relating to intracorporate disputes in the forum of their choosing, could increase the costs to a plaintiff of bringing such a lawsuit and could have the effect of deterring such lawsuits. Moreover, the Board of Directors is aware that the enforceability of similar choice of forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possible that judicial decisions or other rulings or changes in law could declare or otherwise render exclusive forum clauses like the Exclusive Forum Bylaw to be inapplicable or unenforceable.
The Exclusive Forum Bylaw was approved and adopted by the Board of Directors on July 25, 2013, and neither the Company's bylaws nor South Carolina law requires shareholder approval for the Exclusive Forum Bylaw. Nevertheless, as described above, in view of the Board of Directors' firm commitment to communicating openly with the Company's shareholders and to adhering to high standards of corporate governance, the Board of Directors has determined to seek an advisory, non-binding vote of the Company's shareholders with respect to the Exclusive Forum Bylaw.
The proposal to ratify, as an advisory, non-binding vote, the exclusive forum selection provision in the Company's bylaws requires that the number of shares of Common Stock voted in favor of the matter exceed the number of shares of Common Stock voted against the matter, provided a quorum has been established. Although the shareholder vote is non-binding on the Board of Directors, in the event that the number of shares of Common Stock voted against the ratification of the Exclusive Forum Bylaw exceeds the number of shares of Common Stock voted in favor of the ratification of the Exclusive Forum Bylaw, the Board of Directors intends to rescind the Exclusive Forum Bylaw.
The Board of Directors unanimously proposes and recommends that shareholders vote "FOR" the ratification of the exclusive forum selection provision in the Company's bylaws.
The SEC rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act require the Company to provide shareholders with the opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC.
As described in greater detail under the heading "Compensation Discussion and Analysis," the Company seeks to align the interests of our named executive officers with the interests of our shareholders. The Company's compensation programs are designed to reward our named executive officers for the achievement of strategic and operational goals and the achievement of increased shareholder value, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. The Company believes its compensation policies and procedures are competitive, focused on pay for performance principles and strongly aligned with the interest of the Company's shareholders. The Company also believes that both it and its shareholders benefit from responsive corporate governance policies and constructive and consistent dialogue. This proposal, commonly known as a "Say-on-Pay" proposal, gives you as a shareholder the opportunity to express your views regarding the compensation of the named executive officers by voting to approve or not approve such compensation as described in this Proxy Statement.
This vote is advisory, which means that it is not binding on the Company, the Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC.
The Board asks our shareholders to vote in favor of the following resolution at the Annual Meeting:
"RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed in the Company's Proxy Statement for the 2014 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in the proxy statement, is hereby APPROVED."
The Board of Directors unanimously recommends that shareholders vote "FOR" the approval of the resolution related to the compensation of the Company's named executive officers.
Although the Company is not required to seek shareholder ratification of the selection of its accountants, the Company believes obtaining shareholder ratification is desirable. If the shareholders do not ratify the appointment of Dixon Hughes Goodman LLP, the Audit Committee will re-evaluate the engagement of the Company's independent auditors. Even if the shareholders do ratify the appointment, the Audit Committee has the discretion to appoint a different independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of the Company and its shareholders.
The Board unanimously recommends that shareholders vote FOR the ratification of the appointment of Dixon Hughes Goodman LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2014.
If a quorum is present, the number of shares of Common Stock voted in favor of this proposal must exceed the number of shares voted against it for approval of this proposal.
This proposal would authorize the Chairman of the Annual Meeting to adjourn the Annual Meeting to further gather the necessary votes to approve the amendment to the Company's Articles of Incorporation to change the name of the Company from First Financial Holdings, Inc. to South State Corporation, in the event that two-thirds of the outstanding shares of Common Stock are not voted in favor of Proposal No. 2.
The Board of Directors unanimously recommends that shareholders vote "FOR" the approval of this proposal.
If a quorum is present, the number of shares of Common Stock voted in favor of this proposal must exceed the number of shares voted against it for approval of this proposal.
Compensation Discussion and Analysis
The Compensation Committee seeks to provide compensation arrangements for executive officers that are designed to retain and attract executives who can perform and manage the company in the shareholders' best interest. These compensation arrangements are intended to align executive compensation with the performance of the company, both on a short-term basis and long-term basis, through incentive compensation based primarily on the company's performance and secondarily on individual contributions. When setting specific goals the compensation committee considers the principles of Soundness, Profitability and Growth which are the cornerstone on which our culture is built.
These principles have enabled the Company to be well positioned to take advantage of strategic growth opportunities and to deliver outstanding returns to our shareholders.
The last decade has proven to be extremely challenging for the banking industry. Our industry has faced the most difficult economic environment in more than 80 years as well as an increasingly complex and strict regulatory environment. However, in spite of these challenging circumstances, the Company has continued to grow and remain profitable. In fact, the Company has leveraged the challenges and turned them into opportunities which have resulted in the Company becoming the largest publicly traded bank holding company headquartered in South Carolina. We believe the achievement of this milestone is a direct result of outstanding leadership and expertise provided by the Company's executive management team and the Company's continued focus on Soundness, Profitability and Growth.
The Company's Financial Highlights for the year ended December 31, 2013 Include:
The charts below demonstrate how the management team has continued to increase shareholder value over the past one year and three year periods compared to banks included in the SNL U S Bank $5-$10B and those included in the SNL Southeast Index (a banking industry performance index for the Southeastern United States.
Returns are shown on a total return basis, assuming the reinvestment of dividends and a beginning stock index value of $100 per share. The value of the Company's stock as shown in the graph is based on published prices for transactions in the Company's stock.
Key 2013 Compensation Decisions by the Compensation Committee
In addition, the Compensation Committee made the following recommendations regarding Director Compensation:
In summary, the Committee concluded that the 2013 performance-based compensation together with 2013 base salary levels were well aligned with the Company's performance for the year.
In 2013, the Compensation Committee reviewed and validated their Compensation Philosophy with the assistance of the Compensation Committee's independent compensation consultant. The purpose of the review was to ensure that compensation decisions made by the Compensation Committee and the Board of Directors were consistent with this philosophy. The fundamental philosophy of the Company's compensation program is to offer competitive compensation opportunities for executive officers that are (i) aligned with the performance of the Company on both a short-term and long-term basis, and (ii) based both on the Company's performance and the individual's contribution. The compensation structure is designed to retain and reward executive officers who are capable of leading the Company in achieving its business objectives. The philosophy is to also consider applicable rules and regulations and current peer group compensation in determining compensation levels.
The Compensation Committee considers this philosophy as it develops its incentive plans. Cash Incentives are designed to reward executives for achieving annual financial and performance objectives based on soundness, profitability, and growth. Equity grants are designed to reward the executive for achievement of business objectives that benefit shareholders and support the retention of a talented management team over time. The Committee has determined that the 60th percentile (or the 75th percentile for CFO/COO due to his dual role with the Company) for targeted total compensation is appropriate in light of the fact that four of the five NEOs do not participate in supplemental retirement benefit arrangements or other special benefits that are prevalent among banks in our peer group. The Company's compensation peer group is explained on page 32.
Role of the Compensation Committee
The Compensation Committee is responsible for the design, implementation and administration of the compensation programs for the executive officers and directors of the Company. The Compensation Committee keeps the full Board of Directors apprised of the decisions and activities within the Compensation Committee. When appropriate, the Compensation Committee makes recommendations to the Board of Directors on items that require approval by the full Board of Directors.
The Compensation Committee seeks to increase shareholder value by rewarding performance with cost-effective compensation and striving to attract and retain talented executives through adherence to the following compensation objectives:
The Compensation Committee comprised of six independent directors met seven times in 2013. The Compensation Committee is supported in its work by the Chief Administrative Officer, Director of Human Resources, her staff, and an executive compensation consultant, as described below.
The Compensation Committee may receive recommendations from the chairman of the board of directors with respect to the CEO's performance in light of goals and objectives relevant to the compensation of our CEO. The CEO reviews the performance of the other NEOs with the Compensation Committee and makes recommendations to the Compensation Committee about the total compensation of the other NEOs. The CEO does not participate in, and is not present during deliberations or approvals by the Compensation Committee or the Board of Directors with respect to his own compensation.
The Compensation Committee reviews and approves the total compensation of the NEOs annually. The Compensation Committee makes decisions based on the Company's philosophy of providing a competitive base salary (relative to the peer group) complemented with significant performance-based incentives. After reviewing all of the compensation arrangements discussed below, along with corporate and individual performance, the Compensation Committee believes that the measurement tools, compensation levels and the design of the Company's executive compensation program are appropriate and motivate the NEOs to lead the Company in the best interests of its shareholders.
The primary goals of the Compensation Committee in 2013 were consistent with its established philosophy. The Compensation Committee seeks to provide compensation arrangements for executive officers that are designed to retain and attract executives who can perform and manage the company in the shareholders' best interest. These compensation arrangements are designed to be aligned with the performance of the company both on a short-term and long-term basis and are based both on the company's performance and the individual's contribution. The Compensation Committee considered the Company's financial performance throughout its decision making process in 2013.
During 2013, the Compensation Committee engaged the services of McLagan, an Aon Hewitt company, to provide independent compensation consulting services for both directors and executive management of the Company. McLagan reports directly to the Compensation Committee. The Compensation Committee has the sole authority to hire its consultants and set the engagements and the related fees of those consultants.
The following consulting services were provided to the Compensation Committee in 2013 by McLagan:
Compensation Committee's Relationship with its Independent Compensation Consultant
The Compensation Committee considered the independence of McLagan in light of new SEC rules and NASDAQ listing standards. The Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and its senior advisors. The following factors were considered: (1) other services provided to us by McLagan; (2) fees paid by us as a percentage of McLagan's total revenue; (3) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (4) any business or personal relationships between the senior advisors and a member of the Compensation Committee; (5) any company stock owned by the senior advisors; and (6) any business or personal relationships between our executive officers and the senior advisors. The Compensation Committee discussed these considerations and concluded that the work performed by McLagan and McLagan's senior advisors involved in the engagements did not raise any conflict of interest.
Compensation Benchmarking and Compensation Committee Functions
Each year, with assistance from McLagan, the Compensation Committee reviews a survey of the compensation practices of the Company's peers in order to assess the competitiveness of the compensation arrangements of our NEOs. Although benchmarking is an active tool used to measure compensation structures among peers, it is only one of the tools used by the Compensation Committee to determine total compensation. Benchmarking is used by the Compensation Committee primarily to ascertain competitive total compensation levels (including base salary, equity awards, cash incentives, and other forms of compensation) with comparable institutions. The Compensation Committee uses this data as a reference point, establishes competitive base salaries, and then addresses pay-for-performance (meritocracy) as discussed further in the sections below on cash incentives and long-term retention. A combination of peer performance, market factors, company performance and individual performance are all factors that the Compensation Committee considers when establishing total compensation, including incentives. This practice is in line with the Company's meritocracy philosophy of pay. The Compensation Committee, at its discretion, may determine that it is in the best interest of the Company to negotiate total compensation packages that deviate from regular compensation and incentive levels in order to attract and retain specific talent.
The Compensation Committee reviews the composition of the peer group at least annually and may change it as the Compensation Committee determines to be appropriate to reflect mergers or acquisitions, changes to banks within the peer group, or changes within the Company. The 2013 compensation peer group was selected based on certain current market criteria, including the following:
The specific members of this 2013 compensation peer group follows:
Prior to the FFCH merger, in 2013 the Company initially compared NEO compensation to a peer group (sometimes referred to as the 2012 peer group) selected based on certain market criteria, including the following:
Because the Company's assets had significantly increased due in large part to the Savannah Bancorp acquisition, the Compensation Committee adjusted the 2012 peer group (median assets = $5.5 billion) for 2013 compensation decisions to only include the top 15 (in size) of this peer group. The specific members (the top 15) of the 2012 peer group were follows:
When making compensation determinations for the Company's NEOs, the Compensation Committee focuses on total compensation that is generally competitive with the 60th percentile of the market at target levels of performance and up to the 75th to 80th percentiles for superior performance. Given the Company's increase in size from 2012 to 2013, the Compensation Committee focused on comparison of 2013 expected or target performance opportunities. Prior to increases, salaries ranged from the 30th to 67th percentiles. Salary increases closer to market (average 51st percentile) resulted in 2013 estimated target competitive positioning from the 37th to 65th percentiles for the NEOs.
ELEMENTS OF COMPENSATION
The following table summarizes the components of compensation paid or awarded to our executive officers who appear in the "Summary Compensation Table" below.
Consistent with the Compensation Committee's compensation philosophy, a significant portion of NEO total compensation is in the form of incentive, or "at-risk" compensation, which will vary annually based on performance. The chart below shows the average pay mix for the CEO and the average of other NEOs compared to recent peer practices.
The key elements of compensation for the NEOs are base salary, annual and long-term incentives, and benefits.
During 2012, the Company's assets grew by $1.2 billion. To accommodate this growth in setting competitive levels of compensation, the Compensation Committee reviewed the top 15, in terms of assets, of the 20 institutions included in the initial 2012 peer group. Effective January 2013, the Compensation Committee approved the following increases to reflect Company size and performance and to position the Company competitively compared to peers: The CEO to $606,000 from $520,000, an increase of 16.5%, and the other NEOs increases ranged 7.5% to 19.4%.
In July, 2013, the merger with FFCH was completed and the Company's assets grew another $2.5 billion. Compensation was benchmarked against the newly adopted peer group with assets averaging $8.3 billion. CEO salary was well below the peer group at the 30th percentile. Other NEOs ranged between the 23rd and 58th percentile. Therefore, to bring the NEOs in line with the new peer group, salary increases were approved effective August 1, 2013. The CEO received a 15.5% increase to $700,000 and the other NEOs received increases ranging from 8.8% to 25%. As a result, CEO salary was at the 57th percentile of peers and the other NEOs ranged between the 51st and 70th percentile of the peer group. John Pollok performs the duties of both COO and CFO, and has played a key role in driving the Company's performance. His salary was benchmarked against CFOs. Because the Compensation Committee believes that his roles and responsibilities are broader and more strategic in nature than those associated with a CFO, the Compensation Committee believed that his salary should be at 70th percentile compared to CFOs.
(5) providing incentive compensation opportunities competitive with those of other major corporations.
The 2013 executive performance plan is composed of cash, restricted stock unit, and stock option components.
Annual Incentive (Cash): At target performance levels, the 2013 Executive Performance Plan is weighted 50% in the form of an annual cash incentive bonus. The amount of cash that may be earned is based upon formulaic financial and regulatory goals/objectives for 2013.
Long-Term Incentive (Equity): At target performance levels, the 2013 Executive Performance Plan is weighted 50% in the form of equity. The equity component is made up of both restricted stock units and stock options as follows:
2013 Annual Incentive Plan
2013 Annual Incentive Plan opportunities as a percentage of salary for each of the NEOs and results under the Plan are displayed below:
Annual Incentive Plan Performance-Based Goals
The focus of the annual cash incentive plan in 2013 continued to be on building value and profitability for the Company's shareholders. As a result, the goals for the formula-based portion of the annual cash incentive plan in 2013 were weighted as follows: 25% soundness, 50% profitability, and 25% asset growth.
In addition to the performance goals referenced above, specified minimum triggers were required to be achieved for the formula-based portion of the annual cash bonus plan to pay out: (i) net income was required to be able to provide coverage of the cash dividends paid to the Company's shareholders and (ii) the bank must have received a composite rating from its principal bank regulator that is at least as high as the Company's most recent rating.
The specific goals and the actual results of the 2013 Executive Incentive Plan are outlined in the table below:
Operating Earnings are defined as a non-GAAP measure and excludes the after-tax effect of gains on acquisitions, OTTI, (Other Than Temporarily Impaired Items), merger-related expense and any other nonrecurring charge or revenue. Ultimately, the Compensation Committee will have discretion in determining the final Operating Earnings number.
2013 Three-Year Long-Term Incentive Plan
2013 Long-Term Incentive Plan opportunities as a percentage of salary for each of the NEOs and results under the 2013 plan are displayed below:
Long-Term Incentive Plan Performance-Based Goals and Annual Incentive Plan Performance-Based Goals
The Long-Term Incentive Plan performance-based goals will be measured on December 31, 2015 and include the following:
RSUs will vest based upon the performance as outlined in the goals above and in three years (December 31, 2015). At the end of 2013, EPS growth was 25.3% and ROCE was at 9.82% after the approved adjustment. The grants are shown in the Summary Compensation Table at target level.
The Compensation Committee also granted Incentive Stock Options in 2014 under the 2013 Long-Term Incentive Plan at the maximum level in recognition of the NEO's 2013 individual contributions. Specifically, Mr. Hill received 7,247 stock options. Other NEOs received between 2,134 and 4,488 stock options in recognition of their 2013 contributions. See "Equity Grant Practices" caption.
Equity Grants under the 2012 Executive Incentive Plan
2013 Restricted Stock Equity Grants
Equity grants shown in the Summary Compensation Table below reflect restricted stock granted in January 2013 based on achievement of 2012 performance goals established in the 2013 Executive Incentive Plan. Restricted stock received in 2013 in recognition of the NEOs' 2012 contributions was as follows: Mr. Hill, 8,798; Mr. Pollok, 5,410; Mr. Windley, 3,860; and Mr. Burns, 3,719.
2013 Stock Options
Stock options represented 25% of the equity grants under the 2012 Incentive Plan. The Compensation Committee believes that stock options encourage a focus on increasing the market value of the Company's common stock. Stock options only become valuable to the executive if the
stock price increases over a period of time. The Compensation Committee believes that a balance of restricted stock or restricted stock unit grants and incentive stock options align the NEOs interests with those of the shareholders. Incentive Stock Options received in 2013 in recognition of the NEOs' 2012 contribution were as follows: Mr. Hill, 7,534; Mr. Pollok, 4,633; Mr. Windley, 3,305, and Mr. Burns, 3,185.
Individual Performance-Based Goals
While pre-determined goals dictated how 75% of the compensation under the 2012 Executive Incentive Plan would be paid out at target performance levels, 25% was determined based on non-formula based individual performance objectives for the cash incentive component and stock option component. The individual performance objectives were based on implementation of actions to achieve long-term growth and profitability such as completion and successful integration of acquisitions, improvement in credit practices and measurements and other practices related to risk management, team building, and leadership development, succession planning and continuing to build upon Company culture.
Performance Plan for R. Wayne Hall
Mr. Hall did not participate in the 2013 Performance Plan due to his joining the Company through the acquisition of FFCH in July 2013 and the necessity for Mr. Hall to focus on merger integration. At the closing of the transaction in July 2013, Mr. Hall received an effective date payment in the amount of $500,000 and a restricted stock unit grant with a value of $375,000 for his leadership and work in bringing this merger to closing. The Compensation Committee believes that closing the merger resulted in increased value for the shareholders of both legacy FFCH and Company shareholders.
Mr. Hall continued his leadership throughout the remainder of the year and, as a result, Mr. Hall was rewarded with an incentive payment in the amount of $285,000. Mr. Hall was invaluable in the retention of key leaders and the customer base during the first phase of the merger. Mr. Hall's leadership will continue to be necessary for the systems conversion scheduled for July 2014.
In February 2014, Mr. Hall announced his intent to retire June 30, 2015. Until that time, he will continue to serve as President of the Company. After June 30, 2015, Mr. Hall will serve the Company in an advisory capacity until July 23, 2018.
During 2013, the Company maintained various employee benefit plans that constitute a portion of the total compensation package available to the NEOs and all eligible employees of the Company. These plans consist of the following:
Employees' Pension PlanThe NEOs with the exception of Mr. Hall are participants in a non-contributory defined pension plan which covers substantially all employees of the Company hired before January 1, 2006. Pension benefits are paid based upon age of the employee and years of service. The Plan was frozen in July 2009, and no further benefits are being accrued. See the Pension Benefits table and the accompanying footnotes and narrative for more information.
Employees' Savings Plan401(k)Each of the NEOs are participants in a defined contribution plan which in 2013 permitted employees to contribute up to 50% of their compensation, on a tax-deferred basis, up to certain IRS compensation deferral amount limits applicable to a tax-qualified retirement plan. The Company matched 100% up to 5% of participants'
deferrals. Mr. Hall participated under the legacy First Federal plan which had a match of 50% up to 6% participant deferrals.
See the table in footnote 7 of the Summary Compensation Table.
Health CareThe NEOs are eligible to receive medical and dental coverage that is provided to all eligible employees.
Other Welfare BenefitsThe NEOs receive sick leave, vacation, and other benefits available to all eligible employees of the Company.
The employee benefits for the NEOs discussed in the subsection above are determined by the same criteria applicable to all Company employees. These benefits help keep SCBT competitive in attracting and retaining employees. The Company believes that its employee benefits are generally competitive with benefits provided by the Peer Group and consistent with industry standards.
Supplemental Executive Retirement PlanThe Company provides a non-qualified supplemental executive retirement plan (a "SERP") for Mr. Windley, and certain other executives who are not NEOs. The Company elects to offer this type of incentive as a way to retain executives over the long term and to provide a partial offset to shortfalls in the percentage of income provided for retirement by its qualified retirement plans.
In 2009, the company made restricted stock grants that vest ratably and that become 100% vested at age 60 for Messrs' Hill and Pollok and at age 65 for Mr. Burns. The use of these Long-Term Equity Grants helps to insure the executives' focus is on the long-term interests of the shareholders and motivates retention over a long-term period. In addition, by utilizing the Long-Term Equity Grants, the Company expects to realize lower compensation expense of approximately $5.5 million (compared to the costs that would have been recognized if the Company had maintained SERPs for these executives) over the span of the vesting periods for these executives.
Deferred Compensation PlanWe make available to selected members of our senior management group, including all NEOs and /or other selected employees who are highly compensated, the opportunity to elect to defer current compensation for retirement income or other future financial needs. The plan is a nonqualified deferred compensation plan that is designed to be exempt from certain ERISA requirements as a plan that covers a select group of management and certain other highly compensated employees. Each year, participants can choose to have their compensation for the upcoming year reduced by a certain whole percentage amount ranging between 5% and 80%, or by a specific dollar amount (in all cases, subject to a minimum value established by the Company). In addition, the Company may make matching or partiallymatching contributions for participant deferrals. The Company may also make discretionary contributions for any or all participant (s). Both of these types of employer contributions would be subject to certain vesting requirements. There are also forfeiture provisions, which can result from unvested amounts existing at terminations or from materially incorrect earnings that are subsequently adjusted or corrected. Deferrals may be held by a trustee in a grantor (rabbi) trust and may be invested in funds that mirror deemed investments selected by the participants and offered pursuant to the plan. Such a trust would not isolate assets for the benefit of the participants. Consequently, distributions made under the plan will be made from the general assets of the bank which could be subject to claims of its creditors. Amounts deferred under the plan will generally be subject to income taxes payable by the participant in the year in which received (end of the deferral period), but these deferred amounts are subject to employment taxes in the year of deferral. In 2013, Mr. Hill
and Mr. Windley elected to participate. No employer contributions have been made to this plan in 2013 or in the past.
See the discussion entitled Deferred Compensation Plan for additional information.
PerquisitesThe Company also provides limited perquisites to NEOs that are not available to all employees. Some examples of these include bank-owned automobiles, automobile allowances, and club and membership dues. The values of these items are presented in the Summary Compensation Table under the heading All Other Compensation. The value attributable to any personal use of bank-owned automobiles is considered compensation to the executive and represents the aggregate incremental cost to the Company associated with that personal use. The Company and the board believe that the use of each of these perquisites is helpful for the proper performance of the NEOs' duties.
ADDITIONAL POLICIES AND PROCEDURES RELATED TO EXECUITVE COMPENSATION
Role of Shareholder Say on Pay Vote
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we held an advisory vote on the compensation of our executive officers (the "Say on Pay Proposal") at our 2011 annual shareholders meeting. Our shareholders elected to hold this vote on a triennial frequency. At the 2011 annual shareholders meeting, 80.3% of the votes cast on the Say on Pay proposal were cast in support of the compensation of the Company's named executive officers.
While there was strong support for our executive compensation programs, the Compensation Committee, Board of Directors and executive management have continued to refine compensation programs in order to further align interest of the executives with those of the Company's shareholders and to strengthen the linkage of pay to performance.
The Compensation Committee is committed to adopting a formal clawback provision for adjustment or recovery of incentive awards or payments in the event the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. The Committee intends to fully comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding this issue once rulemaking has been completed with respect to these provisions. Until formal guidance is available, the Compensation Committee will seek to address any situation that may arise and determine the proper and appropriate course of action in fairness to shareholders and NEO award recipients.
Share Ownership Guidelines
The Company's stock ownership guidelines call for NEOs to own equity representing a multiple of their salary and to retain this equity throughout their tenure. The specific share ownership guidelines are:
The Company's NEOs have five years from being named a NEO to comply with the stock ownership guidelines. As of the end of our fiscal year, all NEOs with the exception of Mr. Hall have exceeded their required ownership levels. Due to Mr. Hall's upcoming retirement in June 2015, he is exempt from meeting the ownership guidelines. Beneficially owned shares include shares held by a named executive officer, directly or indirectly, and unvested shares of restricted stock, as to which the executive officers have full voting privileges; but excludes vested and unexercised stock options. Until
the stock ownership guidelines are achieved, the sale of shares of the Company's common stock is restricted.
Equity Grant Practices
To address volatility concerns, the 30-day moving average of the Company's stock was utilized to determine the number of restricted shares to be issued under the Executive Performance Plan for 2013. The 30-day average is defined as the last 30 trading days preceding the last business day of the prior month. Stock option values were determined based upon Black Scholes Valuation methodology as of the last day of the preceding quarter. This value was divided into the dollar amount of options that an executive was to receive to quantify the number of options granted to an executive. The calculated number of shares or stock options is issued with an exercise price equal to the stock price on the date of the grant.
Employment and Non-Competition Agreements
The purpose of these agreements is to attract and retain high caliber executive officers, recognizing that termination and change in control protections are commonly provided at comparable companies with which we compete for executive talent. In addition, the Compensation Committee believes change in control protections enhance the impartiality and objectivity of the NEOs in the event of a change in control transaction and better ensure that shareholder interests are protected. Finally, these agreements include non-competition provisions that further protect the company should the NEO elect to pursue other employment opportunities. Each of our NEOs has an employment agreement. The agreements provide for the following:
See the discussion entitled "Potential Payments upon Termination or Change in Control," which provides the amount of compensation each executive would receive under various termination events based upon the employment agreements.
162(m) Tax Considerations
Internal Revenue Service regulations disallow a tax deduction to public corporations for annual compensation, other than performance-based compensation, over $1 million paid to a chief executive officer and the additional three most highly compensated NEOs (excluding the Company's Chief Financial Officer). The Compensation Committee considers the impact of those regulations in connection with its decisions regarding the compensation of our executive officers. The Compensation Committee believes, however, that shareholder interests are best served by not restricting the Compensation Committee's discretion and flexibility in structuring compensation programs, even though such programs may result in certain non-deductible compensation expenses.
Risk Assessment of Compensation Programs
As part of an annual practice, the Compensation Committee reviewed and discussed a compensation risk assessment performed by the Company's Incentive Risk Committee. The Incentive Risk Committee is chaired by the Chief Risk Officer and composed of representatives from Audit, Accounting, and Human Resources. This risk assessment process included a review of the design and operation of the Company's eleven incentive compensation programs. It also identified and evaluated situations or compensation elements that could raise material risks. The Incentive Risk Committee met three times in 2013 and then presented the findings of the review to the Compensation Committee at its October 2013 meeting. The conclusion was that the Company's compensation policies and practices do not create risks that are likely to have a material adverse effect that would cause plan participants to take unnecessary risks.
Transactions in Company Securities
In general, SEC rules prohibit uncovered short sales of shares of the Company's common stock by its executive officers, including the NEOs. Accordingly, the Company's insider trading policy prohibits short sales of shares of the Company's common stock by its executive officers, including the NEOs, and discourages all employees from engaging in any hedging transactions relating to the Company's common stock. The policy also requires all affiliates and insiders to consult with the Company's Treasurer or Chief Executive Officer if they intend to engage in any [hedging] transactions involving the Company's common stock. In 2013, no executive officer consulted with the Company's Treasurer or Chief Executive Officer regarding hedging transactions.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402 (b) of Regulation S-K with management and, based on
such review and discussions, has recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement and be incorporated by reference into the Company's 2013 Annual Report on Form 10-K.
The Compensation Committee certifies that it has reviewed with the Company's senior risk officer the senior executive officer incentive compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage senior executive officers to take unnecessary or excessive risks that threaten the value of the Company.
This report is provided by the following independent directors, who comprise the Compensation Committee:
A. Hartley, Chair
The following table summarizes for the fiscal years ended December 31, 2013, 2012 and 2011, the current and long-term compensation for the Chief Executive Officer, the current Chief Financial Officer and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer. Each component of compensation is discussed in further detail in the footnotes following the table.
All options listed above vest at a rate of 25% per year over the first four years of a 10-year option term.
The Defined Benefit Pension Plan is described in Compensation Discussion and AnalysisEmployee & Executive BenefitsEmployee's Pension Plan.
As of December 31, 2013, the SERP agreement of Mr. Windley provided for a supplemental executive retirement benefit payout under one of five scenarios: normal retirement, early termination, disability, and change in control or early retirement benefit.
Normal and Early Retirement Benefit
The following table provides the normal retirement age, reduced benefit retirement age (if applicable), base benefit amount, and payout period:
The exact amount of benefits would be generally determined by reference to the number of calendar years after 2002 in which the Company satisfied specified performance measures, namely that the Company's net income after taxes and its total assets grew in the aggregate by an amount that would at least equal to annualized growth of 6% and 7%, respectively. If the named executive officer had retired at normal retirement age as of December 31, 2013, he would have been entitled to 100% of his maximum annual retirement benefit based on this performance measure. A smaller annual benefit, payable over the 15-year period after the executive attains his normal retirement age, will become payable if his employment is terminated prior to attaining retirement age for any reason other than death or for cause.
Benefit at Death
If the executive dies, the Company will be required to pay his beneficiary a lump sum death benefit of $250,000 plus annual payments as presented below:
Mr. Windley will forfeit his retirement benefits under the SERP if he competes with the Company during the 18 months following termination of his employment.
The Company's obligations under the agreements are general unsecured obligations of the Company, although the agreements require the Company to establish a grantor ("rabbi") trust for such benefits following a change in control.
The Company has adopted a deferred compensation plan in which selected members of senior management, including executive officers, and/or other highly compensated employees, have the opportunity to elect to defer current compensation for retirement income or other future financial needs. Only eligible employees, as approved by the Compensation Committee, may participate in the plan. Each year participants can choose to have portions of their compensation for the upcoming year deferred by a certain whole percentage amount ranging between 5% and 100%. Deferrals are recorded in a bookkeeping account which is adjusted to reflect hypothetical investment earnings and losses of investment funds selected by the plan participant among those offered pursuant to the plan. Payments made under the plan will be made from the general assets of the Company, and will be subject to claims of its creditors. Amounts payable under the plan are payable at the future times (or over the periods) designated by plan participants upon their enrollment in the plan and their annual renewal of enrollment.
The investment options available to an executive under the deferred compensation plan are listed below along with their annual rate of return for the calendar year ended December 31, 2013, 2012 and 2011, as reported by the administrator of the deferred compensation plan. The rates assume that 100% of the participant's contribution was deferred as of the first business day of 2013.
The table below summarizes the amounts in each named executive officer's deferred compensation savings plan:
The Company has entered into certain agreements and maintains certain plans that will require the Company to provide compensation to named executive officers of the Company in the event of a termination of employment or a change in control of the Company.
The amounts of total compensation payable to each named executive officer upon voluntary termination without good reason, voluntary termination for good reason, termination by Company without cause, termination by Company for cause, normal retirement, early retirement, termination due to disability, termination due to death and termination associated with a change in control are shown in the tables below. The amounts assume that such termination was effective as of December 31, 2013 (the last day of the fiscal year), and thus include amounts earned through such time and are estimates of the amounts that would have been paid out to the executives upon their termination as of such date. The actual amounts to be paid out can only be determined at the time of such executive's separation from the Company.
For purposes of employment agreements for the named executive officers, the term "cause" is defined below:
"Cause" generally means: (A) the repeated failure of Employee to perform his responsibilities and duties; (B) the commission of an act by Employee constituting dishonesty or fraud against the Company or the Bank; (C) being charged with a felony; (D) habitual absenteeism; (E) Employee is determined to have been on the job while under the influence of alcohol, unauthorized or illegal drugs, prescription drugs that have not been prescribed for the Employee, or other substances that have the potential to impair the Employee's judgment or performance; (F) the commission of an act by Employee involving gross negligence or moral turpitude that brings the Company or any of its affiliates into public disrepute or disgrace or causes material harm to the customer relations, operations or business prospects of the Company or its affiliates; (G) bringing firearms or weapons into the workplace; (H) the Employee's failure to comply with policies, standards, and regulations of Company; (I) the Employee's engagement in conduct which is in material contravention of any federal, state or local law or ordinance other than a minor offense which does not reflect or impact upon the Employer or Bank; (J) the Employee's engagement in conduct which is unbecoming to or inconsistent with the duties and responsibilities of a member of management of the Employer; or (K) the Employee engaging in sexual or other form of illegal harassment.
For purposes of employment agreements for Messrs. Hill, Pollok, Windley, and Burns, the terms "good reason", "disability", "change of control" and "total compensation" are defined below:
This definition of Change in Control is intended to fully comply with the definition of a change in control event as set forth in Treasury Regulation Section 1.409A-3(i)(5).
employee's health and dental insurance premiums. For Mr. Hill, total compensation also includes the value associated with the personal use of a company-owned automobile and reimbursement for country club dues and other such dues and fees as may be approved by the board.
The following table outlines certain differences between each agreement for Messrs. Hill, Pollok, Windley, and Burns:
Mr. Hill is the only named executive officer entitled to receive compensation for his noncompete agreement with the Company. His noncompete agreement is set for a 24 month period starting on the termination date. He would be entitled to two years of his Total Compensation package, as defined in the Total Compensation definition (Item d) above, paid in two equal lump sums, the first at time of termination and the second on the first anniversary of termination. Should he violate any of the covenants listed in the noncompetition agreement, no payments that are still due will be paid and the Company has the right to secure an injunction for damages to recover any previous payments made under the agreement.
For purposes of employment agreements for Mr. Hall, the terms "good reason" and "disability" are defined below:
Mr. Hall's agreement, effective as of December 31, 2013, provides for the following in the event the Company terminates the employee's employment without cause or the employee resigns for Good Reason, as defined above: continued payment of salary and health welfare benefits through the fifth anniversary of the merger closing date, July 26, 2013 ("Effective Date"), plus immediate vesting of all unvested Restricted Stock Units. If Mr. Hall's employment is terminated due to death, disability or for cause, the Company shall have no further obligation to Employee. In the event of termination without Cause or resignation for Good Reason, Mr. Hall will be subject to a noncompetition period ending on the fifth anniversary of the Effective Date.
On January 22, 2009, the Company replaced the cash-based SERP with grants of restricted stock to Messrs. Hill, Pollok and Burns. The grants are intended to provide similar economic benefit to the executives and more closely align the interests of these executives with the long-term profitability of the Bank, the Company and its shareholders. Each restricted stock grant vests on December 31 of each year with final vesting at the end of the month in which the executive reaches his retirement age of
60 years old. Mr. Hill was granted 30,780 shares of restricted stock with final vesting on October 31, 2026. Mr. Pollok was granted 28,265 shares of restricted stock with final vesting on October 31, 2025. Mr. Burns was granted 10,555 shares of restricted stock with final vesting on August 31, 2019. The fair value per share of the stock granted was $27.57 on January 22, 2009.
The Company has individual SERP agreements established on or about November 1, 2006 and amended on December 31, 2008, by and between the Bank and John F. Windley and certain other executives. Although benefits under the SERP arrangements are defined for retirement and early retirement, we do not present these payout estimates in the following tables. None of the named executive officers would be eligible to receive such payments due to the age of the officers on December 31, 2013. The earliest a retirement benefit could be provided to any of the current named executive officerscurrently Mr. Windleywould be in 2018.
The following tables provide the potential payments upon termination for all relevant scenarios as of December 31, 2013.
Robert R. Hill, Jr.
The following table describes the potential payments upon termination for various reasons for Robert R. Hill, Jr., the Company's Chief Executive Officer.
John C. Pollok
The following table describes the potential payments upon termination for various reasons for John C. Pollok, the Company's Chief Financial Officer and Chief Operating Officer.
Upon a Change in Control, with or without termination, Option Awards and Restricted Stock Awards will be fully accelerated based on 100% of remaining non-vested shares. Performance Restricted Stock Units will vest at 100% of the Target level performance (included in the value above) or, if greater, based on actual performance through the end of the most recent quarter ended. The value of Option Awards is based on the difference between the current market price as of December 31, 2013 and the exercise price for options in-the-money (i.e., options with an exercise price below the current market price). The value of Restricted Stock Awards and Restricted Stock Units is based on the market price of $66.51 as of December 31, 2013.
John F. Windley
The following table describes the potential payments upon termination for various reasons for John F. Windley, the Chief Banking Officer and President of the Company's subsidiary SCBT.
Upon a Change in Control, with or without termination, Option Awards and Restricted Stock Awards will be fully accelerated based on 100% of remaining non-vested shares. Performance Restricted Stock Units will vest at 100% of the Target level performance (included in the value above) or, if greater, based on actual performance through the end of the most recent quarter ended. The value of Option Awards is based on the difference between the current market price as of December 31, 2013 and the exercise price for options in-the-money (i.e., options with an exercise price below the current market price). The value of Restricted Stock Awards and Restricted Stock Units is based on the market price of $66.51 as of December 31, 2013.