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Section 1: DEF 14A (DEF 14A)

ofg-def14a_20200422.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

 

(RULE 14a-101)

INFORMATION REQUIRED IN

PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

OFG Bancorp

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required

 

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

 

(1)

Title of each class of securities to which transaction applies:

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

(3)

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

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

(5)

Total fee paid:

 

Fee paid previously with preliminary materials.

 

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

 

(1)

Amount Previously Paid:

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

(3)

Filing Party:

 

 

(4)

Date Filed:

 

 


 

March 11, 2020

Dear Shareholder:

You are cordially invited to attend our annual meeting of shareholders, which will be held at our offices located at Oriental Center, 254 Muñoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, on Wednesday, April 22, 2020. The meeting will begin promptly at 10:00 a.m. (EST).

Details of the business to be conducted at the annual meeting are given in the attached notice of annual meeting and proxy statement.  Only shareholders of record as of February 27, 2020, are entitled to notice of, and to vote at, the annual meeting or any adjournments or postponements thereof.

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

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

We look forward to seeing you at the annual meeting.

Sincerely,

Julian S. Inclán

Chairperson


 

P.O. Box 195115

San Juan, Puerto Rico 00919-5115

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON April 22, 2020

Notice is hereby given that the annual meeting of shareholders of OFG Bancorp (“we,” “us,” “our,” or the “Company”), a financial holding company and corporation organized under the laws of the Commonwealth of Puerto Rico, is scheduled to be held at Oriental Center, 254 Muñoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, commencing at 10:00 a.m. (EST) on Wednesday, April 22, 2020, to consider and vote upon the following matters described in this notice and the accompanying proxy statement:

1.

To elect nine directors for a one-year term expiring at the 2021 annual meeting of shareholders and until their successors are duly elected and qualified;

2.

To provide an advisory vote on executive compensation;

3.

To amend the 2007 Omnibus Performance Incentive Plan, as amended and restated to replenish the number of shares reserved for issuance thereunder;

4.

To ratify the selection of the Company’s independent registered public accounting firm for 2020; and

5.

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

These matters are described more fully in the accompanying proxy statement, which you are urged to read thoroughly.  The Company’s Board of Directors recommends a vote “FOR” each of the proposals.  Only shareholders of record at the close of business on February 27, 2020, are entitled to notice of, and to vote at, the annual meeting.

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

In San Juan, Puerto Rico, on March 11, 2020.

By order of the Board of Directors,

Carlos O. Souffront

Secretary



 

TABLE OF CONTENTS

 

GENERAL QUESTIONS ABOUT THE ANNUAL MEETING

 

1

PROPOSAL 1: ELECTION OF DIRECTORS

 

5

INFORMATION WITH RESPECT TO CERTAIN EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

 

12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

14

BOARD INDEPENDENCE, LEADERSHIP STRUCTURE AND RISK OVERSIGHT

 

17

BOARD MEETINGS

 

18

EXECUTIVE MEETINGS OF NON-MANAGEMENT DIRECTORS

 

18

BOARD COMMITTEES

 

18

BOARD DIVERSITY

 

19

CORPORATE SOCIAL RESPONSIBILITY

 

20

CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES

 

20

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

21

COMPENSATION DISCUSSION AND ANALYSIS

 

22

Overview

 

22

Executive Summary

 

22

What Guides Our Program

 

23

Determination of Compensation Decisions

 

25

Analysis of Compensation Decisions

 

27

Other Compensation Practices

 

30

COMPENSATION RISK ASSESSMENT

 

31

COMPENSATION COMMITTEE REPORT

 

31

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

31

EXECUTIVE COMPENSATION

 

32

PROPOSAL 3: AMENDMENT TO REPLENISH SHARES RESERVED FOR ISSUANCE UNDER THE 2007 OMNIBUS PERFORMANCE INCENTIVE PLAN

 

40

DESCRIPTION OF THE OMNIBUS PERFORMANCE INCENTIVE PLAN

 

41

PROPOSAL 4: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

48

INDEPENDENT AUDITOR

 

49

AUDIT COMMITTEE REPORT

 

50

INDEBTEDNESS OF MANAGEMENT

 

50

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

51

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

52

SHAREHOLDER PROPOSALS

 

52

ANNUAL REPORTS

 

53

 

 

 


PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON Wednesday, April 22, 2020

This proxy statement contains important information related to the annual meeting of shareholders of OFG Bancorp (“we,” “us,” “our,” or the “Company”) to be held on Wednesday, April 22, 2020 at 10:00 a.m. (EST), at its offices located at Oriental Center, 254 Munoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, or any adjournments or postponements thereof. This proxy statement and the accompanying proxy card are expected to be made available to shareholders on or about March 12, 2020.

General Questions about the Annual Meeting

What information is contained in this proxy statement?

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

Who is soliciting my vote?

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

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

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

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

What is the purpose of the annual meeting?

At the annual meeting, shareholders will act upon the matters outlined in the accompanying notice of annual meeting of shareholders, including the election of nine directors, the advisory vote related to executive compensation, the replenishment and increase of the number of shares reserved for issuance under the 2007 Omnibus Performance Incentive Plan, as amended and restated (the “Omnibus Plan”), the ratification of the selection of the Company’s independent registered public accounting firm for 2020, and the transaction of any other business that may properly come before the meeting or any adjournments or postponements thereof. Proxies solicited hereby may be exercised only at the annual meeting, including any adjournments or postponements thereof, and will not be used for any other purpose.

Who is entitled to vote?

Only shareholders of record at the close of business on the record date, February 27, 2020 are entitled to receive notice of the annual meeting and to vote the shares of common stock that they held on that date at the meeting, or any adjournments or postponements thereof.  As of the close of business on the record date, there were 51,419,106 shares of our common stock outstanding.

 


 

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

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

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

How can I vote?

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

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

How many votes do I have?

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

Pursuant to our articles of incorporation and by-laws, you have the right to cumulate your votes at annual meetings in which more than one director is being elected.  Cumulative voting entitles you to a number of votes equal to the number of shares of common stock held by you multiplied by the number of directors to be elected.  As a holder of our shares of common stock, you may cast all or any number of such votes for one nominee or distribute such votes among any two or more nominees as you desire.  Thus, for example, for the election of the nine nominees being considered at this annual meeting, a shareholder owning 1,000 shares of our common stock is entitled to 9,000 votes and may distribute such votes equally among the nominees for election, cast them for the election of only one of such nominees, or otherwise distribute such votes as he or she desires.

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

How does our Board of Directors recommend that I vote?

Our Board of Directors recommends that you vote “FOR” the election of each nominee to the Board, “FOR” the advisory vote related to the compensation of our executives, “FOR” the replenishment and increase of the number of shares reserved for issuance under the Omnibus Plan; and “FOR” the ratification of our independent registered public accounting firm for 2020.

2


 

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

What constitutes a quorum at the annual meeting?

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum, permitting us to hold the meeting.  As of the record date, 51,419,106 shares of our common stock were outstanding.  Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining quorum.  A “broker non-vote” occurs when a securities broker, bank or other nominee indicates on the proxy card that it does not have discretionary authority to vote on a particular matter.  Votes cast by proxy will be counted by Broadridge Financial Solutions, Inc., an independent third party.  We urge you to vote by proxy even if you plan to attend the meeting, so that we will know as soon as possible that enough votes will be present for us to hold the meeting.

How do I vote?

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

Beneficial owners of shares held in “street name” who wish to vote at the meeting will have to obtain a proxy from the securities broker, bank or other nominee that holds their shares.  Such beneficial owners may vote their shares by telephone or the Internet if the brokers, banks or other nominees that hold their shares make those methods available.  If that is the case, each broker, bank or other nominee will enclose instructions with the proxy statement.

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

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

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

3


 

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

Action with respect to the election of directors will be taken by a majority of the votes cast by shareholders represented in person or by proxy at the annual meeting and entitled to vote on the election of directors (which number will take into account the accumulation of votes described above). To be elected, each director nominee must receive more votes cast “FOR” such nominee’s election than votes cast “WITHOLD AUTHORITY” for such nominee’s election.  Abstentions and broker non-votes will not be counted as either an affirmative vote or a negative vote regarding the election of directors and, therefore, will not have a legal effect on such election.

For the advisory vote on the compensation of our executives and the ratification of our independent registered public accounting firm for 2020, the affirmative vote of the holders of a majority of the shares represented in person or by proxy at the meeting and entitled to vote will be required for approval.  Abstentions will have the same effect as a negative vote, and broker non-votes will not be counted in determining the number of shares necessary for approval.

For the replenishment and increase of the number of shares reserved for issuance under the Omnibus Plan, the rules of the NYSE require that such proposal be approved by a majority of the votes cast on the proposal, provided that the total votes cast on the proposal represent over 50% of the outstanding shares of our common stock entitled to vote on the proposal.  Abstentions in such proposal will have the same effect as a negative vote, and broker non-votes can have the effect of a vote against the proposal if such broker non-vote results in the total number of votes cast on the proposal to not represent over 50% of the outstanding shares of our common stock entitled to vote on the proposal.

What happens if I do not give specific voting instructions?

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

Beneficial Owner of Shares Held in Street Name. If you are a beneficial owner of shares held in “street name” and do not provide the organization that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform us that it does not have the authority to vote on such matter with respect to your shares (that is, a “broker non-vote”).  Except for the ratification of our independent registered public accounting firm for 2020, we believe that each of the proposals set forth in this proxy statement will be considered non-routine under the rules of the New York Stock Exchange (which apply to brokers), and therefore, there could be broker non-votes on such proposals.

What happens if the annual meeting is adjourned or postponed?

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

How can I obtain directions to attend the annual meeting?

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

4


 

Proposal 1: Election of Directors

Our Board of Directors consists of one class of nine directors elected annually until the end of their one-year term and until their successors are duly elected and qualified.  Our bylaws provide that directors in uncontested elections will be elected by a majority of the votes cast by our shareholders, rather than a plurality of the votes cast.  Our Director Resignation Policy requires that any director that does not receive the majority of votes cast by our shareholders in an uncontested election submit his or her resignation to our Board of Directors promptly after the certification of the voting results.  Thereafter, our Board of Directors will have 90 days to evaluate the resignation, and if the resignation is not accepted, will disclose the reasons therefore to our shareholders.

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

Set forth below is certain information with respect to each nominee.

 

Julian S. Inclán

Dorado, PR

Director since 2008

Independent

Age: 72

 

Mr. Inclán is the CEO and Chairman of the Board of American Paper Corporation, a distributor of fine papers, office supplies and graphic art supplies, where he also served as President from September 1994 to January 2013.  He is also the Managing Partner, President and Administrator of various real estate development and investment companies.  Mr. Inclán also serves as Chairperson of the Board of Directors of Oriental Bank.  He holds an M.B.A. from Columbia University.

Our Board of Directors recommended Mr. Inclán as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his extensive experience as a director of the Company and in managing his distribution and real estate businesses, which assist the Company in evaluating and overseeing diverse business opportunities.  Our Board of Directors also determined as required by our bylaws that due to the importance of Mr. Inclán’s independent leadership role, at this time, he should continue to serve after having attained the age of 71.

 

 

 

Board and Committees

 

Meeting

 

Attendance

 

Board (Chair)

 

6 of 6

 

 

100

%

Audit

 

7 of 7

 

 

100

%

Risk and Compliance

 

5 of 5

 

 

100

%

Corporate Governance and Nominating

 

2 of 2

 

 

100

%

Compensation

 

3 of 3

 

 

100

%

 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum Multiple

Requirement

108,130

 

12,680

 

$2,869,949

 

21.87

 

4

 

*****

5


 

 

José R. Fernández

San Juan, PR

Director since 2005

Non-Independent

Age: 56

 

Mr. Fernández is the President, CEO and a Vice Chairperson of the Board of Directors of the Company and Oriental Bank.  He is also the Chairperson of the Boards of Directors of all of our other subsidiaries, and the President of Oriental Insurance LLC and Oriental International Bank, Inc.  During his 16-year tenure as CEO, Mr. Fernández has successfully led the transformation of the Company into one of Puerto Rico’s leading banking and financial services companies.  In addition, during that time, Mr. Fernandez spearheaded three major acquisitions, Eurobank, BBVA Puerto Rico and Scotiabank de Puerto Rico.  

 

Mr. Fernández holds a B.S. from the University of Notre Dame and an M.B.A. from the University of Michigan.  He is a member of the Business Advisory Council of the University of Notre Dame’s Mendoza Business School, the Advisory Board of the Puerto Rico Conservation Trust, and the Advisory Board of the Hispanic Society Museum and Library.  He also serves on the Board of Trustees of Sacred Heart University, Santurce, Puerto Rico. From 2011 to 2016, he was appointed to the Community Depository Institutions Advisory Council established by the Federal Reserve Bank of New York.

 

Our Corporate Governance and Nominating Committee recommended Mr. Fernández as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his extensive knowledge of our business, his 30 years of experience in the financial services industry, and his instrumental role in our continued success. As our CEO and Vice Chairperson, Mr. Fernández has consistently demonstrated an ability to exercise sound business judgment and prudent management skills.  Furthermore, his active involvement in community and civic affairs represents an ethical character that we seek in our leaders and company culture.

 

Board and Committees

 

Meeting

 

Attendance

 

Board (Vice Chair)

 

6 of 6

 

 

100

%

 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum Multiple

Requirement

505,663

 

5,560

 

$12,077,703

 

13.96

 

5

 

*****

6


 

 

Juan C. Aguayo, PE, MSCE

San Juan,PR

Director since 2004

Independent

Age: 56

 

Mr. Aguayo is President and CEO of various companies dedicated to construction, steel fabrication, industrial real estate and integrated design-build-maintenance services, including SSW Engineering & Construction, LLC, Structural Steel Works, Inc., Structural Steel Manufacturing, Inc. and SSW Realty, Inc.  He currently services on the Board of Directors of the Associated General Contractors of America (Puerto Rico Chapter).  He has also served on the Boards of Directors of several non-profit organizations, including the Board of Directors of the Association of Structural Steel Fabricators and the Board of Trustees of the Sacred Heart University, San Juan, Puerto Rico.  Mr. Aguayo holds a B.S. (Civil Engineering) from Princeton and a Masters (Civil Engineering) from the Massachusetts Institute of Technology.

 

Our Corporate Governance and Nominating Committee recommended Mr. Aguayo as a nominee, and our Board of Directors concluded that he should continue serve as a director of the Company based on his success as a CEO in the construction and manufacturing industries, and his participation in business associations, which may be valuable towards identifying and evaluating business risks and opportunities for the Company.

 

Board and Committees

 

Meeting

 

Attendance

 

Board

 

5 of 6

 

 

83

%

Risk and Compliance

 

3 of 3

 

 

100

%

Corporate Governance and Nominating (Chair)

 

2 of 2

 

 

100

%

 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum Multiple

Requirement

36,572

 

 

$863,465

 

15

 

4

 

*****

 

Jorge Colón-Gerena

San Juan, PR

Director since 2014

Independent

Age: 53

 

Mr. Colón-Gerena is the President, CEO and principal shareholder of various restaurant franchise operations that have the exclusive rights in Puerto Rico to the Wendy’s, Applebee’s, Sizzler, Longhorn, Olive Garden and Red Lobster franchises.  He serves on the Boards of Directors of the Center for a New Economy, an economic policy think-tank, and the non-profit organizations Centro para Puerto Rico and Sila M. Calderón Foundation.  He also serves on the Board of Directors of Oriental Bank.  Mr. Colón-Gerena holds bachelor’s degree in Arts & Sciences from the Interamerican University, San Juan, Puerto Rico, and has completed executive management courses at Northwestern University and Harvard Business School.

 

Our Corporate Governance and Nominating Committee recommended Mr. Colón-Gerena as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his extensive experience in retail food service franchises, which complements the diversity of experience of our Board.

 

Board and Committees

 

Meeting

 

Attendance

 

Board

 

6 of 6

 

 

100

%

Audit

 

5 of 5

 

 

100

%

Compensation (Chair)

 

3 of 3

 

 

100

%

7


 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum Multiple

Requirement

44,967

 

 

$1,061,671

 

17

 

4

 

*****

 

Néstor de Jesús

Guaynabo, PR

Director since 2016

Independent

Age: 67

 

Mr. de Jesús was an investment banker for 30 years, most recently serving as the Director of the Puerto Rico Office of Barclays Capital.  He also recently served on the Board of Directors and as Chair of the Audit Committee of the Government Development Bank for Puerto Rico.  He currently serves on the Boards of Directors of our principal bank subsidiary, Oriental Bank, Rovira Biscuit Corporation, Rovira Foods Inc., and Academia Maria Reina Inc.  Mr. de Jesús holds a B.S. in Economics from the Wharton School of the University of Pennsylvania and an M.B.A. from University of Michigan.

 

Our Corporate Governance and Nominating Committee recommended Mr. de Jesús as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his prior investment banking experience, his experience as a director of a major Puerto Rico public instrumentality, and his extensive financial expertise, which make him highly qualified to fulfill his responsibilities as a director of the Company.

 

Board and Committees

 

Meeting

 

Attendance

 

Board

 

6 of 6

 

 

100

%

Corporate Governance and Nominating

 

2 of 2

 

 

100

%

Risk and Compliance (Chair)

 

5 of 5

 

 

100

%

 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple

of Compensation

 

Applicable

Minimum Multiple

Requirement

18,900

 

 

$446,229

 

6.23

 

4

 

*****

 

8


 

Susan Harnett

Mount Pleasant, SC

Director since 2019

Independent

Age: 63

 

Ms. Harnett has been a senior advisor to digital startups and mentor at the FinTech Innovation Lab, sponsored by Partnership Fund for New York City and Accenture since 2015. She is also the cofounder of two startups, Juntos and EqualFuture Corp. and an National Association of Corporate Directors Governance Fellow.  From 2012-2015, she was COO of North America for QBE Insurance Group Limited, one of the top insurers and reinsurers worldwide, based in Sydney, Australia. From 2001-2012, she held four key positions at Citigroup: President of Local Consumer Lending (2011-2012), Head of Global Business Performance (2008-2011), CEO of Citibank Germany (2004-2007), and Head of Retail Banking/Deputy CEO of Citibank EMEA (2001-2004). She served as an independent director and Audit Committee member of First Niagara Financial Group, a $40 billion in assets publicly traded bank, from 2015 until its acquisition by KeyCorp in 2016.  During such service, Ms. Harnett participated in the strategic review that resulted in the $4.1 billion sale. She has also served on the Boards of QBE Insurance, CitiFinancial, and Visa Canada. She was Chair of Citi’s Management Board in Germany and of the Global Perspectives Advisory Group of Marquette University College of Business. She

holds a Bachelor's degree from Marquette University, an Executive Master of Business Administration degree from Northwestern University's Kellogg Graduate School of Management, and a Board Leadership Fellow from the National Association of Corporate Directors.

 

Our Corporate Governance and Nominating Committee recommended Ms. Harnett as a nominee, and our Board of Directors concluded that she should continue to serve as a director of the Company based on her significant experience leading domestic and international financial service organizations through periods of major transformation often involving the reengineering of operations, technology, data, products, services, and marketing, as well as M&A and integration, which make her highly qualified to serve on our Board.

 

Board and Committees

 

Meeting

 

Attendance

 

Board (Chair)

 

3 of 3

 

 

100

%

Risk and Compliance

 

2 of 2

 

 

100

%

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

 

Qualifying

Preferred Stock

 

 

Total Value

 

 

Multiple of

Compensation

 

 

Applicable

Minimum Multiple

Requirement

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

*****

 

Pedro Morazzani, CPA, CVA, CFE, CGMA

San Juan, PR

Director since 2006

Independent

Age: 67

 

Mr. Morazzani is a partner of the accounting firm Zayas, Morazzani & Co. and a Certified Public Accountant, Certified Valuation Analyst, Certified Fraud Examiner and Chartered Global Management Accountant.  He is also the President of the Puerto Rico Chapter of the National Association of Certified Valuation Analysts.  Previously, he was a Senior Manager at Peat, Marwick, Mitchell & Co. (presently known as KPMG LLP).  Mr. Morazzani holds a bachelor’s degree in Business Administration from the University of Puerto Rico.

Our Corporate Governance and Nominating Committee recommended Mr. Morazzani as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his extensive accounting and financial expertise and his strong advocacy for corporate governance, ethics and fairness, which make him highly qualified to serve on the Board and its Audit Committee.

 

 

 

Board and Committees

 

Meeting

 

Attendance

 

Board

 

6 of 6

 

 

100

%

Audit (Chair)

 

7 of 7

 

 

100

%

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum Multiple

Requirement

36,720

 

 

$866,959

 

11.18

 

4

 

*****

9


 

 

Edwin Pérez

San Juan, PR

Director since October 2018

Independent

Age: 66

 

Mr. Pérez is the owner and President of Puerto Rico Supplies Group, Inc., one of the largest consumer goods distributors in Puerto Rico, distributing leading brands of dairy foods, household goods, groceries, snacks, candy, health and beauty, prestige fragrances and tobacco products, among over 5,000 products.  He also serves on the Board of CODERI, a school for children with disabilities.  Prior to joining Puerto Rico Supplies, Mr. Pérez served as President of Supermercados Pueblo after having served as President and Partner of Supermercados Amigo.  From 1988 to 1992, he was the President of Con Agra in Puerto Rico after having served in various leadership positions with its subsidiaries, Molinos de Puerto Rico and To Ricos.  From 1981 to 1988, Mr. Pérez occupied various roles with increasing responsibilities until serving as Sales Director of R.J. Reynolds Tabacco Company.  He previously served on the Board of Directors of Scotiabank de Puerto Rico from 2014 to 2015 and as Chairman of the Food Bank and CODERI.  Mr. Pérez holds a business degree from the University of Puerto Rico and a Master’s in Labor Relations from Michigan State University.

 

Our Corporate Governance and Nominating Committee recommended Mr. Pérez as a nominee, and our Board of Directors concluded that he should continue to serve as a director of the Company based on his extraordinary accomplishments as an entrepreneur, which make him highly qualified to fulfill his responsibilities as a director of the Company.

 

Board and Committees

 

Meeting

 

Attendance

 

Board

 

6 of 6

 

 

100

%

Compensation

 

2 of 3

 

 

67

%

 

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

 

Qualifying

Preferred Stock

 

 

Total Value

 

 

Multiple of

Compensation

 

 

Applicable

Minimum Multiple

Requirement

 

 

40,000

 

 

 

 

 

 

944,400

 

 

 

18

 

 

 

1.33

 

 

*****

10


 

 

Christa Steele

Lodi, CA

Director since 2019

Independent

Age: 45

 

Ms. Steele serves as a board member of public, private, ESOP and family-owned companies across varying industries.  She has served on six public and private company boards, including service as chair of audit and compensation committees, in the financial services, transportation, waste collection, food and agricultural industries with business operations in the United States, Canada, Australia, China, Singapore, Malaysia, Europe, Puerto Rico and the U.S. Virgin Islands.  She currently serves on the Board of Directors for Recology, CA; Tanimura & Antle, CA; National Association of Corporate Directors (NACD) Northern California Chapter, CA; and Pacific Coast Banking School, WA. Ms. Steele is also an adjunct faculty member for the NACD Board Advisory Services Practice Group and speaks at industry events on digital disruption, artificial intelligence, big data, and predictive analytics, and has worked on banking legislation in Congress and with regulators. Until recently, she served as a partner and board member of FIG Partners of Atlanta, a boutique investment bank and research firm specializing in community banks, acquired by Janney Montgomery Scott in April 2019. From 2013-2015, she served as President, CEO and Director of Mechanics Bank (OTC:MCHB) of Walnut Creek, CA, a bank with $3.4 billion in total assets. Previously, she held commercial and retail positions with increasing responsibility and leadership at Farmers & Merchants Bank, Westamerica and Bank of America in California. She received a Bachelor’s degree from California State University, Sacramento; a Masters of Business Administration from University of Southern California; and a Board Leadership Fellow from the National Association of Corporate Directors.

 

Our Corporate Governance and Nominating Committee recommended Ms. Steele as a nominee, and our Board of Directors concluded that she should continue to serve as a director of the Company based on her more than 20 years of commercial and consumer banking experience executing strategic initiatives, streamlining operations, implementing technology, and growing new markets, in addition to M&A, which makes her highly qualified to serve on our Board.

 

Board and Committees

 

Meeting

 

Attendance

 

Board (Chair)

 

2 of 2

 

 

100

%

Audit

 

2 of 2

 

 

100

%

Stock Ownership Policy Compliance as of three months ended March 31, 2020 and March 31, 2019:

 

Qualifying

Common Stock

 

 

Qualifying

Preferred Stock

 

 

Total Value

 

 

Multiple of

Compensation

 

 

Applicable

Minimum Multiple

Requirement

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

*****

 

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

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

11


 

Information with Respect to Certain Executive Officers Who Are Not Directors

 

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

 

Ganesh Kumar

Senior Executive Vice President and Chief Operating Officer

San Juan, PR

Age: 55

 

Mr. Kumar serves as our Senior Executive Vice President and Chief Operating Officer.  In this role, he leads a consolidated retail business under one customer centric structure and is responsible for the Company’s strategic business development and expansion.  He is also a member of the Board of Directors of Oriental Bank since 2019.  Before 2017, Mr. Kumar served as Executive Vice President and Chief Financial Officer responsible for corporate finance, strategic planning, accounting and financial reporting, and business analytics.  Previously, he served as our Chief Operating Officer and Chief Risk Officer.  Before joining the Company in 2004, he was a director of consulting at Gartner Inc. (NYSE: IT), an industry leading research and advisory firm where he assisted a wide array of financial service companies develop technology-enabled strategies and operational plans to meet desired results.  Prior to Gartner, he was a manager at McKesson Corporation (NYSE: MCK) from 1997 to 1999; a planning and technology architect at Intercontinental Hotels Group (NYSE: IHG) from 1995 to 1997; and a consultant to financial services clients worldwide from 1986 to 1995.  Mr. Kumar holds a doctorate in management from Case Western Reserve University, Cleveland, OH, where he is currently a member of the Alumni Advisory Council.

 

Stock Ownership Policy Compliance as of December 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum

Multiple

Requirement

180,313

 

 

$4,257,190

 

8.79

 

3

 

*****

 

Maritza Arizmendi, CPA, Esq.

Executive Vice President and Chief Financial Officer

San Juan, PR

Age: 51

 

Since 2017, Ms. Arizmendi has served as our Executive Vice President and Chief Financial Officer responsible for corporate finance, accounting and financial planning and reporting and treasury.  She previously served as our Senior Vice President of Corporate Finance and Chief Accounting Officer.  Previously at BBVAPR, she served in turn as Chief Financial Officer and Treasurer, Senior Vice President of Financial Planning, and Vice President of Risk Management.  Prior to its acquisition by BBVAPR, Ms. Arizmendi was a Vice President of Loan Review at Poncebank. Her career began at PricewaterhouseCoopers LLP, where she attained the position of Senior Auditor. Ms. Arizmendi received her B.S. (Accounting) and Juris Doctor from the University of Puerto Rico. She is a Certified Public Accountant and is admitted to practice law in Puerto Rico.

 

Stock Ownership Policy Compliance as of December 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum

Multiple

Requirement

32,300

 

 

$762,603

 

2.48

 

3

 

*****

12


 

 

Rafael Cruz

Senior Vice President and Chief Risk and Compliance Officer

San Juan, PR

Age: 64

 

Mr. Cruz retired from Oriental Bank effective February 28, 2020 after serving as the Chief Risk and Compliance Officer responsible for risk management, regulatory and BSA/AML compliance, and security since March 2018.  Mr. Cruz joined the Company in 2002 and served in various leadership roles, including Head of Operations, Head of Compliance and Loss Share Director.  Previously, he was Associate Professor and Associate Director of Industrial Engineering at the Polytechnic University of Puerto Rico and a productivity improvement and competitiveness consultant to various Fortune 100 companies.  Mr. Cruz holds a master’s and bachelor’s degree in Industrial Engineering from Lehigh University, Bethlehem, Pennsylvania, and Pontificia Universidad Catolica Madre y Maestra, Santiago, Dominican Republic, respectively.  

 

Stock Ownership Policy Compliance as of December 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum

Multiple

Requirement

24,079

 

 

$568,505

 

2.29

 

2

 

*****

 

Ramón Rosado-Linera, Esq.

Senior Vice President Former Treasurer and U.S. Loan Program Director

San Juan, PR

Age: 56

 

Mr. Rosado-Linera serves as our Senior Vice President and U.S. Loan Program Director since December 2018.  Previously, he was our Senior Vice President and Treasurer.  Mr. Rosado-Linera has over 30 years of experience in bank treasury and investment portfolio management.  Prior to joining the Company in October 2010, he was the Treasurer and Chief Investment Officer of Westernbank Puerto Rico, and before that, he was Executive Vice President and Treasurer of BBVAPR.  He served as a member of the various executive committees, including the Asset/Liability Management Committees, of both banks.  Mr. Rosado-Linera has a B.S. (Finance) from Georgetown University, an M.B.A. from George Washington University, and a Juris Doctor from the University of Puerto Rico.  He is admitted to practice law in Puerto Rico.

 

Stock Ownership Policy Compliance as of December 31, 2019:

 

Qualifying

Common Stock

 

Qualifying

Preferred Stock

 

Total Value

 

Multiple of

Compensation

 

Applicable

Minimum

Multiple

Requirement

36,615

 

 

$864,480

 

3.88

 

2

 

*****

 

13


 

Security Ownership of Certain Beneficial Owners and Management

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

 

Name and Address of

Beneficial Owner

 

Sole

Voting

Power

 

 

Shared

Voting

Power

 

 

Sole

Dispositive

Power

 

 

Shared

Dispositive

Power

 

 

Aggregate

Amount of

Shares

Beneficially

Owned

 

 

Percent of

Class1

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

 

7,460,995

 

 

 

0

 

 

 

7,573,194

 

 

 

0

 

 

 

7,573,194

 

 

 

14.7

%

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

 

 

48,294

 

 

 

4,987

 

 

 

6,233,557

 

 

 

47,168

 

 

 

6,280,725

 

 

 

12.23

%

Dimensional Fund Advisors LP

Building One

6300 Bee Cave Road

Austin, TX 78746

 

 

3,924,581

 

 

 

0

 

 

 

4,080,169

 

 

 

0

 

 

 

4,080,169

 

 

 

7.95

%

FMR LLC

245 Summer Street

Boston, MA 02210

 

 

340,517

 

 

 

0

 

 

 

2,740,945

 

 

 

0

 

 

 

2,740,945

 

 

 

5.338

%

Ameriprise Financial, Inc.2

Ameriprise Financial Center

Minneapolis, MN 55474

 

 

0

 

 

 

2,643,115

 

 

 

0

 

 

 

2,643,115

 

 

 

2,643,115

 

 

 

5.15

%

Columbia Management Investment Advisers, LLC2

225 Franklin Street

Boston, MA 02110

 

 

0

 

 

 

2,643,115

 

 

 

0

 

 

 

2,643,115

 

 

 

2,643,115

 

 

 

5.15

%

 

 

1.

Beneficial owners of greater than 10% reported such holdings on Schedule 13G filed under Rule 13d-1(b), which is available only to shareholders that acquired such securities in the ordinary course of their business and not with the purpose nor with the effect of changing or influencing the control of the issuer, nor in connection with or as a participant in any transaction having such purpose or effect.

 

2.

Ameriprise Financial, Inc. (“AFI”), as the parent company of Columbia Management Investment Advisers, LLC (“CMIA”), reported that it may be deemed to beneficially own the shares reported by CMIA. Accordingly, the shares reported by AFI include those shares separately reported by CMIA.

14


 

The following tables set forth information as to the number of our shares of common stock and serial preferred stock beneficially owned as of December 31, 2019, by (i) our directors; (ii) our named executive officers for 2019 (collectively, the “Named Executive Officers” or “NEOs”); and (iii) our directors and executive officers, including the NEOs, as a group.  The information is based upon filings made by such individuals pursuant to the Exchange Act, and information furnished by each of them.

 

Name of Beneficial Owner

 

Amount and Nature of Beneficial

Ownership of Common Stock (#)

 

 

 

Percent of

Common Stock1

 

Directors

 

 

 

 

 

 

 

 

 

Julian S. Inclán

 

 

145,986

 

2

 

 

 

José Rafael Fernández

 

 

502,305

 

3

 

 

 

Juan C. Aguayo

 

 

33,572

 

4

 

 

 

Jorge Colón-Gerena

 

 

113,037

 

4

 

 

 

Néstor de Jesús

 

 

16,200

 

4

 

 

 

Susan Harnett

 

 

 

 

 

 

 

Pedro Morazzani

 

 

33,020

 

4

 

 

 

Edwin Pérez

 

 

40,000

 

 

 

 

 

Christa Steele

 

 

 

 

 

 

 

Named Executive Officers

 

 

 

 

 

 

 

 

 

José R. Fernández

 

 

502,305

 

3

 

 

 

Ganesh Kumar

 

 

171,612

 

5

 

 

 

Maritza Arizmendi

 

 

23,419

 

6

 

 

 

Rafael Cruz

 

 

26,440

 

7

 

 

 

Ramón Rosado-Linera

 

 

40,776

 

8

 

 

 

Directors and Executive Officers

   as a Group9

 

 

1,279,030

 

 

 

 

2.49

%

 

1.

Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of common stock.  This percentage is calculated on the basis of the 51,398,956 shares of common stock outstanding as of December 31, 2019.

2.

This amount includes 32,377 shares as to which he has shared investment and voting power and 3,800 restricted units whose restricted period will lapse within 60 days.

3.

This amount includes 280,400 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days, 28,942 restricted units whose restricted period will lapse within 60 days, 6,918 shares that he owns through our 401(k)/1081.01(d) Plan, and 7,000 shares owned by his wife.

4.

These amounts include the following restricted units whose restricted period will lapse within 60 days: Mr. Aguayo - 1,500, Mr. Colón Gerena – 1,400, Mr. de Jesús – 1,200, and Mr. Morazzani – 1,900.

5.

This amount includes 110,500 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days, 2,409 restricted units whose restricted period will lapse within 60 days, 43 shares that he owns through our 401(k)/1081.01(d) Plan, and 10,000 shares that he owns through his deferred compensation trust account.

6.

This amount includes 12,000 shares that she may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 6,419 restricted units whose restricted period will lapse within 60 days.

7.

This amount includes 21,650 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days, 2,461 restricted units whose restricted period will lapse within 60 days and 2,329 shares that he owns through our 401(k)/1081.01(d) Plan.

8.

This amount includes 28,500 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days, 2,461 restricted units whose restricted period will lapse within 60 days and 2,665 shares that he owns through our 401(k)/1081.01(d) Plan.

9.

The group consists of 14 persons including all directors, Named Executive Officers, and executive officers who are not directors.

15


 

 

Name of Beneficial Owner

 

Amount and Nature of Beneficial

Ownership of Series D Preferred

Stock (#)

 

 

Percent of Series D

Preferred Stock1

 

Directors and Named Executive Officers

 

 

 

 

 

 

 

 

Julian S. Inclán

 

 

12,680

 

 

 

1.32

%

José R. Fernández

 

 

5,560

 

 

 

 

Directors and Executive Officers as a

   Group2

 

 

32,260

 

 

 

3.36

%

 

1.

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

2.

The group consists of 14 persons including all directors, Named Executive Officers, and executive officers who are not directors.

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

 

16


 

Board Independence, Leadership Structure and Risk Oversight

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

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

Our Board of Directors has nine positions and only one who is a non-independent member, the CEO.  At present, the roles of Chairperson and CEO are split.  The position of Chairperson is held by Mr. Inclán, an independent director since 2008, and the position of CEO is held by Mr. Fernández, a director and CEO since 2004.

Pursuant to our bylaws, and as part of its review of corporate governance and succession planning, our Board of Directors, led by the Corporate Governance and Nominating Committee, conducts an annual self-evaluation and determines the most effective board leadership structure for the Company.  Our Board of Directors also recognizes that different structures may be appropriate for the Company at different times.  In this regard, the Board chooses whether to keep the roles of CEO and Chairperson separate or whether to have one person serve in both capacities.  At this time, the Board has decided that the most appropriate structure for the Company is to have a corporate leadership structure that splits the roles of the Chairperson of the Board and the CEO.  The position of Board Chairperson is held by Mr. Inclán, an independent director, whereas the position of CEO is held by Mr. Fernández, who also serves as Vice Chairperson of the Board.

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

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

17


 

Board Meetings

Our Board of Directors held 6 meetings in 2019.  No incumbent director attended fewer than 75% of the aggregate of the total number of Board meetings and the total number of meetings of Board committees in which he served in that year.  Board members are required to attend our annual meeting of shareholders.  All Board members then in office attended last year’s annual meeting of shareholders.

Executive Meetings of Non-Management Directors

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

Board Committees

Our Board of Directors has a standing Audit Committee, Risk and Compliance Committee, Compensation Committee and Corporate Governance and Nominating Committee.

The Audit Committee assists our Board of Directors in its oversight of our financial reporting process and meets without management’s presence.  It fulfills its oversight responsibilities by reviewing:  (a) the integrity of the financial reports and other financial information provided by us to any governmental or regulatory body or to the public; and (b) our auditing, accounting, and financial reporting processes generally.  The members of this committee are Pedro Morazzani, Chairperson, Julian S. Inclán, Vice Chairperson, and Christa Steele.  Our Board of Directors has determined that each member of this committee is financially literate or has accounting or related financial management expertise, and that Pedro Morazzani is an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of U.S. Securities and Exchange Commission (“SEC”) Regulation S-K.  It met 7 times in 2019.

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

The Risk and Compliance Committee assists our Board of Directors in its oversight of our internal controls, enterprise risk management, and legal and regulatory compliance.  It fulfills its oversight responsibilities by reviewing our systems of internal controls regarding finance, accounting, legal and regulatory compliance, and ethics that management and our Board of Directors have established.  The members of this committee are Néstor de Jesús, Chairperson, Julian S. Inclán, Vice Chairperson, and Susan Harnett.  It met 5 times in 2019.

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

The Compensation Committee discharges the responsibilities of our Board of Directors relating to compensation of our directors and executive officers.  Its general responsibilities are:  (a) reviewing and approving corporate goals and objectives relevant to the compensation of the CEO; (b) evaluating the CEO’s performance in light of those goals and objectives; (c) making recommendations to our Board of Directors with respect to CEO compensation, and approving director compensation; (d) producing a committee report on executive compensation; (e) succession planning; and (f) conducting an annual performance evaluation of itself.  This committee also administers our equity-based compensation plan and is given absolute discretion to, among other things, construe and interpret the plan; to prescribe, amend and rescind rules and regulations relating to the plan; to select the persons to whom plan awards will be given; to determine the number of shares subject to each plan award; and to determine the terms and conditions to which each plan award is subject.  The members of this committee are Jorge Colón-Gerena, Chairperson, Edwin Pérez, Vice Chairperson, and Julian S. Inclán.  It met 3 times in 2019.

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

The Corporate Governance and Nominating Committee assists our Board of Directors by:  (a) identifying individuals qualified to become directors consistent with criteria approved by the Board; (b) selecting or recommending that the Board select the director nominees for the next annual meeting of shareholders; (c) developing and recommending to the Board a set of corporate governance principles applicable to us that are consistent with sound corporate governance practices and in compliance with applicable legal, regulatory, or other requirements; (d) monitoring and reviewing any other corporate governance matters which the Board may refer to this committee; and (e) performing an annual evaluation of the Board, Board committees and each of the directors individually. The members of this committee are Juan Carlos Aguayo, Chairperson, Néstor de Jesús, Vice Chairperson, and Julian S. Inclán. It met 2 times in 2019.

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

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

Board Diversity

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

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

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After evaluating our strategic plan and the current composition of our Board, our Corporate Governance and Nominating Committee identified the need to recruit women candidates and candidates based in the continental United States.  To assist with our search for qualified women candidates, our Corporate Governance and Nominating Committee engaged the services of an outside consultant.  After interviewing several candidates, our Corporate Governance and Nominating Committee recommended and our Board approved the election of Susan Harnett and Christa Steele, both based on their significant experience in the U.S. financial services industry.

Corporate Social Responsibility

Our Company’s corporate social responsibility program seeks to harness our culture of constant innovation that has led to our success to improve the communities we serve.  Our program carries out this spirit of transformation through three pillars, social innovation, education and entrepreneurship.  Through this program, we coordinated over 1,000 community service hours by our participant employees last year and have provided more than 30 grants to cover higher education expenses of children of our employees.  Our President and CEO, Mr. Fernández, is also committed to environmental sustainability and has served for several years on the Advisory Counsel of the Conservation Trust of Puerto Rico, a non-profit organization whose mission is to secure functional and healthy ecosystems in the islands of Puerto Rico.  To minimize our environmental impact, we installed more efficient LED lights on all of our premises, replaced our HVAC and elevator systems in our principal offices with more energy efficient systems, implemented a plastic recycling program in our principal offices’ lunchroom, and continued compliance with local laws requiring recycling of paper, toners and electronic equipment.  Our initiatives to decrease consumption of energy led to a 19% reduction, with 20% cost savings.  

Moreover, our management is currently developing a corporate social responsibility strategic plan to significantly improve our disclosures surrounding our environmental and social governance initiative and improve our performance in furtherance of our mission to make possible the progress of our clients, employees, shareholders and the communities we serve.  More information regarding our corporate social responsibility program, including our Annual Report on Corporate Social Responsibility, is available on our website www.orientalbank.com/en/meet-oriental/community/social-responsibility.

Corporate Governance Principles and Guidelines

We have adopted a set of Corporate Governance Principles and Guidelines to promote the functioning of our Board of Directors and its committees, to protect and enhance shareholder value, and to set forth a common set of expectations as to how the Board, its various committees, individual directors and management should perform their functions.  We have also adopted a Code of Business Conduct and Ethics that reaffirms our basic policies of business conduct and ethics for our directors, officers, employees and agents.  It consists of basic and general standards of business as well as personal conduct.  The Corporate Governance Principles and Guidelines and the Code of Business Conduct and Ethics are available on our website at www.ofgbancorp.com.

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

 

Chairperson of Audit Committee

or

Chairperson of Audit Committee

OFG Bancorp

 

OFG Bancorp

P.O. Box 195145

 

Oriental Center

San Juan, Puerto Rico 00919-5145

 

254 Muñoz Rivera Avenue, 15th Floor

 

 

San Juan, Puerto Rico 00918

 

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Proposal 2: Advisory Vote on Executive Compensation

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we are required to have a separate non-binding shareholder vote to approve the compensation of our Named Executive Officers at least once every three years.  This is commonly known as a “say-on-pay” vote.  At the annual meeting of shareholders held in 2017, a majority of our shareholders voted in favor of holding the say-on-pay vote every year.  As previously disclosed, the Company has decided to hold such vote every year until the next shareholder advisory vote on the frequency of future advisory votes on executive compensation.

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

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

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

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

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

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

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Compensation Discussion and Analysis

Overview

Our executive compensation program aims to promote our long-term success, to attract and retain qualified and talented leaders and motivate them to accomplish our financial goals.  To this end, our executive compensation program considers our corporate results in light of our competitive position and goals, and also each executive’s individual performance, commitment and achievements.

This Compensation Discussion and Analysis explains our executive compensation program for our Named Executive Officers (“NEOs”) listed below.  It also describes how compensation decisions are made and the reasons for specific decisions made in 2019.

 

Name

 

Title

José R. Fernández

 

President, CEO and Vice Chairperson of the Board

Ganesh Kumar

 

Senior Executive Vice President and Chief Operating Officer

Maritza Arizmendi

 

Executive Vice President and Chief Financial Officer

Rafael Cruz

 

Senior Vice President and Chief Risk and Compliance Officer

Ramón Rosado

 

Senior Vice President and U.S. Loan Program Director

 

Executive Summary

2019 Compensation Highlights.  During 2019, we implemented our enhanced equity compensation program that better aligns our NEOs’ interests with creating long-term shareholder value.  Under such program, half of the value (50%) of equity awards granted to our NEOs for their performance in 2018 was in the form of performance shares with a three-year performance cycle.  To increase the weight of long-term performance-based compensation for Mr. Fernández and Mr. Kumar, the Compensation Committee set their target cash bonus at 90% of their base salaries and increased their target long-term incentives to 100% and 80%, respectively. The Compensation Committee also awarded Mr. Kumar, in lieu of an increase in his base salary, 5,000 restricted units and 5,000 performance shares based on the same performance metric and performance cycle for other performance shares awarded in 2019.  In 2019, the base salaries for Mr. Fernández and Mr. Kumar remained the same, whereas the base salaries of Ms. Arizmendi, Mr. Cruz and Mr. Rosado were increased between 4.8% and 8.8% to further align their compensation to market for their respective positions.

2019 Advisory Vote on Executive Compensation.  At the 2019 annual meeting of shareholders, our executive compensation program received the support of 96% of our shareholders, reflecting both improvements implemented in our compensation program in 2018 and the Company’s outstanding performance.  The enhancements implemented in 2018 to increase the focus of our executive compensation on long-term performance-based equity compensation to better align our executives’ interests with creating long-term shareholder value.  We continue to believe that our executive compensation program is designed to support the Company and our business strategies in concert with our compensation philosophies and objectives.

2019 Business and Financial Highlights.  In 2019, we continued to execute on our strategy of distinguishing Oriental Bank as a leader in quality of service among Puerto Rico banks.  Below are some highlights of the Company’s financial and operational performance for 2019:

 

Successfully completed the acquisition of Scotiabank’s operations in Puerto Rico and the U.S. Virgin Islands accomplishing significant growth in our loan assets and core deposit funding.

 

Net income available to shareholders of $47.7 million or $0.92 per fully diluted share, which included acquisition related merger and restructuring charges and increased provision from the sale of non-performing loans (NPLs).

 

On a non-GAAP basis, adjusted net income available to shareholders was $83.8 million, or $1.62 per share, which compares favorably to 2018 net income of $72.4 million, or $1.52 per share.

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Book value of $18.75 per common share, up 4.8% from a year ago.

 

Tangible book value of $15.97 per common share, down 1.1% as a result of the acquisition.

 

Total stockholders’ equity of $1.05 billion, up 4.6%.

 

Record total assets of $9.3 billion, up 40.9%.

 

Paid regular quarterly cash dividend per share of common stock of $0.07, or an annualized cash dividend of $0.28 per share.

Summary of Executive Compensation Practices.  Our executive compensation program includes the following practices and policies, which we believe promote sound compensation governance and are in the best interests of our shareholders and NEOs.

 

WHAT WE DO

 

WHAT WE DON’T DO

Performance based variable compensation

 

NO short-selling, hedging or pledging of

No or significantly limited annual cash bonus if

 

 

Company securities

 

minimum earnings goals is not achieved

 

NO supplemental executive retirement plans

Benchmarking against a relevant peer group

 

NO severance benefits exceeding 3x base salary

Independent external compensation consultant

 

 

and annual cash bonus

Clawback of variable cash and equity

 

NO excise tax gross-ups

 

compensation for malfeasance

 

NO repricing, buyout or exchange of underwater

Annual risk assessment of compensation program

 

 

stock options

Double-trigger vesting for all outstanding equity

 

NO guaranteed bonuses

 

awards in connection with change in control

 

NO uncapped incentives

Stock ownership requirements

 

NO excessive perquisites

Annual say on pay vote

 

NO equity compensation plans with evergreen

 

 

 

 

provisions

 

What Guides Our Program

Compensation Philosophy and Objectives.  The philosophy of our executive compensation program is to provide competitive compensation that rewards achievements of our strategic objectives supporting the creation of shareholder value.  Accordingly, the main objectives of our program are to:

 

Align the interests of our executives with our shareholders;

 

Reward short and long-term financial performance by the Company;

 

Reward superior individual performance;

 

Attract and retain seasoned executives; and

 

Ensure proper governance practices.

Our philosophy is to align the interests of our executives with our shareholders by promoting ownership of our Company’s common stock through equity awards and minimum stock ownership requirements.  Furthermore, a significant component of our compensation program for executives, including the NEOs, is incentive (variable) compensation that is tied to financial, operational and strategic results over both short and long-term performance periods.  For certain executives, such as Mr. Rosado and Mr. Cruz, we provide incentives tied to the accomplishment of business unit and individual objectives to reward their contributions.

We are cognizant of our competitive environment for superior executive talent and seek to maintain a compensation strategy that is competitive in the financial services industry in Puerto Rico and the United States.

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Elements of Compensation. To assure the appropriate mix of fixed versus variable compensation and focus on both short and long-term business performance, we have established three primary elements for our executive compensation program: base salary, annual cash bonus awards and long-term equity-based compensation.

Base salary is designed to be competitive with comparable executive positions in peer group companies in the U.S. and Puerto Rico and considers the complexity and unique challenges of each executive’s position, individual skills, experience, background and performance.  

Annual cash bonus awards are based on a balanced scorecard that takes into consideration the accomplishment of Company-wide performance goals, and for some executives, business unit and individual performance goals as well.

Long-term incentives are granted to our executives in the form of performance-based and time-based awards to foster ownership of the Company’s common stock, link our executives’ compensation to shareholder value and support our leadership retention objectives.

Compensation Mix.  The charts below show the target total direct compensation of Mr. Fernández, our CEO, Mr. Kumar, our COO and second highest ranking officer, and the average of our other NEOs for 2019.  These charts illustrate that a significant portion of such compensation is variable and performance-based.

 

2018 CEO COMPENSATION MIX Restricted Units 16% Performance Shares 16% Annual Cash Bonus 29% Base Salary 39% 2018 COO COMPENSATION MIX Restricted Units 12% Performance Shares 12% Annual Cash Bonus 38% Base Salary 38%

 

2018 NEOS (OTHER THAN CEO AND COO) COMPENSATION MIX Restricted Units 10% Performance Shares 10% Annual Cash Bonus 22% Base Salary 58%

Determination of Compensation Decisions

The Company’s Compensation Committee, senior management and independent compensation consultant play key roles in making compensation decisions with respect to our executives.

24


 

The Role of the Compensation Committee.  The Compensation Committee of our Board of Directors plays a key role in the development and oversight of our compensation program.  It consists entirely of independent directors and operates under a written charter approved by our Board of Directors, which is publicly available at www.ofgbancorp.com.  The Compensation Committee recommend for approval by the Board of Directors the employment agreement that governs the compensation of our CEO Mr. Fernández, approves the corporate scorecard used to determine all or a significant portion of the annual cash bonus for our NEOs, and grants equity awards to all executives under our long-term incentive plan.  As appropriate, it looks to our senior management and independent compensation consultants for support in its work. While the Compensation Committee values input and advice from these and other sources, it exercises its independent judgment in reaching its decisions.

The Compensation Committee approves base salary increases and the incentive compensation of the CEO.  His compensation level is guided by the terms of his 2018 Employment Agreement, as amended.  The Compensation Committee may increase his salary after the first year, and his target performance bonus under our annual bonus plan and his target long-term incentive are based on a percentage of his base salary established by the Compensation Committee.

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

Our Compensation Committee also considers other relevant factors in making compensation decisions or recommendations for our CEO, including salary data for comparable positions at peer group companies in Puerto Rico and the U.S., and compensation levels at the Company.

Determining Goals.  The Compensation Committee is responsible for establishing both short and long-term goals that guide both our cash bonus award and the level of achievement of performance shares.  For the Compensation Committee to perform its goal-setting functions, the following process is followed.

Prior to the beginning of the year, the Board reviews and approves the Company’s strategic plan, and senior executives and department or division heads meet and discuss the Company’s strategic plan and the goals for the Company in the upcoming year that will form part of the Company scorecard.  At the beginning of the year, the Board reviews and approves an annual budget for the Company on a consolidated basis and separately for its banking subsidiary.  The Compensation Committee then reviews and assesses performance goals presented by management and determines the structure of the annual goals for the Company scorecard that determines the payout of all or a significant portion of annual bonus awards and the three-year goals for determining the payout of performance shares.  These goals include minimum performance thresholds that must be met to earn any award, as well as performance levels required to achieve maximum payouts.  Performance goals that form part of the business unit scorecards for the annual cash bonus are established by the CEO with the support of the Finance and Human Resources Departments.

The level of achievement of such goals that form part of the Company and business unit scorecards play an essential role in the determination of the annual cash bonus awards.  On a quarterly basis, senior management and our Board of Directors review our actual financial performance against the goals set for the year.  In addition, our Board of Directors receives quarterly reports detailing our actual financial performance compared to these goals.  Such reports are discussed in the corresponding Board meetings.

25


 

Each annual cash bonus performance goal is assigned a weight and requires a threshold level of accomplishment of 70% for any payout in connection with such goal.  Each performance goal has a maximum level of achievement of either 100% or 125%.  Executives must achieve a minimum rating on their individual performance evaluations to be eligible for any annual cash bonus.  Each target bonus is expressed as a percentage of the executive’s base salary.

The Role of Senior Management.  Our CEO, with the assistance of our Human Resources Director and an independent compensation consultant, establishes the base salary and target cash bonus award of all other executives of the Company and recommends to our Compensation Committee equity awards for other executives.  

In making compensation decisions, our CEO, with the assistance of our Human Resources Director, considers several factors, such as the scope, complexity and degree of challenge of each executive’s responsibilities, as well as his or her performance, skills, experience and succession potential.  In the past, he has also considered in making decisions, among other information, industry compensation and benefits studies prepared by a independent compensation consultants.

On a quarterly basis, our Finance Department assesses the progress of the goals set for the year and at the end of the year evaluate their results.  These assessments are reviewed by the CEO who together with our Director of Human Resources and such executive’s direct supervisor undertakes an evaluation of each executive’s performance based, in part, on objective measures set forth in the performance scorecard.  The CEO considers the financial performance of the Company, the performance of each department or division, and the individual performance of each executive relative to the goals set for the year and evaluates the compensatory recommendations provided by our Human Resources Director.  In the interest of fairness, he may also take into consideration subjective or non-formulaic factors.

The Role of the Compensation Consultant, Benchmarking and the Peer Group.  In 2018 and 2019, our Compensation Committee engaged Pearl Meyer, an independent compensation consultant, to review the Company’s compensation practices with respect to our NEOs relative to our peers and develop recommendations that align better with our shareholders’ expectations for our compensation program in 2019.  As part of this process, they also updated the peer group of financial institutions for the Company and prepared a comparison of the compensation of Mr. Fernández, Mr. Kumar and Ms. Arizmendi with persons in comparable positions at peer financial institutions.  It was also engaged to develop recommendations for their compensation considering the Company’s peer group evaluation.

The peer group established for the Company by Pearl Meyer, and approved by our Compensation Committee, for our compensation decisions in 2019 consisted of the following companies:

 

First BanCorp (Puerto Rico)

Ameris Bancorp

Eagle Bancorp, Inc.

First Financial Bankshares

First Commonwealth Financial Corporation

ServisFirst Bancshares, Inc.

S&T Bancorp, Inc.

Tompkins Financial Corporation

Southside Bancshares, Inc.

Flushing Financial Corporation

Seacoast Banking Corporation of Florida

First Bancorp (NC)

Sandy Spring Bancorp

Lakeland Bancorp, Inc.

TriState Capital Holdings, Inc.

FB Financial Corporation

Fidelity Southern

Bryn Mawr Bank Corporation

26


 

Pearl Meyer reports directly to the Compensation Committee and does not provide any other services to the Company. The Compensation Committee has analyzed whether the work of Pearl Meyer has raised any conflicts of interest, taking into consideration the following factors, among others: (i) the provision of other services to the Company by Pearl Meyer; (ii) the amount of fees from the Company paid to Pearl Meyer as a percentage of their respective total revenues; (iii) Pearl Meyers policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of Pearl Meyer or the individual compensation advisors employed by Pearl Meyer with an executive officer of the Company; (v) any business or personal relationship of the individual compensation advisors with any member of the Compensation Committee; and (vi) any stock of the Company owned by Pearl Meyer or the individual compensation advisors employed by Pearl Meyer. The Compensation Committee has determined, based on its analysis of the above factors, among others, that the work of Pearl Meyer and the individual compensation advisors employed by Pearl Meyer as compensation consultants to the Company has not created any conflicts of interest.

Analysis of Compensation Decisions

Base Salary.  After a review of our peer group with the assistance of Pearl Meyer, our Compensation Committee did not increase the base salary of Mr. Fernández or Mr. Kumar in 2019.  This decision also reflected the Compensation Committee’s focus on increasing performance-based long-term incentives.  The base salaries for Ms. Arizmendi, Mr. Cruz and Mr. Rosado were increased between 5.8% and 11.2% based on a review of peer group companies and market studies to ensure that their compensation is competitive in light of their positions.  

 

Name

 

2018 Base Salary

 

2019 Base Salary

 

Adjustment (%)

José R. Fernández

 

$865,000

 

$865,000

 

0.0%

Ganesh Kumar

 

$484,500

 

$484,500

 

0.0%

Maritza Arizmendi

 

$284,000

 

$307,000

 

8.1%

Rafael Cruz

 

$222,798

 

$247,797

 

11.2%

Ramón Rosado-Linera

 

$258,813

 

$273,910

 

5.8%

Annual Cash Bonus.  After evaluating our annual cash bonus targets and those of our peer companies with the assistance of our independent compensation consultant, the Compensation Committee decided to increase, subject to approval by the Board of Directors, Mr. Fernández’s cash bonus target from 75% to 90% for the 2019 performance period.  The Compensation Committee also decreased Mr. Kumar’s target from 100% to 90% for the 2019 performance period.  The annual cash bonus target percentages for the other NEOs remained the same for the 2019 performance period, and the dollar amounts of the targets based solely on the corresponding increases to their base salaries.  The table below shows the changes in the targets for our NEOs both as a percentage of their base salaries and in dollar amounts.

 

 

 

2018 Target Bonus

 

2019 Target Bonus

 

 

Name

 

%

 

Amount ($)

 

%

 

Amount ($)

 

Adjustment (%)

José R. Fernández

 

75

 

648,750

 

90

 

778,500

 

20.0%

Ganesh Kumar

 

100

 

484,500

 

90

 

436,050

 

(10.0)%

Maritza Arizmendi

 

60

 

170,400

 

60

 

184,200

 

8.1%

Rafael Cruz

 

30

 

69,839

 

30

 

77,339

 

10.7%

Ramón Rosado-Linera

 

30

 

77,644

 

30

 

82,173

 

5.8%

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The table below shows the weight given to each executive of our Company-wide performance scorecard, their respective department scorecard, and their individual performance evaluations.  Although no weight is given to the individual performance evaluations of Mr. Fernández, Mr. Kumar and Ms. Arizmendi for purposes of calculating the amount of the annual cash bonus, they are still evaluated individually and must still achieve a satisfactory level of performance to receive any annual cash bonus.

 

Name

 

Corporate Scorecard

 

Department Scorecard

 

Individual Performance Evaluation

José R. Fernández

 

100%

 

0%

 

0%

Ganesh Kumar

 

100%

 

0%

 

0%

Maritza Arizmendi

 

100%

 

0%

 

0%

Rafael Cruz1

 

40%

 

50%

 

10%

Ramón Rosado-Linera

 

40%

 

50%

 

10%

The table below presents our 2019 Company-wide performance goals, including the weight of each goal and the percent of achievement of the target amount.

 

Performance Measure

 

Weight

 

Target

 

Maximum

 

% of Target

 

Score

Loan Growth1

 

20

 

$4,987

 

$6,234

 

135.52%

 

25.00

Core Deposit Growth1

 

20

 

$4,561

 

$5,701

 

160.64%

 

25.00

OFG Operating Efficiency Ratio

 

20

 

50.12%

 

40.10%

 

93.77%

 

18.75

Return on Average Assets

 

20

 

1.42%

 

1.78%

 

98.59%

 

19.72

Risk Management Scorecard

 

20

 

100%

 

125%

 

103.67%

 

20.73

Total

 

 

 

 

 

 

 

 

 

109.21

 

1.

Information for loans and core deposits in millions.  No points are awarded with respect to each metric where 70% of the target was not achieved.

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

The table below shows the cash bonuses of the NEOs for their performance in 2019.

 

Name

 

Target

Bonus %

 

 

Performance

Score1

 

 

Performance

Bonus ($)1

 

 

Other

Bonus ($)1

 

José R. Fernández

 

 

90

%

 

 

109.21

 

 

 

850,200

 

 

 

283,333

 

Ganesh Kumar

 

 

90

%

 

 

109.21

 

 

 

476,300

 

 

 

250,000

 

Maritza Arizmendi

 

 

60

%

 

 

109.21

 

 

 

201,200

 

 

 

 

Rafael Cruz

 

 

30

%

 

 

108.02

 

 

 

80,400

 

 

 

 

Ramón Rosado-Linera

 

 

30

%

 

 

85.38

 

 

 

70,200

 

 

 

 

 

1.

For purposes of this table, the performance score was rounded to the nearest hundredth and the performance bonus is rounded up to the next hundred dollars.  These amounts represent retention bonuses paid to Mr. Fernández and Mr. Kumar in 2019.

Long-Term Incentive Compensation.  In 2018, our Compensation Committee approved a new framework for granting equity awards to increase our focus on performance-based compensation.  Under this new framework, the Compensation Committee will grant performance shares based on a three-year performance cycle and restricted units that vest in part annually over a three-year period.  We believe that this new framework reflects current trends at peer group companies and that it strengthens the link between executive performance and shareholder value.

As part of our new framework for granting equity awards under the Omnibus Plan, our Compensation Committee decided that the value of the equity awards granted to our Mr. Fernández, Mr. Kumar and Ms.

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Arizmendi will be based on a percentage of their base salaries.  The value of the equity awards granted to our other NEOs is also based on a percentage of their base salaries, but also takes into account the recommendations of our CEO. Half of such value will be granted in the form of performance shares with a three-year performance cycle, and the other half of such value will be granted in the form of restricted units with a third of the restricted units vesting annually on a three-year vesting schedule.  In making these awards, the Compensation Committee expects to continue to maintain our ability to retain key executives.  Each award is subject to service conditions that must be met by the executive for the award to vest.

In 2020, the Compensation Committee granted to the NEOs in connection with their performance in 2019 performance shares based on a three-year performance cycle ending on December 31, 2022.  The Compensation Committee selected a performance metric, the growth in the Company’s tangible book value, supported by the Company’s three-year strategic plan and considering an evaluation of our peer group by our compensation consultant.  The tangible book value of the Company as of December 31, 2019 was $15.96 and the target tangible book value for December 31, 2022 is $21.25. The Compensation Committee did not establish a performance goal based on peer comparisons given the difficulty in establishing a proper peer group for the Company which primarily operates and serves the island of Puerto Rico.  Financial performance comparisons to banks in the continental United States is problematic.  For over 10 years, Puerto Rico has been suffering through a prolonged recession and government fiscal crisis while the United States has seen economic growth and a fiscally stable government.  In addition, the entire island of Puerto Rico was severely impacted by hurricanes Irma and Maria in September 2017 further complicating benchmarking long-term incentives against United States based peer groups.

The Compensation Committee approved, subject to the approval of the Board of Directors, an increase to Mr. Fernández’s target long term incentives for performance in 2019 from 80% to 100% of his base salary.  The Compensation Committee also approved an increase to Mr. Kumar’s target long term incentives for performance in 2019 from 60% to 80% of his base salary.  Under the new framework, the Compensation Committee approved equity awards to the NEOs for their performance in 2019 as follows:

 

 

 

Performance Shares

 

Restricted Units

 

 

 

% of Base

Name

 

Target Value ($)

 

Target Amount

 

Value ($)

 

Amount

 

Total Value ($)

 

Salary

José R. Fernández

 

432,546

 

21,445

 

432,546

 

21,445

 

865,091

 

100%

Ganesh Kumar

 

201,700

 

10,000

 

201,700

 

10,000

 

403,400

 

83%

Maritza Arizmendi

 

100,850

 

5,000

 

100,850

 

5,000

 

201,700

 

66%

Rafael Cruz1

 

0

 

0

 

0

 

0

 

0

 

0%

Ramón Rosado-Linera

 

20,170

 

1,000

 

20,170

 

1,000

 

40,340

 

15%

 

1.

Mr. Cruz was not awarded any equity awards in light of his retirement effective February 28, 2020.

The common stock that the executives will receive in connection with the performance shares will be based on the achievement of growth in the Company’s tangible book value over a three-year performance cycle ending on December 31, 2022.  The performance goal target was established based on the Company’s expected growth in the tangible book value according to its three-year strategic plan.  The threshold, target and maximum level of achievement of the growth in the Company’s tangible book value established for the performance shares and the percentage payout at each level of achievement are as follows:

 

 

 

Threshold

 

Target

 

Maximum

Tangible book value

 

$20.45

 

$21.25

 

$22.85

Percentage Payout

 

50%

 

100%

 

150%

During 2019, the Compensation Committee also decided to grant to Mr. Kumar an additional equity award in lieu of a pending increase to his base salary.  Mr. Kumar was awarded 5,000 restricted units and 5,000 performance shares.  The performance shares will be paid based on a performance cycle from January 1, 2019 until December 31, 2022.  No performance shares will be paid if the tangible book of the Company (TBV) is less than the threshold, or $19.72, at the end of the performance cycle, half of the performance shares will be paid if the TBV equals the

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threshold, the entire performance share award will be paid if the TBV equals $20.32, and a maximum payment of 150% of the shares will be paid if the TBV equals or exceeds $21.52.

Other Compensation Practices

Stock Ownership Requirements.  Our long-term incentive compensation is designed to ensure that executives have a continuing stake in our success and to encourage executives to focus on performance goals that will enhance the value of our franchise and capital stock.  Such incentives are also designed to retain key executives, reward risk management, and link executive performance to the creation of franchise and shareholder value.  Pursuant to our Officers and Directors Stock Ownership Policy, we require our NEOs (among other officers) to own a minimum amount of our equity stock (based on the higher of the market or book value of the stock) equal to five times annual base salary in the case of our CEO, Mr. Fernández, three times annual base salary in the case of certain executive officers, including Mr. Kumar and Ms. Arizmendi, and two times annual base salary in the case of other key officers, including our Mr. Rosado and Mr. Cruz.  Our executives are required to comply in periods ranging from 2 to 4 years after they receive their first equity award following their appointment.  

Anti-hedging and Pledging Policy.  Our Insider Trading and Blackout Policy prohibits our employees from entering into any transaction to hedge or offset any decrease in the market value of our securities and from pledging any of our securities.

Clawback Policy.  Our Compensation Recoupment Policy requires that our top executives, who received incentive-based compensation (e.g., bonus, annual incentive or other performance-based cash or equity compensation awards) in the three-year period prior to a restatement of the Company’s financial statements due to material non-compliance with financial reporting requirements under the applicable securities laws, return to the Company the amount of such compensation that the executive would not have received but for the misstated financial statements.

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

The following table presents the estimated cash compensation under their respective change-in-control compensation agreements based on their salaries and bonuses for 2019.  No such payout has been required to date under any such agreement by the Company.

 

Name

 

Change-in-Control Cash

Compensation ($)

José R. Fernández

 

3,430,400

Ganesh Kumar

 

1,921,600

Non-Qualified Deferred Compensation.  We also offer our NEOs and other highly compensated executives a non-qualified deferred compensation plan for the deferral of taxable income and certain allowances.  Such allowances are offered on a case-by-case basis and are not intended to constitute a significant portion of the executive’s compensation.  Our non-qualified deferred compensation plan is more fully described below.  

Fringe Benefits and Allowances.  We provide several fringe benefits, including a defined contribution plan and healthcare coverage, to our NEOs on the same terms as they are provided to all of our employees.  These benefits do not constitute a significant portion of the NEOs’ total compensation package and are generally available to all of our employees. We provide these benefits to retain and attract an appropriate caliber of talent and recognize that other companies with which we compete for talent provide similar benefits to their officers and employees.

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Compensation Risk Assessment

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

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

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

Compensation Committee Report

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

 

Submitted by:

 

Jorge Colón-Gerena, Chairperson

Edwin Pérez, Vice Chairperson

Julian S. Inclán

 

Compensation Committee Interlocks and Insider Participation

None of our executive officers served as a director of another entity, or as a member of the compensation committee of another entity, one of whose executive officers served as a member of our Board of Directors or as a member of its Compensation Committee at any time during 2019.

 

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Executive Compensation

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

Summary Compensation Table

 

Name

 

Year

 

Salary

($)

 

 

Bonus

($)1

 

 

Stock

Awards

($)1

 

 

Option

Awards

($)1

 

 

Non-Equity

Incentive Plan

Compensation

($)2

 

 

All Other

Compensation

($)

 

 

 

Total

($)

 

José R. Fernández

 

2019

 

 

865,000

 

 

 

283,333

 

 

 

736,368

 

 

 

 

 

 

850,200

 

 

 

117,703

 

3

 

 

2,852,604

 

President & Chief Executive Officer

 

2018

 

 

865,000

 

 

 

283,333

 

 

 

850,940

 

 

 

 

 

 

708,600

 

 

 

92,604

 

 

 

 

2,800,477

 

 

 

2017

 

 

865,000

 

 

 

283,333

 

 

 

312,040

 

 

 

 

 

 

760,100

 

 

 

92,552

 

 

 

 

2,313,025

 

Ganesh Kumar

 

2019

 

 

484,500

 

 

 

250,000

 

 

 

545,536

 

 

 

 

 

 

476,300

 

 

 

124,373

 

4

 

 

1,880,709

 

Senior Executive Vice President &

 

2018

 

 

484,500

 

 

 

335,667

 

 

 

431,060

 

 

 

 

 

 

529,200

 

 

 

76,603

 

 

 

 

1,857,030

 

Chief Operating Officer

 

2017

 

 

475,000

 

 

 

335,667

 

 

 

 

 

 

 

 

 

417,400

 

 

 

76,571

 

 

 

 

1,304,638

 

Maritza Arizmendi

 

2019

 

 

307,000

 

 

 

 

 

 

181,976

 

 

 

 

 

 

201,200

 

 

 

25,873

 

5

 

 

716,049

 

Executive Vice President & Chief

 

2018

 

 

284,000

 

 

 

 

 

 

134,400

 

 

 

 

 

 

186,100

 

 

 

17,594

 

 

 

 

622,094

 

Financial Officer

 

2017

 

 

259,309

 

 

 

 

 

 

67,250

 

 

 

 

 

 

116,900

 

 

 

16,792

 

 

 

 

460,251

 

Rafael Cruz

Senior Vice President and Chief Risk

 

2019

 

 

247,797

 

 

 

 

 

 

71,944

 

 

 

 

 

 

80,400

 

 

 

24,282

 

6

 

 

424,423

 

and Compliance Officer

 

2018

 

 

222,798