UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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|_| Preliminary Proxy Statement
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PBIB
PORTER BANCORP, INC.
PORTER BANCORP, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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PBIB
Porter Bancorp, Inc.
To our shareholders:
You are cordially invited to attend the 2007 annual meeting of
shareholders of Porter Bancorp, Inc. The meeting will be held on Thursday, May
17, 2007 at 9:00 a.m. EDT in the Conference Center on the second floor of our
main office located at 2500 Eastpoint Parkway, Louisville, Kentucky 40223.
The enclosed Notice and Proxy Statement contain information about the
matters to be voted on at the annual meeting.
We hope you can attend the annual meeting. Whether or not you plan to
attend, please complete, sign and return the enclosed proxy card in the envelope
provided to ensure your shares are represented and voted at the annual meeting.
We appreciate your interest and investment in Porter Bancorp and look
forward to seeing you at the annual meeting.
By order of the Board of Directors,
/s/ Maria L. Bouvette
-----------------------------------
Maria L. Bouvette
President and CEO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF PORTER BANCORP, INC.
THURSDAY, MAY 17, 2007
To our shareholders:
Notice is hereby given that the annual meeting of shareholders of Porter
Bancorp, Inc. will be held on Thursday, May 17, 2007 at 9:00 a.m. EDT in the
Conference Center on the second floor of our main office located at 2500
Eastpoint Parkway, Louisville, Kentucky 40223, to consider and act upon the
following matters:
1. To elect seven directors and
2. To transact such other business as may properly come before the
meeting.
The close of business on April 9, 2007 is the record date for determining
the shareholders entitled to notice of, and to vote at, the Annual Meeting of
Shareholders.
Whether or not you plan to attend the meeting, please sign, date and
promptly return the enclosed proxy. If for any reason you desire to revoke your
proxy, you may do so at any time before the voting as described in the
accompanying proxy statement.
By order of the Board of Directors,
/s/ Maria L. Bouvette
-----------------------------------
Maria L. Bouvette
President and CEO
April 18, 2007
1
2007 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
QUESTIONS AND ANSWERS
Why am I receiving these materials?
We are sending this Proxy Statement and the accompanying proxy card to our
shareholders beginning on or about April 18, 2007. These materials are for use
at the 2007 Annual Meeting of Porter Bancorp Shareholders which will be held on
May 17, 2007, at 9:00 a.m. EDT in the Conference Center on the second floor of
our main office located at 2500 Eastpoint Parkway, Louisville, Kentucky 40223.
Our Board of Directors is soliciting proxies to give all shareholders of record
an opportunity to vote on matters to be presented at the Annual Meeting. In the
following pages of this Proxy Statement, you will find information on matters to
be voted upon at the Annual Meeting of Shareholders or any adjournment of that
meeting.
Who Can Vote?
You are entitled to vote if you were a shareholder of record of Porter
Bancorp stock as of the close of business on April 9, 2007. Your shares can be
voted at the meeting only if you are present or represented by a valid proxy.
What constitutes a quorum and how many shares are outstanding?
A majority of the votes entitled to be cast by the holders of the
outstanding shares of Porter Bancorp stock must be present, either in person or
represented by proxy, in order to conduct the Annual Meeting of Porter Bancorp
Shareholders. On April 9, 2007, there were 7,621,647 shares of Porter Bancorp
stock outstanding.
Who is entitled to vote?
Holders of Porter Bancorp stock are entitled to one vote on each matter
submitted to a vote of shareholders for each share of Porter Bancorp stock owned
on April 9, 2007. All shares entitled to vote and represented in person or by
properly completed proxies received before the polls are closed at the Annual
Meeting, and not revoked or superseded, will be voted in accordance with
instructions indicated on those proxies.
What am I voting on?
You are voting on the election of seven directors. Our board recommends
that you vote your shares "FOR" each of the nominees for the board. We are not
aware of any business to be acted upon at the annual meeting other than the
election of directors.
How many votes are required for approval?
Directors are elected by a plurality of the votes cast, which means the
seven nominees who receive the largest number of properly executed votes will be
elected as directors. Cumulative voting is not permitted. Shares that are
represented by proxies which are marked "withhold authority" for the election of
one or more director nominees will not be counted in determining the number of
votes cast for those persons.
2
How do I vote?
You may vote by proxy or in person at the meeting. To vote by proxy,
simply mark your proxy card, date and sign it and return it in the postage-paid
envelope provided. The Board has designated two individuals to vote the shares
represented by proxies solicited by the Board at the Annual Meeting. If you
properly submit a proxy but do not specify how you want your shares to be voted,
your shares will be voted by the designated proxies "FOR" the election of all of
the director nominees. The designated proxies will vote in their discretion on
any other matter that may properly come before the meeting. At the date the
Proxy Statement went to press, we did not anticipate that any other matters
would be raised at the Annual Meeting.
How can I revoke my proxy?
If you vote by proxy, you may revoke that proxy at any time before it is
voted at the meeting. You may do this by (a) signing another proxy card with a
later date and returning it to us prior to the meeting or (b) attending the
meeting in person and casting a ballot.
How may I obtain Porter Bancorp's 10-K and other financial information?
A copy of our 2006 Annual Report is enclosed. Shareholders and prospective
investors may request a free copy of our 2006 Form 10-K by writing to:
C. Bradford Harris
Corporate General Counsel
Porter Bancorp, Inc.
2500 Eastpoint Parkway
Louisville, Kentucky 40223
502-499-4800
The Form 10-K is also available at www.pbibank.com. Click on "Investor
Relations" and "SEC Filings."
Who can help answer my questions?
If you have questions or would like to receive additional copies of this
proxy statement or voting materials, please contact C. Bradford Harris,
Corporate General Counsel, as described above.
3
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Our Board of Directors is comprised of seven directors who serve for a
one-year term or until their successors are elected and qualified. Our articles
of incorporation and bylaws provide for a board of directors consisting of not
less than two nor more than 15 members, with the actual number of directors to
be set by the board of directors. The number of directors is currently fixed at
seven. The Nominating Committee and the Board of Directors has nominated the
following individuals for election as directors: J. Chester Porter, Maria L.
Bouvette, David L. Hawkins, W. Glenn Hogan, Michael E. Miller, Sidney L. Monroe
and Stephen A. Williams. Each of the nominees is a current member of the Board
of Directors.
Neither the Nominating Committee nor the Board of Directors has reason to
believe that any nominee for director is unwilling or unable to serve following
election. However, if that were to occur, the holders of the proxies solicited
hereby will vote for such substitute nominees as the Nominating Committee or the
Board of Directors may recommend.
The following table provides biographical information for each nominee and
our one other executive officer:
Nominee Age Principal Occupation and Other Information Director Since
J. Chester Porter 66 Mr. Porter is our chairman of the board and general counsel. He also 1988
serves as a director of two affiliated banks. Mr. Porter is a partner in
the law firm Porter & Associates and has practiced law for over 30
years. Mr. Porter is a member and the chairman of the University of
Louisville board of trustees, and chairman of the University of
Louisville Foundation Board. He has also served on Campbellsville
University's board of trustees and executive committee since 1985.
Maria L. Bouvette 50 Ms. Bouvette is our president and chief executive officer. She also 1988
serves as chief financial officer and a director of two affiliated
banks. Ms. Bouvette is a member of the board of trustees of Norton
Healthcare, the largest healthcare provider and second largest employer
in Louisville, Kentucky. Before joining Porter, Ms. Bouvette served as a
manager of Deloitte Haskins & Sells (now Deloitte & Touche).
Ms. Bouvette is a certified public accountant and has over 25 years of
banking and management experience.
David L. Hawkins 52 Mr. Hawkins is a farmer and private investor. Mr. Hawkins served as 2006
president and chief executive officer of Pioneer Bank, Canmer, Kentucky
from 1982 until 1994, when it was acquired by us. Before becoming
president and chief executive officer of Pioneer Bank, Mr. Hawkins was a
partner in Taylor, Polson, Woosley and Hawkins, a public accounting firm
in Glasgow, Kentucky. Mr. Hawkins is a certified public accountant and
serves as the chairman of our audit committee. Mr. Hawkins has also
served as a director of PBI Bank or one of its predecessors since
1994.
4
W. Glenn Hogan 45 Mr. Hogan is founder, president and chief executive officer of Hogan 2006
Real Estate, a full service commercial real estate development company
headquartered in Louisville, Kentucky. Hogan Real Estate provides real
estate services for retailers, institutional and private property owners
and investors. Mr. Hogan has over twenty years of real estate
development experience and has developed over five million square feet
of retail space in the Midwest and Southeast. Mr. Hogan is a certified
commercial investment member and is past president of the Kentucky State
CCIM Chapter. Mr. Hogan was appointed to our board of directors on
October 19, 2006 and serves as a member of the compensation and
nominating committees.
Michael E. Miller 55 Mr. Miller is a partner and the chief financial officer of The Poe 2006
Companies, a commercial real estate development company. Before joining
The Poe Companies in January 2007, Mr. Miller served in several
positions with Churchill Downs Incorporated, a NASDAQ Global Market
listed company that is an owner and operator of thoroughbred race
tracks, including as chief financial officer since January 2003. Before
joining Churchill Downs, Mr. Miller was chief financial officer of
Fender Musical Instruments, a privately held manufacturer and wholesaler
of musical instruments. Mr. Miller serves as the chairman of our
corporate governance and nominating committee and compensation committee.
Sidney L. Monroe 66 Mr. Monroe is a retired certified public accountant. From 1990 to 2001, 2006
Mr. Monroe was a partner in Kent, Gay and Monroe, an audit and
consulting services firm that primarily advised small and medium-sized
businesses. Before 1990, Mr. Monroe held numerous positions during a 20
year career at Deloitte Haskins & Sells (now Deloitte & Touche),
including partner in charge of several offices, including the Louisville
office. While at Deloitte, Mr. Monroe was designated as a specialist in
the financial institutions field. Mr. Monroe serves as a member of our
audit committee.
Stephen A. Williams 56 Mr. Williams is the president and chief executive officer of Norton 2006
Healthcare, a not-for-profit integrated healthcare delivery organization
that is the largest healthcare provider and second largest employer in
Louisville, Kentucky. Norton Healthcare owns and operates five
hospitals, eight immediate care centers and 165 owned physician
practices in 27 locations, and has approximately $1.2 billion in
assets. Mr. Williams serves as a member of our audit committee and as
the lead independent director.
5
Other Executive Officers
------------------------
David B. Pierce 47 Mr. Pierce is our chief financial officer. From 1984 to 1989, Mr. Pierce
served as a manager at Coopers & Lybrand (now PricewaterhouseCoopers) where
he was responsible for audits of public and private entities including
financial institutions. Before 1984, Mr. Pierce was a senior accountant at
Deloitte Haskins & Sells (now Deloitte & Touche). Mr. Pierce is a certified
public accountant and has over 20 years of banking and management
experience. Mr. Pierce also serves as a director of PBI Bank.
WE RECOMMEND THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE SEVEN
NOMINEES.
CORPORATE GOVERNANCE
Corporate Governance Principles
Our board of directors has adopted corporate governance principles that
address the role and composition of our board of directors and the functions of
our board and the board's committees. We expect to revise our corporate
governance principles from time to time in response to changing regulatory
requirements, evolving best practices and concerns expressed by our shareholders
and other constituents. Our corporate governance principles are available on our
website at www.pbibank.com under "Investor Relations" and "Corporate
Governance."
Controlled Company Status and Director Independence
We are a "controlled company" within the meaning of the NASDAQ corporate
governance rules by virtue of the voting control of Mr. Porter and Ms. Bouvette,
together owning more than 50% of our sole class of voting stock. A "controlled
company" may elect not to comply with the following NASDAQ corporate governance
rules:
o A majority of its board of directors must consist of "independent
directors," as defined by the NASDAQ rules;
o Decisions regarding the compensation paid to executive officers must
be made either by a compensation committee composed entirely of
independent directors or by a majority of the independent directors;
o Nominations for election to the board of directors must be made either
by a nominating committee composed entirely of independent directors
with a written charter addressing the committee's purpose and
responsibilities or by a majority of the independent directors.
We rely on our controlled company status to have Mr. Porter serve on our
nominating and governance committee and to have Ms. Bouvette serve on our
compensation committee. The "controlled company" exception does not modify
requirements under the Securities Exchange Act of 1934, SEC rules and the NASDAQ
corporate governance rules that we have an audit committee comprised of at least
three directors, all of whom must be independent as defined by the Exchange Act
and the SEC and NASDAQ rules. We anticipate that in the future, at least one
member of our audit committee will always qualify as an audit committee
financial expert.
Our principles provide that it is our policy that a majority of the
members of the Board be independent from management. For this purpose, the Board
has adopted Director Independence Standards that meet the listing standards of
the NASDAQ corporate governance rules. In accordance with our Corporate
Governance Guidelines, the Nominating and Corporate Governance Committee
undertakes an annual review of director independence during the first quarter of
each year. During this review, the Board considers any and all commercial and
charitable relationships of directors, including transactions and relationships
between each Director or any member of his or her immediate family and the
Company and its subsidiaries. Following the review in 2007, the Board
affirmatively determined that each of the directors nominated for election at
this Annual Meeting, except our Chairman, Mr. Porter, and our President and
Chief Executive Officer, Ms. Bouvette, is independent of the Company and its
management in that none have any relationship that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director, in accordance with the NASDAQ corporate governance rules.
6
Code of Ethics
Our Board has adopted the Code of Business Conduct and Ethics that sets
forth important company policies and procedures in conducting our business in a
legal, ethical and responsible manner. These standards are applicable to all of
our directors and employees, including our Chairman, Chief Executive Officer and
Chief Financial Officer. In addition, the Board has adopted the Code of Ethics
for CEO and Senior Financial Officers that supplements the Code of Business
Conduct and Ethics by providing more specific requirements and guidance on
certain topics. The Code of Ethics for CEO and Senior Financial Officers applies
to the Company's Chairman, Chief Executive Officer, Chief Financial Officer and
PBI Bank's Chief Financial Officer. The Code of Ethics for CEO and Senior
Financial Officers is available on our website at www.pbibank.com under
"Investor Relations" and "Corporate Governance." We will post any material
amendments to, or waivers from, our Code of Ethics for CEO and Senior Financial
Officers on our website.
Employees must report any conduct they believe in good faith to be an
actual or apparent violation of our Codes of Conduct. In addition, as required
under the Sarbanes-Oxley Act of 2002, the Audit Committee has established
confidential procedures to receive, retain and treat complaints received
regarding accounting, internal accounting controls, or auditing matters and the
confidential, anonymous submission by company employees of concerns regarding
questionable accounting or auditing matters.
Stock Ownership Guidelines
Our Corporate Governance Guidelines require all non-employee directors to
hold at least 1,000 of our shares while serving as a director of the Company.
Shares that may be acquired through the exercise of stock options are included
in calculating the number of shares of ownership to determine whether this
minimum ownership requirement has been met. All directors are expected to be in
compliance with the stock ownership guidelines within five years of becoming a
director.
Board Structure and Committee Composition
Our board of directors has established standing committees in connection
with the discharge of its responsibilities. These committees will include an
audit committee, a compensation committee and a nominating and governance
committee. Our committee charters are available on our website at
www.pbibank.com under "Investor Relations" and "Corporate Governance."
Audit Committee
Our audit committee is comprised of Messrs. Hawkins, Monroe and Williams.
Our board of directors has determined that Messrs. Hawkins, Monroe and Williams
currently meet the independence requirements of the NASDAQ corporate governance
rules and relevant federal securities laws and regulations. The audit committee
assists our board in monitoring the integrity of the financial statements, the
qualifications and independence of our independent registered public accounting
firm, the performance of our internal audit function and our independent
registered public accounting firm and our compliance with legal and regulatory
requirements. Mr. Hawkins and Mr. Monroe each qualifies as an audit committee
financial expert.
7
Compensation Committee
Our compensation committee is comprised of Mr. Miller, Mr. Hogan and Ms.
Bouvette. The compensation committee has overall responsibility for evaluating
and approving our executive officer incentive compensation, benefit, severance,
equity-based or other compensation plans, policies and programs. The
compensation committee is also responsible for producing an annual report on
executive compensation for inclusion in our proxy statement.
Nominating and Governance Committee
Our nominating and governance committee is comprised of Mr. Miller, Mr.
Hogan and Mr. Porter. The nominating and governance committee assists our board
of directors in promoting our best interests and the best interests of our
shareholders through the implementation of sound corporate governance principles
and practices. In furtherance of this purpose, the nominating and governance
committee identifies individuals qualified to become board members and recommend
to our board of directors the director nominees for the next annual meeting of
shareholders. It also reviews the qualifications and independence of the members
of our board of directors and its various committees on a regular basis and
makes any recommendations the committee members may deem appropriate from time
to time concerning any recommended changes in the composition of our board.
Meeting Attendance
During 2006, our board of directors met twelve times. Mr. Hawkins, Mr.
Miller, Mr. Monroe and Mr. Williams were elected to the board of directors on
May 15, 2006. Mr. Hogan was elected to the board of directors on October 19,
2006. All directors attended more than 75 percent of the total number of
meetings of the board of directors and the committees on which he or she served.
All directors and director nominees are expected to attend each annual meeting
of shareholders, unless an emergency prevents them from doing so.
Board Compensation
Compensation of Directors
Each director receives $1,250 for each board meeting attended and $500 for
each committee meeting attended. Our executives who serve on the Boards of
Directors of Porter Bancorp and PBI Bank are paid the same cash director fees as
those paid to non-employee directors. Although paying cash director fees to
"inside" executives who serve on Boards of Directors is not the prevalent market
practice, it has been the historical practice at Porter Bancorp for many years
and constitutes a small portion of affected executive's total compensation
amount. Directors J. Chester Porter, Maria L. Bouvette and David L. Hawkins also
serve as directors of PBI Bank. Each bank director receives $500 for each board
meeting attended. The directors fees paid to Mr. Porter and Ms. Bouvette are
included in the "All Other Compensation" column of the Summary Compensation
Table.
In addition to the board and committee fees, non-employee directors are
granted an option for shares of common stock on annual basis pursuant to our
2006 Non-Employee Directors Stock Ownership Plan. The 2006 Directors Plan
automatically granted an option for 5,000 shares of common stock to each
non-employee director of Porter Bancorp and 1,000 shares of common stock to each
non-employee director of PBI Bank on September 21, 2006, the date of our initial
public offering. The exercise price for these shares of common stock is equal to
our initial offering price of $24.00 per share. Beginning in 2007, the 2006
Directors Plan will automatically grant an option for 5,000 shares of common
stock to each non-employee director of Porter Bancorp and 1,000 shares of common
stock to each non-employee director of PBI Bank on the first day of the month
after our annual meeting of shareholders. The exercise price is equal to the
closing sale price of our shares of common stock as reported on the NASDAQ
Global Market on the date of grant. Each option becomes exercisable with respect
to one-sixth of the shares of common stock subject to the option on each six
month anniversary of the date of grant as long as the director is continuing to
serve on the board of directors. If a director ceases to serve on the board of
directors for any reason, the director will automatically forfeit the unvested
portion of the option. Each option will expire on the fifth anniversary of the
date on which it was granted.
8
The following table provides information on 2006 compensation for
non-employee directors.
Fees Earned Option
or Paid in Awards All Other Total
Name Cash ($)(1) ($) (2) Compensation ($) ($)
------------------- ------------------ ---------------- ------------------ ----------------
David L. Hawkins $ 10,750(3) $ 2,010 $ 6,000(8) $ 18,760
W. Glen Hogan 3,000(4) -- -- 3,000
Michael E. Miller 9,500(5) 1,675 -- 11,175
Sidney L. Monroe 10,750(6) 1,675 3,000(9) 14,425
Stephen A. Williams 10,750(7) 1,675 -- 12,425
----------
(1) Each director receives $1,250 for each meeting attended. All of the
non-employee directors, except Mr. Hogan, were elected to our Board of
Directors in May 2006. Mr. Hogan was elected to our Board of Directors in
October 2006.
(2) Each non-employee director received stock option awards with a grant date
fair value of $3.66 per share. The options vest over three years and have
a life of five years. The table shows the 2006 compensation expense
calculated in accordance with SFAS 123(R). As of December 31, 2006, each
director had the following aggregated number of options: David L. Hawkins,
6,000; Michael E. Miller, 5,000; Sidney L. Monroe, 5,000; Stephen A.
Williams, 5,000. One-sixth of these options for each director are included
in the Security Ownership Table.
(3) Mr. Hawkins received $2,000 for attendance at Audit Committee meetings
during 2006.
(4) Mr. Hogan received $500 for attendance at an Executive Compensation
Committee meeting in 2006.
(5) Mr. Miller received $1,000 for attendance at Executive Compensation
Committee meetings and $1,000 for Nominating and Corporate Governance
Committee meetings in 2006.
(6) Mr. Monroe received $2,000 for attendance at Audit Committee meetings
during 2006.
(7) Mr. Williams received $2,000 for attendance at Audit Committee meetings
during 2006.
(8) Mr. Hawkins received $6,000 in PBI Bank director fees.
(9) Mr. Monroe received $3,000 for serving as a member of the PBI Bank board
of directors and the PBI Bank Audit Committee from January until April
2006.
STOCK OWNERSHIP OF DIRECTORS, OFFICERS,
AND PRINCIPAL SHAREHOLDERS
The following table shows, as of February 28, 2007, the number and
percentage of shares of common stock held by (1) Porter Bancorp's directors and
nominees, (2) each of the named executive officers set forth in the Summary
Compensation Table, and (3) current directors and named executive officers as a
group. The information provided in the table is based on our records,
information filed with the SEC, and information provided to us, except where
otherwise noted. Except for our two controlling shareholders, each of whom is a
director and an executive officer, we know of no other shareholder who
beneficially owns 5% or more of our common stock.
9
Under SEC rules, a person is deemed to beneficially own any shares as to
which the entity or individual has the right to acquire within 60 days of
February 28, 2007 through the exercise of any stock option or other right.
Unless otherwise indicated, each person has sole voting and investment power (or
shares these powers with his or her spouse) with respect to the shares set forth
in the following table.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
----------------------------------------------------- -------------------- ---------
Directors and Nominee
J. Chester Porter(1,2) 2,783,647 36.5%
Maria L. Bouvette(1,3) 2,455,168 32.2
David L. Hawkins(1,4) 3,299 *
W. Glenn Hogan(1) 5,000 *
Michael E. Miller(1,5) 1,833 *
Sidney L. Monroe(1,6) 4,755 *
Stephen A. Williams(1,7) 2,833 *
Other Named Executive Officers
David B. Pierce(1,) 92,167 1.2
Named Executive Officers and Directors as a Group 5,348,702 70.2
* Represents beneficial ownership of less than 1%
----------
(1) The business address for these referenced individuals is c/o Porter
Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223.
(2) Includes 3,922 shares of common stock held by Spencer Access, LLC, of
which J. Chester Porter is the sole owner, and 9,805 shares of common
stock which may be acquired pursuant to exercisable stock options.
(3) Includes 9,805 shares of common stock which may be acquired pursuant to
exercisable stock options.
(4) Includes 1,000 shares that are jointly held with his spouse and 999 shares
of common stock which may be acquired pursuant to exercisable stock
options.
(5) Includes 833 shares of common stock which may be acquired pursuant to
exercisable stock options.
(6) Includes 833 shares of common stock which may be acquired pursuant to
exercisable stock options.
(7) Includes 833 shares of common stock which may be acquired pursuant to
exercisable stock options. (8) Includes 88,245 shares of common stock
which may be acquired pursuant to exercisable stock options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Parties
Our Audit Committee has the responsibility to review and ratify all
transactions, other than loans and extensions of credit, between the Company and
related parties, including without limitation, fees and commissions for
services, purchases or sales of assets, rental arrangements and any other
financial arrangement.
As a bank, we are not subject to Section 402 of the Sarbanes-Oxley Act of
2002, which prohibits any issuer to extend, renew or arrange for the extension
of credit in the form of a personal loan to or for any director or executive
officer of that issuer. However, loans must be made:
o in the ordinary course of our consumer credit business;
o of a type we generally make available to the public; and
o on market terms, or terms that are no more favorable than those
offered by the issuer to the general public.
10
We have long-standing policies and procedures governing our extension of
credit to related parties in compliance with the insider lending restrictions of
Section 22(h) of the Federal Reserve Act or the Federal Reserve's Regulation O.
All loans to directors and executive officers or their affiliates are approved
by the Board of Directors of PBI Bank. As of December 31, 2006, the aggregate
amount of all loans outstanding to our executive officers and directors, the
executive officers and directors of PBI Bank and the firms and corporations in
which they have at least a 10.0% beneficial interest was approximately $1.9
million.
Certain of our officers, directors and principal shareholders and their
affiliates and certain of the officers and directors of PBI Bank and their
affiliates have had banking transactions with PBI Bank, including investments in
certificates of deposit. All such investments have been made, and will continue
to be made, only in the ordinary course of business of PBI Bank on substantially
the same terms as those prevailing at the time for comparable transactions with
unaffiliated persons.
Management Service Agreements with Banks Under Common Control
Our chairman, J. Chester Porter and his brother, William G. Porter, each
own a 50% interest in Lake Valley Bancorp, Inc., the parent holding company of
The Peoples Bank, Taylorsville, Kentucky, located approximately 25 miles
southeast of Louisville in Spencer County. The Peoples Bank, Taylorsville had
approximately $86 million in assets as of December 31, 2006. J. Chester Porter,
William G. Porter and our president and chief executive officer, Maria L.
Bouvette, serve as directors of this bank.
Our chairman, J. Chester Porter owns an interest of 38.6% and his brother,
William G. Porter, owns an interest of 3.0% in Crossroads Bancorp, Inc., the
parent holding company of The Peoples Bank, Mount Washington, Kentucky, located
approximately 20 miles south of Louisville in Bullitt County. PBI Bank also has
banking offices in Bullitt County. The Peoples Bank, Mount Washington had
approximately $87 million in assets as of December 31, 2006. J. Chester Porter
and our president and chief executive officer, Maria L. Bouvette, serve as
directors of this bank.
We have entered into management services agreements with each of these
banks. Each agreement provides that our executives and employees provide
management and accounting services to the subject bank, including overall
responsibility for establishing and implementing policy and strategic planning.
Maria Bouvette also serves as chief financial officer of each of the banks. We
received a $4,500 monthly fee from The Peoples Bank, Taylorsville and a $2,500 a
monthly fee from The Peoples Bank, Mount Washington for these services in 2006.
We receive a $4,000 monthly fee from The Peoples Bank, Taylorsville and a $2,000
a monthly fee from The Peoples Bank, Mount Washington for these services in
2007.
From time to time, these banks may also participate with us in making
loans to certain borrowers when our executive officers believe it is mutually
beneficial to do so. The following table shows the outstanding principal balance
of loans subject to participation arrangements between us and these banks as of
December 31, 2006, 2005 and 2004:
The Peoples Bank, The Peoples Bank,
Mt. Washington Taylorsville
------------------------------ ------------------------------
As of Participations Participations Participations Participations
December 31, Purchased Sold Purchased Sold
-------------- -------------- -------------- -------------- --------------
(dollars in thousands)
2006 $ 2,449 $ 5,294 $ 1,679 $ 7,579
2005 4,115 5,271 4,245 10,077
2004 4,629 5,057 4,104 8,302
We believe the terms of our arrangements with these two banks in which J.
Chester Porter and William G. Porter have substantial ownership interests are
fair and reasonable to us and to the other banks. We have had the terms of our
management services agreements with these banks reviewed by an independent
accounting firm from time to time. The terms of these arrangements will also be
subject to ongoing review by the independent directors on our audit committee.
11
Other Transactions in Which Related Parties Have an Interest
Our chairman, J. Chester Porter is the owner of Porter & Associates, a law
firm that we retained during our last fiscal year and will retain in the future.
We paid $232,488 to Porter & Associates for legal services provided during 2006.
In addition, Porter & Associates received fees from borrowers for its
representation of PBI Bank in connection with loan closings.
Keith Griffee, the son-in-law of J. Chester Porter, is PBI Bank's
President of the Bullitt County Market and was paid an aggregate salary, bonus
and taxable perquisites of $87,375 during 2006.
Jennifer E. Porter, Mr. Porter's daughter and Mr. Griffee's wife, serves
as an advisory director of our Bullitt County banking office. Jack C. Porter,
Mr. Porter's son, serves as a member of the senior loan committee of PBI Bank
and as an advisory director of our Bullitt County banking office. Albert J.
Bouvette, brother of our president and chief executive officer, Maria L.
Bouvette, is an employee of PBI Bank's information technology department. None
of these individuals received compensation in excess of $60,000 for their
services in such capacities during 2006.
In 1994, J. Chester Porter and Maria L. Bouvette issued a promissory note
to David L. Hawkins, a director and chairman of our audit committee, in the
principal amount of $506,315.79 as part of the consideration paid to Mr. Hawkins
in connection with the acquisition of Pioneer Bank by a predecessor of our
company. The promissory note bears interest at the prime rate plus 1% per annum
(currently 9.25%) and payments of interest only are due quarterly. The loan is
secured by a mortgage on real estate. The original term of the note has been
extended from January 1, 2007 to January 1, 2012.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's directors, executive officers, and persons who own more than
10 percent of the Corporation's common stock, to file reports of ownership and
changes in ownership with the SEC. Directors, executive officers, and greater
than 10 percent beneficial owners, referred to as "reporting persons," are
required by SEC regulations to furnish the Corporation with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms furnished to the Corporation, the Corporation believes that during 2006
all reporting persons complied with the filing requirements of Section 16(a),
except for the initial Form 3 filed by each of the following: Maria L. Bouvette,
David L. Hawkins, Michael E. Miller, Sidney L. Monroe, David B. Pierce, J.
Chester Porter and Stephen A. Williams. Each of these Form 3s was filed within
ten days of the effective date of the Company's registration statement.
COMPENSATION DISCUSSION AND ANALYSIS
Porter Bancorp completed its initial public offering on September 21,
2006. Until that time, we had operated as a closely held bank holding company
controlled by our two principal shareholders, J. Chester Porter, our Chairman,
and Maria L. Bouvette, our President and Chief Executive Officer. As such, Mr.
Porter and Ms. Bouvette determined the compensation paid in 2006 to our three
executive officers, comprised of themselves and our Chief Financial Officer.
Mr. Porter and Ms. Bouvette together beneficially owned 68.7% of our
outstanding shares as of February 28, 2007. By virtue of the voting control of
Mr. Porter and Ms. Bouvette, we are a "controlled company" within the meaning of
the NASDAQ corporate governance rules. Among other things, a controlled company
may elect not to comply with certain NASDAQ corporate governance rules,
including the requirement that decisions regarding the compensation paid to
executive officers must be made either by a compensation committee composed
entirely of independent directors or by a majority of the independent directors.
12
Beginning with our 2007 fiscal year, the Compensation Committee of our
Board of Directors will assume the responsibility for developing specific
policies regarding compensation of our executive officers, as well as evaluating
and approving our executive officer incentive compensation, benefit, severance,
equity-based or other compensation plans, policies and programs implementing and
administering all aspects of our benefit and compensation plans and programs.
Our compensation committee is comprised of Mr. Miller, Mr. Hogan and Ms.
Bouvette. Our board of directors has determined that Mr. Miller and Mr. Hogan
currently meet the independence requirements of the NASDAQ corporate governance
rules and relevant federal securities laws and regulations. We rely on our
controlled company status to have Ms. Bouvette serve on our compensation
committee. As a practical matter, our controlled company status also gives Mr.
Porter and Ms. Bouvette the ability to assert significant influence over
executive compensation decisions.
Executive Compensation Philosophy and Objectives
Our philosophy for executive compensation is to attract, retain and reward
excellent executives and align their interests with the interests of our
shareholders. To promote this philosophy, we have established the following
objectives:
o provide fair and competitive compensation to executives, based on
their performance and contributions to our company, that will attract,
motivate and retain individuals that will enable our company to
compete with other financial institutions in our markets;
o provide incentives that reward executives for attaining predetermined
objectives that promote and reward individual performance, company
financial performance, achievement of strategic goals and company
stock performance;
o instill in our executives a long-term commitment and a sense of
ownership through the use of equity-based compensation; and
o ensure that the interests of our executives are aligned with our
shareholders' interests.
Executive Compensation Components
Our compensation program is comprised of three components:
o Base salary that is competitive with levels paid by comparable
financial institutions;
o Annual incentive cash payments based on the attainment of targeted
performance goals; and
o Equity-based compensation consisting of stock options and restricted
stock.
Because 2007 was the first year that our executive compensation programs
and policies became the primary responsibility of the Compensation Committee,
the Committee conducted an evaluation of how our compensation levels compared to
the compensation of peer institutions to determine the overall reasonableness of
the compensation awarded. The Committee considered publicly available data for
2005, the most recent data available, regarding annual compensation and total
compensation paid to comparable executives of three peer groups. Annual
compensation includes base salary, annual bonus and other annual compensation.
Total compensation includes annual compensation plus, restricted stock awards,
performance units and other compensation paid due to long-term incentive plans.
The peer groups were: (i) the 53 financial institutions in the Midwest with
assets of $1 billion to $5 billion, (ii) the 62 financial institutions
nationwide with assets of $1 billion to $5 billion and a ROAE of 15% or greater
and (iii) the five other publicly traded financial institutions headquartered in
Kentucky with total assets ranging from $800 million to $3 billion. As of
December 31, 2006, we had total assets of $1.1 billion.
For Mr. Porter and Ms. Bouvette, who are controlling shareholders as well
as our most senior executives, the Committee evaluated data on the chief
executive officer compensation of the three peer groups. For Mr. Pierce, the
Committee evaluated data on the COO and CFO compensation of the three peer
groups because his duties in our organization include responsibilities typically
undertaken by a chief operating officer as well as a chief financial officer.
13
The following table shows the average annual compensation for 2005 paid to
chief executive officers, chief financial officers and chief operating officers
of the three peer groups described above:
Position Midwest 15% ROAE Kentucky
CEO $554,414 $697,195 $404,184
CFO 242,786 312,821 206,390
COO 399,956 356,336 250,133
The following table shows the average total compensation for 2005 paid to
chief executive officers, chief financial officers and chief operating officers
of the three peer groups described above:
Position Midwest 15% ROAE Kentucky
CEO $652,323 $788,267 $426,306
CFO 278,105 347,543 221,318
COO 441,181 410,447 260,167
After its evaluation of the comparative peer group compensation data, the
Committee concluded that total compensation paid to our executive officers in
2006 was reasonable relative to the compensation paid to comparable executives
of the three peer groups.
Base Salary. When originally establishing the base salaries for our
executives, we considered the scope of executive responsibilities and publicly
available information concerning the compensation paid to executives with
similar levels of responsibility by other comparable financial institutions in
our market. Thereafter, our practice had been to increase base salaries by
between 3% and 5% annually to account for a cost of living adjustment,
considering an individual executive's performance when determining the
percentage within the range. The Compensation Committee largely used the same
process for determining base salaries in 2007 that management used in 2006.
Based on its evaluation of the peer group compensation data, the Committee set
the 2007 base salaries for Mr. Porter, Ms. Bouvette and Mr. Pierce at the same
levels as 2006. For future years, the Compensation Committee plans to revise the
historic process to move away from cost of living adjustments, and instead set
executive salaries based on the position and responsibility of the executive
officer and to more heavily compensate executive officers based on financial and
executive performance.
Cash Incentives. Under our 2006 cash incentive plan, our named executive
officers, were able to earn up to a maximum of 30% of their base salary based
upon our attainment of pre-established performance and risk management
objectives. Each executive earns 1.5% of salary for attaining a threshold goal
in each performance criteria and 3.0% of salary for each of the criteria for
which a higher objective is attained. In addition, any bonus earned can also be
reduced by 1.5% or 3% to the extent that each of two other asset quality
criteria, loan delinquencies and loan charge-offs, exceed acceptable levels. The
1.5% targets are generally based on our annual budget at levels we expect, but
are not certain, to attain. We believe attainment of the 3.0% targets is
considerably more challenging; the higher targets generally involve increases of
at least 10% over budgeted amounts.
14
In 2006, our named executive officers earned bonuses totaling 16.5% of
salary. The following table shows the individual bonus targets for PBI Bank our
executives attained in 2006:
Objective Actual 1.5% Goal 3% Goal Percent Earned
Return on average assets 1.67% 1.59% 1.75% 1.5%
Return on average equity 15.63 13.10 14.41 3%
Efficiency ratio 42.00 47.25 46.25 3%
Transaction account growth 2.74 5.00 6.00 0
Net charge-offs to loans 0.10 0.15 0.10 3%
Non-interest income to avg.
earning assets 0.54 0.76 0.84 0
Net interest margin 4.23 4.10 4.25 1.5%
Delinquent loans to total loans 1.71 1.75 1.5 1.5%
Non-performing assets to total assets 0.99 1.0 0.75 1.5%
Policy compliance * * * 1.5%
----
16.5%
Deductions ----
Delinquent loans to total loans 1.71 >2% >2.5% 0
Net charge-offs to loans 0.10 >.20 >.25 0
0
Incentive compensation percentage 16.5%
====
--------------------------------------------------------------------------------
* Based on a subjective evaluation conducted by our senior officers of our
compliance with internal policies and procedures.
In addition, our three named executives can earn supplemental incentive
compensation of up to an additional $1,000 to the extent we achieve the holding
company targets in each of the ten performance criteria listed above. Of the
maximum of $10,000 of supplemental incentive compensation, our executives earned
$3,000 in 2006.
For 2007, the Compensation Committee has adopted a similar cash incentive
plan for the named executive officers. The maximum bonus will again be 30%, with
1.5% and 3.0% targets in each of the pre-established performance criteria,
subject to reduction to the extent delinquencies and charge-offs exceed
acceptable levels. Again, the 1.5% performance criteria will generally be based
on the attainment of budgeted amounts and the 3.0% goals will require exceeding
budget by 10% or more. We have adjusted some of our budgeted performance
criteria to reward the achievement of important corporate objectives, including
earnings per share and deposit growth. Each named executive officer will also be
entitled to a supplemental senior leadership team bonus of up to $10,000 that
will be paid based on the same pre-determined performance criteria described
above.
Equity-Based Compensation. In February 2006, we established the Porter
Bancorp, Inc. 2006 Stock Incentive Plan in anticipation of becoming a public
company. We added an equity-based compensation component to give our employees
an ownership interest in our company as both a one-time reward and to give them
a common interest with our shareholders in the performance of our stock. We
expect future equity grants for employees other than new hires will be largely
based on performance criteria, which have yet to be established. The 2006 Plan
authorizes the issuance of up to 400,000 shares in the form of stock options and
restricted stock awards. On March 1, 2006, we made initial grants of stock
options and restricted stock under the 2006 Plan to all of our eligible
employees, except Mr. Porter, Ms. Bouvette and Mr. Pierce. Mr. Porter and Ms.
Bouvette, as our sole directors at the time, approved the amounts and terms of
the initial awards that were recommended by management. To determine the amount
of options and restricted stock awards to be initially granted, we established a
limit on the total expense of the granting of options and restricted stock for
the fiscal year 2006 to be no more than $200,000. The grants of stock options
and restricted stock were then allocated among all employees based on seniority
and performance as determined by management, with heavier allocations made to
senior personnel. We also took into account that our three named executives held
fully vested options for shares that were issued in prior years under a stock
option plan of our Ascencia Bank subsidiary. These options were converted into
options to purchase our shares for $25.50 per share as a result of our December
2005 reorganization. Mr. Porter and Ms. Bouvette each holds Ascencia options for
9,805 shares, and Mr. Pierce holds Ascencia options for 88,245 shares. The
options awarded on March 1, 2006 have an exercise price of $25.50 per share, a
five-year term and vest in one-third increments on March 1 of each year,
beginning in 2007. The forfeiture restrictions on the shares of restricted stock
awarded in 2006 lapse in one-tenth increments on March 1 of each year beginning
in 2007. As of February 28, 2007, options to purchase an aggregate of 251,070
shares of our common stock and 39,250 shares of unvested restricted common stock
under the 2006 Plan were outstanding.
15
The Compensation Committee now has the authority under the 2006 Plan to
award options and restricted stock awards in such amounts and on such terms as
the Committee determines in its sole discretion. The Compensation Committee
plans to review the equity-based compensation process as part of its review of
the historical compensation process and consider moving toward an equity based
compensation system that is partially based on pre-defined performance criteria
similar to the cash incentive compensation plan described above. The
Compensation Committee believes that equity incentive compensation should be
designed to compensate officers for achieving financial and operational goals
and for achieving individual annual performance objectives. These objectives are
expected to vary depending on the individual executive, but are expected to
relate generally to strategic factors similar to those factors in the cash
incentive plan described above.
Other Benefits
401(k) Plan. All of our full- and part-time employees, including our named
executive officers, are eligible to participate in our 401(k) Plan after 90 days
of employment. Subject to certain limitations imposed by federal tax laws,
employees may contribute up to 15% of their compensation per year. We contribute
a safe-harbor matching contribution equal to 50% of the participants' first 4%
of deferred compensation contribution. At our discretion, we may make an
additional contribution each plan year.
Supplemental Executive Retirement Plan. PBI Bank has a Supplemental
Executive Retirement Plan to provide additional benefits for certain key
officers. David B. Pierce is the only named executive officer that participates
in the plan. It is not currently anticipated that any other executives will be
added to this plan.
Pursuant to the plan, we are obligated to pay each participant, or his or
her beneficiaries, at the participant's retirement or death, monthly retirement
income for 10 years equal to 30% of the participants projected salary.
Participants begin to vest in this benefit after five years of service and fully
vest after ten years of service. In addition, we must pay benefits if the
participant's employment terminates before retirement age (other than by death
or for cause) or if the participant is terminated within three years following a
change-in-control. The payment of benefits upon a change-in-control is described
under the heading "Potential Payments Upon Termination or Change-In-Control" in
the Executive Compensation section. The estimated cost of the plan is being
accrued over the period of active employment of the participants. We adopted
this plan in 2004. As of December 31, 2006, $357,000 had been accrued as a
liability for the plan. The amount charged to operations totaled $158,000 in
2006. In order to provide earnings to offset plan expenses, PBI Bank purchased
life insurance on the plan participants. As of December 31, 2006, the cash
surrender value of the bank owned life insurance was approximately $6.7 million.
Income earned from the cash surrender value of the life insurance totaled
$258,000 in 2006.
16
COMPENSATION COMMITTEE REPORT
Porter Bancorp's Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management and, based on such review and discussions, has recommended to
the Board that the Compensation Discussion and Analysis be included in this
Proxy Statement.
The Compensation Committee
Michael E. Miller, Chairman
Maria L. Bouvette
W. Glenn Hogan
EXECUTIVE COMPENSATION
The following table discloses the compensation received by Porter
Bancorp's chief executive officer, chief financial officer, and the other most
highly paid executive officer (all three of these individuals are referred to as
the "named executive officers") during the year ended December 31, 2006.
Summary Compensation Table
Change in
Non-Equity Nonqualified
Incentive Deferred
Plan Compensation All Other
Stock Option Compensation Earnings Compensation
Name and Principal Position Year Salary Bonus Awards Awards (3) (4) (5) Total
($) ($) ($) ($) ($) ($) ($) ($)
------------------------------ ---- -------- ------ ------ ------ ------------- -------------- ------------- ---------
J. Chester Porter 2006 $350,000 -- -- -- $ 60,750 -- $ 42,150 $ 452,900
Chairman of the Board of
Porter Bancorp and PBI Bank
Maria L. Bouvette 2006 $350,000 -- -- -- $ 60,750 -- $ 39,377 $ 450,127
President and CEO of Porter
Bancorp and PBI Bank
David B. Pierce 2006 $245,000 -- -- -- $ 43,425 $ 43,378 $ 39,052 $ 370,855
Chief Financial Officer of
Porter Bancorp and Chief
Strategic Officer of PBI
Bank
----------
(1) No stock awards were granted to named executive officers during the fiscal
year ended December 31, 2006.
(2) No option awards were granted to named executive officers during the
fiscal year ended December 31, 2006.
(3) The amounts reflect the cash awards to the named individuals under the
Cash Incentive Plan, which is discussed in further detail under the
heading "Cash Incentives," under "Executive Compensation Components."
(4) The amounts reflect the increase in the present value of Supplemental
Executive Retirement Benefit accrual from 2005 to 2006 for the named
executive officer's benefit. Please see Pension Benefits table for
explanation of benefit and disclosure of present value of accumulated
benefit as of December 31, 2006.
(5) All other compensation for the named executive officers is set forth
below.
17
Premiums
401(k) Paid for Life
401(k) Annual Profit Insurance
Vehicle Matching Sharing For Benefit of Director Total Other
Name Allowance Contribution Contribution Employee Fees Compensation
--------------- --------------- --------------- --------------- --------------- ---------------
J. Chester Porter $ 12,750 $ 4,400 $ 5,250 -- $ 19,750 $ 42,150
Maria L. Bouvette $ 10,250 $ 4,127 $ 5,250 -- $ 19,750 $ 39,377
David B. Pierce $ 8,945 $ 4,400 $ 5,250 $ 14,457 $ 6,000(1) $ 39,052
----------
(1) Fees paid to Mr. Pierce as a director of PBI Bank.
Grants of Plan-Based Awards
No stock or option awards were granted to named executive officers in 2006.
Outstanding Equity Awards at Fiscal Year-End
Option Awards Stock Awards
-------------------------------------------------- ------------------------------------------------------------------
Equity
Equity Incentive
Equity Incentive Plan
Incentive Plan Awards:
Plan Market Awards: Market or
Awards: Number of Value Number of Payout Value
Number of Number of Number of Shares of Shares Unearned of Unearned
Securities Securities Securities or Units or Units Shares, Shares, Units
Underlying Underlying Underlying of Stock of Stock Units or or Other
Unexercised Unexercised Unexercised Option that That Have Other Rights Rights That
Options(1) Options Unearned Exercise Option Have Not Not That Have Have Not
(#) (#) Options Price Expiration Vested Vested Not Vested Vested
Name Exercisable Unexercisable (#) ($) Date (#) (#) (#) ($)
------------ ------------- ------------- ------------ -------- ---------- ----------- ---------- ------------ -------------
J. Chester 9,805 -- -- 28.05 03/15/2010 -- -- -- --
Porter
Maria L. 9,805 -- -- 28.05 03/15/2010 -- -- -- --
Bouvette
David B. 88,245 -- -- 25.50 03/15/2010 -- -- -- --
Pierce
----------
(1) The options were issued under the Ascencia Bancorp stock option plan, and
all share amounts in the table have been adjusted to reflect the
conversion of each option to purchase one share of Ascencia into an option
to purchase 0.3922 of a share of our common stock following the merger of
Ascencia into our Company as a part of our December 31, 2005
reorganization.
Option Exercises and Stock Vested
There were no options exercised or stock awards that vested in 2006.
18
Pension Benefits
The following table sets forth, in specified years of credited service,
the estimated present value of accumulated benefits under the supplemental
executive retirement plan adopted by the Bank in July 2004.
Payments
Number Present During
of Years Value of Last
Credited Accumulated Fiscal
Service Benefits Year
Name Plan Name (#) ($) ($)
(a) (b) (c) (d) (1) (e)
--------------------- ---------------------- -------------- ------------- -----------
David B. Pierce Supplemental executive N/A $ 100,877 --
retirement plan
----------
(1) Reports the present value of the obligation to Mr. Pierce upon retirement
at age 62 as of the end of the fiscal year. The plan is designed to
provide monthly retirement income to Mr. Pierce for ten years equal to 30%
of his projected salary at age 62. This projected salary was determined at
plan inception. The present value utilizes a discount rate of 6%. The
supplemental executive retirement plan is discussed in further detail
under the heading "Other Benefits" in the Compensation Disclosure and
Analysis section.
Potential Payments upon Termination or Change-in-Control
We have no agreements or understandings with our executive officers that
provide for payments upon termination of employment or a change-in-control of
our Company, except for the benefits that participants in the Supplemental
Executive Retirement Plan, including Mr. Pierce, may receive upon retirement or
other terminations of employment. Plan participants will not receive any
benefits under the SERP for termination of employment, other than as a result of
a change of control, until the year 2009.
Upon a change of control followed within 36 months by the voluntary or
involuntary termination of employment, a plan participant will receive a lump
sum payment equal to the present value of the obligation such participant would
be entitled to receive upon retirement at age 62. A change of control is defined
under the Plan as (a) the acquisition of 50% or more of our capital stock, (b) a
change in the composition of a majority of our directors or (c) the adoption of
a merger, consolidation or reorganization plan by the board of directors in
which the Company is not the surviving entity. Under this change of control
provision, Mr. Pierce would have received a lump sum payment equal to $476,949
if he had been terminated on December 31, 2006 and a change of control of the
Company had occurred within three years prior to such date. The Supplemental
Executive Retirement Plan is described in further detail under the heading
"Other Benefits" in the Compensation Disclosure and Analysis section.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Engagement of Independent Auditors
At its meeting held on October 18, 2006, the Audit Committee selected
Crowe Chizek and Company LLC to serve as Porter Bancorp's independent registered
public accounting firm and auditors for the fiscal year ending December 31,
2006. Crowe Chizek and Company LLC or its predecessor has served as Porter
Bancorp's independent registered public accounting firm since the 1988 fiscal
year.
19
Fees Incurred by Porter Bancorp for Crowe Chizek
The following table presents fees for professional services rendered by
Crowe Chizek and Company LLC for the audit of the Corporation's annual financial
statements for 2006 and 2005 and fees billed for audit-related services, tax
services, and all other services rendered by Crowe Chizek and Company LLC for
2006 and 2005.
2006 2005
-------- --------
Audit Fees $206,196 $166,639
Audit-Related Fees 281,380 23,375
Tax Fees 86,560 28,805
All Other Fees 3,275 13,107
As defined by the SEC, (i) "audit fees" are fees for professional services
rendered by the company's principal accountant for the audit of the company's
annual financial statements and review of financial statements included in the
company's Form 10-Q, or for services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years; (ii) "audit-related fees" are fees for assurance and
related services by the company's principal accountant that are reasonably
related to the performance of the audit or review of the company's financial
statements and are not reported under "audit fees" in 2006, including fees
related to the Company's initial registration on Form S-1; (iii) "tax fees" are
fees for professional services rendered by the company's principal accountant
for tax compliance, tax advice, and tax planning; and (iv) "all other fees" are
fees for products and services provided by the company's principal accountant,
other than the services reported under "audit fees," "audit-related fees," and
"tax fees."
Under applicable SEC rules, the Audit Committee is required to pre-approve
the audit and non-audit services performed by the independent auditors in order
to ensure that they do not impair the auditors' independence. The SEC's rules
specify the types of non-audit services that an independent auditor may not
provide to its audit client and establish the Audit Committee's responsibility
for administration of the engagement of the independent auditors.
Consistent with the SEC's rules, the Audit Committee Charter requires that
the Audit Committee review and pre-approve all audit services and permitted
non-audit services provided by the independent auditors to us or any of our
subsidiaries. The Audit Committee may delegate pre-approval authority to a
member of the Audit Committee and if it does, the decisions of that member must
be presented to the full Audit Committee at its next scheduled meeting.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is comprised of three
directors, each of whom the Board has determined to be an independent director
as defined by the NASDAQ corporate governance rules. The duties of the Audit
Committee are summarized in this Proxy Statement under "Committees of the Board"
and are more fully described in the Audit Committee charter adopted by the Board
of Directors.
It is the responsibility of management to prepare the consolidated
financial statements and the responsibility of Crowe Chizek and Company LLC,
Porter Bancorp's independent registered public accounting firm, to audit the
consolidated financial statements in accordance with the United States Generally
Accepted Accounting Standards.
20
In connection with its review of Porter Bancorp's consolidated financial
statements for 2006, the Audit Committee:
o has reviewed and discussed the audited consolidated financial
statements with management;
o has discussed with the independent registered public accounting firm,
the matters required to be discussed by Statement on Auditing Standard
No. 61, Communication with Audit Committees;
o has received the written disclosures and the letter from the
independent registered public accounting firm required by Independence
Standards Board Standard No. 1 (Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees), and has
discussed with the independent registered public accounting firm, the
independent registered public accounting firm's independence; and,
o has approved the audit and non-audit services of the independent
registered public accounting firm for 2006.
Based upon the review and discussions referred to in the preceding
paragraph, the Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements for 2006 be included in Porter
Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006 filed
with the Securities and Exchange Commission.
Members of the Audit Committee:
David L. Hawkins, CPA, Chairman
Sidney L. Monroe, CPA
Stephen A Williams
SHAREHOLDER PROPOSALS AND NOMINATIONS
In order for a shareholder proposal to be brought before Porter Bancorp's
2008 Annual Meeting of Shareholders, the written proposal must be received by
the Corporate Secretary of Porter Bancorp at the address below no later than
December 20, 2007. The notice of a proposed item of business must provide
information as required in our bylaws which, in general, require that the notice
include for each matter a brief description of the matter to be brought before
the meeting; the reason for bringing the matter before the meeting; your name,
address, and number of shares you own; and any material interest you have in the
proposal. In order for a shareholder proposal to be considered for inclusion in
our proxy statement for the 2008 Annual Meeting of Shareholders, the proposal
will also need to comply with the SEC's regulations under Rule 14a-8 regarding
the inclusion of shareholder proposals in company sponsored proxy materials.
Proposals should be addressed to:
Porter Bancorp, Inc.
Attn: Corporate Secretary
2500 Eastpoint Parkway
Louisville, Kentucky 40223
If you want to nominate a person for election as a director, you must
provide written notice to the Corporate Secretary at the address above. The
Corporate Secretary must receive this notice not later than December 20, 2007.
The notice of a proposed director nomination must provide information as
required in our bylaws which, in general, require that the notice of a director
nomination include your name, address and a representation that you are a
shareholder and entitled to vote for directors; the information that would be
required to be disclosed in the solicitation of proxies for the election of a
director under federal securities laws. You must submit the nominee's consent to
be elected and to serve. A copy of the bylaw requirements will be provided upon
request made to the Corporate Secretary at the address above.
21
GENERAL INFORMATION
Financial Information
A copy of our 2006 Annual Report is enclosed. Shareholders and prospective
investors may request a free copy of our 2006 Form 10-K by writing to C.
Bradford Harris, Corporate General Counsel, Porter Bancorp, Inc., 2500 Eastpoint
Parkway, Louisville, Kentucky 40223. The Form 10-K is also available from the
SEC's website at www.sec.gov or from our website at www.pbibank.com. Click on
"Investor Relations" and "SEC Filings."
Solicitation of Proxies
Porter Bancorp will pay the cost of soliciting proxies. Proxies may be
solicited on behalf of Porter Bancorp by directors, officers or employees by
mail, in person or by telephone, facsimile or other electronic means.
22
ANNUAL MEETING OF SHAREHOLDERS OF
PORTER BANCORP, INC.
May 17, 2007
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
20700000000000000000 1 051707
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |x|
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1. ELECTION OF DIRECTORS: Nominees for a term of one year:
|_| FOR ALL NOMINEES NOMINEES:
O Maria L. Bouvette
|_| WITHHOLD AUTHORITY O David L. Hawkins
FOR ALL NOMINEES O W. Glenn Hogan
O Michael E. Miller
|_| FOR ALL EXCEPT O Sidney L. Monroe
(See instructions below) O J. Chester Porter
O Stephen A. Williams
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
----------- "FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: O
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted
via this method. |_|
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2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT OF IT.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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Signature of Shareholder Date:
---------------- ------------
Signature of Shareholder Date:
---------------- ------------
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
REVOCABLE PROXY
PORTER BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS
2500 EASTPOINT PARKWAY
LOUISVILLE, KENTUCKY 40223
May 17, 2007, 9:00 A.M. EDT
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PORTER BANCORP, INC.
The undersigned hereby appoints David B. Pierce and C. Bradford Harris
attorneys-in-fact and proxies, with full power of substitution, to attend the
Annual Meeting of Shareholders to be held on May 17, 2007 at 9:00 a.m. E.D.T.,
and at any adjournments or postponements of the Annual Meeting, and to vote as
specified on the reverse all shares of the Common Stock of Porter Bancorp, Inc.
that the undersigned would be entitled to vote if personally present at the
Annual Meeting.
(Continued and to be signed on the reverse side)