loans.1 The peer executive compensation review provides an analysis of peer base salary, short-term incentives (including discretionary bonuses), and long-term incentives (including the value of restricted stock, stock option awards, and increases in pension values) (collectively, “Total Direct Compensation”), for Peer Group officers with similar positions equivalent to the Named Executive Officers, if available, or for similarly compensated officers regardless of title for whom compensation information is publicly disclosed. Because the most recent available peer compensation data was from 2021, an annualized adjustment of 3% was made to the peer compensation data.
Another element in assessing appropriate levels of Total Direct Compensation for the Named Executive Officers is the Company’s financial performance and size relative to peer institutions. Using a 3-year average for Return on Average Assets and Return on Average Equity, the Company’s results were at the 70th and 75th percentiles, respectively, relative to peer institutions. In addition, the Company’s total assets were at the 50th percentile of the peer group.
Based on favorable trends in the Company’s net income and financial performance metrics, as well as overall favorable financial performance relative to peer institutions, compensation data in the peer study, recommendations of the CEO (in the case of the other Named Executive Officers), individual performance, and other independent analysis performed by the Compensation Committee, the committee selected a target range, as adjusted for restricted stock grants, between the 50th and 75th percentiles of Total Compensation for Peer Group officers as a general target for Total Compensation. After applying the principle of internal equity and in consideration of prior position-specific experience, Total Compensation established by the Compensation Committee for an individual Named Executive Officer might exceed or fall short of the target range. With regard to the components of Total Compensation, the goal of the Compensation Committee was to maintain a substantial level of “at risk” compensation while striving to ensure that neither base salary nor potential short-term incentive compensation are substantially below the Peer Group median.
The aforementioned variables being duly analyzed and considered, the Compensation Committee came to a unanimous conclusion concerning appropriate 2022 targets for base salaries and short-term incentive compensation for the Named Executive Officers. The Compensation Committee then presented its recommendations to the Board, which unanimously approved those recommendations. This ultimately resulted in 2022 base salaries remaining unchanged from 2021 for each of the Named Executive Officers. For comparison, the 2021 over 2020 increases in base salaries were 5% each for the Chief Executive Officer, Chief Financial Officer, and Chief Banking Officer. The 2021 base salary increase over 2020 was 12% for the Chief Administrative Officer. The Chief Credit Officer/Chief Risk Officer started employment in December 2020 as the Chief Credit Officer and received a raise of 6.4% in August 2021 upon an expansion of responsibilities for the Chief Risk Officer position. The incentive bonus potential for 2022 was established as 75% of base salary for the CEO and 50% of base salary for the other Named Executive Officers, which is unchanged from 2021.
Prior to 2020, it was the practice of the Compensation Committee to grant the Named Executive Officers equity-based compensation in the form of 5,000 stock options in the first quarter of each year.
Starting in August 2020, restricted stock awards were granted to the Named Executive Officers in order to better align the interests of the executives with shareholders’ interests and to provide a retention benefit. The amount of these August 2020 restricted award grants were $600,000 for the Chief Executive Officer and $400,000 each to the Chief Financial Officer, Chief Banking Officer and Chief Administrative Officer. Shortly after the hiring of the new Chief Credit Officer in December 2020, he was granted $400,000 of restricted stock awards in March 2021. All of these initial restricted stock grants were time-based and vest ratably over 5 years. The initial restricted stock grants made to the named
1 The Peer Group consists of the following banks and bank holding companies: Allegiance Bancshares, Inc., Houston, Tx; Altabancorp, American Fork, UT; Bank of Marin Bancorp, Novato, California; Baycom Corp, Walnut Creek, California; CBTX, Inc., Houston, TX; Central Pacific Financial Corp, Honolulu, HI; Central Valley Community Bancorp, Fresno, California; Farmers & Merchants Bancorp, Lodi, California; First Choice Bancorp, Cerritos, CA; First Western Financial, Inc., Denver, CO; FS Bancorp, Inc., Terrace, WA; Guaranty Bancshares, Inc., Addison, TX; Hamni Financial Corporation, Los Angeles, CA; Heritage Commerce Corp, San Jose, California; Northrim Bancorp, Inc., Anchorage, AK; Preferred Bank, Los Angeles, California; RBB Bancorp, Los Angeles, California; South Plains Financial, Inc., Lubbock, TX; Spirit of Texas Bancshares, Inc., Conroe, TX; and Territorial Bancorp, Inc., Honolulu, HI.