Targeted Compensation
As noted, a peer compensation study is used to assist in establishing targeted compensation levels for all Named Executive Officers. As in the past, the peer group criteria is subject to modification for future compensation studies if the peer group does not continue to provide a representation of similarly sized banks within our geography. The intention is to use a peer group of similarly sized banks in Western states or in communities of similar size. For the most recently completed executive compensation review, the peer group was comprised of 17 publicly-traded bank holding companies or banks headquartered primarily in Western states, with total assets ranging from approximately $2.1 billion to $7.3 billion, with a median asset size of $4.0 billion (the “Peer Group”) and a similar mix of loans.1 The 2022 Peer Group is identical to the peers from the 2021 study, except that peers that did not file a Proxy for the most recent year were removed. Specifically, three peer institutions were removed as they were acquired by another institution since the last compensation study was performed and consequently, did not file a proxy to report compensation data in the most recent year. 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 consistent with the approach used in prior years.
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 5-year average for Return on Average Assets and Return on Average Equity, the Company’s results were at the 63rd and 58th percentiles, respectively, relative to peer institutions. In addition, the Company’s total assets were at the 42nd percentile of the peer group.
Based on the Company’s net income and financial performance metrics, as well as overall 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 2023 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, with Mr. McPhaill abstaining. This ultimately resulted in 2023 base salaries being increased by 5% each for the Named Executive Officers. For comparison, the 2022 base salaries were left unchanged over 2021 except for the Chief Credit Officer/Chief Risk Officer who 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 2023 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 2022.
1 The Peer Group consists of the following banks and bank holding companies: Allegiance Bancshares, Inc., Houston, Tx; 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 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; and Territorial Bancorp, Inc., Honolulu, HI.