Item 10. Directors, Executive Officers and Corporate Governance.
Board of Directors
Set forth below is a summary of the business experience
and qualifications of the members of the Company’s Board of Directors (the “Board”):
Ulrich
E. Keller, Jr., CFP. Mr. Keller, age 66, is one of the founders of the Company and currently is the Executive
Chairman of the Company and its wholly-owned subsidiary, FFA. Mr. Keller served as Chief Executive Officer (“CEO”) of
FFA from 1990, when it began operations as a fee-only investment advisor, until December 2009, at which time he became its Executive
Chairman. In 2007, Mr. Keller became the Executive Chairman of the Company and from June 2007 until December 2009 he also
served as the CEO of the Company. Mr. Keller earned a Bachelor of Science degree in Finance from San Diego State University and completed
the financial planning program at the University of Southern California. Mr. Keller served as a Trustee of the University of California
Irvine (“UCI”) for 15 years. During that time he was Chair of the Foundation Finance & Investment Committee
and continues to serve as a member of the Investment Committee. Mr. Keller also serves as a member of the executive committee of
the UCI Diabetes Center. Mr. Keller served as Co-Chair for the Center for Investment and Wealth Management at the Paul Merage School
of Business at UCI. Mr. Keller serves as a member of the Orange County Sheriff’s Advisory Council. As one of the founders of
the Company, who played a key role in the development and successful implementation of our business strategy of providing high quality
and personalized wealth management and investment advisory services to our clients and the expansion of the financial services we offer
our clients, Mr. Keller brings to the Board considerable knowledge and valuable insights about the wealth management and investment
advisory business and the Southern California financial services market.
Scott
F. Kavanaugh. Mr. Kavanaugh, age 62, is the President and CEO of the Company and its wholly-owned banking
subsidiary, FFB. Mr. Kavanaugh has served as CEO of the Company since December 2009 and as President of the Company since December 2022.
Previously, Mr. Kavanaugh served as President and Chief Operating Officer of the Company from June 2007 until December 2009.
Mr. Kavanaugh has been the Vice-Chairman of the Company since June 2007, and the Chairman of FFB since September 2007.
Mr. Kavanaugh was a founding stockholder and served as an Executive Vice President and Chief Administrative Officer and a member
of the board of directors of Commercial Capital Bancorp, Inc., the parent holding company of Commercial Capital Bank. During his
tenure as an executive officer and director of Commercial Capital Bancorp, Inc. that company became a publicly traded company, listed
on NASDAQ, and its total assets grew to more than $1.7 billion. From 1998 until 2003, Mr. Kavanaugh served as the Executive
Vice President and Chief Operating Officer and a director of Commercial Capital Mortgage. From 1993 to 1998, Mr. Kavanaugh was a
partner and head of trading for fixed income and equity securities at Great Pacific Securities, Inc., a west coast-based regional
securities firm. Mr. Kavanaugh earned a Bachelor of Science degree in Business Administration and Accounting at the University of
Tennessee and a Masters of Business Administration (“MBA”) degree in Information Systems at North Texas State University.
Mr. Kavanaugh is, and since 2008 has been, a member of the board of directors of Colorado Federal Savings Bank and its parent holding
company, Silver Queen Financial Services, Inc. Since March 2015, Mr. Kavanaugh has served as director for Nexpoint Residential
Trust Inc., a publicly traded real estate investment trust that is advised by NexPoint Real Estate Advisors, L.P., an affiliate of Highland
Capital Management, L.P. Mr. Kavanaugh has also served as director for NexPoint Real Estate Finance since 2020 and as director for
VineBrook Homes Trust, Inc. since 2018. Mr. Kavanaugh served as a member of the boards of directors of NexBank SSB and its parent
holding company, NexBank Capital, Inc. from December 2013 until December 2015. From January 2000 until June 2012,
Mr. Kavanaugh served as Independent Trustee and Chairman of the Audit Committee, and from June 2012 until December 2013
served as Chairman of the Highland Mutual Funds, a mutual fund group managed by Highland Capital Management, L.P. Mr. Kavanaugh is
also a director on the Lanakila Pacific’s Foundation Board. The Board believes that Mr. Kavanaugh’s extensive experience
as an executive officer of banks and other financial services organizations, combined with his experience as a director of both public
and private companies, qualifies him to serve as a member of our Board. In addition, because Mr. Kavanaugh is the Company’s
CEO, we believe that his participation as a member of the Board facilitates communication between the outside Board members and management.
Max
A. Briggs, CFP. From 2005 to 2012, Mr. Briggs, age 57, served as Chairman of the Board of Desert Commercial Bank
(“DCB”). He was elected as a director of the Company following the Company’s acquisition of DCB in August 2012.
Mr. Briggs is, and since 1996 has been the President and CEO of FLC Capital Advisors, a wealth management firm with over $600 million
of assets under administration. From 1992 to 2007, Mr. Briggs served as CEO of Franklin Loan Center, a mortgage banking company.
Mr. Briggs earned a Business Administration and Finance degree from Stetson University. We believe Mr. Briggs is a valuable
member of our Board due to his knowledge of the banking business, gained from his service as Chairman of DCB, particularly as conducted
in Palm Desert, California, and its surrounding communities, where we have two of our wealth management offices, and his experience as
President and CEO of a wealth management firm.
John
A. Hakopian. Mr. Hakopian, age 54, is, and since April 2009 has been, the President of FFA, and is and since
2007 has been, a member of the Board. Mr. Hakopian was one of the founders of FFA in 1990, when it began its operations as a fee-based
investment advisor, and served as its Executive Vice President and Co-Portfolio Manager from 1994 through April 2009. Mr. Hakopian
earned a Bachelor of Arts degree in Economics from UCI and a MBA degree in Finance from the University of Southern California. Mr. Hakopian’s
extensive knowledge of the Company’s wealth management and investment advisory business makes him a valuable member of the Board
who is able to provide the outside Board members with insight into the operations and risks of that business.
David
G. Lake. Mr. Lake, age 57, has served as a director of the Company since June 1, 2018. Since 1993 Mr. Lake
has been the Chief Executive Officer of and a co-founder of 4EARTH Farms, Inc., a grower and value-added produce company with over
400 employees in California and affiliated operations in other states. Mr. Lake served as the Chairman of the board of directors
of PBB Bancorp, since its formation in May 2014, and of the board of directors of its wholly-owned subsidiary Premier Business Bank
from July 2006 until the June 2018 acquisition of PBB Bancorp by the Company. Mr. Lake serves on the executive board, chair
search of new director, and compensation committee of the Orange County Museum of Art. We believe Mr. Lake brings to the Board his
knowledge of operating a highly successful company and his experience as an independent director of a community bank in Southern California.
Elizabeth
A. Pagliarini. Ms. Pagliarini, age 52, has served as a director of the Company since 2019. Ms. Pagliarini
is, and since September 2014 has been, the Chief Financial Officer and Treasurer, and since 2019 the Chief Financial Officer, Treasurer
and Chief Operating Officer, of Summit Healthcare REIT, Inc., a Maryland corporation that invests in and owns real estate. Her background
includes experience in finance, accounting, operations, compliance, securities litigation and executive management. Prior to working at
Summit, Ms. Pagliarini was chief compliance officer and FINOP (financial and operations principal) at a Los Angeles-based investment
bank from 2005 to 2008, and a principal at a securities litigation and financial consulting firm 2001 to 2005. Ms. Pagliarini received
her Bachelor of Science in Business Administration with a concentration in Finance from Valparaiso University. She is also a Certified
Fraud Examiner. Ms. Pagliarini is active in her community, serving on the Emeritus Board of Directors for Forever Footprints, a non-profit
organization that provides support to families that have suffered the loss of a baby during pregnancy or infancy, She is also currently on the advisory board of the CFO Executive Summit. We believe that Ms. Pagliarini’s educational and
executive experience in managing the financial, accounting, securities filing and operations functions of several finance-oriented firms
qualifies her to serve as a member of our Board.
Mitchell
M. Rosenberg, Ph.D. Dr. Rosenberg, age 69, has served as a director of the Company since 2007. Dr. Rosenberg
is, and since 2005 has served as, President and founder of the consulting firm of M. M. Rosenberg & Associates, which
provides executive and organizational development services to public and private companies in the fields of financial services, health
care and technology. From 2002 to 2005, Dr. Rosenberg was Chief Executive Officer for The Picerne Group, an international investment
firm investing primarily in real estate, and portfolios of loans. Prior to 2002, Dr. Rosenberg served as Executive Vice President
and Director of Business Services for Ameriquest Capital Corporation and directed the Human Resource and Organizational Development functions
for Washington Mutual Bank, American Savings Bank and Great Western Bank. Dr. Rosenberg earned a Bachelor of Science degree in Psychology
from Ohio University, a Masters of Science degree in Industrial Psychology from California State University, Long Beach, and a Ph.D. degree
in Psychology with an emphasis on Organizational Behavior from Claremont Graduate University, which is the graduate university of the
Claremont Colleges. We believe that Dr. Rosenberg’s educational and operational experience in managing the human resource and
organizational development functions of a number of banking organizations and a real estate investment firm provides insight regarding
the Company’s human resource functions, including compensation considerations that will impact the Company’s growth and expansion.
Diane
M. Rubin, CPA. Ms. Rubin, age 71, has served as a director of the Company since 2019. Ms. Rubin is continuing
in a career of more than 44 years in accounting and accounting industry and practice oversight roles. In 2022, she was appointed
by the Public Company Accounting Oversight Board (PCAOB) to the newly-formed Standards and Emerging Issues Advisory Group. Ms. Rubin
was from January 2016 to December 2020, a member of the Board of Trustees of the Financial Accounting Foundation, and in 2019
was elected to serve as the Vice Chair of the Board of Trustees. The Financial Accounting Foundation is the organization responsible for
the oversight, administration and appointment of the Financial Accounting Standards Board and the Governmental Accounting Standards Board.
From 2012 to 2015 Ms. Rubin served as a member of the Private Company Council, an advisory board that works with Financial Accounting
Standards Board (“FASB”) to determine possible alternatives within GAAP for private companies. From 1996 to 2012 Ms. Rubin
served as an Audit Partner and Quality Control Partner with the San Francisco-based Novogradac & Company LLP. In 1989 Ms. Rubin
established an independent diversified audit, accounting and tax firm with clients including small businesses, broker/dealers, non-profits
and professional organizations. Ms. Rubin has experience in accounting and financial accounting roles with insurance, technology
and banking firms. Ms. Rubin started her career with Price Waterhouse & Co. in 1975 in that firm’s audit practice.
We believe that Ms. Rubin’s deep knowledge of accounting and auditing qualifies her to serve as a member of our Board.
Jacob
P. Sonenshine, J.D., CFA. Mr. Sonenshine, age 52, has served as a director of the Company since 2007. Mr. Sonenshine
is, and since 2012, has served as President of Prell Restaurant Group, an operator of fast casual restaurants. From 2006 until 2012, Mr. Sonenshine
served as the President and Chief Operating Officer of Professionals Retirement Strategy, a retirement planning and entity risk management
firm. From 1999 to 2005, Mr. Sonenshine was President and co-founder of RSM EquiCo, an investment bank specializing in mergers and
acquisitions of privately-held middle market companies. Mr. Sonenshine earned a Bachelor of Science degree in economics and a Bachelor
of Administration degree in International Relations from the University of Pennsylvania, and a J.D. degree and a MBA degree from the University
of Southern California. We believe Mr. Sonenshine’s experience as President of a retirement planning firm is valuable to the
Board in overseeing FFA’s wealth management and investment advisory business.
Gabriel
V. Vazquez. Mr. Vazquez, age 45, has served as a director of the Company since 2023. He is, and has been since 2016,
the Vice President and Associate General Counsel for Operations for Vistra Corp. (“Vistra”) (NYSE: VST), a leading Fortune
500 integrated power company based in Irving, Texas. In addition to managing and supporting the legal operations of Vistra and its national
retail energy businesses, Mr. Vazquez oversees the legal department’s operations (including fiscal reporting and department
project planning), and also facilitates the execution of Vistra’s enterprise crisis management program. Prior to his current role,
Mr. Vazquez served as general counsel for TXU Energy, a wholly-owned subsidiary of Vistra, from 2008 to 2016. He was previously a
corporate attorney for Michaels Stores, Inc. and was in private practice with the law firm of Gardere Wynne, which has since merged
with Foley & Lardner LLP. Mr. Vazquez currently serves on the Board of Trustees and on the Executive Committee of the Dallas
Bar Foundation and is the current Secretary-Treasurer. He also serves on the non-profit board of the Jesuit College Preparatory School
of Dallas Foundation Inc. as a trustee and as a member of the Development Committee, and he is president of the Alumni Board. Mr. Vazquez
received his undergraduate degree from Southern Methodist University and his law degree from Southern Methodist University’s Dedman
School of Law, where he was a Sarah T. Hughes Fellow. We believe Mr. Vazquez’s background as a senior leader in a large, highly-regulated
and publicly-traded business qualifies him to serve as a member of our Board.
Executive Officers
In addition to Messrs. Keller, Kavanaugh
and Hakopian, each of whom is an executive officer and a director, set forth below are the names and biographical information
of our other executive officers:
Amy
Djou. Ms. Djou, age 54, is, and since November 2022, has been, the Executive Vice President and Interim
Chief Financial Officer of the Company and FFB, and has been the Chief Accounting Officer of FFB since March 2021. Having joined
FFB in 2016, Ms. Djou has served as Senior Vice President, Controller of FFB between January 2018 and March 2021 and as
Vice President, Controller of the FFB between May 2016 and January 2018. Ms. Djou began her career as a Certified Public
Accountant with Arthur Andersen and has held senior finance positions at various financial institutions. Her extensive knowledge and experience
in the financial services industry provides valuable insight into the daily and strategic operations of FFB.
Christopher
Naghibi. Mr. Naghibi, age 42, is, and since December 2022 has been, the Executive Vice President and Chief
Operating Officer of FFB. In this role, he is responsible for product and online banking operations, depository specialty, treasury and
commercial client service sales and retail banking. Before becoming the Executive Vice President and Chief Operating Officer of FFB, he
was the Executive Vice President and Chief Credit Officer of FFB since 2014. Mr. Naghibi joined FFB in September 2007 and served
in various credit underwriting positions and management positions until his promotion to Chief Credit Officer. Mr. Naghibi is an
attorney, licensed in the State of California since 2018 and in the State of Washington since 2021. He is also a real estate broker, licensed
in the State of California since 2007, and a general building contractor (Class B), licensed in the State of California since 2019.
He graduated with a Juris Doctorate from Trinity Law School, received a Master of Business Administration from American Heritage University
alongside two bachelor degrees and is also a graduate of the Yale School of Management Global Executive Leadership Program. Mr. Naghibi
has deep expertise in large volume institutional operations including credit and lending, loan servicing, asset quality review and special
assets, which is valuable to the operations of FFB.
Hugo
J. Nuno. Mr. Nuno, age 61, is, and since December 2022 has been, the Executive
Vice President and Chief Banking Officer of FFB. In this role, he is responsible for central operations, retail banking support,
online banking support, information security and privacy, facilities, vendor management, and the risk division of FFB which includes enterprise
risk management, consumer compliance, Community Reinvestment Act, Bank Secrecy Act, and quality assurance. Before becoming the Executive
Vice President and Chief Banking Officer of FFB, he was the Executive Vice President and Chief Risk Officer of FFB since 2017. He
joined FFB in September 2009 and served in various risk and operations positions until his promotion to Chief Banking Officer.
Prior to joining FFB in September 2009, he served as Executive Operating Officer at Sunwest Bank. Past positions also include National
Compliance Manager for Banco Popular North America, Director of Operations, Branch Administrator and Human Resources Director for Universal
Bank, Chief Compliance Officer for East West Bank and Director of Training at East West Bank. Mr. Nuno received his undergraduate
degree in Organizational Leadership from Azusa Pacific University.
There are no family relationships between any
director, executive officer or person nominated to become a director or executive officer.
Corporate Governance Principles and Policies
Our Board believes that sound governance policies
and practices provide an important framework to assist them in fulfilling their duties to the Company’s stockholders. Our Board
has adopted the following governance guidelines, which include a number of policies and practices under which our Board has operated for
some time, together with concepts suggested by various authorities in corporate governance and the requirements under applicable NASDAQ
Stock Market (“NASDAQ”) rules. Our Board members believe these policies and practices are essential to the performance of
the Board’s oversight responsibilities and to the maintenance of the Company’s integrity in the marketplace. Some of the principal
subjects covered by those guidelines include:
Codes
of Business and Ethical Conduct. We have adopted a Code of Business and Ethical Conduct for our directors, officers and
employees and a Code of Conduct — Financial Officers (“Code of Conduct”) that contains specific ethical
policies and principles that apply to our principal executive officer, principal financial officer, principal accounting officer and other
key accounting and financial personnel. The Code of Conduct constitutes our “code of ethics” within the meaning of Section 406
of the Sarbanes-Oxley Act and is our “code of conduct” within the meaning of the listing standards of NASDAQ.
The Code of Conduct is available in the Investor
Relations section of our website at www.ff-inc.com. To the extent required by applicable rules of the SEC and NASDAQ, we will
disclose on our website, any amendments to the Code of Conduct and any waivers of the requirements of the Code of Conduct that may be
granted to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer
or persons performing similar functions.
Incentive
Compensation Clawback Policy. Our Board has adopted an Incentive Compensation Clawback Policy (the “Clawback Policy”).
Under the Clawback Policy, if any of our executive officers or employees receive incentive compensation as a result of our achievement
of (i) financial results measured on the basis of financial statements that are required to be restated or (ii) financial, operational
or other performance metric(s) that were satisfied as a result of fraudulent, dishonest or illegal conduct (as defined by law), we
will become entitled to recoup from those executive officers or employees, the amount by which the incentive compensation they had received
based on those financial statements or the satisfaction of those metrics exceeds the incentive compensation they would have received had
such incentive compensation been determined on the basis of the restated financial statements or revised metric results (“Excess
Compensation”). The Clawback Policy provides for the recoupment of Excess Compensation paid to or received by any executive officer
or employee during the three years immediately preceding the accounting restatement. The Clawback Policy further provides that, if
the Excess Compensation was paid or received in shares of common stock and the executive officer had sold those shares within a year of
the public disclosure of the financial statements that were the subject of the accounting restatement, we will be entitled to recoup the
net profits realized by the executive officer from the sale of those shares.
Compensation
Risk Considerations. The Compensation Committee reviews on an annual basis the incentive compensation of the Company’s
Chief Executive Officer and the other named executive officers (“NEOs”), as well as individual employees whose activities
may expose the organization to material amounts of risk and groups of employees participating in similar incentive programs who in the
aggregate may expose the organization to material amounts of risk based on risk categories that include credit, market, liquidity, operational,
legal, compliance and reputational risk, based on a facts-and-circumstances determination.
After conducting this review during 2022, the
Compensation Committee has concluded that the Company’s compensation arrangements do not encourage employees to take unnecessary
and excessive risks after considering, among other items, the Company’s Clawback Policy, the mix of cash and equity incentives,
as well as the mix of time-based vesting awards and performance-based vesting awards. We do not believe that any risks arising from our
compensation policies and practices are reasonably likely to have a material adverse effect on the Company.
Related
Party Transaction Policy. Our Board has adopted a Related Party Transaction Policy, which provides that, subject to certain
limited exceptions, the Company will not enter into or consummate a related party transaction that is determined by the Audit Committee
to be materially less favorable from a financial standpoint to the Company than similar transactions between the Company and unaffiliated
third parties. A “related party transaction” is a transaction between the Company or any of its subsidiaries and any executive
officer, director or owner of more than 10% of the outstanding shares of the Company’s common stock or persons related to them.
Anti-Hedging
Policy. Our Insider Trading Policy prohibits our directors, named executive officers and other key executives from hedging
the economic interest in the Company securities that they own and from engaging in short sales or speculative transactions with respect
to our stock. That prohibition includes a procedure whereby a covered person may seek permission from the Audit Committee of the Company
to pledge shares of Company stock after a showing as to their financial capacity to repay the proposed loan without the sale of any pledged
shares of Company stock. As of the date of this Amendment, Mr. Kavanaugh has pledged 1,298,494 shares of Company stock and such pledge
of stock was approved by the Audit Committee. As of the date of this Amendment, to the best of the Company’s knowledge, except as
set forth above, none of our executive officers have outstanding pledges with respect to any Company stock.
Stock
Ownership Guidelines for Directors. To more directly align the interests of our non-employee directors and stockholders,
our Board adopted stock ownership guidelines which require that each non-employee director own shares of the Company’s common stock
having a value of at least equal to five times the cash component of the director’s annual retainer for service on the Board. New
directors have five years after joining the Board to meet the guidelines. Restricted stock and restricted stock units, and a
portion of the shares that may be acquired by exercise of vested in-the-money stock options, are treated as stock ownership for this purpose.
As of the date of this Amendment, all directors have met or are on track to meet these targets within the timeframe applicable to them.
Board
Leadership Structure. The Chairman of our Board is Ulrich E. Keller, Jr., who is a member of senior management, and
our Chief Executive Officer is Scott F. Kavanaugh. Our Board decided to separate the positions of Chairman and Chief Executive Officer
because our Board believes that doing so provides the appropriate leadership structure for us at this time, particularly since the separation
of those two positions enables our Chief Executive Officer to focus on the management of our business and the development and implementation
of strategic initiatives, while the Chairman leads our Board in the performance of its responsibilities.
In addition, because the office of Chairman of
the Board is not held by an independent director, we have appointed Max A. Briggs, an independent director, to serve as Lead Director
to ensure strong independent Board oversight. Our Lead Director (i) presides at all meetings of the Board at which the Chairman is
not present, including executive sessions of the independent directors; (ii) has the authority to call meetings of the independent
directors; (iii) serves as a liaison between the Chairman and the independent directors; (iv) approves meeting agendas, meeting
schedules and information sent to the Board; (v) ensures that matters of concern or interest of the independent directors are appropriately
scheduled for discussion at Board meetings; (vi) has the authority to retain outside advisors and consultants who report directly
to the Board on board-wide issues; (vii) serves as a liaison for consultation and direct communication with stockholders, as appropriate;
and (viii) performs such other duties, and exercise such powers, as from time to time prescribed by our Board.
Board of Directors and Committees
Election of Directors
Our Bylaws provide that our directors shall be
elected at each annual meeting of stockholders but, if any such annual meeting is not held or the directors are not elected thereat, the
directors may be elected at any special meeting of stockholders held for such purpose. All directors shall hold office until their respective
successors are elected, subject to the Delaware General Corporation Law (the “DGCL”) and our Bylaws with respect to vacancies
on the Board. A vacancy on the Board shall be deemed to exist in case of the death, resignation, retirement, disqualification, or removal
from office. Vacancies on the Board, unless otherwise required by law or by resolution of the Board, may be filled only by a majority
vote of the directors then in office, though less than a quorum or, if there is only one director then in office, by such director (and
in neither case by the stockholders). No decrease in the number of authorized directors shall shorten the term of any incumbent director.
Subject to the DGCL and our Bylaws, each director
shall be elected by the vote of the majority of the votes cast with respect to the director at any meeting for the election of directors
at which a quorum is present, provided, however, that at any meeting of stockholders for which the Corporate Secretary of the Company
determines that the number of nominees exceeds the number to be elected as of the record date for such meeting, the directors shall be
elected by vote of the plurality of the shares, present in person or represented by proxy and entitled to vote on the election of directors.
Role of the Board of Directors
In accordance with Delaware law, the Board oversees
the management of the business and affairs of the Company. The members of the Board keep informed about our business primarily through
discussions with management, by reviewing analyses and reports sent to them by management and outside consultants, and by participating
in Board and in Board committee meetings.
During 2022, our Board held a total of 14 meetings
and each director attended at least 75% of the total number of those meetings and the meetings of the Board committees on which he or
she served during his or her term of office as a director in 2022. We encourage our directors to attend our annual meetings of stockholders.
All of our current directors attended our 2022 Annual Meeting of Stockholders.
The Board’s Role in Risk Oversight
The Board’s responsibilities in overseeing
the Company’s management and business include oversight of the Company’s key risks and management processes and controls.
Management, in turn, is responsible for the day-to-day management of risk and implementation of appropriate risk management controls and
procedures.
The risk of incurring losses on the loans we make
is an inherent feature of the banking business and, if not effectively managed, such risks can materially affect our results of operations.
Accordingly, the Board, as a whole, exercises oversight responsibility over the processes that our management employs to manage those
risks. The Board fulfills that oversight responsibility by:
| • | monitoring trends in the Company’s loan portfolio and the Company’s allowance for loan losses; |
| • | establishing internal limits related to the Company’s lending exposure and reviewing and determining whether or not to approve
loans in amounts exceeding certain specified limits; |
| • | reviewing and discussing, at least quarterly and more frequently, if the Board deems necessary, reports from FFB’s chief credit
officer relating to such matters as (i) risks in the Company’s loan portfolio, (ii) economic conditions or trends that
could reasonably be expected to affect (positively or negatively) the performance of the loan portfolio or require increases in the allowance
for credit losses (“ACL”) and (iii) specific loans that have been classified as “special mention,” “substandard”
or “doubtful” and, therefore, require increased attention from management; |
| • | reviewing, at least quarterly, management’s determinations with respect to the adequacy of, and any provisions required to be
made to replenish or increase, the ACL; |
| • | reviewing management reports regarding collection efforts with respect to nonperforming loans; and |
| • | authorizing the retention of, and reviewing the reports of, external loan review consultants with respect to the risks in and the
quality of the loan portfolio. |
Although risk oversight permeates many elements
of the work of the full Board and its committees, the Audit Committee is responsible for overseeing any other significant risk management
processes.
Committees of our Board of Directors
Our Board has three standing committees: an Audit
Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The Board has adopted a written charter for
each of those committees, and copies of those charters are available on the Investor Relations section of our website at www.ff-inc.com.
In addition, from time to time, special committees may be established under the direction of our Board when necessary to address specific
issues.
The
Audit Committee. Our Board has established a standing Audit Committee, the current members of which are Ms. Rubin,
its chairperson, Messrs. Briggs and Sonenshine, and Ms. Pagliarini. The Board has determined that all of the members of the
Audit Committee are independent within the meaning of the Listing Rules of the NASDAQ Stock Market and the enhanced independence
requirements for audit committee members contained in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Our Board also has determined that Mses. Rubin and Pagliarini and Mr. Briggs meet the definition of “audit committee
financial expert” adopted by the SEC.
The Audit Committee’s responsibilities include:
| • | overseeing the integrity of the financial statements of the Company and its subsidiaries, including the financial reporting processes
and systems of internal controls regarding finance, accounting, legal and regulatory compliance; |
| • | overseeing the independence, qualifications and performance of the Company’s independent auditors and internal audit function; |
| • | engaging in substantive dialogue with the independent auditors regarding the audit and expected critical accounting matters (“CAMs”)
to understand the nature of each CAM, the auditor’s basis for the determination of each CAM and how each CAM is expected to be described
in the auditor’s report; |
| • | monitoring the open communication among the independent auditor, management, the internal audit function and the Board; |
| • | reviewing and assessing the adequacy of its formal written charter on an annual basis; |
| • | engaging proactively with management and auditors in the implementation process of new standards to understand management’s
implementation plan, understand management’s processes to establish and monitor controls and procedures over adoption and transition;
and |
| • | overseeing such other matters that may be specifically delegated to the Audit Committee by the Board. |
The Audit Committee met 14 times during 2022.
The
Compensation Committee. The Board has established a standing Compensation Committee, the current members of which are
Mr. Rosenberg, its chairman, Mr. Lake, and Mses. Pagliarini and Rubin. The Board has determined that all of the members of the
Compensation Committee are independent within the meaning of the NASDAQ rules applicable to such committees.
The Compensation Committee’s responsibilities include:
| • | reviewing and approving the compensation plans, policies and programs for the Company’s CEO and other senior officers; |
| • | developing, reviewing and making recommendations to the Board with respect to the adoption or revision of cash and equity incentive
plans, approving individual grants or awards thereunder and reporting to the Board regarding the terms of such individual grants or awards; |
| • | reviewing and discussing with the Company’s management the narrative discussion and tables regarding executive officer and director
compensation to be included in the Company’s annual proxy statement, in accordance with applicable laws, rules and regulations; |
| • | producing and approving an annual report on executive compensation for inclusion in the Company’s annual proxy statement, in
accordance with applicable laws, rules and regulations; |
| • | making recommendations to the Board regarding the type and amount of compensation to be paid or awarded to members of the Board; |
| • | reviewing and assessing the adequacy of its formal written charter on an annual basis; |
| • | hiring compensation consultants (as disclosed below), reviewing the recommendations of such consultants, and determining that such
consultant’s work has not raised any conflict of interest; and |
| • | overseeing any other matters that may be specifically delegated to the Compensation Committee by the Board. |
The Compensation Committee met six times during 2022.
The
Nominating and Corporate Governance Committee. Our Board has established a standing Nominating and Corporate Governance
Committee, the current members of which are Dr. Rosenberg, its chairman, Ms. Pagliarini, and Messrs. Briggs and Sonenshine.
The Board has determined that all of the members of the Nominating and Corporate Governance Committee are independent within the meaning
of the NASDAQ rules applicable to such committees.
The Nominating and Corporate Governance Committee’s
responsibilities include:
| • | developing and recommending policies to the Board regarding the director nomination process, including establishing a policy with
regard to consideration of director candidates recommended by directors, employees, stockholders and others or to fill director vacancies,
in accordance with the Bylaws; |
| • | identifying and making recommendations to the Board with respect to specific candidates for election as directors; |
| • | recommending to the Board specific selection qualifications and criteria for Board membership; |
| • | evaluating the independence of the directors and making recommendations to the Board with respect to the directors to be appointed
to serve on each committee of the Board; |
| • | developing and recommending, for the Board’s approval, corporate governance principles and policies, and codes of conduct for
the Company’s executive officers, employees and directors as the Committee determines from time to time to be appropriate, in accordance
with applicable laws, rules and regulations; |
| • | leading the Board in its annual review of the performance of the Board and its committees, as applicable; |
| • | reviewing and assessing the adequacy of its formal written charter on an annual basis; and |
| • | overseeing any other matters that may be specifically delegated to the Nominating and Corporate Governance Committee by the Board. |
The Nominating and Corporate Governance Committee met one
time during 2022.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires
our executive officers and directors, and persons who own more than 10% of our common stock to file reports of ownership and changes in
ownership with the SEC. Based solely on our review of these reports and of certifications furnished to us, during the year ended December 31,
2022, other than Kevin L. Thompson who filed one late Form 4, all of our officers, directors and holders of more than 10% of the
outstanding securities of the Company complied with the filing requirements pursuant to Section 16(a) of the Exchange Act.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
FFI’s executive compensation program is designed to
support the following objectives:
| • | Design and implement comprehensive compensation programs to retain current, and attract future, NEOs and other key management personnel,
and |
| • | Through those compensation programs, seek to align the interests of our NEOs and other key management personnel with the longer-term
interests of our stockholders through the use of equity-based compensation tools and tying a significant portion of NEO total compensation
to the Company’s financial performance. |
The Compensation Discussion and Analysis is organized into
the following sections:
| • | Compensation Process and Decisions |
Executive Summary
The Compensation Committee monitors and considers
the interests of FFI’s stockholders regarding executive compensation. Our Board, the Compensation Committee, and our executive team
continue to review our executive compensation practices and look for opportunities to improve and strengthen its pay for performance objective
and alignment with stockholders’ interests. During the past year, FFI took the following actions:
| • | The Compensation Committee engaged McLagan Data & Analytics (“McLagan”), a leading human resources consulting
firm, to perform a review of FFI’s executive compensation program and make recommendations for enhancements. The decision to engage
McLagan was made by the Compensation Committee and was not made or recommended by management. |
| • | FFI continued to use restricted stock units (“RSUs”) as its primary equity incentive award for its NEOs and certain other
employees. The Compensation Committee reviewed the percentage of bonus paid in time-based RSUs in 2022. The Compensation Committee
intends to revisit the program design, metrics considered, and weighting each year before issuing new grants to continuing executives. |
| • | FFI and the Compensation Committee continue to evaluate additional policies that may further bolster or enhance FFI’s commitment
to true pay-for-performance. |
Financial Highlights
Financial highlights for 2022 include:
| • | Earnings of $110.5 million, or $1.96 per fully diluted share for 2022, as compared to $109.5 million, or $2.41 per fully
diluted share in 2021. |
| • | Return on average tangible common equity decreased to 13.0% in 2022 from 16.9% in 2021. |
| • | Total revenues increased 21%, to $366.9 million in 2022, compared to $303.7 million in 2021. |
| • | Record loan production for second consecutive year of $5.85 billion in 2022, as compared to $3.91 billion in 2021. |
| • | Total assets of $13.0 billion at December 31, 2022 compared to $10.2 billion at December 31, 2021, a 28% growth
rate year-over-year. |
| • | Tangible book value increased to $16.20 per share at December 31, 2022 from $14.92 per share at December 31, 2021.(1)
Book value increased to $20.14 per share at December 31, 2022 from $18.86 per share at December 31, 2021. |
| (1) | Tangible book value per share is a non-GAAP financial measure. Tangible book value per share is calculated by dividing tangible common
equity by basic common shares outstanding, as compared to book value per share, which is calculated by dividing shareholders’ equity
by basic common shares outstanding. Tangible common equity is equal to shareholders’ equity less goodwill and intangible assets.
The table below provides a reconciliation of the GAAP measure of book value per share to the non-GAAP measure of tangible book value per
share. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets
from the calculation of capital ratios. Accordingly, we believe that tangible equity and tangible book value per share provide information
that is important to investors and that is useful in understanding our capital position and ratios. However, these non-GAAP financial
measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations
for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. |
Tangible book value per share:
(dollars in 000’s, except share amounts) | |
2022 | | |
2021 | |
Shareholders’ equity | |
$ | 1,134,378 | | |
$ | 1,064,051 | |
Less: goodwill and intangible assets | |
| 221,835 | | |
| 222,125 | |
Tangible common equity | |
$ | 912,543 | | |
$ | 841,926 | |
Book value per share | |
$ | 20.14 | | |
$ | 18.86 | |
Tangible book value per share | |
$ | 16.20 | | |
$ | 14.92 | |
Basic common shares outstanding | |
| 56,325,242 | | |
| 56,432,070 | |
Other Highlights
Other, non-financial highlights for 2022 include:
| • | Completed system integration with our Florida branches in May of 2022. |
| • | Opened a new branch in Plano, Texas in summer of 2022. |
Summary of 2022 Compensation Decisions
The Compensation Committee made the following decisions
for 2022:
| • | No changes were made in the annual salaries of Messrs. Keller, Kavanaugh, and Hakopian. Due to promotions, the annual salary
of Mr. Naghibi increased from $390,000 to $420,000 as of December 5, 2022, and the annual salary of Ms. Djou increased
from $265,000 to $350,000 as of December 19, 2022. |
| • | Total bonus targets and percentage allocated to RSUs
for 2022 and paid in 2023 were: Mr. Keller — $388,000 and 10%; Mr. Kavanaugh — $1,700,000
and 30%; Mr. Hakopian — $290,000 and 10%; Mr. Naghibi — $419,000 and 15%; Ms. Djou — awarded
1,000 RSUs in November of 2022 to vest over three years in connection with her promotion. See the Equity Compensation section
below for further discussion of the RSU program in place. |
| • | Messrs. Keller, Kavanaugh, Hakopian, and Naghibi were awarded their 2022 full target bonus based on each individuals’ performance
and the performance of the Company, which met its goals for 2022. |
Performance and Pay
FFI has a strong pay-for-performance philosophy
that links executive compensation to achievement of the operating and financial goals set by the Board. In 2022, FFI achieved the following
results, compared with prior periods, as of or for the years ending December 31:
(dollars in 000’s) | |
2022 | | |
2021 | | |
2020 | |
Income before taxes | |
$ | 149,803 | | |
$ | 151,785 | | |
$ | 118,767 | |
Net income | |
$ | 110,512 | | |
$ | 109,511 | | |
$ | 84,369 | |
Earnings per fully diluted share | |
$ | 1.96 | | |
$ | 2.41 | | |
$ | 1.88 | |
Non-performing assets to total assets | |
| 0.13 | % | |
| 0.14 | % | |
| 0.30 | % |
Loans, including loans held for sale | |
$ | 10,726,193 | | |
$ | 7,408,164 | | |
$ | 5,309,203 | |
Deposits | |
$ | 10,362,612 | | |
$ | 8,811,960 | | |
$ | 5,913,433 | |
Return on average tangible common equity(1) | |
| 13.0 | % | |
| 16.9 | % | |
| 15.5 | % |
Tangible book value per share(2) | |
$ | 16.20 | | |
$ | 14.92 | | |
$ | 13.44 | |
| (1) | Return on average tangible common equity is a non-GAAP financial measure. Return on average tangible common equity is calculated by
excluding average goodwill and intangible assets from the average shareholders’ equity during the associated periods. Adjusted net
income available to common shareholders includes various adjustments to net income and the associated tax effect of those adjustments
during the associated periods. |
| (2) | Tangible book value per share is a non-GAAP financial measure. Tangible book value per share is calculated by dividing tangible common
equity by basic common shares outstanding, as compared to book value per share, which is calculated by dividing shareholders’ equity
by basic common shares outstanding. Tangible common equity is equal to shareholders’ equity less goodwill and intangible assets. |
The table below provides a reconciliation of the GAAP measure
of book value per share to the non-GAAP measure of tangible book value per share as well as the GAAP measure of return on average equity
to the non-GAAP measure of return on average tangible common equity.
| |
For the Year Ended December 31, | |
(in thousands, except percentages) | |
2022 | | |
2021 | | |
2020 | |
Average shareholders’ equity | |
$ | 1,100,684 | | |
$ | 759,101 | | |
$ | 649,031 | |
Less: Average goodwill and intangible assets | |
| 222,393 | | |
| 104,355 | | |
| 96,209 | |
Average tangible common equity | |
$ | 878,291 | | |
$ | 654,746 | | |
$ | 552,822 | |
Net Income | |
$ | 110,512 | | |
$ | 109,511 | | |
$ | 84,369 | |
Adjustments: | |
| | | |
| | | |
| | |
Plus: Amortization of intangible assets expense | |
| 1,914 | | |
| 1,579 | | |
| 1,895 | |
Plus: Valuation loss on equity investment | |
| 6,250 | | |
| — | | |
| — | |
Less: Incentive compensation reversal | |
| (4,150 | ) | |
| — | | |
| — | |
Less: Merger related costs | |
| (36 | ) | |
| — | | |
| — | |
Plus: Professional service costs | |
| 971 | | |
| — | | |
| — | |
Total Adjustments | |
| 4,949 | | |
| 1,579 | | |
| 1,895 | |
Less: Tax impact of adjustments above | |
| (1,400 | ) | |
| (458 | ) | |
| (549 | ) |
Total adjustments to net income | |
| 3,549 | | |
| 1,121 | | |
| 1,346 | |
Adjusted net income available to common shareholders | |
$ | 114,061 | | |
$ | 110,632 | | |
$ | 85,715 | |
Tax rate utilized for calculating tax effect on adjustments to net income | |
| 28.0 | % | |
| 29.0 | % | |
| 29.0 | % |
Return on average tangible common equity | |
| 13.0 | % | |
| 16.9 | % | |
| 15.5 | % |
The following graph shows a comparison from December 31,
2018 through December 31, 2022 of the cumulative total return for our common stock, compared against (i) the Russell 2000 Index,
which measures the performance of the smallest 2,000 members, by market cap, (ii) the Russell 3000 Index, which measures the performance
of the smallest 3,000 members, by market cap, of the Russell Index, and (iii) an index published by SNL Securities L.C. (“SNL”)
and known as the KBW Nasdaq Regional Bank Index.
| |
Period Ending | |
| |
12/31/2018 | | |
12/31/2019 | | |
12/31/2020 | | |
12/31/2021 | | |
12/31/2022 | |
First Foundation Inc. (FFWM) | |
| 100.00 | | |
| 135.30 | | |
| 154.82 | | |
| 193.31 | | |
| 111.43 | |
Russell 2000 Index | |
| 100.00 | | |
| 123.72 | | |
| 146.44 | | |
| 166.50 | | |
| 130.60 | |
Russell 3000 Index | |
| 100.00 | | |
| 128.54 | | |
| 152.01 | | |
| 189.39 | | |
| 150.61 | |
KBW Nasdaq Regional Bank Index | |
| 100.00 | | |
| 120.37 | | |
| 105.81 | | |
| 140.94 | | |
| 127.61 | |
The stock performance graph assumes that $100
was invested in Company common stock at the close of market on December 31, 2018, and, at that same date, in the Russell 2000 Index,
the Russell 3000 Index and the KBW Nasdaq Regional Bank Index and that any dividends paid in the indicated periods were reinvested. Shareholder
returns shown in the stock performance graph are not necessarily indicative of future stock price performance.
Compensation Process and Decisions
Compensation Philosophy and Objectives
We believe that the success of our business and
the creation of long-term stockholder value depend to a large extent on our ability to retain and to attract superior management employees.
Therefore, the Compensation Committee endeavors to ensure that the compensation of our executive officers is competitive and consistent
with market conditions in order to enable us to attract and retain key executives who are critical to the Company’s long-term success.
Accordingly, when reviewing and approving both the types and amounts of compensation to be paid to our NEOs, as well as other key management
employees, the Compensation Committee seeks to achieve the following objectives:
| • | Ensure that each NEO’s cash compensation is competitive in relation to the compensation paid by our principal competitors and
other companies which, although not comparable to us, may seek to recruit our NEOs and other key management employees based on their skills
and experience and their record of success. |
| • | Design compensation programs that incentivize our NEOs and other key management personnel to remain in the Company’s employ
and to enable us to attract additional key executives with the requisite experience, skills and record of success required for the future
growth of the Company. |
| • | Align the interests of our NEOs and other key management personnel with the longer-term interests of our stockholders by tying a significant
portion of each NEO’s total compensation to the Company’s financial performance. |
| • | Provide for a significant portion of potential total compensation to be tied to achievement of performance goals. |
Role of the Compensation Committee
The Compensation Committee has the primary authority
to determine FFI’s compensation philosophy and to establish compensation for Scott F. Kavanaugh, FFI’s Chief Executive Officer,
and FFI’s other executive officers. Each component of compensation for FFI’s executives is generally administered under the
direction of the Compensation Committee and is reviewed on an annual basis to ensure that remuneration levels and benefits are competitive
and reasonable using the guidelines described below. In determining each level of compensation and the total compensation package, the
Compensation Committee reviews a variety of sources to determine and set compensation. Mr. Kavanaugh aids the Compensation Committee
by providing annual recommendations regarding the compensation of all executive officers, other than himself. The Compensation Committee
can exercise its discretion by modifying any recommended adjustments or awards to the executives. Each executive also participates in
an annual performance review with Mr. Kavanaugh that includes a self-evaluation for the period being assessed. The Compensation Committee
performs Mr. Kavanaugh’s annual performance review.
The Compensation Committee seeks to provide salary,
incentive compensation opportunities and employee benefits that fall within the range of FFI’s competitors. The Compensation Committee
periodically and as warranted considers compensation levels of executives with similar qualifications and experience at financial companies
of similar size, complexity, and business activities.
The Compensation Committee also considers the
feedback received from the non-binding advisory vote on the compensation paid to the Company’s named executive officers when establishing
levels of compensation and total compensation packages.
Surveys prepared by management are also used periodically
to assess whether FFI is maintaining its labor market competitiveness. These surveys compare FFI’s compensation programs to the
compensation programs of similarly-sized bank holding companies located in the Western United States.
Role of the Compensation Consultant
To assist in its efforts to meet the objectives
outlined above in 2022, the Compensation Committee retained McLagan to provide general executive compensation consulting services to the
Compensation Committee. Pursuant to the Compensation Committee’s charter, the Compensation Committee has the power to retain or
terminate such consultant and engage other advisors.
McLagan, our independent compensation consultant,
collaborated with our management to obtain data, clarify information, and review preliminary recommendations prior to the time they were
shared with the Compensation Committee. The consultant provided data regarding market practices and obtained assistance from management
to develop recommendations for changes to plan designs and policies consistent with the philosophies and objectives discussed above.
Fees paid to McLagan in 2022 for advice and services
provided to the Compensation Committee were $40,000.
Upon consideration of factors pursuant to NASDAQ
compensation committee independence rules, the Compensation Committee has concluded that no conflict of interest exists that would prevent
McLagan from independently representing the Compensation Committee. The Compensation Committee’s conclusion was based on the following
factors:
| • | Total fees paid in 2022 to McLagan were not material in the context of total revenues disclosed in McLagan’s most recent annual
report; |
| • | McLagan has adopted and disclosed to the Compensation Committee its executive compensation consulting protocols for client engagements
and the Compensation Committee believes these protocols provide reasonable indications that conflicts of interest will not arise; |
| • | McLagan reports directly to the Chair of the Compensation Committee; |
| • | The Compensation Committee members and executive officers of the Company have no business or personal relationship with McLagan; and |
| • | The Compensation Committee, in its discretion, determines whether to retain or terminate McLagan. |
Peer Group
In 2022, the Compensation Committee retained McLagan
to prepare a new peer group based on the Company’s overall growth as well as changes in the earlier peer group due to merger and
acquisition activity. The new peer group consists of 20 financial institutions with total assets of between $5 billion and $20 billion
as of June 30, 2022 (including pending acquisitions) located in eight states (Arkansas, California, Colorado, Florida, Hawaii, Nevada,
Texas and Washington). These include: Home Bancshares, Bank of Hawaii Corp., Cathay General Bancorp, Independent Bank Group Inc.,
Hope Bancorp, Inc., Axos Financial Inc., CVB Financial Corp., Banner Corp., International Bancshares Corp., First Financial
Bankshares, Seacoast Banking Corp of Florida, Veritex Holdings Inc., TriCo Bancshares, Banc of California Inc., HomeStreet Inc., Southside
Bancshares Inc., Heritage Financial Corp., Central Pacific Financial Corp, Westamerica Bancorp., National Bank Holdings Corp., and Triumph
Bancorp Inc. The average total assets of the peer group was $11.2 billion (including pending acquisitions) at the time it was assembled.
Components of Executive Compensation
We generally allocate executive compensation among
three major categories or components: (i) base salary; (ii) annual cash incentive compensation; and (iii) equity incentive
compensation in the form of RSUs. Base salaries constitute the “guaranteed” portion of each NEO’s compensation, while
cash incentives and equity incentives constitute the “at-risk” portion of our NEOs’ compensation, because the payment
of those incentives generally is made contingent on the financial performance of the Company and, in the case of equity incentives, on
the continued employment of the NEO with the Company. We believe that these components of executive compensation enable us to retain and
attract management employees in the competitive local and national markets, as well as balance the motivation of our NEOs and other key
management employees to execute on immediate goals while remaining conscious of our longer-term strategic objectives.
The allocation of the individual components of
executive compensation is based on a number of factors, including competitive market conditions, the positions within our organization
held by our NEOs and other key management employees, and each executive’s ability to influence our financial performance. Generally,
the percentage of compensation “at risk,” either in the form of bonus or equity compensation, is higher for our NEOs
than for other management employees because the performance of our NEOs has a greater impact on whether we achieve our financial goals
and strategic objectives. The Compensation Committee decided that 10% to 30% of the “at-risk” compensation should be awarded
in RSUs, and for 2021 and 2020, that 30% of the “at-risk” compensation should be awarded in RSUs for our NEOs except for the
Executive Chairman, for whom 10% of the “at-risk” compensation was awarded in RSUs in 2022, 2021, and 2020.
The Compensation Committee performs annual reviews
of our executive compensation programs to evaluate their competitiveness and their consistency with our overall management compensation
philosophy and objectives. To ensure that we are appropriately compensating our NEOs and other key management employees and that we have
appropriate human resources to execute on our business plans, the members of our Compensation Committee review information that is available
to them and use their judgment in making compensation decisions. While we consider the compensation paid by other comparable or similar
companies (including the peer group referred to above) to their senior executives, no single factor is determinative in setting compensation
structure or allocating among elements of compensation.
In addition, the Compensation Committee reviews
the Company’s executive and employee compensation practices to assess whether they create improper incentives that would result
in material risks to the Company. Based on this review and analysis, the Compensation Committee has determined that none of the Company’s
compensation practices for its NEOs or other employees is reasonably likely to have a material adverse effect on the Company.
Base Salaries
The Compensation Committee reviews base salaries
for all NEOs and other executives annually to align them with market and industry practices as appropriate and after considering the Company’s
general financial performance and the executive’s role, responsibilities, experience, and future potential. The Compensation Committee
seeks to establish base salaries that are within the competitive range of salaries for persons holding similarly responsible positions
at peer company banks and bank holding companies with an emphasis placed on those located in the Western United States. In addition, the
Compensation Committee considers current and expected economic conditions in evaluating salary levels.
Specific criteria considered in Mr. Kavanaugh’s
2022 performance were the Company’s performance with regard to income before taxes, loan growth, deposit growth, capital management,
overall asset quality, and the Company’s compliance with rules and regulations. As a result of the Compensation Committee’s
performance evaluation, Mr. Kavanaugh’s salary for 2023 will remain $950,000, unchanged from 2022. The Committee determined
that Mr. Kavanaugh’s leadership of the Company to date as well as the expertise, experience, and skills required to lead the
Company going forward made it appropriate to maintain Mr. Kavanaugh’s base salary to this market competitive level.
The annual base salaries of Mr. Keller, Ms. Djou,
Mr. Hakopian, and Mr. Naghibi for 2023 are $600,000, $350,000, $475,000, and $420,000, respectively. As noted above, Ms. Djou
and Mr. Naghibi received raises in late 2022 due to promotions, while the base salaries for Mr. Keller and Mr. Hakopian
remain unchanged from 2022.
Based upon guidance provided by McLagan and additional
information captured through a variety of sources, the Company believes that it compensates its executives equitably when compared to
competitive companies in that peer group.
Annual Incentive Bonuses and Long-Term Incentive Awards
It is the Compensation Committee’s objective
to have a substantial portion of each executive’s compensation contingent upon the Company’s performance as well as upon the
executive’s own level of performance and contribution towards the Company’s performance. The Company utilizes annual bonuses
to align executive compensation with the Company’s business objectives and performance. Placing an emphasis on incentive compensation
is consistent with the Company’s philosophy of rewarding executives for the Company’s performance.
The annual incentive bonus award is primarily
driven by the achievements of the Company. For 2022, 2021 and 2020, the primary goals set by the Compensation Committee were based on
the Company’s budgeted income after taxes and the Company’s compliance with rules and regulations. In addition, for 2022,
2021, and 2020, the Compensation Committee set a credit quality goal, the ratio of nonperforming assets (“NPAs”) to total
assets. The following schedule sets forth the goals and actual results for the years ended December 31:
($ in 000’s) | |
2022 | | |
2021 | | |
2020 | |
Income before taxes: | |
| | | |
| | | |
| | |
Budget | |
$ | 164,877 | | |
$ | 114,322 | | |
$ | 91,427 | |
Actual | |
| 149,803 | | |
| 151,785 | | |
| 118,767 | |
Ratio of NPAs to total assets: | |
| | | |
| | | |
| | |
Goal | |
| 0.50 | % | |
| 0.50 | % | |
| 0.50 | % |
Actual | |
| 0.13 | % | |
| 0.14 | % | |
| 0.30 | % |
In addition, for 2022, 2021, and 2020, the Company
met its subjective goals with regards to compliance with rules and regulations.
As a result of the Company’s performance
in relation to the goals set by the Compensation Committee, Mr. Kavanaugh was awarded 100% of his target bonus in each of 2022, 2021,
and 2020. In addition to the goals set for the Company, the other NEOs must also meet individual subjective goals as part of the determination
of their annual incentive bonus. Based on the Company meeting its goals in each of 2022, 2021, and 2020, and the achievement of individual
subjective goals, Messrs. Keller, Hakopian, and Naghibi were awarded 100% of their target bonuses in 2022, 2021, and 2020. As Ms. Djou
was not an executive officer until December 2022, no target bonus for any year prior to 2023 was set for her.
The Compensation Committee provides long-term
incentive compensation, in the form of RSUs as a component of the annual incentive bonus, to FFI’s executive officers through the
grant of awards under the Company’s equity incentive plan. In accordance with the Company’s philosophy, the use of equity
compensation is intended to provide incentives to the Company’s executive officers to work toward the long-term growth of the Company
by providing them with an award that will increase in value only to the extent that the value of the Company’s common stock increases.
Because the value of awards under the Company’s equity incentive plan bear a direct relationship to the Company’s stock price,
the Compensation Committee believes that equity awards are an effective long-term incentive to create value for stockholders and appropriately
align the interests of the Company’s executives with the interest of the Company’s stockholders.
The payments of the annual incentive awards for
2022, 2021, and 2020 were split between cash and RSUs, as determined by the Compensation Committee. For Mr. Kavanaugh, 30% of his
annual incentive awards for 2022, 2021, and 2020 were payable to him in the form of RSUs. For Mr. Hakopian, 10% of his annual incentive
award for 2022 was payable to him in the form of RSUs. For Mr. Naghibi, 15% of hist annual incentive award for 2022 was payable to
him in the form of RSU’s. For Mr. Keller, 10% of his annual incentive awards for 2022 were payable to him in the form of RSUs,
. One-third of these RSUs vested immediately upon the grant date and one-third will vest incrementally on each of the first and second
anniversaries of the grant date, subject to continued employment. The Compensation Committee decided to only require 10% of Mr. Keller’s
annual incentive award in 2022, 2021, and 2020 to be in the form of RSUs, due to his substantial investment in the common stock of the
Company.
As
noted above, in addition to the RSUs granted as a portion of the annual incentive awards, Ms. Djou also received an award of 1,000
RSUs in November of 2022. One third of these awards of RSUs vested immediately at the grant date and one-third vests incrementally
on each of the first and second anniversaries of the grant date subject to continued employment.
Other Elements of Compensation and Perquisites
To attract and retain talented executives who
will focus on achieving FFI’s long-term goals, FFI provides to its NEOs, including Mr. Kavanaugh, the following benefits and
perquisites:
| • | Change of Control Agreements. The Company has entered into change of control agreements with its NEOs who would likely be involved
in decisions regarding, and the successful implementation of, a merger or acquisition and could be at risk for a job loss if a change
of control occurs. The Compensation Committee believes that such agreements are important to provide an incentive for executives to remain
employed with the Company through the uncertainty that a tender offer or merger can cause. Such continuity in leadership benefits both
the Company’s stockholders and employees and, ultimately, a company that acquires or merges with the Company. These agreements are
intended to allow the executives to focus on making and implementing decisions that are in the best interests of the Company’s stockholders
without being distracted or influenced in the exercise of their business judgment by personal concerns, such as searching for employment.
Change of control agreements are typically offered to executives in the marketplace and therefore are necessary to attract and retain
executives, as well as to protect stockholders’ interests. The change of control agreements, in language that modifies and is more
restrictive than in the Company’s equity incentive plan documents, provide among other things that a change of control and an associated
termination of an executive officer’s employment (a “double trigger”) would accelerate the vesting of all the executives’
outstanding options and equity awards. |
| • | Defined Contribution Plan. The Company offers a 401(k) savings plan to all eligible employees age 18 and over who complete
at least 90 days of service with the Company, First Foundation Bank, or First Foundation Advisors. Participants may contribute a
portion of their compensation subject to certain limits based on federal tax laws. Participants may select between making regular pre-tax
contributions or Roth contributions. The Company has historically made matching contributions to the plan. The Company matches, each pay
period, 100% of the first 3% contributed by an eligible employee and 50% of the next 2% contributed by an eligible employee, subject to
applicable regulatory limits. The employer contributions are subject to vesting requirements based on tenure with the Company. Plan assets
are held in trust. Participants can direct their investment contributions into a variety of specified mutual funds. |
| • | Medical and Dental Insurance. The Company provides to each NEO and his or her family such medical and dental coverage as FFI may from
time to time make available to its employees. The Company pays a portion of the premiums for this insurance for all employees. |
| • | Life Insurance. The Company provides life insurance in the amount of $250,000 for each NEO. |
Clawbacks. The
Sarbanes-Oxley Act of 2002 includes a clawback provision, Section 304, which generally would require our CEO and Chief Financial
Officer (“CFO”) to disgorge bonuses, other incentive or equity-based compensation, and profits on sales of Company stock that
they receive within the 12-month period following the public release of financial information if there is a restatement because of material
noncompliance, due to misconduct, with financial reporting requirements under the federal securities laws. Our Board has adopted a Clawback
Policy. Under the Clawback Policy, if any of our executive officers or employees receive incentive compensation as a result of our achievement
of (i) financial results measured on the basis of financial statements that are required to be restated or (ii) financial, operational
or other performance metric(s) that were satisfied as a result of fraudulent, dishonest or illegal conduct (as defined by law), we
will become entitled to recoup from those executive officers or employees, the amount by which the incentive compensation they received
based on those financial statements or the satisfaction of those metrics exceeds the incentive compensation they would have received had
such incentive compensation been determined on the basis of the restated financial statements or revised metric results. The Clawback
Policy provides for the recoupment of Excessive Compensation paid to or received by any executive officer or employee during the three years
immediately preceding the accounting restatement. The Clawback Policy further provides that, if the Excess Compensation was paid or received
in shares of common stock and the executive officer sold those shares within a year of the public disclosure of the financial statements
that were the subject of the accounting restatement, we will be entitled to recoup the net profits realized by the executive officer from
the sale of those shares.
Stock
Ownership Guidelines for Named Executive Officers. To align the interests of our NEOs more directly with the interests
of the stockholders, our Board adopted stock ownership guidelines that require each named executive officer to acquire and maintain a
minimum ownership interest in the Company within five years of becoming an executive officer or no later than five years from
the adoption of the guidelines in November 2019. Each named executive officer, other than the Chief Executive Officer and the Executive
Chairman, must own Company stock with a value of at least three times his or her base annual salary. The Chief Executive Officer must
own Company stock with a value of at least six times his base salary, and the Executive Chairman must own Company stock with a value of
at least five times his base salary. All the NEOs have met or are on track to meet these targets within the timeframe applicable to them.
Role of Tax Requirements
With the repeal of the Section 162(m)’s
performance-based compensation rule in connection with the Tax Cuts and Jobs Act of 2017, effective for taxable years beginning
after December 31, 2017, compensation paid to our covered executive officers in excess of $1 million will not be deductible
for federal tax purposes unless it qualifies for transition relief applicable to certain arrangements in place as of November 2,
2017.
The employment agreements with our NEOs provide
that if the severance and change in control benefits payable to the executive would constitute an “excess parachute payment”
as defined in Section 280G of the Code, such benefit payments shall be reduced to the largest amount that will result in no portion
of benefit payments being subject to the excise tax imposed by Section 4999 of the Code. That agreement, as well as the change in
control agreements with our NEOs also provide that if any benefit thereunder is subject to Section 409A of the Code and the executive
is deemed to be a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, commencement
of payment of the benefit shall be delayed for six months following the executive’s termination of employment.
Summary
The Compensation Committee believes that FFI’s
philosophy of aligning compensation with FFI’s performance and individual superior performance was met and that the compensation
for FFI’s executive officers has been competitive and comparable to the compensation received by executive officers of similarly-sized
banks located in the western United States. In addition, FFI’s executive compensation philosophy and programs support FFI’s
overall objective to enhance stockholder value through profitable management of FFI’s operations. The Compensation Committee is
firmly committed to the ongoing review and evaluation of FFI’s executive compensation program.
Compensation Committee Interlocks and Insider Participation
For 2022, the Compensation Committee was comprised
of Mr. Rosenberg, its chairman, Mr. Lake, and Mses. Pagliarini and Rubin, each of whom was an independent director. None of
the members of our Compensation Committee have been an officer or employee of the Company or any of our subsidiaries. In addition, none
of our executive officers serves or has served as a member of the board of directors or compensation committee (or other board committee
performing equivalent functions) of any entity that has one or more executive officers serving as one of our directors or as one of the
members of our Compensation Committee.
COMPENSATION COMMITTEE REPORT
To Our Stockholders:
The Compensation Committee has reviewed and discussed
the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with FFI’s management. Based on
such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included
in this Amendment.
Respectfully submitted:
Mitchell M. Rosenberg, Ph.D. (Chairman)
David G. Lake
Elizabeth A. Pagliarini
Diane M. Rubin
Summary Compensation Table
The following table sets forth, for our NEOs,
the compensation earned in the years ended December 31:
Name and principal position | |
Year | |
Salary ($)(1) | | |
Bonus ($)(2) | | |
Stock awards ($)(3)(4)(5)(6) | | |
Nonequity incentive plan compensation ($)(3) | | |
All other compensation ($)(7)(8) | | |
Total ($) | |
Scott F. Kavanaugh, Chief Executive Officer of FFI and FFB, Vice Chairman of FFI, President and Chairman of FFB | |
2022 | |
| 950,000 | | |
| — | | |
| 510,000 | | |
| 1,189,550 | | |
| 35,000 | | |
| 2,684,550 | |
| |
2021 | |
| 950,000 | | |
| — | | |
| 435,000 | | |
| 1,015,000 | | |
| 39,000 | | |
| 2,439,000 | |
| |
2020 | |
| 850,000 | | |
| — | | |
| 363,000 | | |
| 947,000 | | |
| 41,000 | | |
| 2,201,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amy Djou, Interim Chief Financial Officer of FFI and FFB, Executive Vice President and Chief Accounting Officer of FFB(9) | |
2022 | |
| 245,095 | | |
| 102,643 | | |
| 13,700 | | |
| — | | |
| 20,000 | | |
| 381,438 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ulrich E. Keller, Executive Chairman of FFI and FFA | |
2022 | |
| 600,000 | | |
| — | | |
| 38,000 | | |
| 349,600 | | |
| 33,000 | | |
| 1,020,600 | |
| |
2021 | |
| 600,000 | | |
| — | | |
| 35,000 | | |
| 315,000 | | |
| 31,000 | | |
| 981,000 | |
| |
2020 | |
| 575,000 | | |
| — | | |
| 34,000 | | |
| 351,000 | | |
| 34,000 | | |
| 994,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
John A. Hakopian, President of FFA(9) | |
2022 | |
| 475,000 | | |
| — | | |
| 29,000 | | |
| 260,750 | | |
| 34,000 | | |
| 798,750 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Christopher Naghibi, Executive Vice President and Chief Operating Officer of FFB(9) | |
2022 | |
| 390,455 | | |
| — | | |
| 62,000 | | |
| 356,545 | | |
| 37,000 | | |
| 846,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David DePillo, former President of FFI and FFB(10) | |
2022 | |
| 715,384 | | |
| — | | |
| — | | |
| — | | |
| 826,000 | | |
| 1,541,384 | |
| |
2021 | |
| 800,000 | | |
| — | | |
| 277,000 | | |
| 648,000 | | |
| 33,000 | | |
| 1,758,000 | |
| |
2020 | |
| 700,000 | | |
| — | | |
| 228,000 | | |
| 608,000 | | |
| 35,000 | | |
| 1,571,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Kevin Thompson, former Chief Financial Officer of FFI, FFB and FFA, former Interim President of the Company and FFB | |
2022 | |
| 399,244 | | |
| — | | |
| — | | |
| — | | |
| 32,000 | | |
| 431,244 | |
| |
2021 | |
| 425,000 | | |
| — | | |
| 97,000 | | |
| 228,000 | | |
| 34,000 | | |
| 784,000 | |
| |
2020 | |
| 211,300 | | |
| — | | |
| 100,400 | | |
| 145,000 | | |
| 18,000 | | |
| 474,700 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Lindsay Lawrence, former Chief Operating Officer of FFB(11) | |
2022 | |
| 405,731 | | |
| — | | |
| — | | |
| — | | |
| 449,000 | | |
| 854,731 | |
| |
2021 | |
| 420,000 | | |
| — | | |
| 139,000 | | |
| 326,000 | | |
| 34,000 | | |
| 919,000 | |
| |
2020 | |
| 400,000 | | |
| — | | |
| 137,000 | | |
| 370,000 | | |
| 18,000 | | |
| 925,000 | |
| (1) | Although Messrs. Kavanaugh and Keller are also directors of the Company, they do not receive any fees or other compensation for
the service as directors. |
| (2) | Ms. Djou received a discretionary annual cash bonus in 2022. |
| (3) | In 2022, 2021 and 2020, each of our NEOs, with the exception of Ms. Djou (who became an NEO in November 2022) received 100%
of their target incentive compensation awards. For Mr. Thompson, the amount in 2020 was prorated based on seven months of employment.
A portion of each incentive compensation award was paid in RSUs (as further described below), with the remainder paid in cash. |
| (4) | For Mr. Kavanaugh, 30% of his annual incentive award for 2022 was payable to him in the form of RSUs. For Mr. Hakopian,
10% of his annual incentive award for 2022 was payable to him in the form of RSUs. For Mr. Naghibi, 15% of his annual incentive award
for 2022 was payable to him in the form of RSUs. For Mr. Keller, 10% of his annual incentive award for 2022 was payable to him in
the form of RSUs. Ms. Djou did not receive any RSUs as part of her 2022 annual incentive award. Therefore, on February 28, 2023,
Mr. Kavanaugh received a grant of 34,390 RSUs, Mr. Hakopian received a grant of 1,956 RSUs,, Mr. Naghibi received a grant
of 4,181 RSUs, and Mr. Keller received a grant of 2,563 RSUs. Our closing price per share on February 28, 2023 was $14.83, which
represents the target amount of such annual incentive awards payable in RSUs (which also represents the maximum amount which may be granted
in RSU awards under the annual incentive plan). |
For Messrs. Kavanaugh, DePillo
and Thompson and Ms. Lawrence, 30% of their annual incentive award for 2021 was paid to them in the form of RSUs. For Mr. Keller,
10% of his annual incentive award for 2021 was paid to him in the form of RSUs. Therefore, on February 22, 2022, Mr. Kavanaugh
received a grant of 16,503 RSUs, Mr. DePillo received a grant of 10,509 RSUs, Mr. Thompson received a grant of 3,678 RSUs, Ms. Lawrence
received a grant of 5,274 RSUs, and Mr. Keller received a grant of 1,326 RSUs. Our closing price per share on February 22, 2022
was $26.36, which represents the target amount of such annual incentive awards payable in RSUs (which also represents the maximum amount
which may be granted in RSU awards under the annual incentive plan).
For Mr. Kavanaugh, Mr. DePillo
and Ms. Lawrence, 30% of their annual incentive award in 2020 was paid to them in the form of RSUs. Mr. Thompson was awarded
a pro-rated incentive award for 2020 for his seven months of employment during 2020, with 30% of such award paid in the form of RSUs.
For Mr. Keller, 10% of his annual incentive award for 2020 was paid to him in the form of RSUs. Therefore, on February 23, 2021,
Mr. Kavanaugh received a grant of 15,547 RSUs, Mr. DePillo received a grant of 9,765 RSUs, Ms. Lawrence received a grant
of 5,868 RSUs, Mr. Thompson received a grant of 2,169 RSUs, and Mr. Keller received a grant of 1,457 RSUs. Our closing price
per share on February 23, 2021 was $23.35, which represents the target amount of such annual incentive awards payable in RSUs (which
also represents the maximum amount which may be granted in RSU awards under the annual incentive plan).
Each RSU, upon vesting, enables its
holder to receive one of our common shares. One-third of these awards of RSUs vested immediately upon the grant date and one-third vests
incrementally on each of the first and second anniversaries of the grant date, subject to continued employment.
| (5) | This column reflects the dollar amount of the grant date fair value of an RSU award, computed in accordance with FASB Accounting Standards
Codification (“ASC”) Topic 718, Stock Compensation. Generally, the grant date fair value is the amount that we would expense
in our financial statements over the award’s vesting schedule. Please see note 14 to our Financial Statements on our Form 10-K
for the applicable year for further information. |
| (6) | Ms. Djou received an award of 1,000 RSUs in connection with her appointment as the Interim Chief Financial Officer of FFI and
FFB in November 2022. One third of these awards of RSUs vested immediately at the grant date and one-third vests incrementally on
each of the first and second anniversaries of the grant date subject to continued employment. |
| (7) | The amounts in this column include Company contributions to the 401(k) of $29,000 for Mr. Kavanaugh, $20,000 for Ms. Djou,
$33,000 for Mr. Keller, $34,000 for Mr. Hakopian, $37,000 for Mr. Naghibi, $26,000 for Mr. DePillo, and $29,000 for
Ms. Lawrence in 2022; $11,600 for Messrs. Kavanaugh, Thompson, DePillo and Ms. Lawrence, and $7,800 for Mr. Keller
in 2021; and $11,400 for Messrs. Kavanaugh, Keller and DePillo and Ms. Lawrence, and $5,200 for Mr. Thompson in 2020. |
| (8) | The amounts in this column include an automobile allowance for Mr. Kavanaugh in 2022, 2021 and 2020, in the amount of $6,000. |
| (9) | Ms. Djou, Mr. Hakopian and Mr. Naghibi were designated as NEOs during 2022 and therefore only 2022 information is included
above. |
| (10) | Mr. DePillo resigned from the Company, effective November 7, 2022. Severance payment in the amount of $800,000 was paid
to Mr. DePillo on November 25, 2022 and is included in the “All Other Compensation” column above. |
| (11) | Ms. Lawrence resigned from the Company, effective December 2, 2022. Severance payment in the amount of $420,000 was paid
to Ms. Lawrence on December 23, 2022 and is included in the “All Other Compensation” column above. |
Employment Agreements
Each of our continuing NEOs is employed under
an employment agreement, with the agreements for Mr. Hakopian ending on December 31, 2023, Ms. Djou ending on December 31,
2024, and Messrs. Kavanaugh, Keller, and Naghibi ending on December 31, 2025. The employment agreements with each NEO are substantially
the same, except with respect to compensation amounts.
Mr. Kavanaugh originally entered into an
employment agreement with FFI and FFB on September 17, 2007 and this agreement was subsequently amended on December 31, 2009,
December 28, 2012, August 31, 2013, January 26, 2016, February 7, 2018, March 11, 2020, and December 5,
2022. Mr. Keller originally entered into an employment agreement with FFA on September 17, 2007 and this agreement was subsequently
amended on December 31, 2009, December 31, 2012, August 31, 2013, January 26, 2016, February 7, 2018, March 11,
2020, and December 5, 2022. Ms. Djou entered into an employment agreement with FFB on December 19, 2022. Mr. Hakopian
entered into an employment agreement with FFA on December 31, 2009 and this agreement was subsequently amended on December 31,
2012, August 31, 2013, January 26, 2016, March 11, 2020, and December 19, 2022. Mr. Naghibi entered into an employment
agreement with FFB on January 1, 2015 and this agreement was subsequently amended on January 26, 2016, February 7, 2018,
March 11, 2020, and December 5, 2022. Mr. DePillo entered into an employment agreement with FFB on May 11, 2015 and
this agreement was subsequently amended on February 7, 2018 and March 11, 2020. Mr. DePillo resigned in 2022 and his employment
agreement was terminated on November 7, 2022. Mr. Thompson entered into an employment agreement with FFB on April 22, 2020.
Mr. Thompson resigned in 2022 and his employment agreement was terminated on November 18, 2022. Ms. Lawrence entered into
an employment agreement with FFB on June 1, 2015 and this agreement was subsequently amended on February 7, 2018 and March 11,
2020. Ms. Lawrence resigned in 2022 and her employment agreement was terminated on December 2, 2022.
Set forth below are summaries of the material
terms of those employment agreements. These summaries are not intended to be complete and are qualified in their entirety by reference
to the employment agreements themselves, which are included as exhibits to our Annual Report on Form 10-K filed with the SEC on February 28,
2023.
Material Terms of the Employment Agreements
Salaries. The
employment agreements currently provide for the payment of base annual salaries as follows: Mr. Keller: $600,000; Mr. Kavanaugh:
$950,000; Ms. Djou: $350,000; Mr. Hakopian: $475,000; and Mr. Naghibi: $420,000. Before Mr. DePillo, Mr. Thompson
and Ms. Lawrence left the Company, their employment agreements provided for the payment of base annual salaries of $800,000, $425,000,
and $420,000, respectively.
Participation
in Incentive Compensation and Employee Benefit Plans. Each of the employment agreements provides that the NEO will be
entitled to participate in any management bonus or incentive compensation plans adopted by our Board or our Compensation Committee and
in any qualified or any other retirement plans, stock option or equity incentive plans, life, medical and disability insurance plans and
other benefit plans which the Company and its subsidiaries may have in effect, from time to time, for all or most of its senior executives.
Termination
and Severance Provisions. Each employment agreement provides that the NEO’s employment may be terminated by the
Company with or without cause or due to his or her death or disability or by the NEO with or without good reason. In the event of a termination
of the NEO’s employment by the Company without cause or by the NEO for good reason, the Company will become obligated to pay severance
compensation to the NEO in an amount equal to 12 months of his or her annual base salary or the aggregate annual base salary that
would have been paid to the NEO for the remainder of the term of his or her employment agreement if such remaining term is shorter than
12 months (the “Termination Benefits Period”). In addition, during the Termination Benefits Period or until the NEO obtains
employment with another employer that offers comparable health insurance benefits, whichever period is shorter, the Company will be obligated
to continue to provide any group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq.
(commonly known as “COBRA”), subject to payment of premiums by the NEO at the active employee’s rate then in effect.
The severance benefits will be reduced by severance benefits received under other severance or similar plans. Payments of the foregoing
severance benefits amounts will be paid over the Termination Benefits Period in pro rata installments in accordance with our payroll
practices.
The foregoing severance benefits are subject to
the NEO executing an agreement that releases us and our affiliates from all legal claims. The NEO is also required to abide by customary
confidentiality provisions and for eighteen months after his or her termination, the NEO may not solicit our employees or use trade
secrets or confidential information to solicit current or prospective customers or to encourage customers, suppliers, vendors or service
providers to terminate or modify their business relationship with us.
If the NEO’s employment is terminated due
to his or her death then his or her estate shall receive a lump sum payment equal to his or her then annual base salary with payment occurring
as soon as practicable after his or her death. If, during his or her employment, a NEO experiences a disability such that he or she cannot
perform his or her essential job functions then we can only terminate his or her employment after the expiration of the lesser of six months
or the remaining term in the employment agreement. During such period of time, the NEO shall continue to receive his or her annual base
salary less any disability or sick pay that he or she is receiving along with continued participation in our employee benefits plans.
Cause/Good
Reason Definitions. The employment agreements contain the following definitions with respect to determining whether/when
a NEO is eligible for severance benefits.
“Cause” generally means the occurrence of any
of the following by the NEO:
| • | acts of gross negligence, willful misconduct or insubordination and which involve us or our affiliates, or acts of fraud; |
| • | violation of laws or government regulations which could subject us or our affiliates to disciplinary or enforcement action by a governmental
agency, or which could adversely affect our or our affiliates’ reputation or goodwill; |
| • | acts which would constitute a felony or any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; |
| • | failure to perform a substantial portion of the duties and responsibilities assigned or delegated to the NEO under the employment
agreement; |
| • | breach of the material obligations under the employment agreement; |
| • | violation by the NEO of any conflict of interest policy, ethical conduct policy or employment policy or a breach of his or her fiduciary
duties; |
| • | the issuance of an order or directive by any government agency which requires the NEO to disassociate himself or herself from us or
an affiliates or which suspends his or her employment or requires him to terminate his or her employment; |
| • | for Messrs. Keller and Hakopian, the suspension or loss of, or a failure to maintain in full force and effect, any professional
license or certification needed by the NEO which is needed to enable him to perform his or her responsibilities or duties; or |
| • | For Mr. Kavanaugh, Ms. Djou, and Mr. Naghibi, the issuance of an order under Section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act requiring the NEO to be removed or permanently prohibited from participating in the conduct of our business. |
“Good Reason” generally means the
occurrence of any of the following actions taken by us with respect to the NEO and without his or her consent:
| • | a material reduction in authority, duties or responsibilities; |
| • | a material reduction in base salary or base compensation, unless such reduction is made as part of an across-the-board cost-cutting
measure that is applied equally or proportionately to all senior executives; |
| • | a relocation of the NEO’s principal place of employment to an office (other than our headquarters offices) located more than
thirty (30) miles from his or hers then principal place of employment; or |
| • | a breach of our material obligations to the NEO under the employment agreement which breach continues uncured for a period of thirty
(30) days following written notice from the NEO. |
The following conditions must be satisfied in
order for the NEO to terminate his or her employment for Good Reason: (1) the NEO shall have given us a written notice of termination
for Good Reason (a “Good Reason Termination Notice”) prior to the expiration of a period of fifteen (15) consecutive calendar
days commencing on the date that the NEO is first notified in writing that we have taken a Good Reason action, (2) we have failed
to rescind or cure the Good Reason action within thirty (30) consecutive calendar days following our receipt of the Good Reason Termination
Notice, and (3) the Good Reason Termination Notice must expressly state that the NEO is terminating his or her employment for Good
Reason and must describe in reasonable detail the Good Reason action that entitles him to terminate his or her employment for Good Reason.
Compensation Risk Assessment
The Compensation Committee has conducted an annual
compensation risk assessment and concluded that the Company’s compensation policies and practices do not encourage excessive or
unnecessary risk-taking and are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee took
into account the significant proportion of the annual compensation that is based on equity incentives that have long maturities and vesting
periods, and the Company’s Clawback Policy and other corporate policies that align the NEO’s and other executive officers’
compensation with the interests of the Company’s stockholders.
Pay Ratio Disclosure
Set forth below is the annual total compensation
of our median employee, the annual total compensation of our CEO, Mr. Kavanaugh, and the ratio of those two amounts:
| • | The 2022 annual total compensation of the median employee of the Company (other than our CEO) was $90,000; |
| • | The 2022 annual total compensation of Mr. Kavanaugh was $2,685,000; and |
| • | For 2022, the ratio of the annual total compensation of Mr. Kavanaugh to the median annual total compensation of all our employees
was 30:1. |
Our CEO-to-median employee pay ratio is calculated
in accordance with Item 402(u) of Regulation S-K promulgated by the SEC. The rules for determining the pay ratio based
on the median employee’s annual total compensation allow companies to utilize different methodologies that reflect their employment
and compensation practices. As such, the pay ratio reported by other companies may not be comparable to our pay ratio. To determine the
median employee, we used the following methodology:
| • | Examined actual 2022 earnings from payroll records; |
| • | Excluded employees who separated in 2022 and included employees who were hired in 2022, such that only active employees at December 31,
2022 were considered; and |
The results were sorted from highest total compensation
to lowest total compensation to determine the median employee. After identifying the median employee, the Company calculated the 2022
annual total compensation for both our median employee and our CEO using the same methodology that the Company used to calculate the CEO’s
annual total compensation for the “Summary Compensation Table” in this Amendment and as further described below as applicable:
| • | Salary is equal to amounts earned in 2022; |
| • | Bonus is equal to amount earned for 2022 and paid in the first quarter of 2023; |
| • | Restricted stock units awards were based on the value of the portion of bonus which could have been paid out in RSUs, as determined
as of the date the bonus entitlement was first created; and |
| • | Other compensation, which consists of medical, dental and life insurance benefits and our 401k match. |
The CEO’s total compensation is divided
by the total compensation of the median employee to determine the CEO pay ratio.
Pay Versus Performance Disclosure
As required by Section 953(a) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following
information that demonstrates the relationship between executive “Compensation Actually Paid” and the Company’s performance
against several specific financial metrics. For further information regarding our executive compensation and programs, the metrics used
by our Compensation Committee to set executive compensation for 2022 (which is different than the financial metrics we are required to
include in the tables and discussion below) and our pay-for-performance philosophy, please refer to the “Compensation Discussion
and Analysis” section included herein.
The table below reflects the Compensation Actually
Paid to the Company’s Principal Executive Officer (“PEO”) and average Compensation Actually Paid to non-PEO NEO’s
during 2020 through 2022. In addition, the table compares our Total Shareholder Return (“TSR”) against our peer group TSR
using the KBW Nasdaq Regional Bank Index.
| |
Summary Compensation | | |
Compensation Actually | | |
Average Summary Compensation Table Total | | |
Average Compensation Actually Paid | | |
Value of Initial Fixed $100 Investment Based On:(4) | | |
| | |
Return on | |
Year (a) | |
Table Total for PEO(1) (b) | | |
Paid to PEO ($)(2)(3) (c) | | |
for Non-PEO NEOs ($)(1) (d) | | |
to Non-PEO NEOs ($)(2)(3) (e) | | |
TSR (S) (f) | | |
Peer Group TSR ($) (g) | | |
Net Income ($ in thousands) (h) | | |
Tangible Book Value(5) (i) | |
2022 | |
| 2,684,550 | | |
| 2,439,531 | | |
| 839,164 | | |
| 832,136 | | |
| 82.36 | | |
| 106.02 | | |
| 110,512 | | |
| 13.0 | % |
2021 | |
| 2,439,000 | | |
| 2,457,626 | | |
| 1,110,500 | | |
| 1,116,184 | | |
| 142.87 | | |
| 117.08 | | |
| 109,511 | | |
| 16.9 | % |
2020 | |
| 2,201,000 | | |
| 2,219,850 | | |
| 829,440 | | |
| 829,031 | | |
| 114.43 | | |
| 87.90 | | |
| 84,369 | | |
| 15.5 | % |
| (1) | The amounts included in column (b) reflect the summary compensation table total for Scott F. Kavanaugh for the years reported
in the table. Scott F. Kavanaugh was our PEO for each year presented. The amounts reported in column (d) reflect the average summary
compensation table total amounts for the non-PEO executive officers for the respective years. The individuals comprising the non-PEOs
for each year are listed below: |
2022 |
|
2021 |
|
2020 |
Ulrich E. Keller, Jr. |
|
Ulrich E. Keller, Jr. |
|
Ulrich E. Keller, Jr. |
David DePillo |
|
David DePillo |
|
David DePillo |
Kevin Thompson |
|
Kevin Thompson |
|
John Michel |
Lindsay Lawrence |
|
Lindsay Lawrence |
|
Kevin Thompson |
Amy Djou |
|
|
|
Lindsay Lawrence |
Chris Naghibi |
|
|
|
|
John A. Hakopian |
|
|
|
|
| | David DePillo and Kevin Thompson resigned from the Company in November 2022. Lindsay Lawrence resigned from the Company in December 2022.
John Michel resigned from the Company in May 2020. |
| (2) | The amounts shown in compensation actually paid have been calculated in accordance with Item 402(v) of Regulation S-K
and do not reflect compensation actually earned, realized or received by the Company’s NEOs. These amounts reflect the summary compensation
table total within certain adjustments as described below in footnote 3. |
| (3) | Compensation Actually Paid reflects the exclusions and inclusions of certain amounts for the PEO and non-PEO NEO’s as set forth
below. Equity values are calculated in accordance with FASB ASC Topic 718 and valuation assumptions do not differ materially from those
disclosed as of the grant date of the equity awards. Amounts in the Exclusion of Stock Awards column are the totals from the Stock Awards
columns set forth in the Summary Compensation Table. For all periods presented, equity values or awards only include stock awards as there
were no stock options granted or outstanding during these periods. |
Year | |
Summary Compensation Table Total for PEO ($) | | |
Exclusion of Stock Awards for PEO ($) | | |
Inclusion of Equity Values for PEO ($) | | |
Compensation Actually Paid to PEO ($) | |
2022 | |
| 2,684,550 | | |
| (510,000 | ) | |
| 264,981 | | |
| 2,439,531 | |
2021 | |
| 2,439,000 | | |
| (435,000 | ) | |
| 453,626 | | |
| 2,457,626 | |
2020 | |
| 2,201,000 | | |
| (363,000 | ) | |
| 381,850 | | |
| 2,219,850 | |
Year | |
Average Summary Compensation Table Total for Non-PEO NEOs ($) | | |
Average Exclusion of Stock Awards for Non- PEO NEOs ($) | | |
Average Inclusion of Equity Values for Non- PEO NEOs ($) | | |
Average Compensation Actually Paid to Non-PEO NEOs ($) | |
2022 | |
| 839,164 | | |
| (20,386 | ) | |
| 13,358 | | |
| 832,136 | |
2021 | |
| 1,110,500 | | |
| (137,000 | ) | |
| 142,684 | | |
| 1,116,184 | |
2020 | |
| 829,440 | | |
| (99,880 | ) | |
| 99,471 | | |
| 829,031 | |
The amounts in the Inclusion of Equity Values
in the table above is derived from the amounts as set forth below:
Year | |
Year-End Fair Value of Equity Awards Granted During the Year That Remained Unvested as of Last Day of Year for PEO ($) | | |
Change in Fair Value from Last Day of Year of Unvested EquityAwards Granted in Prior years for PEO ($) | | |
Vesting-Date Fair Value of Equity Awards Granted During Year that Vested During Year for PEO ($) | | |
Change in Fair Value from Last Day of Prior Year to Vesting Date of Unvested Equity Awards Granted in Prior Years that Vested During Year for PEO ($) | | |
Fair Value at Last Day of Prior Year of Equity Awards Granted in Prior Years that Forfeited During Year for PEO ($) | | |
Value of Dividends or Other Earning Pai d on Equity Awards Not Otherwise Included for PEO ($) | | |
Total – Inclusion of Equity values for PEO ($) | |
2022 | |
| 157,659 | | |
| (54,577 | ) | |
| 145,006 | | |
| 16,893 | | |
| — | | |
| — | | |
| 264,981 | |
2021 | |
| 257,674 | | |
| 34,907 | | |
| 121,000 | | |
| 40,045 | | |
| — | | |
| — | | |
| 453,626 | |
2020 | |
| 280,811 | | |
| 11,491 | | |
| 108,671 | | |
| (19,123 | ) | |
| — | | |
| — | | |
| 381,850 | |
Year | |
Average Year-End Fair Value of Equity Awards Granted During the Year That Remained Unvested as of Last Day of Year for Non-PEO NEOs ($) | | |
Average Change in Fair Value from Last Day of Year of Unvested Equity Awards Granted in Prior years for Non-PEO NEOs ($) | | |
Average Vesting- Date Fair Value of Equity Awards Granted During Year that Vested During Year for Non-PEO NEOs ($) | | |
Average Change in Fair Value from Last Day of Prior Year to Vesting Date of Unvested Equity Awards Granted in Prior Years that Vested During Year for Non-PEO NEOs ($ ) | | |
Average Fair Value at Last Day of Prior Year of Equity Awards Granted in Prior Years that Forfeited During Year for Non- PEO NEOs ($) | | |
Average Value of Dividends or other Earning Paid on Equity Awards Not otherwise Included for Non- PEO NEOs ($) | | |
Total – Average Inclusion of Equity Values for Non-PEO NEOs ($) | |
2022 | |
| 7,065 | | |
| (2,300 | ) | |
| 30,314 | | |
| 2,905 | | |
| (24,626 | ) | |
| — | | |
| 13,358 | |
2021 | |
| 79,801 | | |
| 12,476 | | |
| 37,471 | | |
| 12,936 | | |
| — | | |
| — | | |
| 142,684 | |
2020 | |
| 76,311 | | |
| 2,736 | | |
| 31,268 | | |
| (5,509 | ) | |
| (5,335 | ) | |
| — | | |
| 99,471 | |
| (4) | The Peer Group TSR set forth in this table utilizes the KBW Nasdaq Regional Bank Index, which we also utilized in the stock performance
graph required by Item 201(e) of Regulation S-K in our Annual Report filed on Form 10-K for the year ended December 31,
2022. The comparison assumes $100 invested for the period beginning December 31, 2019 through December 31, 2022 for the Company
and the KBW Regional Bank Index, respectively. TSR shown the table are not necessarily indicative of future stock performance. |
| (5) | We determined Return on Tangible Book Value was the most important financial performance measure used to link Company performance
to Compensation Actually Paid to our PEO and non-PEO NEOs in 2022. This performance measure may not have been the most important financial
performance measure for years 2021 and 2020 and we may determine a different financial performance measure to be the most important
financial performance measure in future years. |
Description of Relationship Between PEO and Other NEO Compensation
Actually Paid and Company Total Shareholder Return (“TSR”)
Description of Relationship Between PEO and Other NEO Compensation
Actually Paid and Net Income
Description of Relationship Between Company TSR and Peer Group TSR
Description of Relationship Between PEO and Other NEO Compensation
Actually Paid and Return on Tangible Book Value
Pay vs. Performance Financial Performance Measures
We believe the financial performance measures
shown below, all of which are performance objectives used in our executive compensation program, were the most important in linking compensation
actually paid to our NEOs for 2022:
| • | Return on Tangible Book Value |
| • | Asset Quality / Performance of Loan Portfolio |
Change of Control Agreements
The Company has entered into Change of Control
Severance Agreements with each of its NEOs (the “CC Agreements”). Messrs. Kavanaugh, Keller, Hakopian, Naghibi, DePillo,
and Thompson, and Ms. Lawrence, each entered into their respective amended and restated CC Agreements on August 6, 2020. Ms. Djou
entered into her CC Agreement on November 14, 2022. Mr. DePillo resigned in 2022 and his CC Agreement terminated on November 7,
2022. Mr. Thompson resigned in 2022 and his CC Agreement terminated on November 18, 2022. Ms. Lawrence resigned in 2022
and her CC Agreement terminated on December 2, 2022.
The CC Agreements with each NEO are substantially
the same, except with respect to the value of the potential severance payments, and can be terminated by the Company upon three years
advance written notice to the NEO. A CC Agreement will also terminate (without payment of severance benefits) in the event the NEO’s
employment is terminated by the Company for Cause (as defined in the NEO’s employment agreement) or due to his or her death or disability
or retirement, or by the NEO without Good Reason.
Each of the CC Agreements provides that if the
Company undergoes a Change of Control (as defined below) while the NEO is still in the employ of the Company or one of its subsidiaries
and, within the succeeding 12 months, the NEO terminates his or her employment due to the occurrence of a “Good Reason Event”
(such as involuntary changes to any of the NEOs authority or responsibilities, compensation, eligibility for participation in bonus and
employee benefit plans or relocation of work location) then the NEO will become eligible to receive the following severance compensation
(in lieu of severance benefits that could be provided under the NEO’s employment agreement):
| • | two times (for Ms. Djou, one time) the sum of (1) his or her annual base salary as then in effect and (2) the maximum
bonus compensation that the NEO could have earned under any bonus or incentive compensation plan in which he or she was then participating,
if any (the “Cash Amount”); |
| • | acceleration of the vesting of any then unvested stock options or restricted stock held by the NEO; and |
| • | continued participation for the NEO and his or her family members in medical, dental, vision, disability, and life insurance plans
and programs through the end of the second calendar year following the calendar year of the termination. |
The foregoing severance benefits are conditioned
upon the NEO executing documentation that releases us and our affiliates from all legal claims. Payment of the Cash Amount above shall
be paid on the first payroll date after sixty days after the vesting date. The severance benefits will be reduced to avoid the imposition
of excise taxes under Internal Revenue Code Sections 280G and 4999 if the NEO would be better off an after-tax basis.
Change
of Control/Good Reason Definitions. The CC Agreements contain the following definitions with respect to determining whether/when
a NEO is eligible for severance benefits under the CC Agreements.
“Change of Control” generally means
the occurrence of any of the following subject to certain exceptions:
| • | a person who becomes the beneficial owner, directly or indirectly, of more than thirty percent (30%) of the Company’s voting
securities subject to certain conditions; |
| • | a consolidation, merger, or reorganization of the Company with or into another person, or of another person with or into the Company,
in which the holders of the Company’s outstanding voting securities immediately prior to the consummation of such consolidation,
merger or reorganization would not, immediately after such consummation, own beneficially, directly or indirectly, (in the aggregate)
at least sixty percent (60%) of the voting securities of (1) the continuing or surviving person in such merger, consolidation
or reorganization (whether or not that is the Company) or (2) the ultimate parent, if any, of that continuing or surviving person; |
| • | a consolidation, merger or reorganization of FFB with or into another person, or of another person with or into FFB, unless the persons
that were the holders of the Company’s voting securities immediately prior to such consummation would have, immediately after such
consolidation, merger or reorganization, substantially the same proportionate direct or indirect beneficial ownership of at least sixty
(60%) of the voting securities of (1) the continuing or surviving person in such consolidation, merger or reorganization (whether
or not that is FFB) or, (2) the ultimate parent, if any, of that continuing or surviving person; |
| • | a sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as
a single plan) of all or substantially all of the assets of the Company or of FFB; |
| • | during any period of two (2) consecutive years during the term of the CC Agreement, individuals who at the beginning of
that two year period constituted the entire Board do not, for any reason, constitute a majority thereof, unless the election (or the nomination
for election) by the holders of the Company’s voting securities, of each director who was not a member of the Board at the beginning
of that two year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the
beginning of the two year period. |
“Good Reason” generally means the
occurrence of any of the following actions taken by us with respect to the NEO and without his or her consent:
| • | The scope of NEO’s authority or responsibilities is significantly reduced or diminished or there is a change in his or her position
or title as an officer of the Company or subsidiary, or both, that constitutes or would generally be considered to constitute a demotion; |
| • | a reduction in base salary, unless such reduction is made as part of an across-the-board cost-cutting measure that is applied equally
or proportionately to all senior executives; |
| • | a significant reduction or discontinuation in the NEO’s bonus and/or incentive compensation award opportunity unless it is applied
equally or proportionately to all senior executives participating in the incentive plan or program; |
| • | a significant reduction or discontinuation in the NEO’s participation in any other benefit plan subject to certain exceptions; |
| • | a relocation of the NEO’s principal place of employment to an office (other than our headquarters offices) located more than
thirty (30) miles from his or her then principal place of employment; or |
| • | a breach of our material obligations to the NEO under either the employment agreement or CC Agreement which breach continues uncured
for a period of thirty (30) days following written notice from the NEO. |
In order to resign his or her employment for Good
Reason under the CC Agreement, the NEO must provide the Company with written notice within 90 days of the Good Reason Event, and
if the Company does not cure within 30 days, the NEO must give written notice of termination for Good Reason within 45 days
of the end of the cure period.
Potential Payments upon Termination or Change in Control
The following table sets forth the potential payments
that would have been payable to our NEOs upon a termination of employment in certain circumstances, including in connection with a Change
in Control (“CIC”). The actual amounts payable can only be determined when an executive is terminated and can be more or less
than the amounts shown below, depending on the facts and circumstances actually prevailing at the time of the executive’s termination
of employment. The payments calculated below are based on the executive’s salary as of December 31, 2022, and assume a qualifying
termination on December 31, 2022.
|
|
Base Salary |
|
|
Bonus |
|
|
Acceleration of
Unvested Stock
Awards(1) |
|
|
Continuation
of Medical
Benefits(2) |
|
|
Total
Termination
Benefits |
|
Scott F. Kavanaugh
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
950,000 |
|
|
|
— |
|
|
|
— |
|
|
|
25,400 |
|
|
|
975,400 |
|
|
|
1,900,000 |
|
|
|
3,399,100 |
|
|
|
232,000 |
|
|
|
50,800 |
|
|
|
5,581,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
700,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Djou
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
18,100 |
|
|
|
368,100 |
|
|
|
350,000 |
|
|
|
140,000 |
|
|
|
9,600 |
|
|
|
18,100 |
|
|
|
517,700 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ulrich E. Keller, Jr.
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
600,000 |
|
|
|
— |
|
|
|
— |
|
|
|
35,200 |
|
|
|
635,200 |
|
|
|
1,200,000 |
|
|
|
775,200 |
|
|
|
19,700 |
|
|
|
70,400 |
|
|
|
2,065,300 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John A. Hakopian
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
475,000 |
|
|
|
— |
|
|
|
— |
|
|
|
24,300 |
|
|
|
499,300 |
|
|
|
950,000 |
|
|
|
579,500 |
|
|
|
13,600 |
|
|
|
48,600 |
|
|
|
1,591,700 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
225,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
Bonus |
|
|
Acceleration of
Unvested Stock
Awards(1) |
|
|
Continuation
of Medical
Benefits(2) |
|
|
Total
Termination
Benefits |
|
Christopher Naghibi
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
390,500 |
|
|
|
— |
|
|
|
— |
|
|
|
35,200 |
|
|
|
425,700 |
|
|
|
780,900 |
|
|
|
837,100 |
|
|
|
28,500 |
|
|
|
70,300 |
|
|
|
1,716,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David DePillo(5)
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
715,400 |
|
|
|
— |
|
|
|
— |
|
|
|
22,800 |
|
|
|
738,200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,430,800 |
|
|
|
— |
|
|
|
— |
|
|
|
45,700 |
|
|
|
1,476,500 |
|
|
|
465,400 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
465,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Thompson(5)
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
399,200 |
|
|
|
— |
|
|
|
— |
|
|
|
22,100 |
|
|
|
421,300 |
|
|
|
798,500 |
|
|
|
— |
|
|
|
— |
|
|
|
44,300 |
|
|
|
842,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
149,200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
149,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindsay Lawrence(5)
Voluntary termination
Involuntary termination(3)
Termination without Cause or
for Good Reason after CIC(3)
Disability
Death(3)(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
405,700 |
|
|
|
— |
|
|
|
— |
|
|
|
24,300 |
|
|
|
430,000 |
|
|
|
811,500 |
|
|
|
— |
|
|
|
— |
|
|
|
48,600 |
|
|
|
860,100 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
155,700 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
155,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) | The amounts in this column represent the value of unvested RSU awards that would accelerate upon a CIC as of December 31, 2022.
The value is determined by multiplying the number of accelerated shares by the closing share price of $14.23 for our common stock as of
December 31, 2022. |
| (2) | The amounts in this column represent the premiums for medical, dental and life insurance premiums as of December 31, 2022 that
the Company would be obligated to pay for the NEO for the period of time specified in the related employment or CIC agreement. |
| (3) | Assumes an effective date of a qualifying termination of employment of December 31, 2022. In addition to the payments provided
in this row, the NEO is entitled to receive accrued benefits earned through the date of termination. |
| (4) | In the event of a termination of employment due to death, the NEO’s estate is entitled to receive the NEO’s base salary
less the amount of any life insurance benefits paid under any Company provided life insurance plan. As of December 31, 2022, the
Company provides to each NEO a life insurance benefit of $250,000. This amount has been subtracted from each NEO’s base salary as
of December 31, 2022 to determine the amount payable in this row. |
| (5) | Messrs. DePillo and Thompson and Ms. Lawrence resigned in 2022. |
2015 Equity Incentive Plan
Purposes. The
purposes of the 2015 Equity Incentive Plan (the “2015 Equity Plan”) are (a) to enhance our ability to attract and retain
the services of officers and other key employees, directors and outside service providers, (b) to provide additional incentives to
such persons to devote their effort and skills to the advancement of the Company by providing them an opportunity to participate in the
ownership of the Company, and (c) to more closely align their interests with the interests of our stockholders by rewarding performance
that results in increases in our share prices. The 2015 Equity Plan replaced incentive equity plans adopted in 2007 (the “2007 Equity
Plans”). Effective upon the adoption of the 2015 Equity Plan, no grants were eligible to be issued under the 2007 Equity Plans.
As of December 31, 2022, there are still option grants outstanding under the 2007 Equity Plans. The 2015 Equity Plan expires in 2025.
Eligible
Participants. Incentive stock options may be granted only to employees of the Company or its subsidiaries, including the
NEOs. All other awards may be granted to any of our officers, other employees and directors, and to outside service providers that render
bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The Compensation Committee
determines which individuals will participate in the 2015 Equity Plan.
Award
Types. The 2015 Equity Plan permits the issuance of the following types of equity incentive awards:
| • | Options. Options may be non-qualified stock options or incentive stock options and may vest based on time or achievement of performance
goals. Our Compensation Committee may provide for options to be exercised only as they vest or to be immediately exercisable with any
shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. |
| • | Restricted Stock. A restricted stock award is an offer by us to sell or award shares of our common stock subject to restrictions,
which may vest based on time or achievement of predetermined performance goals and which may be subject to forfeiture, in whole or in
part, in the event of a cessation of the participant’s service with the Company or a failure to achieve any performance goals. The
price, if any, of a restricted stock award will be determined by the Compensation Committee. |
| • | Stock Appreciation Rights. Stock appreciation rights (“SARs”) provide for a payment, or payments, in cash or shares
of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise
and the stated exercise price at grant up to a maximum amount of cash or number of shares. |
| • | Restricted Stock Units. RSUs represent the right to receive shares of our common stock at a specified date in the future, subject
to forfeiture of that right because of termination of employment or failure to achieve certain performance goals. Upon the vesting of
an RSU, we will deliver to the holder of the RSU shares of our common stock (which may be subject to additional restrictions), cash or
a combination of shares of our common stock and cash. |
| • | Performance Awards. Performance awards cover a number of shares of our common stock that may be settled upon achievement of the
pre-established performance goals in cash or by issuance of the underlying shares. |
| • | Stock Bonuses. Stock bonus awards may be granted as additional compensation for past or future service or achievement of performance
goals, and therefore, no payment will be required for any shares awarded under a stock bonus. |
Terms
applicable to Stock Options and Stock Appreciation Rights. The exercise or base price of grants made under the 2015 Plan
of stock options or SARs may not be less than the closing price of our common stock on the date of grant. The term of these awards may
not be longer than ten years, except in the case of incentive stock options granted to holders of more than 10% of our voting power,
which may have a term no longer than five years. The Compensation Committee determines at the time of grant the other terms and conditions
applicable to such award, including vesting and exercisability.
Terms
applicable to Restricted Stock Awards, RSU Awards, Performance Awards and Stock Bonus Awards. The Compensation Committee
determines the terms and conditions applicable to the granting of restricted stock awards, RSUs, performance awards and stock bonus awards.
The Compensation Committee may make the grant, issuance, retention and/or vesting of such awards contingent upon continued employment
or service, the passage of time, or such performance criteria or goals and the level of achievement versus such criteria as it deems appropriate.
Subject to the terms and limitations expressly
set forth in the 2015 Equity Plan, the Compensation Committee selects the persons who receive awards, determines the number of shares
covered thereby, and establishes the terms, conditions and other provisions of incentive awards.
Grants of Plan-Based Awards
| |
| |
Estimated future payouts under non-equity incentive plan awards(1) | | |
Estimated future payouts under equity incentive plan awards(2) | | |
All other stock awards: Number of shares of stock or units | | |
Grant date fair value of stock and option | |
Name | |
Grant Date | |
Threshold ($) | | |
Target ($) | | |
Threshold ($) | | |
Target ($) | | |
(#) | | |
awards ($) | |
Scott F. Kavanaugh | |
2/28/2023 | |
| 595,000 | | |
| 1,190,000 | | |
| 255,000 | | |
| 510,000 | | |
| — | | |
| 510,000 | |
Amy Djou(3) | |
11/29/2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,000 | | |
| 13,700 | |
Ulrich E. Keller, Jr. | |
2/28/2023 | |
| 174,500 | | |
| 349,000 | | |
| 19,000 | | |
| 38,000 | | |
| — | | |
| 38,000 | |
John A. Hakopian | |
2/28/2023 | |
| 130,375 | | |
| 260,750 | | |
| 14,500 | | |
| 29,000 | | |
| — | | |
| 29,000 | |
Christopher Naghibi | |
2/28/2023 | |
| 178,272.50 | | |
| 356,545 | | |
| 31,000 | | |
| 62,000 | | |
| — | | |
| 62,000 | |
| (1) | Represents the cash portion of the 2022 annual incentive plan. The target amount of the potential award also represents the maximum
potential amount which could be earned under the annual incentive plan. |
| (2) | Represents the RSU portion of the 2022 annual incentive
plan. The number of RSUs which will ultimately be issued to each NEO is computed based upon the dollar value of the NEO’s total
incentive award (i.e., both the cash and equity portion) at the applicable performance level, multiplied by the percentage of such total
award comprised of RSUs. For Mr. Kavanaugh, 30% of his annual incentive award for 2022 was payable to him in the form of RSUs.
For Mr. Hakopian, 10% of his annual incentive award was payable to him in the form of RSUs. For Mr. Naghibi, 15% of his annual
incentive award for 2022 was payable to him in the form of RSUs. For Mr. Keller, 10% of his annual incentive award for 2022 was payable
to him in the form of RSUs. Each RSU, upon vesting, enables its holder to receive one share of our common stock. One-third of these awards
of RSUs vested immediately at grant date and one-third vests incrementally on each of the first and second anniversaries of the grant
date subject to continued employment. The target amount of the potential award also represents the maximum potential amount which could
be earned under the annual incentive plan. |
| (3) | Ms. Djou received an award of 1,000 RSUs in connection with her appointment as the Interim Chief Financial Officer of FFI and
FFB in November 2022. The grant date fair value of this award is computed based on the closing price of our common shares on the
grant date, November 29, 2022. One third of these awards of RSUs vested immediately at the grant date and one-third vests incrementally
on each of the first and second anniversaries of the grant date subject to continued employment. |
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding
outstanding options and unvested RSUs that have been granted to the NEOs and that were outstanding as of December 31, 2022.
| |
Stock Awards | |
Name / Grant Date | |
Number of shares or units of stock that have not vested (#) | | |
Market value of shares or units of stock that have not vested ($) | | |
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | | |
Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(1) | |
Scott F. Kavanaugh | |
| | | |
| | | |
| | | |
| | |
2/22/2022 | |
| 11,002 | | |
$ | 157,700 | | |
| — | | |
| — | |
2/23/2021 | |
| 5,183 | | |
| 74,300 | | |
| — | | |
| — | |
Amy Djou | |
| | | |
| | | |
| | | |
| | |
11/29/2022 | |
| 667 | | |
| 9,600 | | |
| — | | |
| — | |
Ulrich E. Keller, Jr. | |
| | | |
| | | |
| | | |
| | |
2/22/2022 | |
| 886 | | |
| 12,700 | | |
| — | | |
| — | |
2/23/2021 | |
| 486 | | |
| 7,000 | | |
| — | | |
| — | |
John A. Hakopian | |
| | | |
| | | |
| | | |
| | |
2/22/2022 | |
| 608 | | |
| 8,700 | | |
| — | | |
| — | |
2/23/2021 | |
| 343 | | |
| 4,900 | | |
| — | | |
| — | |
Christopher Naghibi | |
| | | |
| | | |
| | | |
| | |
2/22/2022 | |
| 1,290 | | |
| 18,500 | | |
| — | | |
| — | |
2/23/2021 | |
| 700 | | |
| 10,000 | | |
| — | | |
| — | |
David DePillo(2) | |
| — | | |
| — | | |
| — | | |
| — | |
Kevin Thompson(2) | |
| — | | |
| — | | |
| — | | |
| — | |
Lindsay Lawrence(2) | |
| — | | |
| — | | |
| — | | |
| — | |
| (1) | The remaining RSUs granted February 22, 2022 for Messrs. Kavanaugh, Keller, Djou, Hakopian, and Naghibi vest in equal installments
on each of the first and second anniversaries of the grant date subject to continued employment. Market value is based on the closing
share price of $14.33 for our common stock as of December 31, 2022. |
| (2) | Messrs. DePillo and Thompson and Ms. Lawrence resigned in 2022. |
Option Exercises and Stock Vested
The following table sets forth information regarding
stock options exercised and RSUs vested during 2022 for each of our NEOs:
| |
Option Awards | | |
Stock Awards | |
| |
Number of Shares Acquired on Exercise(3) | | |
Value Realized on Exercise(1)(3) | | |
Number of Shares Acquired on Vesting | | |
Value Realized on Vesting(2) | |
Scott F. Kavanaugh | |
| — | | |
$ | — | | |
| 17,735 | | |
$ | 466,000 | |
Amy Djou | |
| — | | |
| — | | |
| 333 | | |
| 4,600 | |
Ulrich E. Keller, Jr. | |
| — | | |
| — | | |
| 1,607 | | |
| 42,200 | |
John A. Hakopian | |
| — | | |
| — | | |
| 1,128 | | |
| 29,600 | |
Christopher Naghibi | |
| — | | |
| — | | |
| 2,265 | | |
| 59,500 | |
David DePillo(2) | |
| — | | |
| — | | |
| 11,379 | | |
| 299,100 | |
Kevin Thompson(2) | |
| — | | |
| — | | |
| 2,949 | | |
| 73,000 | |
Lindsay Lawrence(2) | |
| — | | |
| — | | |
| 6,496 | | |
| 170,700 | |
| (1) | Represents the difference between the market price of the underlying securities at exercise and the exercise price of the options. |
| (2) | Represents the market price of the underlying securities at vesting. |
| (3) | All stock options were fully exercised in 2021; none in 2022. |
Director Compensation
Only non-employee directors are entitled to receive
compensation for service on the Board and committees of the Board. The compensation each non-employee director received for their service
on the Board and Board committees is set forth in the following table for the year ended December 31, 2022:
| |
Director Compensation | |
| |
Fees Earned or Paid in Cash | | |
Stock Awards(1) | | |
Total | |
Max A. Briggs | |
$ | 80,000 | | |
$ | 80,000 | | |
$ | 160,000 | |
Diane M. Rubin | |
| 80,000 | | |
| 80,000 | | |
| 160,000 | |
David G. Lake | |
| 70,000 | | |
| 70,000 | | |
| 140,000 | |
Elizabeth A. Pagliarini | |
| 70,000 | | |
| 70,000 | | |
| 140,000 | |
Mitchell M. Rosenberg | |
| 70,000 | | |
| 70,000 | | |
| 140,000 | |
Jacob P. Sonenshine | |
| 70,000 | | |
| 70,000 | | |
| 140,000 | |
Gary Tice(2) | |
| 70,000 | | |
| 70,000 | | |
| 140,000 | |
| (1) | On February 22, 2022, when our closing share price was $26.36 per share, Mr. Briggs and Ms. Rubin received a grant
of 3,035 RSUs, and Messrs. Lake, Rosenberg, Sonenshine, Tice and Ms. Pagliarini received 2,656 RSUs. Half of the RSUs granted
to each director vested on May 24, 2022, and the other half of RSUs granted to each director vested on November 29, 2022. This
column reflects the aggregate dollar amount of the grant date fair value of these RSUs, computed in accordance with FASB ASC Topic 718,
Stock Compensation. Generally, the grant date fair value is the amount that we would expense in our financial statements over the award’s
vesting schedule. In accordance with SEC rules, the amounts shown reflect the aggregate grant date fair value of stock awards granted
to the Company’s non-employee directors during 2022, computed in accordance with FASB ASC Topic 718, Stock Compensation. The grant
date fair value is measured based on the closing price of the Company’s common stock on the date of grant. At December 31,
2022, there were no stock awards outstanding to non-employee directors. |
| (2) | Mr. Tice joined the Board on December 17, 2021 and resigned from the Board effective March 7, 2023. |
The Board, acting upon a recommendation from the
Compensation Committee, annually determines the non-employee directors’ compensation for serving on the Board and its committees.
In 2022, the Lead Director and the Chairman of the Audit Committee received retainers at an annual rate of $160,000, $80,000 of which
was paid in cash and $80,000 of which was paid in shares of the Company’s common stock pursuant to a written restricted stock unit
agreement. The other directors received retainers at an annual rate of $140,000, $70,000 of which was paid in cash and $70,000 of which
was paid in shares of the Company’s common stock pursuant to a written restricted stock unit agreement. All RSU’s granted
in 2022 and prior years to non-employee directors were fully vested as of December 31, 2022, and there were no unvested outstanding
RSU’s as of December 31, 2022.