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(Mark One)

 

 

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 001-38149

 

 

 

Registrant’s telephone number, including area code: (213) 627-9888

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐¹

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐¹

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $325,490,490.

 

The number of shares of Registrant’s Common Stock outstanding as of June 8, 2023, was 18,992,903.

 

The Registrant's auditor is Crowe LLP, Los Angeles, California, PCAOB ID 173.

 

¹ Per SEC guidance, this blank checkbox is included on this cover page but no disclosure with respect thereto shall be made until the adoption and effectiveness of related stock exchange listing standards.

 

 

 

 

 

 

 

 

 

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

 

The following table sets forth certain information about the Company’s current directors, two (2) of whom will not stand for re-election at the Company’s 2023 annual meeting of shareholders held on Friday, June 9, 2023  (the “Annual Meeting”), one (1) of whom has not been nominated for re-election at the Annual Meeting, and our two (2) new director nominees, including their names, ages and, for our current directors, year in which they began serving as a director of the Company or the Bank prior to the Company’s formation in 2011.

 

 

 

Pursuant to our Articles of Incorporation (“Articles”) and Bylaws, our Board is authorized to have not less than eight (8) members nor more than fifteen (15) members, and is currently comprised of eleven (11) members. The Board will reduce the number of directors to ten (10) preceding the Annual Meeting. Each of our directors serves for a one year term. The number of directors may be changed only by resolution of our Board within the range set forth in our Articles. As discussed in greater detail below, our Board has affirmatively determined that, with the exception of David R. Morris, our President and Chief Executive Officer (“CEO”), our other ten (10) current directors and two (2) director nominees qualify as independent directors based upon the rules of the Nasdaq Stock Market and the SEC. There are no arrangements or understandings between any of the directors and any other person pursuant to which he or she was selected as a director.

 

The business experience of each of the current directors and the two director nominees is set forth below. Except for Dr. James W. Kao and Ms. Christina Kao, there are no family relationships between the directors and executive officers. Except for Geraldine Pannu, director for Processa Pharmaceuticals (NASDAQ: PCSA), there are no other directors or executive officers of the Company serve as directors of any company that has a class of securities registered under the Securities Act of 1933, as amended (the “Securities Act”), or which is subject to the periodic reporting requirements of, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any investment company registered under the Investment Company Act of 1940.

 

Dr. James W. Kao. Dr. Kao has served as Chairman of the Board since May 2021 and as a member since 2015.  Dr. Kao had a long and distinguished career at Philip Morris, USA in the research and development department. Since his retirement in 1998, Dr. Kao has been a successful investor in many companies. Dr. Kao holds a B.A. from National Taiwan University, an M.B.A. from Virginia Commonwealth University and his Ph.D. from Miami University. Our Board considered Dr. Kao’s various corporate positions, experiences as an investor and his educational background in determining that he should be a member of our Board.

 

William Bennett. Mr. Bennett served over 26 years with the 12^th District of the Federal Reserve Bank of San Francisco; Portland and Seattle Branches, as Senior Regional Account Officer in its Financial Services Division from 1996 to 2022.  He was responsible for long-term consultative correspondent banking relationships with financial institutions, vendors, service bureaus, and payment associations throughout the Pacific Northwest and Mountain states, providing retail banking payment product solutions, risk and cash management services, and merger/acquisition/regulation/de novo guidance. Previously Mr. Bennett was with Figgie International Inc., Cleveland, Ohio and held various industrial engineering project management assignments for its corporate divisions of Rawlings Sporting Goods, Scott Aviation, American LaFrance, Kline Foundries, and Greer Hydraulics. Mr. Bennett holds a B.S. in Business Administration in Economics and Finance from Miami University, a M.B.A concentration in Accounting from the University of Oregon and held the Certified Cash Manager (CCM) and Accredited ACH Professional (AAP) designations from the Association for Financial Professionals and NACHA. Our Board considered Mr. Bennett’s experience as a financial product manager and his management of diverse banking portfolios in determining that he should be a member of our Board.

 

Wendell Chen. Mr. Chen has served as a member of the Board since November 2010. Mr. Chen has been the Chief Executive Officer of US Development LLC, a real estate development firm, since 2015. From 2006 to 2015, Mr. Chen served as the Chief Executive Officer and managing partner of Vanetti, Inc., a start-up firm that successfully designed, manufactured, and delivered branded and private labeled men’s suits to specialty shops and major chain stores in the United States. Mr. Chen holds a B.A. from California State University Pomona. Mr. Chen has notified the Board that he will not stand for re-election.

 

 

Robert M. Franko. Mr. Franko has more than 35 years of commercial banking experience, most recently serving eight years as the President & CEO of First Choice Bancorp (NASDAQ: FCBP), which was sold to Enterprise Financial Services Corp (NASDAQ: EFSC) in July 2021. During his tenure as CEO of First Choice Bancorp, the company achieved a consistent track record of growth and exceptional earnings, combined with high returns on assets and tangible equity. Mr. Franko led the effort to take the company public and to have it included in the Russell 2000® Index. Earlier in his career, he headed the $10 billion trust department for City National Bank and prior to that, he was the Chief Financial Officer of Imperial Bancorp (IMP-NYSE) before it was sold to Comerica (CMA-NYSE). Prior to joining First Choice, Mr. Franko was the founder and CEO of four different banks, including one commercial bank, one international bank, one trust bank and one industrial loan company. Mr. Franko has a long history with M&A transactions, both on the buy-side and the sell-side. He also has experience as the CFO of Canary Wharf Development Co., one of the largest real estate developments in the world. Mr. Franko has been a long-time director of the largest bankers’ bank in the US, TIB, NA and its holding company TIB, Inc. At TIB, he served as the Chairman of the Board from 2019 to 2021. He holds a BS degree from the University of Notre Dame and an MBA from the Thunderbird School of International Management at Arizona State University. Our Board considered Mr. Franko’s 35 years of commercial banking experience in determining that he should be a member of our Board.

 

Christina Kao. Ms. Kao has been a local business owner in Las Vegas, Nevada since 2017.  From 2009 to 2017, Ms. Kao worked in purchasing, marketing, and new business development for leading chemical and material science corporations, such as Solvay, Dow Chemical, and DuPont. Prior to 2009, she was a consultant and CFO for a non-profit engineering consulting firm for six years. Having also consulted for a biotech start-up specializing in diagnostics and a food start-up, her extensive marketing portfolio includes strategies to support products at the beginning of their life cycle to the end, with sales channels to both businesses (B2B) and consumers (B2C), grass roots marketing and SEO. Ms. Kao holds a B.S. in Chemical Engineering from Virginia Commonwealth University and an M.B.A. from Harvard Business School. She is passionate about mentoring youth and is trained in Cuisine at Le Cordon Bleu in Paris, France. Our Board considered Ms. Kao’s diverse industry experience in marketing and her leadership as a small business owner in determining that she should be a member of our Board.

 

Christopher Koo, CPA. Mr. Koo has served as a Board member since the founding of the Bank in 2008. Mr. Koo is the President and founder of Christopher Koo Accountancy, an accounting and tax service in the city of Diamond Bar. Mr. Koo holds an M.B.A. and a B.S. in Hotel and Restaurant Management from U.S. International University in San Diego, California. Mr. Koo has not been nominated for re-election.

 

Joyce Wong Lee, ERPA. Mrs. Lee has served as a Board member since 2022.  Ms. Lee is founder and president of California Benefit Planners (“CBP”) at Pasadena, a retirement plan consulting and design firm providing services nationally to all range of business entities to sponsor qualified retirement plans under ERISA law since 1994. Mrs. Lee holds a B.S. and M.Ed from Texas A&M University at Kingsville, Texas. Mrs. Lee is passionate about providing consultation services to her clientele for planning towards retirement through pension programs. As an Enrolled Retirement Plan Agent (“ERPA”), Mrs. Lee has successfully practiced and represented her clientele’s pension programs before the Internal Revenue Service (“IRS”). Our Board considered Ms. Wong's knowledge of investment products, particularly for financial planning and retirement, and her strong ties to the Asian-American small business community in determining that she should be a member of our Board. 

 

Christopher Lin, Ph.D. Dr. Lin has served as a Board member since 2010. Dr. Lin is the President and Chairman of three separate specialty real estate firms: Forte Resources, Inc., which specializes in senior and affordable housing management and development, Sonnycal Development Company, which specializes in real estate development in market-rate residential houses and industrial warehouses, and Linkage Financial Group Inc., which specializes in real estate development in China. Dr. Lin previously served as a director of General Bank from 1981 to 2003. Dr. Lin holds a B.S. from Cheng Kung University, a M.S. from National Tsing Hua University and a Ph.D. from Duquesne University. Our Board considered Dr. Lin’s real estate background, specifically in affordable housing, and his prior experience as a bank director in determining that he should be a Board member.

 

Richard Lin. Mr. Lin has served as a Board member since 2011. Mr. Lin is the President and Chief Financial Officer of Arche Investments, LLC, a real estate development firm specializing in developing condominiums and work-live detached condominium projects in Southern California. In addition, he is a regional director of Harmony Bioscience Inc., a personal healthcare product company. Mr. Lin holds a B.S. in Economics from University of California, Irvine. Mr. Lin has notified the Board that he will not stand for re-election.

 

David R. Morris. Mr. Morris currently serves as the President and Chief Executive Officer of the Company and the Bank. Prior to March 2023, Mr. Morris also served as Executive Vice President and Chief Financial Officer of the Bank since February 2010 and of the Company since 2011. Mr. Morris serves on our Board’s Asset/Liability Committee, Information Technology and Security Committee, Community Reinvestment Act Committee, and as a non-voting member of the Directors Loan Committee. Prior to joining the Company, Mr. Morris was the President and Chief Executive Officer of MetroPacific Bank from August 2007 to June 2009, and its Executive Vice President and Chief Financial Officer/Chief Operations Officer from October 2006 to July 2007. He was the Executive Vice President and Chief Financial Officer/Chief Operations Officer of San Diego Community Bank from June 2003 to September 2006, the Vice President and Controller of Community National Bank from 1999 to 2003, the Vice President and Manager of participant accounting at City National Bank (formerly North American Trust Company) in 1999, its Executive Vice President, Chief Financial Officer, Risk Management Officer and Director from 1997 to 1998, and its Executive Vice President, Chief Operations Officer and Chief Financial Officer from 1991 to 1996. Mr. Morris started his career with First Interstate Bank, Ltd. in 1986 followed with being controller for Banker’s Trust Company of California, a subsidiary of Banker’s Trust Company. Mr. Morris holds a B.S. from University of Maryland and an M.B.A. from University of Southern California. Mr. Morris is on the Economic Development Commission for the City of Oceanside, and sits on a variety of non-profit boards. Our Board considered Mr. Morris' experience as an executive officer at the Bank and his 37 years of experience in banking in determining that Mr. Morris should be a member of our Board.

 

Geraldine Pannu.  Ms. Pannu has served as a Board member since 2022. Ms. Pannu has over 25 years’ experience in investment and financial management, fund operations, consulting and marketing. She is the Managing Partner of GLTJ Pioneer Capital, a real estate firm specializing in development and fixed income investments.  Ms. Pannu is an Independent Board of Director for Processa Pharmaceuticals (NASDAQ: PCSA). She also mentors several startup companies and assists them as Interim CFO. Previously, she was the managing Director of Golden Gate Global, one of the largest EB5 regional centers in Northern California. She was the COO and Managing Partner for ChinaRock Capital Management, a leading hedge and venture capital fund company in San Francisco for nearly 10 years. She worked in McKinsey & Co, Monitor Company as a management consultant before and after business school. She had successfully raised capital for several hedge, venture capital and real estate funds. Ms. Pannu was born in Shanghai and grew up in Hong Kong. She received her Bachelor of Business Administration from Chinese University of Hong Kong and M.B.A. from Harvard Business School. She is fluent in English, Mandarin, Cantonese and Shanghainese. Our Board considered Ms. Pannu's investment and financial expertise as well as her involvement in the Asian-American business community in determining that she should be a member of our Board.  

 

 

Scott Polakoff. Mr. Polakoff has served more than 25 years as a federal banking regulator, including eight years as the Chicago Regional Director of the Federal Deposit Insurance Corporation (“FDIC”) and three years as the Chief Operating Officer of the Office of Thrift Supervision. Upon retiring from government service in 2009, he joined Booz Allen Hamilton as a Principal in its regulatory practice. In 2011 he joined FinPro, Inc., to lead its consulting regulatory team. Mr. Polakoff earned his B.S. (accounting) from West Chester University, is a 1992 graduate of the Southwestern Graduate School of Banking at Southern Methodist University, a 1998 graduate of the Federal Executive Institute’s “Leadership for a Democratic Society” and a 2002 graduate of the Management Certification Program at Loyola University, Chicago, IL. He obtained his Series 24, 79, and 63 FINRA licenses in 2012. He achieved his CAMS certificate in 2018. Mr. Polakoff also teaches at the Colorado Graduate School of Banking. Our Board considered Mr. Polakoff’s 25 years of experience as a federal banking regulator in determining that he should be a member of our Board.

 

Frank Wong. Mr. Wong brings more than 25 years of experience in banking and financial services. Over his career, he has been responsible for leading and directing asset liability and interest rate risk, growth strategies, cost reduction and process improvement initiatives, technology implementations, capital management, and external regulatory reporting to the FDIC and Securities and Exchange Commission for institutions ranging in size from $150 million to $10 billion in assets. Mr. Wong served as Controller at Mission Valley Bank (2010 – 2020); Director of Financial Reporting at Douglas Emmett (2008-2010); VP Controller at Kaiser Federal Bank (2005-2008); and Financial Reporting Officer at First Federal Bank (2003- 2005). Mr. Wong holds his B.S. degree in Finance from the California State University of Los Angeles. Mr. Wong is a graduate of Pacific Coast Banking School. Pacific Coast Banking School, in partnership with the Foster Graduate School of Business at the University of Washington, is a three-year, master’s-level management and executive leadership extension program for senior and executive officers in the banking industry. Mr. Wong currently serves as CEO of Energy Trinity, an energy analytics and consulting firm focused on long term financial and environmental gains achieved through electric vehicles, solar, and battery energy storage adoption. He is credited with authoring, developing, and bringing to the U.S. market the world’s only multidimensional data model that encompasses financial elements and energy dynamics of gasoline vehicles and household/business electricity consumption, usage, and related historical and projected future energy costs, fully offset by electric vehicle energy consumption paired with solar energy generation and battery energy storage. Our Board considered Mr. Wong’s experience in banking and his financial controls expertise in determining that he should be a member of our Board.

 

 

The following table sets forth certain information regarding our executive officers, including their names, ages and positions:

 

 

The business experience of each of our executive officers is set forth below.  No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our current directors.

 

Alex Ko. Mr. Ko has served as the Executive Vice President and Chief Financial Officer of the Company and the Bank since March 2023. He is responsible for the overall financial oversight including accounting, financial reporting, treasury, investments, investor relations, Sarbanes-Oxley and strategic planning. He also leads the company’s management of interest rate risk, budgeting and profitability analysis. Mr. Ko’s career spans more than 27 years in the financial services industry with extensive experience in mergers and acquisitions as well as financial planning and execution. Prior to the joining the Company, he was the Senior Executive Vice President and Chief Financial Officer of Hope Bancorp, Inc. and Bank of Hope since 2016. Prior to Hope Bancorp, Inc., he was Executive Vice President and Chief Financial Officer of Wilshire Bancorp, Inc. and Wilshire Bank since 2008.  Wilshire Bancorp, Inc. was merged into Hope Bancorp. Inc. in 2016. During his tenure as Chief Financial Officer, he led multiple mergers and acquisitions.  Mr. Ko is a certified public accountant and worked at KPMG, LLP for 12 years prior to joining Wilshire Bancorp in 2008. Mr. Ko earned his B.A. from Yonsei University and his M.A. in Accounting from the University of Southern California. He was honored by the Los Angeles Business Journal as Chief Financial Officer of the Year in 2017.

 

Vincent Liu. Mr. Liu has been an executive officer since the founding of the Bank in 2008 and of the Company since 2011. He started at the Bank as Executive Vice President and Branch Administrator and was promoted to Chief Operations Officer in February 2011, and to Chief Risk Officer in January 2014. Prior to joining the Bank, Mr. Liu spent over six years with United Commercial Bank as Senior Vice President and head of Southern California branch network. Prior to joining United Commercial Bank, Mr. Liu spent over 18 years with General Bank as a regional manager. Mr. Liu holds a B.A. from Feng-Chia University.

 

Jeffrey Yeh. Mr. Yeh has been an executive officer since the founding of the Bank in 2008 and of the Company since 2011. He started at the Bank as Vice President and Portfolio Administration Manager and was promoted to Senior Vice President and acting Chief Credit Officer in January 2013, and to Executive Vice President and Chief Credit Officer in January 2014. Prior to joining the Bank, Mr. Yeh was a finance director and business control manager for Universal Science Industrial Co., Ltd. from 2001 through 2003, director and general manager of Overseas Chinese Finance, Ltd. from 1999 through 2001, and lending and investment manager for Bank of Overseas Chinese from 1995 through 1999. Mr. Yeh began his banking career at General Bank where he held various positions from 1989 through 1995. Mr. Yeh holds a B.A. from Soochow University and an M.B.A. from University of Missouri.

 

Tsu Te Huang. Mr. Huang joined our Bank in 2009 as Senior Vice President and Branch Regional Manager and was promoted to Branch Administrator in 2012, and to Executive Vice President in 2016. In 2019, Mr. Huang started our private banking unit and at that time took on the additional responsibilities as the Director of Prestige Banking. Mr. Huang previously served as Senior Vice President and Branch Assistant Regional Manager for United Commercial Bank, Southern California from 2003 to 2009, Senior Vice President and Branch Regional Manager for First Continental Bank from 2000 to 2003, and as Vice President and Branch Manager for First Continental Bank from 1994 to 2000. Mr. Huang holds a B.A. from Chinese Culture University.

 

Ashley Chang. Ms. Chang joined our Bank in 2009 as a Vice President and Branch Manager. She was promoted to First Vice President and Regional Manager in 2014, to Senior Vice President and Assistant Branch Administrator in 2017, and to Branch Administrator in 2019, and to Executive Vice President and Branch Administrator in 2021. Ms. Chang previously served as Assistant Vice President and Branch Manager for United Commercial Bank, Southern California from 2003 to 2009. Prior to that, Ms. Chang also worked for First Continental Bank and Los Angeles National Bank. Ms. Chang holds a B.A. from Shanghai Normal University.

 

 

Gary Fan. Mr. Fan joined the Bank in December 2022 as an Executive Officer and Chief Administrative Officer in the Administrative Department. Mr. Fan is responsible for identifying and executing growth opportunities, leading digital banking initiatives, managing products and services, overseeing merger and acquisition (“M&A”) activity, divestments and divestures, improving cross-functional business processes and maintaining business model innovation. He was previously President of Gateway Bank FSB in Oakland, CA where he led all business units for retail and commercial banking and led the profitable turnaround of the company. Prior to Gateway, Mr. Fan held numerous roles in the financial services industry including the Head of Strategy of North America and the Head of Consumer Lending for the U.S. subsidiary of CTBC, a $100 billion global bank. Throughout his career, Mr. Fan has been responsible for identifying opportunities to ensure profitable growth and leading the execution of business initiatives through prioritization, resource deployment, and cost management.  He has had numerous years of experience in areas including: fintech, M&A, new market expansion, strategic partnerships, long range planning, and restructuring. Mr. Fan has had P&L responsibility over billion-dollar lending portfolios and has led Sales, Marketing, Retail Banking, Commercial Banking, Operations, Credit Administration, Finance, Information Technology and Security, Human Resources, Legal, PMO, and Real Estate teams at various organizations. Mr. Fan has a bachelor’s degree from the University of California, Berkeley. He is also a graduate of the Stonier Graduate School of Banking at The Wharton School.

 

 

The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes-Oxley Act of 2002 and the listing standards of the Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date.

 

Director Qualifications. We believe that our directors should have the highest professional and personal ethics and values. They should have broad experience at the policy-making level in business, government or banking. They should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on boards of other companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all shareholders. When considering potential director candidates, our Board of Directors also considers the candidate’s character, judgment, diversity, skill sets, specific business background and global or international experience in the context of our needs and those of the Board of Directors.

 

Enhancement of Corporate Governance Policies and Standards. In addition to the enhanced director independence standards referenced herein, during 2022, as part of its review of the Company’s governance structures and policies, the Board has determined that it would be appropriate to have an independent, non-executive Board Chair. The Board also has reviewed and, where necessary or appropriate, approved updates to Board committee charters and will continue to do so no less frequently than annually. In addition, the Board updated the Company’s Code of Ethics to require enhanced reporting and Board oversight of, among other things, potential or actual conflicts of interest, gifts and political contributions.

 

Director Nominations; Procedure to be Followed by Shareholders.  The Nominating and Governance Committee is responsible for the process relating to director nominations, including identifying, reviewing and selecting individuals who may be nominated for election to the Board. Pursuant to its charter, the Nominating and Governance Committee considers various criteria in its identification, review and selection of potential director nominees, including, but not limited to, integrity and ethical values, experience, reputation, knowledge of Company affairs, business understanding, time commitment and availability and financial commitment. The Nominating and Governance Committee seeks to achieve a well-rounded, diverse, knowledgeable and experienced Board. The Nominating and Governance Committee considers nominees to serve as directors of the Company and recommends such persons to the Board as well as director candidates recommended by shareholders pursuant to the guidelines set forth as an appendix to the Nominating and Governance Committee charter.

 

Shareholders who wish to recommend candidates may contact the Nominating and Governance Committee by sending written correspondence by mail to:

 

Board of Directors

c/o Corporate Secretary

1055 Wilshire Blvd., 12^th Floor

Los Angeles, CA 90017

 

All candidates are required to meet the criteria outlined above, as well as the director independence and other standards as determined by the Nominating and Governance Committee in its sole discretion. Shareholder nominations must be made according to the procedures required under our Bylaws.

 

The Nominating and Governance Committee strives to evaluate all prospective nominees to the Board of Directors in the same manner and in accordance with the same procedures, without regard to whether the prospective nominee is recommended by a shareholder, the Nominating and Governance Committee, another Board member or members of management. However, the Nominating and Governance Committee may request additional steps in connection with the evaluation of candidates submitted by shareholders due to the potential that the existing directors and members of management will not be as familiar with the proposed candidate as compared to candidates recommended by existing directors or members of management. The Nominating and Governance Committee will conduct the same analysis that it conducts with respect to its director nominees for any director nominations properly submitted by a shareholder and, as a result of that process, will decide whether to recommend a candidate for consideration by the full Board of Directors.

 

Board Leadership Structure.  Although our Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board, our Board of Directors endorses the view that one of its primary functions is to protect shareholders’ interests by providing independent oversight of management, including the chief executive officer.  Following our 2021 annual meeting of shareholders, our Board appointed Dr. James W. Kao as the independent Chairman of the Board.  Dr. Kao's primary duties are to lead our Board of Directors in establishing our overall vision and strategic plan and to lead our management in carrying out that plan.

 

To further strengthen the oversight of the full Board of Directors our independent directors periodically hold executive sessions at which only independent directors are present. The executive sessions are scheduled in connection with regularly scheduled Board meetings at least twice a year. The executive sessions are presided over by an independent director selected by our Board of Directors.  Dr. James W. Kao currently serves in this role.

 

 

Code of Ethics. Our Board of Directors has adopted a Code of Ethics that applies to all of our directors and employees. The code provides fundamental ethical principles to which these individuals are expected to adhere to and will operate as a tool to help our directors, officers and employees understand the high ethical standards required for employment by, or association with, our Company. Our Code of Ethics is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab. Any amendments to the code, or any waivers of its requirements, are disclosed on our website, as well as any other means required by Nasdaq Stock Market rules. See “Enhancement of Corporate Governance Policies and Standards” for a discussion of certain revisions made in 2022 to the Code of Ethics.

 

Insider Trading Policy. Our Board of Directors has adopted an Insider Trading Policy that applies to all of our directors and employees. The Insider Trading Policy attempts to establish standards that will avoid even the appearance of improper conduct on the part of insiders. Our Insider Trading Policy is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab.

 

Whistleblower Policy. Our Board of Directors has adopted a Whistleblower Policy for our directors and employees. The policy provides procedures that encourage all employees to bring forth any information that will prevent fraud, abuse, misconduct, and other violations of the Company’s policies. Our Whistleblower Policy is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab. Any shareholder may contact the Board of Directors via the telephone number, website address and email address to the Company’s Whistleblower hotline at 866/296-8657, http://www.openboard.info/RBB/ and RBB@openboard.info.

 

Risk Management and Oversight. Our Board of Directors oversees our risk management process, which is a company-wide approach to risk management that is carried out by our management. Our full Board of Directors determines the appropriate risks for us generally, assesses the specific risks faced by us, and reviews the steps taken by management to manage those risks. While our full Board of Directors maintains the ultimate oversight responsibility for the risk management process, its committees oversee risk within their particular area of concern. In particular, our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers.  Our Nominating and Governance Committee is responsible for overseeing the management of risk associated with our corporate governance structure and director nomination and evaluation processes.

 

Our Audit Committee is responsible for overseeing the management of risks associated with related party transactions. Our Directors Loan Committee is primarily responsible for credit and other risks arising in connection with our lending activities, which includes overseeing management committees that also address these risks. Our Asset/Liability Committee monitors our interest rate risk, with the goal of structuring our asset-liability composition to maximize net interest income while minimizing the adverse impact of changes in interest rates on net interest income and capital. Our Board of Directors monitors capital adequacy in relation to risk. Pursuant to our Board of Directors’ instruction, management regularly reports on applicable risks to the relevant committee or the full Board, as appropriate, with additional review or reporting on risks conducted as needed or as requested by our Board of Directors and its committees.

 

All directors attended at least 99.7% of all Board and their respective committee meetings in 2022, and all directors attended our 2022 Annual Meeting of Shareholders.

 

 

Our Board of Directors has established standing committees in connection with the discharge of its responsibilities. These committees include the Executive Committee, Audit Committee, Compensation Committee, Nominating and Governance Committee, Asset/Liability Committee, Community Reinvestment Act Committee, Director’s Loan Committee, and Information Technology and Security Committee.

 

On February 1, 2022, the Board established the Executive Committee, which was initially formed to determine the interim Chief Executive Officer and carry out a search for a permanent Chief Executive Officer that would improve the Company and the Bank’s infrastructure, have strong leadership skills, encourage employee involvement and have knowledge of the market. On February 22, 2022, David R. Morris was appointed as interim President and Chief Executive Officer and on October 24, 2022, was appointed as permanent President and Chief Executive Officer and the Executive Committee was disbanded at that time.

 

Our Board of Directors also may establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our Articles and Bylaws.

 

Our Board generally holds regular meetings every month.  There were twelve (12) meetings of the Board held in 2022.

 

 

The following table sets forth the membership of our Board committees, noting the members (“M”) and the chairperson (“C”) as of June 8, 2023, and the number of committee meetings held in 2022:

 

 

 

Audit Committee. Our Board of Directors has evaluated the independence of the current members of our Audit Committee and has affirmatively determined that: (i) each of the current members of our Audit Committee meets the definition of “independent director” under Nasdaq Stock Market rules; (ii) each of the current members satisfies the additional independence standards under Nasdaq Stock Market rules and applicable SEC rules for Audit Committee service; and (iii) each of the current members has the ability to read and understand fundamental financial statements.  

 

It is our Board’s policy to have at least one member serving on the Audit Committee who is financially sophisticated under the Nasdaq Stock Market rules and satisfies the requirements established by the SEC for qualification as an “audit committee financial expert.” Ms. Pannu is financially sophisticated under the Nasdaq Stock Market rules and satisfies the requirements established by the SEC for qualification as an “audit committee financial expert.”

 

Our Audit Committee has adopted a written charter, which sets forth the Audit Committee’s duties and responsibilities. The current charter of the Audit Committee is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab. As described in its charter, our Audit Committee has responsibility for, among other things:

 

 

Compensation Committee. Our Board of Directors has evaluated the independence of the current members of our Compensation Committee, and has affirmatively determined that each current member of our Compensation Committee members are “independent” under Nasdaq Stock Market rules, satisfy the additional independence standards under Nasdaq Stock Market rules for compensation committee service and also satisfy the stricter independence standards set forth in the Compensation Committee charter.

 

Our Compensation Committee has adopted a written charter, which sets forth the committee’s duties and responsibilities. The current charter of the Compensation Committee is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab.

 

 

The Compensation Committee is generally responsible for discharging our Board of Directors’ duties relating to the compensation, both direct and indirect, to be paid to our executive officers. Among other things, the Compensation Committee is responsible for:

 

 

Nominating and Governance Committee (“NG”). Our Board of Directors has evaluated the independence of the members of our Nominating and Governance Committee, and has affirmatively determined that each member of our Nominating and Governance Committee members are “independent” under Nasdaq Stock Market rules.

 

Our Nominating and Governance Committee has adopted a written charter, which sets forth the committee’s duties and responsibilities. The current charter of the Nominating and Governance Committee is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab.

 

The Nominating and Governance Committee is responsible for discharging our Board of Directors’ responsibilities relating to the corporate governance of our organization. Among other things, the Nominating and Governance Committee has responsibility for:

 

 

Directors Loan Committee (“DLC”). The DLC is a Bank committee and is responsible for overseeing the Bank’s credit and lending strategies and objectives as well as approving loans over the credit authority of executive officers. Our DLC currently consists of four non-executive directors.

 

Community Reinvestment Act Committee (“CRA Committee”). The CRA Committee is a Bank committee and is responsible for setting CRA strategies and monitoring the Bank’s CRA compliance. Our CRA Committee currently consists of four non-executive directors, one executive director, David R. Morris our President and Chief Executive Officer, and seven non-directors, Ashley Chang, our Branch Administrator, Tsu Te Huang, our Branch Administrator/Director of Prestige Banking, Vincent Liu, our Chief Risk Officer, Alex Ko, our Chief Financial Officer, Jeffrey Yeh, our Chief Credit Officer, Gary Fan, our Chief Administrative Officer, and Mona Fontela, SVP/Director of Community Development.

 

Information Technology and Security Committee (“IT Committee”). The IT Committee is a Bank committee and is responsible for IT strategies and reviewing IT infrastructure, security, business continuity planning and vendor management. Our IT Committee currently consists of six non-executive directors; one executive director, David R. Morris, our President and Chief Executive Officer; and six non-directors, Vincent Liu, our Chief Risk Officer, Alex Ko, our Chief Financial Officer, Jeffrey Yeh, our Chief Credit Officer, Gary Fan, our Chief Administrative Officer, Ashley Chang, our Branch Administrator, Tsu Te Huang, our Branch Administrator/Director of Prestige Banking, and two non-voting officers, Erik Grier, our Chief Information Officer and Ed Morales, Chief Information Security Officer.

 

 

Asset/Liability Committee (“ALCO”). The ALCO is a Bank committee and has responsibility for, among other things, investment and interest rate sensitivity strategy, monitoring the maturities and overall mix of the Company’s portfolio and monitoring the Bank’s interest rate sensitive assets and liabilities. Our ALCO currently consists of four non-executive directors, one voting executive director, David R. Morris, our President and Chief Executive Officer, one voting non-director, Alex Ko, our Chief Financial Officer; and five non-voting non-directors, Jeffrey Yeh, our Chief Credit Officer, Ashley Chang, our Branch Administrator, Tsu Te Huang, our Branch Administrator/Director of Prestige Banking, Vincent Liu, our Chief Risk Officer, and Gary Fan, our Chief Administrative Officer.

 

 

Pursuant to Section 16(a) of the Exchange Act and the related rules and regulations, our directors and executive officers and any beneficial owners of more than 10% of any registered class of our equity securities, are required to file reports of their ownership, and any changes in that ownership, with the SEC. Based solely on our review of copies of these reports and on written representations from such reporting persons, we believe that during 2022, all such persons filed ownership reports and reported all transactions on a timely basis, except for a Form 4 that was not timely filed for each of the following directors and executive officers: Peter Chang, Wendell Chen, Christina Kao, Dr. James W. Kao, Christopher Koo, Alfonso Lau, Christopher Lin, Richard Lin, Ko-Yen Lin, Paul Lin, Catherine Thian, Alan Thian, Raymond Yu, Ashley Chang, Tsu Te Huang, Vincent Liu, David R. Morris, Tammy Song, and Jeffrey Yeh.

 

ITEM 11.  EXECUTIVE COMPENSATION

 

 

The following table sets forth compensation paid or awarded to, or earned by, each of our non-employee directors during 2022.

 

 

 

Non-employee directors receive an annual cash retainer paid in January of $60,000 plus 1,000 RSUs. Originally the RSUs were granted with a vesting period of two equal annual installments. On July 20, 2022, the Board of Directors amended the RSU vesting schedule to vest 50% immediately and 50% at the first anniversary of the date of grant.  Non-employee directors who join the Board during the year receive the annual cash retainer pro-rated for the portion of the year that they serve.

 

In addition, as compensation for attending the Company’s Board meetings, each non-employee director received $1,500 per meeting attended in person and $750 per meeting attended by telephone. The Chairman of the Board received $2,500 per meeting attended in person, and $1,250 per meeting attended by telephone.  Each non-employee director also received $300 per Board committee meeting attended, and $200 by telephone.  In addition, the chairs of the Audit Committee, ALCO, Information Technology Committee, CRA Committee, Compensation Committee, Nominating and Governance Committee and DLC received an additional fee of $200 per meeting attended.  Starting in January 2022, the Chairman of the Board, Chair of the Audit Committee and all other chairpersons receive 100, 100 and 50 RSUs, respectively, which vested on July 20, 2022.  During the COVID-19 pandemic in 2021 and 2022, directors have been allowed to attend board and committee meetings telephonically with full compensation.

 

The Compensation Committee periodically engages its independent compensation consultant to review director compensation using the same peer group used to benchmark executive compensation. The Compensation Committee independently retained Pearl Meyer & Partners, LLC (“Pearl Meyer”) in 2022 to review the compensation of the Company’s non-employee directors and determined that average non-employee director pay was below the average of the peer group’s non-employee director pay.

 

 

 

 

This Compensation Discussion and Analysis (“CD&A”) reviews the objectives and elements of our executive compensation program and discusses the 2022 compensation earned by our named executive officers (“NEOs”) listed below. It also explains the actions the Compensation Committee took to help ensure that the executive compensation program is aligned with shareholder interests and our business strategy.

 

 

 

 

 

As disclosed in early 2022, Mr. Thian resigned from his role as President and Chief Executive Officer of both the Company and the Bank. At that time, the Company's and the Bank's Boards of Directors appointed David R. Morris as Interim President and Chief Executive Officer. Mr. Morris also continued in his role as Chief Financial Officer during this transition period. Then, after an extensive search process, the Company's and the Bank's Boards of Directors appointed David R. Morris to President and Chief Executive Officer of both the Company and the Bank, effective October 24, 2022. Mr. Morris also joined the Company’s and the Bank's Board of Directors and continued in his role as Chief Financial Officer through February 28, 2023.

 

On March 1, 2023, the Company announced the appointment of Alex Ko as Executive Vice President and Chief Financial Officer of the Company and the Bank effective March 1, 2023. Mr. Ko entered into an employment agreement with the Company and the Bank, effective as of March 22, 2023, with a term of three years, with an automatic renewal for successive one-year periods unless either party provides written notice of nonrenewal at least three months prior to the extension date. The employment agreement provides for an annual salary of $367,200, subject to periodic adjustment by our Board, stock options, discretionary bonus, automobile allowance, expense reimbursement and medical insurance coverage, salary continuation and other benefit plans. The employment agreement provides that if Mr. Ko is terminated without cause, Mr. Ko will be entitled to receive a severance payment in the amount of six (6) months of his then current salary. Following a change of control, if Mr. Ko’s employment is terminated by us or our successor, without cause, or Mr. Ko’s employment is materially adversely altered, Mr. Ko will be entitled to receive a severance payment in the amount of twelve (12) months of his then current salary. In 2023, in connection with the appointment of Alex Ko as Executive Vice President and Chief Financial Officer of the Company and the Bank, effective March 1, 2023, the Compensation Committee granted Mr. Ko 30,000 stock options on March 1, 2023 at an exercise price of $19.87. These stock options vest ratably over a five year term.

 

On December 5, 2022, the Company announced the appointment of Gary Fan as Executive Vice President and Chief Administrative Officer of the Company and the Bank effective December 5, 2022. Mr. Fan entered into an employment agreement with the Company and the Bank, effective as of March 22, 2023, with a term of three years, and automatic renewal for successive one-year periods unless either party provides written notice of nonrenewal at least three months prior to the extension date. The employment agreement provides for an annual salary of $325,000, subject to periodic adjustment by our Board, stock options, discretionary bonus, automobile allowance, expense reimbursement and medical insurance coverage, salary continuation and other benefit plans. The employment agreement provides that if Mr. Fan is terminated without cause, Mr. Fan will be entitled to receive a severance payment in the amount of six (6) months of his then current salary. Following a change of control, if Mr. Fan’s employment is terminated by us or our successor, without cause, or Mr. Fan’s employment is materially adversely altered, Mr. Fan would will be entitled receive a severance payment in the amount of twelve (12) months of his then current salary. In 2023, in connection with the appointment of Gary Fan as Executive Vice President and Chief Administrative Officer of the Company and the Bank, effective December 5, 2022, the Compensation Committee granted Mr. Fan 30,000 stock options on December 21, 2022 at an exercise price of $21.17. These stock options vest ratably over a five year term.

 

 

The result of our non-binding advisory vote to approve our executive compensation (“say-on-pay”) at the 2022 annual meeting of shareholders yielded approximately 51% support for our executive compensation program. Our Compensation Committee values feedback from our shareholders and given this low level of support, the Compensation Committee has been highly focused on better understanding the concerns and perspectives of our shareholders and their voting decisions.

 

We regularly meet with our shareholders to discuss business topics, seek feedback on our performance, and address other matters, such as executive compensation. We attend all of our market makers investor conferences to meet with institutional investors and we meet with local investors at least annually and through investor functions.

 

Through these exchanges, we gained greater appreciation for our shareholders’ views on compensation philosophies, annual and long-term incentive designs, performance metrics and governance. We reviewed the feedback with senior management, the Compensation Committee, and the entire Board. As part of this process, the Compensation Committee also retained Pearl Meyer, a leading independent compensation consulting firm, to gain further insight on current pay practices to ensure that our approach going forward effectively balances competitive market practices, stockholder expectations, best-practice governance standards and our business strategy.

 

 

What We Heard and What We Did. As a result of our outreach efforts, the Compensation Committee made the following changes to the program that more closely align with market best practices and shareholder feedback:

 

 

As the Company’s executive compensation program continues to evolve, we will continue our shareholder engagement efforts and facilitate open and ongoing dialogues with key stakeholders to help ensure that we have a regular pulse on investor perspectives. In the future, we will also continue to consider the feedback we receive from our major shareholders as well as the outcome of say-on-pay votes when making compensation decisions regarding our NEOs.

 

 

Our executive compensation program includes the following practices and policies, which promote sound compensation governance and are in the best interests of our shareholders:

 

 

As the Bank’s executive compensation program continues to evolve, we will continue our shareholder engagement efforts and facilitate open and ongoing dialogues with key stakeholders to help ensure that we have a regular pulse on investor perspectives. In the future, we will also continue to consider the feedback we receive from our major shareholders as well as the outcome of say-on-pay votes when making compensation decisions regarding our NEOs.

 

 

 

Our executive compensation philosophy is to forge critical connections between performance, long-term value creation, employee engagement and retention, compensation governance and our cultural values.  To that end, our executive compensation program is grounded in the following principles:

 

 

 

We compensate our NEOs primarily through a combination of base salary and annual incentives, using a mix of fixed and variable pay, with an emphasis on variable pay. The program is structured to create a meaningful balance between achieving strong short-term annual results while ensuring long-term viability and success. Therefore, the mix of incentives is reviewed and determined regularly by the Compensation Committee based on the short- and long-term objectives of the business

 

 

Our Compensation Committee believes the executive compensation packages that we provide to our executives, including the NEOs, should include both cash and equity compensation that reward performance as measured against established corporate goals. Each element of compensation is designed to achieve a specific purpose and to contribute to a total package that is competitive with similar packages provided by other institutions that compete for the services of individuals like our NEOs.

 

 

The Compensation Committee also has the ability to grant other types of equity awards, on a periodic basis and under certain circumstances, such as new-hire and promotional grants (issued pursuant to our Amended and Restated 2017 Omnibus Stock Incentive Plan (the “2017 Plan” or “OSIP”). The Compensation Committee approved an equity award to Alan Thian, our former President and Chief Executive Officer, of 14,037 RSUs and Mr. Thian also received 1,000 shares of restricted stock as a member of the Board of Directors on January 19, 2022.  The Compensation Committee did not grant any additional equity incentive awards, other than the awards issued under the Executive and Employee Bonus Policy previously mentioned, to any of the NEOs in 2022

 

 

Role of the Compensation Committee. Our Compensation Committee is a standing committee appointed by our Board of Directors to oversee our compensation and employee benefit plans and practices, including our executive compensation plans and our incentive- compensation and equity-based plans. The Compensation Committee is comprised of independent, non-employee members of the Board. The Compensation Committee works closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year.  Details of the Compensation Committee’s authority and responsibilities are specified in the Compensation Committee’s charter, which is available on our website at www.royalbusinessbankusa.com under the “Investor Relations” tab. The Compensation Committee makes all final compensation and equity award decisions regarding our NEOs, except for the CEO, whose compensation is determined by the independent members of the full Board, based upon recommendations of the Compensation Committee. Please also see additional discussion on our Compensation Committee set forth above under “Committees of the Board – Compensation Committee.”

 

Role of Management. The President and CEO attends regular meetings where executive compensation, Company and individual performance, and competitive compensation levels and practices are discussed and evaluated. Only the Compensation Committee members can vote on decisions regarding NEO compensation. The CEO reviews the Compensation Committee’s recommendations pertaining to other executives (non-NEO) pay with the Compensation Committee providing transparency and oversight. Decisions on non-NEO pay are made by the CEO. The CEO does not participate in the deliberations of the Compensation Committee regarding his own compensation. Independent members of the Board make all final determinations regarding CEO compensation.

 

Role of the Compensation Consultant. From time to time, our Compensation Committee seeks advice from outside experts in the executive compensation field to provide input on both director compensation and executive compensation issues. In 2022, the Compensation Committee engaged Pearl Meyer for general assistance in executive compensation matters. In accordance with the rules of the Nasdaq Stock Market, the Compensation Committee took appropriate actions to consider the independence of Pearl Meyer.

 

The Role of Benchmarking and Peer Groups. For 2022, the Compensation Committee compared our executive compensation program to a group of companies that are comparable in terms of industry, size and geography. The overall purpose of this peer group is to provide a market frame of reference for evaluating our compensation arrangements (current or proposed) and performance results, understanding compensation trends among comparable companies, and reviewing other compensation and governance-related topics that may arise during the year to ensure that the features of the Company’s executive compensation program are appropriately aligned with market-best practices. The 2022 and current peer group is as follows: 

 

 

In developing the peer group, the Compensation Committee selected companies that were, on balance, of similar size and scope as the Company (assets between $2 billion and $8 billion, and market capitalization between $200 million and $1.1 billion as compared to the Company’s then current assets and market capitalization of $3.7 billion and $474 million, respectively), operate in similar geographic areas, and compete with the Company for business and talent. It is important to note that the Compensation Committee does not rely exclusively on comparative data from the peer group when setting compensation for our NEOs. While peer group information can help identify general trends in executive compensation practices and overall executive compensation, the Compensation Committee recognizes there can be meaningful differences between the Company and its peer group members. In addition to peer group data, the Compensation Committee also reviews compensation information from direct market share competitors and considers many other factors such as individual and company performance, position and associated responsibilities, retention and stability of the executive management team, tenure, and succession considerations.

 

 

The Compensation Committee subsequently retained Pearl Meyer in 2022 to review the compensation of the Company’s current NEOs against the peer group and survey information of similarly sized financial institutions.  Pearl Meyer concluded that, in aggregate, the Company’s targeted Total Direct Compensation (salary, annual incentives and long-term incentives) for the NEOs was below the market median.  The Chief Executive Officer’s targeted Total Direct Compensation was also below the market median.

 

 

 

Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain executive leadership talent. The Compensation Committee reviews and approves base salaries of our NEOs and establishes the compensation of our CEO. In approving the base salary of each NEO, the Compensation Committee considers the CEO’s recommendations, as well as each NEO’s position and level of responsibility within the Company. The Compensation Committee also considers factors such as competitive market data as well as individual performance, experience, tenure, internal equity, and employee potential.

 

In January 2022, the Compensation Committee approved increases to base salaries to recognize and reflect changes in roles and responsibilities, including Mr. Morris’ promotion to President, Chief Executive Officer and Chief Financial Officer and Mr. Huang’s promotion to Executive Vice President and Branch Administrator/Director of Prestige Banking, as well as to better align the NEOs’ salaries with the market median. The former Chief Executive Officer's base salary was unchanged from 2021 to 2022.

 

 

 

 

The Executive and Employee Bonus Policy provided our NEOs the opportunity to earn a performance-based annual bonus, 75% of which is paid in cash and 25% of which is paid in RSUs that vest in three equal installments on each anniversary of the grant date. Actual payouts depend on the achievement of pre-determined financial performance objectives and for the CEO can range from 0% to 150% of target award amounts, and for the other NEOs can range between 0% to 154%. Annual cash incentives reward both the achievement of short-term financial goals, as well as the execution of activities to advance our strategic priorities. Target annual bonus opportunities are expressed as a percentage of base salary and were established by the NEO’s level of responsibility and their ability to impact overall results. The Compensation Committee also considers market data in setting target award amounts. Target award opportunities for 2022 were as follows:

 

 

 

Performance Goals, Measures, and Scorecard Results. The financial portion of an NEO’s annual incentive award (80% of the overall award) is tied to the achievement of certain financial and/or operational metrics and goals. Each NEO’s actual incentive award also depends on individual performance (20% of the overall award), which is assessed in consultation with the CEO and reviewed with the Compensation Committee. Actual awards earned are determined using individual scorecards, of which an overall score is calculated by summing the weighted scores achieved for each of the performance measures. The actual award earned is determined by multiplying the overall score times the executive’s target bonus amount. Amounts paid are subject to our Clawback Policy. The Compensation Committee also reserves the right to adjust individual performance downward any award payments proposed for a NEO. The individual performance goals for 2022 were determined in April 2022 to address certain areas that the Board of Directors felt needed improvement or for substantial projects that the NEO may manage.  The following chart is a list of the criteria used to determine the individual goals:

 

 

 

 

 

 

 

 

 

Alan Thian, former President and Chief Executive Officer, was not subject to the 2022 annual incentive targets or goals.

 

Payouts under Executive and Employee Bonus Plan. Based on the above performance results, the following table lists the actual awards earned by the NEOs for 2022 performance results and paid in 2023:

 

 

 

 

 

The Compensation Committee has the ability to grant periodic equity awards, such as new-hire and promotional grants issued pursuant to the 2017 Plan. These awards are typically designed to support the Company’s stockholder value creation and leadership talent retention goals. These periodic awards may be special inducement equity awards upon hire or upon renegotiation of the employee’s contract, or as retention awards after review of the executive’s outstanding and unvested equity.  The Compensation Committee approved an equity award to Alan Thian, our former President and Chief Executive Officer, of 14,037 RSUs and Mr. Thian also received 1,000 shares of restricted stock as a member of the Board of Directors on January 19, 2022.  The Compensation Committee did not grant any additional equity incentive awards, other than the awards issued under the Executive and Employee Bonus Policy, to any of the NEOs in 2022. In December 2022 and March 2023, the Compensation Committee granted options to Messrs. Fan and Ko in connection with their appointments as executive officers. See the section entitled “Leadership Transitions.”

 

 

 

As part of our ongoing efforts to maintain the highest levels of good governance, we have adopted a policy which applies to all individuals who are or were Section 16 executive officers at the time they received certain incentive compensation (including cash bonuses and equity based on financial performance) from the Company. The policy provides that in the event of unsafe and unsound banking practices, defaulted or repurchased loans, violations of the Company's Bylaws, policies or procedures, the Compensation Committee may require that all incentive-based compensation received by the executive officer be reduced by an amount that is not more than 100% of the most recent annual bonus, commission and severance payments.

 

 

Our Insider Trading Policy prohibits our executive officers, directors, employees and major stockholders from pledging or engaging in hedging or similar transactions in our securities, including but not limited to prepaid variable forwards, equity swaps, collars, exchange funds, puts, calls and short sales.

 

 

The NEOs are eligible to participate in the same benefit plans designed for all of our full-time employees, including health, dental, vision, disability and basic group life insurance coverage. We also provide our employees, including our NEOs, with various retirement benefits. Our retirement plans are designed to assist our employees in planning for retirement and securing appropriate levels of income during retirement. The purpose of our retirement plans is to attract and retain quality employees, including executives, by offering benefit plans similar to those typically offered by our competitors.

 

Royal Business Bank 401(k) Profit Sharing Plan. The Royal Business Bank 401(k) Profit Sharing Plan (the “401(k) Plan”), is designed to provide retirement benefits to all eligible full-time and part-time employees of the Bank and its subsidiaries. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax-favored basis. NEOs, all of whom were eligible during 2022, may elect to participate in the 401(k) Plan on the same basis as all other employees. Employees may defer 1% to 100% of their compensation to the 401(k) Plan up to the applicable IRS limit. We currently match employee contributions on the first 6% of employee compensation (50 cents for each $1). The Company match is contributed in the form of cash and is invested according to the employee’s current investment allocation. No discretionary profit sharing contribution was made to the 401(k) Plan for 2022.

 

Bank Owned Life Insurance (“BOLI”) Policies. In 2012, the Bank purchased single premium BOLI policies for certain officers and directors of the Bank to provide additional life insurance benefits to the directors and officers and to use the income from the BOLI policies to offset benefit expenses. Further, the Bank benefits from any future death benefits paid out under these BOLI policies. The Bank entered into split dollar arrangements with all executive and senior officers and directors that were under the age of 70 to pay their beneficiaries a death benefit. The amount of the split dollar arrangement for executive officers was equal to five times the executive’s annual salary in 2012, three times the senior officer’s annual salary and $250,000 per director. In January 2017 and June 2021, the Bank purchased additional BOLI policies to increase the benefit to the executive and senior officers to December 31, 2016 salary levels and to add new officers that have joined the Bank since 2012. The directors also received an additional $150,000 in benefit. If the officer or director retires or is terminated, the split dollar arrangement terminates except in the case of change in control of the Company. The quantitative elements of the split dollar arrangement for our NEOs are provided in the Summary Compensation Table.

 

Health and Welfare Benefits. Our NEOs are eligible to participate in our standard health and welfare benefits program, which offers medical, dental, vision, life, accident, and disability coverage to all of our eligible employees. We do not provide the NEOs with any health and welfare benefits that are not generally available to our other employees, except for Mr. Morris who is entitled to an annual medical examination.

 

Perquisites. We provide our NEOs with certain perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to the NEOs. Based on this periodic review, perquisites are awarded or adjusted on an individual basis. The perquisites received by our NEOs in 2022 included the use of a Bank-owned or leased automobile, housing allowances, club fees and other personal benefits.

 

 

We have entered into employment agreements with Messrs. Morris, Liu, and Yeh, which generally describe the position and duties of each of these named executive officers, provide for a specified term of employment, describe base salary, bonus opportunity and other benefits and perquisites to which such NEO is entitled, if any, set forth the duties and obligations of each party in the event of a termination of employment prior to expiration of the employment term and provide us with a measure of protection by obligating these NEO to abide by the terms of restrictive covenants during the terms of their employment and thereafter for a specified period of time.

 

 

Mr. Morris. Our employment agreement with Mr. David R. Morris, dated as of April 12, 2017, as amended, provides for a term of three years, with an automatic renewal for successive one-year periods unless either party provides written notice of nonrenewal at least three months prior to the extension date. The agreement provides for an annual salary, subject to periodic adjustment by our Board, stock options, discretionary bonus, reimbursement of automobile expenses, expense reimbursement and medical insurance coverage, salary continuation and other benefit plans. If Mr. Morris is terminated without cause, Mr. Morris would receive a severance payment in the amount of twelve (12) months of his then current salary. Following a change of control, if Mr. Morris’ employment is terminated by us or our successor, without cause, or Mr. Morris’ employment is materially adversely altered, Mr. Morris would receive a severance payment in the amount of eighteen (18) months of his then current salary.

 

Mr. Liu. Our employment agreement with Mr. Vincent Liu, dated as of April 12, 2017, as amended, provides for a term of three years, with an automatic renewal for successive one-year periods unless either party provides written notice of nonrenewal at least three months prior to the extension date. The agreement provides for an annual salary, subject to periodic adjustment by our Board, stock options, discretionary bonus, reimbursement of automobile expenses, expense reimbursement and medical insurance coverage, salary continuation and other benefit plans. If Mr. Liu is terminated without cause, Mr. Liu would receive a severance payment in the amount of twelve (12) months of his then current salary. Following a change of control, if Mr. Liu’s employment is terminated by us or our successor, without cause, or Mr. Liu's employment is materially adversely altered, Mr. Liu would receive a severance payment in the amount of twelve (12) months of his then current salary.

 

Mr. Yeh.  Our employment agreement with Mr. Jeffrey Yeh, dated as of April 12, 2017, as amended, provides for a term of three years, with an automatic renewal for successive one-year periods unless either party provides written notice of nonrenewal at least three months prior to the extension date. The agreement provides for an annual salary of $184,788, subject to periodic adjustment by our Board, stock options, discretionary bonus, reimbursement of automobile expenses, expense reimbursement and medical insurance coverage, salary continuation and other benefit plans. If Mr. Yeh is terminated without cause, Mr. Yeh would receive a severance payment in the amount of twelve (12) months of his then current salary. Following a change of control, if Mr. Yeh’s employment is terminated by us or our successor, without cause, or Mr. Yeh's employment is materially adversely altered, Mr. Yeh would receive a severance payment in the amount of twelve (12) months of his then current salary.

 

Separation Agreement

 

Mr. Thian. The Company and Mr. Alan Thian entered into an Executive Separation and Release Agreement (the “Separation Agreement”) effective April 8, 2022 (the “Separation Date”) pursuant to which Mr. Thian resigned from all roles and positions held with the Company, the Bank and their respective Boards of Directors. Under the terms of the Separation Agreement, Mr. Thian was entitled to receive a separation payment totaling $540,000, paid semi-monthly over six (6) months, the cost of COBRA continuation coverage for all health plans and programs for twelve (12) months and reimbursement for all reasonable employment related expenses incurred prior to the Separation Date. The Separation Agreement also required Mr. Thian to forfeit any and all shares of restricted stock and RSUs that were not vested as of the Separation Date, of which Mr. Thian had 40,000 shares of unvested restricted stock and 15,037 RSUs and Mr. Thian also agreed to a release of claims, cooperate with a smooth transition, which included assisting with customer retention and cooperating with any investigation in the future. The Company and Mr. Thian agreed to certain confidentiality and non-disparagement provisions.

 

 

The Compensation Committee annually reviews and considers the deductibility of the compensation paid to our executive officers, which includes each of the NEOs. However, the Compensation Committee believes that its primary responsibility is to provide a compensation program that attracts, retains and rewards the executive talent necessary for our success. Consequently, the Compensation Committee may pay or provide, and has paid or provided, compensation that is not tax deductible or is otherwise limited as to tax deductibility.

 

 

The Compensation Committee reviewed the Bank’s compensation policies and practices for our NEOs, as well as the incentive plans for other employees and determined that our incentive compensation programs are not reasonably likely to have a material adverse effect on the Company. To conduct this review, the Company evaluated its practices and policies including: the balanced mix between pay elements, short and long-term programs, Compensation Committee control over the establishment, review and approval goals, use of multiple performance measures, Compensation Committee discretion on individual awards, and Compensation Committee oversight of compensation programs.

 

The Compensation Committee also evaluated whether the proposed goals or the structure of the awards might have the inadvertent effect of encouraging excessive risk or other undesirable behavior. The Compensation Committee believes that its risk management framework supports risk management in the Company’s incentive arrangements, and that the risks arising from its compensation policies and practices are not likely to have a material adverse effect on the Company and the Bank.

 

 

Christina Kao, Wendell Chen, Christopher Lin, and Richard Lin served as members of our Compensation Committee in 2022. In 2022, we revised our committee structure and created a standalone Compensation Committee. No member of the Compensation Committee is or has been one of our officers or employees. In addition, none of our executive officers serves or has served as a member of the 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 on our Compensation Committee.

 

 

 

The Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Amendment as required by Item 402 of Regulation S-K promulgated under the Exchange Act and, based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment.     

 

Respectfully submitted by the members of the Compensation Committee:

 

Christina Kao (Chair)

Wendell Chen

Richard Lin

Christopher Lin, Ph D.

 

 

 

The following table sets forth information regarding the compensation paid, awarded to, or earned for the fiscal years ended December 31, 2022, 2021 and 2020, for each of the Company’s Named Executive Officers.

 

 

 

 

 

 

 

The following table shows for the fiscal year ended December 31, 2022 certain information regarding grants of plan-based awards for our NEOs.

 

 

 

 

 

The following table provides information for each of our named executive officers regarding outstanding stock options held by the officers as of December 31, 2022. Market values are presented as of the end of 2022 (based on the assumed per share fair market value of our common stock on December 31, 2022) for outstanding stock awards, which include 2022 grants and prior-year grants.

 

 

 

Option Exercises and Stock Vested Table

 

The following table shows for the fiscal year ended December 31, 2022 certain information regarding option exercises and stock vested for our NEOs.

 

 

 

 

As of December 31, 2021 and 2022, the Company did not offer pension benefits or nonqualified deferred compensation to our NEOs.

 

 

The following presents information concerning estimated payments and benefits that would be provided in certain circumstances for each of the NEOs serving as of the end of the fiscal year ending December 31, 2022. Unless otherwise stated, the payments and benefits set forth below are estimated assuming that the termination of employment or change in control event occurred on the last business day of our fiscal year ending December 31, 2022 using the closing market price per share of our common stock on that date. Actual payments and benefits could be different if such events were to occur on any other date or at any other price or if any other assumptions are used to estimate potential payments and benefits.

 

 

We have entered into certain agreements with each of our NEOs that provide our NEOs with severance protections. The employment agreements provide that the NEOs will be eligible for severance benefits in certain circumstances following a termination of employment without cause, whether or not in connection with a change in control.

 

Under the employment agreements, if the executive’s employment is terminated upon the occurrence of a “change in control,” or by the executive for “good reason follow a change in control” (each, as defined in the employment agreement) then the executive will be entitled to receive the following severance payments and benefits:

 

 

In addition, if an executive with an employment agreement is terminated, regardless of a change in control, by the Company or Bank without “cause,” then the executive will be entitled to receive continued payment of base salary for one year.

 

The severance payments and benefits described above are subject to the executive’s execution and non-revocation of a general release of claims in favor of the Company and the Bank and continued compliance with customary confidentiality and non-solicitation requirements.

 

 

The following tables reflect the value of termination payments that each of Messrs. Morris, Liu, Yeh and Huang, who were the NEOs serving at December 31, 2022, would receive under their employment agreements or other employment arrangements, if they had terminated employment on December 31, 2022 under the circumstances shown. The tables do not include accrued salary and benefits, or certain amounts that the executive would be entitled to receive under plans or arrangements that do not discriminate in scope, terms, or operation, in favor of our executive officers and that are generally available to all salaried employees. Due to Mr. Thian’s resignation in April 2022, information with respect to him has not been included in the below tables. For additional information, please see the section above entitled “Separation Agreement.”