Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. WASHINGTON BANKING CO (1058690) 10-K published on Mar 14, 2014 at 3:07 pm
Reporting Period: Dec 30, 2013
Compensation Programs and 2013 Compensation Decisions. For 2013, WBCO’s compensation program included competitive salaries and benefits and also opportunities for employee ownership of WBCO common stock through a stock incentive plan. In October 2011, the Company worked with Matthews, Young - Management Consulting to complete a report of compensation data of regional bank holding companies with total assets between $1.3 billion and $3.1 billion (AmericanWest Bancorp, BOFI Holding Inc, Cascade Bancorp, Cascade Financial Corp, Center Financial Corp, Cobiz Financial Inc., Farmers & Merchants Bancorp, First California Financial Group, First Financial Northwest, First Regional Bancorp, Guaranty Bancorp, Hanmi Financial Corp, Heritage Commerce Corp, Horizon Financial, PremierWest Bancorp, Provident Financial, Sierra Bancorp, Temecula Valley Bancorp, Trico Bancshares, United Western Bancorp and West Coast Bancorp) and, because of the number of regional bank holding companies that were not profitable, a report of compensation data of profitable bank holding companies with assets between $1.3 billion and $2.5 billion that were not limited to the western region of the United States (Alliance Financial, Camden National Corp, Canandaigua Financial Corp, Cardinal Financial Corp, Enterprise Bancorp, ESB Financial Corp, Farmers & Merchants Bancorp, First Financial Corp, First Long Island Corp, Hills Bancorporation, Horizon Bancorp, Merchants Bancshares, NASB Financial Inc, Northfield Bancorp Inc, Oceanfirst Financial Corp, Rockville Financial Inc, S Y Bancorp Inc, Sierra Bancorp and Trico Bancshares). In preparation for the 2013 compensation period, the consultant was contacted regarding the continuing relevance of the data. The consultant determined that there had not been sufficient change in market data to warrant a new study and data from the October 2011 review remained applicable.
Base Salary and Bonus. Salary levels of executive officers are designed to be competitive within the banking industry. In setting competitive salary ranges, the Compensation Committee works with management to periodically evaluate current salary levels of other financial institutions with size, lines of business, geographic locations and market place position similar to WBCO’s based on the peer data and industry surveys described above. The Compensation Committee does not use a targeted benchmark, or other formula, to establish salaries. The Chief Executive Officer provides recommendations for the base salaries of the Company’s other Named Executives. The Compensation Committee reviews and approves or disapproves such recommendations. Salary levels are typically considered annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. Merit-based increases to salaries are based on the Compensation Committee’s assessment of the individual’s performance. From time to time, the Company considers discretionary cash bonuses unrelated to incentive plans and paid such a bonus to employees in December 2013 based on individual and Company performance. Bonuses for the Named Executives were paid at 10% of base salary, with the exception of Mr. Kuenzi who received a higher cash bonus to recognize his contributions. Further, at the time, Mr. Kuenzi was not scheduled to receive an equity grant that was awarded to the other executives in January 2014. Bonuses are reflected on the Summary Compensation Table later in this proxy statement.
Messrs. Bowen, Kuenzi and Shields are eligible for certain payments and benefits under their respective employment agreements if the executive officer’s employment is terminated without cause or the executive officer terminates employment for good reason. The termination benefits under the employment agreements are calculated based on an amount equal to two times the executive officer’s highest annual base salary over the prior three years, plus an amount equal to two times the greater of the annual bonus last paid to the executive under the employment or two times the average bonus paid over the prior three years. Payment of the benefits commences on the 60th day following the executive officer’s termination of employment, provided that the executive officer has executed a release of claims, and continues with regular equal payments on the employer’s payroll schedule until two years after termination of employment. In addition, the employment agreements provide that, following termination of employment by Washington Banking without cause or by the executive for good reason, the executive officer is entitled to health and dental insurance benefits until such time that the executive officer becomes eligible for comparable group insurance coverage in connection with new employment for a maximum period of 18 months except that, with respect to Mr. Bowen, such benefits are not payable for a termination of employment within two years following a change in control. The employment agreements contain a covenant not to compete with Washington Banking’s business for a period of 18 months (or 12 months in the event of a termination within 12 months following a change in control, which the proposed merger with Heritage Financial Corporation constitutes for purposes of the agreements) following employment termination, and not to solicit Washington Banking’s employees or customers for a period of 18 months following employment termination. Each of the agreements provides for reduction of the executive officer’s payments and benefits to the maximum amount that does not trigger the Internal Revenue Code Section 280G excise tax unless the executive would be better off (on an after-tax basis) receiving all payments and benefits due and paying all excise and income taxes.
The agreements for all six executives annually renew, with automatic extensions of one year unless written notice of nonrenewal is provided by either party.
The Company and the Bank are each party to a Salary Continuation Plan with Mr. Wagner dated December 10, 2010 (we refer to these collectively as the “SCPs” and individually as the “Bank SCP” and the “Company SCP”). The SCPs provide for a fixed schedule of retirement benefits to be paid to Mr. Wagner. Benefits under the Bank SCP commenced on August 24, 2012, when Mr. Wagner reached age 69. Benefits under the Company SCP commence upon his retirement on or after August 24, 2015, when Mr. Wagner reaches age 72. The Bank SCP normal retirement benefit was an initial lump sum payment of $100,000 plus $50,000 per year for five years from age 69, and the Company SCP normal retirement benefit provides an additional $25,000 per year for five years from age 72. If Mr. Wagner terminates employment prior to age 72 and prior to a change in control, the Company SCP generally provides for a lump sum payment of the vested, GAAP-accrued amount under the Company SCP, in addition to the normal retirement payments under the Bank SCP. For a termination following a change in control (which the proposed merger with Heritage Financial Corporation constitutes for purposes of the SCPs), the Company SCP provides for a lump sum payment of $125,000 and the Bank SCP provides for a lump sum payment of the vested, GAAP-accrued amount. If Mr. Wagner dies while receiving payments, his estate will receive the remainder of the scheduled payments under both the Bank SCP and the Company SCP. During 2013, Mr. Wagner received the $50,000 annual benefit from the Bank.
Related Party Transactions. During 2013, certain directors and executive officers of WBCO and the Bank, and their associates, were customers of the Bank, and it is anticipated that such individuals will be customers of the Bank in the future. Insider “related interests” are disclosed through annual questionnaires and reported in compliance with applicable federal and state laws, and banking regulations. Pursuant to written Company policies and procedures, insider transactions are promptly and fully disclosed to the Board by senior management in conjunction with the Bank’s compliance department. There is a formal review and approval process for loans extended by the Bank to related persons. WBCO does not extend credit to any officers or directors. However, many of our directors and officers, their immediate family members and affiliated businesses, borrow from and have deposits with the Bank. All transactions, including loans, between the Bank and its officers and directors, and their associates, were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unrelated persons. The aggregate outstanding amount of loans to directors and officers and their related parties was approximately $1.9 million on December 31, 2013, which represented approximately 1.04% of our consolidated shareholders’ equity at that date. Loans by the Bank to directors and designated executive officers are governed by Regulation O, 12 CFR Part 215. All of our Named Executives are designated as executive officers of the Bank under Regulation O.