UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

SCHEDULE 14A

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Proxy Statement2022

2021 Annual Meeting of Shareholders

Proxy Statement

March 30, 2021April 8, 2022

Dear Fellow Shareholders,

Velocity Financial, Inc.

Notice of Annual Meeting of Shareholders

		Date and Time May 19, 20212022 at 1:00 p.m.						Virtual Only     Connect by Internet or phonephone: www.virtualshareholdermeeting.com/VEL2022

This Proxy Statement is being furnished to our shareholders in connection with the solicitation of proxies by our Board of Directors for use at our 20212022 Annual Meeting of Shareholders.

Purpose of Meeting

We will also consider other matters that properly come before the meeting.

Shareholders should read Other Important Information for Our Shareholders beginning on page 3141 for additional information, including ways for you to vote prior to or during the meeting.information.

Whether you hold shares directly as a shareholder of record or beneficially in street name, you may vote your shares without virtually attending our Annual Meeting. Voting instructions are outlined in the Notice of Internet Availability of Proxy Materials and on your proxy card.

		Vote		If you are a shareholder of record		If you hold your shares in street name
		By Internet (24 hours a day):		proxyvote.com		proxyvote.com
		By Telephone (24 hours a day):		1-800-690-6903		1-800-454-8683
		By Mail:		Return a properly executed and dated proxy card in the provided pre-paid envelope		Return a properly executed and dated voting instruction form by mail, depending upon the method(s) your bank, brokerage firm, broker-dealer or other similar organization makes available

Table of Contents

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iii

Corporate GovernanceDirector Matters

Our Director Nominees

Biographies of Our Directors

As illustrateddescribed below, each of our directors was chosen because his or her background provides each director with the experience and skillset geared toward helping us succeed. Our directors bring to us strong executive operating experience, expertise in the real estate and financial services sectors, accounting and audit expertise and broad experience in other diversecomplementary sectors such as investment management and private equity, among others, and meaningful commitment to community and public service – knowledge and experiences that are ideally suited to oversee our management and act as fiduciaries for our shareholders.

Daniel J. Ballen has served as a member of our Board of Directors since December 2016. He has led numerous private equity investments in both the U.S. and Europe and currently serves as a board member on a wide range of both private and public companies in the financial services and technology sectors. Mr. Ballen brings significant private equity and investment experience to our Board of Directors. Since June 2014, Mr. Ballen has served as a Portfolio Manager and Executive Vice President at Pacific Investment Management Company LLC (one of our largest shareholders), where he helps lead the corporate private equity investment strategy for the firm’s alternative investment complex. Prior to joining Pacific Investment Management Company, Mr. Ballen was a member of the private equity investment teams at Pine Brook Partners from 2011 to April 2014 and at Bain Capital from 2007 to 2010, where he executed and managed private equity investments in the U.S. across a variety of sectors. Mr. Ballen started his career in the investment banking division of Bear, Stearns & Co., where he was a member of the U.S. financial institutions advisory team. Mr. Ballen is currently a director of Cardholder Management Services, Inc., Finance Ireland Ltd, Great Rock Capital Partners, LLC and Amur Equipment Finance, Inc. and was a director of FlexShopper, Inc. (NASDAQ: FPAY) from November 2016 to April 2019. Mr. Ballen received a bachelor’s degree from Emory University.

Dorika M. Beckett has served as a member of our Board of Directors since July 2020. Ms. Beckett brings to our board executive, entrepreneurial, investment, private equity, operational and philanthropic experience. For over a decade, Ms. Beckett has been Chief Executive Officer of both LW Staffing, a franchise of healthcare professional staffing company ATC Healthcare Services, and Livewell Home Care Inc., an elder care focused service provider with operations in California and North Carolina. Previously, Ms. Beckett served as partner of a private equity firm, director of operations and management consultant in various industries. She is also Chair of the Imani Baraka Foundation, a family non-profit foundation. Ms. Beckett received a Bachelor of Arts (A.B.) in Economics from Harvard College and a Master of Business Administration from the Harvard Business School.

Michael W. Chiao has served as a member of our Board of Directors since April 2021. Mr. Chiao brings to our board extensive investment experience, including direct experience in structured products. Mr. Chiao is a senior vice president and portfolio manager in the Newport Beach office of Pacific Investment Management Company LLC (PIMCO), focusing primarily on residential loan investments. Prior to joining PIMCO in 2017, he worked at Fortress Investment Group, focused on non-agency residential mortgage-backed securities and various structured products. Previously, Mr. Chiao spent three years at PIMCO as a portfolio management associate, and he began his career as an analyst in the whole loan trading and securitization group at Countrywide Capital Markets. He has 15 years of investment experience and holds an undergraduate degree from California State Polytechnic University, Pomona.

Christopher D. Farrar has served as our Chief Executive Officer and as a member of our Board of Directors since 2004. Mr. Farrar brings extensive operating experience and management skills to our Board of Directors. Mr. Farrar has an extensive background in finance, lending, raising capital and business operations – having co-founded us in June 2004. Prior to that time, Mr. Farrar served as a Vice President for Namco Capital Group, Inc., originating commercial real estate loans, and as Senior Vice President of United States Production at Weyerhaeuser Mortgage Company. Prior to his tenure at Weyerhaeuser,co-founding Velocity, Mr. Farrar formed and served as Chief Credit Officer for Worth Funding, a mortgage banking firm. Prior to that time, Mr. Farrar served as Senior Vice President of United States Production at Weyerhaeuser Mortgage Company and as a Vice President for Namco Capital Group, Inc., originating commercial real estate loans. Mr. Farrar is currently a director of Generosity.org, a non-profit working to bring global communities access to clean water, and a director of Agoura Aquatic Foundation, a non-profit providing opportunities for youth to participate in aquatic sports and adults and disabled to engage in aquatic training. Mr. Farrar received a Bachelor of Science in Business Administration from Pepperdine University and is a licensed (inactive) California Real Estate Broker.

John P. Pitstick has served as a member of our Board of Directors since January 2020. Mr. Pitstick has experience in accounting, taxes, capital markets, financial operations, internal controls and SEC reporting/compliance matters. Mr. Pitstick brings over 20 years of combined experience as an executive of publicly traded and privately held companies along with experience at a major accounting firm to our Board of Directors. Since September 2015, Mr. Pitstick has served as the Chief Financial Officer of privately held software company Seven Lakes Enterprises, Inc. Mr. Pitstick served as Executive Vice President from 2005 to 2007 and then as Chief Financial Officer from 2007 to 2015 of publicly traded Conversant, Inc. From 1995 to 2004, Mr. Pitstick worked for Ernst & Young LLP serving a broad range of clients in the technology, biotech and financial services industries, ultimately as a Senior Manager. Mr. Pitstick is a Certified Public Accountant (inactive) and received a Bachelor of Science in Accounting from the University of San Francisco.

John A. Pless has served as a member of our Board of Directors since 2007. Mr. Pless brings broad finance and corporate governance experience to our Board of Directors. Mr. Pless is a Managing Partner of TruArc Partners, LP, a successor business to Snow Phipps. Mr. Pless joined Snow Phipps at the inception of the firm in 2005 and became a Partner in 2012. He is also a Managing Partner of TruArc Partners, LP, a successor business to Snow Phipps. Prior to his tenure with Snow Phipps, Mr. Pless worked as a Vice President at Guggenheim Merchant Banking and served as Associate Director in the Financial Institutions Group at UBS Investment Bank, the investment banking arm of UBS AG, where he worked on a wide range of mergers and acquisitions and capital raising transactions for banks and specialty finance companies. Mr. Pless currently serves on the boards of Brook + Whittle LTD, BlackHawk Industrial Distribution, Inc., Cascade Corp, EnviroFinance Group, LLC, HCTec, Inc., Ideal-Tridon Holdings, Inc. and Prototek Holdings LLC. He is also a board member of Little Wings Foundation, a family foundation financially assisting other non-profits working on issues like education, children’s health, international outreach and terminal diseases. Mr. Pless received a Bachelor of Arts in Economics from Middlebury College.

Joy L. Schaefer has served as a member of our Board of Directors since January 2020.2020 and was elected as Lead Independent Director of our Board in February 2022. Ms. Schaefer brings to our Board of Directors a broad range of experience in a variety of asset classes including auto finance, residential mortgages, multi-family mortgages and home equity lending. Since August 2005, Ms. Schaefer has served as President of Golden Eagle Advisors, LLC, a consulting firm focused on organizational development and growth through strategic, operational and financial improvements. From 2005 until August 2018, Ms. Schaefer served as an operating partner of Snow Phipps. From 2002 until 2005, Ms. Schaefer served as President of JL Schaefer Consulting, a strategic, financial and operational consulting practice, advising privately held and family-owned businesses. In 2002, Ms. Schaefer served as President and Chief Operating Officer of Ameriquest Mortgage, a privately held mortgage banking company. From 1990 until 2002, Ms. Schaefer served in various senior management positions within the Westcorp family of companies, including as President and Chief Operating Officer of Westcorp, Inc., a publicly traded financial services holding company, Vice Chairman, Chief Executive Officer, President and Chief Operating Officer of WFS Financial, Inc., a publicly traded national automobile finance company and Chief Operating Officer, Senior Executive Vice President, Chief Financial Officer and Treasurer of Western Financial Bank, Inc. Earlier in her career, Ms. Schaefer was an audit manager for Ernst & Young. Ms. Schaefer currently serves on the board of directors of American Assets Trust, Inc. (NYSE: AAT). She is currently a director and the Treasurer of Young Presidents’ Organization—Organization - California Coast, a non-profit global leadership community of chief executives. Ms. Schaefer received a Bachelor of Science degree in Accounting from Illinois Wesleyan University.

Katherine L. Verner has served as a member of our Board of Directors since June 2021. With over 30 years of relevant business and investment experience, Ms. Verner brings to our Board vast knowledge of our industry. Verner is an executive vice president and portfolio manager in the Newport Beach office of Pacific Investment Management Company LLC (PIMCO), focused on asset management globally for PIMCO’s alternative business. She was previously a member of PIMCO’s executive office with responsibility for strategic initiatives, as well as a portfolio manager on the special situations team. Prior to joining PIMCO in 2014, she was a managing director of a startup NPL platform in Europe for Oaktree Capital; chief operating officer of two corporate finance companies, Goldman Sachs Specialty Lending Group and ORIX Finance and director of executive operations for Goldman’s international asset management platform. Ms. Verner has significant experience working on large complex transactions and platform startups in Europe and Asia, as well as in the U.S. Ms. Verner is currently a director of Comcar Industries (a transportation and logistics company, since 2016), First Guaranty Mortgage Corporation (since 2021) and was a director of Flexshopper, Inc. (a lease-to own financial technology company, from 2016 to 2018). She holds a master’s degree in real estate from the University of Denver. She received an undergraduate degree from Texas A&M in agricultural economics.

The Board’s Role and Responsibilities

Risk Oversight

Our Board of Directors has extensive involvement in the oversight of risk management related to us and our business and accomplishes financial risk oversight through the regular reporting by delegation to the Audit Committee. The Audit Committee represents the Board of Directors by periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the surveillance of administrative and financial controls and legal matters that could have a significant impact on our financial statements. Through its meetings with and receipt of reports from management, including the finance, legal and internal audit functions, the Audit Committee reviews and discusses significant areas of our business and summarizes for the Board of Directors financial risks and appropriate mitigating factors.

In addition, our Board of Directors communicates regularly with management on operating performance, strategic reviews, potential transactions, legal and compliance matters, corporate policies and procedures as well as other business matters.

Information Security Risk

Among other things, Management has been tasked by the Board of Directors with identifying and mitigating information security risks.

Management has implemented a security awareness training platform to continually train users on computer safety. Monthly simulated phishing campaigns are used to test and assign training to users. Bi-annual company-wide training is also assigned to ensure all employees are staying current on the latest security threats and how to stay protected.

We have implemented a defense-in-depth strategy to protect all users, network assets and digital information. Perimeter network traffic is controlled by next-generation firewalls that conduct ant-malware, anti-spyware, DNS security, content filtering and threat analysis services on ingress and egress traffic. Endpoints, including servers, workstations, and laptops, run anti-malware agents that monitor for threats in real-time, in addition to scheduled scans of local storage for dormant malicious files. Workstations and laptops run DLP agents that monitor for unsanctioned data exfiltration of personal information data. All perimeter and endpoint data are collected in a detection and response platform that correlates the data and alerts the security operations team of potential security breaches. SaaS applications are monitored for malware and personal information data exfiltration using CASB services. E-mails are scanned with protection tools, in additional to other third-party e-mail security tools. The third-party email security service also monitors for personal information data loss. Vulnerability scanning services are utilized to continually scan all network assets for vulnerabilities and sends reports to our security operations teams for remediation.

We recognize that the risks and impacts of cyber based attacks are significant and increasing. Addressing any such incidents quickly and effectively is paramount to the continued operations of our business. We seek to track and investigate all cyber based incidents or incidents that impact our information systems. We adopted an incident response plan that requires us to assess and address such incidents in a timely manner. In the event of an incident, our Incident response team and management will focus on minimizing impact while securely and safely restoring disrupted services and systems.

Board Structure

Director Independence

In accordance with our Corporate Governance Guidelines, available on our website, www.velfinance.com, our Board of Directors undertook its annual review of director independence. During this review, our Board considered all transactions and relationships between us and each nominee for director or any member of such person’s immediate family. The purpose of this review is to determine whether any relationship or transaction is considered a “material relationship” that would be inconsistent with a determination that a director is independent. Our Board has not adopted any “categorical standards” for assessing independence.

Our Board affirmatively determined that each of our non-employee director nominees is independent. In making this determination, our Board reviewed the corporate governance rules of the New York Stock Exchange, the exchange where we have listed our common stock. The Board considered commercial, charitable, family and other relationships that directors or members of their immediate family have or have had with us. In addition, for our Audit Committee members, our Board also considered the requirements of Rule 10A-3 under the Exchange Act.

In particular, our Board considered that Messrs. Mantel and Pless arewere both equity partners of Snow Phipps Group, one of our largest shareholders, as well asand are managing partners of TruArc Partners, a sub adviser to the Snow Phipps Group fund that owns

our shares, and that until August 2018, Ms. Schaefer was an operating partner of Snow Phipps Group. Our Board also considered that Mr. Ballen is a Portfolio ManagerChiao and Executive Vice President atMs. Verner are officers of Pacific Investment Management Company LLC, another one of our largest shareholders.

Our Board determined that these relationships are not material relationships and therefore do not affect our Board’s determination that these directors are independent.

Board Nominee Rights

In connection with our January 2020 initial public offering, we entered into a stockholders agreement granting rights to nominate up to four individuals to our Board of Directors and in connection with our sale of Series A Preferred Stock, we granted an additional right to nominate an individual to our Board. The following summarizes those rights:

Board of Directors

Key Responsibilities

Audit Committee

Key Responsibilities

Compensation Committee

Key Responsibilities

Nominating/Corporate Governance Committee

Key Responsibilities

Board Practices, Processes and Policies

Corporate Governance Initiatives

WhenAs stated in last year’s proxy, we went publicmade a commitment to review and improve upon our corporate governance policies. To that end, in January 2020, weearly 2022, our Governance Committee and Board implemented multiple corporate governance enhancements to strengthen our Board’s independence, ensure robust risk oversight and bolster alignment, communication and transparency with our shareholders. We intendBelow are some of our current initiatives:

Incentive Compensation Clawback Policy

The Compensation Committee adopted a policy that allows the Compensation Committee to continuously reviewclaw back cash bonuses and improveequity awards from an executive if the Committee determines that such compensation was overpaid as a result of a restatement of the reported financial results of the Company or any of its segments due to material non-compliance with financial reporting requirements caused or contributed by the executive’s fraud, willful misconduct or gross negligence.

Individual Board Member Performance Evaluations

Our Board adopted a requirement for each Board member to conduct an annual individual self-assessment.

Director and CEO Stock Ownership Guidelines

Our Corporate Governance Guidelines now require our directors and CEO to acquire ownership positions in our common equity securities equal to (i) for the CEO, five times the CEO’s annual salary and (ii) for each independent Director, four times the annual cash retainer paid to directors. Messrs. Mantel and Pless as partners and director designees of Snow Phipps, our largest shareholder, and Ms. Verner and Mr. Chiao, as officers and director designees of PIMCO, our second largest shareholder, are prohibited by internal policies and procedures from personally holding our shares and are therefore not subject to our director stock ownership requirement. Furthermore, these four directors are not entitled to and do not receive compensation from us for serving on our Board.

Director Retirement Age

Our Corporate Governance Guidelines now requires a director, upon our corporate governance policies.reaching 75 years of age, to tender his or her resignation to the Board with an effective date no later than the next annual shareholder meeting.

Stock Pledging and Anti-Hedging Policy

Our InsiderSecurities Trading and Anti-Tipping Policy now expressly prohibits stock pledging as well as hedging transactions involving our securities. Directors and executive officers are prohibited from purchasing our securities and those ofon margin, borrowing against any account in which our subsidiariessecurities are held or pledging our securities as collateral for a loan. We prohibit hedging by our directors, executive officersexecutives and all other employees. Weemployees because we believe that hedging against losses in our securities breaks the alignment between our shareholders and our executivespersonnel that equity grants are intended to build. Our anti-hedging policy also prohibits direct and indirect short selling and derivative transactions involving our securities, other than the exercise of any options or warrants issued by us to our employees or directors.

Board Leadership and Diversity

We adopted a requirement that the Governance Committee and the Board shall ensure that a female director shall hold at least one Chair of a Committee or be appointed as Board Chair or Lead Independent Director. The Governance Committee recommended, and the Board appointed, Joy Schaefer to the position of Lead Independent Director.

Our Corporate Governance Guidelines now also requires that women and underrepresented candidates shall be among every pool of individuals from which new Board nominees are chosen.

Majority / Plurality Vote Standards and Director Resignation Policy

Our Bylaws now require a majority vote standard for uncontested elections of directors and a plurality vote standard for contested director elections. Our Board also adopted a policy that Directors are expected to tender an advance resignation. The advance resignation becomes effective for a particular director following an uncontested election of directors where that director nominee did not receive the affirmative vote of a majority of the votes cast and our Board accepts the resignation.

Shareholder Rights

Our Board of Directors approved, subject to shareholder approval, amendments to our certificate of incorporation allowing shareholders to vote by written consent and to call special meetings. Additional information on these amendments are contained in this proxy statement.

Related Person Policy and Transactions

Our Board has adopted a written policy for the review approval and ratificationapproval of transactions that involve related persons and potential conflicts of interest. Our Related Person Transaction Policy applies to the following Related Persons: each of our directors and executive officers, any security holder who is known to own more than five percent of our shares, any immediate family member of any of the foregoing persons, any entity of which one of our directors is a director or officer and any entity of which one of our directors has a substantial financial interest.

Under our Related Person Transaction Policy, a covered transaction includes a transaction or arrangement involving us and a Related Person that would require disclosure in our filings with the SEC as a transaction with a Related Person.

Under our Related Person Transaction Policy, Related Persons must disclose to the Audit Committee any potential covered transaction and must disclose all material facts with respect to such interest. All covered transactions will be reviewed by the Audit Committee for approval or ratification.approval. In determining whether to approve or ratify such a transaction, the Audit Committee will consider the relevant facts and circumstances which may include factors such as the relationship of the Related Person with us, the materiality or significance of the transaction to us and the Related Person, the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to us on an arms-length basis, the impact of the transaction on our business and operations – and ultimately, whether the proposed transaction is or is not in our bestsbest interests.

The following transactions have all been approved or ratified in accordance with our Related Person Transaction Policy.Policy:

In the ordinary course of business, we sell held for sale loans to various financial institutions. From time to time, an affiliate of PIMCO has purchased such loans from us through an arm’s length bidding process. In December 2020,March 2021, an affiliate of PIMCO purchased 156four held for sale loans from us for $50,690,313.approximately $510,226.

In April 2020, we entered into a securities purchase agreementSpencer Farrar and Tess Meads, two adult children of Mr. Farrar, were both employed by us during 2021 as account executives. They were compensated in accordance with investment funds affiliated with Snow Phippsour typical compensation arrangements for the positions they held and an investment fund affiliated with PIMCO (each, a “Purchaser”)for calendar year 2021, Spencer Farrar was paid $150,170 and sold (i) 20,000 sharesTess Meads was paid $146,269. As of Series A Preferred Stock to the Snow Phipps Purchasers, (ii) 25,000 newly issued sharesend of Preferred Stock to the PIMCO Purchaser, (iii) warrants to purchase 1,339,116 shares of common stock to the Snow Phipps Purchasers and (iv) warrants to purchase 1,673,954 shares of common stock to the PIMCO Purchaser. In consideration, the Snow Phipps Purchasers paid $20.0 million and the PIMCO Purchaser paid us $25.0 million. Additionally, we agreed to reimburse each of Snow Phipps and PIMCO up to $250,000 in transaction costs. These transactions were approved2021, Spencer Farrar was no longer employed by a special transaction committeeus.

None of our Board of Directors consisting solely of independent, disinterested directors.directors or executives participated in any related party transactions with us during 2021.

Director Compensation

20202021 Director Compensation Table

At the recommendation of Mercer and our Compensation Committee, and following Board approval, ourOur 2021 director compensation will consistconsisted of the following:

Executive Compensation Matters

Our shareholders are given the opportunity to indicate their preference, on a non-binding, advisory basis, as to how frequently we should seek advisory votes on the compensation of our executive officers. This frequency vote is required to be held at least once every six years. By voting on this proposal, shareholders may indicate whether they would prefer that we seek future advisory votes approving the compensation of our executive officers once every one, two or three years. Shareholders may also abstain from voting on this proposal.

Our Board of Directors has determined that holding an advisory vote on executive compensation every year is the most appropriate alternative for us. Our executive compensation disclosures are made annually and our Board has determined that holding an annual advisory vote on executive compensation provides us with direct and immediate feedback on our compensation policies, programs and disclosures. We also believe that an annual vote creates a procedural consistency from year to year.

This advisory vote on the frequency of future advisory votes on executive compensation is non-binding on our Board. Although non-binding, our Board and Compensation Committee will review and consider the voting results. Notwithstanding our Board’s recommendation and the outcome of the shareholder vote, our Board may in the future decide to vary its practice regarding the frequency of our advisory votes based on factors such as discussions with shareholders whether we expect future material changes to our compensation policies, programs and disclosures.

The proxy card provides shareholders with the opportunity to choose among four options (holding the vote every year, every two years, every three years or abstain) and, therefore, shareholders will not be voting to approve or disapprove the recommendation of our Board.

Our Board recommends a vote FOR the option of Every Year as the frequency which shareholders are provided with an advisory vote on the compensation of our executive officers.

We provide our shareholders with the annual opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with SEC rules. The vote on this resolution is not intended to address any specific element of compensation; rather, the advisory vote relates to the overall compensation of our Named Executive Officers. We value this vote as important feedback from our shareholders.

We believe that there should be a strong link between executive compensation and our performance and the performance of our Named Executive Officers. This Proxy Statement contains a detailed description of the 20202021 compensation of our Named Executive Officers. The Compensation Committee and our Board of Directors believe that our policies and procedures are effective in achieving our goals and that the compensation of our Named Executive Officers will contribute to our long-term success.

Accordingly, we ask our shareholders to vote on the following resolution:

Resolved, that the compensation paid to the Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the related narrative disclosure is approved.

Compensation Discussion and Analysis

Overview

The Committee’s Role

As a guiding mandate, our goal is to implement an executive compensation plan that reflects our shareholders’ desires and adheres to industry best practices.

Our compensation process is determined by our Compensation Committee, in consultation with our CEO. The Committee considered the views of Mr. Farrar, their assessments of our executives’ individual performance and ranges of peer compensation in approving 20202021 executive compensation.

Role of the Compensation Consultant

The Compensation Committee retained Mercer (US) Inc. as an independent compensation consultant to assist the Compensation Committee with conducting a review of our director and executive compensation practices, an examination of relevant peer and industry practices and recommendations for 2020 and 2021 compensation.

Our Compensation Committee considered whether any conflicts of interest would arise due to its 20202021 engagement of Mercer. Mercer previously provided compensation consulting services to us and was paid $40,000 during 2018 and $25,000 during 2019.2019 and $21,138 during 2020. The Compensation Committee reviewed and analyzed Mercer’s prior services to and compensation from us and all other factors deemed relevant and required by SEC rules and concluded that the proposed engagement of Mercer by our Compensation Committee for director and executive compensation work did not raise a conflict of interest and that Mercer remained independent.

Peer Selection

We and our compensation consultant analyzed comparable peer compensation as a general frame of reference for considering the appropriateness of our executive compensation programs and to ensure our executive officers are appropriately aligned with peers.

Our selected peer group also represents companies that have a fair amount in common with our business and, hence, are reasonably comparable for purposes of relative performance:

Our Compensation Committee conducted an analysis of comparable peer compensation as a general frame of reference for considering the appropriateness of our executive compensation programs and to ensure our CEO and other executive officers’ compensation is aligned with peers.

By incorporating these elements, we believe our executive compensation program is responsive to our investors’ objectives and effective in attracting, motivating and retaining the level of talent necessary to grow and manage our business successfully.

Process for Determining Compensation

In determining the compensation of the Chief Executive Officer, our Compensation Committee performs a thorough and detailed process. AtFollowing the end of the year, our Compensation Committee reviews our CEO’s performance and our performance and meets (with and without the CEO) to conduct these evaluations. While our Compensation Committee tries to ensure that a substantial portion of the CEO’s compensation is directly linked to his performance and the performance of our business, our Compensation Committee also seeks to set his compensation in a manner that is competitive with compensation for similarly performing executive officers with similar responsibilities in companies we consider our peers.

In determining the compensation of each of our other executive officers, (other than the CEO), our Compensation Committee seeks the input of the CEO. At the end of each year, the CEO assesses our executive officers’ performance against the business unit (or area of responsibility) and, individual goals and objectives.objectives and total compensation available to similarly situated executives at our peers. Our Compensation Committee and the CEO then review the CEO’s assessments and discussesdiscuss and approvesapprove the compensation for each executive officer.

Considerations in Setting 20202021 Compensation

In approving 2020 compensation for our Named Executive Officers, our Compensation Committee took under advisement the recommendation of the CEO relating to the total compensation for our Named Executive Officers. Our Compensation Committee discussed and approved 2020 compensation for each of our Named Executive Officers. Our Compensation Committee believes that the total 20202021 compensation for our executive officers was competitive while at the same time being responsible to our investors.

The following is a summary of key considerations that affected the development of 20202021 compensation decisions for our executive officers:

We expect that going forward, the Compensation Committee will adhere to the compensation philosophy described above. In addition, we anticipate that the Compensation Committee will continue to retain an independent compensation consultant from time to time who will provide the Compensation Committee with input and additional compensation programs to further align executive officer compensation with our shareholders’ interests.time.

We believe that offering each of the components of our executive compensation program is necessary to remain competitive in attracting and retaining talented executives. Base salaries and discretionary cash bonuses are designed to reward executives for their performance and our performance. Furthermore, the cash incentive bonusesbonus and long-term equity incentive compensation align the executive’s goals with our goals and those of our shareholders. The components of incentive compensation (the cash bonus and equity awards) are significantly “at risk,” as the cash bonuses and the value of the equity awards may depend on our business successes. Collectively, these components are designed to reward and influence thean executive’s individual performance and our short-term and long-term performance.

Base Salary

We pay our Named Executive Officers base salaries to compensate them for services rendered each year at a pre-established amount. The following table summarizes the annual base salaries for the year ended December 31, 20202021 of our Named Executive Officers:

Effective for 2021,2022, the base salaries of each of Messrs. Farrar, Szczepaniak and Taylor were increased to $600,000, $375,000$630,000, $393,750 and $300,000,$315,000, respectively.

Performance-Based Cash Incentive Bonus

In addition to receiving base salaries, our Named Executive Officers are eligible to receive cash incentive bonuses.

We awarded discretionary cash bonuses to our Named Executive Officers for 2020. Cash bonuses are designed to incentivize our Named Executive Officers at a variable level of compensation that is “at risk,” based on our performance and the performance of each executive. Bonuses are awarded at the discretion of the Compensation Committee, with input from our CEO. We use

Our Compensation Committee approved fiscal year 2021 target bonuses for our Named Executive Officers in January 2021. In lieu of awarding discretionary cash bonuses to reward corporate and individual performance. In determiningfollowing year end, in August 2021 our Compensation Committee adopted the amount ofFY 2021 incentive program that provided that actual cash bonus amounts for the Named Executive officers would be formulaically based 50% on our 2021 adjusted pre-tax operating income and 50% on individual and corporate performance objectives. Under the incentive program, each Named Executive Officer we consideredcould have been awarded between 0% – 200% of that officer’s target bonus. Although adopted in August 2021, adjusted pre-tax operating income for FY 2021 was substantially uncertain at that time and the key considerationsCompensation Committee believed that the performance amounts below to achieve Threshold, Target and Maximum performance payouts were equally uncertain and fair.

Performance Metric – Adjusted Pre-tax Operating Income:

Performance Metric – Individual and Corporate Performance:

Individual and corporate performance consisted of the following:

Formulaic Outcome:

Our Adjusted Pre-Tax Operating Income for FY 2021 was $39.8 million, although no adjustment to our pre-tax operating income was deemed necessary by our Compensation Committee. As our Adjusted Pre-Tax Operating Income of $39.8 exceeded the $37.5 million “Maximum” performance under our 2021 incentive program, each of our Named Executive Officers was entitled to an amount equal to 100% of his target bonus for 2021.

The Compensation Committee then discussed above. the individual and corporate performance metric with our CEO and concluded that each Named Executive Officer had at least equaled or exceeded the “Met Expectations” target. In particular, the Compensation Committee noted that the firm’s asset quality improved with trends increasing and that the Named Executive Officers did an exemplary job of managing growth. Using the result of “Met Expectations,” each of our Named Executive Officers was entitled to an additional amount equal to 50% of his target bonus for 2021.

Based on our Adjusted Pre-Tax Operating Income for FY 2021 and the Compensation Committee’s conclusions regarding individual and corporate performance, each of our Named Executive Officers could have received up to 150% of his target cash bonus for 2021. Our Compensation Committee, with the input from our CEO, determined to reduce the 2021 incentive cash bonuses from the formulaic outcomes to the amounts set forth in the table below.

The following table provides the cash incentive bonus earned bytargets, the formulaic outcome of our FY 2021 incentive program and actual cash bonuses awarded to each Named Executive Officer in 2020.2021. Each bonus was paid in January 2021,2022 but is reflected as 20202021 compensation.

Long-Term Equity Incentive Compensation – 2020 Omnibus Incentive Plan

In addition to base salary and cash bonus compensation, each of our Named Executive Officers was provided long-term equity incentive compensation. The use of long-term equity incentives creates a link between executive compensation and our long-term performance, thereby creating alignment between executive and investor interests.

For fiscal year 2021, we granted unvested optionsrestricted stock with a pro rata three-year vesting schedule to our Named Executive Officers. The following table provides the grant date fair value of these long-term equity incentives granted to each Named Executive Officer during 2020:Officer:

In January 2021, weAs equity incentive compensation for FY 2022, in February 2022, our Compensation Committee granted to each of Messrs. Farrar, Szczepaniak and Taylor 180,000, 60,00045,000, 15,000 and 60,000,15,000 shares, respectively, shares of three-year restricted stock.stock and 45,000, 15,000 and 15,000, respectively, target number of performance-based stock units. The performance-based stock units will only vest at the end of three years if our average Core Net Income annual growth over a 3-year period meets or exceeds the threshold growth rate approved by our Compensation Committee.

Other Considerations

Compensation Risk Management

Our Compensation Committee has considered whether our compensation policies and practices reward employees for imprudent risk taking and has determined that our compensation policies and practices are not reasonably likely to have a material adverse effect on us. The Compensation Committee’s assessment will be conducted annually. Management reviews with our Compensation Committee our compensation programs, focusing on incentive programs, risks and mitigation factors. Based on the totality of this information, the Compensation Committee determines whether any portion of such compensation encourages excessive risk taking and concludes whether or not our compensation programs are reasonably likely to have a material adverse effect on us.

In assessing risks, our Compensation Committee considers mitigating factors such as the multiple elements of our compensation packages, including base salary, cash bonuses, equity awards that are subject to vesting conditions, our ability to implement orand enforce our clawback policies and regulationspolicy and other factors deemed relevant by the Committee.

Tax Considerations

Our Compensation Committee is aware that tax deductions for executive pay in excess of $1 million per year is not deductible for tax purposes. Our Compensation Committee awards executive compensation based on the factors described above, notwithstanding the non-deductibility of certain amounts.

Executive Compensation Tables

Summary Compensation Table

Some of the items under this caption constitute taxable income to the Named Executive Officers. These amounts are reported as taxable income for the executives pursuant to IRS rules which differ from the SEC reporting rules used to report the amounts reflected in this table and these notes.

None of our Named Executive Officers had non-equity incentive plan compensation, pensions or qualified deferred compensation earnings required to be reported above.

20202021 Compensation Plan Outcomes

Grants of Plan-Based Awards in 2020

Equity Awards to Our Named Executive Officers2021

Non-Equity Incentive Plan Awards to Our Named Executive Officers

None

Outstanding Equity Awards at Fiscal Year-End 20202021

Option Awards

This table provides information on the holdings of equityoption awards by our Named Executive Officers at December 31, 2020.2021.

Stock Awards

This table provides information on the holdings of stock awards by our Named Executive Officers at December 31, 2021. No equity incentive plan awards with remaining performance conditions were outstanding during 2021.

Option Exercises and Stock Vested in Fiscal 20202021

No equitystock vested during 20202021 nor did any of our Named Executive Officers exercise options or warrants during 2020.2021.

Pension Benefits in 20202021

None

Non-Qualified Deferred Compensation

None

Audit Matters

The Audit Committee selected KPMGRSM US LLP as our independent registered public accounting firm (our independent auditors) for 2021,2022, and we are requesting our shareholders to ratify this selection. This proposal is being submitted to shareholders because we believe that this action follows sound corporate practice and is in the best interests of the shareholders. If the shareholders do not ratify the selection, such a vote will not be binding, but the Audit Committee will reconsider the selection of independent auditors. If the shareholders ratify the selection, the Audit Committee, in its discretion, may still direct the appointment of new independent auditors at any time during the year if the Committee believes that this change would be in our and our shareholders’ best interests.

Prior Change in Our Independent Registered Public Accounting Firm

On May 26, 2021, the Audit Committee of our Board of Directors approved the engagement of RSM US LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2021. This approval followed the determination by the Audit Committee on May 26, 2021 that the engagement of our auditor for the last ten years, KPMG LLP, would cease effective May 26, 2021.

The report of KPMG LLP dated March 16, 2021 on our consolidated financial statements for the fiscal years ended December 31, 2019 and 2020 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except for a modification to identify a change in accounting principles as of January 1, 2020 as a result of our adoption of Accounting Standards Update 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through May 26, 2021, there were: (i) no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to KPMG LLP’s satisfaction, would have caused KPMG LLP to make reference thereto in their reports on the consolidated financial statements for such fiscal years and (ii) no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K, other than the material weakness in internal control over financial reporting identified and disclosed by us in our Form 10-K for the year ended December 31, 2019 and the remediation of such material weakness as disclosed in our Form 10-K for the year ended December 31, 2020 relating to controls to properly document and review relevant facts and apply the appropriate tax accounting which impacted deferred tax asset and income tax benefit accounts.

We did not consult with RSM during our two most recent fiscal years prior to May 26, 2021 regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report was provided to us or oral advice was provided that RSM concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement or reportable event as defined in Item 304(a)(1)(iv) and (v) of Regulation S-K.

Fees Paid to Our Independent Auditors

The following table sets forth the aggregate fees incurred by us for 20202021 relating to services performed by RSM US LLP and 20192020 relating to services performed by KPMG:

A description of the types of services provided in each category is as follows:

The Board considered whether providing the non-audit services included in this table was compatible with maintaining KPMGRSM US LLP’s independence and concluded that it was.

Audit Committee Pre-Approval Process

Consistent with SEC policies regarding auditor independence and our Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of our independent auditor. In exercising this responsibility, the Audit Committee has established procedures relating to the approval of all audit and non-audit services that are to be performed by our independent auditor and pre-approves all audit and permitted non-audit services provided by any independent registered public accounting firm prior to each engagement.

We have been advised that representatives of KPMGRSM US LLP will attend the Annual Meeting and will have an opportunity to make a statement.

Other Shareholder Matters

Summary

We are asking our shareholders to approve an amendment and restatement of our 2020 Omnibus Incentive Plan (the “2020 Plan”), in order to increase the number of shares of our common stock reserved for issuance under the 2020 Plan by an additional 1,250,000 shares and to implement other changes discussed below (the “Amendment”). The Amendment was approved by the Board, subject to shareholder approval, and the Board recommends that shareholders vote in favor of this proposal.

Our executive officers and directors have an interest in this proposal by virtue of being eligible to receive equity awards under the 2020 Plan. As discussed more fully below, our Compensation Committee granted an aggregate 102,750 performance-based stock units to our executive and other officers and there are insufficient shares remaining under the 2020 Plan to issue common stock otherwise issuable in respect of such awards if the Amendment is not approved and the target level of performance under such awards is exceeded (as shares in excess of the target level of performance may not vest if the Amendment is not approved by our shareholders). Additionally, there are insufficient shares remaining under the 2020 Plan to issue restricted stock awards as director compensation to our directors who are re-elected to our Board at the Annual Meeting. The remainder of this discussion, when referring to the 2020 Plan, refers to the amended and restated 2020 Plan as if this proposal is approved by our shareholders, unless otherwise specified or the context otherwise references the 2020 Plan prior to the amendment and restatement.

Our continuing ability to offer equity incentive awards under the 2020 Plan is critical to our ability to attract, motivate and retain qualified personnel. The Amendment is essential to meet our forecasted needs in respect of equity incentives.

Corporate Governance Best Practices:

The 2020 Plan provides for the following good corporate governance practices:

The Amendment is necessary to promote our long-term success and the creation of shareholder value by:

We currently grant stock-based incentive awards to our employees and non-employee directors under our 2020 Plan. As of April 8, 2022, less than 500 shares remain available for issuance under our current 2020 Plan; and, if we assume the maximum number of shares that may be issued under our outstanding performance stock unit awards will later be issued, no shares remain available under our current 2020 Plan.

The 2020 Plan, as amended and restated, would authorize a total of 2,770,000 shares of our common stock (the “Absolute Share Limit”) for grants to participants, representing an increase of 1,250,000 shares of our common stock that would be available under the 2020 Plan (the “Share Increase”). The impact of this requested Share Increase and our recent grant practices are shown below:

Potential Dilution Calculation:

Equity awards outstanding, plus the Share Increase plus 489 shares as our existing share reserve; divided by shares of common stock outstanding, plus equity awards outstanding, plus the Share Increase plus existing share reserve. Equity awards outstanding includes outstanding options, unvested restricted stock and target number of performance-based stock units granted.

Burn Rate Calculation:

The number of shares subject to time vesting equity awards granted in a fiscal year plus the number of shares subject to performance vesting that vested in that fiscal year; divided by the number of common shares outstanding at the end of that fiscal year.

The Share Increase is intended to manage our equity compensation needs for the next three to four years, based on our past grant practices and the recent trading prices of our shares.

Total Outstanding Awards

The table below shows the total number of outstanding options and other unvested awards granted under our 2020 Plan as of April 8, 2022 (with the target number of performance stock units granted reflected in the table):

As of March 22, 2022, the fair market value of a share of our common stock (as determined by the closing price on the NYSE on that date) was $11.19 per share.

The 2020 Plan will continue to permit the discretionary award of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and/or other equity awards to participants. Such awards may continue to be granted under the Share Increase beginning on the date of shareholder approval of the Amendment and continuing through January 16, 2030, or the earlier termination of the 2020 Plan, subject to the number of available shares remaining in the 2020 Plan.

Text of 2020 Plan

The complete text of the 2020 Plan is attached as Annex I to this Proxy Statement – marked to show proposed changes. Shareholders are urged to review the 2020 Plan together with the following information, which is qualified in its entirety by reference to Annex I. If there is any inconsistency between this Proposal 4 and the 2020 Plan terms, or if there is any inaccuracy in this Proposal 4, the terms of the 2020 Plan shall govern.

Key Features of the 2020 Plan

Certain key features of the 2020 Plan are summarized as follows:

Description of the 2020 Plan

Purpose. The purpose of the 2020 Plan is to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our shareholders.

Administration. The 2020 Plan will be administered by the Compensation Committee or such other committee of our Board to which it has properly delegated power, or if no such committee or subcommittee exists, our Board. The Compensation Committee is authorized to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the 2020 Plan and any instrument or agreement relating to, or any award granted under, the 2020 Plan; establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Compensation Committee deems appropriate for the proper administration of the 2020 Plan; adopt sub-plans; and to make any other determination and take any other action that the Compensation Committee deems necessary or desirable for the administration of the 2020 Plan. Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which our securities are listed or traded, the Compensation Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it in accordance with the terms of the 2020 Plan. Unless otherwise expressly provided in the 2020 Plan, all designations, determinations, interpretations, and other decisions under or with respect to the 2020 Plan or any award or any documents evidencing awards granted pursuant to the 2020 Plan are within the sole discretion of the Compensation Committee, may be made at any time and are final, conclusive and binding upon all persons or entities, including, without limitation, us, any participant, any holder or beneficiary of any award, and any of our shareholders. The Compensation Committee may make grants of awards to eligible persons pursuant to terms and conditions set forth in the applicable award agreement, including subjecting such awards to performance criteria listed in the 2020 Plan.

Awards Subject to 2020 Plan. The 2020 Plan provides that the total number of shares of common stock that may be issued under the 2020 Plan is 2,770,000, which is referred to as the Absolute Share Limit. No more than the number of shares of common stock equal to the Absolute Share Limit may be issued in the aggregate pursuant to the exercise of incentive stock options. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $1,000,000 in total value. Except for substitute awards (as described below), in the event any award expires or is cancelled, forfeited or terminated without issuance to the participant of the full number of shares to which the award related, the unissued shares of common stock may be granted again under the 2020 Plan. Awards may, in the sole discretion of the Compensation Committee, be granted in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by us or with which we combine, referred to as substitute awards, and such substitute awards will not be counted against the Absolute Share Limit, except that substitute awards intended to qualify as incentive stock options will count against the limit on incentive stock options described above. No award may be granted under the 2020 Plan after the tenth anniversary of the effective date (as defined therein), but awards granted before then may extend beyond that date.