FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
April 17, 2019
Dear Stockholder:
The annual meeting of stockholders of Farmers & Merchants Bancorp (the “Company”) will be held this year in the Ole Mettler
Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA, on Wednesday, May 22, 2019, at 4:00 p.m. We look forward to your attendance.
The enclosed proxy statement describes the business to be conducted at the annual meeting.
A copy of the Company’s 2018 Annual Report to Stockholders is also enclosed.
We hope you will be able to attend the annual meeting in person. We would also like to invite you to be our guest for dinner
immediately following the meeting.
Please note that the annual meeting is only open to stockholders. Space will be limited and we are not able to accommodate
other guests, only stockholders
. We thank you in advance for your understanding on this issue.
The Directors and senior management greatly appreciate the interest expressed by our stockholders. Whether or not you plan to attend
the annual meeting, it is important that you are represented and that your shares are voted. Accordingly, after reviewing the enclosed proxy statement, we ask you to complete, sign and date the enclosed proxy and return it as soon as possible
in the postage-paid envelope that has been provided for your convenience.
Sincerely,
/s/ Kent A. Steinwert
Kent A. Steinwert
Chairman
Enclosures
FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 22, 2019
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2019 annual meeting of stockholders of Farmers & Merchants Bancorp (the “Company”) will be held this year in the
Ole Mettler Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA, on Wednesday, May 22, 2019, at 4:00 p.m. to vote to:
1.
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Elect the following seven (7) Directors:
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Edward Corum, Jr.
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Kevin Sanguinetti
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Terrence A. Young
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Stephenson K. Green
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Kent A. Steinwert
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Gary J. Long
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Calvin (Kelly) Suess
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The Board of Directors has fixed the close of business on March 28, 2019 as the record date for determining the holders of the
common stock of the Company entitled to notice of, and to vote at, the annual meeting and any adjournments thereof.
You are encouraged to attend the annual meeting. If you are a beneficial owner of common stock held by a broker, bank or other
nominee, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership.
Please complete, sign and date, as promptly as possible, the enclosed proxy and immediately return it in the envelope
provided for your use. This is important whether or not you plan to attend the annual meeting in person. The giving of such proxy will not affect your right to revoke such proxy or to vote in person, should you attend the annual meeting.
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BY ORDER OF THE BOARD OF DIRECTORS,
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/s/ Stephen W. Haley
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Stephen W. Haley
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Secretary
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Dated: April 17, 2019
YOUR VOTE IS IMPORTANT.
TO INSURE YOUR VOTE IS REPRESENTED, YOU ARE
URGED TO COMPLETE, SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY.
PROXY STATEMENT
FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
This proxy statement is furnished to the stockholders of Farmers & Merchants Bancorp (the “Company”) in connection with the
solicitation of proxies by the Board of Directors of the Company to be used in voting at the annual meeting of stockholders to be held on May 22, 2019 in the Ole Mettler Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi,
CA at 4:00 p.m., and at any adjournment or postponement thereof. All expenses incidental to the preparation and mailing, or otherwise making available to all stockholders of the notice, proxy statement and form of proxy will be paid by the
Company. This proxy statement and the enclosed proxy are being mailed to the Company’s stockholders on or about April 17, 2019.
For information on how to vote your shares, see the instructions included on the enclosed proxy card and under “Information About
Voting and the Annual Meeting.”
II
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INFORMATION ABOUT VOTING AND THE ANNUAL MEETING
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Voting Rights and Vote Required
Only stockholders of record at the close of business on March 28, 2019 (the “record date”), will be entitled to vote in person at
the meeting or by proxy. On the record date, there were 787,307 shares of common stock outstanding and entitled to vote. Holders of common stock of the Company are entitled to one vote for each share held. However, with respect to the
election of Directors, each stockholder may be eligible to exercise cumulative voting rights.
In the election of Directors, the 7 nominees receiving the highest number of votes will be elected. Abstentions will not count as
votes in favor of the election of Directors.
Voting of Proxies
The shares represented by all properly executed proxies received in time for the meeting will be voted in accordance with the
stockholders’ choices specified therein; provided, however, that where no choices have been specified, the shares will be voted “FOR” the election of the 7 nominees for Director recommended by the Board of Directors.
A stockholder using the enclosed proxy may revoke the authority conferred by the proxy at any time before it is exercised (i.e.,
before the vote pursuant to that proxy) by delivering written notice of revocation or a duly executed proxy bearing a later date to the Secretary of the Company, or by appearing and voting by ballot in person at the meeting.
A majority of the shares entitled to vote represented either in person or by properly executed proxies, will constitute a quorum at
the meeting. Abstentions and broker “non-votes” are each included in the determination of the number of shares present and voting for purposes of determining the presence of a quorum. A broker “non-vote” occurs when a nominee holding shares for
a beneficial owner does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, as of the record date, no person or entity was the beneficial owner of more than five percent (5%)
of the outstanding shares of the Company’s common stock except as set forth in the following tables. For the purpose of this disclosure and the disclosure of ownership shares by management, shares are considered to be “beneficially” owned if
the person has or shares the power to vote or direct the voting of the shares, the power to dispose of or direct the disposition of the shares, or the right to acquire beneficial ownership (as so defined) within 60 days of the record date.
Title of Class
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Name and Address
of Beneficial Owner
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Amount and Nature of
Beneficial Ownership
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Percent
of Class
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Common Stock
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Joan Rider
(1) (2)
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44,700
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5.68%
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111 West Pine Street
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Lodi, CA, 95240
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Common Stock
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Cortopassi Family Trust
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50,321
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6.39%
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and Cortopassi Partners
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11292 N. Alpine Road
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Stockton, CA 95212
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Common Stock
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Sheila M. Wishek
(1)
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40,215
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5.11%
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111 West Pine Street
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Lodi, CA, 95240
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(1)
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Mail should be sent to these individuals at the Company’s address marked “c/o Stockholder Relations.”
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(2)
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Shares are beneficially owned, directly and indirectly, together with spouses, and unless otherwise indicated, holders share voting power with their spouses. None of
the shares are pledged.
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A complete list of stockholders entitled to vote will be available for inspection by stockholders of record at the office of the
Secretary of the Company at 111 West Pine Street, Lodi, CA for the ten days prior to the meeting.
The following table shows, as of the record date, the number of common shares and the percentage of the total shares of common stock
of the Company beneficially owned by each of the current Directors, by each of the nominees for election to the office of Director, by the Named Executive Officers and by all Directors and Named Executive Officers of the Company and of the Bank
as a group.
Name and Address of
Beneficial Owner (1)
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Amount of Common Stock
Owned and Nature of
Beneficial Ownership (2)
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Percent
of Class
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Edward Corum, Jr.
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1,776
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*
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Stephen W. Haley
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4,245
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*
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Deborah E. Skinner
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3,735
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*
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Stephenson K. Green
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330
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*
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Terrence A. Young
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263
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*
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Kevin Sanguinetti
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7,351
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*
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Kenneth W. Smith
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3,090
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*
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Kent A. Steinwert
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25,986
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3.30%
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David M. Zitterow
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278
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*
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Jay J. Colombini
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4,144
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*
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Calvin (Kelly) Suess
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3,271
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*
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Gary J. Long
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1,295
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*
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Ryan J. Misasi
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1,474
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*
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All Directors, Nominees and Named Executive
Officers as a group (13 persons)
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57,238
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7.27%
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*
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Indicates less than 1%.
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(1)
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Mail should be sent to these individuals at the Company’s address marked “c/o Stockholder Relations.”
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(2)
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Shares are beneficially owned, directly and indirectly, together with spouses, and, unless otherwise indicated, holders share voting power with their spouses. None of
the shares are pledged.
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Notice Regarding Electronic Access of Stockholder Meeting Documents
Farmers & Merchants Bancorp is now offering electronic access in lieu of mail delivery of our annual report and proxy
statement. Should you want to discontinue receiving a paper copy of our Annual Report and Proxy Statement, please mark the box on the Proxy Card that states “Mark here to enroll in our Electronic Access Program.” You may rescind electronic
access at any time by contacting the Company at the number below.
If you make this election on the enclosed proxy card, shortly before each annual meeting you will receive a proxy card, along with
voting instructions and the web address where you can access that year’s annual report and proxy statement.
If you have any questions regarding electronic access, please call Sue Clark, AVP – Stockholder Relations, at (209) 367-2348.
III
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ITEMS TO BE VOTED ON
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Proposal #1 – Election of Directors
The Board of Directors recommends a vote for each of the nominees listed below.
At this year’s annual meeting, it will be proposed to elect seven (7) Directors of the Company, each to hold office until the next
annual meeting and until their successors shall be elected and qualified. It is the intention of the proxy holders named in the enclosed proxy to vote such proxies (except those containing contrary instructions) for the seven (7) nominees named
below.
The following table sets forth the names of each of the nominees for election as a Director, their age, their principal occupation
for the past five years and the period during which they have served as a Director of the Company (or the Bank).
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Name
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Age
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Principal Occupation
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Director
Since
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Edward Corum, Jr.
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67
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Managing General Partner, Corum Real Estate
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2003
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Stephenson K. Green
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73
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Retired Banker and Business Consultant
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2018
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Gary J. Long
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66
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Owner, Gary J. Long Jewelers
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2014
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Kevin Sanguinetti
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61
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Retired President, 1st American Title Company - Stockton
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2001
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Kent A. Steinwert
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66
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Chairman, President & C.E.O. of the Company and Bank
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1998
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Calvin (Kelly) Suess
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83
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President of ShellPro
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1990
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Terrence A. Young
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66
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Retired Banker and Human Resources Executive
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2018
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THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE NOMINEES
LISTED ABOVE
Directors are nominated based upon their business experience, knowledge of the Company’s key markets and business segments, community
involvement and commitment to serving the interests of all stockholders:
Mr. Young
has served as a director since March 2018. Prior to his
retirement in 2016, Mr. Young served for 45 years in various human resources, operations and audit roles within the commercial banking industry. He lives and is actively involved in the Sacramento market area, and provides financial
controls and human resources expertise to the Board.
Mr. Corum
has served as a director for fourteen years, lives and is
actively involved in the Sacramento market area, and provides real estate and financial expertise to the Board.
Mr. Green
has served as a director since March 2018. Prior to his
retirement in 2012, Mr. Green worked for 40 years in the commercial banking industry in California. He lives and is actively involved in the Sacramento market area, and provides business banking and credit management expertise to the Board.
Mr. Sanguinetti
has served as a director for sixteen years, lives and is
actively involved in the Stockton market area, and provides real estate and financial expertise to the Board.
Mr. Steinwert
has served as a director for nineteen years, and has
forty-three years of business, agriculture, real estate and consumer banking experience.
Mr. Suess
has served as a director for twenty-seven years, lives and is
actively involved in the Lodi market area, and provides agricultural production and processing expertise to the Board.
Mr. Long
has served as a director for four years, lives and is actively
involved in the Stockton market area, and provides small business expertise to the Board.
All nominees are considered to be “independent” as such term is defined by Nasdaq’s current listing rules with the exception of Mr.
Steinwert who is an employee of the Company and Mr. Young who was an employee of the Bank until his retirement. Each of the nominees has been selected by the Nominating Committee.
None of the Directors were selected pursuant to arrangements or understandings other than with the Directors and stockholders of the
Company acting within their capacity as such. There are no family relationships among the Directors and executive officers, and none of the Directors serves as a Director of any company which has a class of securities registered under, or
subject to periodic reporting requirements of, the Securities Exchange Act of 1934, as amended, or any company registered as an investment company under the Investment Company Act of 1940.
The Nominating Committee of the Board of Directors follows the Bank’s policy regarding diversity in identifying new director
candidates. The Committee looks to establish diversity on the Board through a number of demographics, experiences, skills and viewpoints, all with a view to identifying candidates that can assist the Board with its decision making. The
Committee believes that the current Board of Directors reflects diversity on a number of these factors.
The Board does not anticipate that any of the nominees will be unable to serve as a Director of the Company, but if that should
occur before the meeting, the Board of Directors reserve the right to substitute as nominee another person of their choice in the place and stead of any nominee unable so to serve. Proxy holders would vote to approve the election of such
substitute nominee. The proxy holders reserve the right to cumulate votes for the election of Directors and cast all of such votes for any one or more of the nominees, to the exclusion of the others, and in such order of preference as the proxy
holders may determine in their discretion, based upon the recommendation of the Board of Directors.
I
V
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CORPORATE GOVERNANCE
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Code of Ethics
The Company has adopted a Code of Conduct which complies with the Code of Ethics requirements of the Securities and Exchange
Commission. A copy of the Code of Conduct is posted on the Company’s website at
http://www.fmbonline.com
. The Company intends to disclose promptly any amendment to,
or waiver from any provision of, the Code of Conduct applicable to executive officers and Directors, on its website.
Director Independence
The Company uses Rule 5605(a)(2) of the Nasdaq’s current listing rules to determine whether a Director is independent. With the
exception of Mr. Steinwert who is an employee of the Company and Mr. Young who has not yet met the required three year period since his retirement in 2016, all nominees are considered to be “independent.”
Board of Directors Meetings
The Company’s principal asset is its wholly-owned subsidiary, Farmers & Merchants Bank of Central California (the “Bank”). With
the exception of Mr. Young, the Directors of the Company are also Directors of the Bank. During 2018, pursuant to the Company’s acquisition agreement with Bank of Rio Vista, the Bank added one former Bank of Rio Vista director to the Bank’s
Board of Directors, Craig W. James, who is not a Company Director.
During the calendar year ending December 31, 2018, the Board of Directors of the Company met thirteen (13) times and the Board of
Directors of the Bank met thirteen (13) times. Each incumbent Director attended more than 75% of the meetings of the Board of Directors and the committees to which they were named. The Company expects Directors to attend the annual meeting of
stockholders and all Directors attended the annual meeting of stockholders in 2018.
Roles and Responsibilities of the Board of Directors
Leadership Structure
The Board of Directors has determined that the Chairmanship should reside with the Director who is most familiar with the banking
industry, and who is the most capable of setting strategic direction and integrating that direction with the Company’s day-to-day business development and risk management activities. Accordingly, since 2010 Mr. Steinwert has been unanimously
elected to the position of Chairman in addition to his role since 1997 as President and Chief Executive Officer of the Company.
The Board believes that the combination of these positions does not compromise the important “check-and-balance” role that
independent Directors play in the oversight of the Company since Mr. Steinwert is not a member of the Audit Committee or the Personnel Committee of the Board, and therefore key Board decisions and oversight regarding: (1) accounting, financial
reporting, and overall risk management; and (2) executive compensation; are made only by “independent” Directors. Furthermore, Mr. Steinwert receives no additional compensation for his role as Chairman, representing a cost savings to the
Company.
As of this date, the Board of Directors has not formally designated a lead independent director.
Role in Enterprise Risk Management
The Board of Directors is responsible for monitoring all aspects of the Company’s enterprise risk. Their involvement in enterprise
risk management centers around the following key roles and responsibilities:
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1.
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The Board develops and approves the strategic plan and financial budget, and receives monthly reporting of financial and non-financial performance relative to plan.
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2.
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The Asset and Liability Management Committee is a joint committee of management and the Board. As a result, “independent” Directors are actively involved in interest
rate, liquidity and investment risk management processes.
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3.
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The Loan Committee is a joint committee of management and the Board. The Committee meets weekly to review all new and renewed loans over $2 million and evaluate overall
portfolio performance and risk. As a result, “independent” Directors are actively involved in the credit risk management process.
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4.
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The Audit Committee is responsible for providing oversight of all internal controls, reviewing the reports of audits and examinations of the Bank and the Company made
by independent auditors, internal auditors, credit examiners, and regulatory agencies, and approving all SEC and other regulatory agency reports before they are filed.
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5.
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The Personnel Committee is responsible for all performance evaluation and compensation decisions for the executive management team.
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More detail on all Board committees, including the composition and roles and responsibilities of each follows.
Committees of the Board
Audit Committee
The Audit Committee of the Company and the Bank is responsible for the ongoing adequacy of the internal control environment, and
oversees the activities of the internal and independent auditors of the Company and the Bank with the aim of ensuring compliance with applicable laws. The Committee selects the independent auditors. The Committee’s charter is included as
Exhibit A to this proxy statement. The Audit Committee reports to the Boards of Directors of the Bank and the Company, as appropriate. The Audit Committee reviews the reports of audits and examinations of the Bank and the Company made by the
independent auditors, internal auditors, credit examiners, and regulatory agencies and reports the results to the Boards of Directors of the Bank and the Company. The Committee met twelve (12) times in 2018 and is comprised of the following
voting members: Messrs. Sanguinetti (Chairman), Corum and Green. Each of the Directors serving on the Audit Committee has been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s
current listing rules and in SEC rules relating to audit committees. Mr. Sanguinetti has been determined by the Board of Directors to be a “financial expert” for purposes of applicable regulations.
Asset and Liability Management Committee
The Asset and Liability Management Committee of the Bank is responsible for the formulation, revision and administration of the
Bank’s policies relating to interest rate, liquidity and investment risk management. The Asset and Liability Committee is a joint committee of management and Directors. The following Directors are voting members: Messrs. Suess, James, Long and
Steinwert. The Committee met five (5) times in 2018.
Loan Committee
The Loan Committee of the Bank is responsible for the formulation, revision and administration of the Bank’s policy relating to
credit and loan risk management. The Loan Committee meets weekly and is responsible for approving all new and renewed loans between $2 million and $15 million (over $15 million requires full Board approval) and reviewing all loans over
$500,000. The Loan Committee is a joint committee of management and Directors. The following Directors are voting members: Messrs. Corum and Steinwert. The Committee met fifty-one (51) times in 2018.
Budget and Finance Committee
The Budget and Finance Committee of the Company and the Bank reviews and examines Bank and Company expenses on a quarterly basis
comparing the results with: (1) the established annual budget, the previous quarter and prior year; and (2) selected peer banks and the community banking industry as a whole; and proposes recommendations to management regarding improving
financial performance. The Budget and Finance Committee is a joint committee of management and Directors. The Committee met four (4) times in 2018 and is comprised of the following voting members: Messrs. Long, Suess, Young and Sanguinetti.
CRA Committee (Community Reinvestment Act)
The CRA Committee of the Company and the Bank monitors the Bank’s efforts and responsibilities to comply with the Community
Reinvestment Act. The CRA Committee makes recommendations to the Board of Directors to assure the Bank is meeting the credit, investment and service needs of the communities it serves. The Committee met ten (10) times in 2018 and is comprised
of the following voting members: Messrs. Suess (Chairman), Green, James, Young and Long.
Nominating Committee
The Nominating Committee of the Company and the Bank identifies candidates to serve as Directors of the Bank and the Company in the
event of future Board openings. The Committee’s charter is included as Exhibit C to this proxy statement. The Committee is comprised of the following voting members: Messrs. Steinwert (Chairman), Long, Corum and Suess. The Committee met two (2)
time in 2018. Messrs. Corum, Long and Suess have been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules.
Personnel Committee
The Personnel Committee of the Company and the Bank: (1) reviews the Company’s overall compensation strategies and practices; (2)
reviews the employment contracts of all executive officers; (3) annually establishes executive compensation levels and performance evaluation measures for the Chief Executive Officer and Directors; and (4) reviews the executive compensation
levels and performance evaluation measures for the other executive officers of the Company. The Committee’s charter is included as Exhibit B to this proxy statement.
The Company’s management: (1) provides information, analysis and recommendations for the Personnel Committee; and (2) manages the
ongoing operations of the compensation program.
In fulfilling their duties, the Personnel Committee periodically evaluates information obtained from independent sources regarding
financial institutions that we compete against for talent.
The Personnel Committee is comprised of the following voting members: Messrs. Corum (Chairman), Green and Sanguinetti. The Committee
met five (5) times in 2018. Each of the Directors serving on the Personnel Committee has been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules.
Certain Relationships and Related Person Transactions
Certain Directors and Named Executive Officers of the Bank and the Company and corporations and other organizations associated with
them and members of their immediate families were customers of and engaged in banking transactions, including loans, with the Bank in the ordinary course of business in 2018. Such loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable loans with borrowers not related to the Company or Bank. These loans did not involve more than the normal risk of collection or have other unfavorable features. All
Director and Named Executive Officer loans must be approved by the Board of Directors. With the exception of the previous banking transactions, the Company had no Related Person Transactions as defined by Item 407(a) of Regulation S-K with its
Directors or Named Executive Officers.
Indemnification
The Company’s Certificate of Incorporation and By-Laws provide for indemnification of officers, Directors, employees and agents to
the fullest extent permitted by Delaware law. Delaware law generally provides for the payment of expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement reasonably incurred by the indemnitees provided such person
acted in good faith and in a manner he or she reasonably believed not to be opposed to the best interests of the corporation and with respect to any criminal action or proceeding if he or she had no reasonable cause to believe his or her
conduct was unlawful. However, in derivative suits, if the suit is lost, no indemnification is permitted in respect of any claim as to which the prospective indemnitee is adjudged to be liable for misconduct in the performance of his or her
duty to the Company and then only if, and only to the extent that, a court of competent jurisdiction determines the prospective indemnitee is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Finally, no
indemnification may be provided in any action or suit in which the only liability asserted against a Director is pursuant to a statutory provision proscribing the making of loans, dividends, and distribution of assets under certain
circumstances.
The provisions regarding indemnification may not be applicable under certain federal banking and securities laws and regulations.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Executive Officers and Directors, and
persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Executive Officers, Directors and greater than ten
percent stockholders are required by regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based solely on the Company’s review of the copies of such forms it has received, the Company believes that all of its
Executive Officers and Directors complied with all filing requirements applicable to them with respect to transactions during 2018. The Company has no greater than ten percent stockholders.
Stockholder Rights Plan
On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company
entered into a Rights Agreement dated August 5, 2008, with Computershare (formerly Registrar and Transfer Company), as Rights Agent, and the Company declared a dividend of a right to acquire one preferred share purchase right (a “Right”) for
each outstanding share of the Company’s common stock, $0.01 par value per share, to stockholders of record at the close of business on August 15, 2008. Generally, the Rights are only triggered and become exercisable if a person or group (the
“Acquiring Person”) acquires beneficial ownership of 10 percent or more of the Company’s common stock or announces a tender offer for 10 percent or more of the Company’s common stock.
The Rights Plan is similar to plans adopted by many other publicly traded companies. The effect of the Rights Plan is to discourage
any potential acquirer from triggering the Rights without first convincing Farmers & Merchants Bancorp’s Board of Directors that the proposed acquisition is fair to, and in the best interest of, all of the stockholders of the Company. The
provisions of the Plan, if triggered by the Acquiring Person, will substantially dilute the equity and voting interest of any potential acquirer unless the Board of Directors approves of the proposed acquisition (under Article XV of the
Company’s Certificate of Incorporation, the Board of Directors has the authority to consider any and all factors in determining whether an acquisition is in the best interests of the Company and its stockholders). Each Right, if and when
exercisable, will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value, at a purchase price of $1,200 for each one one-hundredth of a share,
subject to adjustment. Each holder of a Right (except for the Acquiring Person, whose Rights will be null and void upon such event) shall thereafter have the right to receive, upon exercise, that number of Common Shares of the Company having a
market value of two times the exercise price of the Right. At any time before a person becomes an Acquiring Person, the Rights can be redeemed, in whole, but not in part, by Farmers and Merchants Bancorp’s Board of Directors at a price of
$0.001 per Right.
On November 19, 2015, the Board of Directors approved a seven-year extension of the term of the Rights Plan. Pursuant to an
Amendment to the Rights Agreement dated February 18, 2016, the term of the Rights Plan was extended from August 5, 2018 to August 5, 2025. The extension of the term of the Rights Plan was intended as a means to continue to guard against
abusive takeover tactics and was not in response to any particular proposal. The Board also increased the purchase price under the Rights Plan to $1,600 per one one-hundredth of a preferred share from $1,200, to reflect the increase in the
market price of the Company’s common stock over the past several years.”
The full text of the Amendment was filed on the Company’s Form 8-K dated February 19, 2016.
Communications with Board of Directors
Any person, including any stockholder, desiring to communicate with, or make any concerns known to, the Company, directors
generally, non-management Directors or an individual Director only may do so by submitting them in writing to Stephen W. Haley, Secretary of Farmers & Merchants Bancorp, 111 W. Pine Street, Lodi, CA 95240. All correspondence must include
information to identify the person submitting the communication or concern, including name, address, telephone number and e-mail address (if applicable) together with information indicating the relationship of such person to the Company. The
Secretary is responsible for maintaining a record of any such communications or concerns and submitting them to the appropriate addressee(s) for potential action or response. The Company may institute appropriate procedures to establish the
authenticity of any communication or concern before forwarding. The Company is not obligated to investigate any anonymous submissions.
V
–
|
DIRECTOR AND EXECUTIVE COMPENSATION
|
Director Compensation
Outside Directors of the Company receive compensation for services. Mr. Steinwert, who is an employee of the Company, receives no
additional compensation for his role as a Director.
A Director of both the Company and Bank who is not an employee of the Company or Bank receives a $3,000 fee for each monthly Bank
Board Meeting attended (as a Director of the Company only, Mr. Young receives $1,500 per meeting), and a $800 fee for each Committee Meeting attended (Committee Chairmen receive $1,000 with the exception of the Audit Committee Chairman who
receives $1,200). In addition, each Director is eligible to receive an annual bonus and participate in the Equity Component of the Executive Retirement Plan (see “Executive Compensation Discussion and Analysis – Qualified and Non-Qualified
Retirement Programs”).
Directors of the Company who are not employees of the Company or Bank (thus Mr. Steinwert is excluded) are compensated up to $550
per month to cover a portion of the cost of outside medical insurance. Directors of the Company who are not employees of the Company or Bank do not participate in any retirement or medical plans. The summary compensation earned by each
Director of the Company (other than Mr. Steinwert who is a Named Executive Officer) during 2018 is disclosed in the following “Director Compensation Table”.
2018 DIRECTOR COMPENSATION TABLE
Name
|
|
(1)
Fees
Earned or
Paid in
Cash
($)
|
|
|
(2)
Stock
Awards
($)
|
|
|
(2)
Option
Awards
($)
|
|
|
(5)
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
(3)
Change
in Pension Value
& Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
(4)
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Kent A. Steinwert
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephenson K. Green (7)
|
|
$
|
49,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
70,000
|
|
|
$
|
0
|
|
|
$
|
65,500
|
|
|
$
|
184,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Corum, Jr. (6)
|
|
$
|
95,400
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
90,000
|
|
|
$
|
0
|
|
|
$
|
66,600
|
|
|
$
|
252,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrance A. Young (6) (7)
|
|
$
|
31,300
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
70,000
|
|
|
$
|
0
|
|
|
$
|
53,850
|
|
|
$
|
155,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Sanguinetti
|
|
$
|
56,800
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
90,000
|
|
|
$
|
0
|
|
|
$
|
66,600
|
|
|
$
|
213,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvin (Kelly) Suess
|
|
$
|
58,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
90,000
|
|
|
$
|
0
|
|
|
$
|
66,600
|
|
|
$
|
214,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stewart C. Adams Jr. (7)
|
|
$
|
22,400
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,750
|
|
|
$
|
25,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary J. Long
|
|
$
|
52,600
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
90,000
|
|
|
$
|
0
|
|
|
$
|
66,600
|
|
|
$
|
209,200
|
|
(1)
|
Mr. Kent Steinwert was an employee of the Company in 2018 and received no additional compensation for his services as a Director or
Chairman of the Board. Mr. Kent Steinwert is a Named Executive Officer and his compensation is listed in the Summary Compensation Table.
|
(2)
|
The Company has no stock based award programs.
|
(3)
|
The Company has no Defined Benefit Pension Program. All earnings on Nonqualified Plan balances are assumed to be at market rates (see
Footnote 4 in the Non-Qualified Deferred Compensation Table).
|
(4)
|
All non-employee Directors received a $60,000 bonus in 2018 with the exception of Mr. Young who received $50,000. Non-employee
Directors are compensated up to $550 per month for outside medical insurance.
|
(5)
|
Contributions to the Executive Retirement Plan - Equity Component. See Plan description in Executive Compensation Discussion and
Analysis - Qualified and Non-Qualified Retirement Programs for further details.
|
(6)
|
Mr. Corum is a member of the Loan Committee which meets weekly, resulting in his Fees Earned exceeding those of the other Directors
whose Committee responsibilities are monthly in frequency. Mr. Young is a Director of the Company only (not the Bank) so his monthly fees are less than other Directors.
|
(7)
|
Mr. Adams retired from the Board in May 2018. Messrs. Green and Young joined the Board in March 2018.
|
Executive Compensation Discussion and Analysis
Roles and Responsibilities
The Board of Directors, operating both on its own and through its Personnel Committee: (1) reviews the Company’s overall
compensation strategies and practices; (2) reviews the employment contracts of all Named Executive Officers (the CEO, CFO and the 5 other most highly compensated executive officers); (3) annually establishes compensation levels and performance
evaluation measures for the Chief Executive Officer (the CEO does not participate in these discussions) and the other Named Executive Officers.
The role of the Company’s management is to: (1) provide information, analysis and recommendations for the Personnel Committee’s
consideration; and (2) manage the ongoing operations of the compensation program.
In fulfilling their duties, the Personnel Committee: (1) has the authority to retain and fund compensation consultants, independent
legal counsel and other compensation advisors; (2) considers those factors that impact the independence of such advisors prior to their selection; and (3) periodically evaluates information obtained from independent sources regarding financial
institutions that we compete against for talent. No outside compensation consultants or other advisors were used in 2018.
Executive Compensation Strategy and Programs
The objective of the Company’s compensation strategy is to attract and retain talented individuals who can implement the Company’s
strategic plan and maximize long-term stockholder value.
In order to achieve these objectives, the Board has structured a compensation program that includes three major components: (1)
annual base salary; (2) annual performance-based bonus; and (3) qualified and non-qualified retirement plans.
Say On Pay Vote
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:
1.
|
In the 2017 proxy statement the Company asked stockholders to provide advisory (non-binding) input with regard to the frequency
of future stockholder advisory votes on the Company’s executive compensation programs. The results of this election were that 71.4% of stockholders voting approved three years as the frequency of future stockholder advisory votes.
The Dodd-Frank Act requires that this vote be taken every six years.
|
2.
|
In the 2017 proxy statement the Company asked
stockholders to provide advisory (non-binding) approval of executive compensation as described in the “Executive Compensation Discussion and Analysis” section of the 2017 proxy statement. The results of the election were that
92.5%
of stockholders voting approved the Company’s current executive compensation. Based on this 2017 stockholder advisory vote the Board of Directors determined that no material changes were required to current compensation strategies
and programs.
|
Performance Evaluation Measures
In evaluating the performance of each Named Executive Officer, the Personnel Committee considers a combination of objective and
subjective factors, including the following:
1.
|
the Company’s annual financial performance (relative to both the current year’s budget and the overall performance of a select group of peer community banks as well as
the community bank industry as a whole) as measured by Return on Assets; Return on Equity; Efficiency Ratios; and Net Income performance;
|
2.
|
progress towards achieving the Company’s strategic plan;
|
3.
|
results of the Company’s and Bank’s regulatory examinations; and
|
4.
|
current economic and industry conditions.
|
These performance measurement factors are evaluated at least annually. Both the annual budget and strategic plan are approved in
advance by the Board of Directors and reevaluated during the year. The Board periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for talent (which increasingly include
regional and national banks and other financial services companies), and makes recommendations regarding changes to compensation programs.
Impact of Compensation Practices on the Company’s Risk Profile
The Company is a “traditional” community bank that generates the majority of its income from the margin generated between taking
customer deposits and making customer loans. Furthermore, credit risk is centrally controlled as reflected by: (1) no branch employee has the authority to approve, board or advance funds on a loan; all loan actions must be approved by Credit
Administration personnel, and the compensation of Credit Administration personnel is tied to loan quality, not loan volume or production; and (2) the Loan Committee, which includes one outside Director, must approve all loans over $2 million.
We do not have non-traditional fee-based or proprietary trading financial business units that could materially increase this risk
profile. Nor do we have any business units where employees with loan approval authority generate any substantial amount of their total compensation based upon generating large volumes of activity or taking significant risks.
In order to ensure that the Company’s compensation strategies and programs do not result in inappropriate risk taking on the part of
executive management, the Board has determined that:
1.
|
Annual Performance Based Bonuses must include consideration of the results of the Company’s and Bank’s regulatory examinations by the FRB, FDIC and California
Department of Business Oversight, all of which involve a review of the Company’s and Bank’s risk management practices and resulting risk profile.
|
2.
|
All parts of the Company’s non-qualified retirement programs are structured such that the benefits cannot be withdrawn by the participant, or paid out by the Company,
until the participant retires. This results in a significant portion of each executive’s compensation remaining at risk during their employment, so as to encourage adopting a long-term perspective and conservative risk management
practices. This is in contrast to most stock option plans where once the options vest they can be exercised and the stock sold, allowing participants to realize cash compensation based upon shorter-term financial results.
|
As a result, the Board has determined that the Company’s compensation practices are not likely to have a material adverse impact on
the Company’s risk profile.
Annual Compensation Program
Base Salary and Annual Performance-Based Bonus
Each Named Executive Officer receives a monthly base salary and is eligible for an annual performance-based bonus. Given that at the
present time the Company does not offer stock options or restricted stock compensation, in order to be competitive, total levels of Annual Compensation for each Named Executive Officer are targeted (assuming performance objectives are met) at
the top range of financial institutions that we compete against for talent.
Salaries are determined largely based upon comparative industry data for: (1) positions of similar responsibility in California
institutions that we compete against for talent; and (2) individuals with similar experience and expertise. Merit salary adjustments are evaluated periodically based on Company and individual performance. Goals and objectives are established
annually for each officer with performance evaluated at least annually.
Annual bonus compensation is paid according to the Company’s Executive Management Incentive Compensation Plan. Bonus compensation is
awarded based primarily on actual results against budgeted goals for the particular year including performance ratios and net income. Broad award guidelines are established annually for each level of management (these guidelines are currently
0-200% of base salary for the CEO and 0-125% of base salary for Executive Vice Presidents). The Board reserves some discretion with regard to these guidelines when: (1) the Company’s profit performance exceeds budget; (2) the Company’s profit
performance exceeds other peer banking institutions in California; and/or (3) an individual’s performance in a given year was beyond expectation.
It is important to understand that the Company’s annual compensation program is not formula driven and relies substantially on
subjective analysis. Executive Management is assigned specific performance goals and objectives on a yearly basis but these individual goals and objectives are
not
tied
to specific targeted compensation levels. Performance evaluation measures are not prioritized or otherwise assigned a specific weighting. Indeed, some of the measures, such as results of regulatory examinations and local economic conditions, do
not lend themselves to a weighted or formula approach.
Although the Board has established
broad
bonus payout
guidelines, the Board has purposely avoided establishing either: (1) hard targets for any performance factors; or (2) a weighting or formula as to how much each performance factor will contribute to the ultimate annual bonus for each named
executive officer. This philosophy has evolved based upon the Board’s belief that all banks operate in volatile financial markets amidst external conditions that Senior Management has little or no control over. Accordingly, before making annual
bonus or other compensation decisions, it is important for the Board to evaluate and weight all key performance factors in the context of the current financial services environment and how Senior Management’s current year’s performance against
those factors has influenced the Company’s progress toward achieving both short- and long-term financial goals.
Since the Company has consistently been one of the highest performing bank holding companies in California over the past 10 years, a
reflection of what the Board considers well balanced compensation practices that caused Senior Management to carefully consider the risks it assumed in the context of long term financial performance, the Board believes that its approach to
“pay-for-performance” has achieved, and will continue to achieve, the desired results.
Each Named Executive Officer’s salary and annual bonus amounts for the last three years are disclosed in the “Summary Compensation
Table.” All base salaries and annual bonuses are paid in cash and fully expensed in the current year.
Non-Qualified Deferred Compensation Plan
Until 2016, each Named Executive Officer was eligible to participate in the Company’s non-qualified Deferred Compensation Plan.
Under the Plan, participants could voluntarily elect to defer a maximum amount of one hundred percent (100%) of their base salary and annual bonus. Pursuant to Treasury Regulation Section 1.409A-3(j)(4)(ix)(C), the Company terminated this plan
on November 1, 2016 and distributed all balances to each participant in December, 2017.
Qualified and Non-Qualified Retirement Programs
In developing the various parts of a long-term compensation program, the Board has determined that at the present time it will not
seek stockholder approval to offer stock options or restricted stock awards as part of the compensation package. This decision has been made because the Board believes that it is important that all compensation should be: (1) fully transparent;
(2) expensed in the year incurred; and (3) not have the potential for future dilution of stockholder value. However, recognizing that stock based incentives are a major compensation component of many of the Company’s competitors, the Board has
developed what it believes is an effective and competitive retirement program.
The objectives of the Company’s retirement program are to: (1) successfully attract and retain talented individuals; and (2) align
long-term compensation directly with stockholder interests by rewarding prudent risk taking and creation of long-term stockholder value through generation of high quality and sustainable financial performance.
The Company’s retirement program has been structured to provide benefits as follows:
1.
|
Profit Sharing Plan … which provides
qualified
retirement benefits.
|
2.
|
Executive Retirement Plan … which provides supplemental
non-qualified
retirement benefits and has the following components:
|
|
a.
|
Salary Component … which makes Plan contributions based upon each participant’s salary level;
|
|
b.
|
Performance Component … which makes Plan contributions based upon the Company’s long-term growth in net income and increase in market capitalization;
|
|
c.
|
Equity Component … which makes discretionary cash contributions based upon Board approval, and contributions are invested primarily in the stock of the Company; and
|
3.
|
Bank-Owned Life Insurance Program … which provides for a division of life insurance death proceeds between the Company and each participant’s designated beneficiary.
|
All of the Company’s qualified and non-qualified retirement plans are structured as defined contribution plans to avoid the
uncertain future financial liabilities that can exist under defined benefit plans. The entire cost of these plans is expensed annually.
Qualified Profit Sharing Plan
Substantially all full-time employees of the Company, including each Named Executive Officer, participate in the Company’s qualified
Profit Sharing Plan. Two levels of contributions are made to the Profit Sharing Plan: (1) contributions equal to 5% of eligible salaries (subject to Internal Revenue Service limits) calculated according to criteria set forth in the Plan; and
(2) additional discretionary contributions authorized by the Board of Directors. None of these contributions are dependent upon the employee contributing to the Plan (i.e., the Plan does not require “matching”). Benefits pursuant to the Profit
Sharing Plan vest 0% during the first year of participation, 25% per full year thereafter and after five years such benefits are fully vested. Benefits under the Profit Sharing Plan are disclosed in the participant’s Company Contributions to
Qualified Retirement and 401(k) Plans in the “All Other Compensation Table.”
Upon a Change in Control, each participant receives only those balances in their account, including any net earnings or losses
thereon.
Non-Qualified Executive Retirement Plan
This Plan is a non-qualified plan where contributions cannot be withdrawn until the participant retires from the Company, and all
contributions are subject to the claims of the Company's creditors in the event of insolvency. This results in a significant portion of each executive’s compensation remaining at risk during their employment, so as to encourage adopting a
long-term perspective and conservative risk management practices. The Executive Retirement Plan is intended to be compliant with the provisions of Section 409A of the Internal Revenue Code. All balances are held in a Master Trust. General
investment parameters are established by the Company, including allowable investment instruments and approved investment manager(s). Participants can then work with the investment managers(s) to request investment of their vested balances
according to their own risk profile, with no guarantees of principal provided by the Company. Although contributions to the Equity Component of this Plan have always been invested primarily in the stock of the Company, in 2014 the Company
began issuing new shares of its common stock to other Plan components (see Note 15 to Item 8. - Financial Statements and Supplementary Data - in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2018). The Board believes that this increased ownership further encourages key executives to operate consistent with long-term stockholder objectives.
Salary Component
… to compensate for the contribution
ceilings placed on all qualified retirement plans (which includes the Company’s Profit Sharing Plan) by the Internal Revenue Service, the Board developed the Salary Component to provide levels of total retirement compensation that are
competitive in the banking industry. Each Named Executive Officer is eligible to participate in the Plan.
An account is established for each participant that is credited annually with a defined contribution determined based upon the
individual’s compensation at the time they became a participant and the number of years of service remaining to age 65. The balance in each participant’s account is 0% vested during the first five years of employment and becomes fully vested
after five years of employment. Benefits are disclosed in the participant’s Company Contributions to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the
“Non-Qualified Deferred Compensation Table.”
Benefits under the Salary Component become payable to participants after either: (1) the participant has become vested and his or
her employment at the Company terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts already contributed for past years of service including any
net earnings or losses thereon; and (2) the present value (using a discount factor equal to the treasury rate for the remaining years to participant’s age 65) of forecasted contributions over the remaining years to participant’s age 65, which
as of December 31, 2018 would be as follows: Ms. Skinner $1.69 million; and Mr. Smith $818 thousand. Payments are made in accordance with prior participant elections made in compliance with IRC Section 409A.
Performance Component
… to compensate for the lack of a
stock option program, the Board developed the Performance Component to reward participants based upon the Company’s long-term growth in net income and market capitalization. Each Named Executive Officer is eligible to participate in the Plan.
Participants receive benefits based on the Company’s long-term cumulative profitability and the resulting impact on the increase in market capitalization in excess of the increase in book value. Participants do not receive compensation for
increases in market capitalization above a P/E ratio of 20 times EPS.
Contributions are calculated using a bonus factor or “carry” determined by the Personnel Committee for each participant (currently
2.90% for the President and C.E.O. and up to 1.00% for each Executive Vice President). The total “carry” for all current program participants is 5.65%.
Benefits under to the Performance Component vest 50% during the first year of participation, and 50% during the second year of
participation. Benefits are disclosed in the participant’s Company Contributions to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred
Compensation Table.”
Benefits under the Performance Component become payable to participants after either: (1) the participant has become vested and his
or her employment at the Company terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts already contributed for past years of service including net
earnings or losses thereon; and (2) an amount equal to the difference (if any) between the purchase price and twenty times EPS which as of December 31, 2018 would be zero for all Named Executive Officers. Payments are made in accordance with
prior participant elections made in compliance with IRC Section 409A.
Equity Component
… to encourage key executives to adopt
a long-term perspective and conservative risk management practices consistent with stockholder objectives, the Board developed the Equity Component where cash contributions to the plan are invested primarily in Company stock.
Each Named Executive Officer is eligible to participate in the Plan, along with members of the Board of Directors.
Plan contributions are discretionary, subject to Board of Directors approval. Plan balances are held in a Master Trust with the trustee responsible for investing these
balances in a mix of Company stock and liquid assets.
Benefits under the Equity Component immediately vest when awarded. Benefits are disclosed in the participant’s Company Contributions
to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Benefits under the Equity Component become payable to participants after either: (1) the participant’s employment at the Company
terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
Upon a Change in Control, each participant receives only those balances in their account, including any net earnings or losses
thereon.
This plan component is not a “stock option or other stock-based compensation program”, rather it is a deferred compensation program
where cash contributions made by the Company are invested by the independent trustee of the Master Trust primarily in Company stock. Participants have no voting rights in the shares until post-retirement distributions are made.
Bank-Owned Life Insurance Program
The Company has a Bank-Owned Life Insurance (“BOLI”) program under which it has purchased single premium life insurance policies on
the lives of the Named Executive Officers as well as certain other senior officers of the Company. The Company is both the owner of, and beneficiary under, the policies. These policies provide: (1) financial protection to the Company in the
event of the death of an officer and; (2) significant income to the Company to offset the expense associated with the Company’s employee benefits since the interest earned on the cash surrender value of the policies is tax free as long as the
policies are used to finance employee benefits.
As compensation to each participant for agreeing to allow the Company to purchase an insurance policy on his or her life, split
dollar agreements have been entered into with each participant. These agreements provide for a division of the life insurance death proceeds between the Company and each participant’s designated beneficiary or beneficiaries. Participants have
an interest only in the death benefits of the policies, not in any cash surrender value that exists prior to death. Participants fully vest in their split dollar agreements after eight years of service or upon a Change in Control. If the
participant leaves the employ of the Company after vesting occurs (other than as part of a Change in Control) they cannot become employed by another financial institution and retain their vesting. The dollar value of premiums relating to that
portion of the death proceeds that would be payable to the participant’s beneficiary or beneficiaries in the event of his or her death, as well as the tax gross-up payments related thereto, are disclosed in the participant’s Tax Reimbursements
in the “All Other Compensation Table.”
Post-Termination Compensation
The Company’s approach to post-termination compensation depends upon the circumstances surrounding the Named Executive Officer’s
termination and has been designed by the Board to be competitive with industry-wide practices in order to attract and retain key executives.
1.
|
If the Named Executive Officer takes retirement, or their employment is terminated due to death or disability, no supplemental payments are made. They are entitled to
all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”), and in the case of death, their designated beneficiaries would be entitled to their split dollar life insurance death benefits.
|
2.
|
If the Named Executive Officer is terminated for cause, all benefits in the Company’s non-qualified Executive Retirement Plan, whether vested or not, are forfeited in
their entirety. No other payments are made, but the Named Executive Officer is entitled to all vested balances in the non-qualified Deferred Compensation Plan and all qualified plans.
|
3.
|
If the Named Executive Officer is terminated without cause, the terms of each individual’s employment contract call for the Company to provide lump sum payments of up
to a maximum of two years’ “Total” compensation as reported in the “Summary Compensation Table”. In addition they are entitled to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”).
|
4.
|
In the case of a Change in Control the Company has “single trigger” clauses in each Named Executive Officer’s employment contract. This means that termination payments
are made regardless of whether the Named Executive Officer remains in the employ of the buyer. In addition to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”), each Named Executive Officer
is eligible to receive lump sum payments of: (1) up to a maximum of two years’ “Total” compensation as reported in the “Summary Compensation Table”; (2) a transaction bonus (which range up to $250,000 per Named Executive Officer);
(3) three years’ medical premiums (which range up to $101,000 per Named Executive Officer); (4) accelerated benefits under the Executive Retirement Plan – Salary Component as more fully described under “Non-Qualified Executive
Retirement Plan”; and (5) tax gross-up payments to cover excise taxes under IRC Section 280G which as of December 31, 2018 are estimated as follows: Mr. Steinwert $0; Mr. Haley $0 million; Ms. Skinner $1.19 million; Mr. Smith $0
million; Mr. Colombini $0; Mr. Misasi $0; and Mr. Zitterow $0. None of these payments are subject to any material contractual conditions such as non-compete, non-solicitation or other types of agreements.
|