FARMERS & MERCHANTS BANCORP
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No.)
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Filed by the Registrant
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x
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Filed by a Party other than the Registrant
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o
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Check the appropriate box:
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o
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Preliminary Proxy Statement
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o
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Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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x
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12
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Farmers & Merchants Bancorp
Payment of Filing Fee (Check the appropriate box):
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x
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No fee required.
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o
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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o
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Fee paid previously with preliminary materials.
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o
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
April 19, 2013
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 Monday, May 20, 2013, 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 2012 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 cannot accommodate other guests
. 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.
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Sincerely,
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/s/ Kent A. Steinwert
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Kent A. Steinwert
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Chairman, President and Chief Executive Officer
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Enclosures
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FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 20, 2013
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2013 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 Monday, May 20, 2013, at 4:00 p.m. to:
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1.
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Vote to elect the following seven (7) Directors:
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Stewart C. Adams, Jr.
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Carl A. Wishek, Jr.
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Bruce A. Mettler
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Kevin Sanguinetti
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Kent A. Steinwert
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Edward Corum, Jr.
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Calvin (Kelly) Suess
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2.
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Act upon such other matters as may properly come before such annual meeting or any adjournment or postponement thereof.
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The Board of Directors has fixed the close of business on April 4, 2013 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 19, 2013
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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
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I -
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INTRODUCTION
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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 20, 2013 in the Ole Mettler 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 19, 2013.
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.”
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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 April 4, 2013 (the “record date”), will be entitled to vote in person at the meeting or by proxy. On the record date, there were 777,882 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 and may be entitled to as many votes as shall equal the number of shares of common stock held by such stockholder multiplied by the number of Directors to be elected, and such stockholder may cast all of such votes for a single nominee or may distribute them among two or more nominees. For example, if you own 10 shares of common stock of the Company and 7 Directors are being elected, you have 70 votes – you can cast all of them for one nominee, or two or more nominees if you so choose. No stockholder shall be entitled to cumulate votes (i.e., cast for any one or more nominees a number of votes greater than the number of shares of common stock of the Company held by such stockholder) unless the name(s) of the nominee(s) has (have) been placed in nomination prior to the commencement of the voting in accordance with Article III, Section 3.4 of the Company’s by-laws and, in accordance with Article II, Section 2.9 of the Company’s by-laws, a stockholder has given at least two days written notice to the Secretary of the Company of an intention to cumulate votes prior to the vote. Since the Company’s Annual Meeting of Stockholders is expected to be held on May 20, 2013, any stockholder nomination for election to the Board of Directors for the 2013 Annual Meeting of Stockholders, to be timely, would need to have been received by the Company not later than April 20, 2013 and not earlier than March 21, 2013. As of the printing of this proxy statement, no stockholder has given such notice. Discretionary authority to cumulate votes in the event of such a nomination is solicited in this proxy statement.
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In the election of Directors, the 7 nominees receiving the highest number of votes will be elected. Approval of any other matters which properly come before the meeting, if any, will require the affirmative vote of a majority of the shares represented and voting at the meeting provided the quorum requirements of Article II, Section 2.7 of the by-laws are met (see “Voting of Proxies”). Abstentions will not count as votes in favor of the election of Directors or any other proposals.
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: (1) “FOR” the election of the 7 nominees for Director recommended by the Board of Directors; and
(2)
voted at the discretion of the proxy holders on such other matters, if any, which may properly come before the meeting (including any proposal to adjourn the meeting).
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.
Abstentions will be included in tabulations of the votes cast on proposals presented to the stockholders and therefore will have the effect of a negative vote. Broker “non-votes” will not be counted for purposes of determining the number of votes cast for a proposal.
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.
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Name and Address
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Amount and Nature of
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Percent
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Title of Class
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of Beneficial Owner
(1)
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Beneficial Ownership
(2)
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of Class
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Common Stock
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Sheila M. Wishek
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41,726
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5.36%
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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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Joan Rider
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42,573
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5.47%
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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 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 (defined as the CEO, CFO and three other most highly compensated executive officers) and by all Directors and Named Executive Officers of the Company and of the Bank as a group as of the record date.
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Name and Address of Beneficial Owner (1)
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Amount of Common Stock
Owned and Nature of
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Percent
of Class
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Stewart C. Adams, Jr.
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1,105 | * | ||||||
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Edward Corum, Jr.
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608 | * | ||||||
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Stephen W. Haley
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300 | * | ||||||
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Deborah E. Hodkin
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217 | * | ||||||
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Bruce A. Mettler
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41,256 | 5.30% | ||||||
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Kevin Sanguinetti
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7,240 | * | ||||||
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Kenneth W. Smith
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215 | * | ||||||
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Kent A. Steinwert
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3,182 | * | ||||||
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Christa L. Steele
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183 | * | ||||||
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Calvin (Kelly) Suess
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2,131 | * | ||||||
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Carl A. Wishek, Jr.
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37,702 | 4.85% | ||||||
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All Directors, Nominees and Named Executive
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Officers as a group (11 persons)
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94,139 | 12.10% | ||||||
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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 at
http://
www.cfpproxy.com/4723
where the 2012 Annual Report and 2013 Proxy Statement are available. 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.
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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
During Past Five Years
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Director
Since
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Stewart C. Adams, Jr.
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75
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Retired Attorney
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1997
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Edward Corum, Jr.
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61
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Managing General Partner, Corum Real Estate
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2003
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Bruce A. Mettler
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68
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Vineyardist
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2010
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Kevin Sanguinetti
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55
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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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60
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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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77
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General Manager, Specialty Commodities Inc.
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1990
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Carl A. Wishek, Jr.
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74
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Assistant Vice President of the Bank
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1988
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THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE NOMINEES
LISTED ABOVE.
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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. Adams
has served as a director for fifteen years, lives and is actively involved in the Lodi market area, and provides legal expertise to the Board.
Mr. Corum
has served as a director for nine years, lives and is actively involved in the Sacramento market area, and provides real estate and financial expertise to the Board.
Mr. Mettler
joined the Board in 2010, lives and is actively involved in the Lodi market area, and provides agricultural production and processing expertise to the Board.
Mr. Sanguinetti
has served as a director for eleven 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 fourteen years, and has thirty-eight years of business, agriculture, real estate and consumer banking experience.
Mr. Suess
has served as a director for twenty-two years, lives and is actively involved in the Lodi market area, and provides agricultural production and processing expertise to the Board.
Mr. Wishek
has served as a director for twenty-four years, lives and is actively involved in the Lodi market area, and provides investment management and community relations expertise to the Board.
With the exception of Messrs. Steinwert and Wishek who are employees of the Company, all nominees are considered to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules.
None of the Directors of the Company 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 of the Company, 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.
While the Nominating Committee of the Board of Directors does not have a written policy regarding diversity in identifying new director candidates, the Committee takes diversity into account in looking for the best available candidates to serve on the Board of Directors. The Committee looks to establish diversity on the Board through a number of demographics, experiences, including operational experience, skills, and viewpoints, all with a view to identify 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.
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I
V –
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BOARD MATTERS
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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 Messrs. Steinwert and Wishek who are employees of the Company, 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”). The Directors of the Company are also Directors of the Bank. During the calendar year ending December 31, 2012, the Board of Directors of the Company met fourteen (14) times and the Board of Directors of the Bank met fifteen (15) 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 2012.
Roles and Responsibilities of the Board of Directors
The Directors of the Company are also Directors of the Bank. As such, Bank Committees supervise and review the activities of the Bank, which in turn report to the Company’s Board of Directors.
Leadership Structure
Until his retirement in March 2010, Mr. Ole Mettler had served as the Chairman of the Board for 37 years, and had been an employee of the Bank for 50 years. Upon Mr. Mettler’s retirement, the Board of Directors determined that the Chairmanship needed to continue to reside with the Director who was most familiar with the banking industry, and who would be most capable of setting strategic direction and integrating that direction with the Company’s day-to-day business development and risk management activities. Accordingly, Mr. Steinwert was unanimously elected to the position of Chairman in addition to his role since 1997 as President and Chief Executive Officer of the Company. As of this date, the Board of Directors has not formally designated a lead independent director.
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 voting member of the Audit or Personnel Committees 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.
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Role in Risk Management
The Board of Directors’ involvement in risk management centers around the following key roles and responsibilities:
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1.
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The Board approves the annual strategic plan and financial budget, and receives monthly reporting of financial and non-financial performance relative to plan.
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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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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 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’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 thirteen (13) times in 2012 and is comprised of the following members: Messrs. Sanguinetti (Chairman), Corum and Adams. 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 Company and 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. Wishek, Adams, Mettler, Suess and Steinwert. The Committee met four (4) times in 2012.
Loan Committee
The Loan Committee of the Company and 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 $10 million (over $10 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-two (52) times in 2012.
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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 Committee met four (4) times in 2012 and is comprised of the following voting members: Messrs. Wishek, Mettler, Suess 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 twelve (12) times in 2012 and is comprised of the following voting members: Messrs. Suess (Chairman), Mettler and Wishek.
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), Adams, Corum and Suess. The Committee met one (1) time in 2012. Messrs. Corum, Adams 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 peer banking institutions in California and in similar markets nationally.
The Personnel Committee is comprised of the following voting members: Messrs. Adams (Chairman), Corum and Sanguinetti. The Committee met four (4) times in 2012. 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.
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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 2011. 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 2012. The Company has no greater than ten percent stockholders.
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.
11
|
V –
|
DIRECTOR AND EXECUTIVE COMPENSATION
|
Director Compensation Discussion and Analysis
Directors who are employees of the Company or Bank (Kent Steinwert and Carl Wishek)
do not
receive additional compensation for their services as Directors.
A Director who is not an employee of the Company or Bank receives a $2,800 fee for each monthly Bank Board Meeting attended (no additional fees are paid for Company Board meetings), and a $700 fee for each Committee Meeting attended (Committee Chairmen receive $900 with the exception of the Audit Committee Chairman who receives $1,100). 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 may elect to defer receipt of some or all Directors’ fees under the Company’s Deferred Compensation Plan. Directors who are not employees of the Company or Bank are compensated up to $538 per month to cover a portion of the cost of outside medical insurance. Directors 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 (other than Mr. Steinwert who is a Named Executive Officer) during 2012 is disclosed in the “Director Compensation Table” on the following page.
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 three 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 (4) reviews the compensation levels and performance evaluation measures for 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; and (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 peer banks in California and in similar markets nationally. No outside compensation consultants or other advisors were used in 2012.
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.
12
2012 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
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Stuart C. Adams, Jr.
|
$ | 56,800 | $ | - | $ | - | $ | 60,000 | $ | - | $ | 45,165 | $ | 161,965 | ||||||||||||||
|
Edward Corum, Jr. (6)
|
$ | 94,800 | $ | - | $ | - | $ | 60,000 | $ | - | $ | 46,459 | $ | 201,259 | ||||||||||||||
|
Bruce A. Mettler
|
$ | 51,100 | $ | - | $ | - | $ | 60,000 | $ | - | $ | 40,000 | $ | 151,100 | ||||||||||||||
|
Kevin Sanguinetti
|
$ | 61,200 | $ | - | $ | - | $ | 60,000 | $ | - | $ | 46,459 | $ | 167,659 | ||||||||||||||
|
Calvin (Kelly) Suess
|
$ | 52,000 | $ | - | $ | - | $ | 60,000 | $ | - | $ | 45,165 | $ | 157,165 | ||||||||||||||
|
Carl A. Wishek, Jr.
|
$ | - | $ | - | $ | - | $ | 60,000 | $ | - | $ | 106,728 | $ | 166,728 | ||||||||||||||
(1) Messrs. Kent Steinwert and Carl Wishek were employees of the Company in 2012 and received no additional compensation for their services as Directors. Mr. Kent Steinwert is a Named Executive Officer and his compensation is listed in the Summary Compensation Table. The salary paid Carl Wishek is included in All Other Compensation. Directors who are not employees receive a $2,800 monthly Board Meeting Fee and $700 Committee Meeting Fees (Committee Chairs receive $900, with the exception of the Audit Committee Chair who receives $1,100).
(2) The Company has no stock based award programs.
(3) The Company has no Defined Benefit Pension Program. All earnings on Nonqualified Deferred Compensation Plan balances are assumed to be at market rates (see Footnote 4 in the Non-Qualified Deferred Compensation Table).
(4) All Directors received a $40,000 bonus in 2012. In previous years bonus amounts were disclosed according to the year "paid" not "earned." Beginning this year bonuses are disclosed in the year earned so as to better match compensation and performance data. Non-employee Directors are compensated up to $538 per month towards the cost of outside medical insurance. As an employee, a $14,720 Profit Sharing Plan contribution was made for Mr. Carl Wishek.
(5) Contributions to the Executive Retirement Plan - Equity Component. See Plan description in Executive Compensation Discussion and Analysis - Qualified and Non-Qualified Retirement Programs.
(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.
13
Say On Pay Votes
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, in the 2011 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 2011 proxy statement. The results of the election were that 93% of stockholders voting approved the Company’s current executive compensation.
The Company also asked for stockholder input with regard to the frequency of future stockholder advisory votes on the Company’s executive compensation programs. The results of the election were that 81% of stockholders voting approved three years as the frequency of future stockholder advisory votes.
Based on the preceding stockholder advisory votes the Board of Directors has determined that: (1) no material changes were required to current compensation strategies and programs; and (2) the Company will include a “Stockholder Vote on Executive Compensation” in the Proxy Statement every three years. The next scheduled advisory vote will be in connection with the 2014 annual meeting of stockholders.
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 five year 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 peer banking institutions in California and in similar markets nationally, 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 loan approval authority resides in the branches, therefore, all loans must be approved by Credit Administration personnel, and none of Credit Administration’s compensation is tied to loan volume or production; and (2) the Loan Committee, which includes outside Directors, 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 generate any substantial amount of their total compensation based upon generating large volumes of activity or taking significant risks.
14
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 Financial Institutions, 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 at the very top range of peer banking institutions (assuming performance objectives are met).
Salaries are determined largely based upon comparative industry data for: (1) positions of similar responsibility in similar banking institutions in California; 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 Senior Management (0-200% of base salary for the CEO and 0-100% 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. Senior 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.
15
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.
This philosophy has guided compensation decisions for many years, but those annual bonuses awarded in recent years reflect what the Board believes is the ultimate wisdom of this approach. In 2009 through 2012, despite the recession gripping the nation in general and California’s Central Valley in particular, the Company’s ROA and ROE metrics remained very strong, and overall financial performance exceeded by a large margin most of the rest of the California banks. Accordingly, the Board believed the factor “Company’s profit performance exceeds other peer banking institutions in California” deserved to be heavily considered in the awarding of 2009 through 2012 bonuses to Named Executive Officers.
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
Each Named Executive Officer is eligible to participate in the Company’s non-qualified Deferred Compensation Plan. Under the Plan, participants may voluntarily elect to defer a maximum amount of one hundred percent (100%) of their base salary and annual bonus. All contributions are made by the participant, the Company makes no contributions to this plan. Benefits become payable after either: (1) a participant’s in service distribution election period is reached; (2) the participant’s employment at the Company terminates; or (3) there has been a “Change in Control” as defined in the Plan. The Plan also allows for hardship distributions upon the occurrence of an “unforeseen financial emergency” as defined in Treasury Regulations Section 1.457-2(h) (4). Once a participant makes a contribution to the Plan, they become an unsecured creditor of the Company until distributions occur. Voluntary deferrals under the Deferred Compensation Plan are disclosed in the participant’s Executive Voluntary Deferrals of Salary and Bonus in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Upon a Change in Control, each participant receives only those balances in their account including any net earnings or losses thereon. Payments are made in accordance with prior participant elections made in compliance with Internal Revenue Code Section 409A.
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 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.
16
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 … (implemented in 2011) 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.
17
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.
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 a participant.
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 of the Executive Retirement Plan 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, 2012 would be as follows: Mr. Steinwert $1.68 million; Mr. Haley $1.08 million; Ms. Hodkin $2.34 million; Mr. Smith $1.39 million; Ms. Steele $0. 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 a participant and is entitled to 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 1.65% for the President and C.E.O. and 0.32% for each Executive Vice President). The total “carry” for all current program participants is 4.00%, a level that the Personnel Committee believes is conservative when compared to a typical range of 5-10% of outstanding shares authorized in employee stock options by other similar banking institutions in California.
Benefits pursuant 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.”
18
Benefits under the Performance Component of the Executive Retirement Plan 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, 2012 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.
Participants in this plan component will include Executive and Senior Officers, as well as 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 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 Equity Component of the Executive Retirement Plan 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 of Control” as defined in the Plan.
Benefit payments, net of required payroll tax withholding, will be made in shares of the Company stock.
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. Cash contributions under this plan component are included in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Retention Component
… to encourage key executives to remain in the long-term employ of the Company the Board developed the Retention Component. Each Named Executive Officer who was employed by the Company on January 1, 2005 is a participant in the Retention Component.
In November of 2010 the Board of Directors of the Company determined that it would permanently freeze the Retention Component as of December 31, 2010. The Retention Component was implemented during a period of time when the economy was growing and competition for key industry executives was significant. Given the recent economic environment and the overall softening of executive compensation, the Board determined that it was prudent to terminate any future contributions to this plan component.
19
Benefits under the Retention Component 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 Retention Component of the Executive Retirement Plan 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.
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 two years’ salary and bonus (see “Summary Compensation Table”). In addition they are entitled to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”).
|
20
|
4.
|
In the case of a Change in Control (as defined by the Treasury Department pursuant to the requirements of Internal Revenue Code Section 409A), 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 receives: (1) lump sum payment of two years’ salary and bonus (see “Summary Compensation Table”); (2) acceleration of benefits under non-qualified plans as more fully described under “Non-Qualified Executive Retirement Plan”; (3) lump sum payment of three years’ Cobra medical premiums (which range between $38,726 and $88,176 per Named Executive Officer); and (4) lump sum tax gross-up payments to cover excise taxes under IRC Section 280G which as of December 31, 2012 would be as follows: Mr. Steinwert $1.8 million; Mr. Haley $790,000; Ms. Hodkin $1.3 million; Mr. Smith $910,000; Ms. Steele $361,000. None of these payments are subject to any material contractual conditions such as non-compete, non-solicitation or other types of agreements.
|
Employment Contracts
The Company has an employment agreement with Kent A. Steinwert, the Company’s President and Chief Executive Officer. The agreement expires on March 31, 2015. The agreement provides for an annual base salary (see “Summary Compensation Table”), salary increases at the discretion of the Board of Directors based upon performance, use of a Company-owned automobile or automobile allowance and certain insurance benefits. Under certain circumstances, in the event of termination of his employment, Mr. Steinwert may be entitled to receive severance compensation (see “Post Termination Compensation”).
The Company has an employment agreement with Christa L. Steele, the Company’s Executive Vice President and Wholesale Banking Manager. The agreement, which expires on March 31, 2014, is automatically renewable for additional two-year terms unless notice is provided. The agreement provides for an annual base salary (see “Summary Compensation Table”), salary increases at the times that the salaries of the other Executive Officers of the Company are adjusted, use of a Company-owned automobile or automobile allowance and certain insurance benefits. Under certain circumstances, in the event of termination of her employment, Ms. Steele may be entitled to receive severance compensation (see “Post Termination Compensation”).
The Company has an employment agreement with Deborah E. Hodkin, the Company’s Executive Vice President and Chief Administrative Officer. The agreement, which expires on March 31, 2014, is automatically renewable for additional two-year terms unless notice is provided. The agreement provides for an annual base salary (see “Summary Compensation Table”), salary increases at the times that the salaries of the other Executive Officers of the Company are adjusted, use of a Company-owned automobile or automobile allowance and certain insurance benefits. Under certain circumstances, in the event of termination of her employment, Ms. Hodkin may be entitled to receive severance compensation (see “Post Termination Compensation”).
The Company has an employment agreement with Kenneth W. Smith, the Company’s Executive Vice President and Senior Credit Officer. The agreement, which expires on March 31, 2014, is automatically renewable for additional two-year terms unless notice is provided. The agreement provides for an annual base salary (see “Summary Compensation Table”), salary increases at the times that the salaries of the other Executive Officers of the Company are adjusted, use of a Company-owned automobile or automobile allowance and certain insurance benefits. Under certain circumstances, in the event of termination of his employment, Mr. Smith may be entitled to receive severance compensation (see “Post Termination Compensation”).
21
The Company has an employment agreement with Stephen W. Haley, the Company’s Executive Vice President and Chief Financial Officer. The agreement, which expires on March 31, 2014, is automatically renewable for additional two-year terms unless notice is provided. The agreement provides for an annual base salary (see “Summary Compensation Table”), salary increases at the times that the salaries of the other Executive Officers of the Company are adjusted, use of a Company-owned automobile or automobile allowance and certain insurance benefits. Under certain circumstances, in the event of termination of his employment, Mr. Haley may be entitled to receive severance compensation (see “Post Termination Compensation”).
Report of the Personnel Committee of the Board of Directors on Executive Compensation
The Personnel Committee has reviewed the Compensation Discussion & Analysis included herein with management and based upon those reviews and discussions has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s annual report on Form 10-K and this proxy statement.
|
Respectfully Submitted,
|
|
|
/s/ Stewart C. Adams, Jr.
|
|
|
|
|
|
Stewart C. Adams, Jr., Chairman
|
|
|
Kevin Sanguinetti
|
|
|
Edward Corum, Jr.
|
Compensation Committee Interlocks and Insider Participation
Messrs. Sanguinetti, Corum and Adams served in 2012 as members of the Personnel Committee. No member is or has been an officer or employee of the Company. During 2012, certain members of the Personnel Committee had loans or other extensions of credit outstanding from the Bank. These loans were made in the ordinary course of business and 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 are exempt from the loan prohibitions of the Sarbanes-Oxley Act of 2002 and did not involve more than the normal risk of collection or have other unfavorable features.
Executive Officer Compensation
The tables on the following pages provide details regarding the various forms of remuneration paid by the Company for the services performed in all capacities by each Named Executive Officer.
Since the Company does not offer: (1) stock options or other stock-based compensation; or (2) defined benefit plans, the following generally required tables are not included herein: Grants of Plan-Based Awards, Outstanding Equity Awards at Fiscal Year-End, Option Exercises and Stock Vesting and Pension Benefits.
22
2012 SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
(1)
Salary ($)
|
(1)
Bonus ($)
|
(2)
Stock
Awards
($)
|
(2)
Option
Awards
($)
|
(3)
Non-Equity
Incentive Plan
Compensation
($)
|
(3)
Change in
Pension Value
& Nonqualified
Deferred
Compensation
Earnings
($)
|
(4)
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
|
Kent A. Steinwert
|
2012
|
$ | 708,381 | $ | 800,000 | $ | - | $ | - | $ | - | $ | - | $ | 1,093,232 | $ | 2,601,613 | |||||||||||||||||
|
Chairman, President,
|
2011
|
$ | 708,381 | $ | 700,000 | $ | - | $ | - | $ | - | $ | - | $ | 890,720 | $ | 2,299,101 | |||||||||||||||||
|
Chief Executive Officer
of the Company & Bank
|
2010
|
$ | 708,381 | $ | 700,000 | $ | - | $ | - | $ | - | $ | - | $ | 667,368 | $ | 2,075,749 | |||||||||||||||||
|
Stephen W. Haley
|
2012
|
$ | 259,904 | $ | 210,000 | $ | - | $ | - | $ | - | $ | - | $ | 335,377 | $ | 805,281 | |||||||||||||||||
|
Executive Vice President,
|
2011
|
$ | 255,057 | $ | 205,000 | $ | - | $ | - | $ | - | $ | - | $ | 309,075 | $ | 769,132 | |||||||||||||||||
|
Chief Financial Officer, Secretary
of the Company & Bank
|
2010
|
$ | 241,558 | $ | 200,000 | $ | - | $ | - | $ | - | $ | - | $ | 260,200 | $ | 701,758 | |||||||||||||||||
|
Christa L. Steele
|
2012
|
$ | 239,439 | $ | 190,000 | $ | - | $ | - | $ | - | $ | - | $ | 167,476 | $ | 596,915 | |||||||||||||||||
|
Executive Vice President,
|
2011
|
$ | 183,344 | $ | 150,000 | $ | - | $ | - | $ | - | $ | - | $ | 95,140 | $ | 428,484 | |||||||||||||||||
|
Wholesale Banking Manager
o
f the Bank
|
2010
|
$ | 158,335 | $ | 90,000 | $ | - | $ | - | $ | - | $ | - | $ | 23,834 | $ | 272,169 | |||||||||||||||||
|
Deborah E. Hodkin
|
2012
|
$ | 254,816 | $ | 185,000 | $ | - | $ | - | $ | - | $ | - | $ | 286,690 | $ | 726,506 | |||||||||||||||||
|
Executive Vice President,
|
2011
|
$ | 251,048 | $ | 180,000 | $ | - | $ | - | $ | - | $ | - | $ | 250,388 | $ | 681,436 | |||||||||||||||||
|
Chief Administrative Officer
of the Bank
|
2010
|
$ | 240,555 | $ | 175,000 | $ | - | $ | - | $ | - | $ | - | $ | 201,324 | $ | 616,879 | |||||||||||||||||
|
Kenneth W. Smith
|
2012
|
$ | 255,008 | $ | 165,000 | $ | - | $ | - | $ | - | $ | - | $ | 259,559 | $ | 679,567 | |||||||||||||||||
|
Executive Vice President,
|
2011
|
$ | 243,172 | $ | 160,000 | $ | - | $ | - | $ | - | $ | - | $ | 231,327 | $ | 634,499 | |||||||||||||||||
|
Senior Credit Officer
of the Company & Bank
|
2010
|
$ | 230,927 | $ | 160,000 | $ | - | $ | - | $ | - | $ | - | $ | 184,731 | $ | 575,658 | |||||||||||||||||
(1) Includes base salary, unused vacation pay, car allowance and annual bonus. In previous years bonus amounts were disclosed according to the year "paid" not "earned." Beginning this year bonuses are disclosed in the year earned so as to better match compensation and performance data. See Annual Compensation Program on page 15 and Employment Contracts on page 21.
(2) The Company has no stock based award programs.
(3) The Company has no Defined Benefit Pension Program. All earnings on Non-Qualified Deferred Compensation Plan balances are assumed to be at market rates (see Footnote 4 in the Non-Qualified Deferred Compensation Table).
(4) See All Other Compensation Table for additional details.
23
2012 NON-QUALIFIED DEFERRED COMPENSATION TABLE
(Includes both vested and unvested balances - see Footnote 1)
|
Aggregate Plan Balances at Last Fiscal Year-End
|
||||||||||||||||||||||||||||
|
Name
|
(2)
Executive
Voluntary
Deferrals of
Salary
and Bonus in
Last Fiscal Year
($)
|
(3)
Registrant
Contributions
in
Last Fiscal Year
($)
|
(4)
Aggregate
Investment
Earnings
(Losses) in
Last Fiscal
Year
($)
|
Aggregate
Withdrawals /
Distributions
($)
|
(2) (5)
Executive
Voluntary
Deferrals of
Salary and
Bonus
($)
|
(3) (5)
Registrant
Contributions
($)
|
Total of
Executive
Voluntary
Deferrals and
Registrant
Contributions
($)
|
|||||||||||||||||||||
|
Kent A. Steinwert
|
$ | - | $ | 1,044,867 | $ | 479,375 | $ | - | $ | 2,711,453 | $ | 4,922,865 | $ | 7,634,318 | ||||||||||||||
|
Stephen W. Haley
|
$ | - | $ | 291,085 | $ | 134,177 | $ | - | $ | - | $ | 2,249,654 | $ | 2,249,654 | ||||||||||||||
|
Christa L. Steele
|
$ | - | $ | 134,560 | $ | 11,981 | $ | - | $ | - | $ | 203,830 | $ | 203,830 | ||||||||||||||
|
Deborah E. Hodkin
|
$ | - | $ | 248,837 | $ | 162,026 | $ | - | $ | - | $ | 1,849,142 | $ | 1,849,142 | ||||||||||||||
|
Kenneth W. Smith
|
$ | - | $ | 227,658 | $ | 151,299 | $ | - | $ | - | $ | 1,668,299 | $ | 1,668,299 | ||||||||||||||
(1) The Company expenses all deferred compensation in the year earned, even if it is not yet vested. As of December 31, 2012 unvested balances totaled $1,156,589. See Post Termination Compensation on page 20 for details regarding unvested balances upon the occurrence of certain triggering events.
(2) Includes voluntary deferrals of earned salary or annual bonus under the Non-Qualified Deferred Compensation Plan. See plan description on page 16, which details the types of compensation deferred, measures of calculating plan earnings and terms of payouts, withdrawals and other distributions. Current year contributions are included in the Summary Compensation Table (see footnote 1).
(3) Includes Company contributions under the Non-Qualified Executive Retirement Plan. See plan description on page 18, which details the types of compensation deferred, measures of calculating plan earnings and terms of payouts, withdrawals and other distributions. Current year contributions are included in the All Other Compensation Table.
(4) All balances are held in a Master Trust which is subject to the claims of the Company's creditors in the event of insolvency. General investment parameters are established by the Company, including allowable investment instruments and approved investment manager(s). Participants can then work with the investment managers(s) to request investment of their vested balances according to their own risk profile, with no guarantees of principal provided by the Company.
(5) Represents the cumulative amount of the current and all previous years' contributions and earnings or losses.
24
2012 ALL OTHER COMPENSATION TABLE
|
Name
|
Year
|
(1)
Personal Use
of Company
Car
($)
|
(2)
Tax
Reimbursements
($)
|
Insurance
Premiums
($)
|
Club Dues
($)
|
(3)
Company
Contributions
to Non-
Qualified
Retirement
Plans
($)
|
(4)
Company
Contributions
to Retirement
&
401(k) Plans
($)
|
Total
($)
|
||||||||||||||||||||||
|
Kent A. Steinwert
|
2012
|
$ | 1,336 | $ | 12,411 | $ | 2,376 | $ | 5,053 | $ | 1,044,867 | $ | 27,189 | $ | 1,093,232 | |||||||||||||||
|
2011
|
$ | 1,411 | $ | 9,208 | $ | 1,548 | $ | 6,606 | $ | 844,500 | $ | 27,447 | $ | 890,720 | ||||||||||||||||
|
2010
|
$ | 3,937 | $ | 8,320 | $ | 1,574 | $ | 3,846 | $ | 620,875 | $ | 28,816 | $ | 667,368 | ||||||||||||||||
|
Stephen W. Haley
|
2012
|
$ | 4,418 | $ | 11,395 | $ | 1,290 | $ | - | $ | 291,085 | $ | 27,189 | $ | 335,377 | |||||||||||||||
|
2011
|
$ | 8,947 | $ | 13,982 | $ | 1,290 | $ | - | $ | 257,409 | $ | 27,447 | $ | 309,075 | ||||||||||||||||
|
2010
|
$ | 8,862 | $ | 12,207 | $ | 1,290 | $ | - | $ | 209,025 | $ | 28,816 | $ | 260,200 | ||||||||||||||||
|
Christa L. Steele
|
2012
|
$ | 2,020 | $ | - | $ | 270 | $ | 3,437 | $ | 134,560 | $ | 27,189 | $ | 167,476 | |||||||||||||||
|
2011
|
$ | 3,557 | $ | - | $ | 270 | $ | 5,116 | $ | 58,750 | $ | 27,447 | $ | 95,140 | ||||||||||||||||
|
2010
|
$ | - | $ | - | $ | 270 | $ | 281 | $ | - | $ | 23,283 | $ | 23,834 | ||||||||||||||||
|
Deborah E. Hodkin
|
2012
|
$ | 6,049 | $ | 3,787 | $ | 828 | $ | - | $ | 248,837 | $ | 27,189 | $ | 286,690 | |||||||||||||||
|
2011
|
$ | 4,743 | $ | 3,141 | $ | 540 | $ | - | $ | 214,517 | $ | 27,447 | $ | 250,388 | ||||||||||||||||
|
2010
|
$ | 2,879 | $ | 2,830 | $ | 540 | $ | - | $ | 166,259 | $ | 28,816 | $ | 201,324 | ||||||||||||||||
|
Kenneth W. Smith
|
2012
|
$ | - | $ | 3,864 | $ | 848 | $ | - | $ | 227,658 | $ | 27,189 | $ | 259,559 | |||||||||||||||
|
2011
|
$ | 4,548 | $ | 3,113 | $ | 848 | $ | - | $ | 195,371 | $ | 27,447 | $ | 231,327 | ||||||||||||||||
|
2010
|
$ | 3,620 | $ | 2,738 | $ | 848 | $ | - | $ | 148,709 | $ | 28,816 | $ | 184,731 | ||||||||||||||||
(1) Certain executives receive a car allowance as opposed to the use of a company car. Car allowance amounts are included in Salary in the Summary Compensation Table.
(2) Represent tax gross-up payments to reimburse executive for split-dollar life insurance premiums under the Company’s BOLI program.
(3) Includes Non-Qualified Executive Retirement Plan contributions for the current year. Investment earnings or losses generated from investing prior year balances are reflected in the Non-Qualified Deferred Compensation Table.
(4) Includes contributions to the Company’s Profit Sharing Plan. See plan description on page 17.
25
|
VI –
|
AUDIT RELATED MATTERS
|
Report of the Audit Committee of the Board of Directors
The Audit Committee oversees relevant accounting, risk assessment, risk management and regulatory matters. It meets with the Bank’s and the Company’s internal auditors and the independent auditors to review the scope of their work as well as to review quarterly and annual financial statements and regulatory and public disclosures with the officers in charge of financial reporting, control and disclosure functions. After reviewing the independent auditor’s qualifications, partner rotation and independence, the Audit Committee also makes an annual decision regarding selection of the independent auditors. In addition, the Audit Committee reviews reports of examination conducted by regulatory agencies and follows up with management concerning recommendations and required corrective action.
The Audit Committee reports regularly to the Boards of Directors of the Bank and the Company and has the authority to select, retain, terminate and approve the fees and other retention terms of special counsel or other experts or consultants as it deems appropriate and necessary to perform its duties.
In performing its functions, the Audit Committee acts in an oversight capacity and necessarily relies on the work and assurances of management, which has the primary responsibility for financial statements and reports, and of the independent auditors, who, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles.
In connection with the December 31, 2012 financial statements of the Company, the Audit Committee: (1) reviewed and discussed the audited financial statements with management and the independent auditors; (2) discussed with the independent auditors the matters required by Statement on Auditing Standards No. 61; and (3) received and discussed with the independent auditors the matters required by PCAOB requirements. The Audit Committee has also considered whether the independent auditors’ provision of non-audit services to the Company is compatible with maintaining the auditors’ independence. Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012.
The Board of Directors has approved a written charter of the Audit Committee which is included as Exhibit A to this proxy statement.
|
Respectfully Submitted,
|
|
|
/s/ Kevin Sanguinetti
|
|
|
Kevin Sanguinetti, Chairman
|
|
|
Edward Corum, Jr.
|
|
|
Stewart C. Adams, Jr.
|
Audit Fees
The aggregate fees billed by Crowe Horwath LLP (which acquired the firm of Perry-Smith LLP in 2011) for performance of the audit and review of the Company’s quarterly and annual financial statements for fiscal year 2011 were $233,958 and fiscal year 2012 were $300,272.
26
Audit-Related Fees
The aggregate fees billed by Crowe Horwath LLP for services that were reasonably related to the performance of the audit and review of the Company’s quarterly and annual financial statements for fiscal year 2011 were $16,902 and fiscal year 2012 were $17,085.
Tax Fees
The aggregate fees billed by Crowe Horwath LLP for professional services for tax compliance, tax advice and tax planning for fiscal year 2011 were $27,950 and fiscal year 2012 were $33,660.
All Other Fees
There were no other fees billed by Crowe Horwath LLP in 2011 or 2012.
Pre-approval of Services by the Company’s External Auditor
The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by the Company’s external auditor. The Audit Committee will consider annually and, if appropriate, approve the provision of audit services by its independent auditor and consider, and if appropriate, pre-approve the provision of certain defined audit and non-audit services. The Audit Committee will also consider on a case-by-case basis and, if appropriate, approve specific engagements that are not otherwise pre-approved.
Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members. The member or members to whom such authority is delegated shall report any specific approval of services at its next regular meeting. The Audit Committee will regularly review summary reports detailing all services being provided by its external auditor.
Change in External Auditor
On March 14, 2013, the Company appointed the accounting firm of Moss Adams LLP as External Auditor for the year 2013. Crowe Horwath LLP was dismissed on March 14, 2013.
Crowe Horwath LLP’s reports on the Company’s financial statements for 2011 and 2012 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. The decision to dismiss Crowe Horwath LLP, was approved by our Audit Committee. During 2011 and 2012 and through March 14, 2013, there were no disagreements with Crowe Horwath LLP, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Crowe Horwath LLP would have caused them to make reference thereto in their reports on the financial statements for such years. During 2011 and 2012 and through March 14, 2013, there were no “reportable events” as such term is defined in Item 304(a)(1)(v) of the SEC’s Regulation S-K.
As stated above, Moss Adams LLP was appointed on March 14, 2013, as the Company’s External Auditor. During 2011 and 2012 and through March 14, 2013, the Company did not consult with Moss Adams LLP, on any issue, nor did Moss Adams LLP, advise the Company on any application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a “disagreement” or a “reportable event” (each as defined in Item 304(a)(1) of the SEC’s Regulation S-K).
27
|
VII –
|
OTHER INFORMATION
|
Annual Report
Together with this proxy statement, Farmers & Merchants Bancorp has distributed to each of its stockholders an Annual Report for the year ended December 31, 2012. The annual report contains the consolidated financial statements of the Company and the unqualified report thereon of Crowe Horwath LLP, the Company’s independent public accountants for 2011 and 2012.
Upon written request by any person entitled to vote at the meeting, addressed to Stephen W. Haley, Secretary of the Company, at 111 West Pine Street, Lodi, CA 95240, we will provide, without charge, a copy of the Company’s 2012 Annual Report, including the financial statements and the schedules thereto filed with the Securities and Exchange Commission. You can also obtain a copy of the Company’s Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission through the F&M Bank website. The website address is
http://
www.fmbonline.com
. The link to the Securities and Exchange Commission is on the
About Us
page.
Stockholder Nominations, Notices and Proposals
Article III, Section 3.4 of the By-Laws of the Company provides a procedure for nomination for election of members of the Board of Directors of the Company. Nominations for election to the Board of Directors may be made by the Board of Directors or by any holder of any outstanding class of capital stock of the Company entitled to vote for the election of Directors. Nominations, other than those made by the Board of Directors, shall be made by notification in writing delivered or mailed to the Chairman of the Nominating Committee at 111 West Pine Street, Lodi, CA 95240, not less than thirty (30) days or more than sixty (60) days prior to any meeting of stockholders called for election of Directors, provided, however, that if less than twenty-one (21) days notice of the meeting is given to stockholders, such nomination shall be mailed or delivered to the President of the Company not later than the close of business on the seventh (7
th
) day following the day on which the notice of meeting was mailed. If the Company’s 2014 Annual Meeting of Stockholders is held on the third Monday of May (as it will be in 2013), any stockholder nomination, to be timely, must be received by the Company not later than April 19, 2014 and not earlier than March 20, 2014. Notification must contain certain information as to each proposed nominee and as to each person acting alone or in conjunction with one or more persons, in making such nomination or in organizing, directing or financing such nomination. The Chairman of the meeting may, in his or her discretion, determine and declare to the meeting that a nomination not made in accordance with the foregoing procedure shall be disregarded. A copy of the By-Laws of the Company can be obtained by written request to the Secretary of the Company, Stephen W. Haley, 111 West Pine Street, Lodi, CA 95240. A copy of the Nominating Committee’s charter, which outlines the Committee’s nominating process, including the standards and qualifications to be considered for Board membership, was included as Exhibit C to this proxy statement.
Pursuant to Article II, Section 2.6 of the Company’s By-Laws, in order for other business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Company and must have been a stockholder of record at the time such notice is given. To be timely, a stockholder’s notice shall be delivered to or mailed (by United States registered mail, return receipt requested) and received at the principal executive offices of the Company not less than seventy (70) days nor more than ninety (90) days prior to the first anniversary date of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty (20) days, or delayed by more than seventy (70) days, from such anniversary date, notice by a stockholder to be timely must be so delivered or mailed (by U.S. registered mail, return receipt requested) and received not earlier than the ninetieth (90
th
) day prior to such annual meeting and not later than the close of business on the later of the seventieth (70
th
) day prior to such annual meeting or the tenth (10
th
) day following the day on which public announcement of the date of such meeting is first made. Notice of any stockholder proposal by a stockholder to properly bring business before the 2014 annual meeting, to be timely, must be received by the Company no later than March 10, 2014, and no earlier than February 18, 2014. Such stockholder’s notice to the Secretary must contain certain additional information, which is more particularly described in Article II, Section 2.6 of the Company’s By-Laws. No business shall be conducted at an annual meeting of stockholders unless proposed in accordance with the foregoing procedures. The Chairman of the meeting shall, if the factors warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedure and such business shall not be transacted.
28
Under the Rules of the Securities and Exchange Commission, if a stockholder intends to include a proposal in the Company’s proxy statement and form of proxy for presentation at the Company’s 2014 Annual Meeting of Stockholders, the proposal must be received by the Company at its principal executive offices by
December 10, 2013.
In addition to these advance notice requirements, there are other requirements that a stockholder must meet in order to have a proposal included in the Company’s proxy statement under the rules of the Securities and Exchange Commission.
Other Matters
The Management and Directors of the Company are not aware of any other matters to be presented for consideration at the meeting to be held on May 20, 2013 or any adjournments or postponements thereof. If any other matters should properly come before the meeting, it is intended that the persons named in the enclosed proxy will vote the shares represented thereby in accordance with their best business judgment, pursuant to the discretionary authority granted therein.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Stephen W. Haley
Stephen W. Haley
Secretary
29
Exhibit A
| AUDIT COMMITTEE CHARTER |
The Audit Committee Charter provides general guidelines for members of the Audit Committee (Committee) of the Board of Directors of Farmers & Merchants Bancorp (Company) and Farmers & Merchants Bank of Central California (Bank). These guidelines will assist the Committee in its efforts to ensure ongoing adequacy of the Bank's and Company’s internal audit systems according to the rules and guidelines of the Federal Deposit Insurance Corporation, the Securities Exchange Commission and the AICPA Auditing Standards Board. In discharging its responsibilities, the Committee may utilize outside counsel or other experts and advisors, as it sees fit.
Committee Membership
The Committee shall be composed of at least three
outside
Directors of the Board who (i) are independent for purposes of Rule 5605(a)(2) of the NASDAQ’s current listing standards, (ii) satisfy the requirement of Section 10A of the Securities and Exchange Act of 1934 and (iii) are
independent
of the management of the Bank and the Company. Pursuant to Part 363.5 of FDIC Rules and Regulations, at least annually the Board of the Bank will determine whether each audit committee member is an outside director and is independent of management.
An
outside director
is defined as “a director who is not, and within the preceding fiscal year has not been, an officer or employee of the institution or any affiliate of the institution.” In determining whether a director is an
independent director
the following issues shall be considered:
|
1.
|
The director’s level of ownership or control, either directly or indirectly, of the common shares of Farmers & Merchants Bancorp.
|
|
2.
|
Any employment, business or advisory role that the director has had within the Bank or Company within the past three years.
|
|
3.
|
Any employment of a director’s immediate family member as an executive officer of the Bank or Company within the past three years.
|
|
4.
|
Any involvement that the director has, or has had within the past three years, in the preparation of the financial statements of the Company.
|
|
5.
|
Any involvement that the director, or any immediate family member of the director has, or has had within the past three years, with any provider of internal or external audit services to the Bank or Company.
|
|
6.
|
Any involvement that the director, or any immediate family member of the director has, or has had within the past three years, with another entity that an executive officer of the Bank or Company serves, or has served within the past three years, on the compensation committee of that entity.
|
|
7.
|
Any involvement that the director, or any immediate family member of the director has, or has had within the past three years, with another entity that has received payments from the Bank or Company for property or services.
|
In applying the preceding guidelines the Board should consider the issues not only from the standpoint of the director himself or herself, but also from the standpoint of persons or organizations with which the director has an affiliation.
30
Designation of Financial Expert
The Committee shall designate one of its members as a “financial expert.” The financial expert is an individual who is determined by the Board of Directors to possess all of the following attributes:
|
1.
|
An understanding of financial statements and generally accepted accounting principles (GAAP).
|
|
2.
|
An ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves.
|
|
3.
|
Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to what can be expected to be raised by the Bank’s or Company’s financial statements or experience activity supervising one or more persons engaged in such activities.
|
|
4.
|
An understanding of internal controls and procedures for financial reporting.
|
|
5.
|
An understanding of audit committee functions.
|
These attributes may be acquired by:
|
1.
|
Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor, or experience in one or more positions that involve the performance of similar functions.
|
|
2.
|
Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions or experience overseeing or assessing the performance of companies or public accountants with respect to the preparation auditing or evaluation of financial statements.
|
|
3.
|
Other relevant experience.
|
Committee Meetings
The Committee shall meet at least bi-monthly to review all recent audit reports (including reports by internal auditors, independent public accountants, credit examiners, and/or regulatory agencies). Management reports shall also be reviewed as they relate to audit findings. The Committee shall maintain and report to the Boards of the Company and the Bank, minutes and other relevant records of their meetings and decisions.
Audit System
The Committee shall approve an internal and external audit system, which provides for:
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1.
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Audit Programs.
These items will be annually presented by the auditor:
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●
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Scope and frequency of the audit work
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●
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Documentation of the work performed
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●
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Conclusions reached and reports issued
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2.
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Program Effectiveness.
Audit Reports
and
R
esponses thereto shall be presented to determine if controls are effective and if appropriate corrective action has been taken.
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31
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3.
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Audit Arrangements.
The independent auditor, internal auditor and credit examination vendors are ultimately accountable to the Audit Committee. It is management's responsibility to evaluate and recommend vendor selection and replacement, but it is the Committee’s responsibility to approve and replace these vendors, if deemed appropriate or necessary. The Committee shall pre-approve all non-audit engagements of the independent auditor. The Committee shall review the report by the independent auditor which is required by Section 10A of the Securities Exchange Act of 1934. The following information shall be presented to the Committee with Management's recommendations at least annually:
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●
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Written Agreement. Annual written contract or engagement letter.
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●
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Vendor Competence. A resume and references for each individual responsible for maintaining the audit relationship.
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●
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Vendor Independence. A formal written statement of independence.
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Responsibilities
The Committee shall:
|
1.
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Review the Forms 10-Q and 10-K prior to presentation to the Board and filing with the Securities Exchange Commission and recommend inclusion of the Company’s financial statements therein.
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2.
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Report to the Board that its members have reviewed the Forms 10-Q and 10K, and whether anything came to the attention of the Committee members which caused them to believe that the audited financial statements contain any materially misleading statements or omit any material information.
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3.
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The Committee shall review and discuss with management, the internal auditor and the independent auditor the matters relating to the conduct of the audit required to be discussed by SAS Nos. 61 and 90 (Communications with Audit Committees).
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4.
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Evaluate findings of all internal/external audits and examinations of the Company’s operations, credit management, and risk oversight management. Review management responses and corrective action of all audit/examination findings.
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5.
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Provide oversight of all internal controls including applicable policies. Communicate with Company management on internal control issues. Oversee Company’s Bank Secrecy Act, Anti-Money Laundering, and Patriot Act policies and Customer Identification Program (CIP). Insure an adequate BSA/AML management structure exists in the Company. Communicate all internal control and BSA/AML issues and policies to the entire Board of Directors.
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6.
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Establish procedures for the confidential, anonymous submission by employees or other “whistleblowers” of concerns regarding questionable accounting, internal control or auditing matters; and the receipt, retention and treatment of these complaints.
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7.
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Ensure that a copy of this Charter is disclosed in the Company’s Proxy Statement at least every three years.
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32
Exhibit B
| PERSONNEL COMMITTEE CHARTER |
Role
The Personnel Committee's role is to discharge the Board's responsibilities relating to compensation of the Company's executives and to oversee and advise the Board on the adoption of policies that govern the Company's compensation and benefit programs.
Membership and Authority
The membership of the Committee consists of at least three directors, each of whom shall meet the independence requirements as defined by Rule 5605(a)(2) of the NASDAQ’s current listing standards. The Board appoints the members of the Committee and the chairman.
The Committee will have the resources and authority necessary to discharge its duties and responsibilities. The Committee has sole authority to retain outside counsel, compensation consultants, or other experts or consultants, as it deems appropriate. The Committee may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Committee to perform certain of its duties on its behalf. Any actions by the Committee relating to counsel, compensation consultants or other experts shall be in compliance with Section 10C of the Securities Exchange Act of 1934.
The principal responsibilities and functions of the Personnel Committee are as follows.
|
1.
|
Review the competitiveness of the Company's executive compensation programs to ensure: (a) the attraction and retention of executives; (b) the motivation of executives to achieve the Company's business objectives; and (c) the alignment of the interests of senior management with the long-term interests of the Company's shareholders.
|
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2.
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Review trends in executive compensation, oversee the development of new compensation plans, and, when necessary, approve the revision of existing plans.
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3.
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Review and approve the compensation structure for executives at the level of senior vice president and above.
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4.
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Oversee an evaluation of the performance of the Company's executive officers and approve the annual compensation, including salary, bonus and other incentive compensation, for the executive officers. Review and approve compensation packages for new executive officers and termination packages for executive officers.
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5.
|
Assist the Board in establishing executive officer annual goals and objectives, and consider the results of executive officer performance reviews in recommending compensation to the other independent members of the Board for approval consistent with the Company's compensation philosophy.
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6.
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Review and discuss with the Board plans for executive officer development and corporate succession plans for the CEO and other executive officers.
|
33
|
7.
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Review and make recommendations concerning long-term non-qualified deferred compensation plans.
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8.
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Appoint and remove plan administrators for the Company's qualified and non-qualified retirement plans.
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9.
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Periodically review the compensation paid to non-employee directors and make recommendations to the Board for any adjustments. No member of the Committee will act to fix his or her own compensation except for uniform compensation to directors for their services as a director.
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10.
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Review periodic reports from management on matters relating to the Company's compensation practices.
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11.
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Produce an annual report of the Compensation Committee on executive compensation for the Company's annual proxy statement in compliance with and to the extent required by applicable Securities and Exchange Commission rules and regulations.
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12.
|
Regularly review and make recommendations about changes to the charter of the Committee.
|
34
Exhibit C
| NOMINATING COMMITTEE CHARTER |
Mission Statement
The Nominating Committee shall assist the full Board of Directors in selecting individuals for service on the Board of Directors of the Company and Bank and evaluating their performance.
Membership and Qualification
The Committee shall consist of two or more "independent directors" as defined in and determined pursuant to Rule 5605(a)(2) of the NASDAQ’s current listing standards. The Committee members shall be elected by the Board annually for terms of one year, or until their successors shall be duly elected and qualified. The Board may remove any Committee member at any time. Unless a Committee Chairman is elected by the full Board
,
the Committee members may designate a Chairman.
Meetings and Other Actions
The Committee shall meet as required to carry out its responsibilities. Meetings may be called by the Chairman of the Committee or at the request of the Chief Executive Officer. All meetings of and other actions by the Committee shall be held or otherwise taken pursuant to the Company’s By-Laws.
Reports of meetings shall be made by the Committee Chairman to the Board of Directors at its next regularly scheduled meeting following the Committee meeting.
Responsibilities and Authority
In carrying out its mission, the Committee shall have the following responsibilities and authority.
|
1.
|
Evaluate periodically the desirability of and recommend to the Board any changes in the size and composition of the Board.
|
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2.
|
Make recommendations to the Board for the selection of directors in accordance with the criteria set forth below.
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|
·
|
Director selection should include at least enough independent directors so that the independent directors will constitute at least a majority of the Board.
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·
|
Independent directors should have appropriate skills, experiences and other characteristics to provide qualified persons to fill all Board Committee positions required to be filled by independent directors.
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·
|
The Chief Executive Officer of the Company shall be a director and, depending on the circumstances, certain other members of management, as well as certain individuals having relationships with the Company that prevent them from being independent directors, may be appropriate members of the Board.
|
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3.
|
Evaluate each new director candidate before recommending that the Board nominate such individual for election as a director.
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4.
|
Diligently seek to identify potential director candidates who will strengthen the Board.
|
35
|
5.
|
Submit to the Board the candidates for director to be added to the Board due to Board expansions, director resignations or retirements or otherwise.
|
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6.
|
Perform an evaluation of the Committee’s performance and assess any required changes in the Nominating Committee Charter.
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7.
|
Perform such other duties and responsibilities as may be assigned to the Committee, from time to time, by the Board of Directors of the Company.
|
Nominations by Shareholders
The Committee will consider recommendations from shareholders for nomination as a Board member as provided for in Article III, Section 3.4 of the By-Laws of the Company.
Communications with Directors
The Committee will recommend procedures for persons to communicate with directors. The following procedures will be in effect until changed by the Committee. 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 the Secretary of the Company, with 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 will be 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 will not be obligated to investigate or forward any anonymous submissions from persons who are not employees of the Company.
Additional Resources
The Committee shall have the authority to hire independent consultants, including counsel, to assist and advise the Committee in connection with its responsibilities.
36
REVOCABLE
PROXY
FARMERS
&
MERCHANTS
BANCORP
|
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2013
|
|
| This Proxy is solicited on behalf of the Board of Directors . | |
|
The undersigned hereby appoint(s) Edward Corum, Jr., Kevin Sanguinetti and Kent A. Steinwert and any of them, each with full power of substitution as Proxy of the undersigned, to attend the Annual Meeting of Stockholders of Farmers & Merchants Bancorp to be held at Lodi, California, at 4:00 p.m., on May 20, 2013 and any adjournment thereof, and to vote the number of shares the undersigned would be entitled to vote if personally present as indicated hereon:
|
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Mark here to enroll in our Electronic Access Program
.
|
o | |
|
Mark here for address change
.
|
o | |
|
IMPORTANT ANNUAL MEETING INFORMATION
|
|
|
|
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 20, 2013
|
||
| THE PROXY STATMENT AND THE ANNUAL REPORT ARE AVAILABLE AT: | ||
| http://www . cfpproxy . com/4723 |
|
FOLD
HERE
–
PLEASE
DO
NOT
DETACH
–
PLEASE
ACT
PROMPTLY
|
|
PLEASE
COMPLETE,
DATE,
SIGN,
AND
MAIL
THIS
PROXY
CARD
IN
THE
ENCLOSED
POSTAGE-PAID
ENVELOPE
|
| x | PLEASE MARK VOTES |
| AS IN THIS EXAMPLE |
| For |
With-
hold
|
For All
Except
|
||||||||||
|
1.
|
The election of directors of all nominees listed (except as marked to the contrary below): | o | o | o |
2.
|
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. |
| Stewart C . Adams , Jr . , Edward Corum , Jr . , Bruce A . Mettler , Kevin Sanguinetti, Kent A . Steinwert , Calvin (Kelly) Suess and Carl A . Wishek , Jr . |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED UNDER ITEM 1. THIS PROXY CONFERS ON THE PROXYHOLDERS THE POWER OF CUMULATIVE VOTING AS DESCRIBED IN THE PROXY STATEMENT.
|
||
|
INSTRUCTION: To withhold authority to vote for any individual nominee
,
mark “For
All Except” and write that nominee’s name in the space provided below
.
|
|||
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE
.
|
|||
| Please be sure to date and sign this proxy card in the box below . | Date | |
| Sign above | Co-holder (if any) sign above |
| When shares are held by joint tenants, both should sign. Executors, administrators, trustees, etc. should give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer . |
4723
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