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.)
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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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
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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☒
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No fee required.
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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) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) 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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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Fee paid previously with preliminary materials.
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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) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
April 10, 2017
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 15, 2017, 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 2016 Annual Report to Stockholders is also enclosed.
We hope you will be able to attend the annual meeting in person. We would also like to invite you to be our guest for dinner immediately following the meeting.
Please note that the annual meeting is only
open to stockholders. Space will be limited and we are not able to accommodate other guests, only stockholders.
We thank you in advance for your understanding on this issue.
The Directors and senior management greatly appreciate the interest expressed by our stockholders. Whether or not you plan to attend the annual meeting, it is important that you are represented and that your shares are voted. Accordingly, after reviewing the enclosed proxy statement, we ask you to complete, sign and date the enclosed proxy and return it as soon as possible in the postage-paid envelope that has been provided for your convenience.
Sincerely,
/s/ Kent A. Steinwert
Kent A. Steinwert
Chairman
Enclosures
FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 15, 2017
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2017 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 15, 2017, at 4:00 p.m. to vote to:
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1.
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Elect the following seven (7) Directors:
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Stewart C. Adams, Jr.
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Gary J. Long
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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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Hold an advisory (non-binding) vote to approve the compensation paid to the Company’s named
executive officers (commonly referred to as “Say-on-Pay”).
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Hold an advisory (non-binding) vote on the frequency of future advisory “Say-on-Pay” votes.
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The Board of Directors has fixed the close of business on March 24, 2017 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 10, 2017
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
| I - |
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 15, 2017 in the Ole Mettler Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA at 4:00 p.m., and at any adjournment or postponement thereof. All expenses incidental to the preparation and mailing, or otherwise making available to all stockholders of the notice, proxy statement and form of proxy will be paid by the Company. This proxy statement and the enclosed proxy are being mailed to the Company’s stockholders on or about April 10, 2017.
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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INFORMATION ABOUT VOTING AND THE ANNUAL MEETING
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Voting Rights and Vote Required
Only stockholders of record at the close of business on March 24, 2017 (the “record date”), will be entitled to vote in person at the meeting or by proxy. On the record date, there were 808,704 shares of common stock outstanding and entitled to vote. Holders of common stock of the Company are entitled to one vote for each share held. However, with respect to the election of Directors, each stockholder may be eligible to exercise cumulative voting rights.
In the election of Directors, the 7 nominees receiving the highest number of votes will be elected. Abstentions will not count as votes in favor of the election of Directors. Proposals 2 and 3 are advisory, non-binding votes where the Board will take into consideration the results of the voting.
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; (2) “FOR” the approval of the compensation paid to the Company’s named executive officers; and (3) “FOR” the three year frequency for future advisory votes to approve the compensation of the Company’s named executive officers.
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.
1
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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Title of Class
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Name and Address
of Beneficial Owner
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Amount and Nature of
Beneficial Ownership
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Percent
of Class
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Common Stock
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Joan Rider (1) (2)
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42,375
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5.24
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%
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111 West Pine Street
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Lodi, CA, 95240
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Common Stock
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Cortopassi Family Trust
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50,271
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6.22
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%
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and Cortopassi Partners
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11292 N. Alpine Road
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Stockton, CA 95212
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Common Stock
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Sheila M. Wishek (1)
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40,800
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5.05
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%
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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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Bruce A. Mettler (1) (3)
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64,430
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7.97
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%
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111 West Pine Street
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Lodi, CA, 95240
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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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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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Includes 23,605 shares held by the Ole & Dorothy Mettler Family Trust, of which Bruce Mettler is the sole trustee.
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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.
2
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 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
Beneficial Ownership (2)
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Percent
of Class
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Stewart C. Adams, Jr.
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1,811
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*
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Edward Corum, Jr.
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1,414
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*
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Stephen W. Haley
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2,746
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*
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Deborah E. Skinner
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2,244
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*
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Bruce A. Mettler (3)
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64,430
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7.97
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%
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Kevin Sanguinetti
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5,036
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*
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Kenneth W. Smith
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2,124
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*
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Kent A. Steinwert
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15,688
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1.94
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%
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James P. Daugherty
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623
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*
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Jay J. Colombini
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2,334
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*
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Calvin (Kelly) Suess
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2,939
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*
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Gary J. Long
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804
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*
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Ryan J. Misasi
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506
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*
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All Directors, Nominees and Named Executive Officers as a group (13 persons)
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102,699
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12.70
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%
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Indicates less than 1%.
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| (1) |
Mail should be sent to these individuals at the Company’s address marked “c/o Stockholder Relations.”
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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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Includes 23,605 shares held by the Ole & Dorothy Mettler Family Trust, of which Bruce Mettler is the sole trustee.
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Notice Regarding Electronic Access of Stockholder Meeting Documents
Farmers & Merchants Bancorp is now offering electronic access in lieu of mail delivery of our annual report and proxy statement. Should you want to discontinue receiving a paper copy of our Annual Report and Proxy Statement, please mark the box on the Proxy Card that states “Mark here to enroll in our Electronic Access Program.” You may rescind electronic access at any time by contacting the Company at the number below.
If you make this election on the enclosed proxy card, shortly before each annual meeting you will receive a proxy card, along with voting instructions and the web address where you can access that year’s annual report and proxy statement.
If you have any questions regarding electronic access, please call Sue Clark, AVP – Stockholder Relations, at (209) 367-2348.
3
| III - |
ITEMS TO BE VOTED ON
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Proposal #1 – Election of Directors
The Board of Directors recommends a vote for each of the nominees listed below.
At this year’s annual meeting, it will be proposed to elect seven (7) Directors of the Company, each
to hold office until the next annual meeting and until their successors shall be elected and qualified. It is the
intention of the proxy holders named in the enclosed proxy to vote such proxies (except those containing contrary instructions) for the seven (7) nominees named below.
The following table sets forth the names of each of the nominees for election as a Director, their
age, their principal occupation for the past five years and the period during which they have served as a Director of the Company (or the Bank).
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Name
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Age
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Principal Occupation
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Director
Since
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Stewart C. Adams, Jr.
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79
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Retired Attorney
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1997
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Edward Corum, Jr.
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65
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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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72
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Vineyardist
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2010
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Kevin Sanguinetti
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59
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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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64
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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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81
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President of ShellPro
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1990
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Gary J. Long
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64
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Owner, Gary J. Long Jewelers
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2014
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THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE NOMINEES
LISTED ABOVE
4
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 nineteen 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 thirteen years, lives and is actively involved in the Sacramento
market area, and provides real estate and financial expertise to the Board.
Mr. Mettler
has served as a director for seven years, 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 fifteen 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 eighteen years, and has over forty years of business, agriculture,
real estate and consumer banking experience.
Mr. Suess
has served as a director for twenty-six years, lives and is actively involved in the Lodi market
area, and provides agricultural production and processing expertise to the Board.
Mr. Long
has served as a director for three years, lives and is actively involved in the Stockton market area,
and provides small business expertise to the Board.
With the exception of Mr. Steinwert who is an employee 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. Each of the nominees has been selected by the Nominating Committee.
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.
5
Proposal #2 – Stockholder Vote on Executive Compensation
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Company is asking stockholders to provide advisory approval of executive compensation as described in the “Executive Compensation Discussion and Analysis” section of this proxy statement. While this vote is advisory, and not binding on the Company, it will provide information to the Board of Directors’ Personnel Committee regarding stockholder views about the Company’s executive compensation philosophy, policies and practices, which the Personnel Committee will then consider when determining executive compensation in future years.
When this vote was last taken in the 2014 proxy statement, the results were that 93.1% of the
stockholders voting approved the Company’s current executive compensation.
The Company believes that the information provided within the Executive Compensation Discussion and Analysis section of this proxy statement demonstrates the reasons why the Company’s compensation programs are appropriate for achieving the objective of the Company’s compensation strategy: “To establish
a competitive compensation package that rewards each officer based on their contribution and performance,
thereby serving to attract and retain talented individuals who can implement the Company’s strategic plan and maximize long-term stockholder value.” Since the current senior management team began arriving at the Company in 1997, the Company has:
| 1. |
Provided shareholders with a total annualized return (stock price appreciation plus dividends) of 13.93% per year. This compares very favorably to the return on both the S&P (7.67%) and Dow (8.21%) stock indices over the same period.
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| 2. |
Received the prestigious distinction of being named a “Dividend King” as one of only 18 publicly traded companies, and the only bank, in the United States to have paid dividends for 75 consecutive years or more, and to have increased them for 50 consecutive years or more.
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| 3. |
Maintained a “5-Star, Superior Bank” rating from BauerFinancial for 24 consecutive years, longer than any other commercial bank in California.
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This record of having consistently been one of the highest performing bank holding companies in California over the past 20 years, reflects what the Board considers well balanced compensation practices
that caused Senior Management to carefully consider the risks it assumes 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. Accordingly, the Board of Directors unanimously recommends
that stockholders approve the compensation of the named executive officers by approving the following
advisory resolution:
RESOLVED, that the stockholders of Farmers & Merchants Bancorp approve, on an advisory basis,
the compensation of the individuals identified in the Summary Compensation Table, as disclosed in this
proxy statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Executive Compensation Discussion and Analysis section, the compensation tables and the accompanying footnotes and narratives within the Executive Compensation Discussion and Analysis section of this proxy statement).
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR
PROPOSAL #2
6
Proposal #3 – Stockholder Vote on Frequency of Stockholder Votes on Executive Compensation
The Company is also seeking stockholder input with regard to the frequency of future stockholder advisory votes on our executive compensation programs. Consistent with the requirements of the Dodd-Frank Act, stockholders are provided the option of selecting a frequency of one, two or three years, or they may abstain from the vote.
When this vote was last taken in the 2011 proxy statement, the results were that 81% of the
stockholders voting approved three years as the frequency of future stockholder advisory votes.
For the reasons described below, the Board of Directors recommends that our stockholders vote for a frequency of
three years
.
The Company’s executive compensation program is designed to attract and retain talented individuals who can implement the Company’s strategic plan and maximize long-term stockholder value. As described in the Executive Compensation Discussion and Analysis section of this proxy statement, one of the core principles of the executive compensation program is that many parts are structured such that
the benefits cannot be withdrawn by the participant until they retire from the Company. 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 ensures management’s interests are aligned with the stockholders’ interests to maximize long-term stockholder value.
Accordingly, the Company recommends a stockholder vote every three years which would allow executive compensation programs to be evaluated in relation to longer-term performance.
Additionally, a vote every three years will provide:
| • |
Board members sufficient time to thoughtfully consider the results of the advisory vote and to implement any desired changes to the Company’s executive compensation program; and
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| • |
Stockholders sufficient time to evaluate the effectiveness of our short- and long-term
compensation strategies and the related business outcomes of the Company.
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The Board of Directors unanimously recommends that stockholders select “Three Years” when voting on the frequency of advisory votes on executive compensation.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR “THREE YEARS”
ON PROPOSAL #3
7
| IV – |
CORPORATE GOVERNANCE
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Code of Ethics
The Company has adopted a Code of Conduct which complies with the Code of Ethics requirements of the Securities and Exchange Commission. A copy of the Code of Conduct is posted on the Company’s website at
http://www.fmbonline.com
. The Company intends to disclose promptly any amendment to, or
waiver from any provision of, the Code of Conduct applicable to executive officers and Directors, on its
website.
Director Independence
The Company uses Rule 5605(a)(2) of the Nasdaq’s current listing rules to determine whether a Director is independent. With the exception of Mr. Steinwert who is an employee of the Company, 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, 2016, the Board of Directors of the Company met sixteen (16) 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 2016.
Roles and Responsibilities of the Board of Directors
Leadership Structure
The Board of Directors has determined that the Chairmanship should reside with the Director who is most familiar with the banking industry, and who is the most capable of setting strategic direction and integrating that direction with the Company’s day-to-day business development and risk management activities. Accordingly, since 2010 Mr. Steinwert has been unanimously elected to the position of Chairman in addition to his role since 1997 as President and Chief Executive Officer of the Company.
The Board believes that the combination of these positions does not compromise the important “check-and-balance” role that independent Directors play in the oversight of the Company since Mr. Steinwert is not a member of the Audit Committee or the Personnel Committee of the Board, and therefore key Board decisions
and oversight regarding: (1) accounting, financial reporting, and overall risk management; and (2) executive compensation; are made only by “independent” Directors. Furthermore, Mr. Steinwert receives no additional
compensation for his role as Chairman, representing a cost savings to the Company.
As of this date, the Board of Directors has not formally designated a lead independent director.
8
Role in Risk Management
The Board of Directors is responsible for monitoring all aspects of the Company’s enterprise risk. Their involvement in enterprise risk management centers around the following key roles and responsibilities:
| 1. |
The Board approves the strategic plan and financial budget, and receives monthly reporting of financial and non-financial performance relative to plan.
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| 2. |
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. |
The Loan Committee is a joint committee of management and the Board. The Committee meets weekly to review all new and renewed loans over $2 million and evaluate overall portfolio performance and risk. As a result, “independent” Directors are actively involved in the credit risk management process.
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| 4. |
The Audit Committee is responsible for providing oversight of all internal controls, reviewing the reports of audits and examinations of the Bank and the Company made by independent auditors, internal auditors, credit examiners, and regulatory agencies, and approving all SEC and other
regulatory agency reports before they are filed.
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| 5. |
The Personnel Committee is responsible for all performance evaluation and compensation decisions for the executive management team.
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More detail on all Board committees, including the composition and roles and responsibilities of each follows.
Committees of the Board
Audit Committee
The Audit Committee of the Company and the Bank is responsible for the ongoing adequacy of the internal control environment, and oversees the activities of the internal and independent auditors of the Company and the Bank with the aim of ensuring compliance with applicable laws. The Committee’s charter was included as Exhibit A in the Company’s 2016 proxy statement. The Audit Committee reports to the Boards of Directors of the Bank and the Company, as appropriate. The Audit Committee reviews the reports of audits and examinations of the Bank and the Company made by the independent auditors, internal auditors, credit examiners, and regulatory agencies and reports the results to the Boards of Directors of the Bank and the Company. The Committee met twelve (12) times in 2016 and is comprised of the following voting 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. Adams, Mettler, Suess and Steinwert. The Committee met four (4) times in 2016.
9
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 $15 million (over $15 million requires full Board approval) and reviewing all loans over $500,000. The Loan Committee is a joint committee of management and Directors. The following Directors are voting members: Messrs. Corum and Steinwert. The Committee met fifty-one (51) times in 2016.
Budget and Finance Committee
The Budget and Finance Committee of the Company and the Bank reviews and examines Bank and Company expenses on a quarterly basis comparing the results with: (1) the established annual budget,
the previous quarter and prior year; and (2) selected peer banks and the community banking industry as a whole; and proposes recommendations to management regarding improving financial performance. The Budget and Finance Committee is a joint committee of management and Directors. The Committee met four (4) times in 2016 and is comprised of the following voting members: Messrs. 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 eleven (11) times in 2016 and is comprised of the following voting members: Messrs. Suess (Chairman), Mettler and Long.
Nominating Committee
The Nominating Committee of the Company and the Bank identifies candidates to serve as Directors of the Bank and the Company in the event of future Board openings. The Committee’s charter was included as Exhibit C in the Company’s 2016 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 2016. 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 was included
as Exhibit B in the Company’s 2016 proxy statement.
The Company’s management: (1) provides information, analysis and recommendations for the Personnel Committee; and (2) manages the ongoing operations of the compensation program.
In fulfilling their duties, the Personnel Committee periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for talent.
The Personnel Committee is comprised of the following voting members: Messrs. Adams (Chairman), Corum and Sanguinetti. The Committee met three (3) times in 2016. 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.
10
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 2016. 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 2016, with the exception of one Form 4 filing by Mr. Sanguinetti which was filed 57
days late on February 6, 2017 and involved only one transaction. The Company has no greater than ten percent stockholders.
Stockholder Rights Plan
On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Computershare (formerly Registrar and Transfer Company), as Rights Agent, and the Company declared a dividend of a right to acquire one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock, $0.01 par value per share, to stockholders of record at the close of business on August 15, 2008. Generally, the Rights are only triggered and become exercisable if a person or group (the “Acquiring Person”) acquires beneficial ownership of 10 percent or more of the Company’s common
stock or announces a tender offer for 10 percent or more of the Company’s common stock.
11
The Rights Plan is similar to plans adopted by many other publicly traded companies. The effect of
the Rights Plan is to discourage any potential acquirer from triggering the Rights without first convincing Farmers & Merchants Bancorp’s Board of Directors that the proposed acquisition is fair to, and in the best interest of, all of the stockholders of the Company. The provisions of the Plan, if triggered by the Acquiring Person, will substantially dilute the equity and voting interest of any potential acquirer unless the
Board of Directors approves of the proposed acquisition (under Article XV of the Company’s Certificate
of Incorporation, the Board of Directors has the authority to consider any and all factors in determining whether an acquisition is in the best interests of the Company and its stockholders). Each Right, if and when exercisable, will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value, at a purchase price of $1,200 for each one one-hundredth of a share, subject to adjustment. Each holder of a Right (except for the Acquiring Person, whose Rights will be null and void upon such event) shall thereafter have the right to receive, upon exercise, that number of Common Shares of the Company having a market value of two times the exercise price of the Right. At any time before a person becomes an Acquiring Person, the Rights can be redeemed, in whole, but not in part, by Farmers and Merchants Bancorp’s Board of Directors at a price of $0.001 per Right.
On November 19, 2015, the Board of Directors approved a seven-year extension of the term of the Rights Plan. Pursuant to an Amendment to the Rights Agreement dated February 18, 2016, the term of the Rights Plan was extended from August 5, 2018 to August 5, 2025. The extension of the term of the Rights Plan was intended as a means to continue to guard against abusive takeover tactics and was not in response to any particular proposal. The Board also increased the purchase price under the Rights Plan to $1,600
per one one-hundredth of a preferred share from $1,200, to reflect the increase in the market price of the
Company’s common stock over the past several years.”
The full text of the Amendment was filed on the Company’s Form 8-K dated February 19, 2016.
Communications with Board of Directors
Any person, including any stockholder, desiring to communicate with, or make any concerns known to, the Company, directors generally, non-management Directors or an individual Director only may do so by submitting them in writing to Stephen W. Haley, Secretary of Farmers & Merchants Bancorp, 111 W. Pine Street, Lodi, CA 95240. All correspondence must include information to identify the person submitting the communication or concern, including name, address, telephone number and e-mail address (if applicable) together with information indicating the relationship of such person to the Company. The Secretary is responsible for maintaining a record of any such communications or concerns and submitting them to the appropriate addressee(s) for potential action or response. The Company may institute appropriate procedures to establish the authenticity of any communication or concern before forwarding. The Company is not obligated to investigate any anonymous submissions.
12
| V – |
DIRECTOR AND EXECUTIVE COMPENSATION
|
Director Compensation
All outside Directors receive compensation for their services. Mr. Steinwert, who is an employee of the Company, receives no additional compensation for his role as a Director.
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 who are not employees of the Company or Bank are compensated $550 per month to cover a portion of the cost of outside medical insurance. Directors who are not employees of the Company or Bank do not participate in any retirement or medical plans. The summary compensation earned by each Director (other than Mr. Steinwert who is a Named Executive Officer) during 2016 is disclosed in the
following “Director Compensation Table.”
2016 DIRECTOR COMPENSATION TABLE
|
Name
|
(1)
Fees Earned
or
Paid in Cash
($)
|
(2)
Stock
Awards
($)
|
(2)
Option
Awards
($
)
|
(5)
Non-Equity
Incentive Plan
Compensation
($)
|
(3)
Change
in Pension Value
& Nonqualified
Deferred
Compensation
Earnings
($)
|
(4)
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
Kent A. Steinwert
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||||||
|
Stewart C. Adams, Jr.
|
$
|
57,100
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
183,700
|
||||||||||||||
|
Edward Corum, Jr. (6)
|
$
|
93,600
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
220,200
|
||||||||||||||
|
Bruce A. Mettler
|
$
|
56,700
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
183,300
|
||||||||||||||
|
Kevin Sanguinetti
|
$
|
59,000
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
185,600
|
||||||||||||||
|
Calvin (Kelly) Suess
|
$
|
57,600
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
184,200
|
||||||||||||||
|
Gary J. Long
|
$
|
50,400
|
$
|
0
|
$
|
0
|
$
|
70,000
|
$
|
0
|
$
|
56,600
|
$
|
177,000
|
||||||||||||||
(1)
Mr. Kent Steinwert was an employee of the Company in 2016 and received no additional compensation for
his services as a Director or Chairman of the Board. Mr. Kent Steinwert is a Named Executive Officer and his
compensation is listed in the Summary Compensation Table. 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 $50,000 bonus in 2016. Non-employee Directors are compensated up to $550 per month towards the cost of outside medical insurance.
(5)
Contributions to the Executive Retirement Plan - Equity Component. Each Director received a $70,000 contribution
in 2016. See Plan description in Executive Compensation Discussion and Analysis - Qualified and Non-Qualified
Retirement Programs for further details.
(6)
Mr. Corum is a member of the Loan Committee which meets weekly, resulting in his Fees Earned exceeding those of the other Directors whose Committee responsibilities are monthly in frequency.
13
Executive Compensation Discussion and Analysis
Roles and Responsibilities
The Board of Directors, operating both on its own and through its Personnel Committee: (1) reviews
the Company’s overall compensation strategies and practices; (2) reviews the employment contracts of all Named Executive Officers (the CEO, CFO and the five other most highly compensated executive officers); (3) annually establishes compensation levels and performance evaluation measures for the Chief Executive Officer (the CEO does not participate in these discussions) and the other Named Executive Officers.
The role of the Company’s management is to: (1) provide information, analysis and recommendations
for the Personnel Committee’s consideration; and (2) manage the ongoing operations of the compensation
program.
In fulfilling their duties, the Personnel Committee: (1) has the authority to retain and fund compensation consultants, independent legal counsel and other compensation advisors; (2) considers those factors that impact the independence of such advisors prior to their selection; and (3) periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for
talent. No outside compensation consultants or other advisors were used in 2016.
Executive Compensation Strategy and Programs
The objective of the Company’s compensation strategy is to attract and retain talented individuals who can implement the Company’s strategic plan and maximize long-term stockholder value.
In order to achieve these objectives, the Board has structured a compensation program that includes
three major components: (1) annual base salary; (2) annual performance-based bonus; and (3) qualified and non-qualified retirement plans.
Say On Pay Vote
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:
| 1. |
In the 2011 proxy statement the Company asked stockholders to provide advisory (non-binding) input with regard to the frequency of future stockholder advisory votes on the Company’s executive
compensation programs. The results of this election were that 81% of stockholders voting approved
three years as the frequency of future stockholder advisory votes. The Dodd-Frank Act requires that this vote be taken every six years, resulting in Proposal #3 being included in this year’s proxy statement.
|
| 2. |
In the 2014 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 2014 proxy statement. The results of the election were that 93.1% of
stockholders voting approved the Company’s current executive compensation. Based on this 2014 stockholder advisory vote the Board of Directors determined that no material changes were required to current compensation strategies and programs. Based upon the 2011 stockholder advisory vote to include a stockholder vote on compensation every three years, Proposal #2 is included in this year’s proxy statement.
|
14
Performance Evaluation Measures
In evaluating the performance of each Named Executive Officer, the Personnel Committee considers
a combination of objective and subjective factors, including the following:
| 1. |
the Company’s annual financial performance (relative to both the current year’s budget and the
overall performance of a select group of peer community banks as well as the community bank
industry as a whole) as measured by Return on Assets; Return on Equity; Efficiency Ratios; and Net Income performance;
|
| 2. |
progress towards achieving the Company’s strategic plan;
|
| 3. |
results of the Company’s and Bank’s regulatory examinations; and
|
| 4. |
current economic and industry conditions.
|
These performance measurement factors are evaluated at least annually. Both the annual budget and strategic plan are approved in advance by the Board of Directors and reevaluated during the year. The Board
periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for talent (which increasingly include regional and national banks and other financial
services companies), and makes recommendations regarding changes to compensation programs.
Impact of Compensation Practices on the Company’s Risk Profile
The Company is a “traditional” community bank that generates the majority of its income from the margin generated between taking customer deposits and making customer loans. Furthermore, credit
risk is centrally controlled as reflected by: (1) no branch employee has the authority to approve, board or advance funds on a loan; all loan actions must be approved by Credit Administration personnel, and the compensation of Credit Administration personnel is tied to loan quality, not loan volume or production; and (2) the Loan Committee, which includes one outside Director, must approve all loans over $2 million.
We do not have non-traditional fee-based or proprietary trading financial business units that could materially increase this risk profile. Nor do we have any business units where employees with loan approval
authority generate any substantial amount of their total compensation based upon generating large volumes
of activity or taking significant risks.
In order to ensure that the Company’s compensation strategies and programs do not result in inappropriate risk taking on the part of executive management, the Board has determined that:
| 1. |
Annual Performance Based Bonuses must include consideration of the results of the Company’s and Bank’s regulatory examinations by the FRB, FDIC and California Department of Business Oversight, all of which involve a review of the Company’s and Bank’s risk management practices
and resulting risk profile.
|
| 2. |
All parts of the Company’s non-qualified retirement programs are structured such that the benefits
cannot be withdrawn by the participant, or paid out by the Company, until the participant retires.
|
This results in a significant portion of each executive’s compensation remaining at risk during
their employment, so as to encourage adopting a long-term perspective and conservative risk management practices. This is in contrast to most stock option plans where once the options vest they can be exercised and the stock sold, allowing participants to realize cash compensation based
upon shorter-term financial results.
As a result, the Board has determined that the Company’s compensation practices are not likely to
have a material adverse impact on the Company’s risk profile.
15
Annual Compensation Program
Base Salary and Annual Performance-Based Bonus
Each Named Executive Officer receives a monthly base salary and is eligible for an annual performance-
based bonus. Given that at the present time the Company does not offer stock options or restricted stock
compensation, in order to be competitive, total levels of Annual Compensation for each Named Executive Officer are targeted (assuming performance objectives are met) at the top range of financial institutions that we compete
against for talent.
Salaries are determined largely based upon comparative industry data for: (1) positions of similar
responsibility in California institutions that we compete against for talent; and (2) individuals with similar experience
and expertise. Merit salary adjustments are evaluated periodically based on Company and individual performance. Goals and objectives are established annually for each officer with performance evaluated at least annually.
Annual bonus compensation is paid according to the Company’s Executive Management Incentive Compensation Plan. Bonus compensation is awarded based primarily on actual results against budgeted goals for the particular year including performance ratios and net income. Broad award guidelines are established annually
for each level of management (these guidelines are currently 0-200% of base salary for the CEO and 0-100% 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.
Although the Board has established broad bonus payout guidelines, the Board has purposely
avoided establishing either: (1) hard targets for any performance factors; or (2) a weighting or formula as to
how much each performance factor will contribute to the ultimate annual bonus for each named executive
officer. This philosophy has evolved based upon the Board’s belief that all banks operate in volatile financial
markets amidst external conditions that Senior Management has little or no control over. Accordingly, before making annual bonus or other compensation decisions, it is important for the Board to evaluate
and weight all key performance factors in the context of the current financial services environment and how Senior Management’s current year’s performance against those factors has influenced the Company’s progress toward achieving both short- and long-term financial goals.
Since the Company has consistently been one of the highest performing bank holding companies
in California over the past 10 years, a reflection of what the Board considers well balanced compensation
practices that caused Senior Management to carefully consider the risks it assumed in the context of long
term financial performance, the Board believes that its approach to “pay-for-performance” has achieved,
and will continue to achieve, the desired results.
Each Named Executive Officer’s salary and annual bonus amounts for the last three years are
disclosed in the “Summary Compensation Table.” All base salaries and annual bonuses are paid in cash and fully expensed in the current year.
16
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.
Pursuant to Treasury Regulation Section 1.409A-3(j)(4)(ix)(C), the Company terminated this plan on November 1, 2016. All balances will be liquidated between twelve and twenty-four months after the termination date.
Qualified and Non-Qualified Retirement Programs
In developing the various parts of a long-term compensation program, the Board has determined that at the present time it will not seek stockholder approval to offer stock options or restricted stock awards as part of the compensation package. This decision has been made because the Board believes that it is
important that all compensation should be: (1) fully transparent; (2) expensed in the year incurred; and
(3) not have the potential for future dilution of stockholder value. However, recognizing that stock based incentives are a major compensation component of many of the Company’s competitors, the Board has developed what it believes is an effective and competitive retirement program.
The objectives of the Company’s retirement program are to: (1) successfully attract and retain
talented individuals; and (2) align long-term compensation directly with stockholder interests by rewarding
prudent risk taking and creation of long-term stockholder value through generation of high quality and
sustainable financial performance.
The Company’s retirement program has been structured to provide benefits as follows:
| 1. |
Profit Sharing Plan … which provides
qualified
retirement benefits.
|
| 2. |
Executive Retirement Plan … which provides supplemental
non-qualified
retirement benefits and
has the following components:
|
| a. |
Salary Component … which makes Plan contributions based upon each participant’s salary level;
|
| b. |
Performance Component … which makes Plan contributions based upon the Company’s long term growth in net income and increase in market capitalization;
|
| c. |
Equity Component … which makes discretionary cash contributions based upon Board approval, and contributions are invested primarily in the stock of the Company; and
|
| 3. |
Bank-Owned Life Insurance Program … which provides for a division of life insurance death proceeds between the Company and each participant’s designated beneficiary.
|
17
All of the Company’s qualified and non-qualified retirement plans are structured as defined contribution plans to avoid the uncertain future financial liabilities that can exist under defined benefit
plans. The entire cost of these plans is expensed annually.
Qualified Profit Sharing Plan
Substantially all full-time employees of the Company, including each Named Executive Officer, participate in the Company’s qualified Profit Sharing Plan. Two levels of contributions are made to the Profit Sharing Plan: (1) contributions equal to 5% of eligible salaries (subject to Internal Revenue Service limits) calculated according to criteria set forth in the Plan; and (2) additional discretionary contributions authorized
by the Board of Directors. None of these contributions are dependent upon the employee contributing to the
Plan (i.e., the Plan does not require “matching”). Benefits pursuant to the Profit Sharing Plan vest 0% during the first year of participation, 25% per full year thereafter and after five years such benefits are fully vested. Benefits under the Profit Sharing Plan are disclosed in the participant’s Company Contributions to Qualified Retirement and 401(k) Plans in the “All Other Compensation Table.”
Upon a Change in Control, each participant receives only those balances in their account, including any net earnings or losses thereon.
Non-Qualified Executive Retirement Plan
This Plan is a non-qualified plan where contributions cannot be withdrawn until the participant retires
from the Company, and all contributions are subject to the claims of the Company’s creditors in the event of
insolvency. This results in a significant portion of each executive’s compensation remaining at risk during their
employment, so as to encourage adopting a long-term perspective and conservative risk management practices. The Executive Retirement Plan is intended to be compliant with the provisions of Section 409A of the Internal Revenue Code. All balances are held in a Master Trust. General investment parameters are established by the Company, including allowable investment instruments and approved investment manager(s). Participants can then work with the investment managers(s) to request investment of their vested balances according to their
own risk profile, with no guarantees of principal provided by the Company. Although contributions to the
Equity Component of this Plan have always been invested primarily in the stock of the Company, in 2014 the Company began issuing new shares of its common stock to other Plan components (see Notes 15 and 23 to Item 8. - Financial Statements and Supplementary Data - in the Company’s Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended December 31, 2016). The Board
believes that this increased ownership further encourages key executives to operate consistent with long-term stockholder objectives.
Salary Component
… to compensate for the contribution ceilings placed on all qualified retirement
plans (which includes the Company’s Profit Sharing Plan) by the Internal Revenue Service, the Board
developed the Salary Component to provide levels of total retirement compensation that are competitive in
the banking industry. Each Named Executive Officer is eligible to participate in the Plan.
An account is established for each participant that is credited annually with a defined contribution
determined based upon the individual’s compensation at the time they became a participant and the number
of years of service remaining to age 65. The balance in each participant’s account is 0% vested during the first five years of employment and becomes fully vested after five years of employment. Benefits are disclosed in the participant’s Company Contributions to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Benefits under the Salary Component become payable to participants after either: (1) the participant has become vested and his or her employment at the Company terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
18
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, 2016 would be as follows:
Mr. Steinwert $323,000; Mr. Haley $377,000; Ms. Skinner $2.05 million; and Mr. Smith $1.07 million.
Payments are made in accordance with prior participant elections made in compliance with IRC Section 409A.
Performance Component
… to compensate for the lack of a stock option program, the Board developed
the Performance Component to reward participants based upon the Company’s long-term growth in net income
and market capitalization. Each Named Executive Officer is eligible to participate in the Plan. Participants receive benefits based on the Company’s long-term cumulative profitability and the resulting impact on the
increase in market capitalization in excess of the increase in book value. Participants do not receive compensation for increases in market capitalization above a P/E ratio of 20 times EPS.
Contributions are calculated using a bonus factor or “carry” determined by the Personnel Committee
for each participant (currently 1.65% for the President and C.E.O. and up to 0.32% for each Executive Vice President). The total “carry” for all current program participants is 3.16%.
Benefits under to the Performance Component vest 50% during the first year of participation, and 50% during the second year of participation. Benefits are disclosed in the participant’s Company Contributions to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Benefits under the Performance Component become payable to participants after either: (1) the participant has become vested and his or her employment at the Company terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts already contributed for past
years of service including net earnings or losses thereon; and (2) an amount equal to the difference (if any)
between the purchase price and twenty times EPS which as of December 31, 2016 would be zero for all Named Executive Officers. Payments are made in accordance with prior participant elections made in compliance with IRC Section 409A.
Equity Component
… to encourage key executives to adopt a long-term perspective and conservative
risk management practices consistent with stockholder objectives, the Board developed the Equity Component where cash contributions to the plan are invested primarily in Company stock.
Each Named Executive Officer is eligible to participate in the Plan, along with members of the Board
of Directors. Plan contributions are discretionary, subject to Board of Directors approval. Plan balances are held in a Master Trust with the trustee responsible for investing these balances in a mix of Company stock and liquid assets.
Benefits under the Equity Component immediately vest when awarded. Benefits are disclosed in the participant’s Company Contributions to Non-Qualified Retirement Plans in the “All Other Compensation Table” as well as Registrant Contributions in Last Fiscal Year in the “Non-Qualified Deferred Compensation Table.”
Benefits under the Equity Component become payable to participants after either: (1) the participant’s employment at the Company terminates (including retirement); or (2) there has been a “Change in Control” as defined in the Plan.
Upon a Change in Control, each participant receives only those balances in their account, including any net earnings or losses thereon.
19
This plan component is not a “stock option or other stock-based compensation program”, rather it is a deferred compensation program where cash contributions made by the Company are invested by the independent trustee of the Master Trust primarily in Company stock. Participants have no voting rights in the shares until post-retirement distributions are made.
Bank-Owned Life Insurance Program
The Company has a Bank-Owned Life Insurance (“BOLI”) program under which it has purchased
single premium life insurance policies on the lives of the Named Executive Officers as well as certain other senior officers of the Company. The Company is both the owner of, and beneficiary under, the policies. These policies provide: (1) financial protection to the Company in the event of the death of an officer and; (2) significant income to the Company to offset the expense associated with the Company’s employee benefits since the interest earned on the cash surrender value of the policies is tax free as long as the policies are used to finance employee benefits.
As compensation to each participant for agreeing to allow the Company to purchase an insurance policy on his or her life, split dollar agreements have been entered into with each participant. These agreements provide for a division of the life insurance death proceeds between the Company and each
participant’s designated beneficiary or beneficiaries. Participants have an interest only in the death benefits
of the policies, not in any cash surrender value that exists prior to death. Participants fully vest in their split dollar agreements after eight years of service or upon a Change in Control. If the participant leaves the employ of the Company after vesting occurs (other than as part of a Change in Control) they cannot become
employed by another financial institution and retain their vesting. The dollar value of premiums relating to that portion of the death proceeds that would be payable to the participant’s beneficiary or beneficiaries
in the event of his or her death, as well as the tax gross-up payments related thereto, are disclosed in the participant’s Tax Reimbursements in the “All Other Compensation Table.”
Post-Termination Compensation
The Company’s approach to post-termination compensation depends upon the circumstances
surrounding the Named Executive Officer’s termination and has been designed by the Board to be
competitive with industry-wide practices in order to attract and retain key executives.
| 1. |
If the Named Executive Officer takes retirement, or their employment is terminated due to death or disability, no supplemental payments are made. They are entitled to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”), and in the case of death, their designated beneficiaries would be entitled to their split dollar life insurance death benefits.
|
| 2. |
If the Named Executive Officer is terminated for cause, all benefits in the Company’s non-qualified
Executive Retirement Plan, whether vested or not, are forfeited in their entirety. No other payments
are made, but the Named Executive Officer is entitled to all vested balances in the non-qualified Deferred Compensation Plan and all qualified plans.
|
| 3. |
If the Named Executive Officer is terminated without cause, the terms of each individual’s
employment contract call for the Company to provide lump sum payments of up to a maximum of two years’ “Total” compensation as reported in the “Summary Compensation Table”. In
addition they are entitled to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”).
|
20
| 4. |
In the case of a Change in Control the Company has “single trigger” clauses in each Named Executive Officer’s employment contract. This means that termination payments are made regardless of whether the Named Executive Officer remains in the employ of the buyer. In addition to all vested balances in qualified and non-qualified plans (see “Deferred Compensation Table”), each Named Executive Officer is eligible to receive lump sum payments of: (1) up to a maximum of two years’ “Total” compensation as reported in the “Summary Compensation Table”; (2) a transaction bonus (which range up to $250,000 per Named Executive Officer); (3) three years’ medical premiums (which range up to $91,000 per Named Executive Officer); (4) accelerated benefits under the Executive Retirement Plan – Salary Component as more fully described under “Non-Qualified Executive Retirement Plan”; and (5) tax gross-up payments to cover excise taxes
under IRC Section 280G which as of December 31, 2016 are estimated as follows: Mr. Steinwert
$0; Mr. Haley $1.52 million; Ms. Skinner $2.76 million; Mr. Smith $1.98 million; Mr. Colombini $0; Mr. Misasi $0; and Mr. Daugherty $0. 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 employment agreements with each of its Named Executive Officers. These
agreements are generally structured for an initial three year period and then renew automatically for successive two year terms unless terminated by either party. The agreements provide for (i) a base salary (see “Summary Compensation Table”), (ii) salary increases at the discretion of the Board of Directors based upon performance, (iii) participation in the Company’s annual performance-based bonus program, (iv) participation in certain non-qualified deferred compensation and retirement plans, (v) use of a Company-owned automobile or automobile allowance, and (vi) certain insurance benefits. Under certain circumstances, in the event of termination of employment, each Named Executive Officer 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 | |
|
Stewart C. Adams, Jr., Chairman
|
Compensation Committee Interlocks and Insider Participation
Messrs. Sanguinetti, Corum and Adams served in 2016 as members of the Personnel Committee. No member is or has been an officer or employee of the Company. During 2016, 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.
21
Executive Officer Compensation
The following tables 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 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.
2016 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
|
2016
|
$
|
801,115
|
$
|
900,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
1,568,356
|
$
|
3,269,471
|
||||||||||||||||
|
Chairman, President,
|
2015
|
$
|
810,288
|
$
|
900,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
1,178,203
|
$
|
2,888,491
|
||||||||||||||||
|
Chief Executive Officer of the Company & Bank
|
2014
|
$
|
695,016
|
$
|
900,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
1,166,522
|
$
|
2,761,538
|
||||||||||||||||
|
Stephen W. Haley
|
2016
|
$
|
315,000
|
$
|
275,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
548,947
|
$
|
1,138,947
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
307,614
|
$
|
260,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
414,057
|
$
|
981,671
|
||||||||||||||||
|
Chief Financial Officer, Secretary of the Company & Bank
|
2014
|
$
|
300,000
|
$
|
250,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
380,830
|
$
|
930,830
|
||||||||||||||||
|
James P. Daugherty
|
2016
|
$
|
250,008
|
$
|
160,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
218,484
|
$
|
628,492
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
250,008
|
$
|
200,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
192,935
|
$
|
642,943
|
||||||||||||||||
|
Wholesale Banking
Manager of the Bank
|
2014
|
$
|
235,014
|
$
|
190,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
132,100
|
$
|
557,114
|
||||||||||||||||
|
Jay J. Colombini
|
2016
|
$
|
255,012
|
$
|
225,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
234,427
|
$
|
714,439
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
235,677
|
$
|
200,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
146,946
|
$
|
582,623
|
||||||||||||||||
|
Wholesale Banking
Manager of the Bank
|
2014
|
$
|
230,016
|
$
|
180,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
120,043
|
$
|
530,059
|
||||||||||||||||
|
Deborah E. Skinner
|
2016
|
$
|
302,307
|
$
|
275,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
483,488
|
$
|
1,060,795
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
295,388
|
$
|
235,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
350,395
|
$
|
880,783
|
||||||||||||||||
|
Chief Administrative
Officer of the Bank
|
2014
|
$
|
273,758
|
$
|
215,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
318,042
|
$
|
806,800
|
||||||||||||||||
|
Kenneth W. Smith
|
2016
|
$
|
328,223
|
$
|
240,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
441,919
|
$
|
1,010,142
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
321,852
|
$
|
220,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
316,536
|
$
|
858,388
|
||||||||||||||||
|
Senior Credit Officer of the Company & Bank
|
2014
|
$
|
312,000
|
$
|
200,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
287,986
|
$
|
799,986
|
||||||||||||||||
|
Ryan J. Misasi
|
2016
|
$
|
280,008
|
$
|
180,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
272,908
|
$
|
732,916
|
||||||||||||||||
|
Executive Vice President,
|
2015
|
$
|
280,008
|
$
|
200,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
256,920
|
$
|
736,928
|
||||||||||||||||
|
Retail Banking Manager of the Bank
|
2014
|
$
|
147,761
|
$
|
115,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
106,586
|
$
|
369,347
|
||||||||||||||||
(1)
Includes base salary, unused vacation pay, car allowance and annual bonus. See Annual Compensation Program and Employment Contracts.
(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.
22
2016 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
|
2016
|
$
|
3,483
|
$
|
21,815
|
$
|
1,980
|
$
|
6,474
|
$
|
1,507,341
|
$
|
27,263
|
$
|
1,568,356
|
||||||||||||||
|
2015
|
$
|
3,160
|
$
|
18,767
|
$
|
1,980
|
$
|
6,259
|
$
|
1,121,139
|
$
|
26,898
|
$
|
1,178,203
|
|||||||||||||||
|
2014
|
$
|
4,438
|
$
|
16,457
|
$
|
2,376
|
$
|
6,557
|
$
|
1,108,929
|
$
|
27,765
|
$
|
1,166,522
|
|||||||||||||||
|
Stephen W. Haley
|
2016
|
$
|
10,054
|
$
|
17,193
|
$
|
1,980
|
$
|
0
|
$
|
492,457
|
$
|
27,263
|
$
|
548,947
|
||||||||||||||
|
2015
|
$
|
9,799
|
$
|
15,301
|
$
|
1,980
|
$
|
0
|
$
|
360,079
|
$
|
26,898
|
$
|
414,057
|
|||||||||||||||
|
2014
|
$
|
9,698
|
$
|
13,733
|
$
|
1,980
|
$
|
0
|
$
|
327,654
|
$
|
27,765
|
$
|
380,830
|
|||||||||||||||
|
James P. Daugherty
|
2016
|
$
|
5,746
|
$
|
0
|
$
|
2,590
|
$
|
5,860
|
$
|
177,025
|
$
|
27,263
|
$
|
218,484
|
||||||||||||||
|
2015
|
$
|
6,421
|
$
|
0
|
$
|
1,980
|
$
|
5,615
|
$
|
152,021
|
$
|
26,898
|
$
|
192,935
|
|||||||||||||||
|
2014
|
$
|
9,607
|
$
|
0
|
$
|
2,419
|
$
|
5,330
|
$
|
86,979
|
$
|
27,765
|
$
|
132,100
|
|||||||||||||||
|
Jay J. Colombini
|
2016
|
$
|
3,359
|
$
|
1,090
|
$
|
690
|
$
|
0
|
$
|
202,025
|
$
|
27,263
|
$
|
234,427
|
||||||||||||||
|
2015
|
$
|
3,433
|
$
|
1,018
|
$
|
690
|
$
|
0
|
$
|
114,907
|
$
|
26,898
|
$
|
146,946
|
|||||||||||||||
|
2014
|
$
|
3,501
|
$
|
950
|
$
|
848
|
$
|
0
|
$
|
86,979
|
$
|
27,765
|
$
|
120,043
|
|||||||||||||||
|
Deborah E. Skinner
|
2016
|
$
|
7,378
|
$
|
5,634
|
$
|
690
|
$
|
0
|
$
|
442,523
|
$
|
27,263
|
$
|
483,488
|
||||||||||||||
|
2015
|
$
|
7,126
|
$
|
5,058
|
$
|
690
|
$
|
0
|
$
|
310,623
|
$
|
26,898
|
$
|
350,395
|
|||||||||||||||
|
2014
|
$
|
6,101
|
$
|
4,562
|
$
|
828
|
$
|
0
|
$
|
278,786
|
$
|
27,765
|
$
|
318,042
|
|||||||||||||||
|
Kenneth W. Smith
|
2016
|
$
|
0
|
$
|
5,811
|
$
|
1,290
|
$
|
0
|
$
|
407,555
|
$
|
27,263
|
$
|
441,919
|
||||||||||||||
|
2015
|
$
|
0
|
$
|
5,443
|
$
|
1,290
|
$
|
0
|
$
|
282,905
|
$
|
26,898
|
$
|
316,536
|
|||||||||||||||
|
2014
|
$
|
0
|
$
|
5,106
|
$
|
1,580
|
$
|
0
|
$
|
253,535
|
$
|
27,765
|
$
|
287,986
|
|||||||||||||||
|
Ryan J. Misasi
|
2016
|
$
|
6,992
|
$
|
0
|
$
|
280
|
$
|
0
|
$
|
238,373
|
$
|
27,263
|
$
|
272,908
|
||||||||||||||
|
2015
|
$
|
7,285
|
$
|
0
|
$
|
269
|
$
|
0
|
$
|
222,468
|
$
|
26,898
|
$
|
256,920
|
|||||||||||||||
|
2014
|
$
|
4,597
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
101,989
|
$
|
0
|
$
|
106,586
|
|||||||||||||||
(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. See Plan description in Executive Compensation Discussion and Analysis - Qualified and Non-Qualified Retirement Programs for further details. 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.
23
2016 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
($)
|
(3)
Company
Contributions in
Last Fiscal Year
($)
|
(4)
Aggregate
Investment
Earnings
(Losses) in
Last Fiscal Year
($)
|
Aggregate
Withdrawals /
Distributions
($)
|
(2) (5)
Executive
Voluntary
Deferrals of
Salary and
Bonus
($)
|
(3) (5)
Company
Contributions
($)
|
Total of
Executive
Voluntary
Deferrals and
Company
Contributions
($)
|
|||||||||||||||||||||
|
Kent A. Steinwert
|
$
|
0
|
$
|
1,507,341
|
$
|
1,961,493
|
$
|
0
|
$
|
3,762,201
|
$
|
12,824,557
|
$
|
16,586,758
|
||||||||||||||
|
Stephen W. Haley
|
$
|
0
|
$
|
492,457
|
$
|
426,630
|
$
|
0
|
$
|
0
|
$
|
4,684,035
|
$
|
4,684,035
|
||||||||||||||
|
James P. Daugherty
|
$
|
0
|
$
|
177,025
|
$
|
51,296
|
$
|
0
|
$
|
0
|
$
|
655,460
|
$
|
655,460
|
||||||||||||||
|
Jay J. Colombini
|
$
|
0
|
$
|
202,025
|
$
|
57,695
|
$
|
0
|
$
|
0
|
$
|
693,329
|
$
|
693,329
|
||||||||||||||
|
Deborah E. Skinner
|
$
|
0
|
$
|
442,523
|
$
|
284,256
|
$
|
0
|
$
|
0
|
$
|
3,811,520
|
$
|
3,811,520
|
||||||||||||||
|
Ryan J. Misasi
|
$
|
0
|
$
|
238,373
|
$
|
36,311
|
$
|
0
|
$
|
0
|
$
|
612,364
|
$
|
612,364
|
||||||||||||||
|
Kenneth W. Smith
|
$
|
0
|
$
|
407,555
|
$
|
171,261
|
$
|
0
|
$
|
0
|
$
|
3,463,747
|
$
|
3,463,747
|
||||||||||||||
(1)
The Company expenses all deferred compensation in the year earned, even if it is not yet vested. As of December 31, 2016 all balances were vested. See Post Termination Compensation for details regarding unvested balances upon the occurrence of certain triggering events.
(2)
Includes voluntary deferrals of earned salary or annual bonus. See Non-Qualified Deferred Compensation Plan
for details regarding 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. See Non-Qualified Executive Retirement Plan for details regarding 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 manager(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
| 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, 2016 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 AS 16; 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, 2016.
The Board of Directors has approved a written charter of the Audit Committee which was included as Exhibit A to the Company’s 2016 proxy statement.
|
Respectfully Submitted,
|
|
|
|
|
| /s/ Kevin Sanguinetti | |
|
Kevin Sanguinetti, Chairman
|
Audit Fees
The aggregate fees billed by Moss Adams LLP for performance of the audit and review of the Company’s
quarterly and annual financial statements for fiscal year 2015 were $207,000 and fiscal year 2016 were $217,250.
Audit-Related Fees
The aggregate fees billed by Moss Adams 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 2015 were $16,000 and fiscal year 2016 were $43,899.
25
Tax Fees
The aggregate fees billed by Moss Adams LLP for professional services for tax compliance, tax advice and
tax planning for fiscal year 2015 were $30,000 and fiscal year 2016 were $39,995.
All Other Fees
There were no other fees billed by Moss Adams LLP in 2015 or 2016.
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.
The Company does not require that its external auditor attend the annual meeting.
| VII – |
OTHER INFORMATION
|
Annual Report
Together with this proxy statement, the Company has distributed to each of its stockholders an Annual Report for the year ended December 31, 2016. The annual report contains the consolidated financial statements of the Company and the unqualified reports thereon of Moss Adams LLP, the Company’s independent public
accountants for 2014, 2015 and 2016.
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 2016 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 (7th) day following the day on which the notice of meeting was mailed. If the Company’s 2018 Annual Meeting of Stockholders is held on the third Monday of May (as it will be in 2017), any stockholder nomination, to be timely, must be received by the Company not
later than April 22, 2018 and not earlier than March 23, 2018. 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, is included as Exhibit C to this proxy statement.
26
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 (90th) day prior to such annual meeting and not later than the close of business on the later of the seventieth (70th) day prior to such annual meeting or the tenth (10th) 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 2018 annual meeting, to be timely, must be received by the Company no later than March 13, 2018, and no earlier than February 21, 2018. 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.
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 2018 Annual Meeting
of Stockholders, the proposal must be received by the Company at its principal executive offices by December
13, 2017. 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.
Cumulative Voting
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.
27
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 15, 2017 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
|
28
IMPORTANT ANNUAL MEETING INFORMATION
000004
ENDORSEMENT_LINE SACKPACK
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3 ADD 4
ADD 5 ADD 6
C123456789
000000000.000000 ext
000000000.000000 ext
000000000.000000 ext
000000000.000000 ext
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Using a
black ink
pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Annual Meeting Proxy Card PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Proposals — The Board of Directors recommends a vote
FOR
all the nominees listed,
FOR
Proposal 2, and
3 Years
for Proposal 3. 1. Election of Directors: 01 - Stewart C. Adams, Jr. 02 - Edward Corum, Jr. 03 - Gary J. Long 04- Bruce A. Mettler 05 - Kevin Sanguinetti 06 - Kent A. Steinwert 07 - Calvin (Kelly) Suess Mark here to vote Mark here to
WITHHOLD
For All
EXCEPT
- To withhold authority to vote for any
FOR
all nominees vote from all nominees nominee(s), write the name(s) of such nominee(s) below. For Against Abstain 2. Approval, by non-binding vote, on the compensation of the Named Executive Officers (Say-on-Pay). 1 Year 2 Years 3 Years Abstain 3. Recommendation, by non-binding vote, on the frequency of executive compensation votes.4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. MARK HERE TO ENROLL IN OUR ELECTRONIC ACCESS PROGRAM Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below 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.Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. C 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 3 2 3 5 2 1 1 1 U PX 02JKNE
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Q ANNUAL MEETING OF STOCKHOLDERS MAY 15, 2017 This Proxy is solicited on behalf of the Board of Directors The signer 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 signer, to attend the Annual Meeting of Stockholders of Farmers & Merchants Bancorp to be held at Lodi, California, at 4:00 p.m., on May 15, 2017 and any adjournment thereof, and to vote the number of shares the signer would be entitled to vote if personally present as indicated hereon: THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE STOCKHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES LISTED UNDER ITEM 1; “FOR” ITEM 2; AND “FOR” 3 YEARS FOR ITEM 3. THIS PROXY CONFERS ON THE PROXYHOLDERS THE POWER OF CUMULATIVE VOTING AS DESCRIBED IN THE PROXY STATEMENT. PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE REVOCABLE PROXY — FARMERS & MERCHANTS BANCORP Non-Voting Items Change of Address — Please print new address below. IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
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