The annual meeting of stockholders of Farmers & Merchants Bancorp (the “Company”) will be held this year in the Ole Mettler Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA, on Wednesday,Monday, May 22, 2019,18, 2020, 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.
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.
/s/ Kent A. Steinwert
Kent A. Steinwert
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.
| BY ORDER OF THE BOARD OF DIRECTORS, |
| |
| /s/ Stephen W. Haley |
| |
| Stephen W. Haley
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| Secretary |
| |
Dated: April 3, 2020 | |
Dated: April 17, 2019
YOUR VOTE IS IMPORTANT.
TO INSURE YOUR VOTE IS REPRESENTED, YOU ARE
URGED TO COMPLETE, SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY.
PROXY STATEMENT
FARMERS & MERCHANTS BANCORP
111 West Pine Street, Lodi, CA 95240
This proxy statement is furnished to the stockholders of Farmers & Merchants Bancorp (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company to be used in voting at the annual meeting of stockholders to be held on May 22, 201918, 2020 in the Ole Mettler Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA at 4:00 p.m., and at any adjournment or postponement thereof. All expenses incidental to the preparation and mailing, or otherwise making available to all stockholders of the notice, proxy statement and form of proxy will be paid by the Company. This proxy statement and the enclosed proxy are being mailed to the Company’s stockholders on or about April 17, 2019.3, 2020.
For information on how to vote your shares, see the instructions included on the enclosed proxy card and under “Information About Voting and the Annual Meeting.”
II - | INFORMATION ABOUT VOTING AND THE ANNUAL MEETING |
Voting Rights and Vote Required
Only stockholders of record at the close of business on March 28, 201924, 2020 (the “record date”), will be entitled to vote in person at the meeting or by proxy. On the record date, there were 787,307793,556 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. Proposal 2 is an advisory, non- binding vote 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.Directors; and (2) “FOR” the approval of the compensation paid to 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.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, as of the record date, no person or entity was the beneficial owner of more than five percent (5%) of the outstanding shares of the Company’s common stock except as set forth in the following tables. For the purpose of this disclosure and the disclosure of ownership shares by management, shares are considered to be “beneficially” owned if the person has or shares the power to vote or direct the voting of the shares, the power to dispose of or direct the disposition of the shares, or the right to acquire beneficial ownership (as so defined) within 60 days of the record date.
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | | Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class | |
| | | | | | | | | |
Common Stock | Joan Rider (1) (2) | 44,700 | 5.68% | | Joan Rider (1) (2) 111 West Pine Street Lodi, CA, 95240 | | 44,624 | | 5.62% |
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| 111 West Pine Street | | | | | | | | |
| Lodi, CA, 95240 | | |
Common Stock | | | Cortopassi Family Trust and Cortopassi Partners 11292 N. Alpine Road Stockton, CA 95212 | | 50,650 | | 6.38% |
|
| | | | | | | | | |
Common Stock | Cortopassi Family Trust | 50,321 | 6.39% | | Sheila M. Wishek (1) 111 West Pine Street Lodi, CA, 95240 | | 40,150 | | 5.06% |
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| and Cortopassi Partners | | |
| 11292 N. Alpine Road | | |
| Stockton, CA 95212 | | |
| | | |
Common Stock | Sheila M. Wishek (1) | 40,215 | 5.11% | |
| 111 West Pine Street | | |
| Lodi, CA, 95240 | | |
(1) | Mail should be sent to these individuals at the Company’s address marked “c/o Stockholder Relations.” |
(2) | 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. |
A complete list of stockholders entitled to vote will be available for inspection by stockholders of record at the office of the Secretary of the Company at 111 West Pine Street, Lodi, CA for the ten days prior to the meeting.
The following table shows, as of the record date, the number of common shares and the percentage of the total shares of common stock of the Company beneficially owned by each of the current Directors, by each of the nominees for election to the office of Director, by the Named Executive Officers and by all Directors and Named Executive Officers of the Company and of the Bank as a group.
Name and Address of Beneficial Owner (1) | Amount of Common Stock Owned and Nature of Beneficial Ownership (2) | Percent of Class | | Amount of Common Stock Owned and Nature of Beneficial Ownership (2) | | | Percent of Class | |
| | | | | | | | |
Edward Corum, Jr. | 1,776 | * | | 1,868 | | | * | |
Stephen W. Haley | 4,245 | * | | 4,400 | | | * | |
Deborah E. Skinner | 3,735 | * | | 3,910 | | | * | |
Stephenson K. Green | 330 | * | | 419 | | | * | |
Terrence A. Young | 263 | * | | 314 | | | * | |
Kevin Sanguinetti | 7,351 | * | | 7,436 | | | * | |
Kenneth W. Smith | 3,090 | * | | 3,232 | | | * | |
Kent A. Steinwert | 25,986 | 3.30% | | 29,312 | | | 3.69% |
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David M. Zitterow | 278 | * | | 368 | | | * | |
Jay J. Colombini | 4,144 | * | | 4,525 | | | * | |
Calvin (Kelly) Suess | 3,271 | * | | 3,363 | | | * | |
Gary J. Long | 1,295 | * | | 1,382 | | | * | |
Ryan J. Misasi | 1,474 | * | | | 1,664 | | | | * | |
| | | |
All Directors, Nominees and Named Executive Officers as a group (13 persons) | 57,238 | 7.27% | | 62,193 | | | 7.84% |
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(1) | Mail should be sent to these individuals at the Company’s address marked “c/o Stockholder Relations.” |
(2) | 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. |
Notice Regarding Electronic Access of Stockholder Meeting Documents
Farmers & Merchants Bancorp is now offering electronic access in lieu of mail delivery of our annual report and proxy statement. Should you want to discontinue receiving a paper copy of our Annual Report and Proxy Statement, please mark the box on the Proxy Card that states “Mark here to enroll in our Electronic Access Program.” You may rescind electronic access at any time by contacting the Company at the number below.
If you make this election on the enclosed proxy card, shortly before each annual meeting you will receive a proxy card, along with voting instructions and the web address where you can access that year’s annual report and proxy statement.
If you have any questions regarding electronic access, please call Sue Clark, AVP – Stockholder Relations, at (209) 367-2348.
III - | ITEMS TO BE VOTED ON |
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).
| Name | Age | | Principal Occupation | Director Since |
| Edward Corum, Jr. | 67 | | Managing General Partner, Corum Real Estate | 2003 |
| Stephenson K. Green | 73 | | Retired Banker and Business Consultant | 2018 |
| Gary J. Long | 66 | | Owner, Gary J. Long Jewelers | 2014 |
| Kevin Sanguinetti | 61 | | Retired President, 1st American Title Company - Stockton | 2001 |
| Kent A. Steinwert | 66 | | Chairman, President & C.E.O. of the Company and Bank | 1998 |
| Calvin (Kelly) Suess | 83 | | President of ShellPro | 1990 |
| Terrence A. Young | 66 | | Retired Banker and Human Resources Executive | 2018 |
| Name | Age | | Principal Occupation | Director Since |
| Edward Corum, Jr. | 68 | | Managing General Partner, Corum Real Estate | 2003 |
| Stephenson K. Green | 74 | | Retired Banker and Business Consultant | 2018 |
| Gary J. Long | 67 | | Owner, Gary J. Long Jewelers | 2014 |
| Kevin Sanguinetti | 62 | | Retired President, 1st American Title Company - Stockton | 2001 |
| Kent A. Steinwert | 67 | | Chairman, President & C.E.O. of the Company and Bank | 1998 |
| Calvin (Kelly) Suess | 84 | | President of ShellPro | 1990 |
| Terrence A. Young | 67 | | Retired Banker and Human Resources Executive | 2018 |
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE NOMINEES
LISTED ABOVE
Directors are nominated based upon their business experience, knowledge of the Company’s key markets and business segments, community involvement and commitment to serving the interests of all stockholders:
Mr. Young has served as a director since March 2018. Prior to his retirement in 2016,2017, Mr. Young served for 45 years in various human resources, operations and audit roles within the commercial banking industry. He lives and is actively involved in the Sacramento market area, and provides financial controls and human resources expertise to the Board.
Mr. Corum has served as a director for fourteenfifteen years, lives and is actively involved in the Sacramento market area, and provides real estate and financial expertise to the Board.
Mr. Green has served as a director since March 2018. Prior to his retirement in 2012, Mr. Green worked for 40 years in the commercial banking industry in California. He lives and is actively involved in the Sacramento market area, and provides business banking and credit management expertise to the Board.
Mr. Sanguinetti has served as a director for sixteenseventeen 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 nineteentwenty years, and has forty-threeforty-five years of business, agriculture, real estate and consumer banking experience.
Mr. Suess has served as a director for twenty-seventwenty-eight 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 fourfive years, lives and is actively involved in the Stockton market area, and provides small business expertise to the Board.
All nominees are considered to be “independent” as such term is defined by Nasdaq’s current listing rules with the exception of Mr. Steinwert who is currently an employee of the Company, and Mr. Young who was an employee ofduring 2019 had not yet met the Bank untilrequired three year period since his retirement.retirement in January 2017. Each of the nominees has been selected by the Nominating Committee.
None of the Directors were selected pursuant to arrangements or understandings other than with the Directors and stockholders of the Company acting within their capacity as such. There are no family relationships among the Directors and executive officers, and none of the Directors serves as a Director of any company which has a class of securities registered under, or subject to periodic reporting requirements of, the Securities Exchange Act of 1934, as amended, or any company registered as an investment company under the Investment Company Act of 1940.
The Nominating Committee of the Board of Directors follows the Bank’s policy regarding diversity in identifying new director candidates. The Committee looks to establish diversity on the Board through a number of demographics, experiences, skills and viewpoints, all with a view to identifying candidates that can assist the Board with its decision making. The Committee believes that the current Board of Directors reflects diversity on a number of these factors.
The Board does not anticipate that any of the nominees will be unable to serve as a Director of the Company, but if that should occur before the meeting, the Board of Directors reserve the right to substitute as nominee another person of their choice in the place and stead of any nominee unable so to serve. Proxy holders would vote to approve the election of such substitute nominee. The proxy holders reserve the right to cumulate votes for the election of Directors and cast all of such votes for any one or more of the nominees, to the exclusion of the others, and in such order of preference as the proxy holders may determine in their discretion, based upon the recommendation of the Board of Directors.
Proposal #2 – Stockholder Vote on Executive Compensation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL #2
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” and “Executive Compensation” sections of this proxy statement. While this vote is advisory, and not binding on the Company, it will provide information to the Board of Directors regarding stockholder views about the Company’s executive compensation practices, which the Personnel Committee will then consider in future years.
When this vote was last taken in the 2017 proxy statement, the results were that 92.5% 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. | IV –Provided shareholders with a total annualized return (stock price appreciation plus dividends) of 13.50% per year. This compares very favorably to the return on both the S&P (8.33%) and Dow (8.48%) stock indices over the same period. Additionally, over the past three years EPS has increased from $35.03 to $71.18, or 103%.
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CORPORATE GOVERNANCE
| 2. | Received the prestigious distinction of being named a “Dividend King” as one of only 27 publicly traded companies 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. |
| 3. | Maintained a “5-Star, Superior Bank” rating from BauerFinancial for 29 consecutive years, longer than any other commercial bank in California. |
This record of having consistently been one of the highest performing bank holding companies in California over the past 23 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 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 and Executive Compensation sections, the compensation tables and the accompanying footnotes and narratives within the Executive Compensation Discussion and Analysis section of this proxy statement).
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 currently an employee of the Company, and Mr. Young who hasduring 2019 had not yet met the required three year period since his retirement in 2016,January 2017, all nominees are considered to be “independent.”
Board of Directors Meetings
The Company’s principal asset is its wholly-owned subsidiary, Farmers & Merchants Bank of Central California (the “Bank”). With the exception of Mr. Young, the Directors of the Company are also Directors of the Bank. During 2018, pursuant to the Company’s acquisition agreement with Bank of Rio Vista, the Bank added one former Bank of Rio Vista director to the Bank’s Board of Directors, Craig W. James, who is not a Company Director.
During the calendar year ending December 31, 2018,2019, the Board of Directors of the Company met thirteen (13) times and the Board of Directors of the Bank met thirteen (13) times. In addition, as required, the Board holds telephonic meetings to address issues between monthly meetings. Each incumbent Director attended more than 75% of the meetings of the Board of Directors and the committees to which they were named. The Company expects Directors to attend the annual meeting of stockholders and all Directors attended the annual meeting of stockholders in 2018.2019.
Roles and Responsibilities of the Board of Directors
Leadership Structure
The Board of Directors has determined that the Chairmanship should reside with the Director who is most familiar with the banking industry, and who is the most capable of setting strategic direction and integrating that direction with the Company’s day-to-day business development and risk management activities. Accordingly, since 2010 Mr. Steinwert has been unanimously elected to the position of Chairman in addition to his role since 1997 as President and Chief Executive Officer of the Company.
The Board believes that the combination of these positions does not compromise the important “check-and-balance” role that independent Directors play in the oversight of the Company since Mr. Steinwert is not a member of the Audit Committee or the Personnel Committee of the Board, and therefore key Board decisions and oversight regarding: (1) accounting, financial reporting, and overall risk management; and (2) executive compensation; are made only by “independent” Directors. Furthermore, Mr. Steinwert receives no additional compensation for his role as Chairman, representing a cost savings to the Company.
As of this date, the Board of Directors has not formally designated a lead independent director.
Role in Enterprise Risk Management
The Board of Directors is responsible for monitoring all aspects of the Company’s enterprise risk. Their involvement in enterprise risk management centers around the following key roles and responsibilities:
| 1. | The Board develops and approves the strategic plan and financial budget, and receives monthly reporting of financial and non-financial performance relative to plan. |
| 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. |
| 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. |
| 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. |
| 5. | The Personnel Committee is responsible for all performance evaluation and compensation decisions for the executive management team. |
More detail on all Board committees, including the composition and roles and responsibilities of each follows.
| 6. | The Budget and Finance Committee reviews and examines financial results on a quarterly basis. |
Committees of the Board
Audit Committee
The Audit Committee of the Company and the Bank is responsible for the ongoing adequacy of the internal control environment, and oversees the activities of the internal and independent auditors of the Company and the Bank with the aim of ensuring compliance with applicable laws. The Committee selects the independent auditors. The Committee’s charter is included as Exhibit A to thisthe 2019 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)fifteen (15) times in 20182019 and is comprised of the following voting members: Messrs. Sanguinetti (Chairman), Corum and Green. Each of the Directors serving on the Audit Committee has been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules and in SEC rules relating to audit committees. Mr. Sanguinetti has been determined by the Board of Directors to be a “financial expert” for purposes of applicable regulations.
Asset and Liability Management Committee
The Asset and Liability Management Committee of the Bank is responsible for the formulation, revision and administration of the Bank’s policies relating to interest rate, liquidity and investment risk management. The Asset and Liability Committee is a joint committee of management and Directors. The following Directors are voting members: Messrs. Suess, Young, James, Long and Steinwert. The Committee met five (5) times in 2018.2019.
Loan Committee
The Loan Committee of the Bank is responsible for the formulation, revision and administration of the Bank’s policy relating to credit and loan risk management. The Loan Committee meets weekly and is responsible for approving all new and renewed loans between $2 million and $15 million (over $15 million requires full Board approval) and reviewing all loans over $500,000. The Loan Committee is a joint committee of management and Directors. The following Directors are voting members: Messrs. Corum and Steinwert. The Committee met fifty-one (51)fifty-three (53) times in 2018.2019.
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 20182019 and is comprised of the following voting members: Messrs. Long, Suess, Young and Sanguinetti.
CRA Committee (Community Reinvestment Act)
The CRA Committee of the Company and the Bank monitors the Bank’s efforts and responsibilities to comply with the Community Reinvestment Act. The CRA Committee makes recommendations to the Board of Directors to assure the Bank is meeting the credit, investment and service needs of the communities it serves. The Committee met ten (10)twelve (12) times in 20182019 and is comprised of the following voting members: Messrs. Suess (Chairman), Green, James, Young and Long.
Nominating Committee
The Nominating Committee of the Company and the Bank identifies candidates to serve as Directors of the Bank and the Company in the event of future Board openings. The Committee’s charter is included as Exhibit C to this proxy statement. The Committee is comprised of the following voting members: Messrs. Steinwert (Chairman), Long, Corum and Suess. The Committee met two (2) timefour (4) times in 2018.2019. Messrs. Corum, Long and Suess have been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules.
Personnel Committee
The Personnel Committee of the Company and the Bank: (1) reviews the Company’s overall compensation strategies and practices; (2) reviews the employment contracts of all executive officers; (3) annually establishes executive compensation levels and performance evaluation measures for the Chief Executive Officer and Directors; and (4) reviews the executive compensation levels and performance evaluation measures for the other executive officers of the Company. The Committee’s charter is included as Exhibit B to thisthe 2019 proxy statement.
The Company’s management: (1) provides information, analysis and recommendations for the Personnel Committee; and (2) manages the ongoing operations of the compensation program.
In fulfilling their duties, the Personnel Committee periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for talent.
The Personnel Committee is comprised of the following voting members: Messrs. Corum (Chairman), Green and Sanguinetti. The Committee met five (5) times in 2018.2019. Each of the Directors serving on the Personnel Committee has been determined by the Board of Directors to be “independent” as such term is defined by Rule 5605(a)(2) of the Nasdaq’s current listing rules.
Certain Relationships and Related Person Transactions
Certain Directors and Named Executive Officers of the Bank and the Company and corporations and other organizations associated with them and members of their immediate families were customers of and engaged in banking transactions, including loans, with the Bank in the ordinary course of business in 2018.2019. 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.
During 2019, the Company paid real estate commissions totaling $379,000 to Colliers International for their brokerage assistance in the purchase or lease of several properties. Mr. Steinwert’s spouse, Anna Winters, was one of the Colliers’ real estate agents representing the Company on these transactions, and received in 2019 approximately $38,000 of these commissions as compensation for her work.
Indemnification
The Company’s Certificate of Incorporation and By-Laws provide for indemnification of officers, Directors, employees and agents to the fullest extent permitted by Delaware law. Delaware law generally provides for the payment of expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement reasonably incurred by the indemnitees provided such person acted in good faith and in a manner he or she reasonably believed not to be opposed to the best interests of the corporation and with respect to any criminal action or proceeding if he or she had no reasonable cause to believe his or her conduct was unlawful. However, in derivative suits, if the suit is lost, no indemnification is permitted in respect of any claim as to which the prospective indemnitee is adjudged to be liable for misconduct in the performance of his or her duty to the Company and then only if, and only to the extent that, a court of competent jurisdiction determines the prospective indemnitee is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Finally, no indemnification may be provided in any action or suit in which the only liability asserted against a Director is pursuant to a statutory provision proscribing the making of loans, dividends, and distribution of assets under certain circumstances.
The provisions regarding indemnification may not be applicable under certain federal banking and securities laws and regulations.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Executive Officers and Directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Executive Officers, Directors and greater than ten percent stockholders are required by regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based solely on the Company’s review of the copies of such forms it has received, the Company believes that all of its Executive Officers and Directors complied with all filing requirements applicable to them with respect to transactions during 2018.2019. The Company has no greater than ten percent stockholders.
Stockholder Rights Plan
On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Computershare (formerly Registrar and Transfer Company), as Rights Agent, and the Company declared a dividend of a right to acquire one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock, $0.01 par value per share, to stockholders of record at the close of business on August 15, 2008. Generally, the Rights are only triggered and become exercisable if a person or group (the “Acquiring Person”) acquires beneficial ownership of 10 percent or more of the Company’s common stock or announces a tender offer for 10 percent or more of the Company’s common stock.
The Rights Plan is similar to plans adopted by many other publicly traded companies. The effect of the Rights Plan is to discourage any potential acquirer from triggering the Rights without first convincing Farmers & Merchants Bancorp’s Board of Directors that the proposed acquisition is fair to, and in the best interest of, all of the stockholders of the Company. The provisions of the Plan, if triggered by the Acquiring Person, will substantially dilute the equity and voting interest of any potential acquirer unless the Board of Directors approves of the proposed acquisition (under Article XV of the Company’s Certificate of Incorporation, the Board of Directors has the authority to consider any and all factors in determining whether an acquisition is in the best interests of the Company and its stockholders). Each Right, if and when exercisable, will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value, at a purchase price of $1,200 for each one one-hundredth of a share, subject to adjustment. Each holder of a Right (except for the Acquiring Person, whose Rights will be null and void upon such event) shall thereafter have the right to receive, upon exercise, that number of Common Shares of the Company having a market value of two times the exercise price of the Right. At any time before a person becomes an Acquiring Person, the Rights can be redeemed, in whole, but not in part, by Farmers and Merchants Bancorp’s Board of Directors at a price of $0.001 per Right.
On November 19, 2015, the Board of Directors approved a seven-year extension of the term of the Rights Plan. Pursuant to an Amendment to the Rights Agreement dated February 18, 2016, the term of the Rights Plan was extended from August 5, 2018 to August 5, 2025. The extension of the term of the Rights Plan was intended as a means to continue to guard against abusive takeover tactics and was not in response to any particular proposal. The Board also increased the purchase price under the Rights Plan to $1,600 per one one-hundredth of a preferred share from $1,200, to reflect the increase in the market price of the Company’s common stock over the past several years.”
The full text of the Amendment was filed on the Company’s Form 8-K dated February 19, 2016.
Communications with Board of Directors
Any person, including any stockholder, desiring to communicate with, or make any concerns known to, the Company, directors generally, non-management Directors or an individual Director only may do so by submitting them in writing to Stephen W. Haley, Secretary of Farmers & Merchants Bancorp, 111 W. Pine Street, Lodi, CA 95240. All correspondence must include information to identify the person submitting the communication or concern, including name, address, telephone number and e-mail address (if applicable) together with information indicating the relationship of such person to the Company. The Secretary is responsible for maintaining a record of any such communications or concerns and submitting them to the appropriate addressee(s) for potential action or response. The Company may institute appropriate procedures to establish the authenticity of any communication or concern before forwarding. The Company is not obligated to investigate any anonymous submissions.
V –- | DIRECTOR AND EXECUTIVE COMPENSATION |
Director Compensation
Outside Directors of the Company receive compensation for services. Mr. Steinwert, who is an employee of the Company, receives no additional compensation for his role as a Director.
A Director of both the Company and Bank who is not an employee of the Company or Bank receives a $3,000 fee for each monthly Bank Board Meeting attended (as a Director of the Company only, Mr. Young receives $1,500 per meeting), and a $800 fee for each Committee Meeting attended (Committee Chairmen receive $1,000 with the exception of the Audit Committee Chairman who receives $1,200). In addition, each Director is eligible to receive an annual bonus and participate in the Equity Component of the Executive Retirement Plan (see “Executive Compensation Discussion and Analysis – Qualified and Non-Qualified Retirement Programs”).
Directors of the Company who are not employees of the Company or Bank (thus Mr. Steinwert is excluded) are compensated up to $550 per month to cover a portion of the cost of outside medical insurance. Directors of the Company who are not employees of the Company or Bank do not participate in any retirement or medical plans. The summary compensation earned by each Director of the Company (other than Mr. Steinwert who is a Named Executive Officer) during 20182019 is disclosed in the following “Director Compensation Table”.
20182019 DIRECTOR COMPENSATION TABLE
Name | | (1) Fees Earned or Paid in Cash ($) | | | (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 ($) | | | Total ($) | | | (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 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stephenson K. Green (7) | | $ | 49,000 | | | $ | 0 | | | $ | 0 | | | $ | 70,000 | | | $ | 0 | | | $ | 65,500 | | | $ | 184,500 | | | $ | 64,600 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | | | $ | 0 | | | $ | 71,600 | | | $ | 236,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Edward Corum, Jr. (6) | | $ | 95,400 | | | $ | 0 | | | $ | 0 | | | $ | 90,000 | | | $ | 0 | | | $ | 66,600 | | | $ | 252,000 | | | $ | 110,200 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | | | $ | 0 | | | $ | 71,600 | | | $ | 281,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Terrance A. Young (6) (7) | | $ | 31,300 | | | $ | 0 | | | $ | 0 | | | $ | 70,000 | | | $ | 0 | | | $ | 53,850 | | | $ | 155,150 | | |
Terrance A. Young (6) | | | $ | 32,300 | | | $ | 0 | | | $ | 0 | | | $ | 75,000 | | | $ | 0 | | | $ | 53,300 | | | $ | 160,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kevin Sanguinetti | | $ | 56,800 | | | $ | 0 | | | $ | 0 | | | $ | 90,000 | | | $ | 0 | | | $ | 66,600 | | | $ | 213,400 | | | $ | 63,000 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | | | $ | 0 | | | $ | 71,600 | | | $ | 234,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Calvin (Kelly) Suess | | $ | 58,000 | | | $ | 0 | | | $ | 0 | | | $ | 90,000 | | | $ | 0 | | | $ | 66,600 | | | $ | 214,600 | | | $ | 62,400 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | | | $ | 0 | | | $ | 71,600 | | | $ | 234,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stewart C. Adams Jr. (7) | | $ | 22,400 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,750 | | | $ | 25,150 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gary J. Long | | $ | 52,600 | | | $ | 0 | | | $ | 0 | | | $ | 90,000 | | | $ | 0 | | | $ | 66,600 | | | $ | 209,200 | | | $ | 59,000 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | | | $ | 0 | | | $ | 71,600 | | | $ | 230,600 | |
(1) | Mr. Kent Steinwert was an employee of the Company in 2018(1) Mr. Kent Steinwert was an employee of the Company in 2019 and received no additional compensation for his services as a Director or Chairman of the Board. Mr. Kent Steinwert is a Named Executive Officer and his compensation is listed in the Summary Compensation Table. |
(2) | The Company has no stock based award programs. |
(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 non-employee Directors received a $65,000 bonus in 2019 with the exception of Mr. Young who received $50,000. 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. See Plan description in Executive Compensation Discussion and Analysis - Qualified and Non-Qualified Retirement Programs for further details.
(6) Mr. Corum is a member of the Loan Committee which meets weekly, resulting in his Fees Earned exceeding those of the other Directors whose Committee responsibilities are monthly in frequency. Mr. Young is a Director of the Company only (not the Bank) so his monthly fees are less than other Directors.
(3) | The Company has no Defined Benefit Pension Program. All earnings on Nonqualified Plan balances are assumed to be at market rates (see Footnote 4 in the Non-Qualified Deferred Compensation Table). |
(4) | All non-employee Directors received a $60,000 bonus in 2018 with the exception of Mr. Young who received $50,000. Non-employee Directors are compensated up to $550 per month for outside medical insurance. |
(5) | Contributions to the Executive Retirement Plan - Equity Component. See Plan description in Executive Compensation Discussion and Analysis - Qualified and Non-Qualified Retirement Programs for further details. |
(6) | Mr. Corum is a member of the Loan Committee which meets weekly, resulting in his Fees Earned exceeding those of the other Directors whose Committee responsibilities are monthly in frequency. Mr. Young is a Director of the Company only (not the Bank) so his monthly fees are less than other Directors. |
(7) | Mr. Adams retired from the Board in May 2018. Messrs. Green and Young joined the Board in March 2018. |
Executive Compensation Discussion and Analysis
Roles and Responsibilities
The Board of Directors, operating both on its own and through its Personnel Committee: (1) reviews the Company’s overall compensation strategies and practices; (2) reviews the employment contracts of all Named Executive Officers (the CEO, CFO and the 5 other most highly compensated executive officers); (3) annually establishes compensation levels and performance evaluation measures for the Chief Executive Officer (the CEO does not participate in these discussions) and the other Named Executive Officers.
The role of the Company’s management is to: (1) provide information, analysis and recommendations for the Personnel Committee’s consideration; and (2) manage the ongoing operations of the compensation program.
In fulfilling their duties, the Personnel Committee: (1) has the authority to retain and fund compensation consultants, independent legal counsel and other compensation advisors; (2) considers those factors that impact the independence of such advisors prior to their selection; and (3) periodically evaluates information obtained from independent sources regarding financial institutions that we compete against for talent. No outside compensation consultants or other advisors were used in 2018.2019.
Executive Compensation Strategy and Programs
The objective of the Company’s compensation strategy is to attract and retain talented individuals who can implement the Company’s strategic plan and maximize long-term stockholder value.
In order to achieve these objectives, the Board has structured a compensation program that includes three major components: (1) annual base salary; (2) annual performance-based bonus; and (3) qualified and non-qualified retirement plans.
Say On Pay Vote
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:
1. | In the 2017 proxy statement the Company asked stockholders to provide advisory (non-binding) input with regard to the frequency of future stockholder advisory votes on the Company’s executive compensation programs. The results of this election were that 71.4% of stockholders voting approved three years as the frequency of future stockholder advisory votes. The Dodd-Frank Act requires that this vote be taken every six years. |
2. | In the 2017 proxy statement the Company asked stockholders to provide advisory (non-binding) approval of executive compensation as described in the “Executive Compensation Discussion and Analysis” section of the 2017 proxy statement. The results of the election were that 92.5% of stockholders voting approved the Company’s current executive compensation. Based on this 2017 stockholder advisory vote the Board of Directors determined that no material changes were required to current compensation strategies and programs. Based upon the 2017 stockholder advisory vote to include a stockholder vote on compensation every three years, Proposal #2 is included in this year’s proxy statement. |