UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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☐ | Definitive Additional Materials |
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☐ | Soliciting Material Pursuant to §240.14a-12 |
Bank of Commerce Holdings |
(Name of Registrant as Specified in its Charter) |
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Bank of Commerce Holdings
Notice of 2016555 Capitol Mall, Suite 1255
Sacramento, California 95814
(800) 421-2575
2020 Annual Meeting of Shareholders
And
Proxy Statement
April 5, 20166, 2020
Dear Shareholder:Shareholders:
It is my pleasure to invite you to the 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of Bank of Commerce Holdings 2016(the “Company”).
The Annual Meeting of Shareholders.
We will holdbe held on Wednesday, May 20, 2020 at 11:00 a.m. Pacific Time at the meeting on Tuesday, May 17, 2016Company’s corporate headquarters located at 5:15 p.m.555 Capitol Mall, Sacramento, California 95814 in the lobbyThird Floor Boardroom. In light of Redding Bank of Commerce located at 1951 Churn Creek Road, Redding, California 96002. In additionpublic health concerns due to the coronavirus (COVID-19), the agenda will be limited to the formal required items of business, I will report on past performance and future prospects.business.
At the Annual Meeting, you will be asked to elect the slate of directors,10 directors; to ratify the appointmentselection of ourthe Company’s independent registered public accounting firm for 20162020; and to considerapprove, on an advisory non-binding vote onbasis, the compensation of the Company’s named executive officers. This mailing includes the formal noticeThe attached Notice of the Annual Meeting and the Proxy Statement. The Proxy Statement describes the business that will be conducted at the Annual Meeting. Financial results and information about Bank of Commerce Holdings and its subsidiaries can be found in our 2015 Form 10-K and Annual Report, which accompanies this Proxy Statement.Shareholders provides instructions on how to vote your shares.
Please vote promptly by telephone, internet or mail regardless of whether or not you plan to attend the meeting. You may later decide to vote in person at the meeting if you are a shareholder of record, or you may revoke your proxy or voting instructions for any other reason before your shares are voted. Your vote is important.
WeI look forward to seeing you at the meeting.
Sincerely,
/s/ Randall S. Eslick
Randall S. Eslick
President and Chief Executive Officer
This Proxy Statement and the accompanying form of proxy are first being mailed to shareholders on or about April 5, 2016.
Bank of Commerce Holdings
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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At our 2016 Annual Meeting, we will ask you to:
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Time: | 11:00 a.m. Pacific Time | ||
Place: | Bank of 555 Capitol Mall Third Floor Boardroom Sacramento, California 95814 |
The 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of Bank of Commerce Holdings (the “Company”) will be held at the date, time and place noted above. At the Annual Meeting, the following items of business will be presented:
● | The election of 10 directors, each to serve for a term of one year; |
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IfYou may vote at the Annual Meeting if you were a shareholder of record as ofat the close of business on Thursday, March 24, 2016,23, 2020.
It is important that your shares be represented and voted at the Annual Meeting. You may vote your shares by Internet or telephone by no later than 11:59 p.m. Eastern Time, on May 19, 2020 (or on May 11, 2020, for shares held in the Merchants Bank of Commerce 401(k) Profit Sharing Plan), as directed in the proxy materials. If you are entitled to noticereceived a printed copy of the proxy materials, you may also complete, sign and return the enclosed proxy card or voting instruction form by mail in the enclosed pre-paid envelope. Voting in any of these ways will not prevent you from attending or voting your shares at the Annual Meeting. We encourage you to vote atby Internet or telephone to reduce mailing and handling expenses.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 20, 2020: The Company’s Proxy Statement for the Annual Meeting and any adjournment thereof. This Proxy Statement and2019 Annual Report to Shareholders (which includes the accompanying form of proxyCompany’s Form 10-K for the fiscal year ended December 31, 2019) are first being mailed to shareholders on or about Tuesday, April 5, 2016.
Whether or not you plan to attend, please grant a proxy to vote your shares in one of three ways:via telephone, internet or mail. Instructions regarding telephone and internet voting are includedavailable on the proxy card. Have your proxy card in hand. If you choose to vote by mail, please mark, sign and date the proxy card and return it in the enclosed envelope. Your proxy may be revokedInternet at any time before it is exercised as explained in the Proxy Statement. Returning your proxy card will not limit your rights to attend or vote at the Annual Meeting.www.proxyvote.com.
By Order of the Board of Directors,
/s/ David H. ScottAndrea M. Newburn
David H. Scott
Andrea M. Newburn
Corporate Secretary
Sacramento, California
Redding, California
April 5, 20166, 2020
Table of Contents
1901 Churn Creek RoadRedding, California 96002(530) 722-3939PROXY STATEMENT
INFORMATIONINFORMATION ABOUT THE 2020 ANNUAL MEETING OF SHAREHOLDERS AND VOTING
Notice of Internet Availability:The Bank of Commerce Holdings Proxy Statement for the 2016 Annual Meeting of Shareholders being held on Tuesday, May 17, 2016 and the Annual Report to Shareholders (which includes the Form 10-K for the fiscal year ended December 31, 2015) are available on the internet atwww.proxyvote.com.
Why did you send me this Proxy Statement?
The Board of Directors (the “Board”) of Bank of Commerce Holdings (the “Company”) is soliciting proxies from its shareholders to be used for voting at the Annual Meeting of Shareholders on Tuesday,Wednesday, May 17, 201620, 2020 (the “Annual Meeting”). ThisPlease read this Proxy Statement, (the “Proxy Statement”)which summarizes the information you need to know to cast an informed vote at the Annual Meeting. You do not needThe 2019 Annual Report to attendShareholders (“Annual Report”), which includes the Annual Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card or use the convenient telephone or internet voting method as described in the proxy card. In this Proxy Statement, “us,” “we” or “our” refer to the Company.
Along with this Proxy Statement, we are also sending you ourCompany’s Form 10-K for the fiscal year ended December 31, 20152019 (“Form 10-K”) and our 2015 Annual Report (“Annual Report”, accompanies this Proxy Statement. The proxy materials (or Notice of Internet Availability of proxy materials (the “Notice”).) are first being mailed to shareholders on or about Monday, April 6, 2020.
Who is entitled to vote?
Shareholders of record at the close of business on Thursday,Monday, March 24, 201623, 2020 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the close of business on the Record Date, the Company had 13,366,26817,243,625 shares of common stock (“Common Stock”) outstanding and entitled to vote.
There are two types of ownership of the Company’s Common Stock.Stock: registered ownership and beneficial ownership through third-party nominees. A significant percentage of the Company’s shareholders hold their shares through a stockbroker,stock brokerage account, bank or other nominee (collectively, “brokers”) rather than directly in their own names. As summarized below, there are some differences between the two types of ownership.
Registered Owners.
Registered owners hold their shares in their own names with the Company’s transfer agent, Broadridge Financial Solutions, Inc. (“Broadridge”), and such registered owners are considered, with respect to those shares, the shareholder of record, and these proxy materials are being sent to you directly by us.record. As the shareholder of record, you havea registered holder has the right to grant yourvote their shares directly (via Internet or telephone voting, by mailing a proxy directly to the Companycard, or to voteby voting in person at the Annual Meeting. We have enclosed a proxy card for you to use.Meeting).
Beneficial Owners. Beneficial owners hold their shares
Shares beneficially owned through a stock brokerage account or a bank or another nominee (your “Nominee”). Shares beneficially ownedbroker are sometimes referred to as being held in “street name.” Such Nominee (rather than the shareholder) is considered, with respect to those shares, the shareholder of record. TheseIn that case, these proxy materials are being forwardedprovided to you byindirectly through your Nominee.broker. As the beneficial owner, you have the right to direct your Nomineebroker on how to vote. Your Nominee has enclosedvote your shares. Brokers typically provide a voting instruction card for you to use in directing such Nominee as to how to vote your shares.
Brokers cannot vote street name shares on “non-routine” proposals (knownunless directed to do so by the shareholder. Shares that are not voted due to this limitation are known as “broker non-votes”).non-votes.” Generally, broker non-votes occur when street name shares are not voted with respect to a particular proposal because (i) the broker has not received voting instructions and (ii) the broker lacksdoes not have discretionary voting powerauthority to vote such shares.
If your shares are held in street name and you do not submit voting instructions to your broker, your broker may vote your shares at this meeting only on the ratification of the appointmentselection of the independent registered public accounting firm only.firm. If noyou do not give instructions are given with respect to the election of directorsdirector nominees or approvalthe advisory say-on-pay resolution to approve the compensation of the (non-binding) resolution onCompany’s named executive compensation,officers, your broker cannot vote your shares on these proposals.
The presence in person or by proxy of the holders of a majority of the Company’s outstanding shares of Common Stock outstanding and entitled to vote constitutes a quorum for the transaction of business at the Annual 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, however, is not counted as shares present and entitled to be voted with respect to the matter on which the broker has expressly not voted.
How many votes do I have?
Each share of the Company’s Common Stock that you owned as of the Record Date entitles you to one vote except with respect to the election of directors. With respect to the election of directors, each holder of Common Stock may cumulate his, her or its votes and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the number of directors to be elected. Such shareholder may cast all of his, her or its votes for a single candidate or may distribute such votes among any or all of the candidates. However, no shareholder shall be entitled to cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of stock held by such shareholder) unless such candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. An opportunity will be given at the meeting prior to the voting for any shareholder who desires to do so to announce his, her or its intention to cumulate his, her or its votes. The proxy card indicates the number of votes that you have.
How do I vote?
We urge you toPlease vote promptly by telephone, over the internet,Internet or by completing the enclosedtelephone. Alternatively, you may complete and mail your proxy card.card, if you received one. Even if you plan to attend the Annual Meeting, we recommendit is recommended that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Annual Meeting.
The method you use to vote will not limit your right to vote at the Annual Meeting if you decide to attend in person. Written ballots will be distributed at the Annual Meeting to any registered owner who wants to vote in person. If you hold your shares through a broker, you must obtain a “Legal Proxy,” executed in your favor, from your broker to be able to vote by ballot at the Annual Meeting.
By TelephoneInternet or InternetTelephone:: You may cast your vote by telephoneInternet or internet (at no cost to you)telephone as indicated on the Notice or proxy card. TelephoneInternet and internettelephone voting are available 24 hours per day. If you vote by telephone or internet, there is no need to return the proxy card.
daily. Have your Notice or proxy card in hand. You will be prompted to vote using the control number provided on your Notice or proxy card. If you vote by Internet or telephone, please do not return your proxy card.
By MailMail:: You may cast your vote by mail by completing, signing and dating the enclosedyour proxy card, if you have one, and returning it to us promptly.
Returningin the enclosed pre-paid envelope. It is recommended that you allow a minimum of 10 business days for your proxy card will not affect your right to attend the Annual Meeting and vote.be processed.
Shares represented by properly executed proxiesproxy cards that are received prior to the deadline for submitting proxies and that are not revoked in a manner described below will be voted in accordance with the instructions indicated on the proxies. proxy card. If no instructions are indicated, the persons named in the proxy card will vote the shares represented by the proxy card FOR ALL the director nominees listed in this Proxy Statement, FOR the ratification of the appointmentselection of the independent registered public accounting firm, and FOR the advisory (non-binding)say-on-pay resolution to approve the compensation of the Company’s named executive officers (the “named executive officers”). Any proxy given by a shareholder may be revoked before its exercise by:officers.
In Person at the Annual Meeting:
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In Person at the Annual Meeting:
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How many votes do I change my vote?have?
ShareholdersEach shareholder will be entitled to one vote, in person or by proxy, for each share of record atCommon Stock held by the close of businessshareholder on the Record Date will beDate. However, under the Company’s bylaws and California law, if any shareholder gives notice at the Annual Meeting, prior to the voting, of an intention to cumulate the shareholder’s votes in the election of directors, then all shareholders entitled to vote at the Annual Meeting and may changecumulate their votes in the election of directors. Cumulative voting means that a shareholder has the right to give any one candidate who has been properly placed in nomination a number of votes equal to the number of directors to be elected multiplied by the number of shares the shareholder is entitled to vote, or to distribute such votes on the same principle among as described below.many properly nominated candidates (up to the number of persons to be elected) as the shareholder may wish. If cumulative voting applies at the Annual Meeting, the cumulative number of votes a shareholder may cast in the election of directors will be equal to the number of shares held by such shareholder on the Record Date multiplied by 10 (the number of directors to be elected at the Annual Meeting). The proxy card indicates the number of votes that you have.
How do I change my vote or revoke my proxy?
Registered owners who voted by Internet or telephone:If you voted by telephoneInternet or internet: If you vote by telephone, or internet, you may change your vote until the telephoneInternet or internettelephone polls close. The final vote is the one that will count.
Registered Ownersowners who voted by mailmail:: If you fill outcompleted and submitsubmitted the proxy card by mail, you may change your vote at any time before the vote is conducted at the Annual Meeting by:by (i) delivering a subsequently dated proxy card, (ii) giving notice to the Corporate Secretary of the Company in writing, or (iii) giving notice at the Annual Meeting before the shareholder vote is taken.
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Beneficial Owners who voted by mailowners:: Contact your broker for instructions to determine when and how changes to your vote may be submitted.
Will my shares be votedWhat will happen if I do not sign and returnvote my proxy card?shares?
If your shares are registered in your name and you do not vote by telephoneInternet or internet, if youtelephone, do not return your signed proxy card, or if you do not vote in person at the Annual Meeting, your shares will not be voted.voted at the Annual Meeting.
If your shares are held in street name and you do not submit voting instructions to your broker, your broker may vote your shares at this meeting only on the ratification of the appointmentselection of the independent registered public accounting firm only.firm. If noyou do not give instructions are given with respect to the election of directorsdirector nominees or approvalthe advisory say-on-pay resolution to approve the compensation of the advisory (non-binding) resolution onCompany’s named executive compensation,officers, your broker cannot vote your shares on these proposals.
It is very important that you vote on the proposals presented. Your broker can only vote on Proposal 2 without instructions from you.
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What vote is required to approve each proposal?
Proposal 1: Elect the SlateElection of DirectorsDirectors.
The 10 nominees for director who receive the most affirmative votes will be elected. If you vote “FOR ALL” nominees, your vote will count for each nominee. If you do not vote for a particular nominee or“FOR ALL” nominees and you indicate “Withhold” to vote for“WITHHOLD ALL” or “FOR ALL EXCEPT” a particular nominee on your proxy card, your vote will not count “For”“FOR” or “Against”“AGAINST” the nominee.nominee(s).
Proposal 2: RatifyRatification of the selection of Moss Adams LLP as ourthe Company’s independent registered public accounting firm for 20162020.
The affirmative voteIf the shareholders do not approve the selection of Moss Adams LLP by a majority of votes cast at the Annual Meetingshares voting on thisthe proposal, is required to ratify the selection of our independent registered public accounting firm.will be reconsidered. Abstentions will have no effect on the outcome of the proposal.
Proposal 3: Vote on an Advisory (non-binding) Resolution on Executive Compensationvote.
We are asking our shareholdersProposal 3: Advisory vote to approve on an advisory (non-binding) basis the compensation of our named executive officers as disclosed in this Proxy Statement. Detailed information about the compensation of our named executive officers is included in the section entitled “Information on Director and Executive Compensation” and “Compensation Discussion and Analysis.”
In 2013, on an advisory basis, our shareholders voted to take advisory votes on executive compensation on an annual basis. We have followed the guidance of our shareholders and annually request the approval on an advisory (non-binding) basis of the compensation of our named executive officers.
Our executive compensation programs are designed (i) to attract and retain well-qualified executives, (ii) to link executive officer compensation to the Company’s financial performance, and (iii) to reward executive officers for creating shareholder value. We believe our executive compensation programs achieve these objectives.
The affirmative vote of a majority of votes cast at the Annual Meeting on this proposal is required to approve the advisory (non-binding) resolution on the compensation of the Company’s named executive officers. Our Board and Executive Compensation Committee (“Executive Compensation Committee”) value
The matter will be decided by the opinionsaffirmative vote of our shareholders and will consider the outcomea majority of the vote when making future compensation decisions regarding our named executive officers.shares voting on the proposal. Abstentions and broker non-votes will have no effect on the outcome of the proposal.vote. The Board and Executive Compensation Committee value the opinions of the shareholders and will consider the outcome of the vote when making future decisions regarding the compensation of named executive officers.
What are the Board’s recommendations?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote as recommended by the Board. The Board recommends a vote:
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If any other matter is presented at the Annual Meeting, your proxy holder will vote in accordance with the recommendation of the Board or, if no recommendation is given, in accordance with his or her best judgment. At the time this Proxy Statement went to press, wethe Company knew of no matters to be acted upon at the Annual Meeting other than those discussed in this Proxy Statement.
What areWho pays the costs of soliciting these Proxies?proxies?
The expense of printing and mailing proxy materials, including the Notice, this Proxy Statement, the Form 10-Kproxy card, and the Annual Report (which includes the Company’s Form 10-K), will be borne by the Company. In addition to the solicitation of proxies by mail, certain directors, officers and other employees of the Company may solicit proxies in person, by personal interview, telephone, facsimile or by email. No additional compensation will be paid to such persons for such solicitation.solicitations. The Company will reimburse brokerage firmsbrokers and others for their reasonable expenses in forwarding solicitation materials to beneficial owners of the Company’s Common Stock. We haveThe Company has contracted with Broadridge to assist us in the distribution of materials and tabulation of the results.votes.
What if I received a notice regarding the Internet availability of proxy materials instead of a printed copy of the proxy materials?
In accordance with rules adopted by the Securities and Exchange Commission (“SEC”), the Company is furnishing its proxy materials to its shareholders primarily over the Internet instead of mailing printed copies of those materials to each shareholder. By doing so, the Company reduces costs and lessens the environmental impact of its proxy solicitation. On or about April 6, 2020, the Company mailed a Notice to shareholders. The Notice contains instructions about how to access the proxy materials and vote online. This Notice is not a proxy card and cannot be used to vote your shares. If you received a Notice but would like to receive a paper copy of the proxy materials, please follow the instructions on the Notice.
If you received paper copies of the Notice or proxy materials, the Company encourages you to sign up to receive your future proxy materials electronically, as described in the section entitled “How can I receive my proxy materials by e-mail in the future?”
How can I access the proxy materials if I did not receive them by mail?
If you are a shareholder who received a Notice by mail regarding Internet availability of the proxy materials: You may access the proxy materials and voting instructions over the Internet via the web address provided in the Notice. In order to access these materials and vote, you will need the control number provided on the Notice you received in the mail.
If you are a shareholder who received an e-mail directing you to the proxy materials: You may access the proxy materials and voting instructions over the Internet via the web address provided in the e-mail. In order to access these materials and vote, you will need the control number provided in the e-mail.
How can I receive my proxy materials by e-mail in the future?
Instead of receiving future paper copies of the Notice or the Company’s proxy materials by mail, you can elect to receive an e-mail with links to these documents, your control number, and instructions for voting over the Internet. Opting to receive your proxy materials by e-mail will save the cost of producing and mailing documents to you and will also help conserve environmental resources. Your e-mail address will be kept separate from any other company operations and will be used for no other purpose except as you may authorize separately.
If the Company mailed you a Notice or a printed copy of its Proxy Statement and Annual Report and you would like to sign up to receive these materials by e-mail in the future, you can choose this option by:
● | following the instructions provided on your proxy card or voting instruction form if you received a paper copy of the proxy materials; |
● | following the instructions provided when you vote over the Internet; or |
��� | going to www.proxyvote.com and following the instructions provided. |
You may revoke this request at any time by following the instructions at www.proxyvote.com. Your election will remain in effect unless you revoke it later.
How do I obtain a Form 10-K and/or an Annual Report?
The Company’s audited consolidated balance sheets for the years endedas of December 31, 20152019 and 20142018 and audited consolidated statements of income, shareholders’ equity and cash flows for the years ended December 31, 2015, 20142019 and 20132018 are part of the Company’s Form 10-K which accompanies this Proxy Statement.
Additional copies of the Company’s Form 10-K and Annual Report may be obtained for no cost upon written request to Bank of Commerce Holdings, Attention:Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002 and are also available on ourthe Company’s website atwww.bankofcommerceholdings.com.
The Securitiesand Exchange Commission (the “SEC”)SEC maintains an internet sitea website athttp://www.sec.gov that includes the Company’s SEC filings. Access to the Company’s Form 10-K, quarterly reports on Form 10-Q, Current Reportscurrent reports on Form 8-K, and Section 16beneficial ownership reports by Company insiders are available free of charge as soon as they are filed with the SEC.
Interests of directors, nominees and executive officers in matters to be voted upon
No directors, nominees, or executive officers of the Company have a personal interest in the matters to be voted upon in this election other than, for directors, their desire to continue serving as directors. The vote respecting approval of executive compensation is non-binding, and a vote denying approval would not directly affect executive compensation but would be considered in future compensation decisions by the Board and the Executive Compensation Committee.
VOTINGVOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
Shareholders of record at the close of business on Thursday,Monday, March 24, 2016,23, 2020, which is the Record Date, are entitled to notice of and to vote at the Annual Meeting. As of the close of business on the Record Date, the Company had 13,366,26817,243,625 shares of its Common Stock outstanding and entitled to vote.
Each share of the Company’s Common Stock that you owned as of the Record Date entitles you to one vote except with respect to the election of directors. With respect to the election of directors, each holder of Common Stock may cumulate his, her or its votes and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the number of directors to be elected. Such shareholder may cast all of his, her or its votes for a single candidate or may distribute such votes among any or all of the candidates. However, no shareholder shall be entitled to cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of stock held by such shareholder) unless such candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. An opportunity will be given at the meeting prior to the voting for any shareholder who desires to do so to announce his, her or its intention to cumulate his, her or its votes. The proxy card indicates the number of votes that you have.
The following table shows, as of March 1, 2016,2020, the amountnumber of Companyshares of Common Stock directly owned (unless otherwise indicated) by:
● | each person or entity who is known by the Company to beneficially own more than five percent |
● | each of the Company’s directors and |
● | each of the named executive |
● | all directors and |
We haveThe Company has determined beneficial ownership in accordance with the rules of the SEC which has defined beneficial ownership to mean more than ownership in the usual sense.SEC. In general, beneficial ownership includes (i) securities over which a director or executive officer is deemed to have voting or investment control,dispositive power, either directly or indirectly, and (ii) stock options or other rights that are exercisable currently or become exercisable within 60 days offollowing March 1, 2016.2020. Except as otherwise noted, we believethe Company believes that the beneficial owners of the shares listed below, based on information furnished by such owners, have or share with a spouse voting and investmentdispositive power with respect to the shares.
5% Shareholders
Title of | Name and Address | Amount and Nature | Percent of Class | |||
Common Stock | Wellington Management Group LLP c/o Wellington Management Company LLP 280 Congress Street, Boston, MA 02210 (1) | 1,036,283 | 7.75% |
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Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Common Stock | BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 1,070,032 1 | 5.9 | % |
1 A Schedule 13G/A filed with the SEC on February 5, 2020, for the period ended December 31, 2019, indicates that BlackRock, Inc. (“BlackRock”) had sole voting power over 1,019,451 shares and sole dispositive power over 1,070,032 shares of Common Stock. The securities are beneficially owned by various investors for which BlackRock serves as investment advisor. For purposes of the Exchange Act, BlackRock is deemed to be a beneficial owner of such securities.
Directors and Executive Officers
Name and Address(1) of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned | Percentage of Class | ||||||||||||||
Randall S. Eslick | 70,462 | (2) | * | |||||||||||||
James A. Sundquist | 72,052 | (3) | * | |||||||||||||
Samuel D. Jimenez | 76,879 | (4) | * | |||||||||||||
Robert H. Muttera | 90,958 | (5) | * | |||||||||||||
Robert J. O’Neil | 31,359 | (6) | * | |||||||||||||
Name | Number of Shares of Common Stock Beneficially Owned | Percent of Class1 | ||||||||||||||
Directors | ||||||||||||||||
Orin N. Bennett | 76,264 | (7) | * | 65,264 | 2 | * | ||||||||||
Gary R. Burks | 9,132 | (8) | * | 9,132 | 3 | * | ||||||||||
Joseph Q. Gibson | 91,488 | (9) | * | 120,988 | 4 | * | ||||||||||
Jon W. Halfhide | 47,500 | (10) | * | 40,700 | 5 | * | ||||||||||
David J. Inderkum | 28,600 | * | ||||||||||||||
Linda J. Miles | 18,609 | * | 21,109 | * | ||||||||||||
David H. Scott | 101,975 | (11) | * | |||||||||||||
Karl L. Silberstein | 30,295 | 6 | * | |||||||||||||
Terence J. Street | 37,000 | (12) | * | 42,000 | 7 | * | ||||||||||
Lyle L. Tullis | 278,705 | (13) | 2.09% | 308,175 | 8 | 1.79 | % | |||||||||
All directors, named executive officers andbeneficial owners as a group (13 persons) | 1,002,383 | 7.50% | ||||||||||||||
Named Executive Officers | ||||||||||||||||
Randall S. Eslick | 73,299 | 9 | * | |||||||||||||
Robert H. Muttera | 124,235 | 10 | * | |||||||||||||
James A. Sundquist | 149,528 | 11 | * | |||||||||||||
All current directors and named executive officers as a group (12 persons) | 1,013,325 | 5.88 | % |
1 *Represents less than one percent of outstanding Common Stock.
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3 All shares are held jointly with Mr. Burks’ spouse.
4 All shares are held in a trust of which Mr. Gibson is a trustee.
5 All shares are held in a trust of which Mr. Halfhide is a trustee.
6 Includes 18,500 shares held in a trust of which Mr. Silberstein is a trustee.
7 Includes 12,000 shares held in a trust of which Mr. Street is a trustee.
8 Includes 27,810 shares held by Mr. Tullis’ spouse in individual retirement accounts.
9 Includes 32,881 shares held jointly with Mr. Eslick’s spouse and 20,000 fully vested options. Mr. Eslick is also a director of the Company.
10 Includes 1,671 shares held in a trust of which Mr. Muttera is a trustee and 20,000 fully vested options.
11 Includes 134,301 shares held in a trust of which Mr. Sundquist is a trustee.
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes of ownership of Common Stock and other equity securities of the Company. To the Company’s knowledge, and based solely uponon a review of such reportsthe filings made with the SEC and written representations from the directors and executive officers, the Company believes that all reports required by Section 16(a) of the Exchange Act to be filed by its directors and executive officers and directors during the last fiscal year were filed in a timely manner, except that Lyle Tullis, Chairmanduring 2019, Samuel D. Jimenez, an executive officer of the Board, did not timely report beneficial ownershipCompany until January 2020, filed one Form 4 late with respect to shares transferred out of 10,610his Merchants Bank of Commerce 401(k) Profit Sharing Plan account to comply with the Company’s revised guidelines limiting the account value that may be held in Common Stock.
Securities Authorized for Issuance under Equity Compensation Plans
On May 21, 2019, the Company’s shareholders approved the Company’s 2019 Equity Incentive Plan. The Company also has a prior plan, the Amended and Restated 2010 Equity Incentive Plan, which was approved by the shareholders in 2008 and amended in 2010 and 2012 (the “2010 Equity Incentive Plan”). No additional awards are permitted under the 2010 Equity Incentive Plan. The following table sets forth the number of shares of Common Stock acquired by his spousesubject to outstanding options and the weighted-average exercise price of outstanding options under the 2010 Equity Incentive Plan, and the number of shares available for future awards under the 2019 Equity Incentive Plan, in individual retirement accounts. Beneficial ownershipeach case as of these shares was reported on a Form 4/A filed January 22, 2016.December 31, 2019.
Plan Category | (a) Number of Securities To Be Issued Upon Exercise of Outstanding Options (#) | (b) Weighted Average Exercise Price of Outstanding Options ($) | (c) Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (#) | |||||||||
Equity compensation plans approved by security holders | 86,400 | 5.06 | 486,900 | |||||||||
Equity compensation plans not approved by security holders | None | None | None | |||||||||
Total | 86,400 | 5.06 | 486,900 |
INFORMATION ABOUT EXECUTIVE OFFICERS AND DIRECTORSAs of December 31, 2019, there were also 91,721 unvested restricted shares outstanding, of which 13,100 were granted under the 2019 Equity Incentive Plan.
Executive Officers of the CompanyINFORMATION ABOUT THE DIRECTOR NOMINEES
The following table and narrative sets forth information with respect to the named executive officers of the Company, including their ages and employment history for the last five years.
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Randall S. Eslick,58,has served asPresident and Chief Executive Officer of the Company since November 2013. Immediately prior, he served as Regional President of Roseville Bank of Commerce (now known as Sacramento Bank of Commerce, a division of Redding Bank of Commerce) from December 2005 to November 2013. From 2002 until December 2005, Mr. Eslick served as Senior Vice President and Regional Manager of Roseville Bank of Commerce. Mr. Eslick joined the Company in March 2001 as Senior Vice President and Commercial Loan Officer. Mr. Eslick was appointed to the Board of the Company and to the board of directors of Redding Bank of Commerce in November 2013 when he assumed the role of President and Chief Executive Officer of the Company. As our Chief Executive Officer and a director, Mr. Eslick serves as the primary liaison between the Board and management and as the executive officer with overall responsibility for executing the Company’s strategic plan.
James A. Sundquist, 61, has served as Executive Vice President, Chief Financial Officer and Principal Accounting Officer of the Company since December 2014. Prior to joining the Company, Mr. Sundquist had been retired since 2008. Mr. Sundquist has worked at several independent California financial institutions over the course of his career, and his title from 1998-2007 was Executive Vice President and Chief Financial Officer. From 1996-1998, he served as Executive Vice President and Chief Operating Officer, from 1984-1995 he served as Senior Vice President and Chief Financial Officer, and from 1979-1983 he served as Vice President and Controller. Prior to his bank service, Mr. Sundquist was employed as a Certified Public Accountant at an international public accounting firm from 1977-1979.
Samuel D. Jimenez, 51,has served as Executive Vice President and Chief Operating Officer of the Company since December 2013. Mr. Jimenez has served the Company in multiple capacities since 2003. He served as the Chief Financial Officer and Principal Accounting Officer of the Company from May 2009 to December 2014. He was promoted from Senior Vice President to Executive Vice President in March 2011, and in December 2013 was also appointed Chief Operating Officer. Prior to becoming Chief Financial Officer, he served as Vice President and Director of Risk Management of Redding Bank of Commerce beginning in September 2003 and was promoted from Vice President to Senior Vice President in February 2006. Mr. Jimenez was a Federal Deposit Insurance Corporation Examiner from 1992 to 2003. Mr. Jimenez is a Certified Public Accountant. Mr. Jimenez also serves as Assistant Corporate Secretary of the Company.
Robert H. Muttera, 62, has served as Executive Vice President and Chief Credit Officer of the Company since January 2014. Mr. Muttera served as Executive Vice President and Chief Credit Officer with several other California independent financial institutions from 2012-2013, 2000-2005 and from 1983-2000. He served as Senior Vice President at a commercial real estate advisory firm from 2006-2012, as Vice President and Senior Commercial Loan Officer of a California independent financial institution from 1979-1983, and as Senior Accountant and Certified Public Accountant at an international public accounting firm from 1975-1979.
Robert J. O’Neil, 60, has served as Senior Vice President and Chief Credit Administrator of Redding Bank of Commerce since June 2015. Prior to that, Mr. O’Neil served as Senior Vice President and Regional President of Sacramento Bank of Commerce, a division of Redding Bank of Commerce, from December 2013 to May 2015. He served as Senior Vice President and Regional Credit Manager from 2006 to 2013 and as Senior Vice President of Commercial Lending from 2002 to 2006. From 1986 to 2002, he served as a Senior Executive with another California independent financial institution, and from 1975 to 1986, he served in lending at a large regional financial institution.
Information regarding each of the current directors and director nomineesnominee is provided below, including each nominee’s name, age as of the Record Date, the year first elected as a director of the Company, principal occupation, and public company directorships and work history during the past five years. There are no family relationships among any of ourthe directors or executive officers, nor are any of the corporations or organizations referenced in the biographical information below a parent, subsidiary or affiliate of the Company.officers. All directors of the Company also currently serve as directors of Merchants Bank of Commerce, previously Redding Bank of Commerce, (“Redding Bank of Commerce”). Directors generally are appointed to serve on the Redding Bank of Commerce board for a one-year term prior to being eligible for election to the Company’s Board.banking subsidiary. None of the director nominees has served as a director of another public company during the past five years.
Orin N. Bennett
Mr. Bennett, 67,71, has been a director of ReddingMerchants Bank of Commerce since September 2005 and of the Company since May 2006.
Business Experience: Mr. Bennett is a registered Civil Engineer in California and Oregon. He formed a civil engineering business in 1995 that in 2008 became Bennett Engineering Services in Roseville, California, which provides civil engineering services primarily in California. Mr. Bennett also is a partner in BD Properties, LLC, a real estate investment company. Mr. Bennett was employed by the international engineering firm of CH2M Hill prior to forming his own civil engineering business in 1979. Mr. Bennett’s knowledge of the Sacramento market and his real estate experience provide valuableoffer insight into the existing opportunities for a community bank to provide its services and operations and make his continued service toon the Board a valuable asset.
Other Public Company Directorships: None.
Committees: Mr. Bennett serves on the Executive, Executive Compensation, Long-Range Planning, and Nominating and Corporate Governance committeesCommittees of the Board. He also serves as Chairman of the ReddingMerchants Bank of Commerce Loan Committee.
Gary R. Burks
Mr. Burks, 61,65, has been a director of ReddingMerchants Bank of Commerce since June 2007 and of the Company since May 2008.
Business Experience: Mr. Burks has been General Manager of Blach Beverage LLC (an Anheuser-Busch wholesale distributor) since 2018. Prior to that, he was Vice President and General Manager of Foothill Distributing Company, Inc. (an independent wholesale distributor for Anheuser-Busch wholesale company)products) in Redding since Octoberfrom 1991 to 2018 and has over twentyGeneral Manager from 1982-1991, with 27 years of experience on its board. He currently serves on the Board of Directors of the Redding Colt 45s, a collegiate summer baseball team. He volunteered aswas formerly a Loaned Executive and an Executive Board member for the Greater Redding Chamber of Commerce, during 2015, served as presidentPresident of Redding Rotary, from 1991 to 1992, and he was an Executive Board memberon the Corporate Governance Committee of the Greater Redding ChamberUnited Way of Commerce from 1985 to 1991.Northern California. Mr. Burks’ experience in running a large-scale company and his involvement in many academic and community activities make him a valuable member of the Board.
Other Public Company Directorships: None.
Committees: Mr. Burks serves as Chairman of the Nominating and Corporate Governance Committee, and also serves on the Audit and Qualified Legal Compliance Committee (the “Audit Committee”), as well as the Executive Compensation and the Long-Range Planning committeesCommittees of the Board. Mr. Burks also serves on the Technology Committee of Merchants Bank of Commerce.
Randall S. Eslick
Mr. Eslick, 58,62, has been a director of the Company and ReddingMerchants Bank of Commerce and of the Company since November 2013.
Business Experience: Please see above in “Executivethe section entitled “Named Executive Officers of the Company.Company.” Mr. Eslick joined the Company in 2001. He servespreviously served on the board of directors of River Oak Center for Children and is its former president of the board.board president. His experience with the Company, extensive career in banking, and reputation in the community make him a valuable member of the Board.
Other Public Company Directorships: None.
Committees: Mr. Eslick serves on the Long-Range Planning Committee of the Board. Because Mr. Eslick is an employee of the Company and is therefore not considered independent under NASDAQ Stock Market (“NASDAQ”) listing standards, he is not a member of any Company committee.other Board committees. Mr. Eslick is an invited to attend all Board committee meetings as a guest, at all committee meetings; however,but is generally excused from executive sessions of the Board and Board committees of which he is not a member. He does not participate in any portion of a meeting during which his compensation is discussed. Mr. Eslick presently serves on the ALCO, CRA, Loan, and Long-Range Planning committeesTechnology Committees of ReddingMerchants Bank of Commerce.
Joseph Q. Gibson
Mr. Gibson, 68,72, has been a director of ReddingMerchants Bank of Commerce since November 2009 and of the Company since May 2010.
Business Experience: Mr. Gibson has thirty-eightbeen an insurance agent for 38 years and has over 40 years of experience in business management. He was an owner of SFI Insurance, Inc. from 1982 until it merged with George Petersen Insurance in 2017, and he was a teacher and administrator for Anderson Union High School from 1973 to 2003, and he has been an owner of SFI Insurance, Inc. since 1992.2003. He currently serves on the Anderson Union High School District Board, Shasta College Foundation Board, Shasta TrinityShasta-Trinity Regional OccupationOccupational Program Board, and Shasta Historical Society Board. He is past Presidentpresident of Riverview Golf and Country Club and he waspast president of the Anderson Rotary from 2002 to 2003.Rotary. Mr. Gibson’s extensive experience in the insurance industry, as well as his experience working with various organizations involved in academic and community activities, makemakes him a valuable member of the Board.
Other Public Company Directorships: None.
Committees: Mr. Gibson presently serves on the Long-Range Planning committeeCommittee of the Board. He also serves the Redding Bank of Commerce board as Chairman of the CRA Committee and as a member of the ALCO, Committee.Loan, and Technology Committees of Merchants Bank of Commerce.
Jon W. Halfhide CPA
Mr. Halfhide, 58,62, has been a director of ReddingMerchants Bank of Commerce since July 2005 and of the Company since May 2006. He was appointed Vice Chairman of the Board of the Company and of Merchants Bank of Commerce in February 2013.
Business Experience: Mr. Halfhide is currentlyhas been a health care consultant since 2013 and serves onas Chairman of the boardBoard of directors and on the Investment and Audit CommitteesDirectors of Shasta Regional Community Foundation.Foundation, as a member of its Investment Committee, as Executive Chair and member of its Audit Committee, and as a member of its Community Disaster Relief Fund Committee. He also serves on the Simpson University Community Advisory Council. From January 2000 to January 2013, Mr. Halfhide served as presidentPresident of Dignity Healthcare North State Service Area and St. Elizabeth Community Hospital. He has over thirty29 years of management experience with Dignity HealthcareHealth (a health care provider) and has served in the capacity of Controller, Chief Financial Officer and Chief Executive Officer with Dignity Health North State. Mr. Halfhide also served on the non-profit board of directors of Mercy Foundation North and Catholic Healthcare West North State and on the non-profit board of directors of the Tehama County Economic Development Corporation. Mr. Halfhide’s vast experience as a certified public accountant, his knowledge of running a health care facility, his designation as an audit committee financial expert, and his involvement in community activities make his continued service to the Board a valuable asset.
Other Public Company Directorships: None.
Committees: Mr. Halfhide serves as Chairman of the Executive Compensation Committee.Committee, and is a member of the Audit, Executive, Long-Range Planning, and Nominating and Corporate Governance Committees of the Board. He also serves on the Audit Committee and meets the criteria of an audit committee financial expert under the SEC rules. Mr. Halfhide serves on the Executive and Long-Range Planning committees of the Board and isas Chairman of the ReddingALCO Committee of Merchants Bank of Commerce ALCO Committee.
Linda J. MilesCommerce.
Ms. Miles, 62,David J. Inderkum
Mr. Inderkum, 64, has been a director of ReddingMerchants Bank of Commerce and of the Company since January 2019.
Business Experience: Mr. Inderkum has been involved with his family’s business, Coast Line Supply and Equipment located in Sacramento, California, since 1979 and has been its owner since 1998. He was a board member of The Merchants National Bank of Sacramento starting in 2003 and a board member of Merchants Holding Company starting in 2008 until they were acquired by the Company effective January 31, 2019. He has been a member of the non-profit Sportsmen’s Legacy Foundation since 2001 and has been their President/Chairman of the Board since 2012. He has also been an active member of The Sutter Club since 2003. Mr. Inderkum’s prior experience with Merchants Holding Company provided valuable knowledge to the Company during the acquisition integration process.
Committees: Mr. Inderkum serves on the Long-Range Planning Committee of the Board. He also serves as a member of the ALCO and CRA Committees of Merchants Bank of Commerce.
Linda J. Miles
Ms. Miles, 66, has been a director of Merchants Bank of Commerce since July 2013 and of the Company since May 2014.
Business Experience: Ms. Miles served as Executive Vice President and Chief Operating Officer of the Company and Reddingof Merchants Bank of Commerce from May 2009 until her retirement in February 2013. From January 1996 to April 2009, she served as Executive Vice President and Chief Financial Officer of the Company. From October 1989 to December 1995, she served as Senior Vice President and Chief Financial Officer of the Company. Before joining the Company, Ms. Miles was Senior Vice President and Chief Financial Officer at another California independent financial institution. Ms. Miles served as a director of Bank of Commerce Mortgage from May 2009 until the company was sold in 2012. Ms. Miles’ institutional knowledge, community banking experience and extensive history with the Company make her a valuable member of the Board.
Other Public Company Directorships: None.
Committees: Ms. Miles serves on the Audit and Long-Range Planning committeeCommittees of the Board. As a director of Redding Bank of Commerce, Ms. MilesShe also serves on the ALCO and CRA Committees.
David H. Scott,CPA
Mr. Scott, 72, has been a director of Redding Bank of Commerce since April 1997 andas Chairwoman of the Company since May 1997.
Business Experience: Mr. Scott is the founding partner of D.H. Scott & Company, LLP, a public accounting firm, which is a position he has held since June 1986. He also serves on the non-profit Economic Development Corporation of Shasta County and the Shasta Historical Society. Mr. Scott’s experience in public and private business, his extensive experience in the field of public accounting and his vast experience working with various organizations in many aspects of the financial process offers a valuable perspective to the Board.
Other Public Company Directorships: None.
Committees: Mr. Scott serves as Chairman of the AuditTechnology Committee and as a member of the ExecutiveALCO and Long-Range Planning committeesCRA Committees of Merchants Bank of Commerce.
Karl L. Silberstein
Mr. Silberstein, 63, has been a director of Merchants Bank of Commerce and of the Board. The BoardCompany since June 2016.
Business Experience: Mr. Silberstein has determined thatover 40 years of combined professional experience in public accounting and financial executive leadership. From 2011 to 2019, he was Senior Vice President, Financial Operations at Dignity Health, and he held various other positions with Dignity Health beginning in 2000. He also served as staff to its Audit Committee. He has 12 years of experience as a certified public accountant providing auditing and consulting services. Mr. Scott meets the criteria ofSilberstein’s experience as a certified public accountant, designation as an audit committee financial expert, under SEC rules.and service on numerous other corporate and non-profit boards, including roles as chair and president, make him a valuable member of the Board.
Committees: Mr. Scott alsoSilberstein serves as the Corporate SecretaryChairman of the Company. Mr. ScottAudit Committee. He is also a member of the ALCOExecutive Compensation and LoanLong-Range Planning Committees of Reddingthe Board and serves on the ALCO Committee of Merchants Bank of Commerce.
Terence J. Street
Mr. Street, 61,65, has been a director of ReddingMerchants Bank of Commerce since August 2012 and of the Company since May 2013.
Business Experience: Mr. Street ishas been the project director of the general contracting division of Clark Pacific, which manufactures prefabricated building systems, since 2019, and was the general manager of the general contracting division of Clark Pacific andfrom 2014 to 2019. He is the past President of Roebbelen Contracting, Inc. located in El Dorado Hills, California. Mr. Street serves ason the non-profit boards of directors of Mercy Foundation Sacramento, Cristo Rey High School, and Jesuit High School. He is past Chairman of the Board of United Business Bank, and serves on the non-profit board of directors of Mercy Foundation Sacramento and of Cristo Rey High School. He is retired from the Catholic Foundation of the Sacramento Dioceses. He is also a past director of the Construction Employers’ Association, and is past Chairman of the Board of Trustees of Jesuit High School.School, and was formerly a board member of the Catholic Foundation of the Sacramento Diocese. Mr. Street’s business acumen, integrity, leadership and knowledge of the Sacramento market, as well as his community service make him a valuable member of the Board.
Other Public Company Directorships: None.
Committees: Mr. Street serves on the Audit, Long-Range Planning, and Nominating and Corporate Governance committeesCommittees of the Board. He also serves on the Loan Committeeand Technology Committees of ReddingMerchants Bank of Commerce.
Lyle L. Tullis
Mr. Tullis, 66,70, has been a director of ReddingMerchants Bank of Commerce and of the Company since May 2003. Mr. Tullis was appointed Chairman of the Board of the Company and Reddingof Merchants Bank of Commerce in February 2013.
Business Experience: Since February 1976, Mr. Tullis has served as president of Tullis, Inc., a general engineering construction company. Mr. Tullis is the past District Chairman of the Eureka and Shasta Districts of the Associated General Contractors of California. Mr. Tullis’ extensive business experience, which includes project financing, budgets, bidding and oversight of the final project, and his involvement in local community activities make him a valuable member of ourthe Board.
Other Public Company Directorships: None.
Committees: Mr. Tullis serves as Chairman of both the Executive Committee Chairman ofand the Long-Range Planning Committee, and is a member of the Audit, Executive Compensation, and Nominating and Corporate Governance committeesCommittees of the Board. He is also a member of the ALCO and Loan committeesCommittees of ReddingMerchants Bank of Commerce.
THE
DIRECTOR COMPENSATION
Compensation paid to non-employee directors consists of cash (in the form of monthly retainers and per-meeting fees) and, when authorized, equity (in the form of stock awards). Directors may defer fees in accordance with the Company’s Amended and Restated 2013 Directors Deferred Compensation Plan (the “2013 Directors DCP”). A director who is an officer/employee of the Company or of a subsidiary does not receive additional compensation for his or her membership on the Board.
The Executive Compensation Committee is responsible for all matters related to directors’ compensation in connection with reviewing and recommending non-employee director compensation to the Board, and does so on a periodic basis. Total compensation is targeted at or near the 50th percentile of the comparable peer group. The peer group selected for evaluating director compensation is the same as used for evaluating the compensation of the Company’s named executive officers (see section entitled “Overview of Compensation and Process”).
For purposes of establishing director compensation, in September 2016 the Executive Compensation Committee evaluated directors’ compensation as compared to detailed public company information provided by the consulting firm McLagan, a part of Aon plc (“McLagan”), which provides compensation consulting, operational benchmarking and best practice research across financial industries. The Executive Compensation Committee, with the assistance of McLagan, reevaluated directors’ compensation in November 2019 and determined that, based on peer metrics, an increase in the committee per-meeting fee for the Chairperson of the Audit Committee was warranted.
Monthly Retainers and Meeting Fees
Monthly retainers and per-meeting fees for service on the Company’s Board are detailed in the following table. In addition to the fees outlined in the table, independent directors received fees for their service on the Merchants Bank of Commerce board of directors and its respective committees. The total compensation for each director in 2019 is shown in the section entitled “Director Compensation Table.”
Fee Type | 1/1/2019-12/4/2019 ($) | 12/5/2019-12/31/2019 ($) | ||||||
Monthly Fees | ||||||||
Retainer – Independent Director | 800 | 800 | ||||||
Retainer (additional) – Chairperson of the Board | 1,200 | 1,200 | ||||||
Per-Meeting Fees | ||||||||
Board Meeting | 800 | 800 | ||||||
Committee Meeting – Chairperson (excluding Audit Committee) | 775 | 775 | ||||||
Committee Meeting – Chairperson of Audit Committee | 900 | 1,200 | ||||||
Committee Meeting – Non-Chairperson | 400 | 400 |
Equity Compensation
In 2019, the Board adopted the 2019 Equity Incentive Plan, which upon shareholder approval at the 2019 annual meeting of shareholders, became effective and has since served as successor to the Company’s 2010 Equity Incentive Plan. Non-employee directors are eligible to receive equity awards under the 2019 Equity Incentive Plan. No equity awards were granted to non-employee directors in 2019.
Directors’ Deferred Compensation Plans
On December 19, 2013, the Board adopted a directors’ deferred compensation plan, which was amended and restated on February 20, 2018 and is referred to herein as the 2013 Directors DCP, to replace the directors’ deferred compensation plan dated January 1, 1993, as amended (the “1993 Directors DCP”). Both plans are nonqualified director benefit plans through which an eligible director may voluntarily elect to defer some or all of his or her current fees in exchange for the Company’s promise to pay a deferred benefit. The deferred fees are credited with interest, and the accrued liability is paid to the director upon separation from service. Directors may not defer additional compensation once their total benefit reaches $500,000.
Amounts held under the 2013 Directors DCP are credited with interest at a rate equal to the Bloomberg 20-year Investment Grade Financial Institutions Index rate (or a similar reference rate selected by the Company if the Bloomberg rate is not published) in effect on the immediately preceding December 31, plus two percent. The obligations under the 1993 Directors DCP will continue to accrue interest; however, since December 31, 2013, no additional deferrals are permitted under the 1993 Directors DCP. The interest rate applicable to amounts held under the 1993 Directors DCP is the Wall Street Journal prime rate in effect on the first business day of January and July plus three percent, with an option to change to a fixed rate of 10 percent, at the director’s election, immediately preceding termination of service.
No deferred compensation will be payable to a director until separation from service, whereupon all deferred compensation, together with interest thereon, will be paid in accordance with the terms of the respective plan in one lump sum or in installments if the director made such an election.
As of December 31, 2019, the Company’s accrued obligations under the 2013 Directors DCP and the 1993 Directors DCP totaled $3,872,969.
Director Compensation Table
The following table shows compensation paid to or accrued by non-employee directors during the fiscal year ended December 31, 2019, for service on the boards of the Company and of Merchants Bank of Commerce.
Name | Fees Earned or Paid in Cash ($)1 | Nonqualified Deferred Compensation Earnings ($) | Total ($) | ||||||||||
Orin N. Bennett | 50,025 | 25,988 | 76,013 | ||||||||||
Gary R. Burks | 31,850 | 0 | 31,850 | ||||||||||
Joseph Q. Gibson | 34,675 | 12,324 | 46,999 | ||||||||||
Jon W. Halfhide | 34,900 | 13,765 | 48,665 | ||||||||||
David J. Inderkum | 17,600 | 0 | 17,600 | 2 | |||||||||
Linda J. Miles | 27,075 | 2,999 | 30,074 | ||||||||||
Karl L. Silberstein | 28,200 | 2,272 | 30,472 | ||||||||||
Terence J. Street | 37,525 | 4,662 | 42,187 | ||||||||||
Lyle L. Tullis | 59,850 | 32,006 | 91,856 |
1 See the section entitled “Monthly Retainers and Meeting Fees.”
2 Total represents fees earned or paid in cash beginning January 31, 2019, when Mr. Inderkum became a director.
THE BOARD BOARD COMMITTEES AND GOVERNANCE MATTERS
Corporate Governance Guidelines
The Board is committed to sound and effective corporate governance principles and practices. The Board has adopted corporate governance guidelines to provide the framework for the governance of the Company. These guidelines set forth director qualifications and standards of independence and mandate that at least a majority of the Board and all the members of the Audit Committee, Executive Compensation Committee, and the Nominating and Corporate Governance committeesCommittee meet the criteria for independence as discussed below.independence.
Highlights of ourthe Company’s corporate governance practices are described below. To fulfill its role, the Board, acting directly or through a Board committee, must perform the following primary functions:
● | Oversee the conduct of the Company’s business to evaluate whether or not the Company is being properly managed; |
● | Review and, |
● | Review and, |
● | Assess major risk factors relating to the Company and its performance, and review measures to address and mitigate such risks; |
● | Evaluate regularly the performance |
● | Plan for succession of the Chief Executive Officer and monitor management’s succession planning for other key |
In discharging these obligations, directors are entitled to rely reasonably on the honesty and integrity of their fellow directors, the Company’s executive officers, and the Company’s outside advisors and auditors. Directors shallwill be entitled to reasonable directors’ and officers’ liability insurance obtained on their behalf, the benefits of indemnification to the fullest extent permitted by law under the Company’s articles, bylaws and any indemnification agreements, and exculpation as provided by state law and the Company’s articles.
Executive Officers
The Board recognizes that the actual management of the business and affairs of the Company are conducted by the Chief Executive Officer and other senior executives under his supervision and that, in performing the management function, the Chief Executive Officer and other senior executives are obliged to act in a manner that is consistent with the oversight functions and powers of the Board and the standards of the Company and to execute any specific plans, instructions or directions of the Board.
Code of Conduct, Code of Ethics, and Corporate Governance Documents
The Board has adopted a Code of Conduct that applies to all of our directors, officers and staff and a Code of Ethics that applies to our principal executive officer and principal financial officer, or any person serving in that capacity. The Code of Conduct and Code of Ethics embody our commitment to high standards of ethical and professional conduct. All directors, officers and staff are required to annually certify that they have read and complied with the Code of Conduct. The Code of Conduct consists of basic standards of business practice as well as professional and personal conduct. You may access our Code of Ethics and the current charters of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee, as well as our articles and bylaws, by visiting our corporate website atwww.bankofcommerceholdings.com or by writing Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002.
Board Leadership Structure and Role in Risk Oversight
The Board is committed to maintaining an independent Board. To that end, it has beengood business practices, transparency in financial reporting, and high standards of corporate governance. The Company operates within a comprehensive plan of corporate governance for the practicepurpose of defining responsibilities, setting high standards of professional and personal conduct, and assuring compliance with such responsibilities and standards. The Board regularly monitors developments in the Company to separatearea of corporate governance. The Board periodically reviews the dutiesCompany’s governance policies and practices against those suggested by various groups or authorities active in corporate governance and the practices of Chairmanother companies, as well as the requirements of applicable law, NASDAQ listing standards, and Chief Executive Officer. At this time, the Board believes that the separation of duties of Chairman and Chief Executive Officer eliminates any inherent conflict of interest that may arise when the roles are combined and that a non-employee director who is not serving as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman.SEC regulations.
Role in Risk Oversight
The Board has ultimate authority and responsibility for overseeing risk management of the Company. Some aspects of risk oversight are fulfilled at the full Board level. Additionally, the Board, or a committee of the Board, receives specific periodic reports from executive management on credit risk, liquidity risk, interest rate risk, capital risk, operational risk, and economic risk. The Audit Committee oversees financial, accounting, and internal control risk management. The internal audit function and the independent registered public accounting firm report directly to the Audit Committee. The Executive Compensation Committee oversees the management of risks that may be posed by the Company’s compensation practices and programs.
Corporate Governance Documents
Code of Conduct Policy, Code of Ethics, and Other Corporate Governance Documents
The Board has adopted a Code of Conduct Policy that applies to all directors, officers, and employees of the Company and its affiliates, and a Code of Ethics that applies to the Company’s chief executive officer, chief financial officer, principal accounting officer, and controller or any person serving in those capacities. The Code of Conduct Policy and Code of Ethics embody the Company’s commitment to high standards of ethical and professional conduct. All directors, officers, and employees of the Company and its affiliates are required to certify annually that they have read and complied with the Code of Conduct Policy. The Code of Conduct Policy consists of basic standards of business practice as well as professional and personal conduct. You may access the Code of Conduct Policy, which includes the Code of Ethics, as well as the articles and bylaws, by visiting the Company’s corporate website at www.bankofcommerceholdings.com or by writing to Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002.
Anti-Hedging Policy
The Company has an Anti-Hedging Policy that prohibits the Company’s directors, officers, and employees from engaging in a “hedging transaction,” which is generally a transaction that would have the economic effect of establishing a downside price protection in connection with Common Stock owned by such person. These transactions can include the purchase of prepaid variable forward contracts, equity swaps, collars, short sales, and exchange funds, among others. Such transactions may create the appearance that the person’s interests generally are not aligned with those of the Company’s shareholders, to the extent that it is designed to hedge or offset against any decrease in the market value of Common Stock.
Anti-Pledging and Margin Account Policy
The Company has an Anti-Pledging and Margin Account Policy that prohibits the Company’s directors and executive officers from pledging Common Stock as collateral or from holding Common Stock in a margin account. Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to make a margin call, and any such margin sale may occur at a time when the pledgor is aware of material nonpublic information. None of the Company’s directors or executive officers have pledged shares of Common Stock or hold shares of Common Stock in a margin account.
Clawback Policy
The Company has a Clawback Policy providing for the recovery of incentive compensation in certain circumstances. Under the Clawback Policy, if the Company is required to prepare an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under applicable securities laws, and the Board determines that the misconduct of any person who was an executive officer at the time of the misconduct contributed to the requirement to restate the Company’s financial statements, the Company will recover compensation from any such current or former executive officer who received incentive compensation (including equity-based compensation) during the one-year period preceding the date of the restatement, in excess of what would have been paid to the executive absent the erroneous data.
Stock Ownership and Retention Guidelines
The Company has Director and Executive Officer Stock Ownership and Retention Guidelines that are intended to help closely align the financial interests of such persons with those of the Company’s shareholders. Within five years after appointment or election to the Board or five years from December 20, 2016 (the date the guidelines were originally adopted), whichever is later, each director is expected to acquire and retain shares of Common Stock having a market value of at least five times his or her annual cash retainer (as defined in the guidelines and exclusive of chairperson retainers and committee per-meeting fees). All directors have met the guideline.
Similarly, executive officers who are required to file reports pursuant to Section 16 of the Exchange Act are expected, within five years of appointment or five years from December 20, 2016, whichever is later, to acquire and retain Common Stock having a market value equal to at least two times his or her annual base salary. All executive officers have met the guideline.
Unless a director or executive officer has achieved the applicable guideline level of share ownership, he or she is required to retain an amount equal to 50 percent of the net shares received as a result of the exercise, vesting or payment of any Company equity awards granted to him or her. A director or executive officer must continue to retain such shares for as long as the director or executive officer is subject to the guidelines.
Board Leadership Structure
The Board is committed to maintaining an independent Board. To that end, the Company separates the duties of Chairman and Chief Executive Officer. The Board believes that the separation of duties of Chairman and Chief Executive Officer eliminates any inherent conflict of interest that may arise when the roles are combined and that a non-employee director who is not serving as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman.
Chairman of the Board
The Board appoints one of its independent members to serve as the Chairman of the Board. The offices of Chairman and Chief Executive Officer are not held by the same individual. The Chairman chairs all regular sessions of the Board and, with input from the Chief Executive Officer to the extent appropriate, sets the agenda for Board meetings, subject to the right of each boardBoard member to suggest agenda items.
Director QualificationsExecutive Officers
The Board must consistrecognizes that the actual management of the business and affairs of the Company is conducted by the Chief Executive Officer and other senior executives under his supervision. In performing the management function, the Chief Executive Officer and other senior executives are obliged to act in a majoritymanner that is consistent with the oversight functions and powers of directors who meet the independence criteria under NASDAQ listingBoard and the standards of the Company and as adopted byto execute any specific plans, instructions, or directions of the Board.
Qualifications: A director should possess personal and professional integrity, have good business judgment, and relevant experience and skills to be an effective director in conjunction with the full Board in collectively serving the long-term interestsSize of the Company’s shareholders. Directors should be committed to devoting sufficient time and energy to diligently performing their duties as directors.Board
Size of Board: The exact number of directors shall be fixed from time to time by the Board within the requirements of the Company’s articles and bylaws. In March 2015,At its January 2019 meeting, in connection with the acquisition of Merchants Holding Company, the Board determined thatincreased the appropriate sizenumber of the Board would be nine (9) members.directors to 10, effective January 31, 2019.
Selection Process: In accordance with the policies and principles in its charter, the Nominating and Corporate Governance Committee (the “Nominating and Corporate Governance Committee”) is responsible for identifying and recommending potential director nominees to the Board for its approval when there is a vacancy on the Board and for each annual meeting of shareholders. The Chairman of the Nominating and Corporate Governance Committee and the Chairman of the Board will extend an invitation to the potential director nominee to join the Board.
Director Orientation and Continuing Education
All new directors participate in an orientation program during their first year as a director.program. As part of the orientation, each director receives, a copy of the Director Policy and copies ofamong other materials, access to the Company’s articles, bylaws, Board and bylaws. Orientation also includes presentations by senior managementcommittee meeting materials and minutes, committee charters, regulatory examination reports and filings, corporate governance documents and other policies relating to familiarize new directors with ourthe Board, and strategic plans, significant financial, accounting and risk management issues, compliance programs, and conflict policies. Each director is required to review and sign the Company’s Insider Trading Policy and the Code of Conduct.plan. A new director will attend a meeting with the Chief Executive Officer and Chief Financial Officer to be briefed on Board reports,these materials as well as significant financial, accounting, and risk management issues,issues. Each director is required to review and currentsign the Company’s Insider Trading Policy and potential projects.the Code of Conduct Policy.
All directorsreceive annual director education in subjects relevant to the duties of a director, including the study of corporate governance best practices and ethics. The Board requires directors to participate in continuing education programs and reimburses directors for the expenses of such participation. All directors successfully complete the Directors Certification Program sponsored by the California Bankers Association and the Bankers’ Compliance Group, Inc. each year.
Board Attendance and Annual Meeting Policy
Directors are expected to attend all Board meetings and all meetings of committees on which they serve. Directors are expected to devote an adequate amount of time and effort to properly discharge their responsibilities. Information and data are important to the Board’s understanding of the business,Company, and the Companymanagement distributes materials to the directors sufficiently in advance of each meeting to permit their review.
The Board held eleven (11)13 meetings during 2015.2019. All directors attended at least seventy-five75 percent (75%) of the aggregate number of meetings of the Board and of the committees on which such director serves.served. The Company does not have a formal policy requiring the attendance of its directors at each annual meeting of the shareholders; however, directors are encouraged to attend,attend. The Company had 10 directors at the time of its 2019 annual meeting of shareholders, and eight of nineall directors attended the 2015 annual meeting.
DIRECTOR INDEPENDENCE;
DIRECTOR INDEPENDENCE, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Independence
The Nominating and Corporate Governance Committee has reviewed the applicable legal standards for Board and Board committee member independence and the criteria applied to determine audit committee financial expert status. The Board has analyzed the independence of each director and nominee and has determined which nominees and members of the Board meet the standards regarding independence required by applicable law, NASDAQ listing standards, and SEC regulations, and whether or not each such director nominee is free of relationships that would interfere with the individual exercise of independent judgment. In determining the independence of each director, the Board considered many factors, including any loans to the directors, each of which (i) were made in the ordinary course of business; (ii) were substantially made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company or the Company’s bank subsidiary;Merchants Bank of Commerce; and (iii) did not involve more than the normal risk of collectability or present other unfavorable features. Such arrangements are discussed in detail in the section entitled “Certain Relationships and Related Transactions.”
Based on these standards, the Board has determined that each of the following non-employee directors and director nominees is independent:
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Randall S. Eslick, who serves as the President and Chief Executive Officer of the Company, is not independent because he is currently an executive officer of the Company.
All of the members of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee are independent.
Compensation Committee Interlocks and Insider Participation
During 2015, our Executive Compensation Committee consisted of Jon W. Halfhide (Chairman), Orin N. Bennett, Gary R. Burks and Lyle L. Tullis. During 2015, none of our executive officers served on the compensation committee (or equivalent body) or board of directors of another entity whose executive officers served on the Executive Compensation Committee of the Board.
Directors’ Access to Officers, Employees and Independent Advisors
Directors are encouraged to keep themselves informed with regard to the Company and its operations. Directors have full and free access to Company officers and employees. Any meetings or contacts that a director wishes to initiate may be arranged through the Chief Executive Officer, Chief Financial Officer or directly by the director. Directors shall use their judgment to ensure that any such contact is not disruptive to the Company’s business operations and shall, to the extent that it is appropriate, copy the Chief Executive Officer on any written communications between a director and a Company officer or employee.
Communications with the Board of Directors
The Board has established a process for shareholders and other interested parties to communicate with independent members of the Board or a specific committee. Parties may communicate with the Board by sending a letter to Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002.
“Certain Relationships and Related Transactions.”
Based on these standards, the Board has determined that each of the following non-employee directors (all of whom are director nominees) is independent:
Orin N. Bennett | Jon W. Halfhide | Karl L. Silberstein |
Gary R. Burks | David J. Inderkum | Terence J. Street |
Joseph Q. Gibson | Linda J. Miles | Lyle L. Tullis |
Randall S. Eslick, who serves as President and Chief Executive Officer of the Company, is not independent because he is currently an executive officer of the Company. All of the members of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee are independent.
Certain Relationships and Related Transactions
Policy and Procedures on Related Person Transactions
The Company adopted its Code of Conduct Policy to promote a “tone at the top” of the highest ethical standards within the Company.Company and its affiliates. The Code of Conduct Policy requires all directors, officers, and employees of the Company personneland its affiliates to make immediate disclosure ofimmediately disclose situations that might create a conflict of interest, or the perception of a conflict of interest, which include transactions involving entities with which such personnel are associated. The Board recognizes that related-partyrelated person transactions present a heightened risk of conflicts of interest and/or improper valuation, or the perception thereof. Such transactions after full disclosureinvolving directors or executive officers of the material terms to the Board,Company must be approved by a majority of the members of the Board who are not parties to the specific transaction.transaction after full disclosure of the material terms to the Board. The Board shallwill determine whether or not the transactions are justfair and reasonable to the Company at the time of such approval, with those members of the Board, if any, who have an interest in the transaction abstaining. Such procedures are consistent with the termsprovisions of California corporate law. The Companylaw governing corporations. Merchants Bank of Commerce has a Regulation O Policy relatingthat applies to loans to insidersits executive officers and other related-party transactions.directors and to the Company’s directors, executive officers, and principal shareholders.
Lending and Other Ordinary Business Transactions
During 2015, almost allMerchants Bank of our directors, as well as some of their respective family members and/or affiliated entities, engaged in loanCommerce conducts banking transactions and/or had other extensions of credit in the ordinary course of business with our banking subsidiary.some of the Company’s directors and executive officers, as well as some of their family members and/or affiliated entities. All of thesesuch transactions, including those entered into since January 1, 2018, were on substantially the same terms, including interest rates, collateral, and repayment, and other terms, as those available at the time for similar transactions with unrelated parties. None of thesethe loans or credit transactions involvesinvolved more than the normal risk of collectability or presentspresented other unfavorable features.
COMMITTEES
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established, among others, a standing Audit Committee, an Executive Compensation Committee, and a Nominating and Corporate Governance Committee. All members of these three committees meet the applicable standards of independence defined by theapplicable law, NASDAQ listing standards and SEC regulations. In addition, the members of the Executive Compensation Committee meet the applicable standards of independence defined by IRS regulations. All directors participate in the long-range planning of the Company.
You may access the current charters of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee as well as our articles and bylaws, by visiting our corporatethe Company’s website atwww.bankofcommerceholdings.com or by writing to Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002.
Information about each of these three committees of the Board, itsincluding the members who served during 2015, the committee’s purpose, and2019, the number of meetings held in 20152019, and the committee’s purpose, follows.
Audit Committee | ||
Members: | Karl L. Silberstein, Chairman1 |
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Gary R. Burks | Terence J. Street | |
| Lyle L. Tullis | |
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Purpose: | To assist the Board in fulfilling its fiduciary responsibilities by overseeing the audit and risk management functions of the Company and specifically, to | |
Executive Compensation Committee | ||
Members: | Jon W. Halfhide, Chairman |
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Orin N. Bennett | Lyle L. Tullis | |
Gary R Burks | ||
Number of |
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Purpose: | To discharge the responsibilities of the Board relating to (i) all compensation (including but not limited to salary, incentives, and perquisites) of the Company’s named executive officers and directors who are not employees of the Company, and (ii) administration of the Company’s equity compensation plans and other benefit plans. | |
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Nominating and Corporate Governance Committee | ||
Members: | Gary R. Burks, Chairman | Terence J. Street |
Orin N. Bennett | Lyle L. Tullis | |
Jon W. Halfhide | ||
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Number of meetings: | 6 | |
Purpose: | To assist the Board |
1 Mr. Silberstein qualifies as an audit committee financial expert.
THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEEDIRECTOR QUALIFICATIONS AND NOMINATIONS FOR DIRECTOR
The Nominating and Corporate Governance Committee of the Board has been delegated the responsibility to identify, evaluate and recommend for nomination candidates for election as directors. Eachdirectors when there is a vacancy on the Board and for each annual meeting of the members of the Nominating and Corporate Governance Committee has been determined to be independent as defined by the SEC rules and NASDAQ listing standards.
shareholders. The goal of the Nominating and Corporate Governance Committee’s nominating process is to assist the Company in attracting competent individuals with the requisite management, financial, and other expertise who will serve as directors and act in the best interests of the Company and all its shareholders. The Nominating and Corporate Governance Committee consults with other Board members, the Company’s Chief Executive Officer, and other Company personnel in this process. The Nominating and Corporate Governance Committee will consider an individual recommended by a shareholder for nomination as a director provided that the shareholder making the recommendation follows the procedures for submitting a proposed nominee’s name and provides the required information described below.below, and in the Company’s bylaws.
Director Qualifications and the Nomination Process
The Board must consist of a majority of directors who meet the independence criteria required by applicable law, NASDAQ listing standards, and SEC regulations, and as adopted by the Board. The Nominating and Corporate Governance Committee regularly reviews the composition of the Board in light of its understanding of the backgrounds, industry,industries, professional experiences, and professional experience, and the various communities, both geographic and demographic, represented by the current members. It also monitors the expected service dates of Board members, any planned retirement dates, and other anticipated events that may affect a director’s continued ability to serve. The Nominating and Corporate Governance Committee periodically reviews Board self evaluationsself-evaluations and information with respect to the business and professional expertise represented by current directors in order to identify any specific skills desirable for future Board members.
The Board has approved certain minimum standards for first-time director candidates, and the Nominating and Corporate Governance Committee has developed a process for identifying and evaluating first-time nominees in light of these standards and other such factors as the Nominating and Corporate Governance Committee deemsdeemed appropriate. These standards and the Nominating and Corporate Governance Committee’s evaluation process apply to all first-time director nominees, including those nominees recommended by shareholders. This process is based on the Nominating and Corporate Governance Committee’s familiarity with the composition of the current Board, its awareness of anticipated openings, and its assessments of desirable talentsskills or expertise.
The Board has approved the following minimum qualifications for first-time nominees for director, including nominees recommended by shareholders, for election to the Company’s Board: (i) a demonstrated breadth and depth of management and/or leadership experience, preferably in a senior leadership role (i.e., chief executive officer, managing partner, president, chief financial officer)officer, etc.); (ii) financial literacy or other professional or business experience relevant to an understanding of the Company and its business; and (iii) a demonstrated ability to think and act independently and work constructively in a group environment.environment; (iv) personal and professional integrity; (v) good business judgment; and (vi) the ability to devote sufficient time and energy to diligently performing the duties of a director. The Nominating and Corporate Governance Committee will determine, in its sole discretion, whether or not a nominee meets these minimum qualifications. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria, and, aside from the minimum qualifications, no particular criterion is necessarily applicable to all prospective nominees. The Company believes that the backgrounds and qualifications of theits directors, considered as a group, should provide a significant and diverse composite mix of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law.
The Nominating and Corporate Governance Committee also will consider if such candidate meets the independence standards defined by NASDAQ thelisting standards, SEC rules,regulations and any additional requirements imposed by law or regulation on the members of the Audit Committee, Executive Compensation Committee, and the Nominating and Corporate Governance CommitteesCommittee of the Board.
Following the initial review, the Nominating and Corporate Governance CommitteeCommittee’s designee arranges an introductory meeting with the candidate, and the Company’s Chief Executive Officer, and the Chairman of the Board and(and in some cases with additional directors,directors) to determine the candidate’s interest in serving on the Board.
The Nominatingand Corporate Governance Committee, together with several members of the Board and the Chief Executive Officer, then conducts a comprehensive interview with the candidate. The individualcandidate will be asked to provide the information required to be disclosed in the Company’s proxy statement.
Assuming a satisfactory conclusion to the process, outlined above, the Nominating and Corporate Governance Committee will then presents the candidate’s namerecommend to the Board for election as a director.that it interview the candidate. After the Board-level interview, the Board will proceed in accordance with the Company’s bylaws and committee charters.
Director Nominations by Shareholders
A shareholder who wishes to submit an individual’s name for consideration by the Nominating and Corporate Governance Committee for nomination for election as a director of the Company at the 20172021 annual meeting mustof shareholders should deliver such nominationrecommendation to the Company’s Corporate Secretary no later than December 27, 20167, 2020 and provide (i) the shareholder’s name, address and the number of shares of the Company’s Common Stock beneficially owned by the shareholder; (ii) the name of the proposed nominee and the number of shares of the Company’s Common Stock beneficially owned by the nominee; (iii) a representation that the shareholder is a holder of record entitled to vote; (iv) a representation of whether the shareholder or beneficial owner, if any, intends or is part of a group that intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company’s outstanding capital stock required to elect the nominee, or (B) otherwise to solicit proxies from shareholders in support of such nomination; (v) sufficient information about the nominee’s experience and qualifications for the Nominating and Corporate Governance Committee to make a determination about whether or not the individual would meet the minimum qualifications for directors;director nominees; and (iv)(vi) such individual’s written consent to serve as a director of the Company, if elected. The Nominating and Corporate Governance Committee has the right to request, and the shareholder will be required to provide, such additional information with respect to the shareholder nominee as the Nominating and Corporate Governance Committee may deem appropriate or desirable to evaluate the proposed nominee in accordance with the nomination process, described above, including the information about the proposed nominee that is required to be disclosed by the Company in its proxy statement under Regulation 14A of the Exchange Act. See also the section entitled “SHAREHOLDER PROPOSALS AT THE 2021 ANNUAL MEETING.”
INFORMATION ON DIRECTORCOMPENSATION DISCUSSION AND EXECUTIVE COMPENSATION
Executive CompensationANALYSIS
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes ourthe Company’s executive compensation philosophy and objectives. The tables that follow presentIn 2019, the Company had four executive officers who performed a policy-making function for the Company. In accordance with SEC regulations for smaller reporting companies, the following analysis presents the compensation for 20152019 for the Company’s principal executive officer and the other two most highly paid executive officers during 2019 (the “named executive officers”).
Named Executive Officers of the Company
The following table and narrative sets forth information with respect to our named executive officers. When we refer to the three named executive officers we meanof the followingCompany, as shown in the section entitled “Summary Compensation Table,” including their ages and employment history for at least the last five individuals:years.
Name | Age | Positions |
Randall S. Eslick | 62 | President and Chief Executive Officer (Principal Executive Officer) |
James A. Sundquist | 65 | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Robert H. Muttera | 66 | Executive Vice President and Chief Credit Officer |
Randall S. Eslick has served as President and Chief Executive Officer (our Principalof the Company since November 2013 and has over 38 years of banking experience. He previously served as Regional President of Merchants Bank of Commerce (8 years), as Senior Vice President and Regional Manager (3 years), and as Senior Vice President and Commercial Loan Officer (1 year). Prior to his employment with the Company, Mr. Eslick was employed by a community business bank based in Sacramento for 14 years, and he began his career in banking with a major California bank where he worked for 5 years. Mr. Eslick was appointed to the Board of the Company and to the board of directors of Merchants Bank of Commerce in November 2013 when he assumed the role of President and Chief Executive Officer)Officer of the Company. As the Chief Executive Officer and a director, Mr. Eslick serves as the primary liaison between the Board and management and as the executive officer with overall responsibility for executing the Company’s strategic plan.
James A. Sundquist has served as Executive Vice President, Chief Financial Officer, and Principal Financial and Accounting Officer of the Company since December 2014. Prior to joining the Company, Mr. Sundquist had been retired since 2008. Mr. Sundquist has worked at several California independent financial institutions over the course of his career, including in the positions of Executive Vice President and Chief Financial Officer (our Principal Financial and Accounting Officer)
Samuel D. Jimenez,(9 years), Executive Vice President and Chief Operating Officer (2 years), Senior Vice President and Chief Financial Officer (11 years), and Vice President and Controller (4 years). Prior to his bank service, Mr. Sundquist was employed as a certified public accountant at an international public accounting firm.
Robert H. Muttera has served as Executive Vice President and Chief Credit Officer
Robert J. O’Neil, of the Company since January 2014. He previously served as Senior Vice President at a commercial real estate advisory firm (6 years), as Executive Vice President and Chief Credit Administrator(1)Officer of three California independent financial institutions (22 years), and as Vice President and Senior Commercial Loan Officer of a California independent financial institution (4 years). He began his career as a senior accountant and certified public accountant at an international public accounting firm.
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Please see the section titled “Information about Executive Officers and Directors – Executive Officers of the Company” for a full explanation regarding the named executive officers and the effective dates of their respective positions.
Strategic Role of Executive Compensation Committee
In 2013,2019, on an advisory basis, ourthe Company’s shareholders again voted to take advisory votes on named executive officer compensation on an annual basis. We haveThe Company has followed the guidance of ourits shareholders and annually requestrequests the approval on an advisory (non-binding) basis of the compensation of our named executive officers.officers (the “say-on-pay proposal”).
The Executive Compensation Committee evaluates the Company’s executive compensation programs in light of market conditions, shareholder views, and governance considerations and makes changes as appropriate. As required byAt the Dodd-Frank Wall Street Reform and Consumer Protection Act, we held an advisory vote on the compensationCompany’s 2019 annual meeting of our named executive officers (the “say-on-pay proposal”) at the 2015 annual shareholders, meeting. Our shareholders overwhelmingly approved the compensation of our named executive officers,say-on-pay proposal with 89.8%close to 99 percent of shareholder votes cast in favor of the say-on-pay proposal. As the Executive Compensation Committee evaluated the Company’s compensation programs in 2015,2019, it took into account ourthe shareholders’ vote of confidence in ourthe named executive officer compensation program as described below to ensure a continuedcontinue the link of pay to performance.
The Board of the Company strives to ensure that its compensation programs and practices are consistent with the strategic goals and objectives of the Company and that they maintain the Company’s high standards of effective corporate governance. The Board has appointed the Executive Compensation Committee to play a central role in formulating ourthe Company’s compensation philosophy and programs and in making pay decisions for our named executive officers. The compensation programs include elements that are designed specifically for the named executive officers.
The Company’s executive compensation philosophy and programs play an important role in achieving the objective of long-term growth in shareholder value. As a guiding principle, we design ourthe Company designs its compensation programs to reward our namedits executive officers for recent performance and to motivate them to achieve strong future performance for the Company and long-term value for our shareholders.
In keeping with ourthe long-term Company goalgoals and our efforts to increase shareholder value and align named executive officer compensation with performance, the Executive Compensation Committee has taken certain actions over the years including:
● | Developed the Company’s executive compensation philosophy of “pay for performance” that is competitive in the |
● | Established performance-based awards in the Company’s |
● | Retained an independent compensation |
● | Reviewed and approved industry-specific |
● | Designed |
It is the responsibility of the Executive Compensation Committee to:
● | Establish and annually review and approve policies regarding executive compensation programs and practices, and periodically review director compensation practices; |
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● | Review and approve all executive officer annual base salary levels, annual (short-term) incentive opportunity levels, long-term incentive opportunity levels, and any special supplemental benefits; |
● | Review and approve all executive officer employment, compensation, and retirement agreements; |
● | Establish and administer annual (short-term) and long-term incentive compensation programs for the executive officers; |
● | Review the independent risk assessment of all incentive compensation plans conducted by the Chief Risk Officer; |
● | Provide oversight regarding the Company’s benefit plans, policies, and arrangements on an as-needed basis; |
● | Recommend to the Board for its approval, and submission to the Company’s shareholders when appropriate, incentive compensation plans and equity-based plans; and |
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| Exercise appropriate oversight regarding compliance with the provisions of |
Commitment to Quality Governance
The Executive Compensation Committee has adopted the following guidelines intended to ensure quality governance of the Company’s “pay for performance” philosophy:
● | Only independent members of the Board may serve on the Executive Compensation Committee; |
● | The Executive Compensation Committee meets on a regular basis as needed throughout the year. Generally, the Executive Compensation Committee will review year-to-date financial performance versus budget, executive officer stock ownership levels, each executive officer’s target total compensation for the year, and other topics as appropriate; |
● | The Executive Compensation Committee reviews each executive officer’s total compensation package, including base salary, cash and stock incentive awards, qualified and nonqualified retirement plans, and perquisites, and compares it to the peer group; |
● | No executive officer or employee is permitted to be present when his or her compensation or performance, or the compensation or performance of the Chief Executive Officer, is discussed. |
● | The Executive Compensation Committee utilizes independent compensation consultant reports to assist in the analysis of compensation packages; |
● | The Executive Compensation Committee charter provides that changes to compensation programs applicable to the Company’s executive officers are submitted to the full Board for approval; |
● | The Executive Compensation Committee annually reviews and reassesses its charter and recommends any proposed changes to the Board for approval. The Executive Compensation Committee also conducts an annual evaluation of its own performance, comparing its performance with the requirements of its charter; and |
● | The Executive Compensation Committee reports on its meetings to the full Board. Additionally, the Executive Compensation Committee reports to the full Board the results of its evaluation of its own performance. |
Risk Assessment of Executive Officer Incentive Compensation Programs
In 2019, the Executive Compensation Committee reviewed with the Company’s Chief Risk Officer incentive compensation programs to which the Company’s executive officers were a party in order to:
● | Confirm that the features aligned with the FFIEC Interagency Guidance on Sound Incentive Compensation Policies; |
● | Identify any features that posed imprudent risks to the Company and limit those features to ensure the Company was not unnecessarily exposed to risks; and |
● | Identify and limit any features that would encourage the manipulation of reported earnings of the Company to enhance compensation. |
After considering these items, it was the Executive Compensation Committee’s view that the Company’s compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on its business or operations.
Role and Relationship of the Compensation Consultant
The Executive Compensation Committee has the sole authority to retain and terminate a compensation consultant and to approve the consultant’s fees and all other terms of the engagement. The Executive Compensation Committee has direct access to outside advisors and consultants throughout the year.
The Executive Compensation Committee has utilized the services of McLagan as an independent outside compensation consultant periodically since 2012. During 2019, McLagan assisted the Executive Compensation Committee in connection with general compensation questions and issues. McLagan’s services include conducting peer group analysis and benchmarking studies, establishing compensation guidelines, assisting with the design of incentive programs, and providing insight on emerging regulations and best practices. McLagan was engaged directly by and reports directly to the Executive Compensation Committee.
The Executive Compensation Committee considered the independence of McLagan in light of NASDAQ listing standards and SEC regulations. The Executive Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and the senior advisors involved in the engagement, which considered the following factors: (i) other services provided to the Company by McLagan; (ii) fees paid by the Company as a percentage of Aon’s total revenue; (iii) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the senior advisors and a member of the Executive Compensation Committee; (v) any Common Stock owned by the senior advisors; and (vi) any business or personal relationships between the Company’s executive officers and the senior advisors. The Executive Compensation Committee discussed these considerations and concluded that the work performed by McLagan and the senior advisors involved in the engagement did not raise any conflict of interest.
Executive Compensation ObjectivesPhilosophy
Based on the Company’s philosophy to link compensation to Company, business, and individual performance, ourthe compensation programs for ourthe executive officers are built uponfocused on three objectives:essential goals:
| To compete favorably with |
| To “pay for performance” by compensating |
| The Company’s performance measured against pre-established performance metrics; and |
o | The Company’s performance compared to |
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| To align the interests of |
Executive Officer Compensation ComponentsElements
Executive officer compensation for 20152019 included the following elements:
Compensation Element |
| What the Compensation Element Rewards | Description of | |||||
Base Salary | Core competence in the executive’s role relative to skills, years of experience, and contributions to the Company. | Provides for fixed compensation based on competitive market salary levels. | ||||||
| Contributions toward the Company’s achievement of specified profitability, growth, and credit |
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Long-Term Incentives (Equity)
| Contributions toward the Company’s achievement of specified profitability | Restricted | ||||||
Retirement Benefits
| Retention of |
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Health and Welfare Benefits
| Such benefits are part of a broad-based competitive total compensation program. | Employee benefit plans are generally available to all employees and include disability plans, paid time off, and | ||||||
Additional Benefits and Perquisites
| Active participation in business and promotional activities on behalf of the Company. | Provides for |
Overview of Compensation and Process
Base salaries are generally set for our executive officers annually at the regularly scheduled meetings of the Executive Compensation Committee between the months of December and April.
The Executive Compensation Committee reviews and recommends the Variable Incentive Program for the new fiscal year to the Board for approval, reviews and approves awards granted under the Variable Incentive Program, and reports awards to the Board. The Executive Compensation Committee recommends stock awards for the Company’s executive officers and certain other eligible employees.
It is the practice of the Executive Compensation Committee to periodically review the history of all the elements of each named executive officer’s total compensation over previous years and compare the compensation of the named executive officersofficer with that of the executive officers in an appropriate market placemarketplace and peer group. Base salaries for executive officers generally are reviewed and set every two years by the Executive Compensation Committee. The Executive Compensation Committee reviews and recommends the Short-Term Program and Long-Term Program for the new fiscal year to the Board for approval, reviews and approves awards granted under such programs, and reports approved awards to the Board.
McLagan, the independent compensation consultant to the Executive Compensation Committee since 2012, has been engaged to assist in identifying a peer group of comparable financial institutions and review the Company’s compensation program for its executive officers relative to that of the peer group. The analysis covers salaries, cash compensation (salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation), including a review of compensation relative to that of the peer group. The peer group and executive compensation and comparison analysis have been updated by McLagan periodically since 2012.
In November 2014,September 2016, the Executive Compensation Committee engaged McLagan a leading performance/reward consulting firm for the financial services industry, to review compensation for its named executive officers and senior leadership team relative to that of similar financial institutions. McLagan presented the Executive Compensation Committee with an analysis of salaries, cash compensation (salary plus cash bonuses) and, direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation). Such analysis included a review of compensation relative to that of comparable financial institutions. In November 2017, McLagan also provided the Executive Compensation Committee with ana compensation review update in September 2015.
that did not revise the peer group, but which updated information as to the asset size of the peer group members and provided updated market compensation information. A summary of the findings from the McLagan September 2015November 2017 report comparing the 2015 compensation of the Company’s named executive officers to estimated 20162018 target compensation for the marketindicatesmarket indicated that overall,the salaries, cash compensation, and direct compensation at target performance for the Company’s named executive officers were within a market competitive range except for Mr. Eslick, who remained below market median.
range. The Peer Group for compensation and performance purposes was updated, with the assistance of McLagan, in November 2014, primarily based on total assets relative to the Company’s total assets, geographic locations, and business model, and consists of the following financial services companies located in California, Oregon and Washington represented the peer group (the “Peer Group”): selected by the Executive Compensation Committee with McLagan’s assistance in September 2016 and utilized for the November 2017 study. The primary criteria for the Peer Group included total assets, geographic locations, performance and business model. The compensation of this Peer Group’s executives was used to establish the Company’s 2018 and 2019 named executive officer salaries.
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| Pacific Continental Corp |
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First Northern Community Bancorp | Pacific Mercantile Bancorp | |
Bank of Marin Bancorp | FNB Bancorp | Provident Financial Holdings |
Cascade Bancorp | Heritage Commerce Corp | Riverview Bancorp Inc. |
Central Valley Community Bancorp | Heritage Oaks Bancorp | Sierra Bancorp |
Community West Bancshares | Oak Valley Bancorp | United Security Bancshares |
First Financial Northwest Inc. |
Compensation Objectives
The Company’s executive compensation programs are designed (i) to attract and retain well-qualified executive officers, (ii) to link executive officer compensation to the Company’s financial performance, and (iii) to reward executive officers for creating shareholder value. The Company believes its executive compensation programs achieve these objectives.
In order to set competitive benchmarks for 2015 annual2019 salaries and long-term compensation for the named executive officers, the Executive Compensation Committee reviewed data compiled in the 2014compensation report prepared by McLagan report.in November 2017. This data presented Peer Groupbase salary, annual cash incentive, long-term incentive, and total compensation amounts as reported in the 2014 annual filings for those companies’ executive officers of the peer group whose positions and responsibilities most closely matchmatched those of ourthe Company’s executive officers. For each namedof the Company’s executive officer,officers, this compensation data was examined for the 25th, 50th and 75th percentiles.relative to peer group median compensation. The Executive Compensation Committee used this information to help determine competitive benchmarks for the 20152019 base salary and annual cash incentive awardsfor purposes of the 2019 Short-Term Program and long-term compensation awards for the named executive officers.2019 Long-Term Program.
The Executive Compensation Committee solicits input from the entire Board to review, establish and approve corporate goals and objectives relevant to the Chief Executive Officer’s compensation. At a meeting at which the Chief Executive Officer is not present, the Executive Compensation Committee evaluates the Chief Executive Officer’s performance in light of these corporate goals and objectives and determines the Chief Executive Officer’s compensation based on the evaluation. Typically, the Chief Executive Officer makes compensation recommendations to the Executive Compensation Committee with respect to the executive officers who report to him. Such executive officers are not present at the time of these deliberations. The Chairman of the Board then makes compensation recommendations to the Executive Compensation Committee with respect to the Chief Executive Officer, who is absent from that portion of the meeting. The Executive Compensation Committee may accept or adjust such recommendations.
ReviewRole and Relationship of Executive Performancethe Compensation Consultant
The Executive Compensation Committee reviews, on an annual basis, eachhas the sole authority to retain and terminate a compensation element for each named executive officer.consultant and to approve the consultant’s fees and all other terms of the engagement. The Executive Compensation Committee takes into accounthas direct access to outside advisors and consultants throughout the role and responsibilities, expertise, skills and years of experience of each named executive officer in comparison to competitive salary levels.year.
The Executive Compensation Committee may adjust or eliminate incentivehas utilized the services of McLagan as an independent outside compensation awards, regardless of achieving financial performance goals, ifconsultant periodically since 2012. During 2019, McLagan assisted the Executive Compensation Committee determines that an executive officer has failedin connection with general compensation questions and issues. McLagan’s services include conducting peer group analysis and benchmarking studies, establishing compensation guidelines, assisting with the design of incentive programs, and providing insight on emerging regulations and best practices. McLagan was engaged directly by and reports directly to comply with our Code of Ethics, Code of Conduct or policies on information security, regulatory compliance and risk management.
Named Executive Officer Compensation
The components of executive compensation are intended to work together to compensate the named executive officer fairly for services, reward the named executive officer based upon the Company’s overall performance and, depending on the position, his or her own performance during the year. In assessing the named executive officer’s total rewards, the Executive Compensation Committee reviews each component of a named executive officer’s compensation and considers and evaluates pay mix, the competitive market, and the value of total pay, benefits and perquisites. Committee.
The Executive Compensation Committee further takes into considerationconsidered the shareholder voting resultsindependence of McLagan in light of NASDAQ listing standards and SEC regulations. The Executive Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and the senior advisors involved in the engagement, which considered the following factors: (i) other services provided to the Company by McLagan; (ii) fees paid by the Company as a percentage of Aon’s total revenue; (iii) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the senior advisors and a member of the Executive Compensation Committee; (v) any Common Stock owned by the senior advisors; and (vi) any business or personal relationships between the Company’s executive officers and the senior advisors. The Executive Compensation Committee discussed these considerations and concluded that the work performed by McLagan and the senior advisors involved in the engagement did not raise any conflict of interest.
Executive Compensation Philosophy
Based on named executivecompensation, whichthe Company’s philosophy to link compensation to Company, business, and individual performance, the compensation programs for the lastexecutive officers are focused on three years has indicated a highessential goals:
● | To compete favorably with peers in attracting and retaining qualified individuals as executive officers by offering competitive pay, generally targeted at the median compared to the Company’s peer group, with adjustments to reflect skill level and experience. |
● | To “pay for performance” by compensating executive officers based upon: |
o | The Company’s performance measured against pre-established performance metrics; and |
o | The Company’s performance compared to its peer group performance. |
● | To align the interests of shareholders and executive officers by using equity awards for long-term compensation so executive officers benefit only if the Company’s stock price rises and shareholders are similarly rewarded. |
Executive Officer Compensation Elements
Executive officer compensation for 2019 included the following elements:
Compensation Element | What the Compensation Element Rewards | Description and Purpose of the Compensation Element |
Base Salary | Core competence in the executive’s role relative to skills, years of experience, and contributions to the Company. | Provides for fixed compensation based on competitive market salary levels. |
Short-Term Incentives (Cash) | Contributions toward the Company’s achievement of specified profitability, growth, and credit quality metrics. | An annual performance-based award that provides focus on meeting short-term goals that lead to the long-term success of the Company and which motivates achievement of critical annual performance metrics. |
Long-Term Incentives (Equity) | Contributions toward the Company’s achievement of specified profitability metrics, corporate governance, and strategic objectives. | Restricted stock awards increase executive ownership in the Company and aid in executive retention in a challenging business environment and competitive labor market; these awards emphasize positive long-term performance and align executive interests with those of shareholders. |
Retirement Benefits | Retention of executive for the balance of his/her career. | Salary continuation agreements provide retirement benefits for the executive commensurate with those available to comparable peers. The qualified Merchants Bank of Commerce 401(k) Profit Sharing Plan, available to all eligible employees, provides the executive with a mechanism to save for retirement. |
Health and Welfare Benefits | Such benefits are part of a broad-based competitive total compensation program. | Employee benefit plans are generally available to all employees and include disability plans, paid time off, and health and life insurance. |
Additional Benefits and Perquisites | Active participation in business and promotional activities on behalf of the Company. | Provides for the executive to promote the Company’s business and may include club memberships and the use of a bank-owned automobile. |
Base SalaryOverview of Compensation and Process
It is the goalpractice of the Executive Compensation Committee to establish salaryperiodically review the history of all elements of each executive officer’s total compensation over previous years and compare the compensation of the executive officer with that of executive officers in an appropriate marketplace and peer group. Base salaries for executive officers generally are reviewed and set every two years by the Executive Compensation Committee. The Executive Compensation Committee reviews and recommends the Short-Term Program and Long-Term Program for the new fiscal year to the Board for approval, reviews and approves awards granted under such programs, and reports approved awards to the Board.
McLagan, the independent compensation consultant to the Executive Compensation Committee since 2012, has been engaged to assist in identifying a peer group of comparable financial institutions and review the Company’s compensation program for its executive officers based on the Company’s operating performance relative to that of the comparable Peer Group, along withpeer group. The analysis covers salaries, cash compensation recommendations from(salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation), including a review of compensation relative to that of the Chief Executive Officer.peer group. The peer group and executive compensation and comparison analysis have been updated by McLagan periodically since 2012.
Base salary is generally established by an individual’s performance, experience, competent and effective execution of strategic objectives, level of responsibilities, and promotions, with total cash compensation targeted at or above the 50th percentile. In setting the base salaries of the named executive officers for fiscal year 2015,September 2016, the Executive Compensation Committee considered the Company’s levelengaged McLagan to review compensation for its named executive officers relative to that of success in its short- and long-term goals in relation to:
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In light of McLagan’s recommendation in its November 2014 report for a plan to move Mr. Eslick’s compensation closer to the median of the market within 18 months to two years,similar financial institutions. McLagan presented the Executive Compensation Committee approvedwith an increase in Mr. Eslick’s annual salary effective January 1, 2015analysis of salaries, cash compensation (salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation). Such analysis included a review of compensation relative to a level approximately equal to the 25th percentilethat of the market and increased his salary again modestly in July 2015.
Incentive Compensation
Effective for 2015,comparable financial institutions. In November 2017, McLagan provided the Executive Compensation Committee replacedwith a compensation review update that did not revise the peer group, but which updated information as to the asset size of the peer group members and provided updated market compensation information. A summary of the findings from the McLagan November 2017 report comparing the compensation of the Company’s prior unified variable award programnamed executive officers to estimated 2018 target compensation for the market indicated that the salaries, cash compensation, and direct compensation at target performance for the Company’s named executive officers were within a market competitive range. The following financial services companies located in California, Oregon and Washington represented the peer group (the “2014 Incentive Program”“Peer Group”) selected by the Executive Compensation Committee with separate formal annual award programs.McLagan’s assistance in September 2016 and utilized for the November 2017 study. The Short-Term Variable Incentive Program (the “Short-Term Program”) covers cash incentive awards,primary criteria for the Peer Group included total assets, geographic locations, performance and business model. The compensation of this Peer Group’s executives was used to establish the Long-Term Variable Incentive Program (the “Long-Term Program”) covers equity-based awards. The Long-Term Program will govern equity awards based on 2015 Company performance with such awards to be made in 2016. For long-term incentive awards made in 2015, the terms of the 2014 Incentive Program applied, as described below.Company’s 2018 and 2019 named executive officer salaries.
1st Century Bancshares Inc. | First Foundation Inc. | Pacific Continental Corp |
American River Bankshares | First Northern Community Bancorp | Pacific Mercantile Bancorp |
Bank of Marin Bancorp | FNB Bancorp | Provident Financial Holdings |
Cascade Bancorp | Heritage Commerce Corp | Riverview Bancorp Inc. |
Central Valley Community Bancorp | Heritage Oaks Bancorp | Sierra Bancorp |
Community West Bancshares | Oak Valley Bancorp | United Security Bancshares |
First Financial Northwest Inc. |
Short-Term Variable Incentive ProgramCompensation Objectives
The Short-Term Program isCompany’s executive compensation programs are designed (i) to attract and retain well-qualified executive officers, (ii) to link executive officer compensation to the Company’s financial performance, and (iii) to reward executive officers for creating shareholder value. The Company believes its executive compensation programs achieve these objectives.
In order to set competitive benchmarks for 2019 salaries and long-term compensation for the executive officers, the Executive Compensation Committee reviewed data compiled in the compensation report prepared by McLagan in November 2017. This data presented base salary, annual cash incentive, long-term incentive, and total compensation amounts as reported in the annual filings for executive officers of the peer group whose positions and responsibilities most closely matched those of the Company’s executive officers. For each of the Company’s executive officers, this compensation data was examined relative to peer group median compensation. The Executive Compensation Committee used this information to help determine competitive benchmarks for achieving short-term financial goals, including short- and long-term strategic goals,2019 base salary and for the overall financial performancepurposes of the Company.2019 Short-Term Program and 2019 Long-Term Program.
The Executive Compensation Committee approves a threshold, targetsolicits input from the entire Board to review, establish and maximum incentive payout as a percentage of the base salary earned during the incentive period for each executive officer. These targets are based on competitive practices for each comparable position. The incentive award opportunity represents the executive officer’s annual incentive opportunity if the annual performance goals are achieved.
We developed targets covering all of the executive officers as a means of driving results, assessing their performance against criticalapprove corporate goals and objectives relevant to providethe Chief Executive Officer’s compensation. At a reference formeeting at which the Chief Executive Officer is not present, the Executive Compensation Committee to useevaluates the Chief Executive Officer’s performance in determining 2015 cash incentive awards. Alllight of these corporate goals for named executive officers are Company, not individual, goals.
The table below reflectsand objectives and determines the short-term cash incentiveChief Executive Officer’s compensation as a percentage of base salary and the threshold, target and maximum amount that could be earned by each eligible named executive officer for 2015 under the Short-Term Program:
Named Executive Officer | Threshold | Target | Maximum |
Randall S. Eslick | 30.28% | 35.00% | 40.78% |
James A. Sundquist | 25.95% | 30.00% | 34.95% |
Samuel D. Jimenez | 25.95% | 30.00% | 34.95% |
Robert H. Muttera | 25.95% | 30.00% | 34.95% |
Robert J. O’Neil | 17.30% | 20.00% | 23.30% |
The Short-Term Program establishes a set of financial metrics which is intended to drive performance. Each metric has a weight within the Short-Term Program, and the sum of the weights equal 100%. These metrics include (i) consolidated net income; (ii) performing loan growth, which is critical to achieving earnings and asset quality targets; (iii) core deposit growth, which is essential to ensure the long-term growth and includes checking, savings and money market deposits; and (iv) classified ratio, which measures the quality of loans within the portfolio and is vital to the Company’s overall success and which also tracks the amount of classified or problem loans as a percentage of the Company’s equity capital.
Metrics | Weight | Threshold | Target | Max | Actual | Result (% of Target) | ||||||||||||||||||
Consolidated Net Income | 65% | $ | 6,789,800 | $ | 7,988,000 | $ | 9,585,600 | $ | 8,294,726 | 104% | ||||||||||||||
Performing Loan Growth | 10% | $ | 69,700,000 | $ | 82,000,000 | $ | 90,200,000 | $ | 63,380,421 | 77% | ||||||||||||||
Core Deposit Growth | 15% | $ | 23,800,000 | $ | 28,000,000 | $ | 30,800,000 | $ | 41,243,880 | 147% | ||||||||||||||
Classified Ratio | 10% | </= 20 | % | </= 20 | % | < 17 | % | 17.55 | % | 100% | ||||||||||||||
Overall Company Performance | 91.5% |
The amount of incentive award paid to each executive officer under the Short-Term Program is based on how well the Company meets its budgeted goals. Each metric has different weightings, thresholds and ranges and is calculated independently of other metricsevaluation. Typically, the Chief Executive Officer makes compensation recommendations to determine the total award. The plan has a trigger where no award is earned if Consolidated Net Income is less than 85% of target. All awards under the Short-Term Program are subject to the discretion of the Executive Compensation Committee andwith respect to the Board.executive officers who report to him. Such executive officers are not present at the time of these deliberations.
Payouts under Short-Term Program
NamedExecutive Officer | IncentiveAmount | % of Salary | % of Target |
Randall S. Eslick | $102,026 | 32.03% | 91.50% |
James A. Sundquist | $61,763 | 27.45% | 91.50% |
Samuel D. Jimenez | $72,743 | 27.45% | 91.50% |
Robert H. Muttera | $61,763 | 27.45% | 91.50% |
Robert J. O’Neil | $35,460 | 18.30% | 91.50% |
Long-Term Variable Incentive Program
The Executive Compensation Committee believes that stock awards are the most effective form of equity-based compensation to reward our executive officers for their contributions to the Company’s long-term performance. Stock awards which increase in value as the Company’s stock price increases directly aligns our executive officers’ interests with our shareholders’ interests to increase stock value over the long term. Equity-based awards under the Long-Term Program are made under the Company’s current 2010 Equity Incentive Plan.
The Long-Term Program is designed to reward the Company’s executive officers for achieving financial and strategic goals that the Executive Compensation Committee believes support the long-term success and growth of the Company.
The Executive Compensation Committee approves a threshold, target and maximum payout as a percentage of the base salary earned during the incentive period for each executive officer. These targets are based on competitive practices for each comparable position. The incentive target percentage represents the executive officer’s annual incentive opportunity if the annual performance goals are achieved.
Long-term incentive awards will be in the form of restricted stock grants with one-third vesting upon the date of grant and one-third vesting on each of the next two anniversaries of the date of grant.
The table below reflects the long-term equity-based compensation as a percentage of salary and the threshold, target and maximum amount that could be earned by each eligible named executive officer for 2014 Company performance and granted in 2015 under the 2014 Incentive Program.
Named Executive Officer | Threshold | Target | Maximum |
Randall S. Eslick | 21.81% | 25.00% | 27.50% |
James A. Sundquist (1) | -- | -- | -- |
Samuel D. Jimenez | 17.45% | 20.00% | 22.00% |
Robert H. Muttera | 17.45% | 20.00% | 22.00% |
Robert J. O’Neil | 13.09% | 15.00% | 16.50% |
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The Long-Term Program establishes a set of financial metrics which is intended to drive performance. Although the metrics utilized are the same as those utilized under the Short-Term Program as described above, they are weighted in a different manner to reflect emphasis on the Company’s long-term growth objectives and long-term shareholder value.
Metrics | Weight | Threshold | Target | Max | Actual | Result (% of Target) | ||||||||||||||||||
Consolidated Net Income | 35% | $ | 7,921,150 | $ | 9,319,000 | $ | 10,250,900 | $ | 7,536,000 | 81% | ||||||||||||||
Performing Loan Growth | 15% | $ | 79,650,950 | $ | 93,707,000 | $ | 103,077,700 | $ | 62,600,000 | 67% | ||||||||||||||
Core Deposit Growth | 35% | $ | 21,250,000 | $ | 25,000,000 | $ | 27,500,000 | $ | 53,178,000 | 213% | ||||||||||||||
Classified Ratio | 15% | < 30 | % | < 30 | % | < 27 | % | 29 | % | 102% | ||||||||||||||
Overall Company Performance | 0% |
Figures shown above reflect 2014 Company performance, which was applicable to equity incentive awards made in 2015. The amount of incentive award paid to each executive officer under the Long-Term Program is based on how well the Company meets its budgeted goals. Each metric has different weightings, thresholds and ranges and is calculated independently of other metrics to determine the total award. The plan has a trigger where no award is earned if Consolidated Net Income is less than 85% of target. All awards under the Long-Term Program are subject to the discretion of the Executive Compensation Committee and the Board.
Payouts under Long-Term Program
NamedExecutive Officer | IncentiveAmount | % of Salary | % of Target | Discretionary |
Randall S. Eslick | $0 | 0% | 0% | $54,190 |
James A. Sundquist (1) | -- | -- | -- | -- |
Samuel D. Jimenez | 0 | 0% | 0% | $40,902 |
Robert H. Muttera | 0 | 0% | 0% | $36,812 |
Robert J. O’Neil | 0 | 0% | 0% | $23,311 |
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The Company did not meet its net income goal for 2014, and, therefore, the Company did not pay incentives under the 2014 Incentive Program. However, because the Company’s net income was impacted by certain one-time events, the Executive Compensation Committee awarded discretionary bonuses in 2015 based on the 2014 accomplishments of the management team, which included asset quality improvement, management and departmental reorganization and increased efficiencies, and achievement of certain strategic objectives.
Perquisites and Other Benefits
The Executive Compensation Committee believes that offering certain perquisites helps in the operation of the business as well as assists the Company to recruit and retain key executive officers. In some cases, an automobile allowance or the use of a bank-owned auto and a country club membership are offered to our executive officers. The Company’s executive officers may participate in the same benefit programs available to all employees. These programs include health, life and disability insurance and participation in non-qualified 401(k) plans.
The Company maintains a Supplemental Executive Retirement Plan (“SERP”) and has entered into employment agreements with its executive officers which contain a change-in-control provision providing for certain payments following the termination of employment. The payments under the SERP are fixed pursuant to individual Salary Continuation Agreements and do not depend on years of credited service.
A discussion of the terms of the individual SERP, employment and change-in-control agreements with each of the named executive officers is set forth under “Post-Employment and Termination Benefits” below.
Role and Relationship of the Compensation Consultant
The Executive Compensation Committee has the sole authority to retain and terminate a compensation consultant and to approve the consultant’s fees and all other terms of the engagement. The Executive Compensation Committee has direct access to outside advisors and consultants throughout the year.
In November 2014, theThe Executive Compensation Committee retainedhas utilized the services of McLagan an Aon Hewitt company, as an independent outside compensation consultant.consultant periodically since 2012. During 2019, McLagan was also retained in September 2015 to provideassisted the Executive Compensation Committee in connection with a market update of the 2014 study.general compensation questions and issues. McLagan’s services include conducting peer group analysis and benchmarking studies, establishing compensation guidelines, assisting with the design of incentive programs, and providing insight on emerging regulations and best practices. The Executive Compensation Committee was provided with comprehensive reports summarizing McLagan’s findings and suggestions. McLagan was engaged directly by the Executive Compensation Committee and reports directly to the Executive Compensation Committee.
The Executive Compensation Committee considered the independence of McLagan in light of SEC rules and NASDAQ listing standards.standards and SEC regulations. The Executive Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and the senior advisors involved in the engagement, which considersconsidered the following factors: (i) other services provided to usthe Company by McLagan; (ii) fees paid by usthe Company as a percentage of McLagan’sAon’s total revenue; (iii) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the senior advisors and a member of the Executive Compensation Committee; (v) any Company stockCommon Stock owned by the senior advisors; and (vi) any business or personal relationships between ourthe Company’s executive officers and the senior advisors. The Executive Compensation Committee discussed these considerations and concluded that the work performed by McLagan and the senior advisors involved in the engagement did not raise any conflict of interest.
CommitmentExecutive Compensation Philosophy
Based on the Company’s philosophy to Quality Governancelink compensation to Company, business, and individual performance, the compensation programs for the executive officers are focused on three essential goals:
● | To compete favorably with peers in attracting and retaining qualified individuals as executive officers by offering competitive pay, generally targeted at the median compared to the Company’s peer group, with adjustments to reflect skill level and experience. |
● | To “pay for performance” by compensating executive officers based upon: |
o | The Company’s performance measured against pre-established performance metrics; and |
o | The Company’s performance compared to its peer group performance. |
● | To align the interests of shareholders and executive officers by using equity awards for long-term compensation so executive officers benefit only if the Company’s stock price rises and shareholders are similarly rewarded. |
Executive Officer Compensation Elements
Executive officer compensation for 2019 included the following elements:
Compensation Element | What the Compensation Element Rewards | Description and Purpose of the Compensation Element |
Base Salary | Core competence in the executive’s role relative to skills, years of experience, and contributions to the Company. | Provides for fixed compensation based on competitive market salary levels. |
Short-Term Incentives (Cash) | Contributions toward the Company’s achievement of specified profitability, growth, and credit quality metrics. | An annual performance-based award that provides focus on meeting short-term goals that lead to the long-term success of the Company and which motivates achievement of critical annual performance metrics. |
Long-Term Incentives (Equity) | Contributions toward the Company’s achievement of specified profitability metrics, corporate governance, and strategic objectives. | Restricted stock awards increase executive ownership in the Company and aid in executive retention in a challenging business environment and competitive labor market; these awards emphasize positive long-term performance and align executive interests with those of shareholders. |
Retirement Benefits | Retention of executive for the balance of his/her career. | Salary continuation agreements provide retirement benefits for the executive commensurate with those available to comparable peers. The qualified Merchants Bank of Commerce 401(k) Profit Sharing Plan, available to all eligible employees, provides the executive with a mechanism to save for retirement. |
Health and Welfare Benefits | Such benefits are part of a broad-based competitive total compensation program. | Employee benefit plans are generally available to all employees and include disability plans, paid time off, and health and life insurance. |
Additional Benefits and Perquisites | Active participation in business and promotional activities on behalf of the Company. | Provides for the executive to promote the Company’s business and may include club memberships and the use of a bank-owned automobile. |
Overview of Compensation and Process
It is the practice of the Executive Compensation Committee to periodically review the history of all elements of each executive officer’s total compensation over previous years and compare the compensation of the executive officer with that of executive officers in an appropriate marketplace and peer group. Base salaries for executive officers generally are reviewed and set every two years by the Executive Compensation Committee. The Executive Compensation Committee reviews and recommends the Short-Term Program and Long-Term Program for the new fiscal year to the Board for approval, reviews and approves awards granted under such programs, and reports approved awards to the Board.
McLagan, the independent compensation consultant to the Executive Compensation Committee since 2012, has been engaged to assist in identifying a peer group of comparable financial institutions and review the Company’s compensation program for its executive officers relative to that of the peer group. The analysis covers salaries, cash compensation (salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation), including a review of compensation relative to that of the peer group. The peer group and executive compensation and comparison analysis have been updated by McLagan periodically since 2012.
In September 2016, the Executive Compensation Committee engaged McLagan to review compensation for its named executive officers relative to that of similar financial institutions. McLagan presented the Executive Compensation Committee with an analysis of salaries, cash compensation (salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation), and total compensation (direct compensation plus retirement benefits plus other compensation). Such analysis included a review of compensation relative to that of comparable financial institutions. In November 2017, McLagan provided the Executive Compensation Committee with a compensation review update that did not revise the peer group, but which updated information as to the asset size of the peer group members and provided updated market compensation information. A summary of the findings from the McLagan November 2017 report comparing the compensation of the Company’s named executive officers to estimated 2018 target compensation for the market indicated that the salaries, cash compensation, and direct compensation at target performance for the Company’s named executive officers were within a market competitive range. The following financial services companies located in California, Oregon and Washington represented the peer group (the “Peer Group”) selected by the Executive Compensation Committee with McLagan’s assistance in September 2016 and utilized for the November 2017 study. The primary criteria for the Peer Group included total assets, geographic locations, performance and business model. The compensation of this Peer Group’s executives was used to establish the Company’s 2018 and 2019 named executive officer salaries.
1st Century Bancshares Inc. | First Foundation Inc. | Pacific Continental Corp |
American River Bankshares | First Northern Community Bancorp | Pacific Mercantile Bancorp |
Bank of Marin Bancorp | FNB Bancorp | Provident Financial Holdings |
Cascade Bancorp | Heritage Commerce Corp | Riverview Bancorp Inc. |
Central Valley Community Bancorp | Heritage Oaks Bancorp | Sierra Bancorp |
Community West Bancshares | Oak Valley Bancorp | United Security Bancshares |
First Financial Northwest Inc. |
Compensation Objectives
The Company’s executive compensation programs are designed (i) to attract and retain well-qualified executive officers, (ii) to link executive officer compensation to the Company’s financial performance, and (iii) to reward executive officers for creating shareholder value. The Company believes its executive compensation programs achieve these objectives.
In order to set competitive benchmarks for 2019 salaries and long-term compensation for the executive officers, the Executive Compensation Committee reviewed data compiled in the compensation report prepared by McLagan in November 2017. This data presented base salary, annual cash incentive, long-term incentive, and total compensation amounts as reported in the annual filings for executive officers of the peer group whose positions and responsibilities most closely matched those of the Company’s executive officers. For each of the Company’s executive officers, this compensation data was examined relative to peer group median compensation. The Executive Compensation Committee used this information to help determine competitive benchmarks for 2019 base salary and for purposes of the 2019 Short-Term Program and 2019 Long-Term Program.
The Executive Compensation Committee solicits input from the entire Board to review, establish and approve corporate goals and objectives relevant to the Chief Executive Officer’s compensation. At a meeting at which the Chief Executive Officer is not present, the Executive Compensation Committee evaluates the Chief Executive Officer’s performance in light of these corporate goals and objectives and determines the Chief Executive Officer’s compensation based on the evaluation. Typically, the Chief Executive Officer makes compensation recommendations to the Executive Compensation Committee with respect to the executive officers who report to him. Such executive officers are not present at the time of these deliberations.
Review of Executive Performance
The Executive Compensation Committee annually reviews each compensation element for executive officers. The Executive Compensation Committee takes into account the role and responsibilities, expertise, skills, and years of experience of each executive officer in comparison to competitive salary levels.
The Executive Compensation Committee may, in its sole discretion, determine that an executive officer shall not be granted all or any portion of an incentive compensation award, regardless of having achieved the applicable performance goal, if the Executive Compensation Committee determines that the executive officer has failed to comply with the Company’s Code of Ethics, Code of Conduct Policy, or another Company policy, or for any other lawful reason as determined by the Executive Compensation Committee.
Executive Officer Compensation
The components of executive compensation are intended to work together to compensate each executive officer fairly for services, reward him based on the Company’s overall performance, and reward his own performance during the year. In assessing the executive officer’s total rewards, the Executive Compensation Committee reviews each component of his compensation and considers and evaluates pay mix, the competitive market, and the value of total pay, benefits and perquisites. The Executive Compensation Committee further takes into consideration the shareholder voting results on named executive officer compensation, which historically have indicated a high level of support.
Base Salary
Base salary generally is established by the Executive Compensation Committee based on the executive officer’s performance, experience, competent and effective execution of strategic objectives, and level of responsibilities, with total compensation targeted at or near the 50th percentile of the most recently selected peer group for targeted or budgeted performance. In setting the base salaries of the executive officers for 2018 and 2019, the Executive Compensation Committee considered the compensation packages of executives in the Company’s peer group, the growth and increased complexity of the Company, and the Company’s level of success in its short- and long-term goals in relation to:
● | Achievement of specific profitability, loan growth, deposit growth and asset quality targets; |
● | Performance results relative to the peer group; |
● | Short- and long-term strategic goals; and |
● | Overall financial performance of the Company. |
The Executive Compensation Committee determined to maintain annual base salary levels for executive officers for 2019 at the amounts established for 2018, as shown below.
Named Executive Officer | 2018 Salary ($) | 2019 Salary ($) | Increase (%) | |||||||||
Randall S. Eslick | 440,000 | 440,000 | 0.00 | |||||||||
James A. Sundquist | 295,000 | 295,000 | 0.00 | |||||||||
Robert H. Muttera | 280,000 | 280,000 | 0.00 |
Short-Term Program
The Short-Term Program adopted in 2019 provided for cash incentive awards and was designed to reward the Company’s executive officers for achieving short-term financial goals including loan and deposit growth, net income, retention of acquired core deposits from The Merchants National Bank of Sacramento, and satisfactory asset quality.
The Executive Compensation Committee approved a threshold, target and maximum payout as a percentage of the base salary earned during the incentive period for each executive officer. These targets were based on competitive market practices for each comparable position.
The table below reflects the payout opportunities for the named executive officers that were approved for 2019:
Named Executive Officer | Threshold (% of Salary) | Target (% of Salary) | Maximum (% of Salary) | |||||||||
Randall S. Eslick | 19.25 | 35.00 | 50.75 | |||||||||
James A. Sundquist | 16.50 | 30.00 | 43.50 | |||||||||
Robert H. Muttera | 16.50 | 30.00 | 43.50 |
The Short-Term Program established a set of financial metrics which were intended to drive performance. Each metric had a weight assigned within the Short-Term Program. These metrics included (i) average and spot performing loan growth, (ii) average and spot core deposit growth, (iii) net income, (iv) retention of core deposits in the acquisition of The Merchants National Bank of Sacramento, and (v) classified ratio.
Payments under the Short-Term Program were subject to achievement of pre-set return on average asset (“ROAA”) thresholds up to a maximum ROAA cap. Laddered ROAA thresholds in a range of 0.90 percent up to 1.09 percent were established to cap the maximum aggregate award earned and paid out under the Short-Term Program based on the level of ROAA performance achieved. The laddered ROAA thresholds were prorated and designed to ensure that an appropriate relationship was maintained between Company earnings and executive officer incentives.
The table below summarizes the weighting, performance levels established for threshold, target and maximum, and actual performance achieved in 2019 for each metric.
Metric | Weight (%) | Threshold | Target | Maximum | Actual | Performance Achieved (% of Target) | Payout Earned (% of Target) | |||||||||||||||||||||
Performing Loan Growth (Average)1 | 15.00 | $ | 131,027,400 | $ | 145,586,000 | $ | 160,144,600 | $ | 97,746,000 | 67.14 | % | 0.00 | % | |||||||||||||||
Performing Loan Growth (Spot)2 | 5.00 | $ | 114,124,500 | $ | 163,035,000 | $ | 179,338,500 | $ | 85,183,000 | 52.25 | % | 0.00 | % | |||||||||||||||
Core Deposit Growth (Average)3 | 15.00 | $ | 158,466,600 | $ | 176,074,000 | $ | 193,681,400 | $ | 153,942,000 | 87.43 | % | 0.00 | % | |||||||||||||||
Core Deposit Growth (Spot)4 | 5.00 | $ | 172,809,750 | $ | 230,413,000 | $ | 253,454,300 | $ | 136,053,000 | 59.05 | % | 0.00 | % | |||||||||||||||
Net Income5 | 30.00 | $ | 13,644,900 | $ | 15,161,000 | $ | 17,435,150 | $ | 14,961,000 | 98.68 | % | 90.00 | % | |||||||||||||||
Retention of Merchants Bank Core Deposits6 | 20.00 | $ | 136,962,000 | $ | 152,180,000 | $ | 167,398,000 | $ | 142,934,000 | 93.92 | % | 65.00 | % | |||||||||||||||
Classified Ratio7 | 10.00 | </= 20.00% | </= 20.00% | </= 20.00% | 11.17% | 100.00 | % | 100.00 | % | |||||||||||||||||||
Overall Company Performance (prior to ROAA Cap) | 50.00 | % | ||||||||||||||||||||||||||
Laddered ROAA Cap | ||||||||||||||||||||||||||||
ROAA | 0.90% | 1.00% | 1.09% | 1.03% | ||||||||||||||||||||||||
Maximum Aggregate Award Percentage | 60.00% | 100.00% | 145.00% | 115.00% | ||||||||||||||||||||||||
Overall Company Performance (after ROAA Cap) | 50.00 | % |
1 Gross loans, excluding deferred fees and costs and nonaccrual loans; year-to-date average as of December 31, 2019.
2 Gross loans, excluding deferred fees and costs and nonaccrual loans; current balance as of December 31, 2019.
3 All deposits excluding time certificates of deposit and excluding deposits held by the Company; year-to-date average as of December 31, 2019.
4 All deposits excluding time certificates of deposit and excluding deposits held by the Company; current balance as of December 31, 2019.
5 GAAP net income as publicly reported.
6 Core deposits (all deposits excluding time certificates of deposit) acquired from The Merchants National Bank of Sacramento as of December 31, 2019 compared to January 31, 2019.
7 Adversely classified assets divided by total capital.
The amount of incentive award paid to each named executive officer under the Short-Term Program was based on how well the Company met its targeted goals. Each metric had different thresholds and ranges and was calculated independently of other metrics to determine the total award. All awards under the Short-Term Program were subject to the discretion of the Executive Compensation Committee and the Board. In 2019, the payouts were not adjusted from actual results. The table below summarizes the 2019 payouts under the Short-Term Program.
Named Executive Officer | Incentive Amount ($) | % of Salary | % of Target | |||||||||
Randall S. Eslick | 77,000 | 17.50 | 50.00 | |||||||||
James A. Sundquist | 44,250 | 15.00 | 50.00 | |||||||||
Robert H. Muttera | 42,000 | 15.00 | 50.00 |
Long-Term Program
The Executive Compensation Committee has adopteddetermined that restricted stock awards are the following procedures intendedmost effective form of equity-based compensation to ensure quality governancereward executive officers for their contributions to the Company’s long-term performance. Equity awards which increase in value as the Company’s stock price increases directly align executive officers’ interests with shareholders’ interests to increase stock value over the long term. Equity-based awards under the Long-Term Program prior to May 2019 were made under the Company’s 2010 Equity Incentive Plan. At the annual meeting of shareholders held in May 2019, the shareholders approved a new 2019 Equity Incentive Plan to govern subsequent equity awards under the Long-Term Program. The Long-Term Program is designed to reward the Company’s executive officers for achieving financial and strategic goals that support the long-term success and growth of the Company’s “pay for performance” philosophy:Company and that deliver shareholder value.
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The Executive Compensation Committee approves a threshold, target and maximum payout as a percentage of the base salary earned during the incentive period for each executive officer. These targets are based on competitive practices for each comparable position. The incentive target percentage represents the executive officer’s incentive opportunity if the annual performance goals are achieved.
The table below reflects the approved award amounts that could have been earned by each eligible named executive officer (for 2018 Company performance and granted in January 2019) under the Long-Term Program.
Named Executive Officer | Threshold (% of Salary) | Target (% of Salary) | Maximum (% of Salary) | |||||||||
Randall S. Eslick | 7.00 | 35.00 | 42.00 | |||||||||
James A. Sundquist | 5.00 | 25.00 | 30.00 | |||||||||
Robert H. Muttera | 5.00 | 25.00 | 30.00 |
The Long-Term Program for 2018 established a set of financial and non-financial metrics which were intended to drive performance. Each metric had a weight assigned within the Long-Term Program. These metrics and their weightings included (i) return on average equity (“ROAE”) at 25 percent; (ii) efficiency ratio at 25 percent; (iii) corporate governance at 25 percent; and (iv) other strategic objectives at 25 percent.
The performance components for ROAE and efficiency ratio were measured against the Company’s targeted metrics and the Company’s performance relative to the peer group median.
The performance component for corporate governance was measured by regulatory conformance and enterprise risk management (ERM). The Executive Compensation Committee evaluated the performance of regulatory conformance through satisfactory regulatory ratings. It evaluated the performance of ERM through the establishment of an enterprise-wide risk profile that was appropriate from a long-term perspective and that garnered the approval of the Board, and through timely and understandable ERM reports that facilitated risk monitoring and control for the Board.
The performance component for other strategic objectives was measured by progress towards maximizing long-term franchise value by evaluating executive officers’ actions on several initiatives which included success towards implementation of the 2018 Strategic Plan, success in design and implementation of internal controls over financial reporting as evaluated by external auditors, specified valuation metrics related to Common Stock, capital management, and internal and external communications.
The Long-Term Program structure allows the Executive Compensation Committee to evaluate the executive officers’ performance outside of the four performance metrics and either adjust the final equity award by increasing or decreasing the calculated award by up to 20 percent or leave the calculated award unchanged. The Executive Compensation Committee may utilize this multiplier component to exercise its judgment and discretion in determining potential payouts at, above, or below targeted levels. The Executive Compensation Committee had full discretion and authority to assess and determine performance at levels below 80 percent, to include a zero percent payout.
The equity incentive awards granted in January 2019 to each executive officer under the Long-Term Program were based on how well the Company met its targeted goals for 2018 performance. As indicated, each metric had weightings, thresholds and ranges and was calculated independently of other metrics to determine the total award. All awards under the Long-Term Program were subject to the discretion of the Executive Compensation Committee and the Board.
In 2018, the Company achieved an ROAE of 11.76 percent, which exceeded targeted performance of 9.62 percent but fell short of the median of the peer group, which was 11.90 percent. For these reasons, the Executive Compensation Committee determined that the ROAE metric was achieved at 98.00 percent of target.
In 2018, the Company achieved an efficiency ratio of 60.25 percent, which exceeded targeted performance of 63.92 percent as well as the median of the peer group, which was 61.38 percent. As a result, the Executive Compensation Committee determined that this metric was achieved at 101.00 percent of target.
The Executive Compensation Committee evaluated the metrics of corporate governance and other strategic objectives and determined that targeted performance was achieved. Satisfactory regulatory ratings were received. The ERM program was approved in December 2017 and ERM reports are being provided to the Board on a semi-annual basis. Other strategic objectives were evaluated as follows: (i) success was achieved toward implementation of the 2018 Strategic Plan; (ii) external auditors evaluated and concluded that the internal controls program and methodology were appropriate; (iii) progress was made on two-year targets of valuation metrics as compared to the peer group; (iv) repayment to senior debt was accelerated and Common Stock cash dividends were increased; and (v) continual improvements were made to internal communication.
The Executive Compensation Committee evaluated overall performance of long-term objectives and chose not to utilize the multiplier component as all metrics were achieved within an acceptable range of expectations. The table below summarizes the parameters of the actual awards granted in January 2019 to the named executive officers under the 2018 Long-Term Program.
Named Executive Officer | Number of Shares (#) | % of Salary | % of Target | |||||||||
Randall S. Eslick | 13,914 | 34.91 | 99.75 | |||||||||
James A. Sundquist | 6,664 | 24.94 | 99.75 | |||||||||
Robert H. Muttera | 6,325 | 24.94 | 99.75 |
The 2019 restricted stock grants, based on 2018 performance and granted in January 2019, vest in three equal annual installments beginning on the first anniversary of the date of grant. The grants are reflected in the sections entitled “Summary Compensation Table” and “Outstanding Equity Awards at Fiscal Year End.”
Perquisites and Other Benefits
The Executive Compensation Committee believes that offering certain perquisites helps in the operation of the business, and also assists the Company in recruiting and retaining key executive officers. In some cases, benefits including a club membership or the use of a bank-owned automobile are offered to executive officers. The Company’s executive officers may participate in the same benefit programs available to all employees. These programs include health, life and disability insurance and participation in the Merchants Bank of Commerce 401(k) Profit Sharing Plan.
Post-Retirement Arrangements
The Company has entered into employment agreements with its named executive officers which contain a change-in-control provision providing for certain payments following termination of employment. Merchants Bank of Commerce has entered into individual Salary Continuation Agreements (commonly referred to as a Supplemental Executive Retirement Plan or “SERP”) with certain of its named executive officers which provide for payments that are fixed pursuant to the individual SERP and do not depend on years of credited service.
The terms of the respective employment agreement and SERP with each of the named executive officers are described in the section entitled “Post-Employment and Termination Benefits.”
EXECUTIVE COMPENSATION
Summary Compensation Table
The Company qualifies as a “smaller reporting company” as defined in SEC regulations. Accordingly, the Company has elected to provide scaled tabular disclosure of specified plan and non-plan compensation awarded to, earned by, or paid to the named executive officers for each of the Company’s two most recent fiscal years. The following table sets forth certainsuch summary information concerning compensation earned or awarded to the Company’s named executive officers for the last three years. Disclosure shall be provided for (i) all individuals serving as the Company’s principal executive officer; (ii) all individuals serving as the Company’s principal financial officer; (iii) the Company’s three most highly compensated executive officers other than the principal executive officer and principal financial officer; and (iv) up to two additional individuals for whom disclosure would have been provided but for the fact that they were not serving as executive officers at the end of the last completed fiscal year.
This list below includes the Company’s principal executive officer principal financial officer, and the next threeother two most highly compensatedpaid executive officers.officers during 2019.
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| Change in Pension Value and Nonqualified Deferred Compensation Earnings |
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Randall S. Eslick, | 2015 | $ | 318,583 | $ | 0 | $ | 54,190 | $ | 0 | $ | 102,026 | $ | 97,840 | $ | 22,220 | $ | 594,859 | ||||||||||||||||
President and Chief | 2014 | 265,000 | 0 | 17,148 | 0 | 64,925 | 92,131 | 28,524 | 467,728 | ||||||||||||||||||||||||
Executive Officer | 2013 | 203,000 | 0 | 0 | 0 | 51,443 | 38,131 | 17,938 | 310,512 | ||||||||||||||||||||||||
James A. Sundquist,(1) | 2015 | 225,000 | 2,563 | 0 | 26,610 | 61,763 | 0 | 17,682 | 333,618 | ||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | 2014 | 18,750 | 0 | 0 | 0 | 0 | 0 | 600 | 19,350 | ||||||||||||||||||||||||
Samuel D. Jimenez, | 2015 | 265,000 | 0 | 40,902 | 0 | 72,743 | 34,929 | 34,237 | 447,811 | ||||||||||||||||||||||||
Executive Vice President | 2014 | 250,000 | 0 | 18,643 | 0 | 52,500 | 32,393 | 30,053 | 383,589 | ||||||||||||||||||||||||
and Chief Operating Officer | 2013 | 213,583 | 0 | 0 | 0 | 55,928 | 16,280 | 29,757 | 315,548 | ||||||||||||||||||||||||
Robert H. Muttera,(2) | 2015 | 225,000 | 15,000 | 36,812 | 0 | 61,763 | 107,439 | 24,964 | 470,978 | ||||||||||||||||||||||||
Executive Vice President and Chief Credit Officer | 2014 | 215,625 | 65,000 | 0 | 28,680 | 47,250 | 99,915 | 20,198 | 476,668 | ||||||||||||||||||||||||
Robert J. O’Neil,(3) | 2015 | 193,772 | 0 | 23,311 | 0 | 35,460 | 95,136 | 22,524 | 370,203 | ||||||||||||||||||||||||
Senior Vice President | 2014 | 190,000 | 0 | 11,156 | 0 | 33,250 | 89,484 | 22,457 | 346,347 | ||||||||||||||||||||||||
and Chief Credit Administrator | 2013 | 168,917 | 0 | 0 | 0 | 33,467 | 25,857 | 18,156 | 246,397 |
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Name and Principal Position | Year | Salary ($) | Bonus ($)1 | Stock Awards ($)2 | Non-Equity Incentive Plan Compensation ($)3 | All Other Compensation ($)4 | Total ($) | ||||||||||||||||||
Randall S. Eslick, | 2019 | 440,000 | 0 | 153,611 | 77,000 | 32,540 | 703,151 | ||||||||||||||||||
President and Chief | 2018 | 440,000 | 0 | 145,245 | 160,545 | 28,765 | 774,555 | ||||||||||||||||||
Executive Officer | |||||||||||||||||||||||||
James A. Sundquist, | 2019 | 295,000 | 102 | 73,571 | 44,250 | 14,121 | 427,044 | ||||||||||||||||||
Executive Vice President | 2018 | 295,000 | 0 | 66,252 | 92,261 | 16,793 | 470,306 | ||||||||||||||||||
and Chief Financial Officer | |||||||||||||||||||||||||
Robert H. Muttera, | 2019 | 280,000 | 109 | 69,828 | 42,000 | 24,596 | 416,533 | ||||||||||||||||||
Executive Vice President | 2018 | 280,000 | 0 | 62,503 | 87,570 | 26,995 | 457,068 | ||||||||||||||||||
and Chief Credit Officer |
2 Amounts represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of equity incentive compensation granted under the Company’s Long-Term Program based on performance during the prior year. The material terms of the Long-Term Program are described in the section entitled “Long-Term Program.” The restricted shares underlying such awards was issued in January of the respective year.
3 Amounts represent cash incentive compensation earned under the Company’s Short-Term Program, the material terms of which are described in the section entitled “Short-Term Program,” for the respective years and paid in January of the following year.
4 Amounts shown for 2019 are detailed in the section entitled “Details of “All Other Compensation” in the Summary Compensation Table
| Year | Automobile Allowance ($)(1) | Club | Vacation Payout ($)(3) | 401(k) Plan Match ($) | Total | |||||||||||||||
Randall S. Eslick | 2015 | $ | 8,549 | $ | 6,067 | $ | 0 | $ | 7,604 | $ | 22,220 | ||||||||||
2014 | 6,418 | 5,810 | 8,154 | 8,142 | 28,524 | ||||||||||||||||
2013 | 0 | 5,232 | 4,586 | 8,120 | 17,938 | ||||||||||||||||
James A. Sundquist | 2015 | 10,110 | 0 | 0 | 7,572 | 17,682 | |||||||||||||||
2014 | 600 | 0 | 0 | 0 | 600 | ||||||||||||||||
Samuel D. Jimenez | 2015 | 11,700 | 4,270 | 10,192 | 8,075 | 34,237 | |||||||||||||||
2014 | 11,700 | 4,260 | 6,130 | 7,963 | 30,053 | ||||||||||||||||
2013 | 11,700 | 4,160 | 5,769 | 8,128 | 29,757 | ||||||||||||||||
Robert H. Muttera | 2015 | 8,778 | 8,493 | 0 | 7,693 | 24,964 | |||||||||||||||
2014 | 7,401 | 7,894 | 0 | 4,903 | 20,198 | ||||||||||||||||
Robert J. O’Neil | 2015 | 7,200 | 6,040 | 0 | 9,284 | 22,524 | |||||||||||||||
2014 | 7,200 | 6,030 | 0 | 9,227 | 22,457 | ||||||||||||||||
2013 | 4,800 | 5,209 | 0 | 8,147 | 18,156 |
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Equity Incentive Plan.”
At the 2010 annual meeting, shareholders approved the 2010 Equity Plan which provides for the grantDetails of incentive stock options, non-qualified stock options, restricted stock, and restricted stock units. The 2010 Equity Plan has a term of ten years. All eligible employees may participate“All Other Compensation” in the 2010 Equity Plan. As of December 31, 2015, 234,100 shares have been granted but are unexercised and 433,377 shares remain available for future grant.Summary Compensation Table
Name | Use of Automobile ($)1 | Club Membership ($)2 | Supplemental Long-Term Disability Policy ($) | 401(k) Plan Match ($) | Total ($) | |||||||||||||||
Randall S. Eslick | 2,283 | 14,465 | 4,592 | 11,200 | 32,540 | |||||||||||||||
James A. Sundquist | 2,921 | 0 | 0 | 11,200 | 14,121 | |||||||||||||||
Robert H. Muttera | 3,403 | 9,993 | 0 | 11,200 | 24,596 |
Grants
1 Represents use of Plan-Based Awardsan automobile for business. The officers may have derived some personal benefit from the use of such automobiles.
2 Represents club membership fees and expenses to entertain customers. The following table presents certain information with respect to incentive awards granted toofficers may have derived some personal benefit from the named executive officers for 2015. The Executive Compensation Committee granted these awards based on the 2015 accomplishmentsuse of the management team.such membership.
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | ||
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Randall S. Eslick | 1/20/2015 | $96,451 | $111,504 | $129,902 | 9,408 | 0 | 0 | $54,190 |
James A. Sundquist (1) | 1/15/2015 | 58,388 | 67,500 | 78,638 | 0 | 20,000 | 5.83 | 26,610 |
Samuel D. Jimenez | 1/20/2015 | 68,768 | 79,500 | 92,618 | 7,101 | 0 | 0 | 40,902 |
Robert H. Muttera | 1/20/2015 | 58,388 | 67,500 | 78,638 | 6,391 | 0 | 0 | 36,812 |
Robert J. O’Neil | 1/20/2015 | 33,523 | 38,754 | 45,149 | 4,047 | 0 | 0 | 23,311 |
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Outstanding Equity Awards at Fiscal Year End
The following table presents certain information concerning the outstanding stockequity awards held as of December 31, 20152019 by each named executive officer of the Company. All awards shown in the table were granted under the 2010 Equity Incentive Plan, which has been replaced, with respect to future awards, by the 2019 Equity Incentive Plan.
Option Awards | Stock Awards | ||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options | Number of Securities Underlying Unexercised Options | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#)(1) | Market Value of Sharesor Units of Stock that Have Not Vested ($) | |||||||||||||||
Randall S. Eslick | 2,000 | 0 | $ | 6.50 | 10/14/2018 | ||||||||||||||||
16,000 | 4,000(2) | 4.05 | 03/01/2022 | ||||||||||||||||||
6,272 | $ | 36,127 | |||||||||||||||||||
James A. Sundquist | 4,000 | 16,000(3) | 5.83 | 01/15/2025 | |||||||||||||||||
Samuel D. Jimenez | 3,500 | 0 | 6.50 | 10/14/2018 | |||||||||||||||||
12,000 | 4,000(4) | 4.05 | 03/01/2022 | ||||||||||||||||||
4,734 | 27,268 | ||||||||||||||||||||
Robert H. Muttera | 8,000 | 12,000(5) | 6.39 | 01/17/2024 | |||||||||||||||||
4,261 | 24,538 | ||||||||||||||||||||
Robert J. O’Neil | 2,000 | 0 | 6.50 | 10/14/2018 | |||||||||||||||||
11,200 | 2,800(2) | 4.05 | 03/01/2022 | ||||||||||||||||||
2,698 | 15,540 |
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Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested1 ($) | |||||||||||||||
Randall S. Eslick | 20,000 | 0 | 4.05 | 3/01/2022 | |||||||||||||||||
4,44930 | 2 | 51,475 | |||||||||||||||||||
8,42031 | 3 | 97,419 | |||||||||||||||||||
13,91432 | 4 | 160,985 | |||||||||||||||||||
James A. Sundquist | 2,0892 | 2 | 24,170 | ||||||||||||||||||
3,8403 | 3 | 44,429 | |||||||||||||||||||
6,6644 | 4 | 77,102 | |||||||||||||||||||
Robert H. Muttera | 20,000 | 0 | �� | 6.39 | 1/17/2024 | ||||||||||||||||
2,0892 | 2 | 24,170 | |||||||||||||||||||
3,6233 | 3 | 41,918 | |||||||||||||||||||
6,3254 | 4 | 73,180 |
Option Exercises and1 Based on the per share closing price of Common Stock Vestedon December 31, 2019, $11.57.
2 Represents the unvested portion of the restricted stock awards granted January 26, 2017, which shares vest in three equal annual installments over a three-year period beginning January 26, 2018, with shares becoming fully vested on January 26, 2020.
3 Represents the unvested portion of the restricted stock awards granted January 25, 2018, which shares vest in three equal annual installments over a three-year period beginning January 25, 2019, with shares becoming fully vested on January 25, 2021.
4 Represents the unvested portion of the restricted stock awards granted January 24, 2019, which shares vest in three equal annual installments over a three-year period beginning January 24, 2020, with shares becoming fully vested on January 24, 2022.
The following table presents certain information concerning the exercise of options by each of our named executive officers during the fiscal year ended December 31, 2015, including the value of gains on exercise and the value of the stock awards.
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Randall S. Eslick | 0 | $ | 0 | 3,136 | $ | 18,063 | ||||||||||
James A. Sundquist | 0 | 0 | 0 | 0 | ||||||||||||
Samuel D. Jimenez | 0 | 0 | 2,367 | 13,634 | ||||||||||||
Robert H. Muttera | 0 | 0 | 2,130 | 12,269 | ||||||||||||
Robert J. O’Neil | 0 | 0 | 1,349 | 7,770 |
The following table illustrates the approximate annual retirement income that may become payable to a named executive officer assuming benefits commence at age sixty-five (65) for each or Messrs. Eslick, Jimenez, and O’Neil and age sixty-seven (67) for Mr. Muttera. The benefits for Messrs. Eslick, Jimenez, Muttera, and O’Neil are payable over a period of ten (10) years.
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Randall S. Eslick | SERP | 10 | $ | 419,909 | $ | 0 | ||||||||||
James A. Sundquist(2) | N/A | N/A | N/A | N/A | ||||||||||||
Samuel D. Jimenez | SERP | 7 | 153,640 | 0 | ||||||||||||
Robert H. Muttera | SERP | 2 | 207,354 | 0 | ||||||||||||
Robert J. O’Neil | SERP | 7 | 309,159 | 0 |
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Nonqualified Deferred Compensation
As noted below in the “Director Compensation” section, Directors may participate in the 2013 Directors’ Deferred Compensation Plan; however, no such plan or benefit exists for named executive officers.
Post-Employment and Termination Benefits
The following is a discussion regarding the post-employment and termination arrangements currently in place for the named executive officers. The amountsofficers are based on the maximum amounts that could be paid under these arrangements.described below.
SupplementalSalary Continuation Agreements (Supplemental Executive Retirement Plan.Plan or SERP)
The Merchants Bank of Commerce board of directors has approved a SERP for certain named executive officers. In April 2001,general, the Board approvedSERPs provide a nonqualified benefit to named executive officers, and through the implementation of the SERP and approved amending the SERP on December 31, 2006, September 30, 2007, and October 14, 2008. The SERP is a non-qualified executive benefit plan through whichSERPs, the Company agrees to provide specified benefits in the future to certainnamed executive officers who meet certain criteria and contribute materially to the continued growth, development, and business success of ReddingMerchants Bank of Commerce.
The terms and payments under the SERP are determined by individual Salary Continuation Agreementsagreements with the named executive officers and are not based on years of credited service. In order to receive the benefits under his SERP, each named executive officer must meet the applicable criteria. Benefits under the SERP generally include income generally payable commencing upon a qualifying termination of employment and a death benefit for the participants’ designated beneficiaries.
The Salary Continuation AgreementsSERPs provide for five general classes of benefits for the named executive officers, and the BoardExecutive Compensation Committee acts as administrator of the plan. Mr. Sundquist does not have a SERP and therefore is not included in the discussion below.
| Normal Retirement |
| Early Termination Benefit. |
| Disability |
| Death Benefit.The death during active service benefit is the |
| Change-in-Control Benefit. In the event there is a change in control followed within |
Key-man life insurance policies were purchased to offset the Company’s contractual obligation to pay pre-retirement death benefits and to recover the Company’s cost of providing benefits. The executive officer is the insured under the policy, while the Company is the owner and beneficiary. The insured executive officer has no claim on the insurance policy, its cash value or the proceeds thereof.
Potential Payments upon Termination or Change in Control
The following table shows the maximum amounts that would have been payable to the named executive officers at December 31, 2015, presuming that the payments were made as a lump sum: (1) in the event of termination or in the event of diminution in salary or job duties in connection with a change in control, and (2) as a result of termination other than termination arising from a change in control.
Payments Upon a Change in Control | Termination Other Than Change in Control | |||||||||||||||
Payments under employment agreements | Payments under Supplemental Executive Retirement Plan | Payments under employment agreements | Payments under Supplemental Executive Retirement Plan | |||||||||||||
Name | ($)(1) | ($)(2) | ($)(3) | ($)(2) | ||||||||||||
Randall S. Eslick | $ | 1,061,873 | $ | 419,909 | $ | 587,935 | $ | 419,909 | ||||||||
James A. Sundquist | 569,326 | -- | 344,326 | -- | ||||||||||||
Samuel D. Jimenez | 653,891 | 153,640 | 420,483 | 153,640 | ||||||||||||
Robert H. Muttera | 548,246 | 207,354 | 336,988 | 207,354 | ||||||||||||
Robert J. O’Neil | 260,536 | 309,159 | 267,596 | 309,159 |
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Named Executive Officer Employment Agreements
The Company has entered into separate employment agreements with each of its named executive officers. A summary of the agreements is set forth below.
Randall S. Eslick Employment Agreement.Agreement. Mr. Eslick serves as President and Chief Executive Officer. His employment agreement, as amended effective November 19, 2013,March 6, 2020, is for a term of three years and shall automatically extendextends for a one-year period, subject to prior termination as provided within the agreement. The employment agreement provides that in the event of termination for specified reasons, Mr. Eslick will receive six monthsan amount equal to one quarter of his then-current total compensation package (defined as current annual base salary plus the average of the annual bonus paid to Mr. Eslick during the preceding three calendar years) plus any accrued profit sharingincentive awards and accrued but unused vacation as of the date of termination, all calculated as of the date of his termination.termination, payable in one lump sum. If Mr. Eslick is terminated other than for those specified reasons, he will receive 12 monthsan amount equal to one times his then-current total compensation package plus any accrued incentive awards and accrued but unused vacation as of total compensationthe date of termination, all calculated as of the date of his termination, payable in one lump sum. In either case, Mr. Eslick’sEslick will receive a lump-sum payment in an amount equal to the amount necessary to pay his COBRA premiums for continuation of group health insurance benefits shall continuecoverage for 18 months. The employment agreement also provides that in the event of a change in control (as defined therein) pursuant to which Mr. Eslick’s duties are diminished in any capacity,employment is terminated, Mr. Eslick is entitled to terminate the employment agreement and will be paid severance pay equal to two years’2.99 times his total compensation.compensation package. If the benefits payable upon a change in control would result in an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended, such payments will be reduced to the largest amount that will result in no portion of the payments being subject to the excise tax imposed by Internal Revenue Code Section 4999. In the event of termination, other than a change in control, Mr. Eslick is prohibited from soliciting ReddingMerchants Bank of Commerce’s customers or clients for a period of one year.
James A. Sundquist Employment Agreement.Agreement. Mr. Sundquist serves as Executive Vice President and Chief Financial Officer. His employment agreement, effective December 1, 2014, is for a term of three years and shall automatically extend for a one-year period, subject to prior terminationExcept as provided withindescribed below, the agreement. The employment agreement provides that in the event of termination for specified reasons, Mr. Sundquist will only be paid accrued salary plus accrued vacation calculated as of the date of his termination. If Mr. Sundquist is terminated other than for those specified reasons, he will receive 12 months of total compensation calculated as of the date of his termination, payable in one lump sum. The employment agreement also provides that in the event of a change in control (as defined therein) pursuant to which Mr. Sundquist’s salary or duties are diminished in any capacity, Mr. Sundquist will be paid, in one lump sum, a severance package equal to two years’ salary and one years’ profit sharing, each calculated according to the terms of the employment agreement, and his health insurance benefits shall continue for 12 months. In the event of termination, other than a change in control, Mr. Sundquist is prohibited from soliciting Redding Bank of Commerce’s customers or clients for a period of one year.
Samuel D. Jimenez Employment Agreement. Mr. Jimenez serves as Executive Vice President and Chief Operating Officer. His employment agreement, effective December 17, 2013, is for a term of three years and shall automatically extend for a one-year period, subject to prior termination as provided within the agreement. The material terms of Mr. Jimenez’sSundquist’s employment agreement are identical to those of Mr. Sundquist.Eslick except for termination benefits related to a change in control (as defined in Mr. Sundquist’s employment agreement). In the event of a change in control pursuant to which Mr. Sundquist’s employment is terminated, Mr. Sundquist is entitled to severance pay equal to two years’ salary at the rate being paid to Mr. Sundquist as of the date of his termination plus an amount equal to one times the average of the annual bonus paid to Mr. Sundquist for the preceding three calendar years. As amended effective March 6, 2020, Mr. Sundquist will also be entitled to receive retention bonuses in the amount of $25,000 in July 2021, $75,000 in July 2022, and $50,000 in July 2023 (provided he is still employed on those dates and has satisfactory job performance).
Robert H. Muttera Employment Agreement.Agreement. Mr. Muttera serves as Executive Vice President and Chief Credit Officer. His employment agreement, effective January 14, 2014, is for a term of three years and shall automatically extend for a one-year period, subject to prior termination as provided within the agreement. The material terms of Mr. Muttera’s employment agreement are identical to those of Mr. Sundquist.Sundquist, other than the absence of provisions for retention bonuses.
Robert J. O’Neil Employment Agreement. Mr. O’Neil serves as Senior Vice President and Chief Credit Administrator. His employment agreement, effective December 17, 2013, is for a term of three years and shall automatically extend for a one-year period, subject to prior termination as provided within the agreement. The material terms of Mr. O’Neil’s employment agreement are identical to those of Mr. Sundquist except that in the event of a change in control (as defined in the employment agreement), Mr. O’Neil will be paid, in one lump sum, a severance package equal to one years’ salary and one years’ profit sharing, each calculated according to the terms of the employment agreement.
Director Compensation
The following table shows compensation paid to or accrued by non-employee directors during the fiscal year ended December 31, 2015 for service to the boards of the Company and Redding Bank of Commerce.
2015 Director Compensation Table
Fees Earned or Paid in Cash | Nonqualified Deferred Compensation Earnings | Total | ||||||||||
Name | ($) | ($) | ($) | |||||||||
Orin N. Bennett | $ | 55,878 | $ | 22,926 | $ | 78,804 | ||||||
Gary R. Burks | 26,725 | 0 | 26,725 | |||||||||
Joseph Q. Gibson | 26,275 | 8,931 | 35,206 | |||||||||
Jon W. Halfhide | 33,375 | 12,241 | 45,616 | |||||||||
Linda J. Miles | 22,800 | 1,120 | 23,920 | |||||||||
David H. Scott | 60,975 | 25,443 | 86,418 | |||||||||
Terence J. Street | 37,950 | 2,979 | 40,929 | |||||||||
Lyle L. Tullis | 68,425 | 31,276 | 99,701 |
Annual Compensation
Compensation paid to non-employee directors consists of cash (in the form of a monthly retainer and meeting fees) and, when authorized, equity (in the form of stock option grants). Directors may also participate in the 2013 Directors’ Deferred Compensation Plan.
The Executive Compensation Committee is responsible for all matters related to directors’ compensation in connection with reviewing and establishing or recommending non-employee director compensation to the Board. Generally, the Executive Compensation Committee will review the amount of director compensation at least annually. For purposes of establishing director compensation, the Executive Compensation Committee evaluated directors’ compensation as compared to detailed public company information provided by McLagan, which is a leading marketer for benchmarking executive and director compensation for financial services companies.
A director who is an officer/employee of the Company or of a subsidiary is not compensated for his or her membership on the Board.
Monthly Retainer and Meeting Fees
During 2015, each independent director and Ms. Miles will receive $800 for each Board meeting attended and $800 for a monthly retainer. Committee meetings will be paid at a rate of $400 for each meeting attended. Committee chairpersons will be paid an additional $375 per meeting. The Chairman of the Board is paid an additional $1,200 per month, and the Chairman of the Audit Committee is paid an additional $1,000 per month.
Equity Compensation
Non-employee directors have historically been eligible to participate in the Company’s stock option plan, and in the past, have received grants of non-qualified stock options. Several non-employee directors were issued stock option grants under the Company’s 1998 Stock Option Plan (the “1998 Plan”), which expired in 2008. In 2008, the Company adopted the 2008 Stock Option Plan, which was amended and restated in 2010 and is now known as the 2010 Equity Incentive Plan (the “2010 Equity Plan”). The 2010 Equity Plan allows for the grant of non-qualified stock options to directors. The Executive Compensation Committee believes that, as part of director compensation, directors should have an opportunity to receive grants of equity awards; therefore, non-employee directors are eligible to receive awards under the Company’s 2010 Equity Plan.
Directors’ Deferred Compensation Plan
The directors’ deferred compensation plan adopted by the Board in 1993 (the “1993 Directors’ Deferred Plan”) is a non-qualified director benefit plan in which the eligible director voluntarily elects to defer some or all of his or her current fees in exchange for the Company’s promise to pay a deferred benefit. The deferred fees are credited with interest under the plan, and the accrued liability is paid to the director at retirement. The current interest rate on the plan is Wall Street Journal prime plus three percent (3%), with an option to change to ten percent (10%) fixed immediately preceding retirement. As a non-qualified plan, the plan is only available to independent directors without regard to nondiscrimination requirements of qualified plans. The account is segregated from other assets owned by Redding Bank of Commerce only by way of its identification on the books of Redding Bank of Commerce as a liability of Redding Bank of Commerce to the Director. The account is subject to claims of general creditors of Redding Bank of Commerce, and the account shall be a general unsecured creditor of Redding Bank of Commerce.
No deferredcompensation shall be payable to a director until the death, disability, resignation, retirement or removal from office of such director. All such compensation, together with interest thereon, shall be provided to such director, or his beneficiary, within thirty (30) days from the date of death, disability, retirement or resignation. If the director has designated an optional installment payment method, the first installment shall be paid six months after his or her normal retirement date.
Upon the death of a director, distribution of compensation deferred, together with interest, shall be made either in one lump sum or as installments, depending on the election of each director prior to death, to his or her designated beneficiary.
Deferred compensation by reason of resignation or retirement may, at the option of the director, be payable in approximately equal monthly installments over a period not to exceed fifteen (15) years, provided however, that on any such installment method of distribution, interest shall continue to be credited on the undistributed sums.
As of December 31, 2015, the Company’s accrued obligations under the 1993 Directors’ Deferred Plan were $3,291,419. The accrued obligations under the 1993 Directors’ Deferred Plan will continue to accrue interest; however, as of December 31, 2013, no additional deferrals will be made under the 1993 Directors’ Deferred Plan.
The Company’s Board adopted a new directors’ deferred compensation plan in December 2013 (the “2013 Directors’ Deferred Plan”), to be effective beginning January 2014. The terms of the 2013 Directors’ Deferred Plan are virtually identical to the 1993 Directors’ Deferred Plan, with the following exceptions: (i) the interest rate shall be adjusted annually and shall mean the Bloomberg 20-year Investment Grade Financial Institutions index rate in effect on the immediately preceding December 31, plus two percent (2%); (ii) no deferred compensation shall be payable to a director until a separation from service has occurred, which means that the director ceases for any reason to provide services to the Company as a member of the Board; and (iii) the director may elect to receive payments in a lump sum (payable within thirty (30) days following the separation from service) or in approximately equal monthly installments over a period not to exceed ten (10) years. As of December 31, 2015, the Company’s accrued obligations under the 2013 Directors’ Deferred Plan were $369,767.
REPORTEPORT OF THE EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Directors makes the following report which, notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, will not be incorporated by reference into any such filings and will not otherwise be deemed to be proxy soliciting materials or to be filed under such Acts.
The Executive Compensation Committee of the Board metreviewed and discussed with management the Compensation Discussion and Analysis (“CD&A”) required by Item 402(b) of Regulation S-K,included in this Proxy Statement, and based on that review and discussion, the Executive Compensation Committee recommended to the Board that the CD&ACompensation Discussion and Analysis be included as part of this Proxy Statement and the 20152019 Annual Report on Form 10-K.
In addition, the Executive Compensation Committee determined that no general employee compensation plan linkslinked the potential for any material payout to the Company’s reported earnings, and so no such plan cancould reasonably be viewed as encouraging the manipulation of reported earnings to enhance the compensation of any employee.
Members of the Executive Compensation Committee
Jon W. Halfhide, ChairmanOrin N. BennettGary R. Burks
Lyle L. Tullis
Jon W. Halfhide, Chairman | Gary R. Burks | Lyle L. Tullis |
Orin N. Bennett | Karl L. Silberstein |
REPORTREPORT OF THE AUDIT AND QUALIFIED LEGAL COMPLIANCE COMMITTEE
The Audit and Qualified Legal Compliance Committee (“Audit Committee”) of the Board of Directors makes the following report which, notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, will not be incorporated by reference into any such filings and will not otherwise be deemed to be proxy soliciting materials or to be filed under such Acts.
The Audit Committee consists of the directors listed below. The Board has determined that the members of the Audit Committee meet the independence requirements as defined under the NASDAQ listing standards and SEC rules.regulations.
Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The Audit Committee is responsible for overseeing the Company’s financial reporting processes on behalf of the Board. With respect to fiscal 2015,year 2019, the Audit Committee has:
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Based on the review and discussions referred to in items (1) through (5) above,, the Audit Committee has recommended to the Company’s Board that the audited consolidated financial statements be included in the Company’s Form 10-K for the fiscal year ended December 31, 20152019 for filing with the SEC.
All fees paid to Moss Adams LLP during 20152019 were pre-approved by the Audit Committee.
Members of theAudit and Qualified Legal ComplianceCommittee
David H. Scott, CPA;
Karl L. Silberstein, Chairman
| Jon W. Halfhide | Terence J. Street |
Gary R. Burks | Linda J. Miles | Lyle L. Tullis |
Fees Paid to Independent Registered Public Accounting Firm
Moss Adams LLP was selected by the Company to serve as the Company’s independent registered public accounting firm for the 20152019 fiscal year, and the shareholders of the Company ratified the selection at the 20152019 annual meeting of shareholders in May 2015.2019. The Company has selected Moss Adams LLP to serve as the Company’s independent registered public accounting firm for the 20162020 fiscal year, and the shareholders of the Company are being asked to ratify the selection at the 20162020 Annual Meeting.
A representative from Moss Adams LLP is expected to attend the 20162020 Annual Meeting and will be available to answer questions, although the representative is not likely to make a formal statement.
The following table sets forth the aggregate fees charged to the Company by Moss Adams LLP for audit services rendered in connection with the audited consolidated financial statements and reports for the 20152019 and 20142018 fiscal years and for other services rendered during the 20152019 and 20142018 fiscal years.
Fee Category | Fiscal 2015 | % of Total | Fiscal 2014(1) | % of Total | ||||||||||||
Audit Fees | $ | 274,638 | 89 | % | $ | 281,543 | 85 | % | ||||||||
Audit-Related Fees | 35,654 | 11 | % | 24,378 | 7 | % | ||||||||||
Tax Fees | 0 | 0 | % | 7,380 | 2 | % | ||||||||||
All Other Fees | 0 | 0 | % | 21,261 | 6 | % | ||||||||||
Total Fees | $ | 310,292 | 100 | % | $ | 334,562 | 100 | % |
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Fee Category | Fiscal 2019 ($) | % of Total | Fiscal 2018 ($) | % of Total | ||||||||||||
Audit Fees | 361,871 | 86.81 | 368,873 | 90.81 | ||||||||||||
Audit-Related Fees | 46,279 | 11.10 | 18,977 | 4.67 | ||||||||||||
Tax Fees | 0 | 0.00 | 0 | 0.00 | ||||||||||||
All Other Fees | 8,706 | 2.09 | 18,342 | 4.52 | ||||||||||||
Total Fees | 416,856 | 100.00 | 406,192 | 100.00 |
Audit Fees.Fees. Consists of fees billed to the Company for professional services rendered in connection with the audit of the Company’s annual financial statements included in the Company’s annual reports on Form 10-K, and review of financial statements included in the Company’s quarterly reports on Form 10-Q.10-Q, and out-of-pocket expenses related to such professional services.
Audit-Related Fees. ConsistFees. Consists of fees for assurance and related services that arewere reasonably related to the performance of the audit or review of the Company’s financial statements and which arewere not reported under Audit Fees. This category includes fees for services provided in connection with Form S-4 and Form S-8 registration statements filed with the out-of-pocket expenses of the auditors while conducting audit services.SEC.
Tax Fees.Fees. Consists of fees for professional services for tax compliance, tax advice, and tax planning. The 2014 fee is for consultations related to the sale of the Company’s mortgage subsidiary.
All Other Fees.Fees. Consists of fees for products and services provided other than those reported above.already reported. The fees for 20142018 and 2019 include reviewprocedures performed related to the adoption of documents relatingnew accounting pronouncements and a subscription to redemption of trust preferred securities.an accounting research tool facilitated through Moss Adams LLP.
In considering the nature of the services provided by Moss Adams LLP, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with Moss Adams LLP and Company management to determine that the services are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as by standards of the Public Company Accounting Oversight Board (PCAOB).PCAOB.
In discharging its oversight responsibility with respect to the audit process, the Audit Committee of the Board (i) obtained from the independent accountants a formal written statement describing all relationships between the accountants and the Company that might bear on the accountants’ independence consistent with Rule 3526, “Communication with Audit Committees Concerning Independence,”;independence; (ii) discussed with the accountants any relationships that may impact their objectivity and independence; and (iii) satisfied itself as to the accountants’ independence. The Audit Committee also discussed with management and the independent accountants the quality and adequacy of the Company’s internal controls and the outsourced audit functions, responsibilities, budgeting and staffing. The Audit Committee reviewed with the independent accountants their audit plans, audit scope, and identification of audit risks.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Under the Audit Committee’s pre-approval policies and procedures,charter, the Audit Committee is required to pre-approve the audit and non-audit services performed by the Company’s independent registered public accounting firm. The Audit Committee may pre-approve a list of services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee.
This list of services includes audit services, audit-related services, tax services and all other services. The Audit Committee sets pre-approved fee levels for each of these listed services. Any type of service that is not included on the list of pre-approved services must be specifically approved by the Audit Committee. Any proposed service that falls outside of the pre-approved fee levels requires specific pre-approval by the Audit Committee.
shareholder proposalsROPOSALS RECOMMENDED BY
THE BOARD OF DIRECTORS
PROPOSAL NO.Proposal 1: Election of DirectorsDirectors.
In accordance with the Company’s articles and bylaws, the Board has set the number of directors for election to the Board at the 20162020 Annual Meeting at nine (9)10 and has nominated the persons identified in the section entitled “Information About Executive Officers and Directors – Directors of the Company”“INFORMATION ABOUT THE DIRECTOR NOMINEES” for election at the Annual Meeting. If you elect the nominees presented, they will hold office until the election of their successors at the 2021 annual meeting in 2017of shareholders or until their earlier resignation.
We know The Company knows of no reason why any nominee listed in the section entitled “INFORMATION ABOUT THE DIRECTOR NOMINEES” may be unable to serve as a director. If any nominee is unable to serve, your proxy holder may vote for another nominee proposed by the Board. If for any reason these nominees prove unable or unwilling to stand for election, the Board will nominate alternatives. The Board has no reason to believe that its nominees would prove unable to serve if elected.
The Board recommends a vote FOR ALL with respect to the election of each of theall 10 nominees for director.
PROPOSAL NO.
Proposal 2: RatifyRatification of the selection of Moss Adams LLP as ourthe Company’s independent registered public accounting firm for 20162020.
The affirmative voteIf the shareholders do not approve the selection of Moss Adams LLP by a majority of votes cast at the Annual Meeting on this proposal is required to ratify the selection of the independent registered public accounting firm. If you abstain fromshares voting it has no effect on the outcome of this proposal.proposal, the Audit Committee will reconsider its selection.
The Board recommends a vote FOR the ratification of the selection of Moss Adams LLP as ourthe Company’s independent registered public accounting firm for 2016.2020.
PROPOSAL NO.
Proposal 3: Advisory (Non-Binding) Resolution on Executive Compensationvote to approve the compensation of the Company’s named executive officers.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we areThe Company is required to submit to theits shareholders a non-bindingan advisory vote on the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis, the tabular disclosure regarding named executive officer compensation, and the accompanying narrative disclosure in this Proxy Statement.
This proposal, commonly known as a “say-on-pay” proposal, gives the Company’s shareholders the opportunity to endorse or not endorse the Company’s executive pay program and policies through the following resolution:
“Resolved, that the compensation paid to the company’sCompany’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
This vote shallis not be binding on the Board and will not be construed as overruling a decision by the Board, nor shallBoard. Also, the vote create or implydoes not impose any additional fiduciary duty byduties on the Board. However, the Executive Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
This matter will be decided by the affirmative vote of a majority of the votes cast at the Annual Meeting. On this matter, abstentions will have no effect on the voting.
The Board recommends a vote FOR the adoption of the non-binding advisory say-on-pay resolution approvingto approve the compensation of the Company’s named executive officers.
Proposals by shareholders to transact business at the Company’s 2017 annual meeting must be delivered to the Company at its principal administrative office located at 1901 Churn Creek Road, Redding, California 96002 no later than December 27, 2016 in order to be considered for inclusion in our proxy statement and proxy card. Such proposals will also need to comply with the SEC’s regulations regarding the inclusion of shareholder proposals in the Company’s sponsored proxy materials.
Notice of any business item proposed to be brought from the floor before an annual meeting by a shareholder, including the nomination of directors, must be received by the Corporate Secretary of the Company no earlier than January 26, 2017 and no later than March 27, 2017 and must include a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and certain information regarding the proposal. If the Company does not receive timely notice, such proposal will not be considered a business item at the annual meeting. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. If the Chairman of the meeting acknowledges the nomination of a person not made in compliance with the foregoing procedures, the persons named as proxies in the proxy materials relating to that meeting will use their discretion in voting the proxies when the nomination is made at the meeting.SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders may contact an individual director, the Board as a group, or a specified committee or group by sending a written communication to the Company’s headquarters address.Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002. Each communication should specify the applicable addressee or addresseesaddressee(s) to be contacted as well as the general topic of the communication.
The Company will initially receive and process communications before forwarding them to the addressee.addressee(s). The Company generally will not forward to the directors a shareholder communication that it determines to be primarily commercial in nature, that relates to an improper or irrelevant topic, or that requests general information about the Company.
SHAREHOLDER PROPOSALS AT THE 2021 ANNUAL MEETING
Proposals by shareholders to transact business at the Company’s 2021 annual meeting of shareholders must be delivered in writing to the Company at its principal administrative office located at 1901 Churn Creek Road, Redding, California 96002 no later than December 7, 2020 in order to be considered for inclusion in the proxy statement and proxy card. Such proposals must comply with the provisions of the Company’s bylaws and the SEC’s regulations regarding the inclusion of shareholder proposals in the Company’s sponsored proxy materials. If a proposal is presented at the 2021 annual meeting of shareholders in compliance with this paragraph, your proxy holder will vote in accordance with the recommendation of the Board or, if no recommendation is given, in accordance with his or her best judgment.
Notice of any business item proposed to be brought from the floor by a shareholder at the Company’s 2021 annual meeting of shareholders, including the nomination of directors, must be received in writing by the Corporate Secretary of the Company no earlier than January 20, 2021 and no later than February 19, 2021, must include a brief description of the business desired to be brought before the meeting, and must comply with the provisions of the Company’s bylaws. If the Company does not receive timely notice, such proposal will not be considered a business item at the annual meeting of shareholders, and the Chairman of the meeting will refuse to acknowledge any proposal not made in compliance with the foregoing procedures.
OTHER BUSINESS
The Company knows of no other business that will be presented at the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies submitted on the enclosed formproxy holder will be votedvote in accordance with the judgmentrecommendation of the persons voting the proxies.Board or, if no recommendation is given, in accordance with his or her best judgment. Whether or not you intend to be present at the Annual Meeting, we request that you return your signed proxyplease vote promptly.
By Order of the Board of Directors,
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Redding,/s/ Andrea M. Newburn
Andrea M. Newburn
Corporate Secretary
Sacramento, California
April 5, 20166, 2020