UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12 Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
Farmers & Merchants Bancorp
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(Name of Registrant as Specified In Its Charter)
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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2) Aggregate number of securities to which transaction applies:
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to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:
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4) Date Filed:
FARMERS & MERCHANTS BANCORP
121 West Pine Street, Lodi, CA 95240-2184
March 28, 2005
Dear Stockholder:
The annual meeting of stockholders of Farmers & Merchants Bancorp (the
"Company") will be held this year at the Lodi Grape Festival, Chardonnay Hall,
413 E. Lockeford Street, Lodi, CA, on Monday, April 18, 2005, at 4:00 p.m. We
look forward to your attendance.
The enclosed proxy statement describes the business to be conducted at
the annual meeting, which includes the election of Directors and any other
matters which properly come before the meeting.
A copy of the Company's 2004 Annual Report to Stockholders is also
enclosed.
We hope you will be able to attend the annual meeting in person. Dinner
will be served after the meeting. The Directors and senior management greatly
appreciate the interest expressed by our stockholders. Whether or not you plan
to attend the annual meeting, it is important that you are represented and that
your shares are voted. Accordingly, after reviewing the enclosed proxy
statement, we ask you to complete, sign and date the enclosed proxy and return
it as soon as possible in the postage-paid envelope that has been provided for
your convenience.
Sincerely,
/s/ Ole R. Mettler /s/ Kent A. Steinwert
Ole R. Mettler Kent A. Steinwert
Chairman of the Board President and Chief Executive Officer
Enclosures
FARMERS & MERCHANTS BANCORP
121 West Pine Street, Lodi, CA 95240-2184
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 18, 2005
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2005 annual meeting of stockholders of Farmers &
Merchants Bancorp, a Delaware corporation (the "Company") will be held this year
at the Lodi Grape Festival, Chardonnay Hall, 413 E. Lockeford Street, Lodi, CA,
on Monday, April 18, 2005, at 4:00 p.m. to:
1. Elect the following eleven (11) Directors to serve until the 2006 annual
meeting of stockholders or until their successors are elected and
qualified:
Stewart C. Adams, Jr. Harry C. Schumacher
Ralph Burlington Kevin Sanguinetti
Edward Corum, Jr. Kent A. Steinwert
Robert F. Hunnell Ole R. Mettler
Calvin (Kelly) Suess Carl A. Wishek, Jr.
James E. Podesta
2. Act upon such other matters as may properly come before such annual meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 4, 2005 as
the record date for determining the holders of the common stock of the Company
entitled to notice of, and to vote at, the annual meeting and any adjournments
thereof. A complete list of stockholders entitled to vote will be available for
inspection by stockholders of record at the office of the Secretary of the
Company at 111 West Pine Street, Lodi, CA for the ten days prior to the meeting.
You are strongly encouraged to attend the annual meeting. Please note that
if you are a beneficial owner of common stock held by a broker, bank or other
nominee, you will need proof of ownership to be admitted to the meeting. A
recent brokerage statement or a letter from a bank or broker are examples of
proof of ownership.
Please complete, sign and date, as promptly as possible, the enclosed proxy
and immediately return it in the envelope provided for your use. This is
important whether or not you plan to attend the annual meeting in person. The
giving of such proxy will not affect your right to revoke such proxy or to vote
in person, should you attend the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Deborah Hodkin
Deborah Hodkin
Secretary
Dated: March 28, 2005
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YOUR VOTE IS IMPORTANT
TO INSURE YOUR VOTE IS REPRESENTED, YOU ARE URGED TO COMPLETE, SIGN,
DATE AND PROMPTLY RETURN YOUR PROXY.
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PROXY STATEMENT
FARMERS & MERCHANTS BANCORP
121 West Pine Street, Lodi, CA 95240-2184
This proxy statement is furnished to the stockholders of Farmers &
Merchants Bancorp (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be used in voting at the annual
meeting of stockholders to be held on April 18, 2005 at the Lodi Grape Festival,
Chardonnay Hall, 413 E. Lockeford Street, Lodi, CA at 4:00 p.m., and at any
adjournment or postponement thereof. All expenses incidental to the preparation
and mailing, or otherwise making available to all stockholders of the notice,
proxy statement and form of proxy will be paid by the Company. This proxy
statement and the enclosed proxy are being mailed to the Company's stockholders
on or about March 28, 2005.
This proxy statement outlines the business to be conducted at the annual
meeting, which includes the election of Directors.
Voting Rights and Vote Required
Only stockholders of record at the close of business on March 4, 2005 (the
"record date"), will be entitled to vote in person at the meeting or by proxy.
On the record date, there were 792,709 shares of common stock outstanding and
entitled to vote.
Holders of common stock of the Company are entitled to one vote for each
share held, other than with respect to the election of Directors. Due to the
application of Section 2115 of the California Corporations Code, each
stockholder may be eligible to exercise cumulative voting rights and may be
entitled to as many votes as shall equal the number of shares of common stock
held by such stockholder multiplied by the number of Directors to be elected,
and such stockholder may cast all of such votes for a single nominee or may
distribute them among two or more nominees. For example, if you own 10 shares of
common stock of the Company and 11 Directors are being elected, you have 110
votes - you can cast all of them for one nominee, or two or more nominees if you
so choose. No stockholder, however, shall be entitled to cumulate votes (i.e.,
cast for any one or more nominees a number of votes greater than the number of
shares of common stock of the Company held by such stockholder) unless the
name(s) of the nominee(s) has (have) been placed in nomination prior to the
commencement of the voting in accordance with Article III, Section 3.4 of the
Company's by-laws (which requires that nominations made other than by the Board
of Directors be made by notification in writing delivered or mailed to the
President of the Company not less than 30 days or more than 60 days prior to any
meeting of stockholders) and, in accordance with Article II, Section 2.9 of the
Company's by-laws, a stockholder has given at least two days written notice to
the Secretary of the Company of an intention to cumulate votes prior to the
vote. The Company's Annual Meeting of Stockholders is expected to be held on
April 18, 2005. Accordingly, any stockholder nomination for election to the
Board of Directors for the 2005 Annual Meeting of Stockholders, to be timely,
must be received by the Company not later than March 19, 2005 and not earlier
than February 17, 2005. If any stockholder has given such notice, all
stockholders may cumulate their votes for nominees, in which event votes
represented by proxies delivered pursuant to this proxy statement may be
cumulated, at the discretion of the proxy holders, in accordance with the
recommendation of the Board of Directors. Discretionary authority to cumulate
votes in such event is, therefore, solicited in this proxy statement.
In the election of Directors, the 11 nominees receiving the highest number
of votes will be elected. Approval of such other matters which properly come
before the meeting, if any, will require the affirmative vote of a majority of
the shares represented and voting at the meeting provided the quorum
requirements of Article II, Section 2.7 of the by-laws are met, as described
under the heading "Voting of Proxies - Quorum" below. Abstentions will not count
as votes in favor of the election of Directors or any other proposals.
1
Voting of Proxies - Quorum
The shares represented by all properly executed proxies received in time
for the meeting will be voted in accordance with the stockholders' choices
specified therein; provided, however, that where no choices have been specified,
the shares will be voted "FOR" the election of the 11 nominees for Director
recommended by the Board of Directors and voted at the discretion of the proxy
holders on such other matters, if any, which may properly come before the
meeting (including any proposal to adjourn the meeting). A majority of the
shares entitled to vote represented either in person or by properly executed
proxies, will constitute a quorum at the meeting. Abstentions and broker
"non-votes" are each included in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner. Abstentions will be included in
tabulations of the votes cast on proposals presented to the stockholders and
therefore will have the effect of a negative vote. Broker "non-votes" will not
be counted for purposes of determining the number of votes cast for a proposal.
Revocability of Proxy
A stockholder using the enclosed proxy may revoke the authority conferred
by the proxy at any time before it is exercised (i.e., before the vote pursuant
to that proxy) by delivering written notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company, or by appearing and
voting by ballot in person at the meeting. In the event that signed proxies are
returned without voting instructions, proxies will be voted in favor of election
of the eleven (11) persons nominated for election as Directors as set forth in
this Proxy Statement and such other matters, if any, which may properly come
before the meeting (including any proposal to adjourn the meeting).
2
PROPOSAL 1
ELECTION OF DIRECTORS
At the meeting, it will be proposed to elect eleven (11) Directors of the
Company, each to hold office until the next annual meeting and until their
successors shall be elected and qualified. It is the intention of the proxy
holders named in the enclosed proxy to vote such proxies (except those
containing contrary instructions) for the eleven (11) nominees named below.
The following table sets forth the names of each of the nominees for
election as a Director, their age, their principal occupation for the past five
years and the period during which they have served as Director of the Company
(or the Bank).
- --------------------------- -------- -------------------------------------------------------------- -------------
Principal Occupation Director
Name Age During Past Five Years Since
- --------------------------- -------- -------------------------------------------------------------- -------------
Stewart C. Adams, Jr. 67 Attorney 1997
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Ralph Burlington 81 Retired, Former Co-owner San Joaquin Sulfur Co. 1968
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Edward Corum, Jr. 53 Owner, Corum Real Estate Investment Co. 2003
- --------------------------- -------- -------------------------------------------------------------- -------------
Robert F. Hunnell 84 Retired, Former Owner, Hunnell's Pharmacy 1970
- --------------------------- -------- -------------------------------------------------------------- -------------
Ole R. Mettler 87 Chairman of the Board and Retired Bank President 1973
- --------------------------- -------- -------------------------------------------------------------- -------------
James E. Podesta 84 Orchardist 1980
- --------------------------- -------- -------------------------------------------------------------- -------------
Kevin Sanguinetti 46 President, First American Title Co. 2001
- --------------------------- -------- -------------------------------------------------------------- -------------
Harry C. Schumacher 84 Retired since 1997, prior thereto President of the Bank 1997
- --------------------------- -------- -------------------------------------------------------------- -------------
Kent A. Steinwert 52 President and Chief Executive Officer of the Company and Bank 1998
- --------------------------- -------- -------------------------------------------------------------- -------------
Calvin (Kelly) Suess 69 Co-owner, Lodi Nut Company, Inc. 1990
- --------------------------- -------- -------------------------------------------------------------- -------------
Carl A. Wishek, Jr. 66 Assistant Vice President of the Bank 1988
- --------------------------- -------- -------------------------------------------------------------- -------------
None of the Directors of the Company were selected pursuant to arrangements
or understandings other than with the Directors and stockholders of the Company
acting within their capacity as such. There are no family relationships among
the Directors and executive officers of the Company, and none of the Directors
serves as a Director of any company which has a class of securities registered
under, or subject to periodic reporting requirements of, the Securities Exchange
Act of 1934, as amended, or any company registered as an investment company
under the Investment Company Act of 1940.
The Board does not anticipate that any of the nominees will be unable to
serve as a Director of the Company, but if that should occur before the meeting,
the proxy holders, in their discretion, upon the recommendation of the Company's
Board of Directors, reserve the right to substitute as nominee and vote for
another person of their choice in the place and stead of any nominee unable so
to serve. The proxy holders reserve the right to cumulate votes for the election
of Directors and cast all of such votes for any one or more of the nominees, to
the exclusion of the others, and in such order of preference as the proxy
holders may determine in their discretion, based upon the recommendation of the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEES LISTED ABOVE.
3
Board of Directors Meetings
During the calendar year ending December 31, 2004, the Board of Directors
of the Company met seventeen (17) times and the Board of Directors of the Bank
met twenty-four (24) times. Each incumbent attended more than 75% of the
meetings of the Board of Directors and Committees on which they served. The
Company expects directors to attend the annual meeting of stockholders and all
eleven directors attended the annual meeting of stockholders in 2004.
Committees of the Board of Directors
The Company's principal asset is its wholly-owned subsidiary, Farmers &
Merchants Bank of Central California (the "Bank"). The Directors of the Company
are also Directors of the Bank. As such, Bank Committees supervise and review
the activities of the Bank, which in turn report to the Company's Board of
Directors.
Nominating Committee
The Board of Directors of the Company has a nominating committee; The
Committee did not meet in 2004. The committee is comprised of the following
voting members: Messrs. Mettler, Steinwert (Chairman), Schumacher, Suess and
Hunnell. The Committee identifies candidates to serve as Directors of the Bank
and the Company in the event of future Board openings. As part of its nominating
responsibilities, the Nominating Committee will consider candidates nominated by
the Company's stockholders, Directors, officers and from other sources. In
evaluating candidates, the Nominating Committee considers the attributes of the
candidate (including skills, experience, diversity, age and legal and regulatory
requirements) and the needs of the Board of Directors, and reviews all
candidates in the same manner, regardless of the source of the recommendation.
The Nominating Committee will consider candidates nominated by the stockholders
of the Company for next year's meeting if the nomination is made in writing in
accordance with Article III, Section 3.4 of the By-Laws of the Company, as
described under the heading "Stockholder Proposals" on page 17. Each of Messrs.
Schumacher, Suess and Hunnell has been determined by the Board of Directors to
be "independent" as such term is defined by Rule 4200(a)(15) of the NASD's
current listing standards.
Audit Committee
The Audit Committee of the Company and the Bank oversees and monitors the
activities of the internal and independent auditors of the Company and the Bank
with the aim of ensuring compliance with applicable laws. The Audit Committee
reports to the Boards of Directors of the Bank and the Company, as appropriate.
The Audit Committee reviews the reports of audits and examinations of the Bank
and the Company made by the independent auditors, internal auditors and
regulatory agencies. The Committee also reviews the examinations of Bank
operations, loans and credits and reports the results to the Boards of Directors
of the Bank and the Company. The Committee met thirteen (13) times in 2004 and
is comprised of the following members: Messrs. Schumacher (Chairman), Hunnell,
Sanguinetti and Burlington. Each of the Directors serving on the Audit Committee
has been determined by the Board of Directors to be "independent" as such term
is defined by Rule 4200(a)(15) of the NASD's current listing standards. Mr.
Schumacher has been designated as the "financial expert" on the Audit Committee.
Expense Committee
The Expense Committee of the Company and the Bank reviews and examines all
Bank and Company expenses on a monthly basis comparing the results with the
established annual budget, the previous month and prior year, and proposes
recommendations to management regarding controllable expenses. The Committee met
twelve (12) times in 2004 and is comprised of the following voting members:
Messrs. Podesta (Chairman), Burlington and Wishek.
4
CRA Committee (Community Reinvestment Act)
The CRA Committee of the Company and the Bank monitors the Bank's efforts
and responsibilities to comply with the Community Reinvestment Act. The CRA
Committee makes recommendations to the Board of Directors to assure the Bank is
meeting the credit, investment and service needs of the communities it serves.
The Committee met twelve (12) times in 2004 and is comprised of the following
voting members: Messrs. Suess (Chairman), Podesta, Adams and Wishek.
Personnel Committee
The Personnel Committee of the Company and the Bank reviews and establishes
the general employment and compensation practices and policies of the Bank and
approves procedures for the administration thereof. The Personnel Committee is
comprised of the following voting members: Messrs. Adams (Chairman),
Sanguinetti, Corum and Schumacher. The Committee met five (5) times in 2004.
Each of the Directors serving on the Personnel Committee has been determined by
the Board of Directors to be "independent" as such term is defined by Rule
4200(a)(15) of the NASD's current listing standards.
Asset and Liability Management Committee
The Asset and Liability Committee of the Company and the Bank is
responsible for the formulation, revision and administration of the Bank's
policies relating to interest rate, liquidity and investment risk management.
The Asset and Liability Committee is comprised of the following voting members:
Messrs. Suess (Chairman), Corum and Steinwert. The Committee met six (6) times
in 2004.
Loan Committee
The Loan Committee of the Company and the Bank is responsible for the
formulation, revision and administration of the Bank's policy relating to credit
and loan risk management. The Loan Committee meets weekly and is responsible for
approving all loans between $2 million and $10 million (over $10 million
requires full Board approval) and reviewing all loans over $500 thousand. The
Loan Committee is comprised of the following voting members: Messrs. Hunnell
(Chairman), Mettler and Steinwert. The Committee met forty-six (46) times in
2004.
Communications with Board of Directors
If you wish to communicate with the Board of Directors you may send
correspondence to the Secretary, Farmers & Merchants Bancorp, 121 W. Pine
Street, Lodi, CA 95240-2184. The Secretary will submit your correspondence to
the Board of Directors or the appropriate committee, as applicable.
Reports of the Personnel and Audit Committees
The reports of the Personnel Committee and the Audit Committee and
additional descriptions of their functions are as follows:
Report of the Personnel Committee
of the Board of Directors on Executive Compensation
The Personnel Committee reviews and establishes the general employment and
compensation practices and policies and approves procedures for the
administration thereof. The Board of Directors of the Company and the Bank,
operating through its Personnel Committee, establishes annual executive
compensation for the Chief Executive Officer of the Bank and the Company ("CEO")
and the other executive officers based on their performance and compensation
paid for similar positions at other banks of comparable size as determined
through research performed by independent third party consultants and published
in industry publications. This annual evaluation process establishes a
competitive base salary for each executive and offers incentive compensation,
which can provide additional compensation if established performance measures
are achieved.
5
The aggregate salary and bonus earned by each of the named executive
officers is set forth in the Summary Compensation Table on page 9. Each named
executive receives a monthly base salary, and is eligible to receive an annual
cash bonus. Performance measures are established each year based on the Company
and Bank's profit objectives. The extent to which these objectives are achieved
determines the annual cash bonus, if any, and merit increase earned by such
named executive officer.
In evaluating the CEO's annual salary, the Personnel Committee considers a
combination of objective and subjective factors, including the following: the
Company and Bank's financial performance; comparative executive compensation
levels of peer groups; and current economic conditions. The performance measures
used in determining the CEO's annual cash bonus are based on the Company's
performance relative to the current year's budget as well as progress towards
achieving the Company's five year strategic plan. Both the annual budget and
strategic plan are approved in advance by the Board of Directors. The Personnel
Committee assesses these factors and makes a recommendation on the CEO's
performance and resulting base salary and incentive compensation to the full
Board of Directors for approval.
Respectfully Submitted,
Stewart C. Adams, Jr., Chairman
Harry C. Schumacher
Kevin Sanguinetti
Edward Corum, Jr.
Report of the Audit Committee of the Board of Directors
The Audit Committee oversees relevant accounting, risk assessment, risk
management and regulatory matters. It meets with the Bank's and the Company's
internal auditors and the independent auditors to review the scope of their work
as well as to review quarterly and annual financial statements and regulatory
and public disclosures with the officers in charge of financial reporting,
control and disclosure functions. After reviewing the independent auditor's
qualifications, partner rotation and independence, the Audit Committee also
makes an annual decision regarding selection of the independent auditors. In
addition, the Audit Committee reviews reports of examination conducted by
regulatory agencies and follows up with management concerning any
recommendations and required corrective action.
The Audit Committee reports regularly to the Boards of Directors of the
Bank and the Company and has the authority to select, retain, terminate and
approve the fees and other retention terms of special counsel or other experts
or consultants as it deems appropriate and necessary to perform its duties.
In performing its functions, the Audit Committee acts only in an oversight
capacity and necessarily relies on the work and assurances of management, which
has the primary responsibility for financial statements and reports, and of the
independent auditors, who, in their report, express an opinion on the conformity
of the Company's annual financial statements to generally accepted accounting
principles.
In connection with the December 31, 2004 financial statements of the
Company, the audit committee: (1) reviewed and discussed the audited financial
statements with management; (2) discussed with the independent auditors the
matters required by Statement on Auditing Standards No. 61; and (3) received and
discussed with the independent auditors the matters required by Independence
Standards Board Statement No. 1. Based upon these reviews and discussions, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 2004.
6
The Board of Directors has approved a written charter of the Audit
Committee which is attached to this proxy statement as Exhibit A hereto.
Respectfully submitted,
Harry C. Schumacher, Chairman
Robert F. Hunnell
Ralph Burlington
Kevin Sanguinetti
Audit and Non-Audit Fees
Audit-Related Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for assurance and
related services that are reasonably related to the performance of the audit and
review of the Company's quarterly and annual financial statements for fiscal
years 2004 and 2003 were $190,173 and $134,011 respectively.
Tax Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services for tax compliance, tax advice and tax planning, for fiscal years 2004
and 2003 were $0 and $12,039 respectively.
Pre-approval of Services by the Company's External Auditor
The Audit Committee has adopted a policy for pre-approval of audit and
permitted non-audit services by the Company's external auditor. The Audit
Committee will consider annually and, if appropriate, approve the provision of
audit services by its independent auditor and consider, and if appropriate,
pre-approve the provision of certain defined audit and non-audit services. The
Audit Committee will also consider on a case-by-case basis and, if appropriate,
approve specific engagements that are not otherwise pre-approved.
Any proposed engagement that does not fit within the definition of a
pre-approved service may be presented to the Audit Committee for consideration
at its next regular meeting or, if earlier consideration is required, to the
Audit Committee or one or more of its members. The member or members to whom
such authority is delegated shall report any specific approval of services at
its next regular meeting. The Audit Committee will regularly review summary
reports detailing all services being provided by its external auditor.
7
Executive Officers
Set forth below is certain information regarding the executive officers of
the Bank, with the exception of Mr. Steinwert and Mr. Mettler whose information
is set forth under "Nominees":
Name and Position(s) Age Principal Occupation during the Past Five Years
Richard S. Erichson 57 Executive Vice President and Senior Credit Officer of the Company and
Executive Vice President Bank.
& Senior Credit Officer
Deborah E. Hodkin 42 Executive Vice President & Chief Administrative Officer of the Company
Executive Vice President & and Bank since December 2000, prior thereto, Executive Vice President &
Chief Administrative Officer Chief Operations Officer of Union Safe Deposit Bank.
and Secretary
Chris C. Nelson 50 Executive Vice President and Head of Retail Banking of the Bank since
Executive Vice President & Head December 2001, prior thereto Vice President On-line Regional Sales and
of Retail Banking Marketing Wells Fargo Bank since 2001, prior thereto Senior Vice
President, E-Commerce of Bank of America.
Stephen W. Haley 51 Executive Vice President and Chief Financial Officer of the Company and
Executive Vice President Bank since April 2003, prior thereto, President and Chief Operating
& Chief Financial Officer Officer of Community West Bancshares since 2001, prior thereto, Senior
Vice President, Finance and Risk Management of United PanAm Financial
Corp.
Kenneth W. Smith 45 Executive Vice President & Head of Business Banking of the Bank since
Executive Vice President & Head January 2004, prior thereto, Senior Vice President and Credit
of Business Banking Administrator of the Bank.
Compensation of Directors and Executive Officers
A Director who is not an employee of the Bank receives a fee for each Bank
Board Meeting attended. The Board Meeting fee is $1,000, and the Committee
Meeting fee is $300 (Committee Chairmen receive $500). In addition, each
Director who is not an employee of the Bank received a $18,000 bonus in 2004.
Directors may elect to defer receipt of some or all Directors' fees. Directors
who are employees of the Bank (Messrs. Mettler, Steinwert and Wishek) do not
receive compensation for their services as Directors.
Directors who are not active officers in the Bank do not participate in any
retirement plans.
In 2004, all Directors were permitted to participate in the Bank's group
medical insurance plan along with salaried employees. This plan is funded 58% by
the Bank and 42% by the Directors. Directors who chose not to participate in the
Bank's group medical insurance plan were compensated in an amount equal to the
Bank's share of the cost had they participated.
The Bank plans to continue the payment of such fees for regular meetings of
the Board and of the Committees of the Board. However, effective January 1, 2005
Directors will no longer participate in the Bank's group medical insurance plan.
Instead, each Director is compensated in the amount of $485 per month to cover a
portion of the cost of outside medical insurance.
8
The following table sets forth the aggregate remuneration paid by the Bank
during 2004, 2003 and 2002 for the services performed in all capacities by the
Chief Executive Officer and each of the most highly compensated Executive
Officers for whom disclosure is required.
Summary Compensation Table Other
Long Term Deferred
-- Annual Compensation -- -Compensation Awards (2) -
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
Defined Deferred
Name Title Contribution Bonus
Year Salary (1) Bonus Plans (3) Plan
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
K.A. Steinwert President & Chief Executive 2004 $421,627 $450,000 $199,586 $108,498
Officer of the Company and
the Bank 2003 382,110 375,000 120,560 97,891
2002 373,235 250,000 25,855 88,967
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
R.S. Erichson Executive Vice President, 2004 $216,136 $90,000 $125,946 $25,856
Senior Credit Officer of the
Company and the Bank 2003 199,272 80,000 80,589 23,328
2002 205,168 65,000 25,855 21,201
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
D.E. Hodkin Executive Vice President, 2004 $200,291 $100,000 $87,505 $25,856
Chief Administrative Officer
and Secretary of the Company 2003 187,159 80,000 59,189 23,328
and the Bank
2002 207,146 70,000 25,855 21,201
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
C.C. Nelson Executive Vice President, 2004 $195,955 $100,000 $108,103 $25,856
Head of Retail Banking of
the Bank 2003 170,704 75,000 70,590 23,328
2002 164,721 30,000 25,022 21,201
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
S.W. Executive Vice President,
Haley Chief Financial Officer of 2004 $202,756 $75,000 $124,418 $25,856
the Company and the Bank
(Effective April 1, 2003) 2003 137,898 35,000 32,438 18,046
2002
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
K.W. Executive Vice President,
Smith Head of Business Banking of 2004 $167,233 $46,000 $76,602 $25,856
the Bank
2003 131,101 42,000 49,506 9,308
2002 137,044 38,000 22,008 8,454
- --------------- ------------------------------ --------- -------------- ------------- -------------- ---------------
(1) In 2002 Bank employees received a one-time payment as compensation for
accrued and unused vacation as a part of a program to redesign the Bank's
vacation benefit.
(2) Amounts reflected in these columns represent accruals of expense only.
Payments are not made to individual Executive Officers until after their
retirement or separation of employment, and even then subject to plan
vesting requirements. See more detailed plan descriptions on the following
pages.
(3) During 2004 the Board made revisions to the Bank's Indexed Retirement Plan
that resulted in recalculation of 2003 accruals. Accordingly, the 2003
amounts reflected in this table have been updated from previously reported
amounts.
No Executive Officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus.
Defined Benefit Pension Plan
Effective June 9, 2001, with the exception of employees who have reached
age 55 and who have accumulated 10 years of service (as defined in the Plan),
the Bank's Defined Benefit Plan was amended to freeze the benefit accruals of
the Plan participants.
The maximum monthly retirement benefit which any of the above named
individuals would be entitled to receive, assuming that all applicable
conditions of the plan are met, is $1,500. Mr. Mettler elected to withdraw his
vested interest the year he reached normal retirement age 65 and is no longer a
participant in the Defined Benefit Pension Plan. Current rules permit the
inclusion of a pension plan table demonstrating benefits payable upon
retirement. Since the maximum compensation payable to any employee, including
Executive Officers is $1,500 per month, a pension table has been excluded.
9
The monthly benefits payable upon retirement at "normal retirement age" for
each of the named Executive Officers, e.g., if they remain employees until they
reach age 65, will be as follows: K.A. Steinwert, $510; R.S. Erichson, $344;
D.E. Hodkin, $0; C.C. Nelson, $0; S.W. Haley, $0, K.W. Smith $149. If not
defined in the plan document, "normal retirement age" is the earliest time at
which a participant may retire without any benefit reduction due to age (i.e.,
the age at which benefits are not reduced because of early retirement).
The Bank has determined that it will terminate the Defined Benefit Pension
Plan in 2005 and make distributions to each participant.
Defined Contribution Plans
Profit Sharing Plan
Substantially all full-time employees of the Bank with one or more years of
service participate in a Profit Sharing Plan. However, employees who have
continued to accrue benefits under the Defined Benefit Pension Plan since it was
frozen in 2001 only participate in the discretionary contributions to the Profit
Sharing Plan (when the Defined Benefit Pension Plan is terminated in 2005 these
employees will begin to participate in the mandatory contributions to the Profit
Sharing Plan). Two levels of contributions are made to the Profit Sharing Plan:
(1) mandatory contributions calculated according to a predetermined set of
criteria set forth in the Plan; and (2) discretionary contributions authorized
by the Board of Directors. The Board can terminate the plan at any time. The
Bank contributed $1,305,000 ($660,000 was discretionary) for the year ended
December 31, 2004 and $1,210,000 ($575,000 was discretionary) for the year ended
December 31, 2003. Benefits pursuant to the Profit Sharing Plan vest 0% during
the first year of participation, 25% per full year thereafter and after five
years such benefits are fully vested.
Indexed Retirement Plan and Life Insurance Arrangements
During 2003, the Bank implemented an Indexed Retirement Plan for the
benefit of each Executive Officer as well as certain other senior officers of
the Bank. The Indexed Retirement Plan is a defined contribution supplemental
executive retirement plan and was developed to supplement the Bank's Profit
Sharing Plan which, as a qualified plan, has a ceiling on benefits as set by the
Internal Revenue Service. Individuals whose compensation exceeded this ceiling
did not receive a retirement benefit on these earnings. The Indexed Retirement
Plan was designed to adjust for these limits and provide levels of total
compensation that are competitive in the banking industry.
The Bank has also purchased single premium life insurance policies on the
lives of the Executive Officers as well as certain other senior officers of the
Bank. These policies provide: (1) financial protection to the Company in the
event of the death of an officer and; (2) since the interest earned on the cash
surrender value of the policies is tax free as long as the policies are used to
finance employee benefits, significant income to the Bank to offset the expense
associated with the Indexed Retirement Plan.
The Board has structured the Indexed Retirement Plan as a defined
contribution plan to avoid the uncertain future financial liabilities that can
exist under a defined benefit plan. An account is established for each
participant that is credited annually with an amount based on the taxable
equivalent earnings on the cash surrender value balances of the single premium
life insurance policies purchased, net of: (1) the mortality charges associated
with the policies; and (2) a minimum required return (defined under the Plan as
the return on five year treasuries) to the Bank on these cash surrender value
10
balances. The initial cash surrender value of the life insurance policies
purchased for each participant was determined based upon the individual's
compensation at the time they became a participant in the plan and the number of
years of service remaining to age 65 so as to provide a supplemental retirement
benefit equal to a portion of the participant's projected final pay with the
Bank. Benefits become payable to participants after either: (1) the participant
has become vested and his or her employment at the Bank terminates (including
retirement); or (2) there has been a "Change in Control" as defined in the Plan.
The balance in each participant's account is 0% vested during the first five
years of employment and becomes fully vested after five years of employment.
As compensation to each participant for agreeing to allow the Bank to
purchase an insurance policy on his or her life, split dollar agreements have
been entered into with each participant. These agreements provide for a division
of the life insurance death proceeds between the Bank and each participant's
designated beneficiary or beneficiaries. The dollar value of premiums relating
to that portion of the death proceeds that would be payable to the participant's
beneficiary or beneficiaries in the event of his or her death, is included in
the participant's Salary in the Summary Compensation Table. As of December 31,
2004 a total of 19 employees had agreed to allow the Bank to purchase an
insurance policy on their life.
As of December 31, 2004 the total cash surrender value balances of the
insurance policies was $35.2 million. Since the purchase of the first insurance
policies in late 2001, the Bank has earned taxable equivalent income (assuming a
42.06% tax rate) on these policies of $6.6 million, and recorded an expense of
$1.1 million for the Indexed Retirement Plan. The Bank's total accrued liability
under the Indexed Retirement Plan was $1.1 million as of December 31, 2004.
Deferred Bonus Plan
Each of the CEO and the other Executive Officers are participants under the
Deferred Bonus Plan and are entitled to receive cash payments based on the
long-term cumulative profitability of the Bank and its subsidiaries and a bonus
factor determined for each participant. Deferred bonuses become payable to
eligible participants after either the participant has become vested and his or
her employment at the Bank terminates or there has been a "Change in Control" as
defined in the Plan. Benefits pursuant to the Deferred Bonus Plan vest 0% during
the first year of participation, 25% per full year thereafter and after five
years such benefits are fully vested.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
The Bank has an employment agreement with Kent A. Steinwert, the Bank's
President and Chief Executive Officer. The agreement, which expires on December
31, 2007, is automatically renewable for additional two-year terms unless notice
is provided. The agreement provides for a minimum base salary of $475,000
annually, salary increases at the discretion of the Board of Directors based
upon performance, use of a Bank-owned automobile or automobile allowance and
certain insurance benefits. Under certain circumstances, in the event of
termination of his employment, Mr. Steinwert may be entitled to receive
severance compensation as set forth in his employment agreement up to an amount
equal to twice his annual base salary.
The Bank has an employment agreement with Richard S. Erichson, the Bank's
Executive Vice President and Senior Credit Officer. The agreement, which expires
on December 31, 2007, is automatically renewable for additional two-year terms
unless notice is provided. The agreement provides for a minimum base salary of
$198,000 annually, salary increases at the times that the salaries of the other
Executive Officers of the Bank are adjusted, use of a Bank-owned automobile or
automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Erichson may
be entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
11
The Bank has an employment agreement with Deborah E. Hodkin, the Bank's
Executive Vice President and Chief Administrative Officer. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for a minimum base
salary of $198,000 annually, salary increases at the times that the salaries of
the other Executive Officers of the Bank are adjusted, use of a Bank-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of her employment, Ms. Hodkin may be
entitled to receive severance compensation as set forth in her employment
agreement up to an amount equal to twice her annual base salary.
The Bank has an employment agreement with Chris C. Nelson, the Bank's
Executive Vice President and Head of Retail Banking. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for a minimum base
salary of $186,000 annually, salary increases at the times that the salaries of
the other Executive Officers of the Bank are adjusted, use of a Bank-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Nelson may be
entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
The Bank has an employment agreement with Stephen W. Haley, the Bank's
Executive Vice President and Chief Financial Officer. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for a minimum base
salary of $196,000 annually, salary increases at the times that the salaries of
the other Executive Officers of the Bank are adjusted, use of a Bank-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Haley may be
entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
The Bank has an employment agreement with Kenneth W. Smith, the Bank's
Executive Vice President and Head of Business Banking. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for a minimum base
salary of $163,008 annually, salary increases at the times that the salaries of
the other Executive Officers of the Bank are adjusted, use of a Bank-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Smith may be
entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
Certain Relationships and Related Transactions
Certain Directors and Executive Officers of the Bank and the Company and
corporations and other organizations associated with them and members of their
immediate families were customers of and engaged in banking transactions,
including loans, with the Bank in the ordinary course of business in 2004. Such
loans were made on substantially the same terms, including interest rates and
collateral, as those available at the time for similar transactions with other
persons. These loans did not involve more than the normal risk of collection or
have other unfavorable features.
Compensation Committee Interlocks and Insider Participation
Messrs. Schumacher, Sanguinetti, Corum and Adams, none of whom with the
exception of Mr. Schumacher (who retired as an employee in 1997) is or has been
an officer or employee of the Company, served in 2004 as members of the
Personnel Committee. During 2004, certain members of the Personnel Committee had
loans or other extensions of credit outstanding from the Bank. These loans were
made in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. These loans are exempt from the loan
prohibitions of the Sarbanes-Oxley Act of 2002 and did not involve more than the
normal risk of collection or have other unfavorable features.
12
Indemnification
The Company's Certificate of Incorporation and By-Laws provide for
indemnification of officers, Directors, employees and agents to the fullest
extent permitted by Delaware law. Delaware law generally provides for the
payment of expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement reasonably incurred by the indemnitees provided such person
acted in good faith and in a manner he or she reasonably believed not to be
opposed to the best interests of the corporation and with respect to any
criminal action or proceeding if he or she had no reasonable cause to believe
his or her conduct was unlawful. However, in derivative suits, if the suit is
lost, no indemnification is permitted in respect of any claim as to which the
prospective indemnitee is adjudged to be liable for misconduct in the
performance of his or her duty to the Company and then only if, and only to the
extent that, a court of competent jurisdiction determines the prospective
indemnitee is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper. Finally, no indemnification may be provided in any
action or suit in which the only liability asserted against a Director is
pursuant to a statutory provision proscribing the making of loans, dividends,
and distribution of assets under certain circumstances.
The provisions regarding indemnification may not be applicable under
certain federal banking and securities laws and regulations.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Executive Officers and Directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Executive Officers, Directors and greater than ten percent
stockholders are required by regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file. Based solely on the Company's review of the
copies of such forms it has received, the Company believes that all of its
Executive Officers and Directors complied with all filing requirements
applicable to them with respect to transactions during 2004. The Company has no
greater than ten percent stockholders.
13
Performance Graph
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on common stock with (i) the cumulative
total return of the American Stock Exchange market index, and (ii) a published
index compiled by CoreData Group (formerly Media General) of banks and bank
holding companies throughout the United States (the industry group line depicted
in the graph that follows). The following comparison covers the period January
1, 2000 to December 31, 2004. The graph assumes an initial investment of $100 on
January 1, 2000 and reinvestment of dividends. The stock price performance set
forth in the following graph is not necessarily indicative of future price
performance.
This graph shall not be deemed filed or incorporated by reference into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this graph by
reference.
14
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, as of the record date, no person or entity
was the beneficial owner of more than five percent (5%) of the outstanding
shares of the Company's common stock except as set forth in the following
tables. For the purpose of this disclosure and the disclosure of ownership
shares by management, shares are considered to be "beneficially" owned if the
person has or shares the power to vote or direct the voting of the shares, the
power to dispose of or direct the disposition of the shares, or the right to
acquire beneficial ownership (as so defined) within 60 days of the record date.
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner (1) Beneficial Ownership (2) of Class
- -------------- -------------------- -------------------- --------
Common Stock Sheila M. Wishek 46,819 5.90%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock C.A. Wishek, Jr. 40,511 5.11%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Bruce Mettler 42,797 5.40%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Joan Rider 40,943 5.16%
111 West Pine Street
Lodi, CA, 95240-2184
- ----------------------
(1) Mail should be sent to these individuals at the Company's address marked
"c/o Shareholder Relations."
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and unless otherwise indicated, holders share voting power with
their spouses.
15
The following table shows the number of common shares and the percentage of
the total shares of common stock of the Company beneficially owned (as
previously discussed) by each of the current Directors, by each of the nominees
for election to the office of Director, by the Chief Executive Officer and the
four other most highly compensated executive officers of the Bank and by all
Directors and Executive Officers of the Company and of the Bank as a group as of
the record date.
Amount of Common Stock
Owned and Nature of Percent
Name and Address of Beneficial Owner (1) Beneficial Ownership (2) of Class
- ---------------------------------------- ------------------------ --------
Stewart C. Adams, Jr. 1,673 *
Ralph Burlington 2,875 *
Edward Corum, Jr. 44 *
Richard S. Erichson 857 *
Stephen W. Haley 89 *
Deborah E. Hodkin 110 *
Robert F. Hunnell 1,686 *
Ole R. Mettler 26,021 3.28%
Chris C. Nelson 112 *
James R. Podesta 1,005 *
Kevin Sanguinetti 3,564 *
Harry C. Schumacher 5,188 *
Kenneth W. Smith 108 *
Kent A. Steinwert 3,849 *
Calvin (Kelly) Suess 889 *
Carl A. Wishek, Jr. 40,511 5.11%
All Directors and executive officers
as a group (16 persons) 88,581 11.17%
- -------------------
* Indicates less than 1%.
(1) Unless otherwise indicated, the business address for each of the persons
listed in the table is 111 West Pine Street, Lodi, CA, 95240-2184.
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and, unless otherwise indicated, holders share voting power with
their spouses.
16
STOCKHOLDER PROPOSALS FOR 2006 PROXY STATEMENT
Under the Rules of the Securities and Exchange Commission, if a stockholder
intends to include a proposal in the Company's proxy statement and form of proxy
for presentation at the Company's 2006 Annual Meeting of Stockholders, the
proposal must be received by the Company at its principal executive offices by
November 28, 2005.
In addition to these advance notice requirements, there are other
requirements that a stockholder must meet in order to have a proposal included
in the Company's proxy statement under the rules of the Securities and Exchange
Commission.
In addition, Article III, Section 3.4 of the By-Laws of the Company
provides a procedure for nomination for election of members of the Board of
Directors of the Company. Nominations for election to the Board of Directors may
be made by the Board of Directors or by any holder of any outstanding class of
capital stock of the Company entitled to vote for the election of Directors.
Nominations, other than those made by the Board of Directors, shall be made by
notification in writing delivered or mailed to the President of the Company not
less than thirty (30) days or more than sixty (60) days prior to any meeting of
stockholders called for election of Directors, provided, however, that if less
than twenty-one (21) days notice of the meeting is given to stockholders, such
nomination shall be mailed or delivered to the President of the Company not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. If the Company's 2006 Annual Meeting of
Stockholders is held on the third Monday of April (as it will be in 2005), any
stockholder nomination, to be timely, must be received by the Company not later
than March 18, 2006 and not earlier than February 16, 2006. Notification must
contain certain information as to each proposed nominee and as to each person
acting alone or in conjunction with one or more persons, in making such
nomination or in organizing, directing or financing such nomination. If the
Chairman of the meeting acknowledges the nomination of a person not made in
accordance with the foregoing procedures, the persons named as proxies in the
proxy materials relating to the meeting will use their discretion in voting the
proxies when the nomination is made at the meeting. A copy of the By-Laws of the
Company can be obtained by written request to the Secretary of the Company,
Deborah Hodkin, 111 West Pine Street, Lodi, CA 95240-2184.
Pursuant to Article II, Section 2.6 of the Company's By-Laws, in order for
other business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company and must have been a stockholder of record at the time such notice
is given. To be timely, a stockholder's notice shall be delivered to or mailed
(by United States registered mail, return receipt requested) and received at the
principal executive offices of the Company not less than seventy (70) days nor
more than ninety (90) days prior to the first anniversary date of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than twenty (20) days, or delayed by more
than seventy (70) days, from such anniversary date, notice by a stockholder to
be timely must be so delivered or mailed (by U.S. registered mail, return
receipt requested) and received not earlier than the ninetieth (90th) day prior
to such annual meeting and not later than the close of business on the later of
the seventieth (70th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made. Notice of any stockholder proposal by a stockholder to properly
bring business before the 2006 annual meeting, to be timely, must be received by
the Company no later than February 6, 2006, and no earlier than January 17,
2006. Such stockholder's notice to the Secretary must contain certain additional
information, which is more particularly described in Article II, Section 2.6 of
the Company's By-Laws. No business shall be conducted at an annual meeting of
stockholders unless proposed in accordance with the foregoing procedures. The
Chairman of the meeting shall, if the factors warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the foregoing procedure and such business shall not be
transacted.
17
ANNUAL REPORT
Together with this proxy statement, Farmers & Merchants Bancorp has
distributed to each of its stockholders an annual report for the year ended
December 31, 2004. The annual report contains the consolidated financial
statements of the Company and the Bank and the report thereon of
PricewaterhouseCoopers LLP, the Company's independent public accountants.
Upon written request by any person entitled to vote at the meeting,
addressed to Deborah Hodkin, Secretary of the Company, at 111 West Pine Street,
Lodi, CA 95240-2184, we will provide, without charge, a copy of the Company's
2004 Annual Report on Form 10-K, including the financial statements and the
schedules thereto filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934. You can also obtain a copy of the Company's
annual report on form 10-K and other periodic filings with the Securities and
Exchange Commission through the F&M Bank website. The Company address is
http://www.fmbonline.com. The link to the Securities and Exchange Commission is
on the About F&M Bank page.
OTHER MATTERS
The Management and Directors of the Company are not aware of any other
matters to be presented for consideration at the meeting to be held on April 18,
2005 or any adjournments or postponements thereof. If any other matters should
properly come before the meeting, it is intended that the persons named in the
enclosed proxy will vote the shares represented thereby in accordance with their
best business judgment, pursuant to the discretionary authority granted therein.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Deborah Hodkin
Deborah Hodkin
Secretary
18
Exhibit A
AUDIT COMMITTEE CHARTER
The Audit Committee Charter provides general guidelines for members of the Audit
Committee (Committee) for the Board of Directors of Farmers & Merchants Bank of
Central California (Bank). These guidelines will assist the Committee in its
efforts to ensure ongoing adequacy of the Bank's internal audit system as
recommended by section 132 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), Securities Exchange Commission and the AICPA's
Auditing Standards Board. The Audit Committee of the Board of Directors of the
Bank shall also serve to discharge the functions and responsibilities of the
Committee of the board of Directors of the Company, as described hereinafter.
COMMITTEE MEMBERSHIP
The Committee shall be composed of at least three outside Directors of the Board
who are independent of the management of the Bank and the Company. The Board
shall annually determine whether members are "independent" of management of the
Bank and the Company as such term is defined by Rule 4200(a)(14) of the NASD's
current listing standards.
To maintain independence, members may not (directly or indirectly):
o Accept any consulting, advisory or other compensatory fee from the Bank (or
Bancorp), other than in his or her capacity as a member of the audit
committee, board or other board committee.
o Be affiliated with the Bank, Bancorp or any subsidiary.
DESIGNATION OF AUDIT COMMITTEE FINANCIAL EXPERT
The Committee shall designate one of its members as a "financial expert". The
financial expert is an individual who is determined by the Board of Directors to
possess all of the following attributes: o An understanding of financial
statements and generally accepted accounting principles (GAAP). o An ability to
assess the general application of such principles in connection with the
accounting for estimates, accruals and reserves.
o Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues generally comparable to what can be expected to be raised by the
Bank's or Bancorp's financial statements or experience activity supervising
one or more persons engaged in such activities.
o An understanding of internal controls and procedures for financial
reporting.
o An understanding of audit committee functions.
These attributes may be acquired by:
o Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor, or
experience in one or more positions that involve the performance of similar
functions.
o Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person
performing similar functions or experience overseeing or assessing the
performance of companies or public accountants with respect to the
preparation auditing or evaluation of financial statements.
o Other relevant experience.
COMMITTEE MEETINGS
The Committee shall meet at least bi-monthly to review all recent audit reports
(including reports by internal auditors, independent public accountants, and/or
regulatory agencies). Management reports shall also be reviewed as they relate
to audit findings. The Committee shall maintain and report to the Boards of the
Company and the Bank, minutes and other relevant records of their meetings and
decisions.
19
AUDIT SYSTEM
The Committee shall approve an internal audit system, which provides for:
o Audit Programs. These items will be annually presented by the auditor:
>> Scope and frequency of the audit work
>> Documentation of the work performed
>> Conclusions reached and reports issued
o Program Effectiveness. Audit Reports and Responses thereto shall be
presented to determine if controls are effective and if appropriate
corrective action has been taken.
o Audit Arrangements. The independent auditor, operations auditor and credit
examination vendors are ultimately accountable to the Audit Committee. It
is management's responsibility to evaluate and recommend vendor selection
and replacement, but it is the Committee's responsibility to approve and
replace these vendors, if deemed appropriate or necessary. The Committee
shall preapprove all non-audit engagements of the independent auditor. The
Committee shall review the report by the independent auditor which is
required by Section 10A of the Securities Exchange Act of 1934. The
following information shall be presented to the Committee with Management's
recommendations at least annually:
>> Written Agreement. Annual written contract or engagement letter.
>> Vendor Competence. A resume and references for each individual
responsible for maintaining the audit relationship.
>> Vendor Independence. A formal written statement of independence.
RESPONSIBILITIES
The Committee shall:
o Review the Forms 10-Q and 10K prior to presentation to the Board and filing
with the Securities Exchange Commission and recommend inclusion of the
Company's financial statements therein.
o Report to the Board that its members have reviewed the Forms 10-Q and 10K,
and whether anything came to the attention of the Committee members which
caused them to believe that the audited financial statements contain any
materially misleading statements or omit any material information.
o The Committee shall review and discuss with management, the internal
auditor and the independent auditor the matters relating to the conduct of
the audit required to be discussed by SAS Nos. 61 and 90 (Communications
with Audit Committees).
o Evaluate findings of all internal/external audits and examinations of the
Company's operations, credit management, and risk oversight management.
Review management responses and corrective action of all audit/examination
findings.
o Provide oversight of all internal controls including applicable policies.
Communicate with Company management on internal control issues. Oversee
Company's Bank Secrecy Act, Anti-Money Laundering, and Patriot Act policies
and Customer Identification Program (CIP). Post-approval review all
Suspicious Activity Reports and provide appropriate feedback to Bank
management. Insure an adequate BSA/AML management structure exists in the
Company. Communicate all internal control and BSA/AML issues and policies
to the entire Board of Directors.
o Establish procedures for the confidential, anonymous submission by
employees or other "whistleblowers" of concerns regarding questionable
accounting, internal control or auditing matters; and the receipt,
retention and treatment of these complaints.
o Ensure that a copy of this Charter is disclosed in the Company's Proxy
Statement at least every three years.
20