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Section 1: DEF 14A (DEF 14A)

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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

 

SCHEDULE 14A 

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No. )

 

 

 

 

Filed by Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

 

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

 

 

Definitive Proxy Statement

 

 

 

 

Definitive Additional Materials

 

 

 

 

Soliciting Material Pursuant to §240.14a-12

 

 

 

Bank of Marin

 

(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):

 

 

No fee required.

 

 

 

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

 

 

 

 

1)

Title of each class of securities to which transaction applies:

 

 

 

 

2)

Aggregate number of securities to which transaction applies:

 

 

 

 

3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

4)

Proposed maximum aggregate value of transaction:

 

 

 

 

5)

Total fee paid:

 

 

 

 

Fee paid previously with preliminary materials.

 

 

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

 

 

1)

Amount Previously Paid:

 

 

 

 

2)

Form, Schedule or Registration Statement No.:

 

 

 

 

3)

Filing Party:

 

 

 

 

4)

Date Filed:

 

 


 

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BANK OF MARIN BANCORP

Notice of Annual Meeting of Shareholders

Buck Institute for Research on Aging

8001 Redwood Boulevard

Novato, California

Tuesday, May 14, 2019 – 6:00 p.m.

 

To Our Shareholders:

 

Notice is hereby given of the Annual Meeting of Shareholders of Bank of Marin Bancorp.  The meeting will be held at 6:00 p.m. on Tuesday, May 14, 2019 at the Buck Institute for Research on Aging, Novato, California.  To enable our employee owners to attend the meeting, the branches will close at 5:00 p.m. on May 14. A reception at the Buck Institute for Research on Aging will immediately follow the Annual Meeting.

 

At the Annual Meeting you will be asked (1) to elect ten directors of Bank of Marin Bancorp to serve for the coming year and until their successors are duly elected and qualified, (2) to vote, on an advisory basis, to approve the Company’s executive compensation for Named Executive Officers, (3) to ratify the selection of independent auditor, and (4) to act on such other business as may properly come before the meeting.  You are urged to read the accompanying Proxy Statement carefully.  It contains a detailed explanation of all matters on which you will be asked to vote.

 

Only shareholders of record as of the close of business on March 25, 2019 are entitled to receive notice of and to vote at this meeting.

 

It is very important that as many shares as possible be represented at the meeting. To assure your representation at the meeting, you are urged to mark, sign and date, and return the enclosed proxy card as promptly as possible in the postage-paid envelope enclosed for that purpose.  If after signing and returning the proxy card you come to the meeting, you may vote in person if you withdraw your proxy.  Additionally, you may vote by internet or by telephone.  If you wish to vote by internet or by telephone you will need your Shareholder Control Number, which is circled in the gray shaded Title Bar on the right side of the enclosed proxy card, and the website address and/or toll-free telephone number, which are shown on the proxy card.  No other personal information will be required in order to vote in this manner.

 

We encourage you to attend the Annual Meeting. Please RSVP by marking the appropriate box on the proxy card, by contacting the Company by May 7, 2019 by telephone at (415) 884-5348 or email to [email protected], or by registering at www.bankofmarin.com.  

 

Our bylaws provide that nominations for election to the board of directors of the Company may be made by the board of directors or by any shareholder of the Company’s stock entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the Company, must be made in writing and delivered or mailed to the Chairperson of the Board or the Chief Executive Officer not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors. The notification of nomination should contain the following information to the extent known by the notifying shareholder: (a) name and address of the proposed nominee(s); (b) principal occupation of the proposed nominee(s); (c) total number of shares that will be voted for the proposed nominee(s); (d) name and residence address of the notifying shareholder; and (e) number of shares owned by the notifying shareholder. Nominations not made in accordance with this section may be disregarded by the Chairperson of the meeting, and upon instruction, the inspector of election shall disregard all votes cast for each such nominee.

 


 

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One copy of the Annual Report on Form 10-K and Proxy Statement is being delivered to multiple shareholders sharing an address unless the Company has received contrary instructions from one or more of the shareholders. The Company will deliver promptly upon written or oral request a separate copy of the Annual Report and Proxy Statement to a shareholder at a shared address to which a single copy of the document was delivered. If a shareholder wishes to receive a separate copy or has received multiple copies at one address and would like to receive a single copy in the future, please contact Computershare by phone at (800) 368 5948 or by written request to Bank of Marin Bancorp c/o Computershare, P.O. Box 505000, Louisville, KY 40233-5000.  Overnight correspondence should be mailed to Bank of Marin Bancorp c/o Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.  The shareholder website address is https://www.computershare.com/investor. Shareholder online inquiries may be submitted to https://www us.computershare.com/investor.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

MEETING OF SHAREHOLDERS TO BE HELD ON MAY 14, 2019

 

Copies of the Annual Meeting Proxy Material, including the Proxy Statement and the Annual Report on Form 10-K, are also available at: www.edocumentview.com/BMRC.

 

 

By order of the Board of Directors

 

 Picture 8

 

Nancy Rinaldi Boatright

Secretary

April 9, 2019

 

 

 

 

 


 

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TABLE OF CONTENTS

 

 

 

PURPOSE OF MEETING 

2

GENERAL PROXY STATEMENT INFORMATION 

2

    REVOCABILITY OF PROXIES

3

    PERSON MAKING THE SOLICITATION

3

    VOTING RIGHTS

3

PROPOSAL NUMBER 1 ELECTION OF DIRECTORS 

4

    BOARD OF DIRECTORS

4

    DIRECTOR COMPENSATION

10

CORPORATE GOVERNANCE 

11

    DIRECTOR INDEPENDENCE

11

    BOARD MEETINGS AND COMMITTEES

11

    INDEBTEDNESS AND OTHER TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

12

    BOARD LEADERSHIP STRUCTURE

14

    BOARD’S ROLE IN RISK OVERSIGHT

14

EXECUTIVE COMPENSATION 

15

    EXECUTIVE OFFICERS

15

    COMPENSATION DISCUSSION AND ANALYSIS

16

    COMPENSATION COMMITTEE REPORT

33

    SUMMARY COMPENSATION TABLE

34

    CEO PAY RATIO

35

    SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

36

    SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

41

    NONQUALIFIED DEFERRED COMPENSATION FOR 2018

42

    POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

42

    EMPLOYMENT CONTRACTS

45

    EMPLOYEE STOCK OWNERSHIP PLAN AND 401(K) PLAN

46

    INCENTIVE BONUS PLAN

46

SECURITY OWNERSHIP AND REPORTING 

47

    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

47

    SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

48

PROPOSAL NUMBER 2 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION 

49

PROPOSAL NUMBER 3 INDEPENDENT AUDITOR 

51

    APPOINTMENT OF INDEPENDENT AUDITOR

51

    FACTORS CONSIDERED IN SELECTION

51

    INDEPENDENT AUDITOR FEES

51

    PRE-APPROVAL OF INDEPENDENT AUDITOR FEES AND SERVICES

52

AUDIT COMMITTEE REPORT 

53

OTHER MATTERS 

56

    SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

56

    SHAREHOLDER COMMUNICATIONS

56

    FORM 10-K

56

 

 

 

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PROXY STATEMENT

OF

BANK OF MARIN BANCORP

504 Redwood Boulevard, Suite 100

Novato, California 94947

 

These proxy materials are furnished in connection with the solicitation by the Board of Directors of Bank of Marin Bancorp (the “Company”), of proxies for use at the Annual Meeting of Shareholders of the Company to be held on Tuesday, May 14, 2019, at 6:00 p.m. at the Buck Institute for Research on Aging, 8001 Redwood Boulevard, Novato, California, and at any adjournment thereof.  These proxy materials were first sent to shareholders on or about April 9, 2019.

 

PURPOSE OF MEETING

 

The matters to be considered and voted upon at the meeting will be:

 

Proposal Number 1: The election of ten directors to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified.

 

Proposal Number 2: An advisory vote to approve the Company’s executive compensation for Named Executive Officers.

 

Proposal Number 3: The ratification of the selection of independent auditor.

 

Transacting such other business as may properly come before the meeting and any adjournments thereof.

 

GENERAL PROXY STATEMENT INFORMATION

 

Bank of Marin Bancorp, a corporation existing and organized under the laws of the State of California, is authorized to issue up to 30,000,000 shares of common stock and 5,000,000 shares of preferred stock. All of the outstanding shares are voting common shares and are entitled to vote at the Annual Meeting. Only those common shareholders of record as of March 25, 2019 (the “Record Date”) will be entitled to notice of, and to vote at, the meeting. On that date, 13,797,070 shares of common stock were outstanding. The determination of shareholders entitled to vote at the meeting and the number of votes to which they are entitled was made on the basis of the Company’s records as of the Record Date.  The presence in person or by proxy (including internet and telephone voting) of a majority of the outstanding shares of stock entitled to vote at the Annual Meeting will constitute a quorum for the purpose of transacting business at the meeting. Abstentions, shares as to which voting authority has been withheld from any nominee and "broker non-votes" (as defined below), will be counted for purposes of determining the presence or absence of a quorum.

 

A broker or nominee holding shares for beneficial owners may vote on certain matters at the meeting pursuant to discretionary authority or instructions from the beneficial owners, but with respect to other matters for which the broker or nominee may not have received instructions from the beneficial owners and may not have discretionary voting power under the applicable rule of the New York Stock Exchange or other self-regulatory organizations to which the broker or nominee is a member, the shares held by the broker or nominee may not be voted. Such un-voted shares are called "broker non-votes." The rules of the New York Stock Exchange and other self-regulatory organizations generally permit a broker or nominee, in the absence of instructions, to deliver a proxy to vote for routine items, such as the ratification of independent auditors. Consequently, shares held by a broker or nominee will

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constitute "broker non-votes" regarding non-routine items, such as the election of directors and the advisory vote on executive compensation.  It is important that you provide voting instructions to your broker or nominee.  

Revocability of Proxies

 

A proxy for use at the meeting is enclosed. Any shareholder who executes and delivers such proxy has the right to revoke it at any time before it is exercised by filing with the Corporate Secretary of the Company an instrument revoking it or by filing a duly executed proxy bearing a later date. In addition, the powers of the proxy holder will be revoked if the person executing the proxy is present at the meeting, revokes such proxy and elects to vote in person. Subject to such revocation, all shares represented by a properly executed proxy received in time for the meeting will be voted by the proxy holders in accordance with the instructions on the proxy.

 

IF NO INSTRUCTION IS SPECIFIED WITH REGARD TO A MATTER TO BE ACTED UPON, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED HEREIN, “FOR” THE APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION AND "FOR" RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITOR.

 

Person Making the Solicitation

 

This solicitation of proxies is being made by the Board of Directors of the Company. The expense of preparing, assembling, printing, and mailing this proxy statement and the material used in the solicitation of proxies for the meeting will be borne by the Company. It is contemplated that proxies will be solicited principally through the use of the mail, but officers, directors, and employees of the Company and Bank of Marin may solicit proxies personally or by telephone, without receiving special compensation therefor. Although there is no formal agreement to do so, the Company may reimburse banks, brokerage houses, and other custodians, nominees, and fiduciaries for their reasonable expense in forwarding these proxy materials to their principals.

 

Voting Rights

 

In connection with the election of directors, in accordance with California law, each shareholder entitled to vote may vote the shares owned by such shareholder as of the Record Date cumulatively if a shareholder present at the meeting has given notice at the meeting, prior to the voting, of his or her intention to vote cumulatively. If any shareholder has given such notice, then all shareholders entitled to vote for the election of directors may cumulate their votes for candidates properly nominated. Under cumulative voting, each share carries as many votes as the number of directors to be elected, and the shareholder may cast all of such votes for a single nominee or may distribute them in any manner among as many nominees as desired. In the election of directors, the ten nominees receiving the highest number of votes will be elected.

 

On all other matters submitted to the vote of the shareholders, each shareholder is entitled to one vote for each share of common stock owned on the books of the Company as of the Record Date.

 

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PROPOSAL NUMBER 1: ELECTION OF DIRECTORS

Board of Directors

 

At the Annual Meeting ten (10) directors of the Company are to be elected to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified. All of the nominees are currently members of the Board of Directors. The Bylaws of the Company provide for not fewer than nine (9) or more than seventeen (17) directors. By resolution, the Board of Directors has fixed the number of directors at ten (10). 

 

The persons named below are nominated by the Board of Directors and, unless the shareholder marks the proxy to withhold the vote, the enclosed proxy, if returned and not subsequently revoked, will be voted in favor of their election as directors. If for any reason any such nominee becomes unavailable for election, the proxy holders will vote for such substitute nominee as may be designated by the Board of Directors. The proxy holders reserve the right to cumulate votes for the election of directors and to 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 if cumulative voting is involved as described above under "Voting Rights.”

 

The following table sets forth the names of the persons nominated by the Board of Directors for election as directors and certain additional information as of March 25, 2019, including biographical information, qualifications, business experience and directorships with other public companies of each nominee covering at least the last five years.

 

 

 

 

 

 

 

 

 

 

Name and

Relationship With Company

Position, Principal Occupation, Business Experience and Directorships

Age

Steven I. Barlow

Director

Mr. Barlow was appointed to the Board in November 2017 after the acquisition of Bank of Napa, where he had served as a Director for three years.  He has served on the Audit Committee and the Bank’s Asset Liability Management Committee since January 2018.  Throughout a banking career spanning over forty years, Mr. Barlow held several C-suite positions, including Executive Vice President and Chief Operating Officer at Mechanics Bank from 1995 until he retired in 2014.  In that capacity he was responsible for operations, retail banking, human resources, information technology, legal and compliance services, marketing and product management and facilities and security.  Prior to that, he spent seventeen years at Napa Valley Bank, the last eight as President, CEO and Director.  Mr. Barlow graduated from Stanford University with bachelor’s degrees in Economics and Political Science and has been a resident of San Rafael, CA for over twenty years.  He served on the 2014 – 2015 Marin County Civil Grand Jury.  Mr. Barlow is past president and a current director of the West Contra Costa YMCA and is also a member of the Finance Committee of the YMCA of the East Bay.  We believe Mr. Barlow’s strong banking experience, his high level of understanding of the Board’s roles and responsibilities based on his service on another bank board and his extensive knowledge of the Napa and Marin communities well qualify him to serve on our Board.

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Russell A. Colombo

President, CEO and Director

Mr. Colombo has been President, CEO and Director since 2006, a member of the Executive Committee and the Bank’s Asset/Liability Management Committee since 2006, and a member of the Bank’s Wealth Management and Trust Services (“WMTS”) Committee since 2007. Mr. Colombo joined Bank of Marin in March 2004 as Executive Vice President and Branch Administrator and was appointed Executive Vice President and Chief Operating Officer in July 2005. As of July 1, 2006 he assumed the position of President and Chief Executive Officer. Mr. Colombo has over forty years of banking experience including positions as Senior Vice President and Group Manager of the San Francisco office of Comerica Bank and as Senior Vice President and Regional Manager during his nineteen year career with Union Bank of California. He received a Bachelor of Science degree in Agricultural Economics & Business Management from University of California, Davis and a Master of Business Administration in Banking & Finance from Golden Gate University. Mr. Colombo is a Board member of Western Bankers Association, past Chairman of Western Independent Bankers Association and former member of its Executive Committee.  He was also a Regent of Hanna Boys Center for fifteen years until leaving the Board in 2017.  Mr. Colombo is Chairman of the Citizens Oversight Committee of Sonoma-Marin Area Rail Transit (SMART).  In addition to his proven exemplary leadership of the Company and his experience in relationship banking, we believe Mr. Colombo’s extensive knowledge of the financial markets and the markets in which the Company serves well qualify him to serve as CEO and President and to serve on our Board.

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James C. Hale

Director

Mr. Hale joined the Board in March 2014. He serves as Chair of the Audit Committee and is an “Audit Committee Financial Expert” as defined by the Securities and Exchange Commission.  He has served as a member of the Executive Committee since April 2014, and a member of the WMTS Committee since February 2015.  Beginning in August 1998, Mr. Hale founded and served as general partner and CEO of FTV Capital and its predecessor firm, FTVentures, an investment firm specializing in venture capital and private equity investments in financial technology companies worldwide. Mr. Hale currently serves as Founding Partner and an Advisor to the firm. Before establishing FTV Capital, Mr. Hale was a Senior Managing Partner at BancAmerica Securities (formally Montgomery Securities), where he founded the financial services corporate finance practice.  Mr. Hale today serves as a Board member and Risk Committee Chair of ACI Worldwide (NASDAQ: ACIW) and a Board member and Audit Committee Chair of Mitek Systems (NASDAQ: MITK).  In recent years, Mr. Hale served as Chairman of the Board and Audit Committee Chair of Official Payments Holdings, Inc. (NASDAQ: OPAY), a public payments company. He previously served as director and Audit Committee Chair of ExlService Holdings, Inc. (NASDAQ: EXLS), a publicly traded business process outsourcing company; and director of the State Bank of India (California).  Mr. Hale has also served on boards of several private technology companies. We believe that Mr. Hale’s thirty-eight years of management experience in the banking, payments, financial services and technology industries; his expertise and his experience as a corporate director and board chairman of other public financial services companies as well as his audit committee leadership well qualify him to serve on our Board.

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Robert Heller

Director

Dr. Heller has been a Director since 2005 and has served as a member of the Bank’s WMTS Committee since 2006, serving as Chair of the Committee since 2008.  He served on the Compensation Committee from 2006 to 2015 and was appointed to the Committee again in 2018. He was named to the Nominating and Governance Committee in February 2014 and served on the Bank’s Asset/Liability Committee from August 2014 through October 2015. Dr. Heller received his Ph.D. in Economics from the University of California at Berkeley. In 1974 he was named as Chief of the Financial Studies Division of the International Monetary Fund in Washington, DC.  In 1978, he joined Bank of America in San Francisco as Director of International Economic Research.  In 1986 he was appointed as a member of the Board of Governors of the Federal Reserve System, where he served as the Chairman of the Committee on Bank Supervision and Regulation, as well as the Administrative Governor.  In 1989, Dr. Heller joined VISA International and starting in 1991 served as President and CEO of VISA USA until 1993.  From 1995 to 2002, he was Executive Vice President and a member of the Board of Directors of the Fair Isaac Corporation (NYSE:FIC). He currently serves on the Board of Sonic Automotive Inc. (NYSE:SAH) as well as several private companies. He has served as the Chairman of the Board of Marin General Hospital and on the boards of many educational and cultural institutions, including the World Affairs Council of Northern California, the Romberg Center for Environmental Studies of San Francisco State University and the Institute for International Education in San Francisco.  He is also a Staff Commodore of The San Francisco Yacht Club. We believe that Dr. Heller’s experience as the president and chief executive officer of a large company, his leadership role with the Federal Reserve System, and his extensive financial expertise well qualify him to serve on our Board.

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Norma J. Howard

Director

Ms. Howard has been a Director since 1996, has served as a member of the Compensation Committee since 1999, chairing the Committee from 2002 to 2007, and as a member of the Audit Committee from 2012 to 2015; a member of the Executive Committee and Nominating and Governance Committee since 2014, and is currently serving as Chair of the Nominating and Governance Committee. Since 2004, Ms. Howard has served as President of NOHOW Communications Consulting, a public affairs and public relations consulting firm. In 2003, Ms. Howard retired as General Manager after a thirty-three year career with SBC Communications. In her position, she was the company spokesperson of media/community relations and public affairs issues for a twenty-four county region. Ms. Howard has been a resident of Marin County for over forty years. She has served on the boards of Birkenstock Footprint Sandals, Inc., American Red Cross, United Way of the Bay Area, California State Automobile Association, ACA Holdings Inc., a subsidiary of CSAA, and Canal Alliance. She has also served as president of the San Rafael Chamber of Commerce and on numerous other boards. We believe that Ms. Howard’s high level of understanding of the Company and the Board’s roles and responsibilities developed during her long tenure on the Company’s Board of Directors as well as her executive leadership experience and her communications and public relations experience well qualify her to serve on our Board.

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Kevin R. Kennedy

Director

Mr. Kennedy has been a director since November 2013 when the Company acquired NorCal Community Bancorp (“NorCal”) and Bank of Alameda. He has served as a member of the Bank’s Asset/Liability Committee since 2013 and was appointed a member of the Bank’s WMTS Committee in February 2015 and a member of Bancorp’s Audit Committee in August 2017.  Mr. Kennedy has worked in the financial services industry for thirty years.  In 2004, Mr. Kennedy founded Kevin Kennedy, LLC, a company engaged in financial planning and wealth management services, and he continues to be the owner and Managing Member of the company. He has also been the elected City Treasurer for the City of Alameda since 2000, now serving his fifth term. For many years, Mr. Kennedy wrote a column on financial matters for the Alameda Journal newspaper and hosted a business show on cable television. He received his Bachelor of Arts in Economics with a Minor in Statistics from University of California, Davis. He served on the Board of NorCal since 2009 and served as a member of the Loan, Audit, Compensation and Asset/Liability Committees. We believe that Mr. Kennedy’s strong business and financial experience, his high level of understanding of the Board’s roles and responsibilities based on his service on another bank board, and his extensive knowledge of the Alameda community, well qualify him to serve on our Board.

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William H. McDevitt

Vice Chairman of the Board

Mr. McDevitt has been a Director since 2007 and in 2015 he was elected Vice Chairman of the Board of Bank of Marin and Bank of Marin Bancorp. He has served on the Executive Committee since 2013 and the Bank’s Asset/Liability Management Committee since 2009, and has served as Chair of the Committee since 2013. He has also served on the Bank’s WMTS Committee from 2008 to 2009 and the Compensation Committee from 2007 to 2008 and was renamed to the Committee in March of 2015. He is a Marin native and has been a resident of Petaluma since 1979. Mr. McDevitt began his career in the construction industry in 1971, and is currently employed by McDevitt Construction Partners, Inc. He is also general partner of McDevitt Enterprises, LP and president of Sausalito Hotel Corp (Inn Above Tide). Mr. McDevitt also invests in and manages commercial real estate in Marin & Sonoma Counties. In 1987, Mr. McDevitt became a founding director of Bank of Petaluma and held that position until the Bank was sold in 2000.  Mr. McDevitt currently serves on the Workforce Development Committee of North Coast Builders Exchange and is a past President. He has previously been active in the Petaluma Boys & Girls Club, Carousel Fund and the United Way Southern Sonoma. We believe that Mr. McDevitt’s strong business experience and relationships, his high level of understanding of the Board’s roles and responsibilities based on his service on another bank board, and his extensive knowledge of the Company’s market areas, well qualify him to serve on our Board.

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Leslie E. Murphy

Director

Ms. Murphy joined the Board in January 2017.  She has served on the Bank’s Asset and Liability Management Committee since January 2017 and on the Nominating and Governance Committee since September 2017.  Ms. Murphy served on the Audit Committee from January 2017 to September 2017.  A resident of Marin, Ms. Murphy is a past member of the board of Heffernan Insurance and a current board member of the North Bay Leadership Council.  Ms. Murphy graduated from San Marin High School in Novato before going on to receive her degree in business management from California State University, Sacramento in 1984. She began working as an assistant project manager for W. Bradley Electric, Inc. (WBE) in 1985, founded by her father William Bradley, Sr. Fourteen years later she assumed the position of owner/CEO, which she has retained since 1999. Ms. Murphy has driven the company to not only take the number one spot on the list of top Electrical Contractors in the North Bay and sixth largest woman owned business in the Bay Area, but has shaped the company to be loved and  voted by employees as one of the Best Places to Work for the past eleven years. She makes it a priority to help in the community and has supported WBE in becoming one of the top 80 Philanthropist companies in the Bay Area for the past few years as well as being voted as top 100 women of influence and receiving the Heart of Marin award.  We believe that Ms. Murphy’s extensive knowledge of the Company’s market area, her commitment to the community and her leadership experience well qualify her to serve on our Board.

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Joel Sklar, MD

Director

Dr. Sklar is a founding Director of Bank of Marin and has served on the Board since its inception in 1989. He served as Chairman of the Board of Bank of Marin and Bank of Marin Bancorp from July 2007 through December 2013.  He has been a member of the Audit Committee since 1992 and served as Chair of the committee from 1997 through 2005. Dr. Sklar has served as a member of the Executive Committee since 2007, a member of the Compensation Committee since 2014 and Chair of the Committee since 2015, and as Chair of the Executive and Nominating and Governance Committees from 2007 through 2013. He graduated cum laude with a Bachelor of Arts degree from Williams College in Williamstown, Massachusetts and received his medical degree from the University of California at San Diego. He trained in internal medicine at U.C. Medical Center in San Diego and in cardiology at the University of Colorado Health Sciences Center. Dr. Sklar recently retired as Marin General Hospital’s Chief Medical Officer and currently serves as an executive consultant at Marin General.  He is also a cardiologist with Cardiovascular Associates of Marin and San Francisco and an Assistant Clinical Professor at the University of California at San Francisco. Dr. Sklar also serves as a director of the California Film Institute. We believe that Dr. Sklar’s high level of understanding of the Company and the Board’s roles and responsibilities developed during his long tenure on the Company’s Board of Directors as well as his extensive leadership experience in the Marin medical community well qualify him to serve on our Board.

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Brian M. Sobel

Chairman of the Board

Mr. Sobel is Chairman of the Board of Bank of Marin and Bank of Marin Bancorp, having been appointed to the positions effective May 2015.  He has been a Director since 2001 and has been a member of the Compensation Committee since 2003, serving as Chair from 2008 to 2015, and a member of the Nominating and Governance and Executive Committees since 2009, and as Chair of the Executive Committee since 2015.  He served on the Audit Committee from June 2016 to January 2017 and is a member of the Bank’s Asset/Liability Committee.  Since 1987, he has been the principal consultant of Sobel Communications of Petaluma, a media and governmental relations firm. Mr. Sobel spent ten years as a city council member in Petaluma. He has served as chair of the Sonoma County Transportation Authority, president of a nonprofit housing group, corporate officer and trustee of the Cedars Foundation of Ross, and president of the Petaluma Area Chamber of Commerce. Educated at San Francisco State University, he has authored two books and an anthology and prior to 1987 worked for a major corporation as a writer, training consultant and video producer. He currently serves as a board member of the Golden Gate Bridge, Highway and Transportation District and was a two-term governor's appointee to the 4th Agricultural District Board of Directors.  Mr. Sobel also provides political analysis for numerous media outlets, including KTVU FOX2, in the San Francisco Bay Area. We believe that Mr. Sobel’s media relations experience and his extensive knowledge of the Company’s market area, particularly Marin and Sonoma Counties, well qualify him to serve on our Board.

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS

A VOTE “FOR” EACH OF THE DIRECTORS NOMINATED FOR RE-ELECTION

IN PROPOSAL ONE.

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Director Compensation

 

The following table sets forth certain information regarding the compensation earned by or awarded to each non-employee director who served on the Board of Directors in 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees earned

 

 

 

 

 

 

 

 

 

 

 

and paid in

 

Stock

 

Option

 

 

 

 

 

 

 

Cash

 

Awards

 

Awards

 

All Other

 

Total

 

Name

    

($)(1)

    

($)(1)

    

($) (1)

    

Compensation

    

($)

 

Steven I. Barlow

 

20,456

 

10,025

 

10,143

 

 —

 

40,624

(3)

James C. Hale

 

38,511

 

 —

 

32,489

(2)

 —

 

71,000

 

Robert Heller

 

37,597

 

32,403

 

 —

 

 —

 

70,000

 

Norma J. Howard

 

37,597

 

32,403

 

 —

 

 —

 

70,000

 

Kevin Kennedy

 

32,644

 

16,126

 

16,230

(2)

 —

 

65,000

 

William H. McDevitt Jr.

 

41,558

 

16,199

 

16,243

(2)

 —

 

74,000

 

Leslie E. Murphy

 

32,597

 

32,403

 

 —

 

 —

 

65,000

 

Joel Sklar, MD

 

37,597

 

32,403

 

 —

 

 —

 

70,000

 

Brian M. Sobel

 

52,597

 

32,403

 

 —

 

 —

 

85,000

 

 

(1)

During 2018, each member of the Board who is not also an officer or employee of the Company received a director fee of $65,000; approximately $32,500 in Company stock and/or non-qualified stock options to purchase Company stock, and approximately $32,500 in cash.  Compensation for service for incumbent directors is paid semi-annually in arrears in July and January.  The equity component of the annual compensation is paid, at the election of the director, in 100% common stock, 100% non-qualified stock options to purchase common stock, or in a combination of 50% common stock and 50% non-qualified stock options.  An analysis performed by the Company’s compensation consultant, Pearl Meyer & Partners, confirmed that the practice of delivering 50% of compensation in equity and 50% in cash meets with industry standards.  The stock based compensation to each director for service in 2018 was paid in Company common stock with a market value at time of grant, with fractional shares being paid in cash.  The non-qualified stock options were granted at fair market value at the time of grant with the number of shares covered by the option determined based on the Black-Scholes valuation method.  The Chairs of the Bank’s WMTS Committee and the Company’s Compensation Committee and Nominating and Governance Committee received an additional annual cash payment of $5,000. The Chairs of the Audit Committee and the Bank’s Asset/Liability Management Committee received an additional annual cash payment of $6,000.  The Chairman of the Board received an additional annual cash payment of $20,000.  The Vice Chairperson of the Board received an additional annual cash payment of $3,000.  The Compensation Committee has reviewed the additional cash payments paid to the Chairman of the Board, the Vice Chairperson of the Board and committee chairs relative to the Company’s peer group, discussed further in the Compensation Discussion and Analysis.  Upon this review, the Committee affirmed the annual cash payments for these services.  The stock portion of the fees was awarded from the 2010 Director Stock Plan.  The non-qualified stock options were awarded from the Bank of Marin 2017 Equity Plan. If a director retires from the Board before earned director compensation is paid, that individual receives payment in cash rather than in stock.

(2)

Mr. Barlow elected to receive 638 non-qualified stock options, Mr. Hale elected to receive 2,232 non-qualified stock options, Mr. Kennedy elected to receive 1,115 non-qualified stock options and Mr. McDevitt elected to receive 1,273 non-qualified stock options. The stock options granted in 2018 were fully vested and exercisable immediately.  As of December 31, 2018, Mr. Barlow had 1,890 exercisable shares, which include 614 shares from an award received from Bank of Napa and assumed by Bank of Marin.  Mr. Hale had 12,078 exercisable shares, Mr. McDevitt had 10,160

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exercisable shares and Mr. Kennedy had 10,834 exercisable shares, which include 4,800 shares from an award granted in 2015.

(3)

Mr. Barlow joined the Board in November 2017 and was paid for his service provided in November and December in January 2018.

 

CORPORATE GOVERNANCE

Director Independence

 

As of the Record Date (March 25, 2019), each of the persons nominated for election as a director, except for Russell A. Colombo (the CEO and President of the Company) was “independent” within the meaning of NASDAQ’s listing rules.

 

Board Meetings and Committees

 

There were five (5) regular meetings and four (4) special meetings of the Board of Directors of the Company during 2018. Each director standing for re-election to the Board attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings held by all committees of the Board on which he/she served. 

The Board of Directors is responsible for the overall affairs of the Company. To assist it in carrying out this responsibility, the Board has delegated certain authority to several Company committees, the duties of which and membership at March 25, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Nominating

 

 

 

 

 

 

 

 

and

Name of Director

 

Executive

 

Compensation

 

Audit

 

Governance

Steven I. Barlow

 

 

 

 

 

X

 

 

Russell A. Colombo

 

X

 

 

 

 

 

 

James C. Hale

 

X

 

 

 

Chair

 

 

Robert Heller

 

 

 

X

 

 

 

X

Norma J. Howard

 

X

 

X

 

 

 

Chair

Kevin Kennedy

 

 

 

 

 

X

 

 

William H. McDevitt, Jr.

 

X

 

X

 

 

 

 

Leslie E. Murphy

 

 

 

 

 

 

 

X

Joel Sklar, MD

 

X

 

Chair

 

X

 

 

Brian M. Sobel

 

Chair

 

X

 

 

 

X

 

X = Committee Member

 

Members of the Board of Directors also participate in monthly Bank of Marin Board meetings and various committees of Bank of Marin. 

 

The Executive Committee, subject to the provisions of law and certain limits imposed by the Board of Directors, may exercise any of the powers and perform any of the duties of the Board of Directors. The Committee met four (4) times in 2018.

 

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The Nominating and Governance Committee assists the Board in carrying out its duties and functions regarding corporate governance oversight and Board membership nominations.  Subject to the standards required by applicable NASDAQ listing rules, the Committee is composed of no less than a majority of independent directors of the Board.  The Committee will consider suggestions or recommendations for Board membership received from shareholders. Shareholders who wish to make such suggestions or recommendations should forward their written suggestions to the Chairman of the Nominating & Governance Committee addressed to Bank of Marin Bancorp, Attn: Corporate Secretary, 504 Redwood Boulevard, Suite 100, Novato, CA  94947. Whether a person is recommended for Board membership by a shareholder or by a director of the Company, the standards and qualifications to be considered for Board membership include local community involvement, sound reputation, and business or educational experience that will be beneficial to the Company. The Committee also considers each candidate’s contribution to the diversity of the Board, including personal characteristics, education, experience and skills. While the Committee carefully considers diversity when evaluating director candidates, it has not adopted a formal diversity policy. At present, the Committee does not engage a third party to identify and evaluate potential director candidates. All of the nominees approved by the Committee for election at the 2019 Annual Meeting were recommended by the Board. The Committee met four (4) times in 2018.

 

The Compensation Committee, consisting solely of independent directors as defined in the NASDAQ listing rules and Section 10C of the Securities Exchange Act of 1934, has primary responsibility for ensuring that compensation and benefits policies and programs for executive officers and the Board of Directors comply with applicable law and stock listing requirements, and are devised and maintained to provide and retain a high level of executive management and corporate governance competence.  The Committee met six (6) times in 2018.

 

The Audit Committee, consisting solely of independent members as defined in the NASDAQ listing rules and Section 10A of the Securities Exchange Act of 1934, selects and recommends the appointment of independent auditors, reviews and approves professional services performed by the independent auditors and reviews the reports of their work together with regulatory agency examination reports. The Committee also reviews and approves the programs, work plan and reports of the Bank's Audit Manager and internal auditor. Director James C. Hale has been determined to be the Audit Committee Financial Expert. The Committee met eight (8) times in 2018.

 

The Executive, Compensation, Audit, and Nominating and Governance Committee charters are available on the Company’s website at www.bankofmarin.com under the “Investor Relations” tab.

 

Each current and nominated Board member is encouraged to attend the Annual Meeting of Shareholders. All members of the Board attended the 2018 Annual Meeting.

 

Indebtedness and Other Transactions with Directors and Executive Officers

 

In accordance with the Nominating and Governance Committee Charter, the Nominating and Governance Committee is responsible for reviewing and acting upon all related party transactions required to be disclosed by Item 404 of Regulation S-K for potential conflicts of interest.  Additionally, the Company’s Code of Ethical Conduct provides rules that restrict transactions with affiliated persons.

 

Prior to engaging in any related party transaction, a completed questionnaire describing the nature and structure of the transaction, along with any necessary supporting documentation, is submitted to the

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Nominating and Governance Committee. In determining whether to approve a related party transaction, the Nominating and Governance Committee will consider, among other things, the following:

 

Whether the terms of the transaction are fair to the Company;

 

Whether the transaction is material to the Company;

 

The importance of the related person to the transaction;

 

The role the related person has played in arranging the transaction;

 

The structure of the transaction; and,

 

The interests of all related persons in the transaction.

 

The Company will only enter into a related party transaction if the Nominating and Governance Committee determines that any interested director has abstained from voting on the matter and that the transaction is beneficial to the Company, and the terms of the transaction are fair to the Company.

 

In February 2012, the Board, at the recommendation of the Nominating and Governance Committee, approved a related party transaction between Bank of Marin and Terra Verde Property Management Corporation (“Terra Verde”) to outsource the oversight of facility maintenance for the Company. The annual contract provides for an assessment of all of the Company’s facilities, oversight and analysis of expenses incurred, preventative maintenance and lease negotiations. The initial term of the agreement is three years with an initial base annual compensation of $72,000, and an annual increase of 3.0% per year on each anniversary of the effective date of the agreement. Kevin Colombo, son of President and CEO Russell A. Colombo, is 100% owner of Terra Verde.  As CEO and President, Russell A. Colombo is not directly involved in facility management and the costs associated with the contract are covered in an annual budget that is approved by the Board of Directors. The Company obtained two other bids from reputable companies and both were determined to be more costly and did not provide the added value of handling lease negotiations. The Board determined that the transaction is beneficial to the Company, and the terms of the transaction are fair to the Company. No waiver of the Company’s Code of Ethical Conduct was required in approving the transaction.

 

In February 2015, the Board, at the recommendation of the Nominating and Governance Committee, approved a three year extension of the agreement, including a provision for an automatic three-year extension, for the same services at an initial base annual compensation of $78,676, with an annual increase of 3.0% per year on each anniversary of the effective date of the agreement’s extension.  The agreement, as extended, was assigned, with the Company’s consent, by Terra Verde to Collier International Real Estate Services Management (CA), Inc.  Kevin Colombo has been hired as a consultant by Collier to serve as the point of contact with the Company.  No waiver of the Company’s Code of Ethical Conduct was required in approving the extension of the agreement.

 

Additionally, the Company’s subsidiary, Bank of Marin, has had and expects to have banking transactions in the ordinary course of business with some of the directors and executive officers of the Bank (and their associates), on substantially the same terms (including interest rates, collateral and repayment terms) as those prevailing at the time for comparable loans with persons not related to the Company. During 2018 no loan to any director or executive officer of the Company (or their associates) has involved more than normal risk of collectability or presented other unfavorable features. All loans to directors or executive officers would

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be subject to the limitations prescribed by California Financial Code Section 1360, et seq. and applicable federal law and regulations.

 

Board Leadership Structure

 

It is the role of the Nominating and Governance Committee to annually review, and when appropriate make recommendations to the Board of Directors concerning board composition, structure, and functions. The Board has deemed it appropriate to have two separate individuals serve as Chairman of the Board and Chief Executive Officer. According to the Company’s bylaws, the Chairman of the Board shall preside at meetings of the Board of Directors and shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him/her by the Board of Directors. The bylaws further provide that the President of the Company will be the Chief Executive Officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Company. As the oversight responsibilities of the Board of Directors grows, the Board believes it is beneficial to have an independent Chairman with the sole job of leading the Board, while allowing the President to focus his efforts on the day-to-day management of the Company and the Bank. The Board does believe that it is important to have the President as a director.  The Company aims to foster an appropriate level of separation between these two distinct levels of leadership of the Company.  In addition to the Chairman, leadership is also provided through the respective chairs of the Board’s various committees.

 

Board’s Role in Risk Oversight

 

It is a fundamental part of the Board’s responsibility to understand the risks the Company faces and what steps management is taking to manage those risks. It is also important that the Board understands what level of risk is appropriate for the Company. While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In particular, the Audit Committee focuses on risk assessment and risk management as they relate to financial reporting, including appropriate guidelines and policies to govern the process, as well as the Company’s major financial reporting risks and the steps management has taken to monitor and control them, and the Committee receives an annual risk assessment report from the Company’s outside auditor. The Executive Committee fulfills its oversight responsibility with respect to compliance and operational risk, by working with the Company’s Compliance Manager to understand regulatory and legislative issues and the Company’s projects and systems. In setting compensation, the Compensation Committee strives to create incentives that do not encourage excessive risk-taking beyond the Company’s ability to effectively identify and manage risk. The Bank’s Asset Liability Management Committee functions as a directors’ loan committee, oversees the Bank’s balance sheet, liquidity and capital management, as well as the management of credit, interest rate, and market risk within the context of the risk tolerance established by the Board of Directors, and receives monthly reports from the Chief Credit Officer and Chief Financial Officer. Additionally, the Board of Directors and various sub-committees oversee the Company’s consolidated enterprise risk management program that ensures the adequacy of policies, procedures, tolerance levels, risk measurement systems, monitoring processes, management information systems and internal controls. The Board of Directors is also provided physical and information security risk assessments by management on an annual basis.

 

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EXECUTIVE COMPENSATION

Executive Officers

 

The Board has designated the following officers as executive officers of the Company and/or Bank of Marin:  President and Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Executive Vice President, Retail Banking, Chief Credit Officer, Chief Information Officer, and Executive Vice President, Commercial Banking.  At December 31, 2018, the incumbents to those offices were: Russell A. Colombo, James S. Kimball, Tani Girton, Peter Pelham, Elizabeth Reizman, James T. Burke, and Tim Myers, respectively.  Following is information regarding the executive officers excluding Mr. Colombo, who is a director nominee and whose information has been previously presented.

 

James S. Kimball, 54, joined Bank of Marin in October 2017 as Executive Vice President and Chief Operating Officer, assuming responsibility for Commercial Banking, Retail Banking, Wealth Management & Trust Services and Marketing.  Mr. Kimball has more than twenty-nine years of commercial banking experience, primarily in the Bay Area.  He joins Bank of Marin from Wells Fargo Bank, where, among other roles, he served as Senior Vice President and Region Head for the North Coast Regional Commercial Banking Office and Wine Industry Specialty Group.  Earlier in his career, Mr. Kimball spent more than twenty years with Bank of America, ending his tenure as the Regional Manager responsible for the commercial banking segment in five Bay Area markets.  Mr. Kimball earned his Masters of Business Administration and Bachelor of Science degree in Finance from California State University, Sacramento.  A lifelong resident of Petaluma, Mr. Kimball has been involved in a number of community organizations including the San Francisco Chamber of Commerce, North Bay Leadership Council, Sonoma State’s Wine Business Institute, the Greater Bay Area Leukemia & Lymphoma Society and the Petaluma Educational Foundation.

 

Tani Girton, 59, joined Bank of Marin in August 2013 as Executive Vice President and Chief Financial Officer responsible for Finance, Accounting, Treasury and Compliance.  Ms. Girton’s 35-year career spans financial services across the banking, brokerage and thrift industries. Before joining Bank of Marin, she served as Executive Vice President and Treasurer for Bank of the West. Prior to that, Ms. Girton was Vice President of Treasury Capital Markets for Charles Schwab and a key member of the team that launched and expanded Schwab Bank.  Ms. Girton earned a Master’s Degree in Business Administration from San Francisco State University where she also served as a finance lecturer for several years.  Ms. Girton graduated from Lewis and Clark College with a bachelor’s degree in international affairs.  She currently serves on the board of directors of Professional Business Women of California. 

 

Peter Pelham, 62, joined Bank of Marin in 1994 as Manager of the Bank's first branch in Novato.  In 2005 he was named Senior Vice President and Branch Administrator and in April 2006 he was named Executive Vice President and Branch Executive. As of June 2009, Mr. Pelham assumed the position of Executive Vice President, Retail Banking.  Prior to joining Bank of Marin, he had sixteen years of banking experience, twelve of which were with Novato National Bank and Westamerica Bank in Marin County.  Mr. Pelham earned a bachelor’s degree in Politics and Modern History from Manchester University in 1977 and graduated from the Pacific Coast Banking School in 2007.  He serves as the Chair of Transportation of the Marin Citizens Oversight Committee for Measure A and as a member of the City of Novato Economic Development Commission.  Additionally, Mr. Pelham serves as Treasurer of the Rotary Club of Ignacio.

 

Elizabeth Reizman, 60, joined Bank of Marin in 1996 as Vice President and Commercial Lender in the Bank’s Novato branch. In 2004 she was named Senior Vice President and Loan Team Manager in the Bank’s credit management department. In 2009 she was named Senior Vice President and Commercial Banking Manager. In November 2013, Ms. Reizman assumed the position of Executive Vice President and Chief Credit Officer. She began her banking career in 1981 as a senior account administrator for Crocker Bank. In her fifteen year

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career prior to joining Bank of Marin, Ms. Reizman served as a commercial lender and as a senior credit examiner for Bank of California. Prior to her employment with Bank of California, she served in Private Banking and as a business banking credit administrator for Hibernia Bank.  Ms. Reizman graduated from Stanford University with a bachelor’s degree in economics and graduated from Pacific Coast Banking School in 2005.  A long-time volunteer in the Marin County community, Ms. Reizman serves on the Board of Directors of Whistlestop.

 

James T. Burke, 64, joined Bank of Marin in 2013 as Senior Vice President and Chief Information Officer.  In January 2016 he assumed the position of Executive Vice President and Chief Information Officer.  He has responsibility for Centralized Services, which includes Operations, Information Technology, Security, Facilities, Project Management, Fraud Management and Administration.  Prior to joining Bank of Marin, Mr. Burke had over thirty years of experience in financial services including serving as First Vice President and Chief Information Officer at Irwin Financial Corporation, Senior Vice President of Retail Technology at Bank of America and Vice President of Securities Custody Technology at Charles Schwab.  Mr. Burke graduated from San Francisco State University with a bachelor’s degree in mathematics.    

 

Tim Myers, 48, joined Bank of Marin in April 2007 as Senior Vice President and Manager of the San Francisco Commercial Banking Office.  In 2013 he was named Senior Vice President and Commercial Banking Manager.  In March 2015 he assumed the role of Executive Vice President, Commercial Banking.  Mr. Myers has over twenty-one years of experience in finance with nineteen years of banking experience, all in commercial banking. He began his banking career in 1998 as Assistant Loan Officer at Imperial Bank, working with Russell Colombo. Prior to joining Bank of Marin, he served as a Vice President, Relationship Manager for U.S. Bank, National Association in Portland, Oregon. Prior to his time with U.S. Bank, Mr. Myers was Vice President, Commercial Banking Officer for Comerica Bank-Western Division.  Mr. Myers graduated with a Bachelor of Art’s degree from Willamette University and a Master’s degree from the Monterey Institute of International Studies.  He graduated from Pacific Coast Banking School in 2011.  Mr. Myers is the former Chairman and a current member of the Edgewood Center for Children and Families Board of Directors.     

 

Compensation Discussion and Analysis

 

This section addresses the compensation programs, philosophy and objectives, of the Bank of Marin Bancorp and its banking subsidiary, Bank of Marin (collectively in this section, the “Company”), including the process for making compensation decisions, the roles of the Board of Directors, the Compensation Committee (in this section, the “Committee”), and management in the design of such programs, and its 2018 executive compensation components. This section also addresses the factors most relevant to understanding the Company’s compensation programs and what they are designed to reward, including the essential elements of compensation, the reasons for determining payment of each element of compensation, and how each compensation element fits into the Company’s overall compensation objectives and affects decisions regarding other compensation elements.

Executive Summary

The Committee of the Board of Directors establishes and administers the compensation and benefit programs for Named Executive Officers, the persons identified in the Summary Compensation Table which follows. In addition, the Committee is responsible for administering other companywide compensation and benefits plans for all employees. The Committee consists entirely of independent directors.  The Committee carefully considers the components of the executive compensation programs to attract and retain high quality Named Executive Officers and to incent the behavior of Named Executive Officers to create shareholder value and accomplish the Company’s strategic goals. The Committee engages independent consultants from time to

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time and considers the compensation programs of peer financial institutions to ensure that the Company’s compensation programs are competitive with market practices.

The Committee’s philosophy, practices and policies have been developed over a number of years and have not historically been subject to sweeping, material changes. At the 2018 annual meeting of shareholders, the Company included an advisory vote to approve executive compensation, providing shareholders with an opportunity to communicate their views on the Company’s executive compensation program. The Company’s executive compensation was approved by 66% of the shares voted. The Committee considered the results of this vote in setting executive compensation for 2019 and concluded that the support of the Company’s compensation program indicates that shareholders generally concur with the Company’s alignment of compensation and performance. Although representing a strong majority, the percentage of shareholders providing an advisory vote to approve executive compensation declined between the 2017 annual meeting and the 2018 annual meeting.  The Committee took this as an opportunity to enhance the Company’s disclosure of Named Executive Officer compensation in this Proxy Statement by, among other things, providing more detail on the performance based compensation of such executives.  At the 2018 Annual Meeting of Shareholders, the shareholders held, by majority vote, for a one-year frequency of the non-binding, advisory vote on executive compensation.  While the frequency vote was non-binding, the Board of Directors has made the decision to continue to include the advisory vote to approve executive compensation annually.

Shareholder outreach and feedback is a critical component of our investor relations philosophy, and, in 2018, we continued to maintain a regular dialogue with our shareholders.  Throughout the year, we engaged in conversations and meetings, including sell-side conferences, non-deal road shows and in-person or telephonic one-on-one meetings with our shareholder base.  In response to the 2018 say-on-pay advisory vote on executive compensation, the Committee, along with members of senior management initiated a targeted investor outreach program.  The purpose of the program is to solicit feedback from shareholders who voted against the proposal and understand the factors that informed their vote.

Philosophy

The Company’s executive compensation programs are designed to attract and retain high quality officers that are critical to its long-term success. The Company’s Board of Directors and management believe that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals, which aligns Named Executive Officers’ interests with those of the shareholders by rewarding performance above established goals, with the ultimate goal of improving shareholder value without rewarding undue short-term risk-taking. This is achieved by utilizing a combination of short-term cash incentives, paid annually, and long-term equity incentives, which vest over either a three-year period or a five-year period and include performance based vesting metrics. The Committee engages independent national human resources consulting firms to periodically conduct a review of the Company's total compensation programs. During these periodic reviews, each component of total compensation is compared against a regional peer group that is similar to the Company in asset size, geography and performance. (For details, see “Compensation Consultants” and “Peer Group Review” herein.)  In 2018, the Committee adopted a new peer group to be used in 2018 and 2019.  They are used in the charts below.  The 2018 peer group was made up of major exchange publicly traded banks on the West Coast, including Hawaii, with total assets between $1 billion and $5 billion.

The Committee's compensation philosophy is to target base salaries at or near the median (50th percentile) and to pay total compensation (including annual cash incentives, long-term equity incentives, and benefits) between the 50th and 75th percentiles of the regional peer group, with variation based on individual experience and performance.  During the 2018 review of executive compensation, target total direct

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compensation for the top six officers was found to be 4% below the market median in aggregate.  The Company believes paying total compensation between the 50th and 75th percentile for above-average performance is critical for attracting and retaining the qualified executives it needs to achieve its business objectives. Overall, compensation paid to Company executives is believed to be competitive with market practices.

Base compensation levels for Named Executive Officers are established based on market data and are adjusted based on individual performance and experience. Annual incentives, including performance-based bonuses and long term equity awards, are based on both Company and/or individual performance objectives, which include asset and revenue growth targets, deposit growth targets, profitability targets, identification of strategic opportunities, and core earnings performance.  It is the Committee’s desire to remove as much discretion as possible from the incentive based compensation in favor of a metrics based program.

Business Highlights

·

In 2017, Bank of Marin acquired Bank of Napa. As a result, Bank of Marin is the largest community bank in Napa County by deposit share. This is the third acquisition in the past seven years that strengthens the Bank’s presence in the San Francisco Bay Area and has allowed for average deposit growth of 10% over the past ten years.

Picture 26

 

·

As part of its organic growth plan, the Bank expanded its senior management and lending teams with several strategic hires in 2018.

·

Strong credit quality remains a cornerstone of the Bank’s consistent performance, with non-performing assets under 2% every year for the past ten years, ending 2018 at 0.60%.

 

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Picture 27

 

·

Return on assets ("ROA") historically exceeded Peer Bank median returns and was 1.31% in 2018.  2017 ROA was below median, due, in part, to acquisition expenses and the deferred tax asset write-down, which reduced ROA by 0.22 percentage points.

Picture 28

 

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·

With a focus on strong credit quality and growth, the Company generated total shareholder return over the period January 1, 2009 through December 31, 2018 at the 99th percentile of the peer group, while stock volatility was below the average of the Peer Group.

Picture 29

Picture 30

 

As the chart indicates, a $100 investment in the Company’s common stock on January 1, 2009 would have grown to $413 on December 31, 2018 after dividend reinvestment. This compares to a $188 median after dividend reinvestment for the peer group companies adopted in 2018 that remain publicly held.  As a result, the Company’s total shareholder return over the ten-year period was at the 99th percentile of the peer group.  The five year period ending in December 2018 was at the 87th percentile of the peer group and the three year period ending in December 2018 was at the 73rd percentile of the peer group.

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Picture 31

 

Picture 32

 

As designed, our compensation program is instrumental in motivating and rewarding our executive officers for achieving financial performance which compares favorably with our peer banks.

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Picture 33

 

Source: SNL Financial Market Intelligence as of March 12, 2019.

 

Picture 34

 

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Compensation Best Practices

The Compensation Committee has implemented strong governance practices that reinforce our principles, support sound risk management and are shareholder-aligned:

Assess Pay versus Performance. The Committee continually reviews the relationship between compensation and Company performance.

Reasonable Compensation Targets. Base salaries are targeted at or near the median (50th percentile) while total compensation (including annual cash incentives, long-term equity incentives, and benefits) is designed to pay between the 50th and 75th percentiles of the regional peer group, with variation based on individual experience and performance. During the 2018 review, aggregate target total direct compensation and actual 2017 total direct compensation were both below the market median, as was target and actual total cash compensation.  During 2017 and 2018, the Bank provided somewhat above the median market levels of long-term incentives, emphasizing long-term returns to shareholders relative to its peers.

Balanced Performance Measurement. To mitigate risk while driving performance the Committee approved an annual incentive plan based on multiple measures, including Net Income, Return on Assets, the Efficiency Ratio, Annual Loan Growth, Annual Deposit Growth, Annual Demand Deposit Growth, Pre-Tax Pre-Provision Earnings, Net Interest Margin, Non-Interest Expenses, and individual performance.

Clawback Provisions. The Committee has approved a clawback provision with respect to the annual incentive plan to allow for the recoupment of compensation under certain circumstances.

Performance-Based Long-Term Incentives. The Committee set the proportion of Performance Restricted Stock to 45% of the total equity grant. Performance objectives for 2018 include performance relative to peers.

Stock Ownership Guidelines. Our stock ownership requirements are rigorous: 2 times base salary for the CEO, 1.5 times base salary for the COO, 1 times base salary for other Named Executive Officers, and 2 times maximum annual cash retainer for Board members. All Named Executive Officers and Board members are in compliance with the guidelines.

No Hedging. The Company does not allow directors and Named Executive Officers to enter into short sales of common stock or similar transactions where potential gains are linked to a decline in the price of our stock. Recipients of equity awards also may not enter into any agreement that has the effect of transferring or exchanging any economic interest in an award for any other consideration.

No Pledging. Directors and Named Executive Officers, as well as all officers of the Company, are prohibited from pledging Company securities as collateral for a loan or holding Company securities in a margin account.

No Option Repricing Without Shareholder Approval.  

No Excise Tax Gross-Ups.

Use of an Independent Compensation Consultant Reporting to the Compensation Committee.

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Process for Making Compensation Decisions

Role of the Chief Executive Officer

Shortly following the conclusion of each calendar year, the Company’s Chief Executive Officer (the “CEO”), assisted by the Director of Human Resources, conducts an annual performance evaluation process for all Named Executive Officers, other than for himself, as well as for other members of senior management who are not Named Executive Officers. As part of each annual performance evaluation, the CEO considers, among other key factors, i) the executive’s performance of job responsibilities and achievement of individual and/or departmental objectives and ii) management and leadership skills, such as effective communication, problem solving, business development and community involvement. In addition, the executive’s contributions to the Company’s overall financial goals are indirectly considered.  Based on this evaluation, the CEO determines, for each of the Named Executive Officers (other than himself), recommendations for salary adjustments, including merit increases, and annual performance-based bonus amounts to be made to the Committee for its approval. The Named Executive Officer’s performance-based bonus is determined by the Company’s financial performance relative to that year’s financial performance goal and individual performance goals.

In addition, recommendations by the CEO and the Director of Human Resources for the grant of equity awards to Named Executive Officers under the Company’s equity compensation plan are submitted to the Committee for approval and are based on Named Executives Incentive Equity opportunity and the Company’s financial performance relative to that year’s financial performance goals.

Role of the Compensation Committee

The Committee periodically reviews the compensation levels of the Board of Directors. In its review, the Committee looks to ensure that the compensation is fair, reasonably competitive and commensurate to the responsibilities of both the individual directors as well as the Board in the aggregate.  Additionally, the Committee specifically takes into consideration the Directors’ adherence to the Company’s Director Stock Ownership Guidelines when reviewing compensation. 

The Committee has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Committee ensures that the total compensation paid to Named Executive Officers is fair, reasonable and competitive and that the types of compensation and benefits provided to the Named Executive Officers are similar to comparable executives within an established peer group. The Committee is also responsible for the review and approval of Company goals and objectives relevant to the compensation, including the incentive awards, of the Company’s CEO, to evaluate the performance of the CEO in light of the goals and objectives and to determine and approve the CEO’s compensation levels based on this evaluation. The Committee reviews compensation levels for the other Named Executive Officers, including the CEO’s recommendations on annual bonus and salary increases for Named Executive Officers and makes final determinations and approvals. Additionally, the Committee reviews and approves the grant of equity awards to assure that the Committee considers all elements of proposed compensation.

To achieve these goals and objectives, the Committee expects to maintain compensation plans that create an executive compensation program that is set at competitive levels of comparable public financial services institutions with comparable performance.  The Committee has followed certain fundamental objectives to ensure the effectiveness of the Company’s compensation strategy. These objectives include the following:

Internal and external fairness. The Committee recognizes the importance of perceived fairness both internally and externally of compensation practices. The Committee has evaluated the overall economic impact of the

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Company’s compensation practices and, when deemed necessary, has consulted with independent outside advisors in the evaluation of contractual obligations and compensation levels.

 

Performance-based incentives. The Company has established financial incentives for executives who meet certain objectives, which thereby assist the Company in meeting its long-term growth and financial goals.

 

Shareholder value and long-term incentives. The Committee believes that the long-term success of the Company and its ability to consistently increase shareholder value is dependent on its ability to attract and retain skilled executives. The Company’s compensation strategy encourages equity-based compensation to align the interests of management and shareholders.

 

Full disclosure. The Committee seeks to provide full disclosure to the members of the Board of Directors of the Company of the compensation practices and issues to ensure that all directors understand the implications of the Committee’s decisions.

 

The Committee has reviewed the compensation practices of peers and considered management’s individual efforts for the benefit of the Company, and has reviewed various subjective measures in determining the adequacy and appropriateness of the compensation of Named Executive Officers. The Committee takes into account the performance of the Named Executive Officers and recognizes that the competition among financial institutions for attracting and retaining executives has become more intense in the past few years. The Committee takes such market considerations into account to ensure that the Company is providing appropriate long-term equity incentives to enable it to continue to attract new executives and to retain the ones it already employs. General economic conditions and the past practice of the Company are also factors that are considered by the Committee.  Further, the Committee specifically takes into consideration:

Double-trigger Change in Control Severance Payments

Absence of any gross-ups in any of the incentive programs

Clawback Policy in our performance based incentive plan

Executive Stock Ownership Guidelines

The Committee has established various processes to assist in ensuring that the Company’s compensation program is achieving its objectives. Among these are:

Assessment of Company Performance. In establishing total compensation ranges, the Committee uses company performance measures, including net income, asset growth, earnings per share, return on assets, asset quality, and efficiency ratio in two ways: to gauge generally the overall Company performance relative to peer companies and to gauge generally the overall Company performance against the Company’s own strategic objectives. These specific performance targets provide guidance for a view of general Company performance, which is then utilized as one element in determining overall compensation ranges.

Assessment of Individual Performance. Individual performance has a strong impact on the compensation of all employees, including the CEO and the other Named Executive Officers. For the Named Executive Officers, the Committee receives a performance assessment and compensation recommendation from the CEO, other than for himself, and also exercises its judgment based on the Board’s interactions with its Named Executive Officers. As with the CEO, the performance evaluation of these Named Executive Officers is based on his or her contribution to the Company’s performance, and other leadership accomplishments.

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Total Compensation Review. The Committee reviews each Named Executive Officer’s base pay, bonus, and equity award compensation annually. In addition to these primary compensation elements, the Committee reviews the perquisites and other compensation and payments that would be required under various severance and change-in-control scenarios. Following the 2018 review, the Committee determined that these elements of compensation were reasonable in the aggregate.

Compensation Consultants

Pearl Meyer & Partners (“Pearl Meyer”), a large independent compensation consulting firm, was first engaged by the Committee in April 2012 to conduct a formal, comprehensive review of the Company’s executive and director compensation.  Pearl Meyer was also engaged in 2013, 2014, 2015, 2016, 2017, and 2018 to provide supplemental reviews and support for the Committee. After the Committee’s review of applicable rules for independence, the Committee determined that there are no known conflicts of interest between Pearl Meyer and its affiliates and the Company and its affiliates.  Pearl Meyer reports directly to the Committee and does not provide services to, or on behalf of, any other part of the Company’s business.

The major services provided by Pearl Meyer in 2018 included: 1) review of the Company’s then current peer group, 2) recommendations to the Committee to refine the peer group based on the Company’s and peers size, 3) comprehensive review of the Company’s executive compensation programs, 4) comprehensive review of the Company’s non-employee director compensation program, and 5) review of the Company’s 2018 target total direct compensation levels provided to the Company’s Named Executive Officers and non-employee directors, as well as the Company’s financial performance relative to the selected peer group to make recommendations to the Committee. The analysis and review performed by Pearl Meyer in 2018 were used in 2018 in setting executive compensation programs.

During 2018, Pearl Meyer provided minor, additional consulting activities, including reviewing the Company’s performance relative to peers, and review of the Compensation Discussion and Analysis.

Peer Group Review and Market Study

When reviewing each compensation component for the Named Executive Officers, the Committee considers the compensation practices of specific peer companies whose asset size, geography and performance are comparable to the Company. As discussed above, the Committee first engaged Pearl Meyer in 2012 to review the Company’s peer group and make recommendations to the Committee.  In 2018, the Committee adopted an updated peer group to be used in 2018.  The 2018 peer group was made up of major exchange publicly traded banks on the West Coast, including Hawaii, with total assets between $1 billion and $5 billion.

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Following is the specific peer group of eighteen publicly-traded financial institutions approved by the Committee for use in 2018 (the “2018 Peer Banks”):

 

 

Bank of Commerce Corporation

Heritage Financial Corporation

Central Valley Community Bancorp

National Bank Holdings Corporation

CoBiz Financial

Northrim Bancorp, Inc.

Farmers & Merchants Bancorp

Oak Valley Bancorp

First Financial Northwest, Inc.

Pacific Mercantile Bancorp

First Foundation, Inc.

People’s Utah Bancorp

First Northern Community Bancorp

Preferred Bank

Guaranty Bancorp

Sierra Bancorp

Heritage Commerce Corporation

TriCo Bancshares

 

The median assets at the time of the study for the peer group was $2.6 billion as compared to Bank of Marin’s $2.5 billion.  Comparisons to the Peer Banks in this discussion are based on the 2018 Peer Banks excluding those acquired as of March 15, 2018.

The Committee evaluated executive compensation to like positions in the 2016 and 2018 Peer Banks in setting 2018 compensation. Based on this evaluation and Pearl Meyer’s analysis of the Company’s compensation programs relative to the peer group, the Committee approved the following executive compensation structure:

·

Target executive base compensation near the 50th percentile of the peer group, as established in 2018, which reflects a minor de-emphasis on base compensation with more focus on incentive opportunity.

·

Maximum incentive opportunity in 2018 was placed at 200% of the target incentive for both short term and long term incentives and 50% for threshold performance.

Executive Compensation Components

For the fiscal year ended December 31, 2018, the principal components of compensation for Named Executive Officers were i) base salary, ii) performance-based bonuses, iii) equity awards and iv) perquisites and other plans and benefits. The Company’s policies and practices for each of the principal compensation components are explained in the following paragraphs.

Base Salary

Base salary is established based on market data and is adjusted based on individual performance and experience.

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Performance-Based Incentives

The Company provides annual cash incentive award opportunities for eligible employees, through the use of the Annual Individual Incentive Compensation Plan (the “Incentive Plan”). The Incentive Plan allows for performance-based bonuses for Named Executive Officers that are based on the overall performance of the Company and on goals specific to the executive's area of responsibility.  The following table shows the bonus potential expressed as a percentage of base salary that may be earned in the Incentive Plan under three scenarios, Threshold Performance, Target Performance and Maximum Performance, and then shows the relative split between Bankwide performance goals versus individual performance metrics by Named Executive Officer that must be met under the Incentive Plan.

Named Executive Officers Cash Incentive Opportunity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Opportunity

    

Colombo

    

Kimball

    

Girton

    

Pelham

    

Reizman

    

Myers

Threshold Performance

 

25.00%

 

20.00%

 

15.00%

 

17.50%

 

15.00%

 

17.50%

Target Performance

 

50.00%

 

40.00%

 

30.00%

 

35.00%

 

30.00%

 

35.00%

Maximum Performance

 

100.00%

 

80.00%

 

60.00%

 

70.00%

 

60.00%

 

70.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Goals

 

75.00%

 

50.00%

 

50.00%

 

50.00%

 

50.00%

 

50.00%

Company / Individual

 

25.00%

 

50.00%

 

50.00%

 

50.00%

 

50.00%

 

50.00%

Overall Company performance comprises at least 75% of the CEO’s and at least 50% of the other Named Executive Officers’ cash incentive potential, with the remaining percentage based on achievement of individual goals.

Individual Named Executive Officer goals are either independent from the six Company metrics or may be used to give greater weighting to one of the six Company goals within the executive’s specific area of responsibility. The allocation between company goals and individual goals varies from year to year. For 2018 the weights of each metric as a percent of the total incentive compensation opportunity for the Named Executive Officers were:

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Metrics

    

Colombo

    

Kimball

    

Girton

    

Pelham

    

Reizman

    

Myers

Net Income

 

22.50%

 

15.00%

 

15.00%

 

15.00%

 

15.00%

 

15.00%

Return on Assets

 

15.00%

 

10.00%

 

10.00%

 

10.00%

 

10.00%

 

10.00%

Efficiency Ratio

 

11.25%

 

7.50%

 

7.50%

 

7.50%

 

7.50%

 

7.50%

Annual Loan Growth

 

13.13%

 

21.25%

 

8.75%

 

8.75%

 

16.25%

 

33.75%

Annual Deposit Growth

 

5.63%

 

16.25%

 

3.75%

 

21.25%

 

3.75%

 

3.75%

Annual Demand Deposit Growth

 

7.50%

 

5.00%

 

5.00%

 

22.50%

 

5.00%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional NEO Company Metrics

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Pre-Provision Earnings

 

7.50%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

Non-Interest Expense

 

0.00%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

Net Interest Margin

 

0.00%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Company Metrics

 

82.50%

 

90.00%

 

65.00%

 

100.00%

 

72.50%

 

90.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual Goals

 

17.50%

 

10.00%

 

35.00%

 

0.00%

 

27.50%

 

10.00%

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The specific goal for each of these metrics is revised each year, and each metric is given its own specific weighting in the determination of the overall performance-based bonus opportunity. The metrics are derived from the Company’s annual budgeting process and are weighted based on the Company’s particular focus and relative importance for that year. For 2018 the specific Company goals and relative weights of each metric were:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Category

    

Weight

 

2018 Threshold

 

2018 Target

 

2018 Maximum

 

2018 Results

 

Net Income

 

30.00

%  

$

23,474,000

 

$

27,617,000

 

$

31,760,000

 

$

32,622,000

 

Return on Assets

 

20.00

%  

 

0.87

%  

 

1.09

%  

 

1.31

%  

 

1.31

%

Efficiency Ratio

 

15.00

%  

 

67.46

%

 

61.33

%  

 

55.20

%

 

57.30

%

Annual Loan Growth

 

17.50

%  

$

67,011,000

 

$

83,764,000

 

$

104,705,000

 

$

84,851,000

 

Annual Deposit Growth

 

7.50

%  

$

82,595,000

 

$

103,244,000

 

$

129,055,000

 

$

37,188,000

 

Annual Demand Deposit Growth

 

10.00

%  

$

62,934,000

 

$

78,667,000

 

$

98,334,000

 

$

56,756,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional NEO Company Metrics

    

 

 

2018 Threshold

 

2018 Target

 

2018 Maximum

 

2018 Results

 

Pre-Tax Pre-Provision Earnings

 

 

 

$

32,424,100

 

$

38,146,000

 

$

43,867,900

 

$

43,418,000

 

Non-Interest Expense

 

 

 

$

66,900,000

 

$

55,750,000

 

$

44,600,000

 

$

58,266,000

 

Net Interest Margin

 

 

 

 

3.57

%

 

3.76

%

 

3.95

%

 

3.90

%

The plan gate provides that for the Incentive Plan to be funded and “activated” for a Plan Year, the Company must achieve a threshold performance level calculated as a percentage of the Company’s budgeted net income.

In line with the Company’s pay for performance philosophy, over the past five years the Committee has awarded the Named Executive Officers 120% of their target incentive, on average, which is consistent with the Company’s favorable performance relative to peers.  Further, the Committee has awarded the maximum incentive payout under the Plan in only one of the past eight years, reflecting the difficulty in achieving the maximum payout of incentives under our Incentive Plan. Incentive payouts are calculated based on the individual goal result and weight. This format allows for higher payouts for exceptional results in one or more categories even if there is low or below minimum results for one or more categories.

Clawback Provision for Performance-Based Incentives

The clawback provision provides that if financial results are significantly restated due to negligence, fraud or intentional misconduct, there may be recoupment of the amounts paid in excess of amounts otherwise earned.

Equity Awards

The purposes of equity awards are to allow executives to share in the growth and prosperity of the Company, to retain executives over the long term and to maintain competitive levels of total compensation.

At the 2017 annual meeting, by majority shareholder vote, the Bank of Marin Bancorp 2017 Equity Plan was adopted.  The 2017 Plan replaced the Company’s 2007 Equity Plan which expired in 2017.  The Board of Directors wanted to continue with the flexibility and material features of the 2007 Plan and, therefore, the terms and conditions of the 2017 Plan are substantially similar to the terms and conditions of the 2007 Plan.  In 2018, our shareholders approved the allocation of additional shares to the 2017 Equity Plan.

The 2017 Equity Plan allows the Company to offer multiple equity vehicles as incentives, including stock options, unrestricted stock, restricted stock, and stock appreciation rights.  Executives may be awarded a blend of equity awards. The Committee considers the attributes of each form of equity award when

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determining equity compensation; including the ability to align management with the long-term interests of shareholders, the immediate value versus appreciation opportunity of each form, as well as the tax consequences of each type of award.

Award levels are based upon market and the executive's level of responsibility and influence on the performance of the Company. Executives are granted stock options and/or restricted stock annually, based on overall Company performance. The option exercise price is based on the fair market value on the effective date of the grant. Grants are approved at regularly scheduled Committee meetings.

In 2015 Performance Equity was added as  a form of equity compensation. Performance shares were granted on March 1, 2015, March 1, 2016, March 1, 2017 and March 1, 2018 and cliff vest after three years based on achieving established performance metrics relative to peers. Three-year performance metrics include earnings per share growth, efficiency ratio, return on assets, as well as loan quality metrics, to provide incentive for balanced growth and quality.

For 2018, Named Executive Officers with the title of Executive Vice President and above were granted a blend of 30% Incentive Stock Options (“ISO”), 25% Restricted Stock, and 45% Performance Restricted Stock.

Named Executive Target Equity Opportunity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Opportunity

    

Colombo

    

Kimball

    

Girton

    

Pelham

    

Reizman

    

Myers

Threshold

 

22.50%

 

17.50%

 

15.00%

 

15.00%

 

15.00%

 

15.00%

Target 

 

45.00%

 

35.00%

 

30.00%

 

30.00%

 

30.00%

 

30.00%

Maximum

 

90.00%

 

70.00%

 

60.00%

 

60.00%

 

60.00%

 

60.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Options(1)

 

30.00%

 

30.00%

 

30.00%

 

30.00%

 

30.00%

 

30.00%

Restricted Shares(1)

 

25.00%

 

25.00%

 

25.00%

 

25.00%

 

25.00%

 

25.00%

Performance Shares

 

45.00%

 

45.00%

 

45.00%

 

45.00%

 

45.00%

 

45.00%

(1)

ISO and Restricted share grants are awarded to executives based on achieving pre-determined annual Bank goals for the prior year approved by the Committee.

2017 ISO and Restricted Shares Metrics for 2018 Grant:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Category

    

Weight

    

2017 Threshold

    

2017 Target

    

2017 Results(1)

 

2017 Maximum

 

Net Income

 

30.00

%  

$

15,517,000

 

$

18,255,000

 

$

20,247,000

 

$

20,993,000

 

Return on Assets

 

20.00

%  

 

0.70

%  

 

0.88

%  

 

0.95

%  

 

1.06

%

Efficiency Ratio

 

15.00

%  

 

70.16

%  

 

63.78

%  

 

62.23

%

 

57.40

%

Annual Loan Growth

 

17.50

%  

$

84,446,000

 

$

105,558,000

 

$

59,507,000

 

$

131,948,000

 

Annual Deposit Growth

 

7.50

%  

$

74,828,000

 

$

93,535,000

 

$

148,360,000

 

$

116,919,000

 

Annual Demand Deposit Growth

 

10.00

%  

$

9,878,000

 

$

12,348,000

 

$

128,231,000

 

$

15,435,000

 

(1)

The 2017 results were adjusted to exclude both the positive and negative impact of the Bank of Napa acquisition.  This allows the Company to measure actual results compared to the actual targets established, which did not include an acquisition.  Adjustments were also made for the one-time expense related to the Deferred Tax Asset write-down associated with the Tax Cuts and Jobs Act of 2017.

For the 2018 equity grant, Company goal metrics were achieved and paid out at 133.70% of the target amount.

For the 2018 performance equity award, all of the metrics are based on a comparison of relative performance to peers, based on the ending percentile ranking of the Company.  For 2018, each measure required at or 

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above median performance to earn the target number of shares.  Achievement at maximum performance results in 200% of target shares earned for each metric after application of the metric weighting, and achievement at threshold performance results in 50% of target shares earned for each metric.

March 2018 Performance Share Metrics (three-year performance period 2018 through 2020, vesting in 2021):

 

 

 

 

 

 

 

 

 

Performance Shares Metrics

    

Weight

    

Threshold

    

Target

    

Maximum

Return on Average Assets - Percentile to Peers

 

25.00%

 

40th

 

55th

 

75th

Diluted EPS Growth Year over Year - Percentile to Peers

 

25.00%

 

35th

 

50th

 

65th

Efficiency Ratio - Percentile to Peers

 

25.00%

 

55th

 

65th

 

75th

Texas Ratio - Percentile to Peers

 

25.00%

 

55th

 

65th

 

75th

For the 2015 equity award, all of the metrics were based on a comparison of relative performance to peers, based on the ending percentile ranking of the Company.

The 2015 performance equity award vested in 2018 at 94.71% of Target.

The 2015 – 2018 performance metrics were:

 

 

 

 

 

 

 

 

 

Performance Shares Metrics

    

Weight

    

Threshold

    

Target

    

Maximum

Return on Average Assets - Percentile to Peers

 

25.00%

 

50th

 

60th

 

75th

Diluted EPS Growth Year over Year - Percentile to Peers

 

25.00%

 

50th

 

60th

 

75th

Efficiency Ratio - Percentile to Peers

 

25.00%

 

50th

 

60th

 

75th

Texas Ratio - Percentile to Peers

 

25.00%

 

50th

 

60th

 

75th

In 2018 the Committee granted one-time “Acquisition Equity” for the successful close of the Bank of Napa acquisition.  The grant amount was approximately one-fourth of the total equity granted in 2018.  The acquisition grant vests over a three-year period.

Perquisites and Other Plans and Benefits

 

Consistent with the Company’s compensation objectives, Named Executive Officers are provided perquisites and other benefits that management believes are reasonable and consistent with the Company’s overall compensation program and which keep the Company competitive in the marketplace. The Company periodically reviews the level of perquisites and other benefits provided to the Named Executive Officers for suitability with the program objectives.

 

The Company is competitive with market practices by providing medical, dental, vision and life insurance, a 401(k) employer matching contribution up to $5,000 annually, and an Employee Stock Purchase Plan (the “ESPP”). The Company also offers key management, including the Named Executive Officers, a monthly auto allowance that is based on position and his/her contact with clients.

 

Employee Stock Ownership Plan

 

The Company also provides an Employee Stock Ownership Plan (the “ESOP”). Annually, the Company may make discretionary contributions of shares of common stock to the ESOP.  The decision normally is based on the Company's financial performance and condition. The purposes of the ESOP are to include all eligible employees in the ownership of the Company, to provide them with compensation that is free from current income tax and to accumulate benefits for retirement. Stock is awarded as a percentage of eligible cash compensation. Executives receive the same percentage as all other employees, up to the IRS limits.

 

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Deferred Compensation Plan

 

The Company sponsors an unsecured, non-qualified plan known as the Deferred Compensation Plan, which allows Named Executive Officers and certain other highly compensated employees to defer all or a portion of their base salary and/or bonus.  Balances in the plan receive earnings, all of which are described in the “Nonqualified Deferred Compensation” table of this Proxy Statement.  Other than earnings accruals, all credits to the Deferred Compensation Plan represent a Named Executive Officer’s compensation previously earned and deferred; the Company does not provide any matching or similar credits.  The plan was designed to allow Named Executive Officers to defer some of their current income to help them with tax planning, and to assist the Company in attracting and retaining top executives by providing retirement benefits that are competitive within the Company’s peer group.

 

Supplemental Executive Retirement Plan

 

The Company also sponsors the Bank of Marin Supplemental Executive Retirement Plan. This plan allows named executives with the title of Executive Vice President and above who contribute materially to the continued growth, development and future business success of the Company, to receive a supplemental income at retirement.  As this type of plan is commonly offered among the Company’s peers, the inclusion of this benefit enhances the Company’s compensation program allowing the Company to recruit, retain and reward key decision makers of the Company. See “Supplemental Retirement Plan for Named Executive Officers” herein for more information on this plan.

 

Change in Control Agreements

 

The Company provides Named Executive Officers and other senior officers with agreements that provide for certain specified benefits upon a change in control of the Company.  These agreements are very useful tools that help the Company retain its key employees, including the Named Executive Officers, by providing those executives some certainty in compensation in the event the Company was to be sold, and also helps to ensure that the Company will have the benefit of their services through the pendency of any merger.  Such agreements are particularly necessary in an industry such as ours, where there has been considerable consolidation over the last ten years. See “Potential Payments upon Termination or Change in Control” herein for detailed information about these agreements, including a description of payout amounts under a hypothetical change in control of the Company as of the last business day of 2018.

 

Compensation Risk Assessment

 

In determining the level of risk arising from the Company’s compensation policies and practices, a thorough review and risk assessment evaluation of the Company’s compensation plans for all employees, as well as the overall compensation philosophy was conducted. The Committee evaluated the form and mix of compensation, controls and process, and the Company’s business strategies. The Committee has concluded that the Company’s compensation arrangements do not encourage employees to take unnecessary and excessive risks.

 

Compensation Committee Interlocks and Insider Participation

 

At March 25, 2019 the Compensation Committee was comprised of Dr. Sklar (chair), Messrs. Sobel, Heller and McDevitt, Jr., and Ms. Howard.  Each member of the committee is considered independent and none of the members are or have been officers of the Company, nor does any member have any relationship with the

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Company that would require disclosure under Item 404 of Regulations S-K concerning related party transactions.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement.  Based on our Committee review of and the discussions with management with respect to the Compensation Discussion and Analysis, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

Submitted by the Compensation Committee of the Board:

Joel Sklar, Chair

Robert Heller

Norma J. Howard

William H. McDevitt, Jr.

Brian M. Sobel

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Summary Compensation Table

 

The following table sets forth summary compensation information for the President and Chief Executive Officer, Chief Financial Officer and each of the other four most highly compensated Named Executive Officers as of the end of the last fiscal year. 

 

Bonus amounts were earned in the year shown and paid in the first quarter of the following year.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Option

    

Stock

    

 

    

 

 

 

 

 

Salary

 

Bonus

 

Awards

 

Awards

 

Other

 

Total

Name

 

Year

 

($)

 

($)

 

($)(1)

 

($)(1)

 

($)(2)

 

($)

Russell A. Colombo

 

2018

 

464,242

 

317,316

 

121,716

 

200,107

 

136,781

 

1,240,162

President & CEO

 

2017

 

450,720

 

299,167

 

74,589

 

157,644

 

200,597

 

1,182,717

 

 

2016

 

437,592

 

274,000

 

76,486

 

128,097

 

199,505

 

1,115,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James Kimball

 

2018

 

325,000

 

129,219

 

14,640

 

66,814

 

98,295

 

633,968

EVP & Chief Operating Officer

 

2017

 

325,000

 

130,000

 

62,520

 

139,000

 

2,830

 

659,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tani Girton

 

2018

 

274,712

 

106,642

 

47,366

 

78,901

 

88,389

 

596,010

EVP & Chief Financial Officer

 

2017

 

266,710

 

102,597

 

29,519

 

62,640

 

93,301

 

554,767

 

 

2016

 

258,940

 

93,500

 

30,450

 

51,140

 

76,465

 

510,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter Pelham

 

2018

 

236,358

 

78,060

 

41,768

 

68,493

 

123,060

 

547,739

EVP, Retail Banking

 

2017

 

229,473

 

99,242

 

25,343

 

54,288

 

121,194

 

529,540

 

 

2016

 

222,789

 

79,000

 

27,250

 

45,926

 

97,768

 

472,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elizabeth Reizman

 

2018

 

248,251

 

109,694

 

42,773

 

71,515

 

89,193

 

561,426

EVP & Chief Credit Officer

 

2017

 

241,020

 

97,234

 

26,639

 

56,376

 

90,293

 

511,562

 

 

2016

 

234,000

 

90,000

 

28,385

 

47,416

 

77,457

 

477,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tim Myers

 

2018

 

249,736

 

95,122

 

44,065

 

72,186

 

61,369

 

522,478

EVP, Commercial Banking

 

2017

 

242,462

 

71,687

 

26,783

 

56,724

 

70,294

 

467,950

 

 

2016

 

235,400

 

76,500

 

27,766

 

46,423

 

53,950

 

440,039

 

(1)

The Black-Scholes pricing model was used to derive the fair value of the awards.  The assumptions used in valuing the grants in 2018 are presented following the table “Grants of Plan Based Awards.”

(2)

The “Other” column includes perquisites and personal benefits, such as car allowances, provided to the Named Executive Officers. Each of the above Named Executive Officers received less than $11,000 of aggregate perquisites and personal benefits, except Mr. Colombo who received a car allowance of $14,400 and annual country club membership dues of $12,045. The “Other” column also includes matching contributions to the 401(k) Plan, profit sharing contributions to the Employee Stock Ownership Plan, imputed income on life insurance paid by the Company, imputed income on long term care insurance paid by the Company, dividends paid on unvested restricted stock, interest paid on the Deferred Compensation Plan, one-time payments pursuant to offers of employment letters, and the prorated account value increase attributable to the Supplemental Executive Retirement Plan.  Of those, Mr. Colombo received $5,000 of matching 401(k) contributions, $13,924 of profit sharing contributions to the Employee Stock Ownership Plan, $2,203 of imputed income on long term care insurance, $13,916 of unvested restricted stock dividends and $75,293 of interest paid on the Deferred Compensation Plan.

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Table of Contents

CEO Pay Ratio

 

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we have calculated the pay ratio between Russell A. Colombo, our Chief Executive Officer (“CEO”), and the median annual total compensation of our employees. The Company believes that the ratio of pay included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.

 

As of December 31, 2018:

 

The median annual total compensation of all employees of our company (other than the CEO) was $86,429; and

 

The annual total compensation of our CEO was $1,253,347, including non-discriminatory benefits.

 

Based on this information, for 2018 the ratio of the annual total compensation for our CEO to the median of the annual total compensation of our employees was 15 to 1.

 

Methodology

 

This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios

 

Median Employee Identification and Compensation Calculation

 

For purposes of determining the compensation paid to the employees under consideration, we used earnings subject to Medicare tax as reported in Box 5, ‘‘Medicare wages and tips,’’ on each employee’s 2017 Form W 2. This group includes full-time, part-time and temporary workers. We did not exclude from consideration any employees who joined our company during the year as the result of a business acquisition. We did annualize the compensation of anyone who was employed by us for only part of the year.

 

SEC rules permit determination of the median employee once every three years.  The median employee was determined in 2017.  December 31, 2017 was the date selected to identify the “median employee” because our employee base does not materially change at any point during the year.

 

Once we identified our median employee, we identified and calculated the elements of such employee’s compensation for 2018 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The median employee’s total compensation for 2018 consisted of the following elements: base wages plus overtime, an annual cash incentive earned in 2018 and paid in February 2019, change in pension SERP value, contributions to the Employee Stock Ownership Plan and matching contribution into the 401(k) plan. We also include the value of any non-discriminatory benefit plans in the total compensation amount.

 

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Table of Contents

CEO Compensation Calculation

 

We then calculated our CEO’s annual total compensation using the same approach to determine the pay ratio shown above.

 

As stated earlier in this discussion, we believe compensation must be competitive to attract and retain essential talent, to reward high performance, and to be internally equitable. Our expected total compensation opportunities for our employees are specific to the role they hold at the Company and generally reflect market median pay levels for our broader base of employees and median pay levels of our peer group for our executives, with variations based on specific talent needs, experience, and other internal factors. We believe that actual total compensation should vary with the performance of the organization, such that outstanding performance results in above-market compensation.

 

The tax reform legislation passed in December 2017, generally referred to as The Tax Cuts and Jobs Act, substantially modifies Section 162(m) and, among other things, eliminates the “performance based” exception to the $1 million deduction limit with respect to taxable years beginning after December 31, 2017. Effective for the fiscal year beginning January 1, 2018, compensation paid to our Named Executive Officers (including our Chief Financial Officer), will be subject to the limitations on deductibility under Section 162(m), and we will not be able to deduct performance based compensation to our Named Executive Officers (including our Chief Financial Officer) who receive annual compensation in excess of $1 million.

 

We invest in our employees at all levels in the Company by rewarding performance that balances risk and reward, empowering professional growth and development, and by offering affordable benefits and programs that meet the diverse needs of our employees and their families.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table summarizes information as of December 31, 2018 with respect to equity compensation plans.  All plans have been approved by the shareholders. 

 

 

 

 

 

 

 

 

 

 

    

(A)

    

(B)

    

(C)

 

 

 

Shares to be issued

 

Weighted average

 

 

 

 

 

upon exercise of

 

exercise price of

 

Shares available for

 

 

 

outstanding options

 

outstanding options

 

future issuance 

 

Equity compensation plans approved by shareholders

 

425,700

(1)  

25.01

 

1,262,182

(2)

(1)

Represents shares of common stock issuable upon exercise of outstanding options under the 2007 Equity Plan and the 2017 Equity Plan.

(2)

Represents shares of common stock available for future issuance under the 2017 Equity Plan, including both options and restricted stock awards, and the 2010 Director Stock Plan, excluding the shares in Column A.

 

The Bank of Marin 1999 Stock Option Plan (the “1999 Plan”) was adopted by the Board of Directors and approved by the Bank's shareholders in 1999, and subsequently adopted by the Company in 2007 through its holding company reorganization. The 1999 Plan was replaced by the 2007 Equity Plan (the “2007 Plan”), which was adopted by the Board of Directors and approved by the shareholders in 2007. No options have been granted from the 1999 Plan since April 2007.  In 2017, the Board of Directors adopted and shareholders approved the 2017 Equity Plan (the “2017 Plan”), which replaced the 2007 Plan.  No options have been granted from the 2007 Plan since March 2017.

 

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Table of Contents

The following three tables set forth certain information regarding restricted stock awards and options granted under the 2007 and 2017 Plans to individuals who were Named Executive Officers of the Company at December 31, 2018.

 

Grants of Plan-Based Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Option Awards:

    

 

    

 

    

 

 

 

 

Stock Awards:

 

Securities

 

Exercise Price

 

Grant Date Fair

 

 

 

 

 

Number of

 

Underlying

 

of Option

 

Value of Stock

 

 

 

 

 

Shares of Stock

 

Options

 

Awards

 

and Option

 

Name

 

Grant Date

 

(#)