What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-10 compared with 2020-11-06 · 285 added, 304 removed, 805 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands except share data)

September 30,

Cash and Cash Equivalents:

3 unchanged sentences

Investment Securities:

Available-for-Sale

Held-to-Maturity

Available-for-Sale, at Fair Value

Held-to-Maturity, fair value $ 374,828 , $ 70,049 and $ 59,503 , respectively

Total Investment Securities

15 unchanged sentences

Common Stock:

Par Value $ 0.01 , 7,500,000 Shares Authorized, 793,556 , 793,033 and 787,307 , Shares Issued and Outstanding at September 30, 2020, December 31, 2019 and September 30, 2019, Respectively

Par Value $ 0.01 , 7,500,000 Shares Authorized, 789,646 , 789,646 and 793,556 , Shares Issued and Outstanding at March 31 , 2021 , December 31, 2020 and March 31 , 2020 , Respectively

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income, Net of Taxes

Accumulated Other Comprehensive (Loss) Income, Net of Taxes

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

The accompanying notes are an integral part of these unaudited consolidated financial statements

FARMERS & MERCHANTS BANCORP

1 unchanged sentence

(in thousands except per share data)

Ended September 30,

Ended March 31,

Interest Income

9 unchanged sentences

Provision for Credit Losses

Net Interest Income After Provision for Loan Losses

Net Interest Income After Provision for Credit Losses

Non-Interest Income

3 unchanged sentences

Debit Card and ATM Fees

Net Gain on Deferred Compensation Investments

Net Gain (Loss) on Deferred Compensation Investments

Total Non-Interest Income

1 unchanged sentence

Salaries and Employee Benefits

Net Gain on Deferred Compensation Investments

Net Gain (Loss) on Deferred Compensation Investments

FDIC Insurance

3 unchanged sentences

Basic and Diluted Earnings Per Common Share

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

The accompanying notes are an integral part of these unaudited consolidated financial statements

FARMERS & MERCHANTS BANCORP

1 unchanged sentence

(in thousands)

Ended September 30,

Ended September 30

Ended March 31,

Other Comprehensive Income

Increase in Net Unrealized (Loss) Gain on Available-for-Sale Securities

Deferred Tax Provision (Benefit) Related to Unrealized Gains (Loss)

Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income

Deferred Tax Related to Reclassification Adjustment

Total Other Comprehensive (Loss) Income

Deferred Tax Benefit Related to Unrealized (Loss) Gains

Reclassification Adjustment for Realized Gains on Available-for-Sale Securities

Deferred Tax Benefit Related to Reclassification Adjustment

Amortization of Unrealized (Loss) on Securities Transferred from Available-for-Sale to Held-to-Maturity

Deferred Tax Benefit Related to (Loss) on Securities Transferred

Total Other Comprehensive Income

Comprehensive Income

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

The accompanying notes are an integral part of these unaudited consolidated financial statements

Farmers & Merchants Bancorp

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

For the three and nine months ended September 30, 2020 and 2019

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(in thousands except share data)

Comprehensive

(Loss) Income, net

Gain / (Loss) net

Shareholders’

Three Months Ended September 30, 2020

Balance, July 1, 2020

Net Unrealized Loss on Securities Available-for-Sale, net of tax

Balance, September 30, 2020

Three Months Ended September 30 , 2019

Balance, July 1, 2019

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2019

Nine Months Ended September 30, 2020

Balance, January 1, 2020

Cash Dividends Declared on Common Stock ($ 7.25 per share)

Issuance of Common Stock

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2020

Nine Months Ended September 30, 2019

Balance, January 1, 2019

Cash Dividends Declared on Common Stock ($ 7.05 per share)

Balance, December 31, 2019

Issuance of Common Stock

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Other Comprehensive Income

Balance, March 31, 2020

Balance, December 31, 2020

Cash Dividends Returned

Other Comprehensive Income

Balance, March 31, 2021

The accompanying notes are an integral part of these unaudited consolidated financial statements

FARMERS & MERCHANTS BANCORP

Condensed Consolidated Statements of Cash Flows (Unaudited)

Ended September 30,

Condensed Condensed Consolidated Statements of Cash Flows (Unaudited)

Ended March 31,

(in thousands)

3 unchanged sentences

Depreciation and Amortization

Net Amortization of Investment Security Premiums & Discounts

Net Amortization/Accretion of Investment Security Premiums & Discounts

Amortization of Core Deposit Intangible

Accretion of Discount on Acquired Loans

Net (Gain) Loss on Sale of Investment Securities

Net Loss (Gain) on Sale of Property & Equipment

Net Gain on Sale of Investment Securities

Net Change in Operating Assets & Liabilities:

Net (Increase) Decrease in Interest Receivable and Other Assets

Net (Decrease) Increase in Interest Payable and Other Liabilities

Net Decrease in Interest Receivable and Other Assets

Net Increase (Decrease) in Interest Payable and Other Liabilities

Net Cash Provided by Operating Activities

5 unchanged sentences

Net Loans & Leases Paid, Originated or Acquired

Principal Collected on Loans & Leases Previously Charged Off

Additions to Premises and Equipment, Net

Purchase of Other Investments

Proceeds from Sale of Property & Equipment

Net Cash Used in Investing Activities

Financing Activities:

Net Increase in Deposits

Cash Dividends

Net Cash Provided by Financing Activities

Net Increase (Decrease) in Deposits

Cash Dividends Returned

Net Cash Provided by (Used in) Financing Activities

Net Change in Cash and Cash Equivalents

5 unchanged sentences

Interest Paid

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Supplementary Noncash Disclosure

Investment Securities Available-for-Sale Transferred to Held-to-Maturity

The accompanying notes are an integral part of these unaudited consolidated financial statements

FARMERS & MERCHANTS BANCORP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Significant Accounting Policies

16 unchanged sentences

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc.

2 unchanged sentences

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10 -Q.

These unaudited consolidated financial statements do not include all disclosures associated with the Company's consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019 and, accordingly, should be read in conjunction with such audited consolidated financial statements.

These unaudited consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual financial statements included in its Annual Report on Form 10 -K, as amended (“2020 Annual Report on Form 10-K”), for the year ended December 31, 2020 and, accordingly, should be read in conjunction with such audited consolidated financial statements.

In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The preparation of consolidated financial statements in conformity with U.S.

2 unchanged sentences

Actual results could differ from these estimates.

Accounting Guidance Pending Adoption at March 31, 2021

The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments – Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments.

The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use.

Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost.

The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary.

During 2019, the Company completed an assessment of its current expected credit losses (CECL) data and system needs, and engaged a third -party vendor to assist in developing a CECL model.

The Company, in conjunction with this vendor, researched and analyzed modeling standards, loan segmentation, as well as potential external inputs to supplement our historical loss history.

Model validation began in the third quarter of 2019, enabling the Company to complete parallel runs using data beginning with the second quarter of 2019.

The new guidance had been effective on January 1, 2020.

However, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and H.R.

133, resulted in federal banking regulators issuing an interim final rule allowing banks the option of delaying the implementation of CECL until January 1, 2022.

In addition, the national banking regulators have issued a joint statement allowing financial institutions to mitigate the effects of CECL in their regulatory capital calculations for up to two years.

The Company has elected to delay CECL adoption, but continues to run its CECL model quarterly to accumulate data for the ultimate implementation.

Management is currently evaluating the impact that the standard will have on its consolidated financial statements.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold which have maturity dates of 3 months or less.

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks and Federal Funds Sold, which have original maturity dates of three months or less.

For these instruments, the carrying amount is a reasonable estimate of fair value.

7 unchanged sentences

Gains or losses on the sale of these securities are computed using the specific identification method.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer.

The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security.

Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield.

Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

7 unchanged sentences

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

For equity securities, the entire amount of a market adjustment is recognized through earnings.

Equity securities are carried at fair value with changes in market value recognized through earnings .

Loans & Leases

26 unchanged sentences

After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law by Congress.

The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to modifications for a limited period of time to account for the effects of COVID-19.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law, and was amended and extended by the Consolidated Appropriations Act of 2021 (“H.R.

133 ”) on December 21, 2020.

The CARES Act and H.R.

133 provide financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to modifications for a limited period of time to account for the effects of COVID- 19.

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID- 19 to borrowers who were current prior to any relief.

1 unchanged sentence

The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act and the impact of COVID-19 on the Company.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act, H.R.

133 and the impact of COVID- 19 on the Company.

Allowance for Credit Losses

27 unchanged sentences

The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Pass and Watch – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.

This category also includes “Watch” loans, which is a loan with an emerging weakness in either the individual credit or industry that requires additional attention.

A credit may also be classified Watch if cash flows have not yet stabilized, such as in the case of a development project.

Included in this category are all loans in which the Bank entered into a CARES Act modification.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management’s close attention.

44 unchanged sentences

If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted.

In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the Department of Financial Protection and Innovation (“DFPI”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance.

In addition, the Company’s and Bank’s regulators, including the Federal Reserve Board (“FRB”), the California Department of Financial Protection and Innovation (“DFPI”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance.

These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

7 unchanged sentences

The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Right of Use Lease Asset & Lease Liability

The Company leases retail space and office space under operating leases.

Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs in addition to the base rent.

Certain leases also contain lease incentives, such as tenant improvement allowances and rent abatement.

Variable lease payments are recognized as lease expense as they are incurred.

We record an operating lease right of use (ROU) asset and an operating lease liability (lease liability) for operating leases with a lease term greater than 12 months.

The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated statement of financial condition.

12 ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Accordingly, ROU assets are reduced by tenant improvement allowances from landlords plus any prepaid rent.

We do not separate lease and non-lease components of contracts.

As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

Many of our leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule, which are factored into our determination of lease payments when appropriate.

A majority of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term.

The ROU asset and lease liability terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606 ”).

Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606.

The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary.

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed;

charged either on a periodic basis or based on activity.

Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is limited judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Premises and Equipment

10 unchanged sentences

Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law by Congress.

The CARES Act restricts the ability of financial institutions to exercise their foreclosure rights on residential and multi-family properties backed by federally guaranteed mortgage loans.

The State of California has gone further and temporarily suspended all residential and commercial foreclosures through January 31, 2021.

On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law, and was amended and extended by H.R.

133 on December 21, 2020.

The CARES Act and H.R.

133 restrict the ability of financial institutions to exercise their foreclosure rights on residential and multi-family properties backed by federally guaranteed mortgage loans.

The State of California has gone further and temporarily suspended all residential and commercial foreclosures.

The Company is working with its borrowers when they make requests to defer payments on their mortgage loans.

14 unchanged sentences

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

1 unchanged sentence

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

At September 30, 2020 and 2019, the Company had no material uncertain tax positions and recognized no interest or penalties.

At March 31, 2021 and 2020, the Company has no material uncertain tax positions and recognized no interest or penalties.

The Company’s policy is to recognize interest and penalties related to income taxes in the provision for income taxes in the Consolidated Statement of Income.

5 unchanged sentences

There are no common stock equivalent shares.

Therefore, diluted and basic earnings per common share are the same.

See Note 8 – “Dividends and Basic Earnings Per Common Share” for additional information.

Therefore, there is no difference between presentation of diluted and basic earnings per common share.

See Note 9 – “Dividends and Basic and Diluted Earnings Per Common Share” for additional information.

Segment Reporting

8 unchanged sentences

GAAP recognize as changes in value to an enterprise but are excluded from net income.

For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Management does not believe there now are such matters that will have a material effect on the consolidated financial statements.

For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities, and amortization of net unrealized gains or losses on securities transferred from available-for-sale to held-to-maturity, net of related taxes.

Goodwill and Other Intangible Assets

4 unchanged sentences

The CDI asset is amortized on a straight-line method over its estimated useful life of ten years .

At September 30, 2020, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

At March 31, 2021, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

(in thousands)

8 unchanged sentences

Risks and Uncertainties

The COVID-19 pandemic has affected all of us.

T he COVID-19 pandemic has affected all of us.

Designated as an “essential business”, the Company’s subsidiary, Farmers & Merchants Bank of Central California, has kept all branches open and maintained regular business hours during these difficult times.

1 unchanged sentence

We have taken what we believe are prudent measures to protect our employees and customers, while still providing core banking services.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law.

On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law and was amended and extended by the Consolidated Appropriations Act of 2021 (“H.R.

133”) on December 21, 2020.

Through this legislation, as well as related federal and state regulatory actions, the federal government has taken extraordinary efforts to provide financial assistance to individuals and companies to help them move through these difficult times.

However, there are no guarantees how long the COVID-19 virus may continue to impact our economy, and therefore, the Company.

While we expect the effects of COVID-19 could have an adverse future impact on our business, financial condition and results of operations, we are unable to predict the full extent or nature of these impacts at the current time.

However, there are no guaranties how long the COVID-19 virus may continue to impact our economy, and therefore, the Company.

While we expect the effects of COVID-19 to have an adverse future impact on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at the current tim e.

Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the debt securities available-for-sale are as follows

(in thousands) :

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows (in thousands) :

Gross Unrealized

September 30, 2020

March 31, 2021

US Treasury Notes

7 unchanged sentences

Mortgage Backed Securities (1)

Corporate Securities

Gross Unrealized

September 30, 2019

March 31, 2020

US Treasury Notes

1 unchanged sentence

Mortgage Backed Securities (1)

(1) All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S.

The book values, estimated fair values and unrealized gains and losses of debt securities classified as held-to-maturity are as follows (in thousand s):

(1) All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S.

(2) During Q1 2021, the Company transferred $ 316.9 million of AFS securities to HTM.

The amortized cost, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

Gross Unrealized

September 30, 2020

March 31, 2021

Obligations of States and Political Subdivisions

Mortgage Backed Securities (1)(2)

Gross Unrealized

2 unchanged sentences

Gross Unrealized

September 30, 2019

March 31, 2020

Obligations of States and Political Subdivisions

(1) All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S.

(2) During Q1 2021, the Company transferred $ 316.9 million of AFS securities to HTM.

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS securities.

During the first quarter of 2021, we transferred $ 316.9 million of these securities, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value.

The unrealized pre-tax loss of $ 2,000 at the date of transfer remained in accumulated other comprehensive income and is amortized over the remaining lives of the securities .

Fair values are based on quoted market prices or dealer quotes.

If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at September 30, 2020 by contractual maturity are shown in the following table (in thousand s):

The amortized cost and estimated fair values of investment securities at March 31, 2021 by contractual maturity are shown in the following table (in thousands):

Available-for-Sale

Held-to-Maturity

September 30, 2020

March 31, 2021

Within one year

5 unchanged sentences

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousand s) :

Less Than 12 Months

12 Months or More

September 30, 2020

March 31, 2021

Securities Available-for-Sale

2 unchanged sentences

Corporate Securities

There were no HTM investments with gross unrealized losses at September 30, 2020.

Securities Held-to-Maturity

Mortgage Backed Securities

Less Than 12 Months

4 unchanged sentences

Mortgage Backed Securities

Securities Held-to-Maturity

Obligations of States and Political Subdivisions

Corporate Securities

There were no HTM investments with gross unrealized losses at December 31, 2020.

Less Than 12 Months

12 Months or More

September 30, 2019

March 31, 2020

Securities Available-for-Sale

US Treasury Notes

US Government Agency SBA

2 unchanged sentences

Obligations of States and Political Subdivisions

As of September 30, 2020, the Company held 568 investment securities of which 20 were in an unrealized loss position for less than twelve months and 82 securities were in a loss position for twelve months or more.

As of March 31, 2021, the Company held 599 investment securities of which 83 were in an unrealized loss position for less than twelve months.

88 securities were in an unrealized loss position for twelve months or more.

Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At September 30, 2020, December 31, 2019, and September 30, 2019, no securities of government agency and government sponsored entities were in an unrealized loss position for less than 12 months or for 12 months or more.

Treasury Notes – At September 30, 2020 , no U.S.

Treasury Note security investments were in an unrealized loss position for less than 12 months or for 12 months or more.

The unrealized losses on the Company's investment in U.S.

Treasury Notes were $ 0 , $ 0 , and $ 5,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

The unrealized losses were caused by interest rate fluctuations.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019 , and September 30, 2019 .

Government SBA – At September 30, 2020 , 11 U.S.

Government SBA security investments were in an unrealized loss position for less than 12 months and 63 were in a loss position for 12 months or more.

Treasury Notes – At March 31, 2021, December 31, 2020 and March 31, 2020, no U.S.

Treasury Notes security investments were in a loss position.

Government SBA – At March 31, 2021, three U.S.

Government SBA security investments were in an unrealized loss position for less than 12 months and 70 were in an unrealized loss position for 12 months or more.

The unrealized losses on the Company’s investment in U.S.

Government SBA securities were $ 102,000 , $ 113,000 , and $ 115,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

Government SBA securities were $ 86,000 at March 31, 2021 and $ 93,000 at December 31, 2020, and $ 98,000 at March 31, 2020.

The unrealized losses were caused by interest rate fluctuations.

Mortgage Backed Securities – At September 30, 2020 , 3 mortgage backed security investments were in an unrealized loss position for less than 12 months and 19 were in a loss position for 12 months or more.

The unrealized losses on the Company's investment in mortgage backed securities were $ 39,000 , $ 99,000 , and $ 163,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021, December 31, 2020, and March 31, 2020.

Mortgage Backed Securities – At March 31, 2021, 62 mortgage backed security investments were in an unrealized loss position for less than 12 months and 18 were in an unrealized loss position for 12 months or more.

The unrealized losses on the Company’s investment in mortgage backed securities were $ 21.2 million, $ 48,000 , and $ 8,000 at March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

The unrealized losses were caused by interest rate fluctuations.

1 unchanged sentence

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019 , and September 30, 2019 .

Obligations of States and Political Subdivisions – At September 30, 2020 , there were no obligation of states and political subdivisions in an unrealized loss position for less than 12 months or for 12 months or more.

As of September 30, 2020 , over ninety-nine percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the one percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $ 0 , $ 12,000 and $ 7,000 at September 30, 2020, December 31, 2019, and September 30, 2019 , respectively.

Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate fluctuations.

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.

Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019, and September 30, 2019 .

Corporate Securities - At September 30, 2020 , 6 corporate securities were in an unrealized loss position for less than 12 months and none were in a loss position for 12 months or more.

The unrealized loss on the Company’s investment in the corporate security was $ 98,000 .

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021, December 31, 2020, and March 31, 2020.

Corporate Securities – At March 31, 2021, 18 corporate securities were in an unrealized loss position for less than 12 months and none were in a loss position for 12 months or more.

The unrealized losses on the Company’s investment in corporate securities were $ 711,000 , $ 18,000 and $ 0 at March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

Changes in the prices of corporate securities are primarily influenced by:

4 unchanged sentences

The Company monitors the status of each of our corporate securities and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

Proceeds from sales and calls of securities were as follows:

Ended September 30,

(in thousand s)

Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2021, December 31, 2020, and March 31, 2020.

Obligations of States and Political Subdivisions - At March 31, 2021, no obligation of states and political subdivisions were in an unrealized loss position.

As of March 31, 2021, one-hundred percent of the Company’s bank-qualified municipal bond portfolio was rated at either the issue or issuer level, and all of these ratings were “investment grade.” The Company monitors the status of all municipal investments in the portfolio and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $ 0 , $ 0 and $ 10,000 at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

Management believes that any unrealized losses on the Company’s investments in obligations of states and political subdivisions were caused by interest rate fluctuations.

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.

Because the Company does not intend to sell the securities and it is more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021, December 31, 2020, and March 31, 2020.

Proceeds from sales and calls of securities for the periods shown were as follows:

(in thousands)

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Pledged Securities

As of September 30, 2020, securities carried at $ 333.2 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law.

Carrying amount of pledged securities was $ 352.5 million at December 31, 2019, and $ 267.2 million at September 30, 2019.

Federal Home Loan Bank Stock and Other Equity Securities

As of March 31, 2021, securities carried at $ 390.9 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law.

This amount was $ 439.7 million at December 31, 2020, and $ 381.3 million at March 31, 2020.

Federal Home Loan Bank Stock and Other Equity Securities, at Cost

The Bank is a member of the FHLB system.

Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.

FHLB stock are carried at cost and other equity securities are carried at cost, plus or minus observable price changes in orderly transactions, and both are classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.

FHLB stock and other equity securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.

Both cash and stock dividends are reported as income.

FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $ 12.7 million at September 30, 2020, December 31, 2019 and September 2019.

Loans & Leases and Allowance for Credit Losses

FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $ 12.7 million at March 31, 2021 , December 31, 2020 and March 31, 2020.

Loans & Leases

Loans & Leases consisted of the following:

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

September 30, 2019

March 31, 2020

Commercial Real Estate

8 unchanged sentences

Net Loans & Leases

(1) Includes CARES Act Small Business Admistration Paycheck Protection Program loans.

Paycheck Protection Program (“PPP”) … Under the CARES Act (see “Note 2 – Risks and Uncertainties”) the Small Business Administration (“SBA”) was directed by Congress to provide loans to small businesses with less than 500 employees to assist these businesses in meeting their payroll and other financial obligations during the COVID- 19 pandemic.

(1) Includes CARES Act Small Business Administration Paycheck Protection Program loans of $ 221,857 as of March 31, 2021.

Paycheck Protection Program (“PPP”) … Under the CARES Act and H.R.

133 (see “Note 2 – Risks and Uncertainties”) the Small Business Administration (“SBA”) was directed by Congress to provide loans to small businesses with less than 500 employees to assist these businesses in meeting their payroll and other financial obligations during the COVID-19 pandemic.

These government guaranteed loans are made with an interest rate of 1%, a risk weight of 0% under risk-based capital rules, have a term of 2 years, and under certain conditions the SBA will forgive them.

Farmers & Merchants Bank of Central California actively participated in the PPP, and since April, 2020 the Bank has funded $ 347.4 million of loans for 1,540 small business customers.

The Bank actively participated in the PPP, and since April 2020, the Bank has funded $ 470.4 million of loans for 2,373 small business customers.

At March 31, 2021, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”) were $ 938.8 million and $ 708.7 million, respectively.

The borrowing capacity on these loans was $ 669.5 million from FHLB and $ 446.6 million from the FRB.

Allowance for Credit Losses

The Company was originally scheduled to implement ASU 2016-13, Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments (“CECL”) as of January 1, 2020.

The CARES Act and H.R.

133 provide the election to defer CECL implementation until January 1, 2022.

The Company has elected to delay CECL implementation.

The following tables show the allocation of the allowance for credit losses by portfolio segment and by impairment methodology at the dates indicated (in thousands) :

September 30, 2020

March 31, 2021

Residential 1st

1 unchanged sentence

Year-To-Date Allowance for Credit Losses:

Beginning Balance- January 1, 2020

Ending Balance- September 30, 2020

Third Quarter Allowance for Credit Losses:

Beginning Balance- July 1, 2020

Ending Balance- September 30, 2020

Beginning Balance- December 31, 2020

Ending Balance- March 31, 2021

Ending Balance Individually Evaluated for Impairment

8 unchanged sentences

Year-To-Date Allowance for Credit Losses:

Beginning Balance- January 1, 2019

Beginning Balance- December 31, 2019

Ending Balance- December 31, 2020

5 unchanged sentences

Ending Balance Collectively Evaluated for Impairment

September 30, 2019

March 31, 2020

Residential 1st

1 unchanged sentence

Year-To-Date Allowance for Credit Losses:

Beginning Balance- January 1, 2019

Ending Balance- September 30, 2019

Third Quarter Allowance for Credit Losses:

Beginning Balance- July 1, 2019

Ending Balance- September 30, 2019

Beginning Balance- December 31, 2019

Ending Balance- March 31, 2020

Ending Balance Individually Evaluated for Impairment

4 unchanged sentences

Ending Balance Collectively Evaluated for Impairment

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $ 828,500 at September 30, 2020, $ 2.6 million at December 31, 2019, and $ 2.6 million at September 30, 2019, which are no longer classified as TDRs because they were restructured under market rates and terms.

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $ 601,000 at March 31, 2021 , $ 876,000 at December 31, 2020 and $ 2.5 million at March 31, 2020 , which are no longer disclosed or classified as TDRs, since they were restricted at market terms.

The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at the dates indicated (in thousands) :

September 30, 2020

March 31, 2021

Loans & Leases:

5 unchanged sentences

Consumer & Other

( 1 ) Includes “Watch” loans of $ 1.0 billion.

December 31, 2020

6 unchanged sentences

Consumer & Other

September 30, 2019

( 1 ) Includes “Watch” loans of $ 958.2 million.

March 31, 2020

Loans & Leases:

5 unchanged sentences

Consumer & Other

( 1 ) Includes “Watch” loans of $ 802.7 million.

Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company.

There were no loans or leases outstanding at September 30, 2020, December 31, 2019, and September 30, 2019, rated doubtful or loss.

The following tables show an aging analysis of the loan & lease portfolio by the time past due at the dates indicated (in thousands) :

September 30, 2020

There were no loans or leases outstanding at March 31, 2021, December 31, 2020 , and March 31, 2020 , rated doubtful or loss .

The following tables show an aging analysis of the loan & lease portfolio, including unearned income, by the time past due at the dates indicated (in thousands) :

March 31, 2021

Still Accruing

17 unchanged sentences

Consumer & Other

September 30, 2019

March 31, 2020

Still Accruing

7 unchanged sentences

Consumer & Other

Non-accrual loans & leases were $ 493,000 at March 31, 2021 , $ 495,000 at December 31, 2020 and $ 549,000 at March 31, 2020 .

Foregone interest income on non-accrual loans & leases, which would have been recognized during the period, if all such loans & leases had been current in accordance with their original terms, totaled $ 12,000 , $ 22,000 , and $ 2,000 at March 31, 2021, December 31, 2020 and March 31, 2020 respectively.

The following tables show information related to impaired loans & leases for the periods indicated (in thousands) :

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

March 31, 2021

With no related allowance recorded:

3 unchanged sentences

Commercial Real Estate

Agricultural Real Estate

Residential 1st Mortgages

7 unchanged sentences

Commercial Real Estate

Agricultural Real Estate

Residential 1st Mortgages

1 unchanged sentence

Consumer & Other

Three Months Ended

September 30, 2019

Nine Months Ended

September 30, 2019

March 31, 2020

With no related allowance recorded:

3 unchanged sentences

Commercial Real Estate

Agricultural Real Estate

Residential 1st Mortgages

2 unchanged sentences

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table.

This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s because they were restructured under market rates and terms.

A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms.

However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law.

The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to TDR’s for a limited period of time to account for the effects of COVID-19.

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief.

Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.

The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification.

Since April 2020, we have restructured $ 276.9 million of loans under the CARES Act guidelines (primarily payment or interest deferrals up to six months).

As of September 30, 2020, $ 103.8 million of these loans remain in a deferral status, the other loans having returned to making principal and/or interest payments.

By October 31, 2020, the loans still in a deferral status had dropped to $ 24.1 million.

Since April 2020 , we have restructured $ 278.1 million of loans under the CARES Act and H.R.

133 guidelines.

As of March 31, 2021 , $ 1.2 million of these loans remain in a deferral status, the other loans having returned to making principal and/or interest payments.

We believe that these actions will assist these borrowers in getting through these difficult times, but no guaranties can be made that at some time in the future these loans will not be required to be accounted for as a TDR.

For borrowers who are 30 days or more past due when enrolling in a loan modification program related to the COVID -19 pandemic, we evaluate the loan modifications under our existing TDR framework, and where such a loan modification would result in a more than insignificant concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act and the impact of COVID-19 on the Company.

At September 30, 2020, the Company allocated $ 156,000 of specific reserves to $ 7.9 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at September 30, 2020, to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the nine month period ended September 30, 2020, there were six loans modified as a troubled debt restructuring.

The modifications involved a reduction of the stated interest rate of the loans for 5 years and extended the maturity dates for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine -month periods ended September 30, 2020 (in thousand s) :

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

Troubled Debt Restructurings

Pre-Modification

Post-Modification

Pre-Modification

Post-Modification

Commercial Real Estate

Residential 1st Mortgages

TDRs described above had minimal impact on the allowance for credit losses and resulted in charge-offs of $ 7,000 for the nine -month period ended September 30, 2020.

During the three and nine-months ended September 30, 2020, the year ended December 31, 2019, and the three and nine-month periods ended September 30, 2019, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act, H.R.

133 and the impact of COVID -19 on the Company.

At March 31, 2021, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

At March 31, 2021, the Company allocated $ 150,000 of specific reserves to $ 7.8 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at March 31, 2021 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three-month period ended March 31, 2021, no loans or leases were modified as a troubled debt restructuring.

At December 31, 2020, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

At December 31, 2020, the Company allocated $ 158,000 of specific reserves to $ 7.9 million of troubled debt restructured loans, all of which were performing.

The Company had no commitments at December 31, 2020 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings .

During the year ended December 31, 2019, the terms of certain loans were modified as troubled debt restructurings.

The modification of the terms of such loans included one or a combination of the following:

2 unchanged sentences

or a permanent reduction of the recorded investment in the loan.

There were no modifications involving a reduction of the stated interest rate.

Modifications involving an extension of the maturity date ranged from 3 months to 6 years.

The following table presents loans by class modified as troubled debt restructured loans for the year ended December 31, 2019 (in thousands) :

Year ended December 31, 2019

Modifications involving a reduction of the stated interest rate of the loan were for 5 years.

Modifications involving an extension of the maturity date range from 3 months to 10 years.

The following tables present loans by class modified as troubled debt restructured loans for the periods ended indicated (in thousands) :

December 31, 2020

Troubled Debt Restructurings

1 unchanged sentence

Post-Modification

Consumer & Other

TDRs described above increased the allowance for credit losses by $ 101,000 .

Residential 1st Mortgages

The troubled debt restructurings described above increased the allowance for credit losses by $ 120,000 .

There were no charge-offs for the twelve months ended December 31, 2020.

At September 30, 2019, the Company allocated $ 584,000 of specific reserves to $ 12.0 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at September 30, 2019, to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the nine-month period ended September 30, 2019, there was one loan modified as a troubled debt restructuring.

When a loan is restructured, the modification of the terms can include one or a combination of the following:

a reduction of the stated interest rate;

an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;

or a permanent reduction of the recorded investment in the loan.

This loan had no rate reduction but the maturity date was extended for 6 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine -month periods ended September 30, 2019 (in thousand s) :

Three Months Ended

September 30, 2019

Nine Months Ended

September 30, 2019

Troubled Debt Restructurings

Pre-Modification

Post-Modification

Pre-Modification

Post-Modification

The TDRs described above had minimal impact on the allowance for credit losses for the three and nine -month periods ended September 30, 2019.

During the three and nine -months ended September 30, 2019, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

During the year ended December 31, 2020, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification.

At March 31, 2020, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

At March 31, 2020, the Company allocated $ 336,000 of specific reserves to $ 12.6 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at March 31, 2020 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three-month period ended March 31, 2020, no loans or leases were modified as a troubled debt restructuring.

Fair Value Measurements

36 unchanged sentences

Fair Value Measurements

At September 30, 2020, Using

At March 31, 2021, Using

Quoted Prices in

18 unchanged sentences

Mortgage Backed Securities

Corporate Securities

Total Assets Measured at Fair Value On a Recurring Basis

Fair Value Measurements

At September 30, 2019, Using

At March 31, 2020, Using

Quoted Prices in

8 unchanged sentences

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities.

During the three and nine -months ended September 30, 2020 and 2019, there were no transfers between levels .

The following tables present information about the Company’s other real estate and impaired loans or leases, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

During the period ended March 31, 2021, there were no transfers in or out of level 1, 2, or 3 .

The following tables present information about the Company’s impaired loans or leases and other real estate, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

Not all impaired loans or leases are carried at fair value.

1 unchanged sentence

Fair Value Measurements

At September 30, 2020, Using

At March 31, 2021, Using

(in thousands)

3 unchanged sentences

Impaired Loans:

Commercial Real Estate

Residential 1st Mortgage

12 unchanged sentences

Impaired Loans:

Commercial Real Estate

Residential 1st Mortgage

6 unchanged sentences

Fair Value Measurements

At September 30, 2019, Using

At March 31, 2020, Using

(in thousands)

3 unchanged sentences

Impaired Loans

Commercial Real Estate

Residential 1st Mortgage

10 unchanged sentences

Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following tables present quantitative information about Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis at the dates indicated.

September 30, 2020

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at the dates indicated.

March 31, 2021

(in thousands)

3 unchanged sentences

Impaired Loans:

Commercial Real Estate

Income Approach

Capitalization Rate

Residential 1st Mortgage

11 unchanged sentences

Income Approach

Capitalization Rate

Income Approach

Adjustment for Difference

11 unchanged sentences

Impaired Loans:

Commercial Real Estate

Income Approach

Capitalization Rate

Residential 1st Mortgages

Residential 1st Mortgage

Sales Comparison Approach

11 unchanged sentences

Capitalization Rate

Sales Comparison Approach

Income Approach

Adjustment for Difference

5 unchanged sentences

Between Comparable Sales

September 30, 2019

March 31, 2020

(in thousands)

3 unchanged sentences

Impaired Loans:

Commercial Real Estate

Income Approach

Capitalization Rate

Residential 1st Mortgage

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

1 % - 4 %, 2.84

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

1 % - 2 %, 1.07

Income Approach

Capitalization Rate

Income Approach

Capitalization Rate

Sales Comparison Approach

Adjustment for Difference

Between Comparable Sales

Other Real Estate:

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

Fair Value of Financial Instruments

3 unchanged sentences

In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The valuation of loans held for investment was impacted by the adoption of ASU 2016-01.

In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses.

The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans.

The fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses consistent with ASC 820.

The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, risk premium, credit, and nonperformance risk of the loans.

Loans are considered a Level 3 classification.

1 unchanged sentence

Fair Value of Financial Instruments Using

September 30, 2020

March 31 , 2021

(in thousands)

23 unchanged sentences

Fair Value of Financial Instruments Using

September 30, 2019

March 31 , 2020

(in thousands)

9 unchanged sentences

Accrued Interest Payable

Dividends and Basic Earnings Per Common Share

Dividends and Basic and Diluted Earnings Per Common Share

Farmers & Merchants Bancorp common stock is not traded on any exchange.

1 unchanged sentence

However, trades are reported on the OTCQX under the symbol “FMCB”.

On May 14, 2020 , the Board of Directors declared a mid-year cash dividend of $ 7.25 per share, a 2.8 % increase over the $ 7.05 per share paid on June 27, 2019 .

The cash dividend was paid on July 1, 2020 , to shareholders of record on June 12, 2020 .

No cash dividends were declared during the first quarter of 2021 or 2020.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period.

There are no common stock equivalent shares.

Therefore, diluted and basic earnings per common share are the same.

The following table calculates the basic earnings per common share for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30,

Nine Months Ended September 30,

The Company has no securities or other contracts, such as stock options, that could require the issuance of additional common stock.

Accordingly, diluted earnings per share are equal to basic earnings per share.

The following table calculates the basic and diluted earnings per common share for the three months ended March 31, 2021 and 2020.

( net income in thousands )

Weighted Average Number of Common Shares Outstanding

Basic and Diluted Earnings Per Common Share Amount

Basic and Diluted Earnings Per Common Share

Lessee – Operating Leases

9 unchanged sentences

The Company used the first option period, unless it is a relatively new lease that has a long initial lease term or other extenuating circumstances.

As of September 30, 2020, operating lease ROU assets and liabilities were $ 4.47 million and $ 4.55 million, respectively.

As of March 31, 2021, operating lease ROU assets and liabilities were $ 4.19 million and $ 4.27 million , respectively.

Operating lease expenses totaled $ 201,000 for the three month period ended March 31, 2021.

As of December 31, 2020, operating lease ROU assets and liabilities were $ 4.80 million and $ 4.92 million , respectively.

As of September 30, 2019, operating lease ROU assets and liabilities were $ 5.14 million and $ 5.19 million, respectively.

Operating lease expenses totaled $ 833,000 for the year ended December 31, 2020.

At March 31, 2020, operating lease ROU assets and liabilities were $ 4.81 million and $ 4.87 million , respectively.

Operating leases expenses totaled $ 208,000 at March 31, 2020.

The table below summarizes the information related to our operating leases:

(in thousands except for percent and period data)

Nine Months Ended

September 30, 2020

Three Months Ended

March 31, 2021

December 31, 2020

Nine Months Ended

September 30, 2019

Three Months Ended

March 31, 2020

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

Operating Cash Flow from Operating Leases

Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities

Weighted-Average Remaining Lease Term - Operating Leases, in Years

2 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

2026 and thereafter

1 unchanged sentence

Present Value of Lease Liabilities

As of September 30, 2020, we have no additional operating leases for office space that have not yet commenced or that are anticipated to commence during the fourth quarter of 2020.

As of March 31, 2021, we have no additional operating leases for office space that have not yet commenced or that are anticipated to commence during the second quarter of 2021.

Lessor - Direct Financing Leases

5 unchanged sentences

Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

The impact of adopting Topic 842 for lessor accounting was not significant.

Lease payments due to the Company are typically fixed and paid in equal installments over the lease term.

2 unchanged sentences

As a lessor, the Company leases certain types of agriculture equipment, solar equipment, construction equipment and other equipment to its customers.

The Company's net investment in direct financing leases was $ 106.4 million at September 30, 2020, $ 105.4 million at December 31, 2019, and $ 101.8 million at September 30, 2019.

The Company’s net investment in direct financing leases was $ 101.4 million at March 31, 2021, $ 103.5 million at December 31, 2020 and $ 106.3 million at March 31, 2020.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

The following paragraphs provide descriptions of recently adopted accounting standards that may have had a material effect on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments – Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments.

The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use.

The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost.

During 2019, the Company completed an assessment of its CECL data and system needs, and engaged a third -party vendor to assist in developing a CECL model.

The Company, in conjunction with this vendor, researched and analyzed modeling standards, loan segmentation, as well as potential external inputs to supplement our historical loss history.

Model validation began in the third quarter of 2019, enabling the Company to complete parallel runs using data beginning with the second quarter of 2019.

The new guidance had been effective on January 1, 2020.

However, on March 27, 2020 in response to Congress passing the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), federal banking regulators issued an interim final rule allowing banks the option of delaying the implementation of CECL until December 31, 2020 or when the coronavirus national emergency ends, whichever comes first.

The Company has elected to delay CECL implementation, but continues to run its CECL model quarterly to accumulate data for the ultimate implementation.

Management is currently evaluating the impact that the standard will have on its consolidated financial statements.

Accounting Guidance Pending Adoption

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU is intended to reduce the cost and complexity related to accounting for income taxes by removing certain exceptions to the guidance in Topic 740 related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

As this ASU is narrow in scope and applicability to us will likely be minimal, we do not expect that the ASU will have a material impact on our financial condition or results of operations.

Accounting Guidance Pending Adoption at March 31, 2021

In December 2019, the FASB issued ASU 2019 - 12, Income Taxes (Topic 740) .

The updated guidance simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance.

ASU 2019 - 012 will be effective for us on January 1, 2021 and is not expected to have any material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements