What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-10 · 221 added, 162 removed, 928 unchanged (29% of the section changed)

27 unchanged sentences

Common Stock:

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

Par Value $ 0.01 , 7,500,000 Shares Authorized, 789,646 , 789,646 and 793,556 ,

Shares Issued and Outstanding at June 30 , 2021 , December 31 , 2020 and June 30 , 2020 , Respectively

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive (Loss) Income, Net of Taxes

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

Accumulated Other Comprehensive Income, Net of Taxes

Total Shareholders’ Equit y

Total Liabilities and Shareholders’ Equit y

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

2 unchanged sentences

(in thousands except per share data)

Ended March 31,

Ended June 30,

Interest Income

29 unchanged sentences

(in thousands)

Ended March 31,

Ended June 30,

Other Comprehensive Income

1 unchanged sentence

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

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

Deferred Tax Related to Reclassification Adjustment

Amortization of Unrealized Loss on Securitites Transferred from Available-for-Sale to Held to Maturity

Deferred Tax Benefit Related to loss on Securtities Transferred

Total Other Comprehensive Income

2 unchanged sentences

FARMERS & MERCHANTS BANCORP

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

C ondensed C onsolidated Statements of Changes in Shareholders’ Equity (Unaudited)

For the three and six months ended June 30, 2021 and 2020

(in thousands except share data)

Comprehensive

Gain / (Loss) net

(Loss) Income, net

Shareholders’

Balance, December 31, 2019

Issuance of Common Stock

Other Comprehensive Income

Three Months Ended June 30, 2021

Balance, March 31, 2021

Cash Dividends Declared on Common Stock ($ 7.50 per share)

Other Compreshensive Income

Balance, June 30 , 2021

Three Months Ended June 30 , 2020

Balance, March 31, 2020

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

Other Compreshensive Income

Balance, June 30 , 2020

Six Months Ended June 30, 2021

Balance, December 31, 2020

Cash Dividends Declared on Common Stock ($ 7.50 per share)

Cash Dividends Returned

Other Comprehensive Income

Balance, March 31, 2021

Other Compreshensive Loss

Balance, June 30 , 2021

Six Months Ended June 30, 2020

Balance, December 31, 2019

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

Issuance of Common Stock

Other Compreshensive Income

Balance, June 30 , 2020

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

FARMERS & MERCHANTS BANCORP

Condensed Condensed Consolidated Statements of Cash Flows (Unaudited)

Ended March 31,

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended

(in thousands)

3 unchanged sentences

Depreciation and Amortization

Net Amortization/Accretion of Investment Security Premiums & Discounts

Net Amortization of Investment Security Premiums & Discounts

Amortization of Core Deposit Intangible

1 unchanged sentence

Net Gain on Sale of Investment Securities

Net Gain on Sale of Property & Equipment

Net Change in Operating Assets & Liabilities:

Net Decrease in Interest Receivable and Other Assets

Net (Increase) Decrease in Interest Receivable and Other Assets

Net Increase (Decrease) in Interest Payable and Other Liabilities

8 unchanged sentences

Purchase of Other Investments

Net Cash Used in Investing Activities

Proceeds from Sale of Property & Equipment

Net Cash Provided by (Used in) Investing Activities

Financing Activities:

Net Increase (Decrease) in Deposits

Net Increase in Deposits

Cash Dividends

Cash Dividends Returned

Net Cash Provided by (Used in) Financing Activities

Net Cash Provided by Financing Activities

Net Change in Cash and Cash Equivalents

7 unchanged sentences

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

Security Purchase Settled in Subsequent Period

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

26 unchanged sentences

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

Operating results for the six months ended June 30, 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

Accounting Guidance Pending Adoption at June 30, 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.

59 unchanged sentences

If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual.

Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent.

Loans & leases that are on non-accrual status at the time they become TDR, remain on non-accrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent.

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.

5 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, and was amended and extended by the Consolidated Appropriations Act of 2021 (“H.R.

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

133 ”) on December 21, 2020.

3 unchanged sentences

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.

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

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

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

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

116 unchanged sentences

Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets.

Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years.

Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years.

Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from three to seven years .

Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally five to ten years .

Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

5 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, and was amended and extended by H.R.

133”) on December 21, 2020.

1 unchanged sentence

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 State of California has gone further and temporarily suspended all residential and commercial foreclosures through September 30, 2021.

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

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 and H.R.

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

The Company uses the liability method of accounting for income taxes.

12 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 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.

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.

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

For the three and six months ended June 30, 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, there is no difference between presentation of diluted and basic earnings per common share.

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

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

9 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, and amortization of net unrealized gains or losses on securities transferred from available-for-sale to held-to-maturity, net of related taxes.

For the Company, comprehensive income includes net income, 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 March 31, 2021, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

At June 30, 2021, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

(in thousands)

16 unchanged sentences

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.

While tremendous strides have been made in fighting the virus, particularly with the development of a vaccine, the lingering effects of COVID-19 could have an adverse future impact on our business, financial condition and results of operations, however, we are unable to predict the extent or nature of these impacts at the current time.

Investment Securities

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

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

(in thousands) :

Gross Unrealized

March 31, 2021

June 30 , 2021

US Treasury Notes

1 unchanged sentence

Mortgage-Backed Securities (1)(2)

Corporate Securities

Gross Unrealized

5 unchanged sentences

Gross Unrealized

March 31, 2020

June 30 , 2020

US Treasury Notes

1 unchanged sentence

Mortgage-Backed Securities (1)

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

Corporate Securities

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.

During Q 1 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):

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

Gross Unrealized

March 31, 2021

June 30 , 2021

Obligations of States and Political Subdivisions

4 unchanged sentences

Gross Unrealized

March 31, 2020

June 30 , 2020

Obligations of States and Political Subdivisions

3 unchanged sentences

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 .

The unrealized pre-tax loss of $ 2,000 at the date of transfer remained in accumulated other comprehensive income and is amortized to yield 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 March 31, 2021 by contractual maturity are shown in the following table (in thousands):

The amortized cost and estimated fair values of investment securities at June 30, 2021 by contractual maturity are shown in the following table (in thousand s):

Available-for-Sale

Held-to-Maturity

March 31, 2021

June 30 , 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 thousands) :

Less Than 12 Months

12 Months or More

March 31, 2021

June 30 , 2021

Securities Available-for-Sale

US Government Agency SBA

Government Agency SBA

Mortgage-Backed Securities

Corporate Securities

Securities Held-to-Maturity

4 unchanged sentences

Securities Available-for-Sale

US Government Agency SBA

Government Agency SBA

Mortgage-Backed Securities

3 unchanged sentences

12 Months or More

March 31, 2020

June 30 , 2020

Securities Available-for-Sale

US Government Agency SBA

Treasury Notes

Government Agency SBA

Mortgage-Backed Securities

Securities Held-to-Maturity

Obligations of States and Political Subdivisions

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.

Corporate Securities

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

As of June 30, 2021, the Company held 562 investment securities of which 65 were in an unrealized loss position for less than twelve months.

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

1 unchanged sentence

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

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.

Treasury Notes – At June 30, 2021 , no U.S.

Treasury Note security investments were in an unrealized loss position.

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

Treasury Notes was $ 0 , $ 0 , and $ 1,000 at June 30, 2021, December 31, 2020, and June 30, 2020, 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 did not intend to sell the securities and it is was 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 June 30, 2020.

Government Agency SBA – At June 30, 2021 , two U.S.

Government Agency SBA security investments were in an unrealized loss position for less than 12 months and 45 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 $ 86,000 at March 31, 2021 and $ 93,000 at December 31, 2020, and $ 98,000 at March 31, 2020.

Government Agency SBA securities were $ 49,000 , $ 93,000 , and $ 110,000 at June 30, 2021, December 31, 2020, and June 30, 2020, 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 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.

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 June 30, 2021, December 31, 2020, and June 30, 2020.

Mortgage-Backed Securities – At June 30, 2021, 63 mortgage-backed security investments were in an unrealized loss position for less than 12 months and 16 were in an unrealized loss position for 12 months or more.

The unrealized losses on the Company’s investment in mortgage-backed securities were $ 11.0 million , $ 48,000 , and $ 5,000 at June 30, 2021, December 31, 2020, and June 30, 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.

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.

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 June 30, 2021, December 31, 2020, and June 30, 2020.

Corporate Securities - At June 30, 2021, we had no corporate securities in our portfolio, having sold all positions during the second quarter of 2021.

The unrealized losses on the Company’s investment in the corporate securities were $ 0 , $ 18,000 and $ 12,000 at June 30, 2021, December 31, 2020 and June 30, 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.

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.

Because the Company did not intend to sell the securities and it was 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 December 31, 2020 and June 30, 2020.

Other Securities – At June 30, 2021, none of the Other securities were in an unrealized loss position.

Other securities consisted of Money Market accounts held at investment brokerages.

Obligations of States and Political Subdivisions – At June 30, 2021, no obligations of states and political subdivisions were in an unrealized loss position.

As of June 30, 2021, 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.

There were no unrealized losses on the Company’s investment in obligations of states and political subdivisions at June 30, 2021, December 31, 2020 and June 30, 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

Ended June 30,

(in thousand s)

Pledged 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.

As of June 30, 2021, securities carried at $ 465.8 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 $ 370.4 million at June 30, 2020.

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

3 unchanged sentences

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 March 31, 2021 , December 31, 2020 and March 31, 2020.

FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $ 15.5 million at June 30, 2021, and $ 12.7 at December 31, 2020 and June 30, 2020.

Loans & Leases

1 unchanged sentence

(in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

March 31, 2020

June 30, 2020

Commercial Real Estate

8 unchanged sentences

Net Loans & Leases

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

Includes CARES Act Small Business Administration Paycheck Protection Program loans of $ 167,700 , 224,309 and 347,400 as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively.

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.

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.

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 two to five years, and under certain conditions the SBA will forgive them.

The Bank actively participated in the PPP, and since April, 2020 the Bank has funded $ 494.9 million of loans for over 2,000 small business customers.

At June 30, 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 $ 993.7 million and $ 687.4 million, respectively.

The borrowing capacity on these loans was $ 716 million from FHLB and $ 429.2 million from the FRB.

6 unchanged sentences

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) :

March 31, 2021

June 30 , 2021

Residential 1st

2 unchanged sentences

Beginning Balance- December 31, 2020

Ending Balance- March 31, 2021

Ending Balance- June 30 , 2021

Second Quarter Allowance for Credit Losses:

Beginning Balance- March 31, 2021

Ending Balance- June 30 , 2021

Ending Balance Individually Evaluated for Impairment

16 unchanged sentences

Ending Balance Collectively Evaluated for Impairment

March 31, 2020

June 30 , 2020

Residential 1st

2 unchanged sentences

Beginning Balance- December 31, 2019

Ending Balance- March 31, 2020

Ending Balance- June 30 , 2020

Second Quarter Allowance for Credit Losses:

Beginning Balance- March 31, 2020

Ending Balance- June 30 , 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 $ 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 ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $ 361,000 at June 30, 2021, $ 876,000 at December 31, 2020 and $ 3.1 million at June 30, 2020, which are no longer disclosed or classified as TDRs since they were restructured at market terms.

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

March 31, 2021

June 30 , 2021

Loans & Leases:

5 unchanged sentences

Consumer & Other

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

Includes “Watch” loans of $ 907.2 million.

December 31, 2020

7 unchanged sentences

Includes “Watch” loans of $ 958.2 million.

March 31, 2020

June 30 , 2020

Loans & Leases:

7 unchanged sentences

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 March 31, 2021, December 31, 2020 , and March 31, 2020 , rated doubtful or loss .

There were no loans or leases outstanding at June 30, 2021, December 31, 2020, and June 30, 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

June 30 , 2021

Still Accruing

17 unchanged sentences

Consumer & Other

March 31, 2020

June 30 , 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.

Non-accrual loans & leases were $ 548,000 at June 30, 2021, $ 495,000 at December 31, 2020 and $ 473,000 at June 30, 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 $ 25,200 , $ 22,000 , and $ 8,100 at June 30, 2021, December 31, 2020 and June 30, 2020 respectively.

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

March 31, 2021

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

June 30 , 2021

With no related allowance recorded:

16 unchanged sentences

Consumer & Other

March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

June 30 , 2020

With no related allowance recorded:

11 unchanged sentences

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.

As of June 30, 2021, $ 176,400 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, H.R.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act and 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 June 30, 2021, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

At June 30, 2021, the Company allocated $ 141,000 of specific reserves to $ 8.3 million of troubled debt restructured loans & leases, of which $ 7.8 million were performing.

The Company has no commitments at June 30, 2021 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and six-month period ended June 30, 2021, there were no loans or leases modified as a troubled debt restructuring.

During the three and six months ended June 30, 2021, the year ended December 31, 2020, and the three and six-month periods ended June 30, 2020 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.

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

16 unchanged sentences

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.

At June 30, 2020, the Company allocated $ 373,000 of specific reserves to $ 8.1 million of troubled debt restructured loans & leases, all of which were performing.

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

During the six-month period ended June 30, 2020, there were five loans modified as a troubled debt restructuring.

The modifications involved a reduction of the stated interest rate of the loan for five years and extended the maturity date for ten years .

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

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

Troubled Debt Restructurings

Pre-Modification

Post-Modification

Pre-Modification

Post-Modification

Residential 1st Mortgages

During the three and six -months ended June 30, 2020, 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.

Fair Value Measurements

36 unchanged sentences

Fair Value Measurements

At March 31, 2021, Using

At June 30, 2021, Using

Quoted Prices in

3 unchanged sentences

Available-for-Sale Securities:

US Treasury Notes

US Government Agency SBA

Treasury Notes

Government Agency SBA

Mortgage-Backed Securities

Corporate Securities

Total Assets Measured at Fair Value On a Recurring Basis

6 unchanged sentences

Available-for-Sale Securities:

US Treasury Notes

US Government Agency SBA

Treasury Notes

Government Agency SBA

Mortgage-Backed Securities

2 unchanged sentences

Fair Value Measurements

At March 31, 2020, Using

At June 30, 2020, Using

Quoted Prices in

3 unchanged sentences

Available-for-Sale Securities:

US Treasury Notes

US Government Agency SBA

Treasury Notes

Government Agency SBA

Mortgage-Backed Securities

Corporate Securities

Total Assets Measured at Fair Value On a Recurring Basis

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

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.

During the three and six months ended June 30 , 2021 and 2020, there were no transfers in or out of Level 1, 2, or 3 .

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.

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

1 unchanged sentence

Fair Value Measurements

At March 31, 2021, Using

At June 30, 2021, Using

(in thousands)

3 unchanged sentences

Impaired Loans:

Commercial Real Estate

Residential 1st Mortgage

20 unchanged sentences

Fair Value Measurements

At March 31, 2020, Using

At June 30, 2020, Using

(in thousands)

16 unchanged sentences

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

June 30, 2021

(in thousands)

3 unchanged sentences

Impaired Loans:

Commercial Real Estate

Income Approach

Capitalization Rate

Residential 1st Mortgage

46 unchanged sentences

Between Comparable Sales

March 31, 2020

June 30, 2020

(in thousands)

13 unchanged sentences

0.22 % - 1.42 %, 1.3 %

Sales Comparison Approach

Adjustment for Difference

Between Comparable Sales

Income Approach

Capitalization Rate

Income Approach

Capitalization Rate

Other Real Estate:

9 unchanged sentences

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.

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

Loans are considered a Level 3 classification.

1 unchanged sentence

Fair Value of Financial Instruments Using

March 31 , 2021

June 30 , 2021

(in thousands)

23 unchanged sentences

Fair Value of Financial Instruments Using

March 31 , 2020

June 30 , 2020

(in thousands)

13 unchanged sentences

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

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

On May 13, 2021 , the Board of Directors declared a mid-year cash dividend of $ 7.50 per share, a 3.4 % increase over the $ 7.25 per share paid on July 1, 2020 .

The cash dividend was paid on July 1, 2021 , to shareholders of record on June 11, 2021 .

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

1 unchanged sentence

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.

The following table calculates the basic earnings per common share for the three and six months ended June 30, 2021 and 2020.

Ended June 30,

( net income in thousands )

8 unchanged sentences

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded net in occupancy expense in the consolidated statements of income.

Our leases relate primarily to office space and bank branches with remaining lease terms of generally 1 to 10 years.

Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates.

Our leases relate primarily to office space and bank branches with remaining lease terms of generally one to ten years .

Certain lease arrangements contain extension options which typically range from five to ten years at the then fair market rental rates.

ASC 842 requires lessees to evaluate whether option periods, if available, will be exercised in order to determine the full life of the lease.

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 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 June 30 , 2021, operating lease ROU assets and liabilities were $ 4.04 million and $ 4.13 million , respectively.

Operating lease expenses total $ 379,000 for the six month period ended June 30 , 2021.

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

Operating leases total $ 833,000 for year ended December 31, 2020.

As of June 30 , 2020, operating lease ROU assets and liabilities were $ 4.64 million and $ 4.71 million , respectively.

Operating leases expenses totaled $ 416,000 for the six month period ended June 30 , 2020.

In the first quarter of 2021, early termination of one lease resulting in reduction in ROU assets and liabilities of $ 482,000 and $ 494,000 , respectively.

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

(in thousands except for percent and period data)

Three Months Ended

March 31, 2021

Six Months Ended

June 30, 2021

December 31, 2020

Three Months Ended

March 31, 2020

Six Months Ended

June 30, 2020

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

4 unchanged sentences

(in thousands)

March 31, 2021

June 30, 2021

2026 and thereafter

1 unchanged sentence

Present Value of Lease Liabilities

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.

As of June 30, 2021, we have one operating lease for office space that will expire in July and we signed a new modification to renew the lease for five more years in June.

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 $ 101.4 million at March 31, 2021, $ 103.5 million at December 31, 2020 and $ 106.3 million at March 31, 2020.

The Company’s net investment in direct financing leases was $ 99.9 million at June 30, 2021, $ 103.5 million at December 31, 2020 and $ 104.1 million at June 30 , 2020.

Recent Accounting Pronouncements

Accounting Guidance Pending Adoption at March 31, 2021

Accounting Standards Adopted in 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.

We adopted this ASU prospectively on January 1, 2021 which did not have a material impact on our financial condition or results of operations.

Accounting Guidance Pending Adoption at June 30, 2021

In March 2020, the FASB issued ASU No.

6 unchanged sentences

However, we will assess the applicability of the ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848).

The main amendments in this ASU are intended to clarify certain optional expedients and scope of derivative instruments.

The amendments are elective and effective immediately upon issuance of this ASU.

Amendments may be elected through December 31, 2022.

We have not elected to apply amendments at this time, however, will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

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