What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-03-17 compared with 2024-03-14 · 975 added, 688 removed, 1170 unchanged (59% of the section changed)

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reinvestment of the proceeds at current yields.

Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.

Our non-term deposit products generally re-price more slowly, usually changing less than the change in market rates and at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions.

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Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100, 200 and 300 basis points.

For the rising and falling interest rate scenarios, the base market interest rate forecast is increased or decreased, on an instantaneous and sustained basis, by 100, 200 and 300 basis points.

We then evaluate the

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economic value of the Company under various interest rate scenarios.

Based on our quarterly simulations, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.

Based on our quarterly simulations, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by ALCO.

Our simulation model

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The following table presents the projected change in the Company’s net interest income over the next twelve months and the economic value of equity at December 31, 2024, that would occur upon an immediate change in

interest rates, but without giving effect to any steps that management might take to counteract that change:

interest rates based on the models discussed above, but without giving effect to any steps that management might take to counteract such changes:

Estimated Change in

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ( Crowe LLP ,

Sacramento, California , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( Eide Bailly LLP , San Ramon, California , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , San Francisco, California , PCAOB ID:

Consolidated Financial Statements

Consolidated Statements of Financial Condition as of December 31, 2023, and 2022

Consolidated Balance Sheets as of December 31, 2024, and 2023

Consolidated Statements of Income for the three years ended December 31, 2024, 2023 and 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Shareholders and the Board of Directors of

Farmers & Merchants Bancorp

Lodi, California

Opinions on the Consolidated Financial Statements and Internal Control

Over Financial Reporting

We have audited the accompanying consolidated statements of financial

condition of Farmers & Merchants Bancorp and subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows

for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on

criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly,

in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting

principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria

established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Opinions on the

Financial Statements and Internal Control over Financial Reporting

We have audited

the accompanying consolidated balance sheet of Farmers & Merchants Bancorp (the “Company”) as of December 31, 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the

period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in

Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion,

the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the period ended December 31, 2024 in

conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on

criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated

financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on

Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws

and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective

internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included

performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

Such procedures included examining, on

a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk

that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in

the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial

An entity’s internal control over financial reporting is a process

designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United

States of America.

An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (3) provide reasonable assurance regarding prevention or timely detection of

unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree

of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from

the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated

financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a

whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans and Leases

The Company has a loan portfolio of $3.7 billion and related allowance

for credit losses - loans and leases (ACL) of $75.0 million as of December 31, 2023.

As discussed in Notes 1 and 4 of the Company’s consolidated financial statements, the ACL represents management’s estimate of expected credit losses

over the life of the loan and lease portfolios.

The ACL is estimated using relevant available information relating to past events, current economic conditions, and reasonable and supportable forecasts, as well as qualitative

adjustments applied on a portfolio segment basis.

The qualitative adjustments are used to bring the ACL to the level management believes is appropriate based on factors that are otherwise unaccounted for in the quantitative process.

Auditing these complex judgments and assumptions involves especially

challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

Our considerations and procedures performed to address this critical

audit matter included:

Obtaining an understanding of the Company’s process for establishing the ACL, including the models selected by management to estimate quantitative components of the ACL and qualitative adjustments made to the ACL.

includes the process utilized by management to challenge the model results and determine the best estimate of the ACL as of the statement of financial condition date.

Evaluating the design and testing the operating effectiveness of controls relating to the development and approval of the ACL methodology, management’s identification, determination and controls related to the significant

assumptions used in the models, controls around the reliability and accuracy of the data used in the models, analysis of the ACL results and management’s review and approval of the ACL.

Determining whether the loan portfolio is segmented by similar risk characteristics.

Evaluating the identification and measurement of the qualitative adjustments, including the basis for concluding an adjustment was warranted and compared the adjustments utilized by management to both internal portfolio

metrics and external macroeconomic data to support the adjustments and evaluating the trends in such adjustments.

We evaluated information that corroborates or contradicts management’s identification and measurement of

qualitative factors.

Testing the completeness and accuracy of internal loan level data used as the basis for the calculation.

Testing the mathematical accuracy and computation of the ACL.

/s/ Eide Bailly LLP

We have served as the Company’s auditor since 2022.

San Ramon, California

The Company’s

management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying

Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.

public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our

audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,

and whether effective internal control over financial reporting was maintained in all material respects.

the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included

examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the

overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and

testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit

provides a reasonable basis for our opinions.

Definition and

Limitations of Internal Control Over Financial Reporting

internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted

accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its

inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit

audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are

material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,

and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for

Credit Losses on Loans and Leases – Reasonable and Supportable Forecasts - Refer to Notes 1 and 4 to the Financial Statements

T he allowance for credit losses on loans and leases is an accounting estimate of expected credit losses over the estimated life of the Company’s loan and lease portfolio, measured at amortized cost, to be presented at the

net amount expected to be collected.

The allowance for credit losses on loans and leases was $75,283,000 as of December 31, 2024.

The allowance for credit losses on loans and leases under the current expected credit loss methodology required by ASC 326 is based on relevant available information from internal

and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The economic forecast used in the current expected credit loss methodology includes consideration of national, regional, and local economic

expectations, and is applied as a top of model adjustment through the use of management’s qualitative factors framework, incorporating their maximum loss rate.

We identified the auditing of the reasonable and supportable forecasts used in the allowance for credit losses on loans and leases as a critical audit matter because of the

significant auditor judgment and audit effort needed, including the need to involve more experienced audit personnel to evaluate the significant judgments made by management in determination of the forecasts.

procedures we performed to address this critical audit matter included:

Testing the effectiveness of controls over the determination of reasonable and supportable forecasts, including controls addressing:

The conceptual design of the reasonable and supportable forecast methodology,

The significant judgments and assumptions in the reasonable and supportable forecasts methodology,

The application of the reasonable and supportable forecasts,

The relevance and reliability of the underlying data used in the reasonable and supportable forecasts.

Substantively testing management’s process for the determination of reasonable and supportable forecasts, including:

Evaluating the conceptual design of the reasonable and supportable forecast methodology,

Evaluating significant judgments and assumptions in the reasonable and supportable forecasts methodology,

Testing the application of the reasonable and supportable forecasts,

The relevance and reliability of the underlying external data used in the reasonable and supportable forecasts.

/s/ Crowe LLP

We have served as the Company’s auditor

Sacramento, California

March 14, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Farmers & Merchants Bancorp

Opinion on the Financial Statements

audited the accompanying consolidated statement of financial condition of Farmers &

Merchants Bancorp and subsidiaries (the Company) as of December 31, 2021 , the related consolidated statement of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021, and the consolidated results of its operations and its cash flows for the year ended

December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

To the Board of Directors and Shareholders Farmers &

Merchants Bancorp

Lodi, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Farmers & Merchants Bancorp and subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of income, comprehensive

income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the

consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for each of the years in the

two- year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is

to express an opinion on the Company’s consolidated financial statements based on our audit s .

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public

accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and

significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

/s/ Moss Adams LLP

Sacramento, California

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are

free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Eide Bailly LLP

We served as the Company’s auditor from 2022 to 2023.

San Ramon, California

March 14, 2024

We have served as the Company’s auditor from 2013 through 2022.

Farmers & Merchants Bancorp

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

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Premises and equipment, net

Deferred income tax assets

Deferred income tax assets and income taxes receivevable

Accrued interest receivable

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TOTAL LIABILITIES

COMMITMENTS AND CONTINGENCIES (Note 12)

SHAREHOLDERS’ EQUITY

Preferred shares, no par value, 1,000,000 shares authorized and, no ne issued or outstanding

Common shares, $ 0.01 par value, 7,500,000 authorized, 747,971 and 768,337

issued and outstanding at December 31, 2023 and 2022, respectively

Common shares, $ 0.01 par value, 7,500,000 authorized, 699,798 and 747,971 issued and outstanding at

December 31, 2024 and 2023, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income/(loss), net of taxes

Accumulated other comprehensive loss, net of taxes

TOTAL SHAREHOLDERS’ EQUITY

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Interest expense

Borrowed funds

Subordinated debentures

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Card processing

Gain on BOLI death benefit

Net gain on deferred compensation benefits

Service charges on deposit accounts

Increase in cash surrender value of BOLI

Net (loss)/gain on sale of securities available-for-sale

Gain on BOLI death benefit

Net gain/(loss) on sale of securities available-for-sale

Net gain on deferred compensation benefits

Total non-interest income

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Salaries and employee benefits

Data Processing

Net gain on deferred compensation benefits

Data processing

Deposit insurance

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Other comprehensive income

Unrealized gains/(losses) on available-for-sale securities

Reclassification adjustment for losses/(gains) on available-for-sale securities

Amortization of unrealized loss on securities transferred to held-to-maturity

Net unrealized gains/(losses) on available-for-sale securities

Income tax (expense)/benefit

Other comprehensive income/(loss), net of tax

Unrealized (losses)/gains on available-for-sale securities

Reclassification adjustment for (gains)/losses on available-for-sale securities

Amortization of unrecognized loss on securities transferred to held-to-maturity

Net unrealized (losses)/gains on securities

Income tax benefit/(expense)

Other comprehensive (loss)/income, net of tax

Total comprehensive income

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Cash dividends declared ($ 16.15

Repurchase of common stock

Balance as of December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Cash dividends declared ($ 17.10

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Balance as of December 31, 2023

Other comprehensive income, net of tax

Cumulative change from adoption of ASU 2023-02

Other comprehensive loss, net of tax

Cash dividends declared ($ 18.10

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Depreciation and amortization

Net amortization of securities premiums and discounts

Net (accretion) amortization of securities premiums and discounts

Increase in cash surrender value of BOLI

Gain on BOLI death benefit

(Increase)/decrease in deferred income taxes, net

Losses/(gains) on sale of securities available-for-sale

Decrease (Increase) in deferred income taxes, net

Net realized (gain) loss on sale of securities available-for-sale

Net changes in:

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Cash flows from investing activities:

Net change in loans and leases held-for-investment

Net increase in loans and leases held for investment

Purchase of available-for-sale securities

Purchase of held-to-maturity securities

Purchase of non-marketable securities

Proceeds from sales, maturities, calls and pay downs of available-for-sale securities

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Cash flows from financing activities:

Net (decrease)/increase in deposits

Net increase (decrease) in deposits

Cash dividends paid

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Supplemental disclosures of non-cash transactions:

Investment securities available-for-sale transferred to held-to-maturity

Net change in unrealized gains/(losses) on securities available-for-sale

Lease liabilities arising from obtaining right-of-use assets

See accompanying notes to the consolidated financial statements.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Summary of

Significant Accounting Policies

Nature of Operations and basis of consolidation — Farmers & Merchants Bancorp (“FMCB”) is a Delaware corporation headquartered in Lodi, California and is the bank holding company for Farmers & Merchants Bank of Central California (the “Bank” or

“F&M Bank” and together with FMCB, the “Company”).

Nature of Operations and basis of consolidation — Farmers & Merchants Bancorp (the “Company” or “FMCB”) is a Delaware corporation headquartered in Lodi, California and is the bank holding company for Farmers & Merchants Bank of Central California

(the “Bank” or “F&M Bank”).

The Company operates all business activities through the Bank, which was organized in 1916.

F&M Bank is a California state-chartered bank.

F&M Bank operates under the supervision

of the California Department of Financial Protection and Innovation (“DFPI”), and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”).

F&M Bank operates under the supervision of the California

Department of Financial Protection and Innovation (“DFPI”), and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”).

F&M Bank is not a member of the Federal Reserve System;

however, FMCB operates

as a bank holding company under the Federal Bank Holding Company Act of 1956, subject to and under the supervision of and examination by the Federal Reserve and is the sole shareholder of F&M Bank.

Both FMCB and F&M Bank are subject to

periodic examination by these applicable federal and state regulatory agencies and file periodic reports and other information with the agencies.

however, FMCB operates as a bank holding

company under the Federal Bank Holding Company Act of 1956, subject to and under the supervision of and examination by the Federal Reserve and is the sole shareholder of F&M Bank.

Both FMCB and F&M Bank are subject to periodic examination

by these applicable federal and state regulatory agencies and file periodic reports and other information with the agencies.

The Company considers F&M Bank to be its sole operating segment.

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FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

The consolidated financial statements of the Company include the accounts of FMCB together with the Bank.

The consolidated financial statements of the Company include the accounts of Farmers & Merchants Bancorp, a bank holding company incorporated in the State of Delaware and its wholly owned subsidiary, Farmers

& Merchants Bank of Central California .

All intercompany transactions and balances have been eliminated.

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses (“ACL”), the determination of the fair value of certain financial instruments, and deferred

income tax assets.

Reclassifications — Certain amounts in the prior

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consolidated statements of cash flows, “cash and cash equivalents” are defined as those amounts included in “Cash and cash equivalents” on the consolidated balance sheets .

Investment securities — Investment securities are classified as

held-to-maturity (“HTM”) when the Company has the positive intent and ability to hold the securities to maturity.

Investment securities are classified as available-for-sale (“AFS”) when the Company has the intent of holding the security for an

indefinite period of time, but not necessarily to maturity.

Investment securities — Investment securities are classified as held-to-maturity (“HTM”)

when the Company has the positive intent and ability to hold the securities to maturity.

Investment securities are classified as available-for-sale (“AFS”) when the Company has the intent of holding the security for an indefinite period of time,

but not necessarily to maturity.

The Company determines the appropriate classification at the time of purchase, and periodically thereafter.

Investment securities classified at HTM are carried at amortized cost.

Investment securities classified at AFS are reported at fair value.

Investment securities classified as HTM are carried at amortized cost.

Investment securities

classified as AFS are reported at fair value.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Debt securities classified as HTM are carried at

cost, net of the allowance for credit losses – securities, adjusted for amortization of premiums and discounts to the earliest callable date.

Debt securities classified as HTM are carried at cost, net of the

allowance for credit losses – securities, adjusted for amortization of premiums and discounts to the earliest callable date.

Debt securities classified as AFS are measured at fair value.

Unrealized holding gains and losses on

debt securities classified as AFS are excluded from earnings and are reported net of tax as accumulated other comprehensive income (or loss) (“AOCI”), a component of shareholders’ equity, until realized.

When AFS securities, specifically

identified, are sold, the unrealized gain or loss is reclassified from AOCI to non-interest income.

Unrealized holding gains and losses on debt securities

classified as AFS are excluded from earnings and are reported net of tax as accumulated other comprehensive income (or loss) (“AOCI”), a component of shareholders’ equity, until realized.

When AFS securities, specifically identified, are sold,

the unrealized gain or loss is reclassified from AOCI to non-interest income.

Allowance for Credit Losses – Securities — Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type.

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FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

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Losses are charged against the allowance when management

believes the non-collectability of an AFS security is confirmed or when either criteria regarding intent of requirement to sell is met.

Interest on loans is accrued based upon the principal amount

The Company has elected the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost.

Additionally, an election was made not to measure an allowance for credit losses for accrued

interest receivables.

believes the non-collectability of a security is confirmed or when either criteria regarding intent of requirement to sell is met.

The Company has elected the practical expedient not to measure an allowance for credit losses for accrued interest

The Company has also made the election that all interest accrued but ultimately not received is reversed against interest income.

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Loans and leases held for investment — Loans that

management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on

originated loans and unamortized premiums or discounts on acquired loans.

deferred fees or costs on originated loans and unamortized premiums or discounts on acquired loans.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of

the related loan yield using the effective interest method.

Non-Accrual Loans and Leases - Accrual of interest

on loans and leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with respect to

interest or principal.

When loans and leases are 90 days past due, but in management’s judgment are well secured and in the process of

collection, they may not be classified as non-accrual.

When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed.

Income on such loans and leases is then recognized only to the extent that

cash is received and where the future collection of principal is probable.

Loan origination fees, net of certain direct origination costs, are deferred and

recognized as an adjustment of the related loan yield using the effective interest method.

Interest on loans is accrued based upon the principal amount outstanding.

Company has elected the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost.

Additionally, an election was made not to measure an allowance for credit losses for accrued interest

The Company has also made the election that all interest accrued but ultimately not received is reversed against interest income.

Non-Accrual Loans and Leases — Accrual of interest on loans and leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with respect to interest or principal.

When loans and leases are 90

days past due, but in management’s judgment are well secured and in the process of collection, they may not be classified as non-accrual.

When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is

Income on such loans and leases is then recognized only to the extent that cash is received and where the future collection of principal is probable.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage

Disclosures using the prospective transition method.

This ASU eliminates the troubled debt restructuring recognition and measurement guidance and requires an entity to present gross write-offs by year of origination.

The amendments also

enhance disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

With the exception of enhanced disclosures, there was no material impact to the consolidated financial statements

from adoption of this ASU.

The Company’s updated accounting policy, as a result of this new ASU, is outlined below.

Modifications for Borrowers Experiencing Financial Difficulty.

The Company may renegotiate the terms of existing loans for a variety of

When refinancing or restructuring a loan, the Company evaluates where the borrower is experiencing financial difficulty.

Modifications for Borrowers Experiencing Financial Difficulty — The Company may renegotiate the terms of existing loans for a variety of reasons.

When refinancing or restructuring a loan, the Company evaluates where the

borrower is experiencing financial difficulty.

In making this determination, the Company considers whether the borrower is currently in default on any of its debt.

In addition, the Company evaluates whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain

equivalent financing from another creditor at a market rate for similar debt.

In addition, the Company evaluates whether it is probable that the borrower

would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain equivalent financing from another creditor at a market rate for similar

Modifications of loans to borrowers in these situations may indicate that the borrower is facing financial difficulty.

Modifications of loans to borrowers experiencing

financial difficulty that are in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure.

The Company’s disclosures are included in Note

4 - Loans and Leases.

Allowance for Credit

Losses — Loans — On January 1, 2022, the Company adopted

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , as amended, which replaced the incurred loss methodology that delays recognition

until it is probable a loss has been incurred with an expected loss methodology that is referred to as CECL.

Modifications of loans to borrowers experiencing financial difficulty that are in the form of principal forgiveness,

interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure.

The Company’s disclosures are included in Note 4 “Loans and Leases.”

Credit Quality Indicators — The Company assigns a risk rating to all loans and leases and periodically performs detailed reviews of all such

loans and leases over a certain threshold to identify credit risks and assess overall collectability.

For smaller balance loans and leases, such as consumer and residential real estate, a credit grade is established at inception, and then

updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification.

For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the

industries in which borrowers operate and the fair values of collateral securing these loans and leases.

These credit quality indicators are used to assign a risk rating to each individual loan or lease.

These risk ratings are also subject to

examination by independent specialists engaged by the Company.

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.

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.

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

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the

loan or lease or in the Company’s credit position at some future date.

Special mention loans and leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any.

Loans or leases classified as

substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support,

failure to complete construction on time or the project’s failure to fulfill economic expectations.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the

weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting

Policies—Continued

Loss — Loans or leases classified as loss are considered uncollectible.

Once a loan or lease becomes delinquent and repayment becomes

questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral.

If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off

some or all of the balance.

Allowance for Credit Losses — Loans and Leases — On January 1, 2022, the Company adopted

until it was probable a loss had been incurred with the current expected credit losses methodology that is referred to as CECL.

Both the FASB Staff Q&A Topic 326, No.

1 and the federal financial institution regulatory agencies (“Financial Institution Letter

FIL-17-2019”), along with the Securities and Exchange Commission, have confirmed that smaller, less complex organizations are not required to implement complex models, developed by outside vendors to calculate current expected credit losses.

Accordingly, in adopting ASU 2016-13 (Topic 326) Management determined that the Weighted Average Remaining Maturity (“WARM”) methodology was most appropriate given the Company’s current size and complexity.

The methodology for determining the allowance for credit losses (“ACL”) on loans is considered a critical accounting policy by management because of the high degree of judgment

1 and the federal financial institution regulatory agencies (“Financial

Institution Letter FIL-17-2019”), along with the Securities and Exchange Commission, have confirmed that smaller, less complex organizations are not required to implement complex models, developed by outside vendors to calculate current

expected credit losses.

Under the WARM methodology, lifetime losses are calculated by determining the

remaining life of the loan pool, and then applying a loss rate over the remaining life of the loan pool.

The methodology considers historical loss experience to estimate credit losses for the remaining balance of the loan pool.

The calculated

loss rate is applied to the contractual term, (adjusted for prepayments), to determine the loan pools current expected credit losses.

The Company’s methodology is set forth in a formal policy and takes into consideration the need for a valuation allowance for loans evaluated on a collective (pool) basis, which have similar risk

characteristics as well as allowances to individual loans that do not share similar risk characteristics.

The methodology for determining the allowance for credit losses (“ACL”) on loans and leases is considered a critical accounting policy by

management because of the high degree of judgment involved.

The subjectivity of the assumptions used and the potential for changes in the economic environment could result in changes to the amount of the recorded ACL.

Among the material estimates required to establish the ACL are:

(i) a weighted

average loss estimate categorized by loan segmentation;

Among the significant

estimates required to establish the ACL are:

(i) a weighted average loss estimate categorized by loan segmentation;

(ii) average duration calculations in order to assess the loss factors over the life of the loan segment;

(iii) an economic report to assess macro and micro-economic factors influencing loss

(iv) value of collateral and strength of guarantors;

(v) the amount and timing of future cash flows for loans individually evaluated;

and (vi) the determination of the qualitative loss factors.

All of these estimates are susceptible to

significant change.

The Company’s methodology is set forth in a formal policy and takes into consideration the need for a valuation allowance for loans evaluated on a collective (pool) basis, which

have similar risk characteristics as well as allowances to individual loans that do not share similar risk characteristics.

(iii) application of a

reasonable and supportable forecast based on macro- and micro-economic factors expected to influence losses;

(iv) value of collateral and strength of borrowers;

and (v) the determination of the qualitative loss factors.

All of these estimates are

susceptible to significant change.

The Company extends loans and leases to commercial and consumer customers primarily in Central California.

These lending activities expose the Company to the risk borrowers will default, causing credit losses.

Company’s lending activities are exposed to various qualitative risks.

All loan segments are exposed to risks inherent in the economy and market conditions.

Significant risk characteristics related to the commercial and industrial loan segment

include the borrowers’ business performance and financial condition, and the value of collateral for secured loans.

Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the

value of properties collateralizing the loans.

Significant risk characteristics related to the agricultural and agricultural real estate segments include the borrowers’ business performance, the value of properties collateralizing the loans,

stemming from commodity market prices and yield risks associated with water availability, disease, and inclement weather.

Significant risk characteristics related to the construction real estate loan segment include the borrowers’ performance in

successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans.

Significant risk characteristics related to the commercial leasing segment include issues that may arise from bank

ownership and conversion of collateral with shifting market values.

Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the

property collateralizing the loans.

Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

The provision for credit

losses reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of the current expected credit losses.

The Company increases its ACL by charging provisions for credit losses on

its consolidated statement of income.

The ACL is a valuation account that is deducted from the amortized cost basis of loans and leases to present the net amount expected to be collected on the loans.

The provision

for credit losses reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of the current expected credit losses.

The Company increases its ACL by charging provisions for credit

losses on its consolidated statement of income.

Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes a loan balance is uncollectable.

Recoveries on previously

charged off loans are credited to the ACL.

Recoveries on

previously charged off loans are credited to the ACL.

Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and economic forecasts.

Historical credit loss experience, either internal or peer information, provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made, using qualitative factors, when management expects

current conditions and economic forecasts to differ from the conditions that existed for the period over which historical information was evaluated.

The ACL is maintained at a level sufficient to provide for expected credit losses over the life

of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio.

These factors include, among others,

changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions.

Management evaluates the reasonable and supportable

forecasts over the expected duration of the loan portfolio segments which ranges from approximately 6 months to 3.5 years.

Historical credit loss experience, which is based on peer information, provides the basis for the estimation of expected credit

Adjustments to historical loss information are made, using qualitative factors, when management expects current conditions and economic forecasts to differ from the conditions that existed for the period over which historical information

was evaluated.

The ACL is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences

in the specific risk characteristics in the current loan portfolio.

These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, and current economic

Management incorporates reasonable and supportable information in order to calculate the ACL.

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may affect the credit performance of the Company’s loan portfolio.

Management is confident in its ability to effectively identify historical loss information by the appropriate portfolio segmentation.

In addition, management believes that it can

reasonably obtain historical loss information by its respective peers to further improve historical loss information.

Due to a growth cycle that has expanded the Company’s geographical service area and product mix as it has expanded into the San

Francisco Bay Area, the Company’s peer group has been determined to better align with the Company’s loss profile for loans tied to the commercial real estate, commercial, industrial, real estate, and consumer segments.

However, given the low

concentration in agricultural industry related loans in the peer group, the Company’s own loss history in agricultural loans is more suitable.

Additionally, the Company believes that it can effectively evaluate the potential impact that both

macro and micro-economic conditions can have on its loan portfolio.

Management is also comfortable that it can rely on weighted average maturity calculations, including estimated prepayments with its existing third party Asset/Liability

Management (“ALM”) applications.

Management utilizes the seventeen loan segments used in

preparing regulatory Call Reports to segment its portfolio and to extract the relevant information needed to calculate its ACL.

This allows management the ability to obtain historical loss information for itself as well as its peer group.

Additionally, management’s ALM application also utilizes a similar loan segmentation in calculating weighted average remaining terms.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

Note 1—Summary of Significant Accounting Policies—Continued

This allows management the ability to obtain historical loss information for itself as well as its peer groups.

Additionally, management’s third party ALM application also utilizes a similar loan segmentation in calculating weighted average remaining life and duration which includes estimated prepayments.

Management uses the duration of each loan segment to estimate the remaining life

of loans to ensure that the model covers credit losses over the expected life of such loans .

The foundation of CECL modeling is the ability to estimate expected credit losses over the lifetime of a loan.

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Historical annual loss rates serve as the starting point to estimate expected credit losses.

Management uses a

“through-the-cycle” historical credit loss experience as its baseline for historical credit losses and has determined a representative period for a full credit cycle would be from 2009 to 2023 ( fifteen-year credit cycle).

Management has collected historical loss information on its own loan portfolio as well as peer group information by the seventeen loan segments over this time horizon using information available from the Federal regulators on the Uniform Bank Performance Report (“UBPR”).

Federal regulators have placed the Company into a peer group of banks with assets between $ 3 billion to $ 10 billion.

This peer group segmentation includes 209 banks across the nation.

The model calculates the mean historical loss rate over the 15 -year economic cycle for both the Bank and its peer group.

The model calculates the stressed historical loss rate over the 15-year economic cycle for both the Bank and its peer group.

Management evaluates macro and

micro-economic information as well as internal trends in credit performance on the Company’s loan portfolio to determine where they believe it is in an economic credit cycle.

Depending upon estimations of what point in the credit cycle the current

economy may exist, management adjusts, on a quantitative basis, historical loss rates either upwards or downwards from the mean.

If management believes we are nearing the end on a credit cycle, the Company may adjust historical losses in increments

higher from the mean.

If the Company believes that we are in the recovery stage of a credit cycle, it may adjust historical losses downwards from the mean.

Management understands that historical credit losses may not exactly follow a normal

bell-shaped curve, but that the approach provides consistency across all loan segments as well as a measured probability of credit loss coverage.

Management used the duration of each loan segment to estimate the remaining life of loans to ensure that the model covers credit losses over the expected life of such loans.

Management uses a “through-the-cycle” historical credit loss experience as its

baseline for historical credit losses.

third quarter of 2024 the representative period used for the full economic credit cycle was the period from 2009 to 2023 for all loan segments.

In the third quarter of 2024, the representative period was updated to be from the first quarter of

2008 to the fourth quarter of 2017 for all segments except farmland and agriculture for which the first quarter of 1985 to the fourth quarter of 1994 was used.

These updated periods were deemed to be more comparable to a typical economic cycle as

recent years were impacted by significant federal government stimulus in response to the effects of the COVID-19 pandemic.

Additionally, due to the nature of the 1985 economic downturn and the specific impact that had on the farmland and

agricultural lenders, we believe this is more comparable for the farmland and agricultural loan segments.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

Management employs the use of qualitative factors as defined by the Interagency Policy Statement on Allowance for Credit Losses (“SR 20-12”).

Management considers qualitative or

environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience, as defined in the Interagency guidance, including but not limited to:

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

Management has collected historical loss information on its own loan and lease portfolio as well as peer group information by the seventeen loan segments over this time horizon using information available from the Federal regulators using FFIEC call report data for all segments except for farmland and

agricultural loan segments, which utilize Federal Reserve Economic Data (FRED).

Federal regulators have placed the Company into a peer group of banks with assets between $ 3 billion to $ 10 billion.

This peer group segmentation includes

approximately 200 banks nationally.

This peer group is similar in asset size and concentration with the exception of the agricultural portfolio as the Company is the 16 th largest agricultural lender in the country.

As a result, none of the banks in the above national

peer group have an agricultural concentration similar to the Company.

Therefore, for purposes of historical losses, the Company uses the asset size peer group loss information for all loan segments except farmland and agricultural loans which

uses a national peer group regardless of asset size.

Using these peer groups, the model calculates the mean historical loss rate over the respective economic credit cycles described above for both the Company and its peer groups.

third quarter of 2024, the Company did use its own historical loss information for the farmland and agricultural loan segments, however this was changed to accommodate the new historical loss period discussed in the previous paragraph.

Additionally, prior to the third quarter of 2024, the mean historical loss rates derived in the above process were then adjusted by a standard deviation calculation based on management’s reasonable and supportable forecasts.

However, in the

third quarter of 2024 the standard deviation calculation was removed and replaced with economic forecasts which include consideration of national, regional, and local economic expectations, and are applied as a top of model adjustment through

the use of management’s qualitative factors framework, incorporating their maximum loss rate which management believes reduces the extent of management judgments in determination of the forecast.

In addition to the quantitative calculations described above, management employs the use of qualitative factors as defined by the Interagency Policy Statement on Allowance for Credit Losses (“SR 20-12”).

considers qualitative or environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience, as defined in the Interagency guidance, including but not limited to:

Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

Changes in the nature and volume of the portfolio and in the terms of loans.

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The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

These qualitative factors are applied primarily to our agriculture and agricultural real estate loan exposure.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting

Policies—Continued

Prior to the third quarter of 2024, the additional expected credit losses from qualitative factors associated with specific

idiosyncratic risks relied upon specific data intensive inputs and calculations and generally relied upon more subjective inputs as part of the calculations resulting in a cumbersome and complex process.

In the third quarter of 2024, in an effort

to improve the process, while reducing the extent of management judgments, management implemented a risk setting scorecard approach which was applied to each loan portfolio segment to capture all risks across the various qualitative factors above

utilizing a linear range of potential loss patterns to ensure potential losses are appropriately supported through historical losses.

As highlighted above, the Company made updates to certain assumptions and processes in the calculation of the ACL during the third

quarter of 2024 including the forecast, economic credit cycle, the peer groups and the qualitative factor calculations process.

The Company applied these updates to the current period and all prior periods presented on the consolidated balance

sheets and noted that the updates had no material impact to the Company’s consolidated financial statements.

Other real estate owned - Other real estate owned, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness.

These properties are recorded at

fair value less estimated selling costs upon acquisition.

Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying

amount at acquisition.

Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition.

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.

Fair value estimates — We measure some of our assets and liabilities on a fair value basis.

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received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

To increase consistency and comparability in fair value measurements, we prioritize valuation inputs in accordance with a

three-level hierarchy.

To increase consistency and comparability in fair value measurements, we prioritize valuation inputs in accordance with a three-level hierarchy.

We prioritize quoted prices in active markets and minimize reliance on unobservable inputs when possible.

When observable market prices are not available, fair value is estimated using modeling techniques requiring

professional judgment to estimate the appropriate fair value.

When observable market prices are not available, fair value is estimated using

modeling techniques requiring professional judgment to estimate the appropriate fair value.

We believe we use assumptions that market participants would consider in pricing the asset or the liability.

Changes in market conditions may reduce the availability of quoted prices

or observable data.

See Note 11 for further information regarding the use of fair value estimates.

Changes in market conditions may reduce the

availability of quoted prices or observable data.

See Note 11 “Fair Value” for further information regarding the use of fair value estimates.

Premises and equipment — Land is carried at cost.

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FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

Bank-owned life insurance (“BOLI”) — The Bank has purchased life insurance policies.

These policies provide protection against the adverse financial effects that could result from the death of a key employee and

provide tax-exempt income to offset expenses associated with certain employee benefit plans.

These policies provide protection against the adverse financial effects that could result from

the death of a key employee and provide tax-exempt income to offset expenses associated with certain employee benefit plans.

It is the Bank’s intent to hold these policies as a long-term investment;

however, there may be an income tax impact if the Bank chooses to surrender

certain policies.

however, there may be an income tax impact if

the Bank chooses to surrender certain policies.

Although the lives of individual current or former management-level employees are insured, the Bank is the owner and sole or partial beneficiary.

BOLI is carried at the cash surrender value (“CSV”) of the underlying insurance

BOLI is carried at the cash surrender value (“CSV”)

of the underlying insurance contract.

Changes in the CSV and any death benefits received in excess of the CSV are recognized as non-interest income.

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impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Transfers of financial assets — Transfers of

financial assets are accounted for as sales when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the

right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase

them before their maturity.

Right of use lease asset & lease liability — Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), establishes a right of use model that requires a lessee to record a right of

use asset and a lease liability for all leases with terms longer than 12 months.

Right of use lease asset & lease liability — Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), establishes a right of use model that requires a lessee to record a right

of use asset and a lease liability for all leases with terms longer than 12 months.

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

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

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.

The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets.

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 property owners plus any prepaid rent.

Accordingly, ROU assets

are reduced by tenant improvement allowances from property owners 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.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

Note 1—Summary of Significant Accounting Policies—Continued

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.

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.

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.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting

Policies—Continued

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.

which are factored into our determination of lease payments when determinable.

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.

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are recorded when they are funded.

Allowance for credit losses - unfunded loan commitments — An allowance for credit losses - unfunded loan commitments is maintained at a level that, in the opinion of management, is adequate to absorb current expected credit losses associated with the contractual life of the Banks’ commitments

to lend funds under existing agreements such as letters or lines of credit.

The Bank uses a methodology for determining the allowance for credit losses - unfunded loan commitments that applies the same loan segmentation and loss rate to each pool

as the funded exposure adjusted for probability of funding.

Draws on unfunded loan commitments that are considered uncollectible at the time funds are advanced are charged to the allowance for credit losses on off-balance sheet exposures.

Provisions for credit losses - unfunded loan commitments are recognized in the provision for credit losses, and added to the allowance for credit losses - unfunded loan commitments, which is included in other liabilities in the consolidated

statements of financial condition.

In 2022, the provision for credit-losses – unfunded loan commitments was recognized in non-interest expense.

funds under existing agreements such as letters or lines of credit.

The Company uses a

methodology for determining the allowance for credit losses - unfunded loan commitments that applies the same loan segmentation and loss rate to each pool as the funded exposure adjusted for probability of funding.

The Company also analyzes the estimated utilization rates based upon an average from the trailing 4 quarters and then applies the same historical loss rates used for the outstanding amounts to determine the

appropriate reserve.

However, given that a utilization rate represents a difference between the funded portion quarter to quarter, management analyzes the utilized balances of the

commitments for a trailing 4 quarters in order to assess the maximum advance rate variance over the year.

The utilization rates represent the max variance for each loan category within the last 4 quarters.

In order to get an accurate

depiction of the utilization rate.

Draws on unfunded loan commitments that are considered uncollectible are charged to the allowance for credit losses on off-balance sheet exposures.

Provisions for credit losses - unfunded loan

commitments are recognized in the provision for credit losses, and added to the allowance for credit losses - unfunded loan commitments, which is included in other liabilities in the consolidated balance sheets.

Prior to the first quarter of 2023 , the provision for credit-losses – unfunded loan commitments was recognized in non-interest expense.

Revenue from contracts with customers — The Company records revenue from contracts with customers in accordance with ASC Topic 606, “Revenue

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FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

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While the Company believes it has no significant uncertain income tax positions in the consolidated financial statements, adverse determinations by these taxing authorities could have a

material adverse effect on the consolidated financial positions, result of operations, or cash flows.

material adverse effect on the consolidated balance sheets, statements of income, or cash flows.

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

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earnings per common share.

Comprehensive income — Other comprehensive income refers to revenues, expenses, gains, and losses that U.S.

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

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.

Segment reporting — The Company is a holding company for a community bank, which offers a wide array of products and services to its customers.

Pursuant to its banking strategy, emphasis is placed

on building relationships with its customers, as opposed to building specific lines of business.

Comprehensive income — 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.

Segment Reporting — The Company is a holding company for the Bank, which offers a wide array of products and services to its customers.

Pursuant to its banking strategy, emphasis is placed on

building relationships with its customers, as opposed to building specific lines of business.

The Company is not organized around discernible lines of business, but rather operates as an integrated unit to customize solutions for its customers

with business line emphasis and product offerings changing over time as customer needs and demands change.

As a result, the Company has only one

operating segment.

Operations are managed, and financial performance is evaluated on a Company-wide basis by the Chief Executive Officer (“CEO”) who is the chief operating decision maker

The CODM evaluates the financial performance of the Company by evaluating revenues, significant expenses, and budget to actual results in setting the Company’s strategic plan and initiatives.

The CODM uses revenues to evaluate product

pricing and significant expenses to assess performance and evaluate return on assets and return on equity.

The CODM uses consolidated net income to benchmark the Company against its competitors.

The benchmarking analysis coupled with monitoring

of budget to actual results are used in determining discretionary compensation.

Loans, leases, and investments provide the revenues in the banking operation.

Interest expense, provisions for credit losses, and salaries and employee benefits

provide the significant expenses in the banking operation.

Discrete financial information is not available other than on a Company-wide basis.

Accordingly, all of the operations of the Company are considered by management to be aggregated in

one reportable operating segment.

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

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Management does not believe there are any such loss contingencies that will have a material and adverse effect on the consolidated financial statements.

Subsequent events

— We evaluated events that occurred between December 31, 2023 and the date the accompanying financial statements were issued, and determined that there were no material events that would require adjustments to our consolidated financial statements

or significant disclosure in the accompanying Notes.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

Accounting Standards Pending Adoption — The

Adoption of New Accounting Standards — The

Accounting Standards Codification (“ASC”) is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities.

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All other accounting literature is non-authoritative.

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 2022, the Financial Accounting Standards Board (“FASB”) issued guidance within ASU 2022-03, Fair Value Measurement of Equity Securities

Subject to Contractual Sale Restrictions .

The amendments in this ASU affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction.

These amendments clarify that a

contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments in this ASU are effective for fiscal years,

beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

The company adopted

this standard on January 1, 2024, with no material impact on the Company’s Consolidated Financial Statements.

In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit

Structures Using the Proportional Amortization Method .

ASU 2023-02 allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the

related income tax credits.

The Amendments in ASU 2023-02 apply to all reporting entities that hold (1) tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or (2) an

investment in a low income housing tax credit investments (“LIHTC”) structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC-specific guidance removed from FASB ASC

323-740, Investments – Equity Method and Joint Ventures:

On January 1, 2024, the Company adopted ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

The amendments in this ASU affect

all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction.

These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of

the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The Company adopted this standard, with no material impact on the Company’s consolidated financial statements.

On January 1, 2024, the Company adopted ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in

Tax Credit Structures Using the Proportional Amortization Method .

ASU 2023-02 allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving

rise to the related income tax credits.

The amendments in ASU 2023-02 apply to all reporting entities that hold (1) tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or (2)

an investment in a low income housing tax credit investments (“LIHTC”) structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC-specific guidance removed from FASB

ASC 323-740, Investments – Equity Method and Joint Ventures:

Income Taxes, has been applied.

ASU 2023-02 is effective for fiscal years beginning after December 15, 2023, including interim periods within those

fiscal years.

Early adoption is permitted for any interim period within those fiscal years.

The amendments in ASU 2023-02 must be applied on either a modified retrospective or a retrospective basis (except as discussed in the ASU for LIHTC

investments not accounted for using the proportional amortization method).

The Company adopted this standard to use the proportional amortization method on January 1, 2024, with no material impact on the Company’s Consolidated Financial Statements.

The amendments in ASU 2023-02 must be applied on either a modified

retrospective or a retrospective basis (except as discussed in the ASU for LIHTC investments not accounted for using the proportional amortization method).

The Company adopted this standard to use the proportional amortization method on January 1,

2024, with a $ 40,000 cumulative-effect adjustment to retained earnings under the modified retrospective method.

Under the proportional amortization method the

amortization of the LIHTC investments, income tax credits and other income tax benefits are now recognized in the

income statement as a component of income tax expense (benefit) rather than other non-interest expense.

On December 31, 2024, the Company adopted ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures” .

ASU 2023-07 requires public entities to disclose significant segment expenses, an amount and description for other

segment items, the title and position of the entity’s chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain

segment related disclosures that previously were required only on an annual basis.

ASU 2023-07 also clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity

is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met.

The Company adopted this standard with no material impact on the Company’s consolidated financial statements, however additional

required disclosures have been added to the Segment Reporting accounting policy within this footnote.

Accounting Standards Pending Adoption — 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.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting

Policies—Continued

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting

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The Company is currently evaluating the impact this ASU will have on its disclosures.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

Note 1—Summary of Significant Accounting Policies—Continued

In December 2023, the FASB issued ASU 2023-07, “Segment

Reporting (Topic 280), Improvements to Reportable Segment Disclosures” .

ASU 2023-07 Requires public entities to disclose significant segment expenses, an amount and description for other segment items, the title and position of the

entity’s chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were

required only on an annual basis.

ASU 2023-07 also clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity is permitted to disclose multiple measures of

segment profit or loss, provided that certain criteria are met.

ASU 2023-07 requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025.

Early adoption is permitted.

The Company is required to apply the amendments in this update retrospectively to all prior periods presented in the financial statements.

The Company will update its segment related disclosures upon adoption.

In December 2023, the FASB issued ASU No.

December 2023, the FASB issued ASU No.

2023-09 , “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about

federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds,

disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.

ASU 2023-09 is effective for us on January 1, 2025, though early

adoption is permitted.

The Company will update its income tax disclosures upon adoption.

Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation

table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

ASU 2023-09 also requires all entities

to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.

ASU 2023-09 is

effective for us on January 1, 2025 and the income tax disclosures will be updated upon adoption.

In March 2024, the FASB issued ASU 2024-01, “Compensation - Stock Compensation (Topic 718):

Application of Profits Interest and Similar Awards” .

This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award

should be accounted for in accordance with Topic 718.

This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods.

Early adoption is permitted.

If an entity adopts the amendments

in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period.

Transition can be done either retrospectively or prospectively.

The Company does not expect the adoption of ASU 2024-01 to have

a material impact on its consolidated financial statements.

March 2024, the FASB issued ASU 2024-02, “Codification Improvements - Amendments to Remove References to the Concept Statements” (“ASU 2024-02”) .

ASU 2024-02 contains amendments to the Codification that

remove references to various FASB Concepts Statements.

In most instances, the references are extraneous and not required to understand or apply the guidance.

In other instances, the references were used in prior Statements to provide guidance

in certain topical areas.

ASU 2024-02 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is evaluating the impact of adopting this new standard but does not expect it to have a material impact on its consolidated financial statements.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

Note 2 — Investment

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies—Continued

In November 2024, the FASB issued Accounting Standards Update No.

2024-03, “ Income Statement

– Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) :

Disaggregation of Income Statement Expenses” (“ASU 2024-03”), and in January 2025, the FASB issued Accounting Standards Update No.

2025-01, “ Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures

(Subtopic 220-40):

Clarifying the Effective Date ” (“ASU

ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement.

2024-03, as clarified by ASU 2025-01, is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Both early adoption and

retrospective application are permitted.

The Company is currently evaluating the impact that the adoption of these standards will have on its consolidated financial statements and disclosures.

2 — Investment Securities

The amortized cost, fair values, and

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(Dollars in thousands)

December 31, 2023

As of December 31, 2024

Government-sponsored securities

Mortgage-backed securities (1)

Commercial mortgage-backed obligations (1)

Collateralized mortgage obligations (1)

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As of December 31, 2023

Treasury notes

Government-sponsored securities

Mortgage-backed securities (1)

Commercial mortgage-backed obligations (1)

Collateralized mortgage obligations (1)

2 unchanged sentences

(1) All mortgage-backed securities and collateralized mortgage obligations 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 investments classified as held-to-maturity are

Gross Unrealized

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2—Investment Securities—Continued

book values, estimated fair values, and unrecognized gains and losses of investments classified as held-to-maturity are as follows:

Gross Unrecognized

(Dollars in thousands)

4 unchanged sentences

Total held-to-maturity securities

( 1) All mortgage-backed securities and collateralized mortgage obligations were issued

by an agency or government sponsored entity of the U.S.

FARMERS & MERCHANTS BANCORP

NOTES TO CONSOLIDATED STATEMENTS

Note 2—Investment Securities—Continued

Gross Unrealized

mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S.

Gross Unrecognized

(Dollars in thousands)

4 unchanged sentences

Total held-to-maturity securities

(1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk