FARMERS & MERCHANTS BANCORP

FORM 10-Q

TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION			Page

	Item 1 - Financial Statements
		Unaudited Consolidated Balance Sheets	3
		Unaudited Consolidated Statements of Income	4
		Unaudited Consolidated Statements of Comprehensive Income	5
		Unaudited Consolidated Statements of Changes in Shareholders’ Equity	6
		Unaudited Consolidated Statements of Cash Flows	7
		Notes to Unaudited Consolidated Financial Statements	8

	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	~~Overview~~	29
	~~Results of Operations~~	30
	~~Results of Financial Condition~~	35

	Item 3 - Quantitative and Qualitative Disclosures about Market Risk		4950

	Item 4 - Controls and Procedures		4952

PART II. - OTHER INFORMATION

	Item 1 – Legal Proceedings		4953
	Item 1A – Risk Factors		4953
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		4953
	Item 3 – Defaults upon Senior Securities		50 53
	Item 4 – Mine Safety Disclosures		5053
	Item 5 – Other Information		5054
	Item 6 – Exhibits		5054
	Signatures		5155

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1.

Financial Statements

FARMERS & MERCHANTS BANCORP

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)	March 31, 2023			December 31, 2022			March 31, 2024			December 31, 2023
ASSETS
Cash and due from banks	$	68,278		$	73,358		$	65,796		$	72,267
Interest bearing deposits with banks		461,315			514,899			672,601			338,375
Total cash and cash equivalents		529,593			588,257			738,397			410,642
Securities available-for-sale, at fair value		118,437			152,864
Securities held-to-maturity, fair value $705,909 and $688,393 respectively		850,387			845,346
Securities available-for-sale, amortized cost $259,318 and $199,374, respectively								239,856			182,512
Securities held-to-maturity, fair value $649,775 and $671,585 respectively								806,971			817,688
Allowance for credit losses - securities held-to-maturity		(393	)		(393	)		(450	)		(450	)
Total investment securities		968,431			997,817			1,046,377			999,750
Non-marketable securities		15,549			15,549			15,549			15,549
Loans and leases held-for-investment		3,427,133			3,512,361
Loans and leases held-for-investment, net of unearned income								3,696,295			3,654,689
Allowance for credit losses - loans and leases		(68,573	)		(66,885	)		(75,018	)		(74,965	)
Loans held-for-investment, net		3,358,560			3,445,476
Loans and leases held for investment, net								3,621,277			3,579,724
Bank-owned life insurance		66,076			73,038			75,525			74,931
Premises and equipment, net		50,423			49,476			51,618			51,907
Deferred income tax assets		29,427			31,507			34,818			39,979
Accrued interest receivable		16,818			21,602			23,740			28,520
Goodwill		11,183			11,183			11,183			11,183
Other intangibles		2,666			2,809			2,099			2,236
Other real estate owned		873			873			873			873
Other assets		84,172			89,812			93,117			93,634
TOTAL ASSETS	$	5,133,771		$	5,327,399
Total Assets							$	5,714,573		$	5,308,928

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	1,551,906		$	1,758,793		$	1,410,487		$	1,482,571
Interest bearing:
Demand		985,088			1,125,014			1,038,920			933,417
Savings and money market		1,616,038			1,544,062			1,632,720			1,607,479
Certificates of deposit		386,130			331,400			877,462			644,628
Total interest bearing		2,987,256			3,000,476			3,549,102			3,185,524
Total deposits		4,539,162			4,759,269			4,959,589			4,668,095
Federal Home Loan Bank advances								100,000			-
Subordinated debentures		10,310			10,310			10,310			10,310
Interest payable and other liabilities		75,397			72,512			79,457			80,768
TOTAL LIABILITIES		4,624,869			4,842,091
Total Liabilities								5,149,356			4,759,173

SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 1,000,000 shares authorized and, none issued or outstanding		-			-			-			-
Common shares, $0.01 par value, 7,500,000 authorized 762,931 and 768,337 outstanding at March 31, 2023 and December 31, 2022, respectively		8			8
Additional paid in capital		51,615			57,206
Common shares, $0.01 par value, 7,500,000 authorized, 742,770 and 747,971 issued and outstanding at March 31, 2024 and December 31, 2023, respectively								7			7
Additional paid-in capital								31,401			36,852
Retained earnings		473,479			449,932			548,123			525,360
Accumulated other comprehensive (loss), net of taxes		(16,200	)		(21,838	)
Accumulated other comprehensive loss, net of taxes								(14,314	)		(12,464	)
TOTAL SHAREHOLDERS’ EQUITY		508,902			485,308			565,217			549,755
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,133,771		$	5,327,399		$	5,714,573		$	5,308,928

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

FARMERS & MERCHANTS BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
(Dollars in thousands, except share and per share amounts)	2024		2023
Interest income
Interest and fees on loans and leases	$	55,408	$	48,008
Interest and dividends on investment securities		6,703		5,663
Interest on deposits with others		4,530		5,961
Total interest income		66,641		59,632

Interest expense
Deposits		14,645		3,714
Borrowed funds		62		-
Subordinated debentures		221		196
Total interest expense		14,928		3,910
Net interest income		51,713		55,722
Provision for credit losses		-		1,500
Net interest income after provision for credit losses		51,713		54,222
Non-interest income
Card processing		1,629		1,591
Gain on BOLI death benefit		-		4,346
Net gain on deferred compensation benefits		1,158		896
Service charges on deposit accounts		748		634
Increase in cash surrender value of BOLI		595		444
Net loss on sale of securities available-for-sale		-		(5,686	)
Other		945		1,235
Total non-interest income		5,075		3,460
Non-interest expense
Salaries and employee benefits		17,503		19,584
Data processing		1,455		1,260
Occupancy		1,232		1,180
Net gain on deferred compensation benefits		1,158		896
Deposit insurance		712		692
Professional services		541		682
Marketing		480		470
Other		2,440		3,419
Total non-interest expense		25,521		28,183
INCOME BEFORE INCOME TAXES		31,267		29,499
Income tax expense		8,544		5,952
NET INCOME	$	22,723	$	23,547

Earnings per common share:
Basic	$	30.56	$	30.80
Diluted	$	30.56	$	30.80

Weighted average number of common shares
Basic		743,515		764,603
Diluted		743,515		764,603

Three Months Ended
March 31,

(Dollars in thousands, except share and per share amounts) 2023
2022

Interest income
Interest and fees on loans and leases $ 48,008 $ 37,433
Interest and dividends on investment securities 5,663 5,295
Interest on deposits with others 5,961 366
Total interest income 59,632 43,094

Interest expense
Deposits 3,714 803
Subordinated debentures 196 82
Total interest expense 3,910 885
Net interest income 55,722 42,209
Provision for credit losses 1,500 -
Net interest income after provision for credit losses 54,222 42,209
Non-interest income
Card processing 1,591 1,737
Service charges on deposit accounts 634 850
Increase in cash surrender value of BOLI 444 542
Gain on BOLI death benefit 4,346 -
Net loss on sale of securities available-for-sale (5,686 ) -
Net gain on deferred compensation benefits 896 412
Other 1,235 771
Total non-interest income 3,460 4,312
Non-interest expense
Salaries and employee benefits 19,584 16,784
Net gain on deferred compensation benefits 896 412
Occupancy 1,180 1,154
Data processing 1,260 1,215
FDIC insurance 611 349
Marketing 470 316
Legal 260 279
Other 3,922 3,279
Total non-interest expense 28,183 23,788
INCOME BEFORE INCOME TAXES 29,499 22,733
Income tax expense 5,952 5,675
NET INCOME $ 23,547 $ 17,058

Earnings per common share:
Basic $ 30.80 $ 21.70
Diluted $ 30.80 $ 21.70

Weighted average number of common shares
Basic 764,603 786,096
Diluted 764,603 786,096

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

FARMERS & MERCHANTS BANCORP

UNAUDITED CONSOLIDATED SSTATEMENTS OF ~~TATEMENTS OF~~ COMPREHENSIVE INCOME

	Three Months Ended March 31,						Three Months Ended March 31,
(Dollars in thousands)	2023			2022			2024			2023
Net income	$	23,547		$	17,058		$	22,723		$	23,547
Other comprehensive income
Unrealized holding gains/(losses) on available-for-sale securities		2,362			(15,865	)
Unrealized (losses)/gains on available-for-sale securities								(2,600	)		2,362
Reclassification adjustment for losses on available-for-sale securities		5,685			-			-			5,685
Amortization of unrealized loss on securities transferred to held-to-maturity		(30	)		(77	)		(27	)		(30	)
Net unrealized holding gains/(losses) on available-for-sale securities		8,017			(15,942	)
Income tax (expense)/benefit		(2,379	)		4,713
Other comprehensive income/(loss), net of tax		5,638			(11,229	)
Net unrealized (losses)/gains on available-for-sale securities								(2,627	)		8,017
Income tax benefit/(expense)								777			(2,379	)
Other comprehensive (loss)/income, net of tax								(1,850	)		5,638
Total comprehensive income	$	29,185		$	5,829		$	20,873		$	29,185

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

FARMERS & MERCHANTS BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	For the three months ended March 31, 2024 and 2023
(Dollars in thousands, except share amounts)	Common Shares			Amount		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive (Loss)/Income			Total
Balance as of December 31, 2022		768,337		$	8	$	57,206		$	449,932	$	(21,838	)	$	485,308
Net income		-			-		-			23,547		-			23,547
Other comprehensive income, net of tax		-			-		-			-		5,638			5,638
Repurchase of common stock		(5,406	)		-		(5,591	)		-		-			(5,591	)
Balance as of March 31, 2023		762,931		$	8	$	51,615		$	473,479	$	(16,200	)	$	508,902

Balance as of December 31, 2023		747,971		$	7	$	36,852		$	525,360	$	(12,464	)	$	549,755
Cumulative change from adoption of ASU 2023-02										40					40
Net income		-			-		-			22,723		-			22,723
Other comprehensive loss, net of tax		-			-		-			-		(1,850	)		(1,850	)
Repurchase of common stock		(5,201	)		-		(5,451	)		-		-			(5,451	)
Balance as of March 31, 2024		742,770		$	7	$	31,401		$	548,123	$	(14,314	)	$	565,217

See accompanying notes to the unaudited consolidated financial statements.

For the three months ended March 31, 2023 and 2022
(Dollars in thousands, except share amounts)
Common
Shares
Amount
Additional
Paid In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income/(Loss)
Total
Balance as of December 31, 2021 789,646 $ 8 $ 77,516 $ 387,331 $ (1,719 ) $ 463,136
Net income - - - 17,058 - 17,058
Other comprehensive (loss), net of tax - - - - (11,229 ) (11,229 )
Repurchase of common stock
(4,500 ) - (4,252 ) - - (4,252 )
Balance as of March 31, 2022
785,146 $ 8 $ 73,264 $ 404,389 $ (12,948 ) $ 464,713

Balance as of December 31, 2022
768,337 $ 8 $ 57,206 $ 449,932 $ (21,838 ) $ 485,308
Net income - - - 23,547 - 23,547
Other comprehensive income, net of tax - - - - 5,638 5,638
Repurchase of common stock (5,406 ) - (5,591 ) - - (5,591 )
Balance as of March 31, 2023
762,931 $ 8 $ 51,615 $ 473,479 $ (16,200 ) $ 508,902

Table of Contents

FARMERS & MERCHANTS BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
(Dollars in thousands)	2024			2023
Cash flows from operating activities:
Net income	$	22,723		$	23,547
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		-			1,500
Depreciation and amortization		698			596
Net amortization of securities premiums and discounts		(320	)		33
Increase in cash surrender value of BOLI		(595	)		(444	)
Gain on BOLI death benefit		-			(4,346	)
Decrease in deferred income taxes, net		3,296			3,933
Loss on sale of securities available-for-sale		-			5,686
Net changes in:
Other assets		8,502			6,307
Other liabilities		477			4,864
Net cash provided by operating activities		34,781			41,676
Cash flows from investing activities:
Net change in loans and leases held-for-investment		(41,541	)		70,927
Purchase of available-for-sale securities		(63,764	)		(3,585	)
Purchase of held-to-maturity securities		(1,130	)		(1,350	)
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities		4,318			40,348
Proceeds from maturities, calls and pay downs of held-to-maturity securities		11,743			10,817
Purchase of premises and equipment		(410	)		(1,543	)
Purchase of other investments		(2,285	)		(2,008	)
Proceeds from bank-owned life insurance		-			11,752
Net cash (used in)/ provided by investing activities		(93,069	)		125,358
Cash flows from financing activities:
Net increase/(decrease) in deposits		291,494			(220,107	)
Federal Home Loan Bank advances		100,000			-
Net cash used in share repurchases of common stock		(5,451	)		(5,591	)
Net cash provided by (used in) financing activities		386,043			(225,698	)
Net change in cash and cash equivalents		327,755			(58,664	)
Cash and cash equivalents, beginning of period		410,642			588,257
Cash and cash equivalents, end of period	$	738,397		$	529,593

Supplemental disclosures of cash flow information:
Cash paid for interest	$	12,852		$	3,389
Income taxes paid	$	-		$	1

Supplemental disclosures of non-cash transactions:
Net change in unrealized gain/(losses) on securities available-for-sale	$	2,600		$	(8,047	)

See accompanying notes to the unaudited consolidated financial statements.

~~Table of Contents~~

~~FARMERS & MERCHANTS BANCORP~~

~~UNAUDITED CONSOLIDATED~~ ~~STATEMENTS OF CASH FLOWS~~

Three Months Ended
March 31,

(Dollars in thousands) 2023 2022
Cash flows from operating activities:
Net income $ 23,547 $ 17,058
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 1,500 -
Depreciation and amortization 596 656
Net amortization of securities premiums and discounts 33 176
Increase in cash surrender value of BOLI (444
)
(542
)
Gain on BOLI death benefit
(4,346 ) -
Decrease /(increase) in deferred income taxes, net 3,933 (113 )
Loss on sale of securities available-for-sale 5,686 -
Net changes in:
Other assets 6,307 4,709
Other liabilities 4,864 6,966
Net cash provided by operating activities 41,676 28,910
Cash flows from investing activities:
Net change in loans held-for-investment 70,927 (374 )
Purchase of available-for-sale securities (3,585
)
(10,067
)
Purchase of held-to-maturity securities (1,350
)
(118,162
)
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities
40,348 13,097
Proceeds from maturities, calls and pay downs of held-to-maturity securities 10,817 19,516
Purchase of premises and equipment (1,543
)
(363
)
Purchase of other investments (2,008 ) -
Proceeds from bank-owned life insurance 11,752 -
Proceeds from sale of assets - 34
Net cash provided (used in) by investing activities 125,358 (96,319 )
Cash flows from financing activities:
Net (decrease) increase in deposits (220,107 ) 197,287
Net cash used in share repurchase of common stock
(5,591 ) (4,252 )
Net cash (used in) provided by financing activities (225,698 ) 193,035
Net change in cash and cash equivalents (58,664 ) 125,626
Cash and cash equivalents, beginning of period
588,257 715,460
Cash and cash equivalents, end of period
$ 529,593 $ 841,086

Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,389 $ 951
Income Taxes Paid
$ 1 $ -

Supplemental disclosures of non-cash transactions:
Security purchases settled in subsequent period $ - $ (40,626 )
Unrealized gain/(losses) on securities available-for-sale $ 8,048 $ (15,865 )

~~See accompanying notes to the unaudited consolidated financial statements.~~

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements include the accounts of Farmers & Merchants Bancorp (“FMCB” or “Bancorp”), a bank holding company incorporated in the State of Delaware and its wholly owned subsidiary, Farmers & Merchants Bank of Central California (“F&M Bank” or the “Bank”) collectively (the “Company”).

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). In preparing these financial statements, the Company has evaluated events and transactions subsequent to March 31, ~~2023~~2024 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are significant to an understanding of Bank’s financial statements. These policies relate to: (i) the methodology for the recognition of interest income; (ii) the determination of the provision and allowance for credit losses; (iii) the valuation of financial assets and liabilities recorded at fair value; (iv) the valuation of intangibles, such as goodwill and core deposit intangibles (“CDI”); (v) the valuation of other real estate owned (“OREO”); and (vi) the valuation or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the ~~Unaudited~~Audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, Summary of Critical Accounting Policies and Estimates, in our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 filed with the SEC on March ~~15, 2023~~14, 2024 and Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~Summary of~~ Critical Accounting Policies and Estimates included in this Quarterly Report on Form 10-Q.

The information included in this Form 10-Q should be read in conjunction with our ~~2022~~2023 Form 10-K. Interim results are not necessarily indicative of results for a full year or any other interim period.

Recently Adopted 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.~~

~~In March~~ ~~2020, the Financial~~ Accounting Standards ~~Board~~Codification™ (“~~FASB”~~ASC”) is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Periodically, the FASB will issue Accounting ~~Standards Update~~Standard updates (“ASU”) ~~issued ASU~~ ~~No. 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU are elective~~to its ASC. Rules and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was effective upon issuance and, based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. We have not elected to apply these amendments. However, we will assess the applicabil~~ity~~interpretive releases of the ~~ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.~~

~~Table of Contents~~

~~FARMERS & MERCHANTS BANCORP~~

~~NOTES TO UNAUDITED CONSOLIDATED STATEMENTS (Continued)~~

~~Note 1—Basis of Presentation and Significant Accounting Policies—Continued~~

~~In January 2021,~~SEC under the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). The main amendments in this ASU are intended to clarify certain optional expedients and scope of derivative instruments. The amendments are elective and effective immediately upon issuance of this ASU. ASU 2021-01 was effective upon issuance and, based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. We have not elected to apply amendments; however, will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

~~ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral~~authority of the ~~Sunset Date~~federal securities laws are also sources of ~~Topic 848.” ASU 2022-06 extends~~authoritative GAAP for the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. We have not elected to apply amendments at this time, however, will assess the applicability of this ASU to usCompany as ~~we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.~~an SEC registrant. All other accounting literature is non-authoritative.

~~In June 2022,~~On January 1, 2024, the company adopted the FASB issued guidance within ASU 2022-03, Fair Value Measurement of Equity Securities Subject to ~~contractual~~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~~company adopted 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 adoption of this ASU is not expected to havestandard on January 1, 2024, with no material impact on the Company’s Consolidated Financial ~~Statements~~Statements..

~~In March 2023,~~

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Significant Accounting Policies—Continued

On January 1, 2024, the Company adopted 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.~~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 ~~LIHTC~~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 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.

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.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718). This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company is currently evaluating the ~~provisions of~~impact this ASU ~~to determine the potential impact the new standard~~ will have on its disclosures.

In October 2023, the ~~Company’s consolidated~~FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Updated and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company is currently evaluating the impact this ASU will have on its disclosures.

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.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 1—Basis of Presentation and Significant Accounting Policies—Continued

~~Impact of recent authoritative accounting guidance~~ —~~The Accounting Standards Codification™~~(“ASC”) is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Periodically, the FASB will issue Accounting Standard updates (“ASU”) to its ASC. Rules and interpretive releases of the SEC under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative.

~~On January 1,~~In December 2023, ~~the company adopted~~ the FASB issued ~~guidance within~~ ASU ~~2022-02, Financial Instruments – Credit Losses~~No. 2023-09, “Income Taxes (Topic ~~326)~~740): ~~Troubled Debt Restructurings~~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 ~~Vintage Disclosures.~~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 amendments in this ASU eliminate the current troubled debt restructuring (TDR) recognition and measurement guidance and, instead, require that a creditor evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.Company will update its income tax disclosures upon adoption.

These amendments require vintage disclosures including current-period gross write-offs by year of origination for financing receivables. Gross write-off information must be included in the vintage disclosures in accordance with ASC 326-20-50-6, which requires disclosure of the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

Note 2—Investment Securities

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

Available-for-Sale Securities			Gross Unrealized
									Amortized		Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
As of March 31, 2023
As of March 31, 2024
U.S. Government-sponsored securities	$	4,117	$	18	$	23	$	4,112	$	3,057	$	9	$	18	$	3,048
Mortgage-backed securities⁽¹⁾		125,610		41		21,954		103,697		235,499		1,739		21,145		216,093
Collateralized mortgage obligations⁽¹⁾		620		-		13		607		5,695		-		41		5,654
Corporate securities		10,041		-		330		9,711		14,757		34		40		14,751
Other		310		-		-		310		310		-		-		310
Total available-for-sale securities	$	140,698	$	59	$	22,320	$	118,437	$	259,318	$	1,782	$	21,244	$	239,856

⁽¹⁾All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Available-for-Sale Securities			Gross Unrealized
									Amortized		Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
As of December 31, 2022
U.S. Treasury notes	$	4,989	$	-	$	25	$	4,964
As of December 31, 2023
U.S. Government-sponsored securities		4,430		21		24		4,427	$	3,230	$	12	$	18	$	3,224
Mortgage-backed securities⁽¹⁾		162,314		9		29,795		132,528		180,543		3,022		19,727		163,838
Collateralized mortgage obligations⁽¹⁾		1,085		-		31		1,054		548		-		13		535
Corporate securities		10,043		-		462		9,581		14,743		41		179		14,605
Other		310		-		-		310		310		-		-		310
Total available-for-sale securities	$	183,171	$	30	$	30,337	$	152,864	$	199,374	$	3,075	$	19,937	$	182,512

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 2—Investment Securities—Continued

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

Held-to-Maturity Securities				Gross Unrealized
																								Allowance
																Amortized		Gross Unrealized						for Credit
(Dollars in thousands)	Amortized Cost			Gains			Losses			Fair Value			Allowance for Credit Losses			Cost		Gains		Losses		Fair Value		Losses
As of March 31, 2023
Municipal securities		$	76,260		$	98		$	96		$	76,262		$	393
As of March 31, 2024
Mortgage-backed securities⁽¹⁾			695,083			59			130,405			564,737			-	$	656,028	$	3	$	142,770	$	513,261	$	-
Collateralized mortgage obligations⁽¹⁾			79,044			-			14,134			64,910			-		72,950		-		14,231		58,719		-
Municipal securities																	77,993		89		287		77,795		450
Total held-to-maturity securities		$	850,387		$	157		$	144,635		$	705,909		$	393	$	806,971	$	92	$	157,288	$	649,775	$	450

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

									Allowance
	Amortized		Gross Unrealized						for Credit
(Dollars in thousands)	Cost		Gains		Losses		Fair Value		Losses
As of December 31, 2023
Mortgage-backed securities⁽¹⁾	$	664,728	$	30	$	132,043	$	532,715	$	-
Collateralized mortgage obligations⁽¹⁾		74,170		-		14,017		60,153		-
Municipal securities		78,790		107		180		78,717		450
Total held-to-maturity securities	$	817,688	$	137	$	146,240	$	671,585	$	450

Held-to-Maturity Securities
Gross Unrealized

(Dollars in thousands)
Amortized
Cost
Gains Losses
Fair
Value

Allowance
for Credit
Losses

As of December 31, 2022
Municipal securities $ 62,302 $ 49 $ 209 $ 62,142 $ 393
Mortgage-backed securities⁽¹⁾
702,858 29 141,121 561,766 -
Collateralized mortgage obligations⁽¹⁾
80,186 - 15,701 64,485 -
Total held-to-maturity securities $ 845,346 $ 78 $ 157,031 $ 688,393 $ 393

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed or pre-refunded by the issuers.

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 2—Investment Securities—Continued

The following tables show the gross unrealized losses for available-for-sale securities, for which an allowance for credit losses has not been recorded, that are less than 12 months and 12 months or more:

Available-for-Sale Securities							March 31, 2023
																									March 31, 2024
	Less Than 12 Months						12 Months or More						Total						Less Than 12 Months						12 Months or More						Total
(Dollars in thousands)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
As of March 31, 2023
Available-for-Sale Securities
U.S. Government-sponsored securities		$	330		$	1		$	1,246		$	22		$	1,576		$	23		$	24		$	-		$	1,148		$	18		$	1,172		$	18
Mortgage-backed securities⁽¹⁾			12,450			343			86,844			21,611			99,294			21,954			4,560			51			77,695			21,094			82,255			21,145
Collateralized mortgage obligations⁽¹⁾			-			-			607			13			607			13			5,138			29			516			12			5,654			41
Corporate securities			-			-			9,711			330			9,711			330			-			-			9,989			40			9,989			40
Total available-for-sale securities		$	12,780		$	344		$	98,408		$	21,976		$	111,188		$	22,320		$	9,722		$	80		$	89,348		$	21,164		$	99,070		$	21,244

⁽¹⁾All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Available-for-Sale Securities							December 31, 2022
																									December 31, 2023
	Less Than 12 Months						12 Months or More						Total						Less Than 12 Months						12 Months or More						Total
(Dollars in thousands)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
As of December 31, 2022
U.S. Treasury notes		$	4,964		$	25		$	-		$	-		$	4,964		$	25
Available-for-Sale Securities
U.S. Government-sponsored securities			378			1			1,326			23			1,704			24		$	33		$	-		$	1,235		$	18		$	1,268		$	18
Mortgage-backed securities⁽¹⁾			35,117			1,639			96,589			28,156			131,706			29,795			1,629			11			80,746			19,716			82,375			19,727
Collateralized Mortgage Obligations⁽¹⁾			1,054			31			-			-			1,054			31			-			-			535			13			535			13
Corporate securities			-			-			9,581			462			9,581			462			-			-			9,853			179			9,853			179
Total available-for-sale securities		$	41,513		$	1,696		$	107,496		$	28,641		$	149,009		$	30,337		$	1,662		$	11		$	92,369		$	19,926		$	94,031		$	19,937

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

As of March 31, ~~2023,~~2024 the Company held ~~183~~182 available-for-sale securities of which 616 were in an unrealized loss position for less than twelve months and 97138 securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company does not have the intent to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be impaired. Management evaluates the available-for-sale ~~debt~~ securities in an unrealized loss position, relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

The following table presents the activity in the allowance for credit losses for held-to-maturity securities by major type:

	March 31, 2023												March 31, 2024
(Dollars in thousands)	Municipal securities			Mortgage- backed securities			Collateralized Mortgage obligations			Total			Municipal securities			Mortgage-backed securities			Collateralized mortgage obligations			Total
Allowance for credit losses - securities
Beginning Balance		$	393		$	-		$	-		$	393
Beginning balance														$	450		$	-		$	-		$	450
Provision for credit losses			-			-			-			-			-			-			-			-
Ending Balance		$	393		$	-		$	-		$	393
Ending balance														$	450		$	-		$	-		$	450

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 2—Investment Securities—Continued

	December 31, 2022
	December 31, 2023													December 31, 2023
(Dollars in thousands)	Municipal securities			Mortgage- backed securities			Collateralized Mortgage obligations			Total			Municipal securities			Mortgage-backed securities			Collateralized mortgage obligations			Total
Allowance for credit losses - securities
Beginning Balance		$	393		$	-		$	-		$	393		$	393		$	-		$	-		$	393
Provision for credit losses			-			-			-			-			57			-			-			57
Ending Balance		$	393		$	-		$	-		$	393		$	450		$	-		$	-		$	450

The amortized cost and estimated fair values of ~~debt~~investment securities at March 31, ~~2023~~2024 by contractual final maturity are shown in the following table:

	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities maturing in:
One year or less	$	335	$	335	$	283	$	283	$	424	$	423	$	2,230	$	2,230
After one year through five years		19,386		18,756		11,174		11,155		20,439		20,242		18,087		17,787
After five years through ten years		6,114		5,913		30,348		28,835		5,402		5,228		21,009		19,842
After ten years		114,863		93,433		808,582		665,636		233,053		213,963		765,645		609,916
Total	$	140,698	$	118,437	$	850,387	$	705,909	$	259,318	$	239,856	$	806,971	$	649,775

The Company monitors the credit quality of those held-to-maturity ~~debt~~ securities not issued by the U.S. government or one of its agencies or government sponsored entities, through the use of credit ratings. Credit ratings are reviewed and updated quarterly. The following ~~table summarizes~~tables summarize the amortized cost of held-to-maturity municipal ~~debt~~ securities by credit rating at ~~March 31, 2023:~~as of the dates indicated:

	Held-to-Maturity												Held-to-Maturity
	Amortized Cost												Amortized Cost
(Dollars in thousands)	AAA/AA/A			BBB/BB/B			Not Rated			Total			AAA/AA/A			BBB/BB/B			Not Rated			Total
March 31, 2023
March 31, 2024
Municipal securities		$	19,380		$	390		$	56,490		$	76,260		$	20,209		$	397		$	57,387		$	77,993
Total		$	19,380		$	390		$	56,490		$	76,260		$	20,209		$	397		$	57,387		$	77,993

As of March 31, ~~2023,~~2024, there were no past due principal or interest payments associated with these securities.

	Held-to-Maturity
	Amortized Cost
(Dollars in thousands)	AAA/AA/A			BBB/BB/B			Not Rated			Total
December 31, 2023
Municipal securities		$	20,203		$	395		$	58,192		$	78,790
Total		$	20,203		$	395		$	58,192		$	78,790

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 2—Investment Securities—Continued

Proceeds from sales and calls of these securities were as follows:

(Dollars in thousands)	Gross Proceeds		Gross Gains		Gross Losses		Gross Proceeds		Gross Gains		Gross Losses
Three months ended March 31, 2024							$	-	$	-	$	-
Three months ended March 31, 2023	$	30,482	$	-	$	5,686	$	30,482	$	-	$	5,686
Three months ended March 31, 2022	$	2,190	$	-	$	-

Pledged Securities

As of March 31, ~~2023,~~2024, investment securities carried at ~~$498~~$661.3 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. ~~This~~The amount of investments pledged was ~~$479~~$794.1 million at December 31, ~~2022.~~2023.

Note 3—Loans and Leases

Loans and leases as of the dates indicated consisted of the following:

(Dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,312,745		$	1,328,691		$	1,352,014		$	1,323,038
Agricultural		707,412			726,938			726,041			742,009
Residential and home equity		387,370			387,753			405,526			399,982
Construction		153,394			166,538			227,415			212,362
Total real estate		2,560,921			2,609,920			2,710,996			2,677,391
Commercial & industrial		472,189			478,758			497,028			499,373
Agricultural		275,785			314,525			317,955			313,737
Commercial leases		123,314			112,629			174,657			169,684
Consumer and other		5,382			5,886			5,801			5,212
Total gross loans and leases		3,437,591			3,521,718			3,706,437			3,665,397
Unearned income		(10,458	)		(9,357	)		(10,142	)		(10,708	)
Total net loans and leases		3,427,133			3,512,361			3,696,295			3,654,689
Allowance for credit losses		(68,573	)		(66,885	)		(75,018	)		(74,965	)
Total loans and leases held-for-investment, net	$	3,358,560		$	3,445,476		$	3,621,277		$	3,579,724

At March 31, ~~2023,~~2024, the portion of loans that were approved for pledging as collateral on borrowing lines with the ~~Federal Home Loan Bank (“FHLB”)~~FHLB and the Federal Reserve Bank (“FRB”) were ~~$1.2~~$1.3 billion and ~~$881.5 million,~~$1.6 billion, respectively. The borrowing capacity on these loans was ~~$770.7~~$767.7 million from FHLB and ~~$656.5 million~~$1.2 billion from the ~~FRB.~~FRB at March 31, 2024.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

~~The~~

The following tables show an aging analysis of the loan and lease portfolio, ~~including~~net of unearned income, by the time past due for the periods indicated:

	March 31, 2023												March 31, 2024
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Non-accrual		Total Past Due		Total		Current		30-89 Days Past Due		90+ Days Past Due		Non-accrual		Total Past Due		Total
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,304,052	$	-	$	-	$	387	$	387	$	1,304,439	$	1,344,380	$	-	$	-	$	-	$	-	$	1,344,380
Agricultural		707,412		-		-		-		-		707,412		715,367		7,124		3,550		-		10,674		726,041
Residential and home equity		387,370		-		-		-		-		387,370		404,832		694		-		-		694		405,526
Construction		153,394		-		-		-		-		153,394		227,415		-		-		-		-		227,415
Total real estate		2,552,228		-		-		387		387		2,552,615		2,691,994		7,818		3,550		-		11,368		2,703,362
Commercial & industrial		472,189		-		-		-		-		472,189		497,028		-		-		-		-		497,028
Agricultural		275,785		-		-		-		-		275,785		317,955		-		-		-		-		317,955
Commercial leases		121,162		-		-		-		-		121,162		172,149		-		-		-		-		172,149
Consumer and other		5,357		25		-		-		25		5,382		5,767		34		-		-		34		5,801
Total loans and leases, net	$	3,426,721	$	25	$	-	$	387	$	412	$	3,427,133	$	3,684,893	$	7,852	$	3,550	$	-	$	11,402	$	3,696,295

	December 31, 2023
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Non-accrual		Total Past Due		Total
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,314,928	$	-	$	-	$	-	$	-	$	1,314,928
Agricultural		742,009		-		-		-		-		742,009
Residential and home equity		399,946		36		-		-		36		399,982
Construction		212,362		-		-		-		-		212,362
Total real estate		2,669,245		36		-		-		36		2,669,281
Commercial & industrial		499,341		32		-		-		32		499,373
Agricultural		313,737		-		-		-		-		313,737
Commercial leases		167,086		-		-		-		-		167,086
Consumer and other		5,209		3		-		-		3		5,212
Total loans and leases, net	$	3,654,618	$	71	$	-	$	-	$	71	$	3,654,689

There were no non-accrual loans at March 31, 2024 and December 31, 2023.

December 31, 2022
(Dollars in thousands) Current
30-89 Days
Past Due

90+ Days
Past Due
Non-accrual
Total Past
Due
Total
Loans and leases held-for-investment, net

Real estate:
Commercial
$ 1,319,911 $ - $ - $ 403 $ 403 $ 1,320,314
Agricultural 726,938 - - - - 726,938
Residential and home equity 387,753 - - - - 387,753
Construction 166,370 - - 168 168 166,538
Total real estate 2,600,972 - - 571 571 2,601,543
Commercial & industrial 478,758 - - - - 478,758
Agricultural 314,525 - - - - 314,525
Commercial leases 111,649 - - - - 111,649
Consumer and other 5,789 97 - - 97 5,886
Total loans and leases, net $ 3,511,693 $ 97 $ - $ 571 $ 668 $ 3,512,361

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

~~Non-accrual loans are summarized as follows:~~

(Dollars in thousands)
March 31,
2023

December 31,
2022

Non-accrual loans and leases:
Non-accrual loans and leases
Real estate:
Commercial $ 387 $ 403
Agricultural - -
Residential and home equity - -
Construction - 168
Total real estate 387 571
Commercial & Industrial - -
Agricultural - -
Commercial leases - -
Consumer and other - -
Total non-accrual loans and leases $ 387 $ 571

The Company did not enter into any loan modifications with borrowers experiencing financial difficulty during the three months ended March 31, 2024 or 2023. When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. The Company’s modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended and/or the modified interest rate and payment terms are not commensurate with the current market. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers.

There were no loans that were modified within the last 12 months that had a payment default or were past due during the three months ended March 31, 2024.

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. Risk ratings can be grouped into five major categories, defined as follows:

Pass and watch — A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention. This category also includes “Watch” loans, which is a loan with an emerging weakness in either the individual credit or industry that requires additional attention. A credit may also be classified Watch if cash flows have not yet stabilized, such as in the case of a development project.

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.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—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.

The following table presents the credit risk rating categories for loans and leases held-for-investment (accruing and non-accruing) net of ~~deferred fees~~unearned income by loan portfolio segment and class as of the dates indicated.

	March 31, 2023												March 31, 2024
(Dollars in thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Credit Losses		Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Credit Losses
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,301,094	$	2,958	$	387	$	-	$	1,304,439	$	24,253	$	1,337,274	$	7,106	$	-	$	-	$	1,344,380	$	22,414
Agricultural		688,406		12,875		6,131		-		707,412		8,441		698,309		27,186		546		-		726,041		11,377
Residential and home equity		387,006		-		364		-		387,370		7,334		404,754		126		646		-		405,526		7,721
Construction		153,394		-		-		-		153,394		2,785		227,415		-		-		-		227,415		4,616
Total real estate		2,529,900		15,833		6,882		-		2,552,615		42,813		2,667,752		34,418		1,192		-		2,703,362		46,128
Commercial & industrial		471,348		594		247		-		472,189		11,346		482,584		13,950		494		-		497,028		11,559
Agricultural		271,307		4,467		11		-		275,785		12,542		315,136		2,764		55		-		317,955		10,292
Commercial leases		121,099		63		-		-		121,162		1,720		166,044		6,105		-		-		172,149		6,923
Consumer and other		5,251		-		131		-		5,382		152		5,572		-		229		-		5,801		116
Total loans and leases, net	$	3,398,905	$	20,957	$	7,271	$	-	$	3,427,133	$	68,573	$	3,637,088	$	57,237	$	1,970	$	-	$	3,696,295	$	75,018

	December 31, 2022												December 31, 2023
(Dollars in thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Credit Losses		Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Credit Losses
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,314,377	$	5,535	$	402	$	-	$	1,320,314	$	18,055	$	1,308,717	$	6,211	$	-	$	-	$	1,314,928	$	26,093
Agricultural		709,927		10,891		6,120		-		726,938		14,496		729,135		12,329		545		-		742,009		7,744
Residential and home equity		387,371		-		382		-		387,753		7,508		399,217		-		765		-		399,982		7,770
Construction		166,370		-		168		-		166,538		3,026		212,362		-		-		-		212,362		4,432
Total real estate		2,578,045		16,426		7,072		-		2,601,543		43,085		2,649,431		18,540		1,310		-		2,669,281		46,039
Commercial & industrial		478,437		63		258		-		478,758		11,503		486,439		12,458		476		-		499,373		13,380
Agricultural		308,830		5,682		13		-		314,525		10,202		310,496		3,236		5		-		313,737		8,872
Commercial leases		111,568		81		-		-		111,649		1,924		167,080		6		-		-		167,086		6,537
Consumer and other		5,650		-		236		-		5,886		171		5,036		-		176		-		5,212		137
Total loans and leases, net	$	3,482,530	$	22,252	$	7,579	$	-	$	3,512,361	$	66,885	$	3,618,482	$	34,240	$	1,967	$	-	$	3,654,689	$	74,965

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

The following table presents outstanding loan and lease balances held-for-investment net of unearned income by segment and class, credit quality indicators, vintage year by class of financing receivable, and current period gross charge-offs by year of origination as ~~of March 31, 2023:~~follows:

March 31, 2023
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands) 2023 2022 2021 2020 2019 Prior
Revolving
Loans
Amortized
Cost
Total
Net loans and leases held-for-investment
Real estate:
Commercial
Pass $ 51,123 $ 176,639 $ 227,251 $ 149,007 $ 69,798 $ 301,459 $ 325,817 $ 1,301,094
Special mention - - - - - 2,358 600 2,958
Substandard - - - - - 387 - 387
Doubtful - - - - - - - -
Total Commercial $ 51,123 $ 176,639 $ 227,251 $ 149,007 $ 69,798 $ 304,204 $ 326,417 $ 1,304,439
Commercial

Current-period gross charge-offs
$
- $
- $
- $
- $
- $
- $
- $
-

Agricultural

Pass $ 14,274 $ 75,313 $ 41,782 $ 53,027 $ 14,264 $ 176,639 $ 313,107 $ 688,406
Special mention - - - - - - 12,875 12,875
Substandard - - - - - 6,131 - 6,131
Doubtful - - - - - - - -
Total Agricultural
$ 14,274 $ 75,313 $ 41,782 $ 53,027 $ 14,264 $ 182,770 $ 325,982 $ 707,412
Agricultural
Current-period gross charge-offs $
- $
- $
- $
- $
- $
- $
- $
-

Residential and home equity
Pass $ 7,062 $ 65,050 $ 94,458 $ 85,239 $ 14,222 $ 79,905 $ 41,070 $ 387,006
Special mention
- - - - - - - -
Substandard - - - - - 284 80 364
Doubtful - - - - - - - -
Total Residential and home equity $ 7,062 $ 65,050 $ 94,458 $ 85,239 $ 14,222 $ 80,189 $ 41,150 $ 387,370
Residential and home equity
Current-period gross charge-offs $
- $
- $
- $
- $
- $
14 $
- $
14

Construction
Pass $ - $ 2,003 $ - $ - $ 1,575 $ - $ 149,816 $ 153,394
Special mention
- - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total construction $ - $ 2,003 $ - $ - $ 1,575 $ - $ 149,816 $ 153,394
Construction

Current-period gross charge-offs $
- $
- $
- $
- $
- $
- $
- $
-

Total Real estate $ 72,459 $ 319,005 $ 363,491 $ 287,273 $ 99,859 $ 567,163 $ 843,365 $ 2,552,615

Commercial & industrial
Pass $ 11,960 $ 30,234 $ 35,318 $ 11,131 $ 7,195 $ 10,318 $ 365,192 $ 471,348
Special mention - - 55 - - 539 - 594
Substandard - - - - - 6 241 247
Doubtful - - - - - - - -
Total Commercial & industrial $ 11,960 $ 30,234 $ 35,373 $ 11,131 $ 7,195 $ 10,863 $ 365,433 $ 472,189
Commercial & industrial
Current-period gross charge-offs $
- $ - $
- $
- $
- $
- $
- $
-

	March 31, 2024
	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost		Total
Net loans and leases held-for-investment
Real estate:
Commercial
Pass	$	30,385	$	120,014	$	166,306	$	219,834	$	141,997	$	321,074	$	337,664	$	1,337,274
Special mention		-		-		3,664		-		-		1,939		1,503		7,106
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	30,385	$	120,014	$	169,970	$	219,834	$	141,997	$	323,013	$	339,167	$	1,344,380
Commercial
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass	$	2,706	$	36,961	$	70,840	$	40,049	$	49,772	$	166,855	$	331,126	$	698,309
Special mention		-		-		-		-		800		10,172		16,214		27,186
Substandard		-		-		-		-		-		546		-		546
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	2,706	$	36,961	$	70,840	$	40,049	$	50,572	$	177,573	$	347,340	$	726,041
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential and home equity
Pass	$	11,492	$	40,743	$	61,230	$	87,405	$	77,721	$	80,780	$	45,383	$	404,754
Special mention		-		-		-		-		-		126		-		126
Substandard		-		-		-		-		-		646		-		646
Doubtful		-		-		-		-		-		-		-		-
Total Residential and home equity	$	11,492	$	40,743	$	61,230	$	87,405	$	77,721	$	81,552	$	45,383	$	405,526
Residential and home equity
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Construction
Pass	$	3,116	$	-	$	1,500	$	-	$	-	$	1,575	$	221,224	$	227,415
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total construction	$	3,116	$	-	$	1,500	$	-	$	-	$	1,575	$	221,224	$	227,415
Construction
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Real estate	$	47,699	$	197,718	$	303,540	$	347,288	$	270,290	$	583,713	$	953,114	$	2,703,362

Commercial & industrial
Pass	$	5,994	$	47,400	$	24,885	$	20,443	$	5,991	$	9,417	$	368,454	$	482,584
Special mention		-		2,281		25		4,167		395		-		7,082		13,950
Substandard		-		-		-		41		-		453		-		494
Doubtful		-		-		-		-		-		-		-		-
Total Commercial & industrial	$	5,994	$	49,681	$	24,910	$	24,651	$	6,386	$	9,870	$	375,536	$	497,028
Commercial & industrial
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass	$	1,066	$	3,937	$	4,138	$	2,140	$	652	$	2,724	$	300,479	$	315,136
Special mention		-		-		50		-		-		-		2,714		2,764
Substandard		-		-		-		-		-		4		51		55
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	1,066	$	3,937	$	4,188	$	2,140	$	652	$	2,728	$	303,244	$	317,955
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

	March 31, 2023																March 31, 2024
	Term Loans Amortized Cost Basis by Origination Year																Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total		2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost		Total
Agricultural
Pass	$	170	$	5,179	$	2,755	$	918	$	1,135	$	2,448	$	258,702	$	271,307
Special mention		-		-		-		-		-		-		4,467		4,467
Substandard		-		-		-		-		10		1		-		11
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	170	$	5,179	$	2,755	$	918	$	1,145	$	2,449	$	263,169	$	275,785
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Net loans and leases held for investment
Commercial leases
Pass	$	33,959	$	15,132	$	12,359	$	5,537	$	33,433	$	20,679	$	-	$	121,099	$	9,285	$	79,904	$	25,545	$	10,188	$	8,987	$	32,135	$	-	$	166,044
Special mention		-		-		-		-		63		-		-		63		594		-		5,511		-		-		-		-		6,105
Substandard		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Commercial leases	$	33,959	$	15,132	$	12,359	$	5,537	$	33,496	$	20,679	$	-	$	121,162	$	9,879	$	79,904	$	31,056	$	10,188	$	8,987	$	32,135	$	-	$	172,149
Commercial leases
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer and other
Pass	$	318	$	1,476	$	575	$	213	$	121	$	1,922	$	626	$	5,251	$	443	$	1,628	$	824	$	236	$	34	$	1,746	$	661	$	5,572
Special mention		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Substandard		131		-		-		-		-		-		-		131		206		-		-		-		-		23		-		229
Doubtful		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Consumer and other	$	449	$	1,476	$	575	$	213	$	121	$	1,922	$	626	$	5,382	$	649	$	1,628	$	824	$	236	$	34	$	1,769	$	661	$	5,801
Consumer and other
Current-period gross charge-offs	$	8	$	1	$	-	$	-	$	-	$	1	$	-	$	10	$	10	$	-	$	-	$	-	$	-	$	-	$	-	$	10

Total net loans and leases	$	118,997	$	371,026	$	414,553	$	305,072	$	141,816	$	603,076	$	1,472,593	$	3,427,133
Pass																	$	64,487	$	330,587	$	355,268	$	380,295	$	285,154	$	616,306	$	1,604,991	$	3,637,088
Special mention																		594		2,281		9,250		4,167		1,195		12,237		27,513		57,237
Substandard																		206		-		-		41		-		1,672		51		1,970
Doubtful																		-		-		-		-		-		-		-		-
Total net loans and leases																	$	65,287	$	332,868	$	364,518	$	384,503	$	286,349	$	630,215	$	1,632,555	$	3,696,295
Total current-period gross charge-offs																	$	10	$	-	$	-	$	-	$	-	$	-	$	-	$	10

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3—Loans and Leases—Continued

	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total
Net loans and leases held for investment
Real estate:
Commercial
Pass	$	121,418	$	169,171	$	221,708	$	143,502	$	67,505	$	261,344	$	324,069	$	1,308,717
Special mention		-		2,395		-		-		-		2,216		1,600		6,211
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	121,418	$	171,566	$	221,708	$	143,502	$	67,505	$	263,560	$	325,669	$	1,314,928
Commercial
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass	$	37,849	$	71,367	$	40,848	$	50,445	$	12,008	$	165,267	$	351,351	$	729,135
Special mention		-		-		-		594		2,020		9,715		-		12,329
Substandard		-		-		-		-		-		545		-		545
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	37,849	$	71,367	$	40,848	$	51,039	$	14,028	$	175,527	$	351,351	$	742,009
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential and home equity
Pass	$	41,173	$	62,505	$	88,559	$	78,810	$	13,299	$	70,339	$	44,532	$	399,217
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		765		-		765
Doubtful		-		-		-		-		-		-		-		-
Total Residential and home equity	$	41,173	$	62,505	$	88,559	$	78,810	$	13,299	$	71,104	$	44,532	$	399,982
Residential and home equity
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	14	$	-	$	14

Construction
Pass	$	-	$	2,500	$	-	$	-	$	1,575	$	-	$	208,287	$	212,362
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total construction	$	-	$	2,500	$	-	$	-	$	1,575	$	-	$	208,287	$	212,362
Construction
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Real estate	$	200,440	$	307,938	$	351,115	$	273,351	$	96,407	$	510,191	$	929,839	$	2,669,281

Commercial & industrial
Pass	$	49,162	$	25,795	$	21,695	$	7,193	$	4,123	$	6,674	$	371,797	$	486,439
Special mention		2,500		27		4,903		466		-		-		4,562		12,458
Substandard		-		-		-		-		-		476		-		476
Doubtful		-		-		-		-		-		-		-		-
Total Commercial & industrial	$	51,662	$	25,822	$	26,598	$	7,659	$	4,123	$	7,150	$	376,359	$	499,373
Commercial & industrial
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Pass	$	3,013	$	4,585	$	2,296	$	688	$	1,026	$	2,116	$	296,772	$	310,496
Special mention		-		52		75		-		-		-		3,109		3,236
Substandard		-		-		-		-		5		-		-		5
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	3,013	$	4,637	$	2,371	$	688	$	1,031	$	2,116	$	299,881	$	313,737
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3—Loans and Leases—Continued

	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total
Net loans and leases held for investment
Commercial leases
Pass	$	81,287	$	31,954	$	10,786	$	9,514	$	4,667	$	28,872	$	-	$	167,080
Special mention		-		-		-		-		6		-		-		6
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial leases	$	81,287	$	31,954	$	10,786	$	9,514	$	4,673	$	28,872	$	-	$	167,086
Commercial leases
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer and other
Pass	$	1,650	$	930	$	375	$	48	$	45	$	1,400	$	588	$	5,036
Special mention		-		-		-		-		-		-		-		-
Substandard		152		-		-		-		-		24		-		176
Doubtful		-		-		-		-		-		-		-		-
Total Consumer and other	$	1,802	$	930	$	375	$	48	$	45	$	1,424	$	588	$	5,212
Consumer and other
Current-period gross charge-offs	$	41	$	3	$	-	$	-	$	-	$	2	$	-	$	46
Total net loans and leases
Pass	$	335,552	$	368,807	$	386,267	$	290,200	$	104,248	$	536,012	$	1,597,396	$	3,618,482
Special mention		2,500		2,474		4,978		1,060		2,026		11,931		9,271		34,240
Substandard		152		-		-		-		5		1,810		-		1,967
Doubtful		-		-		-		-		-		-		-		-
Total net loans and leases	$	338,204	$	371,281	$	391,245	$	291,260	$	106,279	$	549,753	$	1,606,667	$	3,654,689
Total current-period gross charge-offs	$	41	$	3	$	-	$	-	$	-	$	16	$	-	$	60

Certain directors and executive officers of the Company are defined as related parties. These related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during the three months ended March 31, ~~2023~~2024 and year ended December 31, ~~2022.~~2023. Such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with borrowers not related to the Company. These loans did not involve more than the normal risk of ~~collection~~collectibility or have other unfavorable features. A summary of the changes in those loans is as follows:

	March 31,			December 31,			March 31,			December 31,
(Dollars in thousands)	2023			2022			2024			2023

Balance at beginning of the period	$	17,521		$	18,128		$	17,035		$	17,521
New loans or advances during year		130			523			250			1,706
Repayments		(372	)		(1,130	)		(89	)		(2,192	)
Balance at end of period	$	17,279		$	17,521		$	17,196		$	17,035

1921

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

A loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When management determines that foreclosure is probable, expected credit losses for collateral dependent loans or leases are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The collateral on the loans and leases is a significant portion of what secures the collateral dependent loans or leases and significant changes to the fair value of the collateral can impact the ACL. During the three months ended March 31, ~~2023,~~2024, there were no significant changes to the collateral that secures the collateral dependent loans, whether due to general deterioration or with credit quality indicators like appraisal value. The following tables present the amortized cost basis for collateral dependent loans and leases by type as of March 31, ~~2023~~2024 and December 31, ~~2022,~~2023, respectively:

	March 31, 2023						March 31, 2024
(Dollars in thousands)	Real Estate		Vehicles and Equipment		Total		Real Estate		Vehicles and Equipment		Total
Collateral dependent loans and leases
Real estate:
Commercial	$	1,492	$	-	$	1,492	$	-	$	-	$	-
Agricultural		10,751		-		10,751		550		-		550
Residential and home equity		1,658		-		1,658		642		-		642
Construction		-		-		-		-		-		-
Total real estate		13,901		-		13,901		1,192		-		1,192
Commercial & industrial		-		-		-		-		450		450
Agricultural		-		11		11		-		-		-
Commercial leases		-		-		-		-		-		-
Consumer and other		-		153		153		-		-		-
Total gross loans and leases	$	13,901	$	164	$	14,065	$	1,192	$	450	$	1,642

	December 31, 2022						December 31, 2023
(Dollars in thousands)	Real Estate		Vehicles and Equipment		Total		Real Estate		Vehicles and Equipment		Total
Collateral dependent loans and leases
Real estate:
Commercial	$	1,114	$	-	$	1,114	$	1,517	$	-	$	1,517
Agricultural		11,035		-		11,035		6,118		-		6,118
Residential and home equity		2,153		-		2,153		1,607		-		1,607
Construction		-		-		-		-		-		-
Total real estate		14,302		-		14,302		9,242		-		9,242
Commercial & industrial		-		-		-		-		473		473
Agricultural		-		13		13		-		5		5
Commercial leases		-		-		-		-		-		-
Consumer and other		-		158		158		-		164		164
Total gross loans and leases	$	14,302	$	171	$	14,473	$	9,242	$	642	$	9,884

2022

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 3—Loans and Leases—Continued

Changes in the allowance for credit losses are as follows:

	For the Three Months Ended March 31, 2024
(Dollars in thousands)	Commercial & Agricultural R/E			Construction		Residential & Home Equity			Commercial & Agricultural			Commercial Leases		Consumer & Other			Total
Allowance for credit losses:
Balance at beginning of period	$	33,837		$	4,432	$	7,770		$	22,252		$	6,537	$	137		$	74,965
Provision for/(recapture of) for credit losses		(46	)		184		(57	)		(419	)		386		(48	)		-
Charge-offs		-			-		-			-			-		(10	)		(10	)
Recoveries		-			-		8			18			-		37			63
Net (charge-offs) / recoveries		-			-		8			18			-		27			53
Balance at end of period	$	33,791		$	4,616	$	7,721		$	21,851		$	6,923	$	116		$	75,018

For the Three Months Ended March 31, 2023
(Dollars in thousands)
Commercial &
Agricultural
R/E
Construction
Residential &
Home Equity

Commercial
&
Agricultural

Commercial
Leases
Consumer
& Other Total
Allowance for credit losses:
Balance at beginning of period
$ 32,551 $ 3,026 $ 7,508 $ 21,705 $ 1,924 $ 171 $ 66,885
Provision / (recapture) for credit losses (27 ) (241 ) (170 ) 2,163 (204 ) (21 ) 1,500
Charge-offs - - (14 ) - - (10 ) (24 )
Recoveries 170 - 10 20 - 12 212
Net (charge-offs) / recoveries 170 - (4 ) 20 - 2 188
Balance at end of period
$ 32,694 $ 2,785 $ 7,334 $ 23,888 $ 1,720 $ 152 $ 68,573

	Year Ended December 31, 2023
(Dollars in thousands)	Commercial & Agricultural R/E		Construction		Residential & Home Equity			Commercial & Agricultural		Commercial Leases		Consumer & Other			Total
Allowance for credit losses:
Balance at beginning of year	$	32,551	$	3,026	$	7,508		$	21,705	$	1,924	$	171		$	66,885
Provision for/(recapture of) credit losses		1,116		1,406		211			423		4,613		(19	)		7,750
Charge-offs		-		-		(14	)		-		-		(46	)		(60	)
Recoveries		170		-		65			124		-		31			390
Net (charge-offs) / recoveries		170		-		51			124		-		(15	)		330
Balance at end of year	$	33,837	$	4,432	$	7,770		$	22,252	$	6,537	$	137		$	74,965

For the Three Months Ended March 31, 2022
(Dollars in thousands)
Commercial &
Agricultural
R/E
Construction
Residential &
Home Equity

Commercial
&
Agricultural

Commercial
Leases
Consumer
& Other Total
Allowance for credit losses:
Balance at beginning of period, prior to adoption of ASC 326 $ 38,149 $ 1,456 $ 2,847 $ 16,954 $ 938 $ 663 $ 61,007
Impact of adopting ASC 326 (6,190 ) 1,855 3,032 826 629 (152 ) -
Provision / (recapture) for credit losses 552 466 866 (1,700 ) (101 ) (83 ) -
Charge-offs - - - - - (9 ) (9 )
Recoveries - - 14 18 - 2 34
Net (charge-offs) / recoveries - - 14 18 - (7 ) 25
Balance at end of period
$ 32,511 $ 3,777 $ 6,759 $ 16,098 $ 1,466 $ 421 $ 61,032

Note 4—Deposits

Certificates of deposit greater than and less than or equal to the FDIC insurance limit of $250,000 are summarized as follows:

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Certificates of deposit:
Certificates of deposit less than or equal to $250,000	$	218,375	$	202,554	$	399,576	$	325,798
Certificates of deposit greater than $250,000		167,755		128,846		477,886		318,830
Total certificates of deposit	$	386,130	$	331,400	$	877,462	$	644,628

Scheduled maturities for certificates of deposit are as follows:

(Dollars in thousands)	Amount		Amount
2023	$	237,695
2024		131,935	$	730,301
2025		12,059		139,979
2026		3,029		5,109
2027 and beyond		1,412
2027				1,066
2028				954
Thereafter				53
Total certificates of deposit	$	386,130	$	877,462

2123

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 5—Short-term borrowings

As of March 31, ~~2023~~2024 and December 31, ~~2022,~~2023, committed lines of credit arrangements totaling ~~$1.55~~$1.9 billion and ~~$1.51~~$2.2 billion, respectively, were available to the Company from unaffiliated banks, respectively. The average Federal Funds interest rate as of March 31, ~~2023~~2024 was ~~5.00%~~5.50%.

The Company is a member of the FHLB of San Francisco and has a committed credit line of ~~$772.7~~$769.4 million, which is secured by ~~$1.2~~$1.3 billion in various real estate loans and investment securities pledged as collateral. Borrowings generally provide for interest at the then current published rate, which was ~~5.08%~~5.63% as of March 31, 2024. At March 31,2024 there were $100.0 million in advances from the FHLB at a rate of 5.64% with a maturity date of April 26, 2024 and $100.0 million in the form of a letter of credit to collateralize the State of California certificate of deposit. There were no outstanding advances on the above borrowing facilities as December 31,2023.

The Company has ~~$881.5 million~~$1.6 billion in pledged loans with the ~~Federal Reserve Bank (the “Fed”).~~FRB. As of March 31, ~~2023,~~2024, the Company’s overnight borrowing capacity using the primary credit facilities from the Fed account was ~~$656.5 million.~~$1.2 billion. The borrowing rate was ~~5.00%~~5.50% as of March 31, ~~2023.~~

2024.There were no outstanding advances on the above borrowing facilities ~~as of~~at March 31, ~~2023~~2024 and December 31, ~~2022.~~2023.

Note 6—~~Earnings Per Share~~

~~Basic and diluted earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period.~~

~~Earnings per common share have been computed based on the following:~~

Three Months Ended March 31,
(Dollars in thousands, except share and per share amounts) 2023
2022

Numerator
Net income $ 23,547 $ 17,058

Denominator
Weighted average number of common shares outstanding 764,603 786,096
Weighted average number of dilutive shares outstanding 764,603 786,096

Basic earnings per common share $ 30.80 $ 21.70
Diluted earning per common share $ 30.80 $ 21.70

~~Table of Contents~~

~~FARMERS & MERCHANTS BANCORP~~

~~NOTES TO UNAUDITED CONSOLIDATED STATEMENTS (Continued)~~

~~Note 7—~~Employee Benefit Plans

Executive Retirement Plan

The Company, through the Bank, sponsors an Executive Retirement Plan (“ERP”) for certain executive level employees. The ERP is a non-qualified deferred compensation plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue ~~Service regulations.~~Service. The ERP is comprised of: (1) a Performance Component which makes contributions based upon long-term cumulative profitability and increase in market value of the Company; (2) a Salary Component which makes contributions based upon participant salary levels; and (3) an Equity Component for which contributions are discretionary and subject to Board of Directors approval. The Company maintains a Rabbi Trust to fund, in part, the ERP. The Rabbi Trust is an irrevocable grantor trust to which the Company may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. The Company may not use the assets of the Rabbi Trust for any purpose other than meeting its obligations under the ERP; however, the assets of the Rabbi Trust remain subject to the claims of its creditors and are included in the consolidated financial statements. The Company contributes cash to the Rabbi Trust from time to time for the sole purpose of funding the ERP. The Rabbi Trust will use any cash the Company contributes to purchase shares of common stock of the Company, and other financial instruments, on the open market. ERP contributions are invested in a mix of financial instruments; however, the Equity Component contributions are invested primarily in common stock of the Company.

The Company expensed ~~$2.3~~$2.2 million to the ERP during the three months ended March 31, ~~2023~~2024 and ~~$1.8~~$2.3 million during the three months ended March 31, ~~2022.~~2023. The Company’s carrying value of the liability under the ERP was ~~$55.1~~$57.7 million as of March 31, ~~2023~~2024 and ~~$57.0~~$57.5 million as of December 31, ~~2022.~~2023, which is included in other liabilities on the balance sheet. The Company’s shares of common stock held as investments in the Rabbi Trust of the ERP as of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 totaled ~~48,055~~49,044 and ~~50,196~~49,276 with an historical cost basis of ~~$30.0~~$31.7 million and ~~$31.4~~$31.6 million, respectively. All amounts have been fully funded into the Rabbi Trust as of March 31, ~~2023~~2024 and December 31, ~~2022.~~2023. The consolidated investments held in the Rabbi Trust are recorded at fair value with changes in unrealized gains or losses recorded within non-interest income and the equal and offsetting charges in the related liability are recorded in non-interest expense in the consolidated statements of income.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 6—Employee Benefit Plans—Continued

Net gains on ERP plan investments were ~~$0.7~~$1.0 million ~~compared to net gains of $0.3~~ and $0.7 million at March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices.

Senior Management Retention Plan

The Company, through the Bank, sponsors a Senior Management Retention Plan (“SMRP”) for certain senior level employees. The SMRP is a non-qualified deferred compensation plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue ~~Service regulations.~~Service. All contributions are discretionary and subject to the Board of Directors approval. The Company maintains a Rabbi Trust to fund, in part, the SMRP. The Rabbi Trust is an irrevocable grantor trust to which the Company may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. The Company may not use the assets of the Rabbi Trust for any purpose other than meeting its obligations under the SMRP; however, the assets of the Rabbi Trust remain subject to the claims of its creditors and are included in the consolidated financial statements. The Company contributes cash to the Rabbi Trust from time to time for the sole purpose of funding the SMRP. The Rabbi Trust will use any cash the Company contributes to purchase shares of common stock of the Company, and other financial instruments, on the open market. Contributions to the SMRP are invested primarily in common stock of the Company.

The Company expensed ~~$1.2~~$1.1 million to the SMRP during the three months ended March 31, ~~2023~~2024 and ~~$0.7~~$1.2 million for three months ended March 31, ~~2022.~~2023. The Company’s carrying value of the liability under the SMRP was ~~$15.4~~$17.8 million as of March 31, ~~2023~~2024 and ~~$13.6~~$16.9 million as of December 31, ~~2022.~~ 2023, which is included in other liabilities on the balance sheet.The Company’s shares of stock held as investments in the Rabbi Trust of the SMRP as of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 totaled ~~16,629~~18,734 and ~~15,998~~17,806 shares with an historical cost basis of ~~$11.5~~$13.8 million and ~~$10.8~~$12.8 million, respectively. All amounts have been fully funded into the Rabbi Trust as of March 31, ~~2023~~2024 and December 31, ~~2022.~~2023. The consolidated investments held in the Rabbi Trust are recorded at fair value with changes ~~in unrealized gains or losses~~ recorded within non-interest income and the equal and offsetting charges in the related liability are recorded in non-interest expense in the consolidated statements of income.

Net gains on SMRP plan investments were ~~$0.2~~$0.2 million ~~compared to net gains of $0.1~~ and $0.2 million at March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices.

Note 7—Fair Value

The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available-for-sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a non-recurring basis, such as collateral dependent loans and other real estate owned. These non-recurring fair value adjustments typically involve lower of cost or fair value accounting or write-down of individual assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

2325

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 8—7—Fair ~~Value~~Value—Continued

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC Topic 820, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 – inputs ~~– Unadjusted~~to the valuation methodology are quoted prices ~~in active markets~~ for identical assets or liabilities ~~that the entity has the ability to access at the measurement date.~~in active markets.

Level 2 – inputs ~~– Inputs other than quoted prices included in Level 1 that are observable for~~to the ~~asset or liability, either directly or indirectly. These might~~valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs ~~other than quoted prices~~ that are observable for the ~~asset~~assets or ~~liability, such~~liabilities, either directly or indirectly (such as interest rates, ~~and~~ yield curves, ~~that are observable at commonly quoted intervals.~~and prepayment speeds).

Level 3 – inputs ~~– Unobservable inputs for determining~~to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.

The carrying amounts and estimated fair values of ~~assets~~financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or ~~liabilities~~discount that ~~reflect an entity’s own~~could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgements regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions ~~about~~could significantly affect the ~~assumptions that market participants would use in pricing the assets or liabilities.~~

estimates.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Collateral dependent loans represent certain loans held for investment that are subject to a fair value measurement under U.S. GAAP because they are individually evaluated using a fair value measurement, such as the fair value of the underlying collateral. Credit loss is measured using a market approach based on the fair value of the collateral, less estimated costs to dispose, for loans theThe Company ~~considers to be collateral dependent. Collateral dependent~~does not record all loans and leases ~~not requiring~~at fair value on a recurring basis. However, from time to time, a loan or lease is considered collateral dependent and an allowance ~~represent loans and leases~~ for ~~which the fair value of the expected repayments~~credit losses is established. Once a loan or ~~collateral exceed the recorded investments~~lease is identified as collaterally dependent, management measures impairment in ~~such loans and leases.~~ ~~Collateral dependent~~ ~~loans and leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.~~ ~~The fair value of collateral dependent loans and leases is generally based on recent real estate appraisals.~~accordance FASB ASC Topic 326.

These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring collateral dependent loans ~~and leases~~is primarily the sales comparison approach less estimated selling costs.

2426

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 8—7—Fair Value—Continued

Other Real Estate Owned (“OREO”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take ~~in to~~into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring OREO is primarily the sales comparison approach lessestimated selling costs.

The following tables summarize the carrying amount and estimated fair values of the Company’s financial assets and liabilities not carried at fair value, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

March 31, 2023

Fair Value Measurements

(Dollars in thousands)
Carrying
Amount
Level 1 Level 2 Level 3
Total Fair
Value

Financial Assets:
Cash and cash equivalents $ 529,593 $ 529,593 $ - $ - $ 529,593
Held-to-maturity securities 849,994 - 649,419 56,490 705,909
Non-marketable securities 15,549 - - 15,549 15,549
Loans and leases, net 3,358,560 - - 3,207,754 3,207,754
Bank-owned life insurance 66,076 66,076 - - 66,076

Financial Liabilities:
Total deposits $
4,539,162 $ - $ 4,153,033 $ 377,969 $ 4,531,002
Subordinated debentures 10,310 - 12,830 - 12,830

December 31, 2022

Fair Value Measurements

(Dollars in thousands)
Carrying
Amount
Level 1 Level 2 Level 3
Total Fair
Value

Financial Assets:
Cash and cash equivalents $ 588,257 $ 588,257 $ - $ - $ 588,257
Held-to-maturity securities 844,953 - 645,859 42,534 688,393
Non-marketable securities 15,549 - - 15,549 15,549
Loans and leases, net 3,445,476 - - 3,335,042 3,335,042
Bank-owned life insurance 73,038 73,038 - - 73,038

Financial Liabilities:
Total deposits $ 4,759,269 $ - $ 4,427,869 $ 323,572 $ 4,751,441
Subordinated debentures 10,310 - 12,211 - 12,211

~~Non-recurring Measurements: collateral dependent loans~~ ~~and leases~~ ~~and OREO are classified with Level 3 of the fair value hierarchy. The estimated fair value of collateral dependent loans~~ ~~and leases~~ ~~is based on the fair value of the collateral, less estimated costs to sell. The Company receives an appraisal or performs an evaluation for each collateral dependent loan~~ ~~or lease. The key inputs used to determine the fair value of collateral dependent loans~~ ~~and leases~~ ~~include selling costs, and adjustment to comparable collateral. There were no transfers into or out of Level 3.~~

~~Table of Contents~~

~~FARMERS & MERCHANTS BANCORP~~

~~NOTES TO UNAUDITED CONSOLIDATED STATEMENTS (Continued)~~

~~Note 8—Fair Value—Continued~~

~~Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness.~~

Appraisals are typically obtained at least on an annual basis. The Company also considers other factors and events that may affect the fair value. The appraisals or evaluations are reviewed at least on a quarterly basis to determine if any adjustments are needed. After review and acceptance of the appraisal or evaluation, adjustments to collateral dependent loans ~~or leasesmay occur.~~

The following tables presents information about the Bank’s assets and liabilities measured at fair value on a recurring and non-recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value for the periods indicated.

March 31, 2023			Fair Value Measurements
March 31, 2024													Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value		Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Fair valued on a recurring basis:
Available-for-sale securities
U.S. Government-sponsored securities	$	4,112	$	-	$	4,112	$	-	$	4,112	$	3,048	$	-	$	3,048	$	-	$	3,048
Mortgage-backed securities		103,697		-		103,697		-		103,697		216,093		-		216,093		-		216,093
Collateralized mortgage obligations		607		-		607		-		607		5,654		-		5,654		-		5,654
Corporate securities		9,711		-		9,711		-		9,711		14,751		-		14,751		-		14,751
Other		310		-		310		-		310		310		-		310		-		310

Fair valued on a non-recurring basis:
Collateral Dependent loans	$	14,065	$	-	$	-	$	14,065	$	14,065
Collateral dependent loans											$	1,642	$	-	$	-	$	1,642	$	1,642
Other real estate owned		873		-		-		873		873		873		-		-		873		873

December 31, 2022			Fair Value Measurements
December 31, 2023													Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value		Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Fair valued on a recurring basis:
Available-for-sale securities
U.S. Treasury notes	$	4,964	$	4,964	$	-	$	-	$	4,964
U.S. Government-sponsored securities		4,427		-		4,427		-		4,427	$	3,224	$	-	$	3,224	$	-	$	3,224
Mortgage-backed securities		132,528		-		132,528		-		132,528		163,838		-		163,838		-		163,838
Collateralized mortgage obligations		1,054		-		1,054		-		1,054		535		-		535		-		535
Corporate securities		9,581		-		9,581		-		9,581		14,605		-		14,605		-		14,605
Other		310		-		310		-		310		310		-		310		-		310

Fair valued on a non-recurring basis:
Collateral Dependent loans	$	14,473	$	-	$	-	$	14,473	$	14,473
Collateral dependent loans											$	9,884	$	-	$	-	$	9,884	$	9,884
Other real estate owned		873		-		-		873		873		873		-		-		873		873

Collateral dependent loans

While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for credit losses on loans. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral. The Company maintains a list of qualified property appraisers who review appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by credit administration. Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable. These measurements are classified as Level 3.

2627

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

Note 7—Fair Value—Continued

March 31, 2024			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial Assets:
Cash and cash equivalents	$	738,397	$	738,397	$	-	$	-	$	738,397
Held-to-maturity securities		806,521		-		607,853		57,387		665,240
Non-marketable securities, at cost		15,549		-		15,549		-		15,549
Loans and leases, net		3,621,277		-		-		3,402,777		3,402,777

Financial Liabilities:
Total deposits	$	4,959,589	$	-	$	4,082,127	$	871,395	$	4,953,522
Federal Home Loan Bank advances		100,000		-		-		100,003		100,003
Subordinated debentures		10,310		-		12,418		-		12,418

December 31, 2023			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial Assets:
Cash and cash equivalents	$	410,642	$	410,642	$	-	$	-	$	410,642
Held-to-maturity securities		817,238		-		629,051		58,192		687,243
Non-marketable securities, at cost		15,549		-		15,549		-		15,549
Loans and leases, net		3,579,724		-		-		3,369,255		3,369,255

Financial Liabilities:
Total deposits	$	4,668,095	$	-	$	4,023,467	$	639,315	$	4,662,782
Subordinated debentures		10,310		-		12,763		-		12,763

Non-marketable securities include FHLB stock, Pacific Coast Bankers’ Bank (“PCBB”) stock and The Independent BankersBank (“TIB”) stock which are recorded at cost. Ownership of these stocks is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of these investments is equal to the carrying amount.

Table of Contents

FARMERS & MERCHANTS BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 9—8—Commitments and Contingencies

In the normal course of business, the Company enters into financial instruments with off balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments include commitments to extend credit, letters of credit, and other types of financial guarantees. The Company had the following off balance sheet commitments as of the dates indicated.

(Dollars in thousands)
March 31,
2023

December 31,
2022

Commitments to extend credit, including unsecured commitments of $20,114 and $20,401 as of March 31, 2023 and December 31, 2022, respectively
$ 1,174,664 $ 1,141,036
Stand-by letters of credit, including unsecured commitments of $8,059 and $7,954 as of March 31, 2023 and December 31, 2022, respectively
16,821 17,138

(Dollars in thousands)	March 31, 2024		December 31, 2023

Commitments to extend credit, including unsecured commitments of $20,085 and $19,858 as of March 31, 2024 and December 31, 2023, respectively	$	1,074,963	$	1,150,142
Stand-by letters of credit, including unsecured commitments of $5,485 and $7,010 as of March 31, 2024 and December 31, 2023, respectively		14,889		16,858

The Company’s exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer’s creditworthiness are performed on a case-by-case basis.The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to ~~$2.1~~$3.7 million at March 31, ~~2023~~2024 and December 31, ~~2022.~~2023.

Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third-party. Outstanding standby letters of credit have maturity dates ranging from 1 to 60 months with final expiration in ~~January 2027.~~August 2028. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The Company has commitments to fund investments in LIHTC partnerships and limited liability companies. At March 31, 2024 and December 31, 2023, the ~~remaining~~balance of the investments in LIHTC was $35.8 million and $36.5 million, respectively. These balances are reflected in the other assets line on the consolidated balance sheets. Total unfunded commitments related to the investments in LIHTC ~~partnerships~~totaled $13.7 million and ~~limited liability companies were approximately $18.8 million. At~~$15.5 million at March 31, 2024 and December 31, ~~2022,~~2023, respectively. These balances are reflected in the ~~remaining~~other liabilities line on the consolidated balance sheets. The Company expects to fulfill these commitments tothrough 2039. Additionally, during the ~~LIHTC partnerships~~three months ended March 31, 2024 and the ~~limited liability companies were $19.7 million.~~year ended December 31, 2023, the Company recognized tax credits from its investments in LIHTC of $1.1 million and $3.6 million, respectively.

In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate liability, if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.

The Company may be required to maintain average reserves on deposit with the ~~Federal Reserve Bank~~FRB primarily based on deposits outstanding. Reserve requirements are offset by the Company’s vault cash and deposit balances maintained with the ~~Federal Reserve Bank.~~FRB.

2729

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q included in “Part I. Item 1. Financial Statements.”

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act. These forward-looking statements reflect our current views and are not historical facts. These statements may include statements regarding projected performance for periods following the date of this report. These statements can generally be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe our future financial condition, results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees of performance and many of the factors that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and other parts of this report and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 (“Form 10-K”), could cause actual results to differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Quarterly Report on Form 10-Q:

■◾	changes in general economic conditions, either nationally, in California, or in our local markets;

■◾	inflation, changes in interest rates, securities market volatility and monetary fluctuations;

■◾	increases in competitive pressures among financial institutions and businesses offering similar products and services;

■◾

risks associated with ~~recent~~ negative events in the banking industry in the past year, and any legislative and/or bank regulatory actions, that could potentially impact earnings, liquidity and/or the availability of ~~capital;~~capital or which could increase the cost of our deposit insurance by the FDIC;

■◾	higher defaults in our loan and lease portfolio than we expect;

■◾	changes in management’s estimate of the adequacy of the allowance for credit losses;

■◾	risks associated with our growth and expansion strategy and related costs;

■◾	increased lending risks associated with our high concentration of real estate loans;

■◾	legislative or regulatory changes or changes in accounting principles, policies or guidelines;

■◾	technological changes;

■◾	~~failure to raise the debt limit on U.S. debt;~~ operational risks, including processing, information systems, cybersecurity, vendor problems, business interruption, and fraud;

■◾	regulatory or judicial proceedings; and

■◾	~~the future impact of the COVID-19 virus or variants thereof; and~~

■	other factors and risks including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Please take into account that forward-looking statements speak only as of the date of this Form 10-Q (or documents incorporated by reference, if applicable).

2830

Table of Contents

The Company does not undertake any obligation to publicly correct or update any forward-looking statements if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statements, except as required by law.

Overview

~~Overview~~

Farmers & Merchants Bancorp (the “Company” or “FMCB”) is a Delaware registered bank holding company organized in 1999. As a registered bank holding company, FMCB is subject to regulation, supervision, and examination by the ~~Board of Governors of the~~ Federal Reserve ~~System (“FRB”)~~ and by the California Department of Financial Protection and Innovation (“DFPI”). The Company’s principal business is to serve as a holding company for ~~the~~Farmers & Merchants Bank of Central California (the “Bank” or “F&M Bank”) and for other banking or banking related subsidiaries, which the Company may establish or acquire. Over 107 years ago, August 1, 1916, marked the first day of business for Farmers & Merchants Bank (the “Bank”). The Bank was incorporated under the laws of the State of California and licensed as a state-chartered bank. The Bank’s first venture out of Lodi occurred when the Galt office opened in 1948. Since then the Bank has opened full-service branches in Linden, Manteca, Riverbank, Modesto, Sacramento, Elk Grove, Turlock, Hilmar, Stockton, Merced, Walnut Creek, Concord, Walnut Grove, Oakland and Napa. As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds received from the Bank. Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company.

~~The Company’s outstanding common stock as of~~In March 31, 2023, consisted of 762,931 shares of common stock, $0.01 par value and no shares of preferred stock were issued or outstanding. The common stock of Farmers & Merchants Bancorp is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.”

2002, F & M Bancorp, Inc. was created ~~in March 2002~~ to protect the name “F & M Bank.” During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name, “F & M Bank,” as part of a larger effort to enhance the Company’s image and build brand name recognition. Since 2002, the Company has converted all of its daily operating and image advertising to the “F & M Bank” name and the Company’s logo, slogan and signage were redesigned to incorporate the trade name, “F & M ~~Bank”.~~

Bank.”

The Company’s outstanding common stock as of March 31, 2024, consisted of 742,770 shares of common stock, $0.01 par value. No shares of preferred stock were issued or outstanding as of March 31, 2024. The common stock of the Company is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.”

The primary source of funding for the Company’s growth has been the generation of core deposits, which the Company raises through its existing branch locations, newly opened branch locations, or through acquisitions. Loan growth over the years is the result of organic growth generated by the Company’s seasoned relationship managers and supporting associates who provide outstanding service and responsiveness to the Company’s clients.

The Company’s results of operations are largely dependent on net interest income. Net interest income is the difference between interest income earned on interest earning assets, which are comprised of loans and leases, investment securities, ~~and~~ short-term investments and interest bearing deposits at other banks, and the interest the Company pays on interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve.

The Company measures its performance by calculating the net interest margin, return on average assets, ~~and~~ return on average ~~equity.~~equity and the efficiency ratio. Net interest margin is calculated by dividing net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is the Company’s largest source of revenue. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The ~~Company also measures~~return on average assets is calculated by dividing the Company’s net income by its ~~performance~~total average assets and the return on average equity is calculated by dividing the Company’s net income by its shareholder equity. The efficiency ratio ~~which~~ is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

2931

Table of Contents

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the allowance for credit losses on loans and leases held for investment, investment securities, the carrying value of goodwill and other intangible assets, fair value measurements and the realization of deferred income tax assets and liabilities.

Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K.

Impact of Recently Issued Accounting Standards

See Note 1. “Basis of Presentation and Significant Accounting Policies” to the Unaudited Consolidated Financial Statements in “Item 1. Financial Information” in this Quarterly Report on Form 10-Q.

Non-GAAP Measurements

We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:

•

Tangible common equity ratio and tangible book value per common share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity and book value per common share. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.

Tangible Common Equity Ratio and Tangible Book Value Per Common Share	March 31, 2024			December 31, 2023			March 31, 2023
(Dollars in thousands, except per share data)
Shareholders' equity	$	565,217		$	549,755		$	508,902
Less: Intangible assets		13,282			13,419			13,849
Tangible common equity	$	551,935		$	536,336		$	495,053

Total Assets	$	5,714,573		$	5,308,928		$	5,133,771
Less: Intangible assets		13,282			13,419			13,849
Tangible assets	$	5,701,291		$	5,295,509		$	5,119,922

Tangible common equity ratio⁽¹⁾		9.68	%		10.13	%		9.67	%
Book value per common share⁽²⁾	$	760.96		$	735.00		$	667.04
Tangible book value per common share⁽³⁾	$	743.08		$	717.05		$	648.88
Common shares outstanding		742,770			747,971			762,931

(1) Tangible common equity divided by tangibleassets

(2) Total common equity divided by common shares outstanding.

(3) Tangible common equity divided by common shares outstanding.

Table of Contents

Results of Operations

The following discussion and analysis is intended to provide a better understanding of ~~Farmers & Merchants Bancorp~~the Company’s and its subsidiaries’ ~~financial condition~~performance during each of the three month periods ended March 31, 2024 and 2023, and at ~~March~~December 31, 2023 and ~~December 31, 2022~~the material changes in financial condition, operating income, and ~~results~~expense of ~~operations during~~ the ~~three months ended March 31, 2023~~Company and ~~2022.~~its subsidiaries as shown in the accompanying consolidated financial statements. Information related to the comparison of the results of operations for the ~~three~~ years ended December 31, ~~2022, 2021,~~2023, and ~~2020~~2022 can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the ~~2022~~2023 Annual Report on Form 10-K filed with the SEC on March ~~15, 2023.~~

14, 2024.

Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes card processing fees, service charges on deposit accounts, bank-owned life insurance income, gains/losses on the sale of investment securities, and gains/losses on deferred compensation plan investments. Non-interest expense consists primarily of salaries and employee benefits, cost of deferred compensation benefits, occupancy, data processing, ~~FDIC~~deposit insurance, marketing, ~~legal~~professional services, and other expenses.

Earnings Performance

The following table presents performance metrics for the periods indicated:

	Three Months Ended
(dollars in thousands, except per share amounts)	March 31, 2024			December 31, 2023			March 31, 2023
Earnings Summary:
Interest income	$	66,641		$	67,392		$	59,632
Interest expense		14,928			13,592			3,910
Net interest income		51,713			53,800			55,722
Provision for credit losses		-			2,350			1,500
Non-interest income		5,075			2,401			3,460
Non-interest expense		25,521			24,866			28,183
Income before taxes		31,267			28,985			29,499
Income tax expense		8,544			7,560			5,952
Net Income	$	22,723		$	21,425		$	23,547

Per Common Share Data:
Diluted earnings per common share	$	30.56		$	28.55		$	30.80
Book value per common share	$	760.96		$	735.00		$	667.04
Tangible book value per common share⁽¹⁾	$	743.08		$	717.05		$	648.88

Performance Ratios:
Return on average assets		1.71	%		1.63	%		1.80	%
Return on average equity		16.33	%		16.54	%		18.93	%
Net interest margin (tax equivalent)		4.14	%		4.24	%		4.55	%
Yield on average loans and leases (tax equivalent)		6.09	%		6.10	%		5.69	%
Cost of average total deposits		1.27	%		1.14	%		0.32	%
Efficiency ratio		44.94	%		44.24	%		47.62	%
Loan-to-deposit ratio		74.73	%		78.52	%		75.73	%
Percentage of checking deposits to total deposits		49.39	%		51.76	%		55.89	%

Capital Ratios Bancorp:
Common equity tier 1 capital to risk-weighted assets		12.73	%		12.30	%		12.19	%
Tier 1 capital to risk-weighted assets		12.95	%		12.53	%		12.43	%
Risk-based capital to risk-weighted assets		14.21	%		13.78	%		13.68	%
Tier 1 leverage capital ratio		10.83	%		10.38	%		9.94	%
Tangible common equity ratio⁽¹⁾		9.68	%		10.13	%		9.67	%

(1) See "Non-GAAP Measurements"

3033

Table of Contents

Average Balance and Yields.

The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances.

Three Months Ended March 31,

2023 2022
(Dollars in thousands) Average Balance
Interest
Income /
Expense
Average Yield / Rate Average Balance Interest Income / Expense
Average
Yield / Rate

ASSETS
Interest earnings deposits in other banks and federal funds sold $ 521,147 $ 5,961 4.64 % $ 760,080 $ 366 0.20 %
Investment Securities:⁽¹⁾

Taxable securities 967,699 4,805 2.01 % 1,022,457 4,588 1.82 %
Non-taxable securities⁽²⁾
57,513 557 3.87 % 49,997 402 3.22 %
Total investment securities 1,025,212 5,362 2.12 % 1,072,454 4,990 1.89 %
Loans:⁽³⁾
��
Real estate:
Commercial 1,280,959 16,649 5.27 % 1,151,611 13,276 4.68 %
Agricultural 715,756 9,614 5.45 % 680,230 7,793 4.65 %
Residential and home equity 387,369 4,095 4.29 % 353,371 3,301 3.79 %
Construction 169,913 2,937 7.01 % 191,684 2,072 4.38 %
Total real estate 2,553,997 33,295 5.29 % 2,376,896 26,442 4.51 %
Commercial & industrial 465,383 7,624 6.64 % 424,598 4,799 4.58 %
Agricultural 280,467 5,204 7.52 % 248,414 2,755 4.50 %
Commercial leases 116,948 1,805 6.26 % 94,855 1,416 6.05 %
Consumer and other 5,580 80 5.81 % 52,078 2,021 15.74 %
Total loans and leases 3,422,375 48,008 5.69 % 3,196,841 37,433 4.75 %
Non-marketable securities 15,549 301 7.85 % 15,549 305 7.96 %
Total interest earning assets 4,984,283 59,632 4.85 % 5,044,924 43,094 3.46 %
Allowance for credit losses (67,691 ) (61,022 )
Non-interest earning assets 311,140 314,932
Total average assets $ 5,227,732 $ 5,298,834

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand $ 1,068,504 444 0.17 % $ 1,115,578 259 0.09 %
Savings and money market accounts 1,561,684 2,503 0.65 % 1,517,234 342 0.09 %
Certificates of deposit greater than $250,000 147,704 487 1.34 % 167,515 97 0.23 %
Certificates of deposit less than $250,000 206,214 280 0.55 % 223,842 105 0.19 %
Total interest bearing deposits 2,984,106 3,714 0.50 % 3,024,169 803 0.11 %
Short-term borrowings 3 - 0.00 % 3 - 0.00 %
Subordinated debentures 10,310 196 7.71 % 10,310 82 3.23 %
Total interest bearing liabilities 2,994,419 3,910 0.53 % 3,034,482 885 0.12 %
Non-interest bearing deposits 1,663,152 1,722,597
Total funding 4,657,571 3,910 0.34 % 4,757,079 885 0.08 %
Other non-interest bearing liabilities 72,710 76,061
Shareholders’ equity 497,451 465,694
Total average liabilities and shareholders’ equity $ 5,227,732 $ 5,298,834

Net interest income $ 55,722 $ 42,209
Interest rate spread 4.32 % 3.35 %
Net interest margin⁽⁴⁾
4.53 % 3.39 %

	Three Months Ended March 31,
	2024									2023
(Dollars in thousands)	Average Balance			Interest Income / Expense			Average Yield / Rate			Average Balance			Interest Income / Expense			Average Yield / Rate
ASSETS
Interest earnings deposits in other banks and federal funds sold	$	332,575		$	4,530			5.48	%	$	521,147		$	5,961			4.64	%
Investment Securities:⁽¹⁾
Taxable securities		969,234			5,708			2.37	%		967,699			4,805			2.01	%
Non-taxable securities⁽²⁾		63,079			762			4.83	%		57,513			704			4.90	%
Total investment securities		1,032,313			6,470			2.52	%		1,025,212			5,509			2.18	%
Loans:⁽³⁾
Real estate:
Commercial		1,322,337			17,622			5.36	%		1,280,959			16,649			5.27	%
Agricultural		725,078			10,322			5.73	%		715,756			9,614			5.45	%
Residential and home equity		401,578			4,792			4.80	%		387,369			4,095			4.29	%
Construction		225,430			3,898			6.95	%		169,913			2,937			7.01	%
Total real estate		2,674,423			36,634			5.51	%		2,553,997			33,295			5.29	%
Commercial & industrial		499,071			9,261			7.46	%		465,383			7,624			6.64	%
Agricultural		313,653			6,479			8.31	%		280,467			5,204			7.52	%
Commercial leases		168,526			2,946			7.03	%		116,948			1,805			6.26	%
Consumer and other		5,619			88			6.30	%		5,580			80			5.81	%
Total loans and leases		3,661,292			55,408			6.09	%		3,422,375			48,008			5.69	%
Non-marketable securities		15,549			388			10.04	%		15,549			301			7.85	%
Total interest earning assets		5,041,729			66,796			5.33	%		4,984,283			59,779			4.86	%
Allowance for credit losses		(75,448	)								(67,691	)
Non-interest earning assets		339,939									311,140
Total average assets	$	5,306,220								$	5,227,732

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Demand	$	914,618			888			0.39	%	$	1,068,504			444			0.17	%
Savings and money market accounts		1,618,678			7,186			1.79	%		1,561,684			2,503			0.65	%
Certificates of deposit greater than $250,000		378,714			3,094			3.29	%		147,704			487			1.34	%
Certificates of deposit less than $250,000		338,031			3,477			4.14	%		206,214			280			0.55	%
Total interest bearing deposits		3,250,041			14,645			1.81	%		2,984,106			3,714			0.50	%
Short-term borrowings		5,497			62			4.54	%		3			-			0.00	%
Subordinated debentures		10,310			221			8.62	%		10,310			196			7.71	%
Total interest bearing liabilities		3,265,848			14,928			1.84	%		2,994,419			3,910			0.53	%
Non-interest bearing deposits		1,403,384									1,663,152
Total funding		4,669,232			14,928			1.29	%		4,657,571			3,910			0.34	%
Other non-interest bearing liabilities		80,276									72,710
Shareholders' equity		556,712									497,451
Total average liabilities and shareholders' equity	$	5,306,220								$	5,227,732

Net interest income and margin⁽⁴⁾				$	51,868			4.14	%				$	55,869			4.55	%
Interest rate spread								3.49	%								4.33	%
Tax equivalent adjustment					(155	)								(147	)
Net interest income				$	51,713			4.13	%				$	55,722			4.53	%

⁽¹⁾Excludes average unrealized ~~(losses)~~losses of ~~($28.2)~~$18.5 million and ~~($7.0)~~$28.2 million for the three months ended March 31, ~~2023,~~2024, and ~~2022,~~2023, respectively, which are included in non-interest earning assets.

⁽²⁾~~The average yield does not include~~ Yields and interest income are calculated on a fully taxable equivalent basis using the current statutory federal tax ~~benefits at an assumed effective yield~~rate of ~~26% related to income earned on tax-exempt municipal securities totaling $147,000 and $106,000 for the three months ended March 31, 2023, and 2022, respectively.~~

21%.

⁽³⁾Loan interest income includes loan fees of ~~$2.0~~$1.4 million and ~~$3.9~~$2.0 million for the three months ended March 31, 2024 and 2023, ~~and 2022,~~ respectively.

⁽⁴⁾Net interest margin is computed by dividing net interest income by average interest earning assets.

3134

Table of Contents

Interest-bearing deposits with banks and ~~Federal Reserve~~FRB balances are earning assets available to the Company. Average interest-bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earned an average interest rate of ~~4.64%~~5.48% and ~~0.20%~~4.64% for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. The increase was primarily the result of the ~~FRB~~Federal Reserve increasing rates by ~~475~~75 basis points ~~during 2022 and the first quarter of~~from March 2023 to July 2023. Average interest-bearing deposits ~~were $521~~with banks was $333 million and ~~$760~~$521 million for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. Interest income on interest-bearing deposits with banks was ~~$6.0~~$4.5 million and ~~$0.4~~$6.0 million for the three months ended March 31, 2024 and 2023, ~~and 2022,~~ respectively.

The investment portfolio is also a component of the Company’s earning assets. Historically, the ~~company~~Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company has selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 7 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity. Since the risk factor for these types of investments is generally lower than that of loans and leases, the yield earned on investments is generally less than that of loans and leases.

Average total investment securities were $1.0 billion ~~and $1.1 billion~~ for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. The average yield on total investment securities was ~~2.12%~~2.52% and ~~1.89%~~2.18% for the three months ended March 31, 2024 and 2023, ~~and 2022,~~ respectively.

The increase in the yield reflects the increase in yields on purchases over the last year.

Average loans and leases held for investment were ~~$3.4~~$3.7 billion and ~~$3.2~~$3.4 billion for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. The average yield on the loan and lease portfolio was ~~5.69%~~6.09% and ~~4.75%~~5.69% for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. The increase in the loan yield reflects the increase in market interest rates over the last year.

Average interest-bearing ~~liabilities~~deposits were $3.3 billion and $3.0 billion for the three months ended March 31, 2024 and 2023, ~~and 2022.~~respectively. The average rate paid on interest-bearing ~~liabilities~~deposits was ~~0.53%~~1.81% and ~~0.12%~~0.50% for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively. Total interest expense on interest-bearing deposits was ~~$3.7~~$14.6 million and ~~$0.8~~$3.7 million for the three months ended March 31, 2024 and 2023, ~~and 2022,~~ respectively, ~~as a result of~~with the increases driven by increases in short-term market interest rates ~~during 2022~~from March 2023 to July 2023 and customers seeking higher rates on deposit products. The average rate paid on total funding costs was 1.29% and 0.34% for the first quarter of 2023. The Company is experiencing deposit pricing pressures as competition for deposits increases which may increase future deposit costs in order to retain key customers, which could place negative pressure on the net interest margin looking forward.

three months ended March 31, 2024 and 2023, respectively.

3235

Table of Contents

Rate/Volume Analysis.

The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each.

Three Months Ended March 31,
2023 compared with 2022

Increase (Decrease) Due to:
(Dollars in thousands) Volume Rate Net
Interest income:
Interest earnings deposits in other banks and federal funds sold $ (844 ) $ 6,439 $ 5,595
Investment securities:
Taxable securities (1,254 ) 1,471 217
Non-taxable securities 66 89 155
Total investment securities (1,188 ) 1,560 372
Loans:
Real estate:
Commercial 1,580 1,793 3,373
Agricultural 423 1,398 1,821
Residential and home equity 335 459 794
Construction (1,467 ) 2,332 865
Total real estate 872 5,981 6,853
Commercial & industrial 497 2,328 2,825
Agricultural 394 2,055 2,449
Commercial leases 340 49 389
Consumer and other⁽¹⁾
(1,138 ) (803 ) (1,941 )
Total loans and leases 965 9,610 10,575
Non-marketable securities - (4 ) (4 )
Total interest income (1,067 ) 17,605 16,538

Interest expense:
Interest bearing deposits:
Demand (75 ) 260 185
Savings and money market accounts 10 2,151 2,161
Certificates of deposit greater than $250,000 (81 ) 471 390
Certificates of deposit less than $250,000 (57 ) 232 175
Total interest bearing deposits (203 ) 3,114 2,911
Subordinated debentures - 114 114
Total interest expense (203 ) 3,228 3,025
Net interest income $ (864 ) $ 14,377 $ 13,513

	Three Months Ended March 31, 2024 compared with 2023
	Increase (Decrease) Due to:
(Dollars in thousands)	Volume			Rate			Net
Interest income:
Interest earnings deposits in other banks and federal funds sold	$	(6,787	)	$	5,356		$	(1,431	)
Investment securities:
Taxable securities		8			895			903
Non-taxable securities		118			(60	)		58
Total investment securities		126			835			961
Loans:
Real estate:
Commercial		640			333			973
Agricultural		144			564			708
Residential and home equity		164			534			698
Construction		1,123			(162	)		961
Total real estate		2,071			1,269			3,340
Commercial & industrial		605			1,032			1,637
Agricultural		678			597			1,275
Commercial leases		892			249			1,141
Consumer and other		1			7			8
Total loans and leases		4,247			3,154			7,401
Non-marketable securities		-			87			87
Total interest income		(2,414	)		9,432			7,018

Interest expense:
Interest bearing deposits:
Demand		(424	)		868			444
Savings and money market accounts		96			4,587			4,683
Certificates of deposit greater than $250,000		1,350			1,257			2,607
Certificates of deposit less than $250,000		286			2,911			3,197
Total interest bearing deposits		1,308			9,623			10,931

Short-term borrowings		-			62			62
Subordinated debentures		-			25			25
Total interest expense		1,308			9,710			11,018
Net interest income	$	(3,722	)	$	(278	)	$	(4,000	)

⁽¹⁾ ~~Consumer and other - These decreases respresent the end of the PPP loans which were $0 and $26,126 as of March 31, 2023 and 2022 respectively.~~

Net interest income was $55.7 million and $42.2 million for the three months ended March 31, 2023 and 2022, respectively. The increase in net interest income was driven primarily by increased interest rates as the increase in the loan yield outpaced the increase in deposit costs.

3336

Table of Contents

Comparison of Results of Operations for the Three Months Ended March 31, ~~2023~~2024 and ~~2022~~

2023

Three Months Ended
March 31,
(Dollars in thousands) 2023 2022 $ Better / (Worse) % Better / (Worse)
Selected Income Statement Information:
Interest income $ 59,632 $ 43,094 $ 16,538 38.38 %
Interest expense 3,910 885 (3,025 ) (341.81 %)
Net interest income 55,722 42,209 13,513 32.01 %
Provision for credit losses 1,500 - (1,500 ) N/A
Net interest income after provision for credit losses 54,222 42,209 12,013 28.46 %
Non-interest income 3,460 4,312 (852 ) (19.76 %)
Non-interest expense 28,183 23,788 (4,395 ) (18.48 %)
Income before income tax expense 29,499 22,733 6,766 29.76 %
Income tax expense 5,952 5,675 (277 ) (4.88 %)
Net income $ 23,547 $ 17,058 $ 6,489 38.04 %

	Three Months Ended March 31,				$ Better / (Worse)			$ Better / (Worse)
	Three Months Ended March 31,
(Dollars in thousands)	2024		2023
Selected Income Statement Information:
Interest income	$	66,641	$	59,632	$	7,009			11.75	%
Interest expense		14,928		3,910		(11,018	)		(281.79	%)
Net interest income		51,713		55,722		(4,009	)		(7.19	%)
Provision for credit losses		-		1,500		1,500			N/A
Net interest income after provision for credit losses		51,713		54,222		(2,509	)		(4.63	%)
Non-interest income		5,075		3,460		1,615			46.68	%
Non-interest expense		25,521		28,183		2,662			9.45	%
Income before income tax expense		31,267		29,499		1,768			5.99	%
Income tax expense		8,544		5,952		(2,592	)		(43.55	%)
Net income	$	22,723	$	23,547	$	(824	)		(3.50	%)

~~Net Income.~~For the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, net income was ~~$23.5~~$22.7 million compared with ~~$17.1~~$23.5 million, respectively. The ~~increase~~decrease in net income was primarily the result of ~~higher~~lower net interest income of ~~$13.5~~$4.0 million and a higher income tax expense of $2.6 million. The ~~Company also recognized in non-interest income,~~first quarter of 2023 benefited from cash proceeds from a ~~$4.3 million~~non-taxable death ~~benefit~~benefited on bank-owned life insurance (“BOLI”) ~~during~~of $4.3 million which was partially offset by a $5.7 million loss on the ~~three months ended March 31, 2023 that was not present during~~sale of securities based on the ~~three months ended March 31, 2022.~~decision to reposition the securities portfolio given the interest rate environment. This ~~increase~~decrease was offset by an increase in non-interest ~~expense~~income of ~~$4.4~~$1.6 million, ~~higher~~no provision for ~~credit~~credits losses ofcompared to $1.5 million in 2023 and a decrease in non-interest ~~income of $0.8 million and higher income tax~~ expense of ~~$.3~~$2.7 million.

Net Interest Income and Net Interest ~~Margin.~~Margin

For the three months ended March 31, 2024 and 2023, net interest income ~~increased $13.5 million, or 32.01%, to $55.7~~was $51.7 million compared with ~~$42.2~~$55.7 million, ~~for the same period a year earlier.~~respectively. The ~~increase~~decrease is primarily the result of the net interest margin ~~increasing 114~~(tax equivalent basis) decreasing 41 basis points to ~~4.53%~~4.14% compared with ~~3.39%~~4.55% for the same period a year earlier. The ~~increase~~decrease in the net interest margin was primarily the result of the ~~FRB increasing~~increase in deposit costs due the interest rate environment as the federal funds rate ~~by 475~~increased 75 basis points ~~during 2022~~from March through July of 2023 and customer expectations for higher rates on deposit products. The loan yield increased 40 basis points from 5.69% to 6.09% compared to the first quarter of 2023. The ~~loan~~deposit yield increased 94131 basis points ~~compared~~from 0.50% to ~~the first quarter of 2022~~1.81% and outpaced the increase in ~~deposit~~loan yield ~~of 41 basis points compared to~~over the same period a year earlier.

Provision for Credit ~~Losses.~~Losses. The provision for credit losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for credit losses at a level that, in management’s judgment, is adequate to absorb expected credit losses, over the life of the loans and leases, unfunded loan commitments and HTM securities portfolios.

The Company ~~made a $1.5 million~~had no provision for credit losses during the first three months of ~~2023~~2024 compared to noa $1.5 million provision for credit losses the same period a year earlier. For the three month ended March 31, ~~2023~~2024 net recoveries were ~~$188,000~~$53,000 compared to net recoveries of ~~$25,000~~$188,000 for the same period a year earlier.

Table of Contents

Non-interest ~~Income.~~Income

	Three Months Ended March 31,
(Dollars in thousands)	2024		2023			$ Better / (Worse)			% Better / (Worse)
Non-interest Income:
Card processing		1,629		1,591		$	38			2.39	%
Gain on BOLI death benefit		-		4,346			(4,346	)		-
Net gain on deferred compensation benefits		1,158		896			262			29.24	%
Service charges on deposit accounts		748		634			114			17.98	%
Increase in cash surrender value of BOLI		595		444			151			34.01	%
Net loss on sale of securities available-for-sale		-		(5,686	)		5,686			-
Other		945		1,235			(290	)		(23.48	%)
Total non-interest income	$	5,075	$	3,460		$	1,615			46.68	%

Non-interest income ~~decreased $0.9~~increased $1.6 million, or ~~19.76%~~46.7%, to ~~$3.5~~$5.1 million for the three months ended March 31, ~~2023~~2024 compared with ~~$4.3~~$3.5 million for the same period a year earlier. The year-over-year ~~decrease~~increase in non-interest income was primarily due to no loss on sale of investment securities during 2024 compared to a $5.7 million loss on sale of investment ~~securities. This decrease was off-set by a~~securities during the first quarter of 2023 and no gain on BOLI death benefits in the first quarter of 2024 compared to $4.3 million ~~BOLI death benefit and~~gain in the first quarter of 2023. Excluding these items, non-interest income in the first quarter of 2023 would have been $4.8 million with a ~~$0.5 million~~net increase in ~~net gains on deferred compensation plan investments.~~

the first quarter of 2024 of $0.3 million.

The Company recorded net gains on deferred compensation plan investments of ~~$0.9~~$1.2 million for the three months ended March 31, ~~2023~~2024 compared with net gains of ~~$0.4~~$0.9 million for the same period a year earlier. See Note ~~11,~~10, located in “Item 8. Financial Statements and Supplementary Data” in the Company’s December 31, ~~2022~~2023 Form 10-K filed on March ~~15, 2023~~14, 2024 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company’s net income.

Non-interest Expense

	Three Months Ended March 31,
(Dollars in thousands)	2024		2023		$ Better / (Worse)			% Better / (Worse)
Non-interest Expense:
Salaries and employee benefits		17,503		19,584	$	2,081			10.63	%
Data processing		1,455		1,260		(195	)		(15.48	%)
Occupancy		1,232		1,180		(52	)		(4.41	%)
Net gain on deferred compensation benefits		1,158		896		262			29.24	%
Deposit insurance		712		692		(20	)		(2.89	%)
Professional services		541		682		141			20.67	%
Marketing		480		470		(10	)		(2.13	%)
Other		2,440		3,419		979			28.63	%
Total non-interest expense	$	25,521	$	28,183	$	2,662			9.45	%

3438

Table of Contents

~~Non-interest Expense.~~Non-interest expense ~~increased $4.4~~decreased $2.7 million, or ~~18.48%~~9.45%, to ~~$28.2~~$25.5 million for the three months ended March 31, ~~2023~~2024 compared with ~~$23.8~~$28.2 million for the same period a year ago. This year-over-year ~~increase~~decrease was primarily comprised ~~of: (1)~~of a ~~$1.6~~$2.1 million ~~increase~~decrease in salaries and employee ~~benefits; (2)~~benefits and a ~~$1.2~~$1.0 million ~~increase in salaries; (3) a $0.6 million increase~~decrease in other miscellaneous ~~expenses; (4)~~expenses. The decrease in salaries and employee benefits was due primarily to reduced discretionary compensation. The decrease in miscellaneous expenses was due primarily to the adoption of ASU 2023-02 which shifts the benefits of low-income housing tax credits to the income tax line under the proportional amortization method. For the first quarter of 2024 this amounted to $1.0 million. These decreases were partially offset by a ~~$0.5~~$0.3 million increase in net gains on deferred compensation plan ~~investments; (5) a $0.3 million increase in FDIC insurance;~~investments and ~~(6)~~ a $0.2 million increase in ~~marketing~~data processing expenses.

Net gains on deferred compensation plan obligations were ~~$0.9~~$1.2 million for the three months ended March 31, ~~2023~~2024 compared with net gains of ~~$0.4~~$0.9 million for the same respective period. See Note ~~11,~~10, located in “Item 8. Financial Statements and Supplementary Data” in the Company’s December 31, ~~2022~~2023 Form 10-K filed on March ~~15, 2023~~14, 2024 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no net-effect on the Company’s net income.

Income Tax ~~Expense.~~Expense

For the three months ended March 31, ~~2023,~~2024, income tax expense was ~~$6.0~~$8.5 million compared to ~~$5.7~~$6.0 million for the same period a year earlier. For the three months ended March 31, ~~2023,~~2024, the effective tax rate was ~~20.18%~~27.33% compared to ~~24.96%~~20.18% for the same period a year earlier. The Company’s effective tax rate for the three months ended March 31, 2023 was lower than its historical effective tax rate primarily due to a non-taxable BOLI death benefit of $4.3 million recognized during the three months ended March 31, 2023. The Company’s effective tax rate can fluctuate from quarter to quarter due primarily to changes in the mix of taxable and tax-exempt earning sources. The effective rates were lower than the combined Federal and State statutory rate of 30% ~~due primarily to BOLI death benefits, the cash surrender value of life insurance;~~ credits associated with low income housing tax credit investments (LIHTC); and tax-exempt interest income on municipal securities and loans.

~~Financial Condition~~

Balance Sheet Analysis

Total assets were ~~$5.1~~$5.7 billion at March 31, ~~2023~~2024 compared with $5.3 billion at December 31, ~~2022, a decrease~~2023, an increase of ~~$193.6~~$405.6 million or ~~3.63%~~7.64%. Loans held for investment were ~~$3.4~~$3.7 billion at March 31, ~~2023, a decrease~~2024, an increase of ~~$85.2~~$41.6 million, or ~~2.43%~~1.14% compared with ~~$3.5~~$3.7 billion at December 31, ~~2022.~~2023. Total deposits were ~~$4.5~~$5.0 billion at March 31, ~~2023~~2024 compared with ~~$4.8~~$4.7 billion at December 31, ~~2022, a decrease~~2023, an increase of ~~$220.1~~$291.5 million or ~~4.62%~~6.24%.

~~Investment Securities~~ Our loan to deposit ratio was 74.73% and ~~Federal Reserve Balances~~

The Company’s net investment portfolio decreased by $29.4 million or 2.95% to $968.4 million at March 31, 2023 compared to December 31, 2022. This decrease is net of the impact of $36.2 million in available for sale securities sold for interest rate risk management purposes. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company’s total investment portfolio78.52% as of March 31, ~~2023 represents 18.86% of the Company’s total assets as compared to 18.72% at~~2024 and December 31, ~~2022.~~2023, respectively.

Cash and Cash Equivalents

~~Not included in the investment portfolio are~~The Company’s cash and cash equivalents consist of interest bearing deposits with banks and overnight investments in Federal Reserve balances. Interest bearing deposits with banks consisted primarily of FRB deposits. Since balances at the FRB are effectively risk free, the Company elected to maintain its excess cash at the FRB. Interest bearing deposits with banks totaled ~~$461.3~~$672.6 million at March 31, ~~2023~~2024 and ~~$514.9~~$338.4 million at December 31, ~~2022.~~2023. The increase was primarily due to steps taken to manage on-balance sheet liquidity which included $200.0 million in brokered deposits and $100.0 million in FHLB advances. The Company’s total cash and cash equivalents as of March 31, 2024 represented 12.9% of the Company’s total assets as compared to 7.7% as of December 31, 2023.

Investment Securities

The Company’s net investment portfolio increased by $46.6 million or 4.66% to $1.0 billion at March 31, 2024 compared to December 31, 2023. During the first quarter of 2024 the Company purchased $64.9 million of investment securities. The Company ~~classifies~~uses its investment securities as either held-to-maturity (“HTM”) or available-for-sale (“AFS”). Securities are classified as HTM and are carried at amortized cost, net of an allowance for credit losses, when the Company has the intent and abilityportfolio to hold the securities to maturity. See Note 2 “Investment Securities” to the Unaudited Consolidated Financial Statements in “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q. Securities classified as AFS include securities, which may be sold to effectively manage interest rate ~~risk exposure, prepayment risk, satisfy~~and liquidity ~~demands and other factors. These securities are reported at fair value with aggregate, unrealized gains or losses excluded from income and included~~risks. The Company's total investment portfolio as ~~a separate component of shareholders’ equity, as accumulated other comprehensive income(loss), net of related income taxes. As~~ of March 31, ~~2023, the Company held no investment securities from any issuer (other than the U.S. Treasury or an agency~~2024 represents 18.32% of the ~~U.S. government or a government sponsored entity) that totaled over 10% of our shareholders’ equity.~~

Company’s total assets as compared to 18.84% at December 31, 2023.

3539

Table of Contents

The carrying value of our portfolio of investment securities was as follows:

(Dollars in thousands)	March 31, 2024		December 31, 2023
Available-for-Sale Securities
U.S. Government-sponsored securities	$	3,048	$	3,224
Mortgage-backed securities⁽¹⁾		216,093		163,838
Collateralized mortgage obligations⁽¹⁾		5,654		535
Corporate securities		14,751		14,605
Other		310		310
Total available-for-sale securities	$	239,856	$	182,512

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

(Dollars in thousands)
March 31,
2023
December 31, 2022
Available-for-Sale Securities
U.S. Treasury notes $ - $ 4,964
U.S. Government-sponsored securities 4,112 4,427
Mortgage-backed securities⁽¹⁾
103,697 132,528
Collateralized mortgage obligations⁽¹⁾
607 1,054
Corporate securities 9,711 9,581
Other 310 310
Total available-for-sale securities $ 118,437 $ 152,864

(Dollars in thousands)	March 31, 2024		December 31, 2023
Held-to-Maturity Securities
Mortgage-backed securities⁽¹⁾	$	656,028	$	664,728
Collateralized mortgage obligations⁽¹⁾		72,950		74,170
Municipal securities		77,993		78,790
Total held-to-maturity securities	$	806,971	$	817,688

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The following tables show the carrying value for contractual maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:

	As of March 31, 2024
	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale
U.S. Government-sponsored securities	$	1		6.87	%	$	88		6.40	%	$	242		6.63	%	$	2,717		6.43	%	$	3,048		6.44	%
Mortgage-backed securities⁽¹⁾		112		1.90	%		5,404		2.56	%		4,986		3.76	%		205,592		4.09	%		216,093		4.04	%
Collateralized mortgage obligations⁽¹⁾		-		0.00	%		-		0.00	%		-		0.00	%		5,654		6.27	%		5,654		6.27	%
Corporate securities		-		0.00	%		14,750		5.80	%		-		0.00	%		-		0.00	%		14,751		5.80	%
Other		310		8.44	%		-		0.00	%		-		0.00	%		-		0.00	%		310		8.44	%
Total securities available-for-sale	$	423		6.70	%	$	20,242		4.94	%	$	5,228		3.89	%	$	213,963		4.18	%	$	239,856		4.24	%

(Dollars in thousands)
March 31,
2023
December 31, 2022
Held-to-Maturity Securities
Mortgage-backed securities⁽¹⁾
$ 695,083 $ 702,858
Collateralized mortgage obligations⁽¹⁾
79,044 80,186
Municipal securities⁽²⁾
75,867 61,909
Total held-to-maturity securities $ 849,994 $ 844,953

⁽¹⁾	All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

	As of March 31, 2024
	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Securities held-to-maturity
Mortgage-backed securities⁽¹⁾	$	-		0.00	%	$	1,887		0.87	%	$	11,758		1.44	%	$	642,382		1.89	%	$	656,028		1.88	%
Collateralized mortgage obligations⁽¹⁾		-		0.00	%		-		0.00	%		-		0.00	%		72,950		1.75	%		72,950		1.75	%
Municipal securities		2,230		6.41	%		16,200		3.60	%		9,251		3.04	%		50,313		4.00	%		77,993		3.87	%
Total securities held-to-maturity	$	2,230		6.41	%	$	18,087		3.32	%	$	21,009		2.14	%	$	765,645		2.02	%	$	806,971		2.06	%

⁽¹⁾	All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Table of Contents

	As of December 31, 2023
	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale
U.S. Government-sponsored securities	$	1		5.91	%	$	99		6.47	%	$	269		6.65	%	$	2,855		6.44	%	$	3,224		6.46	%
Mortgage-backed securities⁽¹⁾		169		1.79	%		6,138		2.57	%		4,916		3.78	%		152,615		3.52	%		163,838		3.44	%
Collateralized mortgage obligations⁽¹⁾		-		0.00	%		-		0.00	%		-		0.00	%		535		2.27	%		535		2.27	%
Corporate securities		-		0.00	%		14,605		5.71	%		-		0.00	%		-		0.00	%		14,605		5.71	%
Other		310		8.20	%		-		0.00	%		-		0.00	%		-		0.00	%		310		8.20	%
Total securities available-for-sale	$	480		5.94	%	$	20,842		4.79	%	$	5,185		3.93	%	$	156,005		3.57	%	$	182,512		3.68	%

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

⁽²⁾ ~~Municipal securities are net of allowance for credit losses of $393 and $393, respectively.~~

	As of December 31, 2023
	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Securities held-to-maturity
Mortgage-backed securities⁽¹⁾	$	-		0.00	%	$	2,058		0.78	%	$	12,418		1.41	%	$	650,252		1.90	%	$	664,728		1.88	%
Collateralized mortgage obligations⁽¹⁾		-		0.00	%		-		0.00	%		-		0.00	%		74,170		1.75	%		74,170		1.75	%
Municipal securities		875		4.01	%		15,962		4.23	%		10,703		3.76	%		51,250		3.88	%		78,790		3.93	%
Total securities held-to-maturity	$	875		4.01	%	$	18,020		3.84	%	$	23,121		2.50	%	$	775,672		2.02	%	$	817,688		2.07	%

The following tables show the carrying value for contractual final maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:

As of March 31, 2023

Within One Year
After One but Within
Five Years
After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities available-for-sale
U.S. Government-sponsored securities $ 1 2.23 % $ 86 5.89 % $ 305 5.78 % $ 3,720 5.44 % $ 4,112 5.47 %
Mortgage-backed securities⁽¹⁾
24 2.83 % 8,959 2.49 % 5,608 3.29 % 89,106 1.98 % 103,697 2.09 %
Collateralized mortgage obligations⁽¹⁾
- 0.00 % - 0.00 % - 0.00 % 607 2.29 % 607 2.29 %
Corporate securities - 0.00 % 9,711 4.58 % - 0.00 % - 0.00 % 9,711 4.58 %
Other 310 1.85 % - 0.00 % - 0.00 % - 0.00 % 310 1.85 %
Total securities available-for-sale $ 335 1.92 % $ 18,756 3.59 % $ 5,913 3.42 % $ 93,433 2.12 % $ 118,437 2.42 %

⁽¹⁾ ~~All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.~~

As of March 31, 2023

Within One Year
After One but Within
Five Years
After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities held-to-maturity
Mortgage-backed securities⁽¹⁾
$ - 0.00 % $ - 0.00 % $ 17,265 1.28 % $ 677,818 1.90 % $ 695,083 1.88 %
Collateralized mortgage obligations⁽¹⁾
- 0.00 % - 0.00 % - 0.00 % 79,044 1.73 % 79,044 1.73 %
Municipal securities 283 0.69 % 11,174 2.77 % 13,083 3.56 % 51,720 1.28 % 76,260 1.89 %
Total securities held-to-maturity $ 283 0.69 % $ 11,174 2.77 % $ 30,348 2.06 % $ 808,582 1.84 % $ 850,387 1.87 %

⁽¹⁾ ~~All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.~~

~~Table of Contents~~

As of December 31, 2022

Within One Year
After One but Within
Five Years
After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities available-for-sale
U.S. Treasury notes $ 4,964 2.37 % $ - 0.00 % $ - 0.00 % $ - 0.00 % $ 4,964 2.37 %
U.S. Government-sponsored securities 3 2.17 % 53 2.29 % 380 4.52 % 3,991 4.52 % 4,427 4.29 %
Mortgage-backed securities⁽¹⁾
13 2.82 % 16,460 2.31 % 15,156 2.41 % 100,899 1.82 % 132,528 1.95 %
Collateralized mortgage obligations⁽¹⁾
- 0.00 % - 0.00 % - 0.00 % 1,054 2.35 % 1,054 2.35 %
Corporate securities - 0.00 % 9,581 3.13 % - 0.00 % - 0.00 % 9,581 3.13 %
Other 310 4.60 % - 0.00 % - 0.00 % - 0.00 % 310 4.60 %
Total securities available-for-sale $ 5,290 2.50 % $ 26,094 2.61 % $ 15,536 2.46 % $ 105,944 1.93 % $ 152,864 2.11 %

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

As of December 31, 2022

Within One Year
After One but Within
Five Years
After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities held-to-maturity
Mortgage-backed securities⁽¹⁾
$ - 0.00 % $ - 0.00 % $ 18,197 1.22 % $ 684,661 1.90 % $ 702,858 1.88 %
Collateralized mortgage obligations⁽¹⁾
- 0.00 % - 0.00 % - 0.00 % 80,186 1.80 % 80,186 1.80 %
Municipal securities 883 5.92 % 8,058 3.98 % 15,670 3.70 % 37,691 4.83 % 62,302 4.45 %
Total securities held-to-maturity $ 883 5.92 % $ 8,058 3.98 % $ 33,867 2.37 % $ 802,538 2.03 % $ 845,346 2.07 %

⁽¹⁾ ~~All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.~~

Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. The Company evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

Loans and Leases

Loans and leases can be categorized by borrowing purpose and use of funds. ~~Common examples~~For detailed descriptions of ~~loans and leases made~~the various loan types offered by the Company ~~include:~~

~~Commercial~~see “Item 7. Management’s Discussion and ~~Agricultural Real Estate~~ ~~– These are loans secured by owner-occupied real estate, non-owner-occupied real estate, owner-occupied farmland,~~Analysis of Financial Condition and multifamily residential properties. Commercial mortgage term loans can be made if the property is either income producing or scheduled to become income producing based upon acceptable pre-leasing, or the income will be the Bank’s primary sourceResults of repayment for the loan. Loans are made both on owner occupied and investor properties; maturities generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe) amortizations of up to 25 years (30 years for multifamily residential properties); have debt service coverage ratios of 1.00 or better with a target of 1.25 or greater; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.

~~Real Estate Construction~~ – These are loans for acquisition, development and construction and are secured by commercial or residential real estate. These loans are generally made only to experienced local developers with a successful track record; for projectsOperations” in our service area; with Loan to Value (LTV) below 75%; and where the property can be developed and sold within 2 years. Commercial construction loans are made only when there is an approved take-out commitment from the Bank or an acceptable financial institution or government agency. Most acquisition, development and construction loans are tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.

~~Single Family Residential Real Estate~~ – These are loans primarily made on owner occupied residences; generally underwritten to income and LTV guidelines similar to those used by FNMA and FHLMC. However, the Company will make loans on rural residential properties up to 41 acres. Most residential loans have terms from ten to thirty years and carry fixed or variable rates priced to treasury rates. The Company has always underwritten mortgage loans based upon traditional underwriting criteria and does not make loans that are known in the industry as “subprime,” “no or low doc,” or “stated income” loans.

~~Table of Contents~~

~~Home Equity Lines and Loans~~ – These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed $500,000; but can be made for up to $1,000,000 in high cost counties. Combined Loan to Value (CLTV) does not exceed 75%; FICO scores are at or above 670; Total Debt Ratios do not exceed 43%; and in some situations the Company is in a 1^st ~~lien position.~~

~~Agricultural~~ – These are non-real estate loans and lines of credit made to farmers to finance agricultural production. Lines of credit are extended to finance the seasonal needs of farmers during peak growing periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.

~~Commercial~~ – These are non-real estate loans and lines of credit to businesses that are sole proprietorships, partnerships, LLC’s and corporations. Lines of credit are extended to finance the seasonal working capital needs of customers during peak business periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on accounts receivable, inventory and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a plant or purchase of a business; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.

~~Consumer~~ – These are loans to individuals for personal use, and primarily include loans to purchase automobiles or recreational vehicles, and unsecured lines of credit. The Company has a minimal consumer loan portfolio.

~~Commercial Leases~~ – These are leases primarily to businesses and farmers for financing the acquisition of equipment. They can be either “finance leases” where the lessee retains the tax benefits of ownership but obtains 100% financing on their equipment purchases; or “true tax leases” where the Company, as lessor, places reliance on equipment residual value and in doing so obtains the tax benefits of ownership. Leases typically have a maturity of three to ten years, and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed with qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

The Company accounts for leases with Investment Tax Credits (“ITC”) under the deferred method as established in ASC 740-10. ITCs are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

Each loan or lease type involves risks specific to the: (1) borrower; (2) collateral; and (3) loan or lease structure. See “Results of Operations - Provision and Allowance for Credit Losses” for a more detailed discussion of risks by loan and lease type. The Company’s current underwriting policies and standards are designed to mitigate the risks involved in each loan and lease type. The Company’s policies require that loans and leases be approved only to those borrowers exhibiting a clear source of repayment and the ability to service existing and proposed debt. The Company’s underwriting procedures for all loan and lease types require careful consideration of the borrower, the borrower’s financial condition, the borrower’s management capability, the borrower’s industry, and the economic environment affecting the loan or lease.

Most loans and leases made by the Company are secured, but collateral is the secondary or tertiary source of repayment; cash flow is our primary source of repayment. The quality and liquidity of collateral are important and must be confirmed before the loan or lease is made.

~~Table of Contents~~

In order to be responsive to borrower needs, the Company prices loans and leases: (1) on both a fixed rate and adjustable rate basis; (2) over different terms; and (3) based upon different rate indices as long as these structures are consistent with the Company’s interest rate risk management policies and procedures. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in thisAnnual Report on Form ~~10-Q for further details.~~

10-K filed with the SEC on March 14, 2024.

~~Overall, the Company’s~~The Company's loan and lease portfolio at March 31, ~~2023~~2024 totaled ~~$3.4~~$3.7 billion, ~~a decrease~~an increase of ~~$85.2~~$41.6 million or ~~2.43%~~1.14% over December 31, ~~2022.~~

2023.

The following table sets forth the distribution of the loan and lease portfolio by type and percent at the end of each period presented:

	March 31, 2024					December 31, 2023
(Dollars in thousands)	Dollars		Percent of Total			Dollars		Percent of Total
Gross loans and leases
Real estate:
Commercial	$	1,352,014		36.48	%	$	1,323,038		36.10	%
Agricultural		726,041		19.59	%		742,009		20.24	%
Residential and home equity		405,526		10.94	%		399,982		10.91	%
Construction		227,415		6.13	%		212,362		5.80	%
Total real estate		2,710,996		73.14	%		2,677,391		73.05	%
Commercial & industrial		497,028		13.41	%		499,373		13.62	%
Agricultural		317,955		8.58	%		313,737		8.56	%
Commercial leases		174,657		4.71	%		169,684		4.63	%
Consumer and other		5,801		0.16	%		5,212		0.14	%
Total gross loans and leases	$	3,706,437		100.00	%	$	3,665,397		100.00	%

March 31,
2023 December 31,
2022
(Dollars in thousands) Dollars Percent of
Total Dollars Percent of Total
Gross Loans and Leases
Real estate:
Commercial $ 1,312,745 38.19 % $ 1,328,691 37.73 %
Agricultural 707,412 20.58 % 726,938 20.64 %
Residential and home equity 387,370 11.27 % 387,753 11.01 %
Construction 153,394 4.46 % 166,538 4.73 %
Total real estate 2,560,921 74.50 % 2,609,920 74.11 %
Commercial & industrial 472,189 13.74 % 478,758 13.59 %
Agricultural 275,785 8.02 % 314,525 8.93 %
Commercial leases 123,314 3.59 % 112,629 3.20 %
Consumer and other 5,382 0.15 % 5,886 0.17 %
Total gross loans and leases $ 3,437,591 100.00 % $ 3,521,718 100.00 %

3941

Table of Contents

The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company as of March 31, ~~2023.~~

2024.

Loan Contractual Maturity
(Dollars in thousands) One Year or Less
After One
But Within
Five Years

After Five
Years But
Within
Fifteen Years
After Fifteen Years Total
Gross loan and leases:
Real estate:
Commercial $ 49,850 $ 360,141 $ 866,582 $ 36,172 $ 1,312,745
Agricultural 21,983 188,884 420,950 75,595 707,412
Residential and home equity 359 4,209 117,774 265,028 387,370
Construction 65,460 87,934 - - 153,394
Total real estate 137,652 641,168 1,405,306 376,795 2,560,921
Commercial & industrial 184,852 211,857 69,404 6,076 472,189
Agricultural 158,681 97,633 19,471 - 275,785
Commercial leases 6,125 45,975 71,214 - 123,314
Consumer and other 865 3,457 1,060 - 5,382
Total gross loans and leases $ 488,175 $ 1,000,090 $ 1,566,455 $ 382,871 $ 3,437,591
Rate Structure for Loans
Fixed Rate $ 230,809 $ 506,642 $ 840,918 $ 188,726 $ 1,767,095
Adjustable Rate 257,366 493,448 725,537 194,145 1,670,496
Total gross loans and leases $ 488,175 $ 1,000,090 $ 1,566,455 $ 382,871 $ 3,437,591

	Loan Contractual Maturity
(Dollars in thousands)	One Year or Less		After One But Within Five Years		After Five Years But Within Fifteen Years		After Fifteen Years		Total
Gross loan and leases:
Real estate:
Commercial	$	85,828	$	388,701	$	842,417	$	35,068	$	1,352,014
Agricultural		51,740		174,911		438,218		61,172		726,041
Residential and home equity		111		4,315		111,926		289,174		405,526
Construction		183,815		42,741		859		-		227,415
Total real estate		321,494		610,668		1,393,420		385,414		2,710,996
Commercial & industrial		216,756		179,670		98,271		2,331		497,028
Agricultural		194,378		102,542		21,035		0		317,955
Commercial leases		4,939		50,174		119,544		-		174,657
Consumer and other		731		3,677		922		471.00		5,801
Total gross loans and leases	$	738,298	$	946,731	$	1,633,192	$	388,216	$	3,706,437
Rate structure for loans and leases
Fixed rate	$	200,541	$	589,620	$	1,138,467	$	223,302	$	2,151,930
Adjustable rate		537,757		357,111		494,725		164,914		1,554,507
Total gross loans and leases	$	738,298	$	946,731	$	1,633,192	$	388,216	$	3,706,437

The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, and OREO (as hereinafter defined):

(Dollars in thousands)	March 31, 2024			December 31, 2023
Non-performing assets:
Non-accrual loans and leases
Real estate:
Commercial	$	-		$	-
Agricultural		-			-
Residential and home equity		-			-
Construction		-			-
Total real estate		-			-
Commercial & industrial		-			-
Agricultural		-			-
Commercial leases		-			-
Consumer and other		-			-
Subtotal		-			-
Accruing loans and leases
Real estate:
Commercial	$	-		$	-
Agricultural		3,550			-
Residential and home equity		-			-
Construction		-			-
Total real estate		3,550			-
Commercial & industrial		-			-
Agricultural		-			-
Commercial leases		-			-
Consumer and other		-			-
Subtotal		3,550			-
Total non-performing loans and leases	$	3,550		$	-
Other real estate owned ("OREO")	$	873		$	873
Total non-performing assets	$	4,423		$	873

Selected ratios:
Non-performing loans to total loans and leases		0.10	%		0.00	%
Non-performing assets to total assets		0.08	%		0.02	%

(Dollars in thousands)
March 31,
2023
December 31, 2022
Non-performing assets:
Non-accrual loans and leases
Real estate:
Commercial $ 387 $ 403
Agricultural - -
Residential and home equity - -
Construction - 168
Total real estate 387 571
Commercial & industrial - -
Agricultural - -
Commercial leases - -
Consumer and other - -
Total non-performing loans and leases $ 387 $ 571
Other real estate owned (“OREO”) $ 873 $ 873
Total non-performing assets $ 1,260 $ 1,444

Selected ratios:
Non-performing loans to total loans and leases 0.01 % 0.02 %
Non-performing assets to total assets 0.02 % 0.03 %

4042

Table of Contents

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~~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. Non-accrual loans and leases ~~totaled $387,000 and $571,000~~were zero at March 31, ~~2023~~2024 and December 31, ~~2022, respectively.~~

2023. The Company had one non-performing loan which was 90+ days past due and still accruing interest at March 31, 2024 as steps were already in process of bringing the loan current. Those steps were completed in early April 2024 and the loan returned to current and performing status.

Other Real Estate Owned ~~–OREO~~– OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported $873,000 of foreclosed OREO at March 31, ~~2023,~~2024, and at December 31, ~~2022.~~

2023.

Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company’s allowance for credit losses, there can be no assurance that future deterioration in economic conditions and/or collateral values will not result in future credit losses. See Note 3. “Loans and Leases”, located in “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for an allocation of the allowance classified to collateral dependent loans and leases.

Except for non-performing loans and leases discussed above, the Company’s management is not aware of any loans and leases as of March 31, 2023, for which known financial problems of the borrower would cause serious doubts as to the ability of these borrowers to materially comply with their present loan or lease repayment terms, or any known events that would result in the loan or lease being designated as non-performing at some future date. However, the State of California has routinely experienced drought conditions such as from 2013 through 2016 and 2020-2022. Although the availability of water in our primary service area was not an issue for the 2022 growing season, the weather patterns over the past nine years further reinforce the fact that the long-term risks associated with the availability of water are significant.

~~Loan Modifications/Restructurings –~~ A modification/restructuring of a loan or lease happens when the Company makes certain concessions to a borrower experiencing financial difficulty. These concessions either stem from an agreement between the Company and the borrower or is imposed by law or a court; some of these concessions include: term extension, principle forgiveness, rate reduction, or a combination of any of those. The Company has granted a concession when, as a result of the modification/restructuring, it does not expect to collect all amounts due, including interest accrued at the original contract rate. ASU 2022-02 requires certain disclosure of loans and leases that have been modified or restructured within the past 12 months and the effects that had on the loans or leases modified. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

~~The Company did not enter into any loan modifications with borrowers experiencing financial difficulty during the three months ended March 31, 2023.~~

~~Table of Contents~~

Allowance for Credit Losses—Loans and Leases

The Company maintains an allowance for credit losses (“ACL”) under ~~the guidance of Financial Accounting Standards Board Accounting Standards Update 2016-13,~~ ASC Topic 326, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“CECL”). The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan and lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of ~~three~~two primary components: specific reserves related to ~~collateral dependent~~impaired loans and ~~leases;~~leases and general reserves comprised of both quantitative and qualitative factors for current expected credit losses related to loans and leases that are not collateral ~~dependent;~~dependent. The Company uses the Weighted Average Remaining Maturity (“WARM”) method to calculate the ACL, as this method is deemed the most appropriate given the Company’s current size and ~~an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.~~complexity. See ~~“Summary of Critical~~“Critical Accounting Policies and Estimates - Allowance for Credit Losses – Loans and Leases.”

4243

Table of Contents

The following table sets forth the activity in our ACL for the periods indicated:

	Three Months Ended March 31,
(Dollars in thousands)	2024			2023
Allowance for credit losses:
Balance at beginning of year	$	74,965		$	66,885
Provision for credit losses		-			1,500
Charge-offs:
Real estate:
Commercial		-			-
Agricultural		-			-
Residential and home equity		-			(14	)
Construction		-			-
Total real estate		-			(14	)
Commercial & industrial		-			-
Agricultural		-			-
Commercial leases		-			-
Consumer and other		(10	)		(10	)
Total charge-offs		(10	)		(24	)
Recoveries:
Real estate:
Commercial		-			170
Agricultural		-			-
Residential and home equity		8			10
Construction		-			-
Total real estate		8			180
Commercial & industrial		18			19
Agricultural		-			1
Commercial leases		-			-
Consumer and other		37			12
Total recoveries		63			212
Net recoveries / (charge-offs)		53			188
Balance at end of year	$	75,018		$	68,573

Selected financial information:
Net loans and leases held-for-investment	$	3,696,295		$	3,427,133
Average loans and leases		3,661,292			3,422,375
Non-performing loans and leases		3,550			387
Allowance for credit losses to non-performing loans and leases		2113.18	%		17719.12	%
Net (recoveries)/charge-offs to average loans and leases		(0.00	%)		(0.01	%)
Provision for credit losses to average loans and leases		0.00	%		0.04	%
Allowance for credit losses to gross loans and leases held-for-investment		2.02	%		1.99	%

Three Months Ended
March 31,

(Dollars in thousands) 2023 2022
Allowance for credit losses:
Balance at beginning of year $ 66,885 $ 61,007
Provision for credit losses 1,500 -
Charge-offs:
Real estate:
Commercial - -
Agricultural - -
Residential and home equity (14 ) -
Construction - -
Total real estate (14 ) -
Commercial & industrial - -
Agricultural - -
Commercial leases - -
Consumer and other (10 ) (9 )
Total charge-offs (24 ) (9 )
Recoveries:
Real estate:
Commercial 170 -
Agricultural - -
Residential and home equity 10 14
Construction - -
Total real estate 180 14
Commercial & industrial 19 16
Agricultural 1 2
Commercial leases - -
Consumer and other 12 2
Total recoveries 212 34
Net recoveries / (charge-offs) 188 25

Balance at end of year $ 68,573 $ 61,032

Selected financial information:
Net loans and leases held for investment $ 3,427,133 $ 3,237,619
Average loans and leases 3,422,375 3,196,841
Non-performing loans and leases 387 437
Allowance for credit losses to non-performing loans and leases 17719.12 % 13966.13 %
Net (recoveries)/charge-offs to average loans and leases (0.01 %) 0.00 %
Provision for credit losses to average loans and leases 0.04 % 0.00 %
Allowance for credit losses to gross loans and leases held-for-investment 1.99 % 1.88 %

The increase in ACL during the first quarter of ~~2023~~2024 was ~~primarily~~ related to ~~higher expected probable losses inherent in the loan and lease portfolio that was directly related to quantitative and qualitative factors associated with the current economic environment.~~

net recoveries.

(Dollars in thousands)	March 31, 2024		December 31, 2023

ACL - Loans and leases	$	75,018	$	74,965
ACL - Unfunded commitments		3,690		3,690
Total ACL		78,708		78,655

4344

Table of Contents

The following table indicates management’s allocation of the ACL for loan and leases by loan type as of each of the following dates:

	March 31, 2024								December 31, 2023
(Dollars in thousands)	Dollars		Percent of Each Loan Type to Total Loans			Percent of ACL to Each Loan Type			Dollars		Percent of Each Loan Type to Total Loans			Percent of ACL to Each Loan Type
Allowance for credit losses:
Real estate:
Commercial	$	22,414		36.48	%		1.66	%	$	26,093		36.10	%		1.97	%
Agricultural		11,377		19.59	%		1.57	%		7,744		20.24	%		1.04	%
Residential and home equity		7,721		10.94	%		1.90	%		7,770		10.91	%		1.94	%
Construction		4,616		6.13	%		2.03	%		4,432		5.80	%		2.09	%
Total real estate		46,128		73.14	%		1.70	%		46,039		73.05	%		1.72	%
Commercial & industrial		11,559		13.41	%		2.33	%		13,380		13.62	%		2.68	%
Agricultural		10,292		8.58	%		3.24	%		8,872		8.56	%		2.83	%
Commercial leases		6,923		4.71	%		3.96	%		6,537		4.63	%		3.85	%
Consumer and other		116		0.16	%		2.00	%		137		0.14	%		2.63	%
Total allowance for credit losses	$	75,018		100.00	%		2.02	%	$	74,965		100.00	%		2.05	%

March 31,
2023 December 31,
2022
(Dollars in thousands) Dollars
Percent of Each Loan Type to
Total Loans
Dollars
Percent of Each Loan Type to
Total Loans

Allowance for credit losses:
Real estate:
Commercial $ 24,253 38.19 % $ 18,055 37.73 %
Agricultural 8,441 20.58 % 14,496 20.64 %
Residential and home equity 7,334 11.27 % 7,508 11.01 %
Construction 2,785 4.46 % 3,026 4.73 %
Total real estate 42,813 74.50 % 43,085 74.11 %
Commercial & industrial 11,346 13.74 % 11,503 13.59 %
Agricultural 12,542 8.02 % 10,202 8.93 %
Commercial leases 1,720 3.59 % 1,924 3.20 %
Consumer and other 152 0.15 % 171 0.17 %
Total allowance for credit losses $ 68,573 100.00 % $ 66,885 100.00 %

Deposits

Total deposits were ~~$4.5~~$5.0 billion and ~~$4.8~~$4.7 billion as of March 31, ~~2023~~2024 and December 31, ~~2022,~~2023, respectively an increase of $291.5 million or 6.24%. The increase in deposits was primarily due to $100.0 million in a State of California certificate of deposit and $200.0 million in brokered deposits. Deposits, net of this $300.0 million, had a slight decrease of ~~4.62% due in part to traditional seasonality related to the cyclical nature of our agricultural customers. Despite the~~$8.5 million. The slight decrease in deposits ~~during~~was primarily attributable to the ~~first quarter,~~shift in customer behavior over the ~~Company is highly focused on business development activities for deposits, and~~last year as customers seek higher yielding deposit products or other investment alternatives such as U.S. Treasuries or money market funds given the following factors contributed positively to our deposit gathering abilities: (1) the Company’s strong financial results and position and F&M Bank’s reputation as one of the most safe and sound banks in its market area; and (2) the Company’s expansion of its service area into Walnut Creek, Oakland, Concord and Napa.

interest rate environment.

Non-interest bearing demand deposits were ~~$1.55~~$1.4 billion as of March 31, ~~2023~~2024 and ~~$1.76~~$1.5 billion at December 31, ~~2022.~~2023. Non-interest bearing deposits were ~~34.19%~~28.44% of total deposits, as of March 31, ~~2023~~2024 and ~~36.96%~~31.76% as of December 31, ~~2022.~~2023. Interest bearing deposits were $3.5 million and $3.2 million at March 31, 2024 and December 31, 2023, respectively. Interest bearing deposits are comprised of interest-bearing transaction accounts, money market accounts, regular savings accounts, and certificates of deposit.

Interest bearing deposits are comprised of interest-bearing transaction accounts, money market accounts, regular savings accounts, and certificates of deposit. The decrease in non-interest bearing deposits and the increase in interest-bearing deposits primarily reflects changes in customer behavior as customers shifted from non-interest bearing accounts to higher interest earning accounts given the interest rate environment. Checking account deposits were 49.39% of total deposits as of March 31, 2024 compared to 51.76% of total deposits as of December 31, 2023.

The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:

	Three Months Ended March 31,
	2024							2023
(Dollars in thousands)	Average Balance		Interest Expense		Average Rate			Average Balance		Interest Expense		Average Rate
Total deposits:
Interest bearing deposits:
Demand	$	914,618	$	888		0.39	%	$	1,068,504	$	444		0.17	%
Savings and money market		1,618,678		7,186		1.79	%		1,561,684		2,503		0.65	%
Certificates of deposit greater than $250,000		378,714		3,094		3.29	%		147,704		487		1.34	%
Certificates of deposit less than $250,000		338,031		3,477		4.14	%		206,214		280		0.55	%
Total interest bearing deposits		3,250,041		14,645		1.81	%		2,984,106		3,714		0.50	%
Non-interest bearing deposits		1,403,384							1,663,152				0.00	%
Total deposits	$	4,653,425	$	14,645		1.27	%	$	4,647,258	$	3,714		0.32	%

Three Months Ended March 31,

2023 2022
(Dollars in thousands) Average Balance Interest Expense
Average
Rate
Average Balance Interest Expense
Average
Rate

Total deposits:
Interest bearing deposits:
Demand $ 1,068,504 $ 444 0.17 % $ 1,115,578 $ 259 0.09 %
Savings and money market 1,561,684 2,503 0.65 % 1,517,234 342 0.09 %
Certificates of deposit greater than $250,000 147,704 487 1.34 % 167,515 97 0.23 %
Certificates of deposit less than $250,000 206,214 280 0.55 % 223,842 105 0.19 %
Total interest bearing deposits 2,984,106 3,714 0.50 % 3,024,169 803 0.11 %
Non-interest bearing deposits 1,663,152 1,722,597
Total deposits $ 4,647,258 $ 3,714 0.32 % $ 4,746,766 $ 803 0.07 %

Table of Contents

Deposits are gathered from individuals and businesses in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. The ~~significant~~ increase in short-term interest rates during ~~2022~~2023 and ~~into 2023 has~~customers seeking higher yielding deposit products placed pressure on ~~deposit pricing, and we will continue to manage this ongoing impact through careful~~ deposit pricing. The average cost of total deposits, including non-interest bearing deposits, increased to ~~0.32%~~1.27% for the three months ended March 31, ~~2023~~2024 compared with ~~0.07%~~0.32% for the same period a year ~~ago.~~

ago and 1.14% as of December 31, 2023.

~~Table of Contents~~

The following table shows deposits with a balance greater than $250,000 at March 31, ~~2023~~2024 and December 31, ~~2022:~~

2023:

March 31, December 31,
(Dollars in thousands) 2023 2022
Non-Maturity Deposits greater than $250,000 $ 2,549,674 $ 2,872,754
Certificates of deposit greater than $250,000, by maturity:
Less than 3 months 38,866 45,078
3 months to 6 months 30,924 30,426
6 months to 12 months 81,347 44,189
More than 12 months 16,618 9,153
Total certificates of deposit greater than $250,000 $ 167,755 $ 128,846
Total deposits greater than $250,000 $ 2,717,429 $ 3,001,600

	March 31,		December 31,
(Dollars in thousands)	2024		2023
Non-maturity deposits greater than $250,000	$	2,401,894	$	2,496,749
Certificates of deposit greater than $250,000, by maturity:
Less than 3 months		215,377		84,460
3 months to 6 months		109,740		111,866
6 months to 12 months		148,784		107,080
More than 12 months		3,985		15,423
Total certificates of deposit greater than $250,000	$	477,886	$	318,829
Total deposits greater than $250,000	$	2,879,780	$	2,815,578

Refer to the Year-To-Date Average Balances and Rate Schedules located in this ~~“Item~~"Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" for information on separate deposit categories.

The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank’s option. ~~At March 31, 2023 and December 31, 2022, the~~The Bank had $103.0 million and $3.0 million of these ~~deposits.~~

deposits at March 31, 2024 and December 31, 2023, respectively.

Total estimated uninsured deposits based on our regulatory reporting amounted to $2.4 billion and $2.2 billion at March 31, 2024 and December 31, 2023, respectively.

Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings

Lines of Credit with the Federal ~~Reserve~~Home Loan Bank and ~~Federal Home Loan Bank~~FRB are other key sources of funds to support earning assets and liquidity. These sources of funds are also used to manage the Company’s interest rate risk exposure; and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. ~~There were no~~ FHLB advances atas of March 31, ~~2023 or~~2024 were $100.0 million compared to no advances at December 31, ~~2022.~~2023. The average rate on FHLB advances during the first quarter of 2024 was 4.54% compared to zero during the first quarter of 2023. The $100.0 million in FHLB advances have a one-month term and may or may not be renewed. There were no Federal Funds purchased or advances from the FRB at March 31, ~~2023~~2024 or December 31, ~~2022.~~

2023.

Long-Term Subordinated Debentures

On December 17, 2003, the Company raised $10.0 million through the sale of subordinated debentures to an off-balance-sheet trust and its sale of trust-preferred securities. See Note 9. “Long-Term Subordinated Debentures” located in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K filed with the SEC on March ~~15, 2023.~~14, 2024. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our Trust Preferred Securities will continue to qualify as regulatory capital.

These securities accrue interest at a variable rate based upon 3-month ~~LIBOR~~SOFR plus 2.85%. Interest rates reset quarterly (the next reset is June 18, ~~2023)~~2024) and the rate was ~~7.76%~~8.44% as of March 31, ~~2023~~2024 and ~~7.59%~~8.49% at December 31, ~~2022.~~2023. The average rate paid for these securities was 8.62% for the first three months of 2024 and 7.71% for the first three months of ~~2023 and 3.23% for the first three months of 2022.~~2023. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company’s common stock.

Table of Contents

Capital Resources

The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support business growth and to insure depositor protection. Shareholders’ Equity totaled ~~$508.9~~$565.2 million at March 31, ~~2023,~~2024, and ~~$485.3~~$549.8 million at December 31, ~~2022.~~

2023.

~~Table of Contents~~

The Company and the Bank are subject to various regulatory capital adequacy guidelines as outlined under Part 324 of the FDIC Rules and Regulations. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the ~~Bank’s~~Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the ~~Bank’s~~Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the ~~Bank’s~~Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

~~The~~As of March 31, 2024, the Company ~~believes that it is currently~~was in compliance with all of these capital requirements and ~~that they will not result in any~~there were no restrictions on the Company’s business activity.

~~Management believes that~~ As of March 31, 2024 the Bank ~~meets~~met the requirements to be categorized as ~~“well capitalized”~~“well-capitalized” under the FDIC regulatory framework for prompt corrective action. To be categorized as ~~“well capitalized,~~“well-capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following ~~tables.~~

tables as of March 31, 2024 and December 31, 2023.

The Company’s and Bank’s actual and required capital amounts and ratios are as follows:

	March 31, 2024
	Actual					Required for Capital Adequacy Purposes					Minimum to be Categorized as "Well Capitalized" Under Prompt Corrective Action Regulation
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Bancorp:
CET1 capital to risk-weighted assets	$	565,238		12.73	%	$	199,884		4.50	%		N/A		N/A
Tier 1 capital to risk-weighted assets		575,238		12.95	%		266,511		6.00	%		N/A		N/A
Risk-based capital to risk-weighted assets		631,053		14.21	%		355,349		8.00	%		N/A		N/A
Tier 1 leverage capital ratio		575,238		10.83	%		212,410		4.00	%		N/A		N/A

Bank:
CET1 capital to risk-weighted assets	$	575,347		12.95	%	$	199,872		4.50	%	$	288,704		6.50	%
Tier 1 capital to risk-weighted assets		575,347		12.95	%		266,496		6.00	%		355,328		8.00	%
Risk-based capital to risk-weighted assets		631,159		14.21	%		355,328		8.00	%		444,159		10.00	%
Tier 1 leverage capital ratio		575,347		10.84	%		212,322		4.00	%		265,403		5.00	%

March 31, 2023

Actual
Required for Capital
Adequacy Purposes

Minimum to be Categorized
as “Well Capitalized” Under Prompt Corrective Action Regulation

(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Farmers & Merchants Bancorp
CET1 capital to risk-weighted assets $ 510,441 12.19 % $ 188,435 4.50 % N/A N/A
Tier 1 capital to risk-weighted assets 520,441 12.43 % 251,247 6.00 % N/A N/A
Risk-based capital to risk-weighted assets 573,015 13.68 % 334,996 8.00 % N/A N/A
Tier 1 leverage capital ratio 520,441 9.94 % 209,497 4.00 % N/A N/A

Farmers & Merchants Bank
CET1 capital to risk-weighted assets $ 521,449 12.45 % $ 188,432 4.50 % $ 272,179 6.50 %
Tier 1 capital to risk-weighted assets 521,449 12.45 % 251,242 6.00 % 334,990 8.00 %
Risk-based capital to risk-weighted assets 574,022 13.71 % 334,990 8.00 % 418,737 10.00 %
Tier 1 leverage capital ratio 521,449 9.96 % 209,405 4.00 % 261,756 5.00 %

December 31, 2022

Actual Required for Capital
Adequacy Purposes
Minimum to be Categorized
as “Well Capitalized” Under Prompt Corrective Action Regulation

(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Farmers & Merchants Bancorp
CET1 capital to risk-weighted assets $ 493,438 11.57 % $ 191,984 4.50 % N/A N/A
Tier 1 capital to risk-weighted assets 503,438 11.80 % 255,978 6.00 % N/A N/A
Risk-based capital to risk-weighted assets 556,964 13.06 % 341,305 8.00 % N/A N/A
Tier 1 leverage capital ratio 503,438 9.36 % 215,201 4.00 % N/A N/A

Farmers & Merchants Bank
CET1 capital to risk-weighted assets $ 502,838 11.79 % $ 191,970 4.50 % $ 277,290 6.50 %
Tier 1 capital to risk-weighted assets 502,838 11.79 % 255,960 6.00 % 341,280 8.00 %
Risk-based capital to risk-weighted assets 556,361 13.04 % 341,280 8.00 % 426,600 10.00 %
Tier 1 leverage capital ratio 502,838 9.35 % 215,018 4.00 % 268,772 5.00 %

4647

Table of Contents

	December 31, 2023
	Actual					Required for Capital Adequacy Purposes					Minimum to be Categorized as "Well Capitalized" Under Prompt Corrective Action Regulation
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Bancorp:
CET1 capital to risk-weighted assets	$	546,045		12.30	%	$	199,724		4.50	%		N/A		N/A
Tier 1 capital to risk-weighted assets		556,045		12.53	%		266,298		6.00	%		N/A		N/A
Risk-based capital to risk-weighted assets		611,815		13.78	%		355,064		8.00	%		N/A		N/A
Tier 1 leverage capital ratio		556,045		10.38	%		214,267		4.00	%		N/A		N/A

Bank:
CET1 capital to risk-weighted assets	$	557,500		12.56	%	$	199,722		4.50	%	$	288,487		6.50	%
Tier 1 capital to risk-weighted assets		557,500		12.56	%		266,295		6.00	%		355,061		8.00	%
Risk-based capital to risk-weighted assets		613,270		13.82	%		355,061		8.00	%		443,826		10.00	%
Tier 1 leverage capital ratio		557,500		10.42	%		214,078		4.00	%		267,597		5.00	%

On November ~~8, 2022,~~14, 2023, the Board of Directors authorized an extension to its share repurchase program through December 31, 2024 for an additional $~~20.0~~25.0 million of the Company’s common stock (“Repurchase Plan”), which ~~represents~~represented approximately 4% of outstanding shareholders’ ~~equity.~~equity at the time of approval. Repurchases by the Company under the Repurchase Plan may be made from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.

During the first three months of ~~2023~~2024 the Company repurchased ~~5,406~~5,201 shares under the Repurchase Plan, for a total of ~~$5.6~~$5.5 million.

As of March 31, 2024, there remains $19.1 million authorized for repurchases under the Repurchase Plan.

Off-Balance-Sheet Arrangements

Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or research and development services with the Company. The Company had the following off balance sheet commitments as of the dates indicated.

The following table sets forth our off-balance-sheet lending commitments as of March 31, ~~2023:~~

2024:

Amount of Commitment Expiration per Period
(Dollars in thousands) Total Committed Amount
Less than
One Year

One to
Three
Years

Three to
Five Years
After Five Years
Off-balance sheet commitments
Commitments to extend credit $ 1,174,664 $ 410,299 $ 202,048 $ 521,370 $ 40,947
Standby letters of credit 16,821 12,317 2,604 1,470 430
Total off-balance sheet commitments $ 1,191,485 $ 422,616 $ 204,652 $ 522,840 $ 41,377

			Amount of Commitment Expiration per Period
(Dollars in thousands)	Total Committed Amount		Less than One Year		One to Three Years		Three to Five Years		After Five Years
Off-balance sheet commitments
Commitments to extend credit	$	1,074,963	$	508,786	$	311,172	$	75,258	$	179,747
Standby letters of credit		14,889		12,629		1,760		500		-
Total off-balance sheet commitments	$	1,089,852	$	521,415	$	312,932	$	75,758	$	179,747

The ~~Company’s~~Company's exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each ~~customer’s~~customer's creditworthiness are performed on a case-by-case basis. Additionally, the Company maintains an allowance for credit losses –for unfunded loan commitments, ~~for off-balance-sheet commitments,~~ which totaled ~~$2.1~~$3.7 million at March 31, ~~2023~~2024 and December 31, ~~2022.~~

2023.

Table of Contents

Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third-party. Most standby letters of credit have maturity dates ranging from 1 to 60 months with final expiration in ~~January 2027.~~August 2028. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

~~Table of Contents~~

Liquidity

The ability to have readily available funds sufficient to repay maturing liabilities is of primary importance to depositors, creditors and regulators. In an effort to satisfy our liquidity needs, we actively manage our assets and liabilities. We have access to immediate liquid resources in the form of cash, which totaled $738.4 million or 12.92% of total assets as of March 31, 2024. The majority of cash is ~~primarily~~ on deposit with the FRB and amounted to ~~$461.3 million as of March 31, 2023.~~$672.6 million. Potential sources of liquidity also include investment securities in our available-for-sale securities portfolio, our ability to sell loans in the secondary market, and ~~to secure borrowings~~our ability borrow from the FRB and FHLB. Our diversified deposit portfolio has historically provided us with a long-term source of stable low cost funding. Maturities and payments on outstanding loans and investment securities also provide a steady flow of funds. Our liquidity, represented by cash borrowing lines, federal funds and ~~available for sale~~available-for-sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting the amount of funds that will be required and we maintain relationships with a diversified client base so funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We had the following borrowing lines available at March 31, ~~2023:~~

2024:

March 31, 2023
(Dollars in thousands) Total Credit Line Limit
Current
Credit Line
Available
Outstanding Amount Remaining Credit Line Available Value of Collateral Pledged
Additional liquidity sources:
Federal Home Loan Bank $ 772,741 $ 772,741 $ - $ 772,741 $ 1,234,519
Federal Reserve BIC 656,531 656,531 - 656,531 881,475
FHLB Fed Funds 18,000 18,000 - 18,000 -
US Bank Fed Funds 50,000 50,000 - 50,000 -
PCBB Fed Funds 50,000 50,000 - 50,000 -
Total additional liquidity sources $ 1,547,272 $ 1,547,272 $ - $ 1,547,272 $ 2,115,994

	March 31, 2024
(Dollars in thousands)	Total Credit Line Limit		Outstanding Amount		Remaining Credit Line Available		Value of Collateral Pledged
Additional liquidity sources:
Federal Reserve Bank	$	1,239,186	$	-	$	1,239,186	$	1,583,638
Federal Home Loan Bank		769,429		200,000		569,429		1,263,816
US Bank Fed Funds		50,000		-		50,000		-
PCBB Fed Funds		50,000		-		50,000		-
FHLB Fed Funds		18,000		-		18,000		-
Total additional liquidity sources	$	2,126,615	$	200,000	$	1,926,615	$	2,847,454

We continued our focus on maintaining a strong liquidity position throughout the first three months of ~~2023~~2024 and we believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash flow needs for loan and lease funding and deposit cash withdrawal for the foreseeable future. As of March 31, ~~2023,~~2024, we had ~~$898.1~~internal sources of liquidity comprised of $738.4 million in cash and $287.4 million unencumbered investment securities, which ~~is 17.49%~~represented in the aggregate 17.95% of total assets. We also had ~~$2.1 million in investment securities and $2.1~~$1.9 billion in ~~loans~~external sources of liquidity as outlined in the table above bringing our total available liquidity to $2.9 billion. Our pledged as collateral on short-term borrowing ~~credit lines.~~lines was comprised of $2.8 billion in loans and $1.7 million in investment securities. We have the option of either borrowing on our credit lines or selling these investment securities for cash flow needs.

The $200.0 million in outstanding at the FHLB represents $100.0 million in FHLB advances and $100.0 million in the form of a letter of credit to collateralize the State of California certificate of deposit. The letter of credit is not an on balance sheet liability but it does reduce our borrowing capacity as illustrated in the table above.

On a long-term basis, we intend to meet our liquidity ~~will be met~~needs by changing the relative distribution of our asset portfolios by reducing our investment or loan and lease volumes, or selling or encumbering assets. Further, we ~~will~~would increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the FHLB. At the current time, our long-term liquidity needs primarily relate to funds required to support loan and lease originations and commitments and deposit withdrawals.

Table of Contents

We believe we can meet all of these needs from existing liquidity sources.

Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities. Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the credit loss provision, investment and other amortization and depreciation.

Our primary investing activities are the origination of loans and lease and purchases and sales of investment securities. As of March 31, ~~2023,~~2024, we had unfunded loan commitments of $1.1 billion and unfunded letters of credit of ~~$16.8~~$14.9 million. ~~We anticipate~~At March 31, 2024, we believe that we ~~will have~~had sufficient funds available to meet current loan commitments.

~~Table of Contents~~

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s assessment of market risk at March 31, ~~2023~~2024 indicates there have been no material changes in the quantitative and qualitative disclosures from those made in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~15, 2023.~~

14, 2024.

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. Management actively monitors and manages our interest rate risk exposure. We do not have any market-risk sensitive instruments entered into for trading purposes. In monitoring interest rate risk we continually analyze and manage our earning assets and funding liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates.

Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within our guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of our securities, are considered to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.

Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Our Asset Liability Management Committee (“ALCO”), which is comprised of members of the Board of Directors and Executive Officers, manages market risk. ALCO monitors interest rate risk by analyzing the potential impact on net interest income from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. ALCO manages our balance sheet in part to maintain the potential impact of changes in interest rates on net interest income within acceptable ranges despite changes in interest rates. ALCO and management utilize a third party to assist with asset liability management including the use of simulation models.

Our exposure to interest rate risk is reviewed on at least a quarterly basis by ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net interest income in the event of hypothetical changes in interest rates. If potential changes to net interest income resulting from hypothetical interest rate changes are not within risk tolerances determined by ALCO, and approved by the full Board of Directors, management may make adjustments to the Company’s asset and liability mix to bring interest rate risk levels within the Board approved limits.

Net Interest Income Simulation. In order to measure interest rate risk, we use a simulation model to project changes in net interest income that result from forecasted changes in interest rates. This analysis calculates the difference between net interest income forecasted using a rising and a falling interest rate scenario and a net interest income forecast using a base market interest rate derived from the current Treasury yield curve. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and to the same extent as the change in market rates according to their contracted index.

Table of Contents

Some loans and investment vehicles include the opportunity of prepayment (embedded options), and accordingly the simulation model uses various proprietary models to estimate these prepayments and assumes the 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.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet size remains static throughout the simulation horizon by replacing existing cash flows/amortization into similar products at current rates to try and capture the ongoing activity of the balance sheet without forecasting any level of growth. It does not account for all factors that affect this analysis, including changes by management to mitigate the effect of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment-rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. 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. We then evaluate the simulation results using two approaches: Net Interest Income at Risk (“NII at Risk”) and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from the changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled using various assumptions of assets and liabilities. EVE measures the period-end present value of assets minus the present value of liabilities. Management uses this value to measure the changes in the 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. Our simulation model highlights the fact that our balance sheet is asset sensitive, which means that our net interest income rises in a rising interest rate environment as rates earned on our interest-bearing assets reprice higher and at a faster pace than rates paid on our interest-bearing liabilities.

The ratio of variable to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings deposits to CDs (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. Our short-term loans are typically priced at prime plus a margin, and our long-term loans are typically priced based on a specific term of the Treasury Curve for comparable maturities, plus a margin. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our net interest margin. As of March 31, 2024, our loan and lease portfolio was comprised of 58.1% fixed rate and 41.9% variable rate loans. The vast majority of our variable loans also contain interest rate floors which are designed to mitigate the impact of decreases in interest rates as index rates drop.

Table of Contents

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 March 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:

	Estimated Change in Net Interest Income (NII) (as a % of NII)			Estimated Change in Economic Value of Equity (EVE) (as a % of EVE)
March 31, 2024
+300 bps		(0.2	%)		(10.1	%)
+200 bps		(0.4	%)		(7.3	%)
+100 bps		0.0	%		(2.9	%)
0 bps		-			-
-100 bps		(1.5	%)		(0.6	%)
-200 bps		(3.2	%)		(3.6	%)
-300 bps		(5.3	%)		(9.2	%)

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)). Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this Report, the disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and timely reported as provided in the SEC’s rules and forms.

Changes in Internal Controls

There have ~~not~~ been ~~any~~no material changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, ~~2023,~~2024, to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against the Company or its subsidiaries. Based upon information available to the Company, its review of such lawsuits and claims and consultation with its counsel, the Company believes the liability relating to these actions, if any, would not have a material adverse effect on its consolidated financial statements.

There are no material proceedings adverse to the Company to which any director, officer or affiliate of the Company is a party.

Item 1A.

Risk Factors

There have been no material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~

2023.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table reports information regarding repurchases of our common stock during the three months ended March 31, 2024:

Period	Total number of shares purchased		Average price paid per share⁽²⁾		Total number of shares purchased as part of publicly announced plans or programs		Maximum number (or approximate dollar value) of shares that may yet purchased under the plans or programs (In thousands) ⁽¹⁾

January 1, 2024 to January 31, 2024		4,853	$	1,042.00		4,853	$	19,479
February 1, 2024 to February 29, 2024		87		971.00		87		19,394
March 1, 2024 to March 31, 2024		261		974.00		261		19,140
Total 1st Quarter 2024		5,201	$	1,038.00		5,201	$	19,140

⁽¹⁾As of November 14, 2023 the Board approved a further extension to the repurchase program through December 31, 2024 and for an additional $25 million of the Company's common stock.

⁽²⁾The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred on net stock repurchases. For the three months ended March 31, 2024, the excise tax expense accrual totaled $54,000.

During the first three months of ~~2023~~2024 the Company repurchased ~~5,406~~5,201 shares under the Repurchase Plan, for a total of ~~$5.6~~$5.5 million. As of March 31, 2024, there remains $19.1 million authorized for repurchases under the Repurchase Plan. All of these shares were purchased at prices ranging from ~~$1,000.00~~$960.00 to ~~$1,082.00~~$1,065.00 per share, based upon the then current price on the OTCQX.

~~Table of Contents~~

Item 3.

Defaults upon Senior Securities

Not Applicable

Item 4.

Mine Safety Disclosures

Not Applicable

Table of Contents

Item 5.

Other Information

During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

~~Not Applicable~~

Item 6.

Exhibits

List of Financial Statements and Financial Statement Schedules

(a) The following documents are filed as a part of this Quarterly Report on Form 10-Q:

(1) Financial Statements and

(2) Financial Statement schedules required to be filed by Item 1 of this Quarterly Report on Form 10-Q.

(3) The following exhibits are required by Item 601 of Regulation S-K and are included as part of this Quarterly Report on Form 10-Q:

Exhibit Number	~~Description~~
	Description
~~10.21~~10.1		Amended and Restated Employment Agreement effective April 1, 2024, between Farmers & Merchants Bank of Central California and Kent A. Steinwert, filed on Registrant’s Form 10-Q for the quarter ended March ~~27, 2023,~~31, 2024.
10.2		Amended and Restated Employment Agreement effective April 1, 2024, between Farmers & Merchants Bank of Central California and Deborah E. Skinner, filed on Registrant’s Form 10-Q for the quarter ended March 31, 2024.
10.3		Amended and Restated Employment Agreement effective April 1, 2024, between Farmers & Merchants Bank of Central California and Bart R. Olson, filed on Registrant’s Form 10-Q for the quarter ended March 31, ~~2023.~~2024.
~~10.22~~10.4		Amended and Restated Employment Agreement effective April 1, ~~2023,~~2024, between Farmers & Merchants Bank of Central California and Ryan J. Misasi, filed on Registrant’s Form 10-Q for the quarter ended March 31, 2024.
10.5		Amended and Restated Employment Agreement effective April 1, 2024, between Farmers & Merchants Bank of Central California and David M. Zitterow, filed on Registrant’s Form 10-Q for the quarter ended March 31, 2024.
10.6		Amended and Restated Employment Agreement effective April 1, 2024, between Farmers & Merchants Bank of Central California and John W. Weubbe, filed on Registrant’s Form 10-Q for the quarter ended March 31, ~~2023.~~2024.
10.7		Employment Agreement effective April 22, 2024, between Farmers & Merchants Bank of Central California and Thomas Bennett, filed on Registrant’s Form 10-Q for the quarter ended March 31, 2024.
31(a)		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31(b)		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

5054

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FARMERS & MERCHANTS BANCORP

Date: May 9, ~~2023~~2024	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)


Date: May 9, ~~2023~~2024	/s/ Bart R. Olson
	Bart R. Olson
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Delaware		94-3327828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

111 W. Pine Street, Lodi, California		95240
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	Not Applicable	Not Applicable

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

	March 31, 2023
	Actual					Required for Capital Adequacy Purposes					Minimum to be Categorized as “Well Capitalized” Under Prompt Corrective Action Regulation
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Farmers & Merchants Bancorp
CET1 capital to risk-weighted assets	$	510,441		12.19	%	$	188,435		4.50	%		N/A		N/A
Tier 1 capital to risk-weighted assets		520,441		12.43	%		251,247		6.00	%		N/A		N/A
Risk-based capital to risk-weighted assets		573,015		13.68	%		334,996		8.00	%		N/A		N/A
Tier 1 leverage capital ratio		520,441		9.94	%		209,497		4.00	%		N/A		N/A

Farmers & Merchants Bank
CET1 capital to risk-weighted assets	$	521,449		12.45	%	$	188,432		4.50	%	$	272,179		6.50	%
Tier 1 capital to risk-weighted assets		521,449		12.45	%		251,242		6.00	%		334,990		8.00	%
Risk-based capital to risk-weighted assets		574,022		13.71	%		334,990		8.00	%		418,737		10.00	%
Tier 1 leverage capital ratio		521,449		9.96	%		209,405		4.00	%		261,756		5.00	%