10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ________ to ________

Commission File Number:  000-26099

FARMERS & MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

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)

Registrant's telephone number, including area code (209) 367-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ☐ Accelerated filer  ☒ Non-accelerated filer  ☐ Smaller Reporting Company ☐

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒

Number of shares of common stock of the registrant 785,782 outstanding as of July 31, 2015.

FARMERS & MERCHANTS BANCORP

FORM 10-Q

TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION			Page
	Item 1 - Financial Statements
		Consolidated Balance Sheets (Unaudited) as of June 30, 2015, December 31, 2014 and June 30, 2014	3
		Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4
		Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	5
		Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the Six Months Ended June 30, 2015 and 2014	6
		Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015 and 2014	7
		Notes to the Consolidated Financial Statements (Unaudited)	8
	Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		34
	Item 3 - Quantitative and Qualitative Disclosures About Market Risk		56
	Item 4 - Controls and Procedures		59
PART II. - OTHER INFORMATION
	Item 1 - Legal Proceedings		59
	Item 1A – Risk Factors		59
	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		60
	Item 3 - Defaults Upon Senior Securities		60
	Item 4 – Mine Safety Disclosures		61
	Item 5 - Other Information		61
	Item 6 - Exhibits		61
Signatures			61
Index to Exhibits			62

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 Certifications 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.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FARMERS & MERCHANTS BANCORP
Consolidated Balance Sheets
(in thousands, except shares)	June 30, 2015		December 31, 2014		June 30, 2014
Assets	(Unaudited)				(Unaudited)
Cash and Cash Equivalents:
Cash and Due from Banks	$	45,017	$	42,375	$	44,567
Interest Bearing Deposits with Banks		46,322		34,750		3,434
Total Cash and Cash Equivalents		91,339		77,125		48,001
Investment Securities:
Available-for-Sale		351,424		366,542		401,732
Held-to-Maturity		67,401		63,863		70,340
Total Investment Securities		418,825		430,405		472,072
Loans & Leases		1,818,642		1,712,244		1,499,709
Less: Allowance for Credit Losses		39,037		35,401		34,290
Loans & Leases, Net		1,779,605		1,676,843		1,465,419
Premises and Equipment, Net		27,195		25,821		23,918
Bank Owned Life Insurance		54,933		53,990		53,037
Interest Receivable and Other Assets		84,862		96,367		90,404
Total Assets	$	2,456,759	$	2,360,551	$	2,152,851
Liabilities
Deposits:
Demand	$	613,042	$	610,133	$	499,133
Interest Bearing Transaction		349,404		341,397		313,879
Savings and Money Market		706,121		644,260		630,194
Time		494,569		468,283		418,829
Total Deposits		2,163,136		2,064,073		1,862,035
Federal Home Loan Bank Advances		-		-		12,000
Subordinated Debentures		10,310		10,310		10,310
Interest Payable and Other Liabilities		42,149		52,990		46,684
Total Liabilities		2,215,595		2,127,373		1,931,029
Shareholders' Equity
Preferred Stock:  No Par Value,  1,000,000 Shares Authorized, None Issued or Outstanding		-		-		-
Common Stock:  Par Value $0.01, 7,500,000 Shares Authorized, 785,782, 784,082 and 777,882
Shares Issued and Outstanding at June 30, 2015, December 31, 2014 and June 30, 2014, Respectively		8		8		8
Additional Paid-In Capital		78,569		77,804		75,014
Retained Earnings		160,956		152,833		144,836
Accumulated Other Comprehensive Income		1,631		2,533		1,964
Total Shareholders' Equity		241,164		233,178		221,822
Total Liabilities and Shareholders' Equity	$	2,456,759	$	2,360,551	$	2,152,851

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

3

FARMERS & MERCHANTS BANCORP
Consolidated Statements of Income  (Unaudited)
(in thousands except per share data)	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015		2014
Interest Income
Interest and Fees on Loans & Leases	$	19,606		$	16,741	$	38,733	$	33,012
Interest on Deposits with Banks		65			41		123		105
Interest on Investment Securities:
Taxable		1,582			2,109		3,168		4,224
Exempt from Federal Tax		503			567		1,025		1,164
Total Interest Income		21,756			19,458		43,049		38,505
Interest Expense
Deposits		754			598		1,466		1,198
Subordinated Debentures		81			80		161		160
Total Interest Expense		835			678		1,627		1,358
Net Interest Income		20,921			18,780		41,422		37,147
Provision for Credit Losses		50			-		650		-
Net Interest Income After Provision for Credit Losses		20,871			18,780		40,772		37,147
Non-Interest Income
Service Charges on Deposit Accounts		865			984		1,763		1,922
Net Gain on Sale of Investment Securities		5			31		6		34
Increase in Cash Surrender Value of Life Insurance		479			473		943		928
Debit Card and ATM Fees		804			790		1,581		1,525
Net (Loss) Gain on Deferred Compensation Investments		(216	)		1,087		549		1,530
Other		889			578		2,648		1,166
Total Non-Interest Income		2,826			3,943		7,490		7,105
Non-Interest Expense
Salaries and Employee Benefits		9,566			9,137		19,665		17,374
Net (Loss) Gain on Deferred Compensation Investments		(216	)		1,087		549		1,530
Occupancy		746			635		1,385		1,257
Equipment		776			700		1,508		1,403
FDIC Insurance		297			262		581		514
Other		1,592			1,213		3,291		2,596
Total Non-Interest Expense		12,761			13,034		26,979		24,674
Income Before Income Taxes		10,936			9,689		21,283		19,578
Provision for Income Taxes		4,187			3,585		8,131		7,192
Net Income	$	6,749		$	6,104	$	13,152	$	12,386
Basic Earnings Per Common Share	$	8.59		$	7.84	$	16.74	$	15.92

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

4

FARMERS & MERCHANTS BANCORP
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net Income	$	6,749		$	6,104		$	13,152		$	12,386
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities		(3,177	)		4,633			(1,550	)		7,681
Deferred Tax Benefit (Expense) Related to Unrealized Gains		1,335			(1,947	)		651			(3,229	)
Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income		(5	)		(31	)		(6	)		(34	)
Deferred Tax Benefit Related to Reclassification Adjustment		4			12			3			14
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities, Net of Tax		(1,843	)		2,667			(902	)		4,432
Total Other Comprehensive (Loss) Income		(1,843	)		2,667			(902	)		4,432
Comprehensive Income	$	4,906		$	8,771		$	12,250		$	16,818

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

5

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Changes in Shareholders' Equity  (Unaudited)

(in thousands except share data)	Common Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss), net			Total Shareholders' Equity
Balance, January 1, 2014		777,882	$	8	$	75,014	$	137,350		$	(2,468	)	$	209,904
Net Income				-		-		12,386			-			12,386
Cash Dividends Declared on														-
Common Stock ($6.30 per share)				-		-		(4,900	)		-			(4,900	)
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax											4,432			4,432
Balance, June 30, 2014		777,882	$	8	$	75,014	$	144,836		$	1,964		$	221,822
Balance, January 1, 2015		784,082	$	8	$	77,804	$	152,833		$	2,533		$	233,178
Net Income				-		-		13,152			-			13,152
Cash Dividends Declared on														-
Common Stock ($6.40 per share)				-		-		(5,029	)		-			(5,029	)
Issuance of Common Stock		1,700		-		765		-			-			765
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax											(902	)		(902	)
Balance, June 30, 2015		785,782	$	8	$	78,569	$	160,956		$	1,631		$	241,164

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

6

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)	Six Months Ended
	June 30, 2015			June 30, 2014
Operating Activities:
Net Income	$	13,152		$	12,386
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		650			-
Depreciation and Amortization		751			666
Net Amortization of Investment Security Premiums & Discounts		778			808
Net Gain on Sale of Investment Securities		(6	)		(34	)
Net Gain on Sale of Property & Equipment		-			(8	)
Net Change in Operating Assets & Liabilities:
Net Decrease (Increase) in Interest Receivable and Other Assets		526			(4,105	)
Net Increase (Decrease) in Interest Payable and Other Liabilities		427			(1,484	)
Net Cash Provided by Operating Activities		16,278			8,229
Investing Activities:
Purchase of Investment Securities Available-for-Sale		(80,210	)		(25,841	)
Proceeds from Sold, Matured or Called Securities Available-for-Sale		93,217			35,466
Purchase of Investment Securities Held-to-Maturity		(8,753	)		(12,194	)
Proceeds from Matured or Called Securities Held-to-Maturity		5,185			10,366
Net Loans & Leases Paid, Originated or Acquired		(106,444	)		(111,616	)
Principal Collected on Loans & Leases Previously Charged Off		3,032			159
Additions to Premises and Equipment		(2,125	)		(1,712	)
Proceeds from Sale of Property & Equipment		-			23
Net Cash Used by Investing Activities		(96,098	)		(105,349	)
Financing Activities:
Net Increase in Deposits		99,063			54,344
Net Changes in Other Borrowings		-			12,000
Cash Dividends		(5,029	)		(4,900	)
Net Cash Provided by Financing Activities		94,034			61,444
Increase (Decrease) in Cash and Cash Equivalents		14,214			(35,676	)
Cash and Cash Equivalents at Beginning of Period		77,125			83,677
Cash and Cash Equivalents at End of Period	$	91,339		$	48,001
Supplementary Data
Cash Payments Made for Income Taxes	$	3,055		$	7,500
Issuance of Common Stock to the Bank’s Non-Qualified Retirement Plans	$	765		$	-
Interest Paid	$	1,449		$	1,361

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

7

FARMERS & MERCHANTS BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. 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. In December 2003 the Company formed a wholly owned subsidiary, FMCB Statutory Trust I. FMCB Statutory Trust I is a non-consolidated subsidiary per Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and was formed for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Basis of Presentation

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

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three-month and six-month periods ended June 30, 2015 may not necessarily be indicative of future operating results.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the periods presented.

8

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

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

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

9

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans or leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan's or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. 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 & 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 primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

10

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

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

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 & 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.

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 general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

11

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate.  These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As Lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Bank (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

12

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Unaudited Consolidated Statements of Income.

Dividends and Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted earnings per common share. See Note 6.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company reports one segment.

Derivative Instruments and Hedging Activities

The “Derivatives and Hedging” topic of the FASB ASC establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. Changes in the fair value of those derivatives are accounted for depending on the intended use of the derivative and the resulting designation under specified criteria. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, designed to minimize interest rate risk, the effective portions of the change in the fair value of the derivative are recorded in other comprehensive income (loss), net of related income taxes. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

13

From time to time, the Company utilizes derivative financial instruments such as interest rate caps, floors, swaps, and collars. These instruments are purchased and/or sold to reduce the Company’s exposure to changing interest rates. The Company marks to market the value of its derivative financial instruments and reflects gain or loss in earnings in the period of change or in other comprehensive income (loss). The Company was not utilizing any derivative instruments as of or for the periods ended June 30, 2015, December 31, 2014 or June 30, 3014.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

2. Investment Securities

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

(in thousands):

	Amortized Cost		Gross Unrealized				Fair/Book Value
June 30, 2015			Gains		Losses
Government Agency & Government-Sponsored Entities	$	11,063	$	58	$	-	$	11,121
US Treasury Notes		80,212		85		59		80,238
Mortgage Backed Securities (1)		256,849		3,812		1,081		259,580
Other		485		-		-		485
Total	$	348,609	$	3,955	$	1,140	$	351,424

	Amortized Cost		Gross Unrealized				Fair/Book Value
December 31, 2014			Gains		Losses
Government Agency & Government-Sponsored Entities	$	78,051	$	61	$	3	$	78,109
Mortgage Backed Securities (1)		283,636		4,969		657		287,948
Other		485		-		-		485
Total	$	362,172	$	5,030	$	660	$	366,542

	Amortized Cost		Gross Unrealized				Fair/Book Value
June 30, 2014			Gains		Losses
Government Agency & Government-Sponsored Entities	$	18,230	$	194	$	-	$	18,424
Mortgage Backed Securities (1)		323,518		5,688		2,871		326,335
Corporate Securities		54,283		393		15		54,661
Other		2,312		-		-		2,312
Total	$	398,343	$	6,275	$	2,886	$	401,732

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

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

	Book Value		Gross Unrealized				Fair Value
June 30, 2015			Gains		Losses
Obligations of States and Political Subdivisions	$	65,270	$	278	$	213	$	65,335
Other		2,131		-		-		2,131
Total	$	67,401	$	278	$	213	$	67,466

	Book Value		Gross Unrealized				Fair Value
December 31, 2014			Gains		Losses
Obligations of States and Political Subdivisions	$	61,716	$	782	$	10	$	62,488
Other		2,147		-		-		2,147
Total	$	63,863	$	782	$	10	$	64,635

	Book Value		Gross Unrealized				Fair Value
June 30, 2014			Gains		Losses
Obligations of States and Political Subdivisions	$	67,866	$	683	$	90	$	68,459
Other		2,474		-		-		2,474
Total	$	70,340	$	683	$	90	$	70,933

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.

In June 2014, the Company sold $375,000 of municipal bonds from a single issuer. The Company took this action under the provisions of ASC 320-10-25-6(a), which allow for the sale of HTM securities where there is “evidence of a significant deterioration in the issuer’s creditworthiness.” The resulting income statement impact was not material.

The amortized cost and estimated fair values of investment securities at June 30, 2015 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	10,482	$	10,488	$	2,731	$	2,733
After one year through five years		71,151		71,242		18,364		18,462
After five years through ten years		10,127		10,114		9,097		9,166
After ten years		-		-		37,209		37,105
		91,760		91,844		67,401		67,466
Investment securities not due at a single maturity date:
Mortgage Backed Securities		256,849		259,580		-		-
Total	$	348,609	$	351,424	$	67,401	$	67,466

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

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

	Less Than 12 Months				12 Months or More				Total
June 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	35,117	$	59	$	-	$	-	$	35,117	$	59
Mortgage Backed Securities		42,839		942		7,796		139		50,635		1,081
Total	$	77,956	$	1,001	$	7,796	$	139	$	85,752	$	1,140
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	16,083	$	213	$	-	$	-	$	16,083	$	213
Total	$	16,083	$	213	$	-	$	-	$	16,083	$	213

	Less Than 12 Months				12 Months or More				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	66,980	$	3	$	-	$	-	$	66,980	$	3
Mortgage Backed Securities		14,487		151		33,574		506		48,061		657
Total	$	81,467	$	154	$	33,574	$	506	$	115,041	$	660
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	849	$	5	$	876	$	5	$	1,725	$	10
Total	$	849	$	5	$	876	$	5	$	1,725	$	10

	Less Than 12 Months				12 Months or More				Total
June 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	-	$	-	$	92,992	$	2,871		92,992	$	2,871
Corporate Securities		8,390		4		2,738		11		11,128		15
Total	$	8,390	$	4	$	95,730	$	2,882	$	104,120	$	2,886
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90
Total	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90

As of June 30, 2015, the Company held 249 investment securities of which 51 were in a loss position for less than twelve months and 1 security was in a loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – There were no unrealized losses on the Company’s investment in securities of government agency and government sponsored entities at June 30, 2015 and June 30, 2014. The unrealized losses on the Company’s investment in securities of government agency and government sponsored entities at December 31, 2014 were $3,000. The unrealized losses were caused by interest rate fluctuations. Repayment of these investments is guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2014.

16

Mortgage Backed Securities – At June 30, 2015, seven mortgage backed security investments were in a loss position for less than 12 months and one was in a loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage backed securities were $1.08 million, $657,000, and $2.9 million at June 30, 2015, December 31, 2014, and June 30, 2014, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Obligations of States and Political Subdivisions - At June 30, 2015, forty obligations of states and political subdivisions were in a loss position for less than 12 months. None were in a loss position for 12 months or more.  As of June 30, 2015, over ninety-eight percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the two percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $213,000, $10,000, and $90,000 at June 30, 2015, December 31, 2014 and June 30, 2014, respectively. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were primarily caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Corporate Securities - The Company did not hold any corporate securities at June 30, 2015 or December 31, 2014. The unrealized losses on the Company’s investment in corporate securities at June 30, 2014 were $15,000. Changes in the prices of corporate securities are primarily influenced by: (1) changes in market interest rates; (2) changes in perceived credit risk in the general economy or in particular industries; (3) changes in the perceived credit risk of a particular company; and (4) day to day trading supply, demand and liquidity.

US Treasury Notes – At June 30, 2015, four US treasury notes were in a loss position for less than 12 months. None were in a loss position for 12 months or more. The unrealized losses on the Company's investments in US treasury notes were $59,000 at June 30, 2015. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2015. The Company did not hold any US treasury notes at December 31, 2014 or June 30, 2014.

17

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	4,060	$	6,969	$	4,535	$	9,917
Gains		5		31		6		34
Losses		-		-		-		-

Pledged Securities

As of June 30, 2015, securities carried at $189.5 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $178.8 million at December 31, 2014, and $329.0 million at June 30, 2014.

The decrease in pledged securities since June 30, 2014 was due to the Company’s use of a $165 million standby Letter of Credit (“LC”) issued by the FHLB as collateral for Public Deposits. The LC was issued December 4, 2014, and matures December 2, 2016, with a maintenance fee of 10 basis points per annum.

3. Loans & Leases and Allowance for Credit Losses

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

June 30, 2015	Commercial Real Estate			Agricultural  Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2015	$	7,842		$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Charge-Offs		-			-		-		-			-			-			(12	)		(34	)		-		-			(46	)
Recoveries		2,939			-		-		2			47			3			4			37			-		-			3,032
Provision		(2,190	)		3,087		508		(293	)		(400	)		(1,061	)		691			(4	)		321		(9	)		650
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2015	$	7,954		$	6,901	$	1,916	$	673		$	2,096		$	4,602		$	8,941		$	212		$	2,499	$	3,146		$	38,940
Charge-Offs		-			-		-		-			-			-			-			(17	)		-		-			(17	)
Recoveries		1			-		-		2			42			2			2			15			-		-			64
Provision		636			371		261		56			(65	)		442			(65	)		7			33		(1,626	)		50
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Ending Balance Individually Evaluated for Impairment		61			-		-		71			49			129			887			34			-		-			1,231
Ending Balance Collectively Evaluated for Impairment		8,530			7,272		2,177		660			2,024			4,917			7,991			183			2,532		1,520			37,806
Loans & Leases:
Ending Balance	$	570,173		$	373,324	$	116,983	$	189,039		$	31,327		$	225,795		$	256,386		$	4,984		$	50,631	$	-		$	1,818,642
Ending Balance Individually Evaluated for Impairment		4,163			-		4,335		2,055			1,541			454			4,819			40			-		-			17,407
Ending Balance Collectively Evaluated for Impairment	$	566,010		$	373,324	$	112,648	$	186,984		$	29,786		$	225,341		$	251,567		$	4,944		$	50,631	$	-		$	1,801,235

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December 31, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697		$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(73	)		(70	)		-			(1	)		(132	)		-		-			(276	)
Recoveries		11		-		-		-			58			8			86			65			-		-			228
Provision		2,653		609		1,015		(13	)		(329	)		(6,109	)		2,413			109			1,572		(745	)		1,175
Ending Balance- December 31, 2014	$	7,842	$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Ending Balance Individually Evaluated for Impairment		377		-		-		422			329			114			914			41			-		-			2,197
Ending Balance Collectively Evaluated for Impairment		7,465		4,185		1,669		600			2,097			5,990			7,281			177			2,211		1,529			33,204
Loans & Leases:
Ending Balance	$	491,903	$	357,207	$	96,519	$	171,880		$	33,017		$	281,963		$	230,819		$	4,719		$	44,217	$	-		$	1,712,244
Ending Balance Individually Evaluated for Impairment		20,066		-		4,386		2,108			1,643			461			4,874			46			-		-			33,584
Ending Balance Collectively Evaluated for Impairment	$	471,837	$	357,207	$	92,133	$	169,772		$	31,374		$	281,502		$	225,945		$	4,673		$	44,217	$	-		$	1,678,660

June 30, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697	$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(33	)		(65	)		-			-		(45	)		-		-			(143	)
Recoveries		-		-		-		-			51			2			77		29			-		-			159
Provision		1,813		101		636		19			(16	)		(3,916	)		1,603		33			469		(742	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2014	$	6,426	$	3,387	$	1,077	$	1,100		$	2,648		$	9,601		$	6,426	$	171		$	921	$	2,520		$	34,277
Charge-Offs		-		-		-		(30	)		(65	)		-			-		(18	)		-		-			(113	)
Recoveries		-		-		-		-			39			1			72		14			-		-			126
Provision		565		290		213		24			115			(1,311	)		879		26			187		(988	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Ending Balance Individually Evaluated for Impairment		218		-		241		329			315			118			807		45			-		-			2,073
Ending Balance Collectively Evaluated for Impairment		6,773		3,677		1,049		765			2,422			8,173			6,570		148			1,108		1,532			32,217
Loans & Leases:
Ending Balance	$	428,529	$	358,933	$	81,647	$	160,418		$	34,453		$	228,745		$	179,948	$	4,881		$	22,155	$	-		$	1,499,709
Ending Balance Individually Evaluated for Impairment		21,719		-		4,446		1,647			1,597			534			4,898		45			-		-			34,886
Ending Balance Collectively Evaluated for Impairment	$	406,810	$	358,933	$	77,201	$	158,771		$	32,856		$	228,211		$	175,050	$	4,836		$	22,155	$	-		$	1,464,823

19

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $9.6 million at June 30, 2015, $26.4 million at December 31, 2014 and $28.1 million at June 30, 2014, which are no longer disclosed or classified as TDR’s.

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

June 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	561,370	$	8,088	$	715	$	570,173
Agricultural Real Estate		373,324		-		-		373,324
Real Estate Construction		115,320		1,663		-		116,983
Residential 1st Mortgages		187,663		739		637		189,039
Home Equity Lines & Loans		30,637		80		610		31,327
Agricultural		225,075		453		267		225,795
Commercial		240,190		12,680		3,516		256,386
Consumer & Other		4,737		-		247		4,984
Leases		50,631						50,631
Total	$	1,788,947	$	23,703	$	5,992	$	1,818,642

December 31, 2014	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	483,146	$	8,651	$	106	$	491,903
Agricultural Real Estate		357,207		-		-		357,207
Real Estate Construction		94,887		1,632		-		96,519
Residential 1st Mortgages		170,462		744		674		171,880
Home Equity Lines and Loans		32,054		85		878		33,017
Agricultural		281,232		679		52		281,963
Commercial		211,036		18,143		1,640		230,819
Consumer & Other		4,449		-		270		4,719
Leases		44,217		-		-		44,217
Total	$	1,678,690	$	29,934	$	3,620	$	1,712,244

June 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	417,627	$	10,780	$	122	$	428,529
Agricultural Real Estate		358,933		-		-		358,933
Real Estate Construction		80,015		1,632		-		81,647
Residential 1st Mortgages		159,098		759		561		160,418
Home Equity Lines & Loans		33,717		-		736		34,453
Agricultural		227,891		785		69		228,745
Commercial		157,709		20,557		1,682		179,948
Consumer & Other		4,622		-		259		4,881
Leases		22,155		-		-		22,155
Total	$	1,461,767	$	34,513	$	3,429	$	1,499,709

See “Note 1. Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company. There were no loans or leases outstanding at June 30, 2015, December 31, 2014, and June 30, 2014, rated doubtful or loss.

20

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

(in thousands):

June 30, 2015	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	715	$	715	$	569,458	$	570,173
Agricultural Real Estate		-		-		-		-		-		373,324		373,324
Real Estate Construction		-		-		-		-		-		116,983		116,983
Residential 1st Mortgages		-		196		-		72		268		188,771		189,039
Home Equity Lines & Loans		-		-		-		576		576		30,751		31,327
Agricultural		-		-		-		11		11		225,784		225,795
Commercial		-		-		-		1,559		1,559		254,827		256,386
Consumer & Other		8		-		-		11		19		4,965		4,984
Leases		-		-		-		-		-		50,631		50,631
Total	$	8	$	196	$	-	$	2,944	$	3,148	$	1,815,494	$	1,818,642

December 31, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	491,903	$	491,903
Agricultural Real Estate		-		-		-		-		-		357,207		357,207
Real Estate Construction		-		-		-		-		-		96,519		96,519
Residential 1st Mortgages		-		-		-		77		77		171,803		171,880
Home Equity Lines and Loans		79		-		-		576		655		32,362		33,017
Agricultural		-		-		-		18		18		281,945		281,963
Commercial		-		-		-		1,586		1,586		229,233		230,819
Consumer & Other		10		-		-		13		23		4,696		4,719
Leases		-		-		-		-		-		44,217		44,217
Total	$	89	$	-	$	-	$	2,270	$	2,359	$	1,709,885	$	1,712,244

June 30, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	428,529	$	428,529
Agricultural Real Estate		-		-		-		-		-		358,933		358,933
Real Estate Construction		-		-		-		-		-		81,647		81,647
Residential 1st Mortgages		-		-		-		289		289		160,129		160,418
Home Equity Lines & Loans		-		-		-		576		576		33,877		34,453
Agricultural		-		-		-		26		26		228,719		228,745
Commercial		-		-		-		1,613		1,613		178,335		179,948
Consumer & Other		72		-		-		15		87		4,794		4,881
Leases		-		-		-		-		-		22,155		22,155
Total	$	72	$	-	$	-	$	2,519	$	2,591	$	1,497,118	$	1,499,709

21

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

							Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
June 30, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	802	$	802	$	-	$	497	$	2	$	297	$	4
Residential 1st Mortgages		564		628		-		567		4		426		8
Home Equity Lines & Loans		620		660		-		641		-		486		1
Agricultural		11		24		-		13		-		10		-
Commercial		3,125		3,125		-		1,587		27		806		28
	$	5,122	$	5,239	$	-	$	3,305	$	33	$	2,025	$	41
With an allowance recorded:
Residential 1st Mortgages	$	355	$	426	$	18		357	$	4		503		8
Home Equity Lines & Loans		137		155		7		138		1		342		2
Agricultural		443		443		129		443		7		448		14
Commercial		1,694		1,804		887		3,244		2		4,006		27
Consumer & Other		40		46		34		42		1		44		2
	$	2,669	$	2,874	$	1,075	$	4,224	$	15	$	5,343	$	53
Total	$	7,791	$	8,113	$	1,075	$	7,529	$	48	$	7,368	$	94

December 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average  Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	49	$	4
Home Equity Lines and Loans		-		-		-		169		-
Agricultural		-		-		-		15		-
Commercial		-		-		-		1,620		54
	$	-	$	-	$	-	$	1,853	$	58
With an allowance recorded:
Commercial Real Estate	$	92	$	92	$	2	$	47	$	4
Residential 1st Mortgages		937		1,069		187		612		9
Home Equity Lines and Loans		951		1,020		190		803		10
Agricultural		461		473		114		473		28
Commercial		4,742		4,813		910		3,182		54
Consumer & Other		46		51		41		46		2
	$	7,229	$	7,518	$	1,444	$	5,163	$	107
Total	$	7,229	$	7,518	$	1,444	$	7,016	$	165

							Three Months Ended June 30, 2014				Six Months Ended June 30, 2014
June 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	97	$	97	$	-	$	98	$	2	$	99	$	4
Home Equity Lines & Loans		-		-		-		339		-		339		-
Agricultural		27		37		-		30		-		32		-
Commercial		3,150		3,151		-		3,241		27		3,322		54
	$	3,274	$	3,285	$	-	$	3,708	$	29	$	3,792	$	58
With an allowance recorded:
Residential 1st Mortgages	$	442	$	527	$	89		427	$	1		509		2
Home Equity Lines & Loans		913		960		182		654		3		598		3
Agricultural		473		473		118		473		7		477		14
Commercial		1,613		1,657		807		1,620		-		1,627		-
Consumer & Other		45		49		45		47		-		48		1
	$	3,486	$	3,666	$	1,241	$	3,221	$	11	$	3,259	$	20
Total	$	6,760	$	6,951	$	1,241	$	6,929	$	40	$	7,051	$	78

22

Total recorded investment shown in the prior tables will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance tables. This is because the calculation of recorded investment takes into account charge-offs, net unamortized loan & lease fees & costs, unamortized premium or discount, and accrued interest. This table also excludes impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At June 30, 2015, the Company allocated $1.1 million of specific reserves to $6.5 million of troubled debt restructured loans & leases, of which $4.8 million were performing. The Company had no commitments at June 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three month period ending June 30, 2015, there were no loans & leases modified as a troubled debt restructuring. During the six month period ending June 30, 2015, the terms of certain loans & leases were modified as troubled debt restructurings. The modification of the terms of such loans & leases can include one or a combination of the following: a reduction of the stated interest rate; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate were for 10 years. Modifications involving an extension of the maturity date were for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2015 (in thousands):

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		-	$	-	$	-		1	$	131	$	119
Total		-	$	-	$	-		1	$	131	$	119

The TDR described above increased the allowance for credit losses by $0 and $114,000 for the three and six-month periods ending June 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and six-month periods ended June 30, 2015.

During the three and six-months ended June 30, 2015, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At December 31, 2014, the Company allocated $1.3 million of specific reserves to $6.6 million of troubled debt restructured loans, of which $5.0 million were performing. The Company had no commitments at December 31, 2014 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2014, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 4 to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 30 years.

23

The following table presents loans or leases by class modified as TDRs for the period ended December 31, 2014 (in thousands):

	December 31, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		5	$	857	$	804
Home Equity Lines and Loans		3		98		89
Agricultural		1		32		32
Commercial		1		18		18
Consumer & Other		1		7		7
Total		11	$	1,012	$	950

The troubled debt restructurings described above increased the allowance for credit losses by $28,000 and resulted in charge-offs of $63,000 for the twelve months ended December 31, 2014.

During the period ended December 31, 2014, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At June 30, 2014, the Company allocated $1.1 million of specific reserves to $6.2 million of troubled debt restructured loans & leases, of which $4.2 million were performing. The Company had no commitments at June 30, 2014 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and six month periods ending June 30, 2014, the terms of certain loans & leases were modified as troubled debt restructurings. The modification of the terms of such loans & leases can include one or a combination of the following: a reduction of the stated interest rate; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate were for periods ranging from 5 years to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 5 years to 30 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2014 (in thousands):

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	69	$	60		3	$	316	$	305
Home Equity Lines & Loans		2		47		42		3		79		74
Total		3	$	116	$	102		6	$	395	$	379

The TDRs described above had no impact on the allowance for credit losses but resulted in charge-offs of $14,000 and $17,000 for the three and six-month periods ended June 30, 2014

24

During the three and six-months ended June 30, 2014, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

4. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, 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 quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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 AFS 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.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & 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 impaired loans is generally based on recent real estate appraisals. 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 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

25

Other Real Estate (“ORE”) 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 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 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

At June 30, 2015, formal foreclosure proceedings were in process for $575,000 of consumer mortgage loans secured by residential real estate properties.

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

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	11,121	$	-	$	11,121	$	-
US Treasury Notes		80,238		-		80,238		-
Mortgage Backed Securities		259,580		-		259,580		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	351,424	$	175	$	351,249	$	-

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	78,109	$	10,005	$	68,104	$	-
Mortgage Backed Securities		287,948		-		287,948		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	366,542	$	10,180	$	356,362	$	-

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	18,424	$	13,412	$	5,012	$	-
Mortgage Backed Securities		326,335		-		326,335		-
Corporate Securities		54,661		8,982		45,679		-
Other		2,312		2,002		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	401,732	$	24,396	$	377,336	$	-

26

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the three and six-months ended June 30, 2015 and 2014, there were no transfers in or out of level 1, 2, or 3.

The following tables present information about the Company’s other real estate and impaired loans or leases, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgage	$	337	$	-	$	-	$	337
Home Equity Lines and Loans		128		-		-		128
Agricultural		313		-		-		313
Commercial		807		-		-		807
Consumer		6						6
Total Impaired Loans		1,591		-		-		1,591
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Total Other Real Estate		2,441		-		-		2,441
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	4,032	$	-	$	-	$	4,032

27

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	90	$	-	$	-	$	90
Residential 1st Mortgage		748		-		-		748
Home Equity Lines and Loans		759		-		-		759
Agricultural		346		-		-		346
Commercial		3,832		-		-		3,832
Consumer		6						6
Total Impaired Loans		5,781		-		-		5,781
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		858		-		-		858
Total Other Real Estate		3,299		-		-		3,299
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	9,080	$	-	$	-	$	9,080

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgages	$	354	$	-	$	-	$	354
Home Equity Lines and Loans		729		-		-		729
Agricultural		354		-		-		354
Commercial		807		-		-		807
Total Impaired Loans		2,244		-		-		2,244
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		853		-		-		853
Total Other Real Estate		3,294		-		-		3,294
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,538	$	-	$	-	$	5,538

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	337	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	128	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	313	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	807	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	6	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

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5. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated.

				Fair Value of Financial Instruments Using
June 30, 2015 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	91,339		$	91,339	$	-	$	-		$	91,339
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		11,121			-		11,121		-			11,121
U.S. Treasury Notes		80,238			-		80,238		-			80,238
Mortgage Backed Securities		259,580			-		259,580		-			259,580
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		351,424			175		351,249		-			351,424
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,270			-		47,321		18,014			65,335
Other		2,131			-		2,131		-			2,131
Total Investment Securities Held-to-Maturity		67,401			-		49,452		18,014			67,466
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		561,582			-		-		559,550			559,550
Agricultural Real Estate		366,052			-		-		362,035			362,035
Real Estate Construction		114,806			-		-		114,984			114,984
Residential 1st Mortgages		188,308			-		-		191,266			191,266
Home Equity Lines and Loans		29,254			-		-		31,021			31,021
Agricultural		220,749			-		-		219,967			219,967
Commercial		247,508			-		-		245,825			245,825
Consumer & Other		4,767			-		-		4,803			4,803
Leases		48,099							47,595			47,595
Unallocated Allowance		(1,520	)		-		-		(1,520	)		(1,520	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,779,605			-		-		1,775,526			1,775,526
Accrued Interest Receivable		9,024			-		9,024		-			9,024
Liabilities:
Deposits:
Demand		613,042			613,041		-		-			613,041
Interest Bearing Transaction		349,404			349,404		-		-			349,404
Savings and Money Market		706,121			706,122		-		-			706,122
Time		494,569			-		494,724		-			494,724
Total Deposits		2,163,136			1,668,567		494,724		-			2,163,291
Subordinated Debentures		10,310			-		6,252		-			6,252
Accrued Interest Payable		556			-		556		-			556

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				Fair Value of Financial Instruments Using
December 31, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	77,125		$	77,125	$	-	$	-		$	77,125
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		78,109			10,005		68,104		-			78,109
Mortgage Backed Securities		287,948			-		287,948		-			287,948
Corporate Securities									-			-
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		366,542			10,180		356,362		-			366,542
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,716			-		49,085		13,403			62,488
Mortgage Backed Securities					-				-			-
Other		2,147			-		2,147		-			2,147
Total Investment Securities Held-to-Maturity		63,863			-		51,232		13,403			64,635
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		484,061			-		-		481,037			481,037
Agricultural Real Estate		353,022			-		-		353,288			353,288
Real Estate Construction		94,850			-		-		95,022			95,022
Residential 1st Mortgages		170,858			-		-		173,916			173,916
Home Equity Lines and Loans		30,591			-		-		32,456			32,456
Agricultural		275,859			-		-		274,195			274,195
Commercial		222,624			-		-		222,175			222,175
Consumer & Other		4,501			-		-		4,535			4,535
Leases		42,006			-		-		40,298			40,298
Unallocated Allowance		(1,529	)		-		-		(1,529	)		(1,529	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,676,843			-		-		1,675,393			1,675,393
Accrued Interest Receivable		7,797			-		7,797		-			7,797
Liabilities:
Deposits:
Demand		610,133			610,133		-		-			610,133
Interest Bearing Transaction		341,397			341,397		-		-			341,397
Savings and Money Market		644,260			644,260		-		-			644,260
Time		468,283			-		468,161		-			468,161
Total Deposits		2,064,073			1,595,790		468,161		-			2,063,951
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		378			-		378		-			378

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				Fair Value of Financial Instruments Using
June 30, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	48,001		$	48,001	$	-	$	-		$	48,001
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		18,424			13,412		5,012		-			18,424
Obligations of States and Political Subdivisions		-			-		-		-			-
Mortgage Backed Securities		326,335			-		326,335		-			326,335
Corporate Securities		54,661			8,982		45,679		-			54,661
Other		2,312			2,002		310		-			2,312
Total Investment Securities Available-for-Sale		401,732			24,396		377,336		-			401,732
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,866			-		54,736		13,723			68,459
Mortgage Backed Securities		-			-		-		-			-
Other		2,474			-		2,474		-			2,474
Total Investment Securities Held-to-Maturity		70,340			-		57,210		13,723			70,933
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		421,538			-		-		421,007			421,007
Agricultural Real Estate		355,256			-		-		358,283			358,283
Real Estate Construction		80,357			-		-		80,700			80,700
Residential 1st Mortgages		159,324			-		-		163,038			163,038
Home Equity Lines and Loans		31,716			-		-		33,854			33,854
Agricultural		220,454			-		-		219,426			219,426
Commercial		172,571			-		-		172,661			172,661
Consumer & Other		4,688			-		-		4,747			4,747
Leases		21,047							20,743			20,743
Unallocated Allowance		(1,532	)		-		-		(1,532	)		(1,532	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,465,419			-		-		1,472,927			1,472,927
Accrued Interest Receivable		7,684			-		7,684		-			7,684
Liabilities:
Deposits:
Demand		499,133			499,133		-		-			499,133
Interest Bearing Transaction		313,879			313,878		-		-			313,878
Savings and Money Market		630,194			630,195		-		-			630,195
Time		418,829			-		418,969		-			418,969
Total Deposits		1,862,035			1,443,206		418,969		-			1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase		12,000			-		12,000		-			12,000
Subordinated Debentures		10,310			-		6,222		-			6,222
Accrued Interest Payable		349			-		349		-			349

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Fair value estimates presented herein are based on pertinent information available to management as of June 30, 2015, December 31, 2014, and June 30, 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purpose of these financial statements since that date, and; therefore, current estimates of fair value may differ significantly from the amounts presented above. The methods and assumptions used to estimate the fair value of each class of financial instrument listed in the table above are explained below.

Cash and Cash Equivalents - The carrying amounts reported in the balance sheet for cash and due from banks, interest bearing deposits with banks, federal funds sold, and securities purchased under agreements to resell are a reasonable estimate of fair value. All cash and cash equivalents are classified as Level 1.

Investment Securities - Fair values for investment securities 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. Based on the available market information the classification level could be 1, 2, or 3.

Federal Home Loan Bank Stock - It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans & Leases, Net of Deferred Fees & Allowance - Fair values of loans & leases are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans & leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans & leases with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans & leases are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans & leases do not necessarily represent an exit price.

Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-maturity certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

FHLB Advances & Securities Sold Under Agreement to Repurchase - The fair value of federal funds purchased and other short-term borrowings is approximated by the book value resulting in a Level 2 classification. The fair value for Federal Home Loan Bank advances is determined using discounted future cash flows resulting in a Level 2 classification.

Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable - The carrying amount of accrued interest receivable and payable approximates their fair value resulting in a Level 2 classification.

6. Dividends and Basic Earnings Per Common Share

Farmers & Merchants Bancorp common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. On May 18, 2015, the Board of Directors of Farmers & Merchants Bancorp announced a mid-year cash dividend of $6.40 per share, a 1.6% increase over the $6.30 per share paid on July 1, 2014. The cash dividend was paid on July 1, 2015, to shareholders of record on June 9, 2015.

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Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The following table calculates the basic earnings per common share for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30				Six Months Ended June 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	6,749	$	6,104	$	13,152	$	12,386
Weighted Average Number of Common Shares Outstanding		785,782		777,882		785,575		777,882
Basic Earnings Per Common Share Amount	$	8.59	$	7.84	$	16.74	$	15.92

7. Shareholders’ Equity

On January 23, 2015, the Company issued 1,700 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $450 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as amended, the regulations promulgated thereunder. Most of the proceeds were contributed to the Bank as equity capital.

8. Recent Accounting Pronouncements

In January, 2014, the FASB issued Accounting Standards Update (ASU) 2014-04 - Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This Update clarifies when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The objective of the amendments in this Update is to reduce diversity in practice. An in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operation, cash flows, or disclosure.

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts, including leases and insurance contracts, are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. The amendments also require expanded disclosures concerning the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied retrospectively. Early application is not permitted. On July 9, 2015, the FASB approved a one year deferral on the effective date of this revised standard. Management is currently evaluating the impact of adoption.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following is management’s discussion and analysis of the major factors that influenced our financial performance for the three and six months ended June 30, 2015. This analysis should be read in conjunction with our 2014 Annual Report to Shareholders on Form 10-K, and with the unaudited financial statements and notes as set forth in this report.

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Forward–Looking Statements

This Form 10-Q contains various forward-looking statements, usually containing the words “estimate,” “project,” “expect,” “objective,” “goal,” or similar expressions and includes assumptions concerning Farmers & Merchants Bancorp’s (together with its subsidiaries, the “Company” or “we”) operations, future results, and prospects. These forward-looking statements are based upon current expectations and are subject to risks and uncertainties. In connection with the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors which could cause the actual results of events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include the following: (1) continuing economic sluggishness in the Central Valley of California; (2) significant changes in interest rates and prepayment speeds; (3) credit risks of lending and investment activities; (4) changes in federal and state banking laws or regulations; (5) competitive pressure in the banking industry; (6) changes in governmental fiscal or monetary policies; (7) uncertainty regarding the economic outlook resulting from the continuing war on terrorism, as well as actions taken or to be taken by the U.S. or other governments as a result of further acts or threats of terrorism; (8) ongoing drought conditions in California and the resulting impact on the Company’s agricultural customers; (9) expansion into new geographic markets and new lines of business; and (10) other factors discussed in Item 1A. Risk Factors located in the Company’s 2014 Annual Report on Form 10-K and in Part II. Other Information, Item 1A. Risk Factors of this Form 10-Q.

Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

Introduction

Farmers & Merchants Bancorp, or the Company, is a bank holding company formed March 10, 1999. Its subsidiary, Farmers & Merchants Bank of Central California, or the Bank, is a California state-chartered bank formed in 1916. The Bank serves the needs of its customers through twenty-four full-service branches and a stand-alone ATM. The service area includes Sacramento, San Joaquin, Stanislaus, Merced, Contra Costa and Orange Counties with branches in Sacramento, Elk Grove, Galt, Lodi, Stockton, Linden, Modesto, Turlock, Hilmar, Merced, Walnut Creek, Concord and Irvine.

As a bank holding company, the Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”). As a California, state-chartered, non-fed member bank, the Bank is subject to regulation and examination by the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”).

Overview

At the present time, the Company’s primary service area remains the mid Central Valley of California, a region that can be significantly impacted by the seasonal needs of the agricultural industry. Accordingly, discussion of the Company’s Financial Condition and Results of Operations is influenced by the seasonal banking needs of its agricultural customers (e.g., during the spring and summer customers draw down their deposit balances and increase loan borrowing to fund the purchase of equipment and planting of crops. Correspondingly, deposit balances are replenished and loans repaid in fall and winter as crops are harvested and sold).

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The state of California has experienced drought conditions since 2013. Although management continues to believe that current conditions will not have a material impact on credit quality during the 2015 growing season, the lack of rain continues to have an adverse impact on our agricultural customers’ operating costs, crop yields and crop quality. The longer the drought continues, the more significant this impact will become, particularly if ground water levels begin to significantly deteriorate or riparian rights are further curtailed. See “Part II. Other Information, Item 1A. Risk Factors” for additional information.

For the three and six months ended June 30, 2015, Farmers & Merchants Bancorp reported net income of $6,749,000 and $13,152,000, earnings per share of $8.59 and $16.74 and return on average assets of 1.12% and 1.10%, respectively. Return on average shareholders’ equity was 11.11% and 10.94% for the three and six months ended June 30, 2015.

For the three and six months ended June 30, 2014, Farmers & Merchants Bancorp reported net income of $6,104,000 and $12,386,000, earnings per share of $7.84 and $15.92 and return on average assets of 1.16% and 1.18%, respectively. Return on average shareholders’ equity was 11.13% and 11.41% for the three and six months ended June 30, 2014.

The primary reasons for the Company’s improved earnings performance in the first six months of 2015 as compared to the same period last year were: (1) a $4.3 million increase in net interest income; and (2) a $385,000 increase in non-interest income. These positive impacts were partially offset by: (1) a $650,000 increase in the provision for credit losses; and (2) a $2.3 million increase in salaries and employee benefits.

The following is a summary of the financial results for the six-month period ended June 30, 2015 compared to June 30, 2014.

· Net income increased 6.2% to $13.2 million from $12.4 million.

· Earnings per share increased 5.2% to $16.74 from $15.92.

· Total assets increased 14.1%  to $2.5 billion.

· Total loans & leases increased 21.3% to $1.8 billion.

· Total deposits increased 16.2% to $2.2 billion.

Results of Operations

Net Interest Income / Net Interest Margin

The tables on the following pages reflect the Company's average balance sheets and volume and rate analyses for the three and six-month periods ended June 30, 2015 and 2014.

The average yields on earning assets and average rates paid on interest-bearing liabilities have been computed on an annualized basis for purposes of comparability with full year data. Average balance amounts for assets and liabilities are the computed average of daily balances.

Net interest income is the amount by which the interest and fees on loans & leases and other interest earning assets exceed the interest paid on interest bearing sources of funds. For the purpose of analysis, the interest earned on tax-exempt investments and municipal loans is adjusted to an amount comparable to interest subject to normal income taxes. This adjustment is referred to as “taxable equivalent” and is noted wherever applicable.

The Volume and Rate Analysis of Net Interest Income summarizes the changes in interest income and interest expense based on changes in average asset and liability balances (volume) and changes in average rates (rate). For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in volume (change in volume multiplied by initial rate); (2) changes in rate (change in rate multiplied by initial volume); and (3) changes in rate/volume (allocated in proportion to the respective volume and rate components).

The Company’s earning assets and rate sensitive liabilities are subject to repricing at different times, which exposes the Company to income fluctuations when interest rates change. In order to minimize income fluctuations, the Company attempts to match asset and liability maturities. However, some maturity mismatch is inherent in the asset and liability mix. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk.”

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Farmers & Merchants Bancorp

Quarterly Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Three Months Ended June 30, 2015									Three Months Ended June 30, 2014
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	103,093		$	65			0.25	%	$	64,639		$	41			0.25	%
Investment Securities:
U.S. Treasuries		42,026			141			1.34	%		-			-			0.00	%
Government Agency & Government-Sponsored Entities		18,559			16			0.34	%		18,238			49			1.07	%
Obligations of States and Political Subdivisions - Non-Taxable		59,982			772			5.15	%		63,498			871			5.48	%
Mortgage Backed Securities		265,064			1,418			2.14	%		330,316			1,908			2.31	%
Other		2,621			7			1.07	%		59,670			152			1.02	%
Total Investment Securities		388,252			2,354			2.43	%		471,722			2,980			2.53	%
Loans & Leases:
Real Estate		1,200,131			14,007			4.68	%		980,491			11,974			4.90	%
Home Equity Lines & Loans		31,411			430			5.49	%		34,362			492			5.74	%
Agricultural		211,841			2,138			4.05	%		215,796			2,153			4.00	%
Commercial		243,995			2,450			4.03	%		161,548			1,844			4.58	%
Consumer		4,934			59			4.80	%		4,560			74			6.51	%
Other		-			-			0.00	%		203			-			0.00	%
Leases		50,759			522			4.12	%		19,066			204			4.29	%
Total Loans & Leases		1,743,071			19,606			4.51	%		1,416,026			16,741			4.74	%
Total Earning Assets		2,234,416		$	22,025			3.95	%		1,952,387		$	19,762			4.06	%
Unrealized Gain on Securities Available-for-Sale		5,525									449
Allowance for Credit Losses		(38,958	)								(34,274	)
Cash and Due From Banks		37,033									30,147
All Other Assets		176,543									164,184
Total Assets	$	2,414,559								$	2,112,893
Liabilities & Shareholders' Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	342,327			46			0.05	%	$	306,108		$	40			0.05	%
Savings and Money Market		693,071			300			0.17	%		618,334			253			0.16	%
Time Deposits		496,736			408			0.33	%		421,980			305			0.29	%
Total Interest Bearing Deposits		1,532,134			754			0.20	%		1,346,422			598			0.18	%
Federal Home Loan Bank Advances		-			-			0.00	%		788			-			0.00	%
Subordinated Debentures		10,310			81			3.15	%		10,310			80			3.11	%
Total Interest Bearing Liabilities		1,542,444		$	835			0.22	%		1,357,520		$	678			0.20	%
Interest Rate Spread								3.74	%								3.86	%
Demand Deposits (Non-Interest Bearing)		574,265									482,742
All Other Liabilities		54,756									53,164
Total Liabilities		2,171,465									1,893,426
Shareholders' Equity		243,094									219,467
Total Liabilities & Shareholders' Equity	$	2,414,559								$	2,112,893
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.08	%								0.07	%
Net Interest Income and Margin on Total Earning Assets					21,190			3.81	%					19,084			3.93	%
Tax Equivalent Adjustment					(269	)								(304	)
Net Interest Income				$	20,921			3.77	%				$	18,780			3.87	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan interest income includes fee income and unearned discount in the amount of $1.3 million and $906,000 for the quarters ended June 30, 2015 and 2014, respectively. Yields on securities available-for-sale are based on historical cost.

37

Farmers & Merchants Bancorp

Year-to-Date Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Six Months Ended June 30, 2015									Six Months Ended June 30, 2014
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	98,300		$	123			0.25	%	$	83,287		$	105			0.25	%
Investment Securities:
U.S. Treasuries		24,085			160			1.33	%		-			-			0.00	%
Government Agency & Government-Sponsored Entities		47,259			55			0.23	%		19,795			104			1.05	%
Obligations of States and Political Subdivisions - Non-Taxable		60,771			1,573			5.18	%		63,911			1,786			5.59	%
Mortgage Backed Securities		271,564			2,940			2.17	%		327,427			3,815			2.33	%
Other		2,625			13			0.99	%		56,832			305			1.07	%
Total Investment Securities		406,304			4,741			2.33	%		467,965			6,010			2.57	%
Loans & Leases:
Real Estate		1,165,452			27,529			4.76	%		958,287			23,493			4.94	%
Home Equity Lines & Loans		31,740			852			5.41	%		34,595			967			5.64	%
Agricultural		219,828			4,356			4.00	%		214,973			4,294			4.03	%
Commercial		237,604			4,846			4.11	%		160,291			3,728			4.69	%
Consumer		4,887			131			5.41	%		5,507			145			5.31	%
Other		-			-			0.00	%		35			1			5.76	%
Leases		48,982			1,019			4.20	%		16,978			384			4.56	%
Total Loans & Leases		1,708,493			38,733			4.57	%		1,390,666			33,012			4.79	%
Total Earning Assets		2,213,097		$	43,597			3.97	%		1,941,918		$	39,127			4.06	%
Unrealized (Loss) Gain on Securities Available-for-Sale		5,535									(755	)
Allowance for Credit Losses		(37,212	)								(34,272	)
Cash and Due From Banks		36,890									31,368
All Other Assets		175,024									163,057
Total Assets	$	2,393,334								$	2,101,316
Liabilities & Shareholders' Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	341,686		$	92			0.05	%	$	298,108		$	73			0.05	%
Savings and Money Market		685,996			590			0.17	%		619,089			493			0.16	%
Time Deposits		488,388			784			0.32	%		424,209			632			0.30	%
Total Interest Bearing Deposits		1,516,070			1,466			0.19	%		1,341,406			1,198			0.18	%
Federal Home Loan Bank Advances		2			-			0.00	%		398			-			0.00	%
Subordinated Debentures		10,310			161			3.15	%		10,310			160			3.13	%
Total Interest Bearing Liabilities		1,526,382		$	1,627			0.21	%		1,352,114		$	1,358			0.20	%
Interest Rate Spread								3.76	%								3.86	%
Demand Deposits (Non-Interest Bearing)		575,242									482,672
All Other Liabilities		51,167									49,413
Total Liabilities		2,152,791									1,884,199
Shareholders' Equity		240,543									217,117
Total Liabilities & Shareholders' Equity	$	2,393,334								$	2,101,316
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.07	%								0.06	%
Net Interest Income and Margin on Total Earning Assets					41,970			3.82	%					37,769			3.92	%
Tax Equivalent Adjustment					(548	)								(622	)
Net Interest Income				$	41,422			3.77	%				$	37,147			3.86	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan interest income includes fee income and unearned discount in the amount of $1.3 million and $956,000 for the quarters ended March 31, 2015 and 2014, respectively. Yields on securities available-for-sale are based on historical cost.

38

Farmers & Merchants Bancorp

Volume and Rate Analysis of Net Interest Revenue

(in thousands)

	Three Months Ended June 30, 2015 compared to June 30, 2014									Six Months Ended June 30, 2015 compared to June 30, 2014
Interest Earning Assets	Volume			Rate			Net Chg.			Volume			Rate			Net Chg.
Interest Bearing Deposits with Banks	$	24		$	-		$	24		$	19		$	(1	)	$	18
Investment Securities:
U.S. Treasuries		141			-			141			160			-			160
Government Agency & Government-Sponsored Entities		1			(34	)		(33	)		72			(121	)		(49	)
Obligations of States and Political Subdivisions - Non-Taxable		(47	)		(51	)		(98	)		(85	)		(128	)		(213	)
Mortgage Backed Securities		(357	)		(133	)		(490	)		(619	)		(256	)		(875	)
Other		(152	)		7			(145	)		(270	)		(22	)		(292	)
Total Investment Securities		(414	)		(211	)		(625	)		(742	)		(527	)		(1,269	)
Loans & Leases:
Real Estate		2,586			(553	)		2,033			4,933			(897	)		4,036
Home Equity Lines & Loans		(41	)		(21	)		(62	)		(77	)		(38	)		(115	)
Agricultural		(40	)		25			(15	)		96			(34	)		62
Commercial		850			(244	)		606			1,628			(510	)		1,118
Consumer		6			(21	)		(15	)		(17	)		3			(14	)
Other		-			-			-			(1	)		-			(1	)
Leases		326			(8	)		318			669			(34	)		635
Total Loans & Leases		3,687			(822	)		2,865			7,231			(1,510	)		5,721
Total Earning Assets		3,297			(1,033	)		2,264			6,508			(2,038	)		4,470
Interest Bearing Liabilities
Interest Bearing Deposits:
Transaction		5			1			6			12			7			19
Savings and Money Market		31			16			47			56			41			97
Time		58			45			103			101			51			152
Total Interest Bearing Deposits		94			62			156			169			99			268
Subordinated Debentures		-			1			1			-			1			1
Total Interest Bearing Liabilities		94			63			157			169			100			269
Total Change on a Tax Equivalent Basis	$	3,203		$	(1,096	)	$	2,107		$	6,339		$	(2,138	)	$	4,201

Notes:  Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total "net change."  The above figures have been rounded to the nearest whole number.

39

2^nd Quarter 2015 vs. 2^nd Quarter 2014

Net interest income for the second quarter of 2015 increased 11.4% or $2.1 million to $20.9 million. On a fully taxable equivalent basis, net interest income increased 11.4% and totaled $21.2 million for the second quarter of 2015. As more fully discussed below, the increase in net interest income was primarily due to a $282.0 million increase in average earning assets.

Net interest income on a taxable equivalent basis, expressed as a percentage of average total earning assets, is referred to as the net interest margin. For the quarter ended June 30, 2015, the Company’s net interest margin was 3.81% compared to 3.93% for the quarter ended June 30, 2014. This decrease in net interest margin was due primarily to a decline in earning asset yields.

Average loans & leases totaled $1.7 billion for the quarter ended June 30, 2015; an increase of $327.0 million compared to the average balance for the quarter ended June 30, 2014. Loans & leases increased from 72.5% of average earning assets at June 30, 2014 to 78.0% at June 30, 2015. As a result of the continuing impact of the sustained low rate environment since late 2008, the annualized yield on the Company’s loan & lease portfolio declined to 4.51% for the quarter ended June 30, 2015, compared to 4.74% for the quarter ended June 30, 2014. Overall, the positive impact on interest revenue from the increase in loan & lease balances resulted in interest revenue from loans & leases increasing 17.1% to $19.6 million for quarter ended June 30, 2015. The Company has been experiencing aggressive competitor pricing for loans & leases to which it may need to continue to respond in order to retain key customers. This could place even greater negative pressure on future loan & lease yields and net interest margin.

The investment portfolio is the other main component of the Company’s earning assets. Since the risk factor for investments is typically lower than that of loans & leases, the yield earned on investments is generally less than that of loans & leases. Average investment securities totaled $388.3 million for the quarter ended June 30, 2015; a decrease of $83.5 million compared to the average balance for the quarter ended June 30, 2014. Tax equivalent interest income on securities decreased $625,000 to $2.4 million for the quarter ended June 30, 2015, compared to $3.0 million for the quarter ended June 30, 2014. The average investment portfolio yield, on a tax equivalent basis, was 2.43% for the quarter ended June 30, 2015, compared to 2.53% for the quarter ended June 30, 2014. See “Financial Condition – Investment Securities” for a discussion of the Company’s investment strategy in 2015. Net interest income on the Schedule of Year-to-Date Average Balances and Interest Rates is shown on a tax equivalent basis, which is higher than net interest income as reflected on the Consolidated Statement of Income because of adjustments that relate to income on securities that are exempt from federal income taxes.

Interest bearing deposits with banks and overnight investments in Federal Funds Sold are additional earning assets available to the Company. Average interest bearing deposits with banks consisted of FRB deposits. Deposits with the FRB earn interest at the Fed Funds rate, which has been 0.25% since December 2008. Average interest bearing deposits with banks for the quarter ended June 30, 2015, were $103.1 million, an increase of $38.5 million compared to the average balance for the quarter ended June 30, 2014. Interest income on interest bearing deposits with banks for the quarter ended June 30, 2015, increased $24,000 to $65,000 compared to the quarter ended June 30, 2014.

Average interest-bearing liabilities increased $184.9 million or 13.6% during the second quarter of 2015. Of that increase: (1) interest-bearing transaction deposits increased $36.2 million; (2) savings and money market deposits increased $74.7 million; (3) time deposits increased $74.8 million; (4) Federal Home Loan Bank (“FHLB”) Advances decreased $788,000 (see “Financial Condition – Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings”); and (5) subordinated debt remained unchanged (see “Financial Condition – Subordinated Debentures”).

Total interest expense on interest bearing deposits was $754,000 for the second quarter of 2015 as compared to $598,000 for the second quarter of 2014. The average rate paid on interest-bearing deposits was 0.20% for the second quarter of 2015 compared to 0.18% for the second quarter of 2014.

40

Six Months Ending June 30, 2015 vs. Six Months Ending June 30, 2014

During the first six months of 2015, net interest income increased 11.5% to $41.4 million, compared to $37.1 million at June 30, 2014. On a fully taxable equivalent basis, net interest income increased 11.1% and totaled $42.0 million at June 30, 2015, compared to $37.8 million at June 30, 2014. The increase in net interest income was primarily due to a $271.2 million increase in average earning assets.

For the six months ended June 30, 2015, the Company’s net interest margin was 3.82% compared to 3.92% for the same period in 2014. This decrease in net interest margin was due primarily to a decline in earning asset yields.

The average balance of loans & leases increased by $317.8 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The yield on the loan & lease portfolio decreased 22 basis points to 4.57% for the six months ended June 30, 2015 compared to 4.79% for the six months ended June 30, 2014. This decrease in yield was offset by growth of average balance of loans resulting in interest income from loans & leases increasing 17.3% or $5.7 million for the first six months of 2015.

Average investment securities were $406.3 million for the six months ended June 30, 2015 compared to $468.0 million for the same period in 2014. The average tax equivalent yield for the six months ended June 30, 2015 was 2.33% compared to 2.57% for the six months ended June 30, 2014. This decrease in yield, combined with the decrease in balances, resulted in a decrease in interest income of $1.3 million or 21.1%, for the six months endedJune 30, 2015.

Average interest bearing deposits with banks consisted of FRB deposits. Deposits with the FRB earn interest at the Fed Funds rate, which has been 0.25% since December 2008. Average interest bearing deposits with banks for the six-months ended June 30, 2015, was $98.3 million, an increase of $15.0 million compared to the average balance for the six-months ended June 30, 2014. Interest income on interest bearing deposits with banks for the six-months ended June 30, 2015, increased $18,000 to $123,000 compared to the six-months ended June 30, 2014.

Average interest-bearing liabilities increased $174.3 million or 12.9% during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. Of that increase: (1) interest-bearing deposits increased $174.7 million; (2) FHLB advances decreased $396,000; and (3) subordinated debentures remained unchanged.

Total interest expense on interest bearing deposits was $1.5 million for the first six months of 2015 as compared to $1.2 million for the first six months of 2014. The average rate paid on interest-bearing deposits was 0.19% in the first six months of 2015 and 0.18% in the first six months of 2014.

Provision and Allowance for Credit Losses

As a financial institution that assumes lending and credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction), and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. Management reports regularly to the Board of Directors regarding trends and conditions in the loan & lease portfolio and regularly conducts credit reviews of individual loans & leases. Loans & leases that are performing but have shown some signs of weakness are subject to more stringent reporting and oversight.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. 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 & 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 primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

41

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans & leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan’s or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) under ASC 310-40, if the Company for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans or leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment.

The determination of the general reserve for loans or leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, and qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer & other; and (9) equipment leases. See “Financial Condition – Loans & Leases” for examples of loans & leases made by the Company. The allowance for credit losses attributable to each portfolio segment, which includes both impaired loans & leases and loans & leases that are not impaired, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

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

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 position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

42

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.

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 Bank will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate.  These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As Lessor, the company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

43

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

In addition, the Company's and Bank's regulators, including the FRB, DBO and FDIC, as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Provision for Credit Losses

Changes in the provision for credit losses between years are the result of management’s evaluation, based upon information currently available, of the adequacy of the allowance for credit losses relative to factors such as the credit quality of the loan & lease portfolio, loan & lease growth, current credit losses, and the prevailing economic climate and its effect on borrowers’ ability to repay loans & leases in accordance with the terms of the notes.

The Central Valley of California was one of the hardest hit areas in the country during the recession. In many areas, housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has stabilized throughout most of the Central Valley, housing prices for the most part have not recovered significantly and unemployment levels remain well above those in other areas of the state and country. While, in management’s opinion, the Company’s levels of net charge-offs and non-performing assets as of June 30, 2015, compare very favorably to our peers at the present time, carefully managing credit risk remains a key focus of the Company.

The state of California has experienced drought conditions since 2013. Although management continues to believe that current conditions will not have a material impact on credit quality during the 2015 growing season, the lack of rain continues to have an adverse impact on our agricultural customers’ operating costs, crop yields and crop quality. The longer the drought continues, the more significant this impact will become, particularly if ground water levels begin to significantly deteriorate or riparian rights are further curtailed. See “Part II. Other Information, Item 1A. Risk Factors” for additional information.

The Company made a $650,000 provision for credit losses during the first half of 2015 compared to no provision during the first half of 2014. Net recoveries during the first half of 2015 were $3.0 million compared to net recoveries of $16,000 in the first half of 2014. During the first half of 2015 the Company was able to fully recover $2.9 million that was charged-off during 2010 on a restructured commercial real estate loan. In addition to the full recovery of the charged off principal, this transaction also resulted in the recovery of $353,000 in interest income and the client’s payment of a financing fee of $1.1 million. See “Overview – Looking Forward: 2015 and Beyond”, “Critical Accounting Policies and Estimates – Allowance for Credit Losses” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk” located in the Company’s 2014 Annual Report on Form 10-K.

After reviewing all factors above, based upon information currently available, management concluded that the allowance for credit losses as of June 30, 2015, was adequate.

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	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2015			2014			2015			2014
Balance at Beginning of Period	$	38,940		$	34,277		$	35,401		$	34,274
Charge-Offs		(17	)		(113	)		(46	)		(143	)
Recoveries		64			126			3,032			159
Provision		50			-			650			-
Balance at End of Period	$	39,037		$	34,290		$	39,037		$	34,290

The table below breaks out year-to-date and current quarter activity by portfolio segment (in thousands):

June 30, 2015	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2015	$	7,842		$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Charge-Offs		-			-		-		-			-			-			(12	)		(34	)		-		-			(46	)
Recoveries		2,939			-		-		2			47			3			4			37			-		-			3,032
Provision		(2,190	)		3,087		508		(293	)		(400	)		(1,061	)		691			(4	)		321		(9	)		650
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2015	$	7,954		$	6,901	$	1,916	$	673		$	2,096		$	4,602		$	8,941		$	212		$	2,499	$	3,146		$	38,940
Charge-Offs		-			-		-		-			-			-			-			(17	)		-		-			(17	)
Recoveries		1			-		-		2			42			2			2			15			-		-			64
Provision		636			371		261		56			(65	)		442			(65	)		7			33		(1,626	)		50
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037

The Allowance for Credit Losses at June 30, 2015 increased $3.6 million from December 31, 2014. The allowance allocated to the following categories of loans did change materially during the first half of 2015:

· While Commercial Real Estate allowance balances did not change materially, a $2.9 million recovery on a previously charged off loan resulted in a decrease of $2.2 million in the required provision.

· Agricultural Real Estate allowance balances increased $3.1 million due to increased loan balances in this segment and increased qualitative factors in the Company’s allowance calculation related to the longer-term impact of continuing drought conditions in California.

· Agricultural allowance balances decreased $1.1 million, as a result of seasonal decreases in loan balances, offset somewhat by increases in drought qualitative factors.

See “Management’s Discussion and Analysis - Financial Condition – Classified Loans & Leases and Non-Performing Assets” for further discussion regarding these loan categories.

See “Note 3. Allowance for Credit Losses” for additional details regarding the provision and allowance for credit losses.

Non-Interest Income

Non-interest income includes: (1) service charges and fees from deposit accounts; (2) net gains and losses from investment securities; (3) increases in the cash surrender value of bank owned life insurance; (4) debit card and ATM fees; (5) net gains and losses on non-qualified deferred compensation plans; and (6) fees from other miscellaneous business services.

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2^nd Quarter 2015 vs.2^nd Quarter 2014

Non-interest income decreased $1.1 million or 28.3% for the three months ended June 30, 2015, compared to the same period of 2014. This decrease was primarily due to: (1) a $1.3 million decrease in the net gain on deferred compensation investments for the second quarter of 2015 compared to the same period in 2014; and (2) a $119,000 decrease in deposit service charges primarily related to the Company’s overdraft privilege service. Partially offsetting this was a $311,000 increase in other non-interest income, primarily comprised of a one-time special FHLB dividend.

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 Generally Accepted Accounting Principles require these investment gains/losses be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no effect on the Company’s net income.

Six Months Ending June 30, 2015 vs. Six Months Ending June 30, 2014

Non‑interest income increased $385,000 or 5.4% for the six months ended June 30, 2015 compared to the same period of 2014. This increase was primarily comprised of: (1) a $1.1 million financing fee related to the full recovery of a loan previously charged off; and (2) a $284,000 increase in FHLB dividends as a result of the FHLB declaring a one-time special dividend. These increases were offset by: (1) a $159,000 decrease in service charges on deposit accounts related to the Company’s overdraft privilege service; and (2) a $981,000 decrease in net gain on deferred compensation investments.

Non-Interest Expense

Non-interest expense for the Company includes expenses for: (1) salaries and employee benefits; (2) net gains and losses on non-qualified deferred compensation plan investments; (3) occupancy; (4) equipment; (5) ORE holding costs; (6) deposit insurance; (7) supplies; (8) legal fees; (9) professional services; (10) data processing; (11) marketing; and (12) other miscellaneous expenses.

2^nd Quarter 2015 vs. 2^nd Quarter 2014

Overall, non-interest expense decreased $273,000 or 2.1% for the three months ended June 30, 2015, compared to the same period in 2014. This decrease was primarily comprised of a $1.3 million decrease in net gain on deferred compensation investments for the second quarter of 2015 when compared to the same period in 2014. This decrease was partially offset by: (1) a $429,000 increase in salaries and employee benefits primarily related to new staff added for the Walnut Creek and Concord offices; and (2) increased legal fee expense.

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 Generally Accepted Accounting Principles require these investment gains/losses be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no effect on the Company’s net income.

Six Months Ending June 30, 2015 vs. Six Months Ending June 30, 2014

Non-interest expense increased $2.3 million or 9.3% for the six months ended June 30, 2015, compared to the same period of 2014. This increase was primarily due to: (1) a $2.3 million increase in salaries and employee benefits related to new staff added for the Walnut Creek and Concord offices and increased contributions to employee benefit plans; and (2) increased legal fee expense. This increase was partially offset by a $981,000 decrease in net gain on deferred compensation investments for the first half of 2015 when compared to the same period in 2014.

Income Taxes

The provision for income taxes increased 16.8% to $4.2 million for the second quarter of 2015. The Company’s effective tax rate was 38.3% for the second quarter of 2015 and 37.0% for the second quarter of 2014.

The provision for income taxes increased 13.1% to $8.1 million for the first six months of 2015. The Company’s effective tax rate for the first six months of 2015 was 38.2% compared to 36.7% for the same period in 2014.

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The Company’s effective tax rate fluctuates 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 statutory rate of 42% due primarily to benefits regarding the cash surrender value of life insurance; California enterprise zone interest income exclusion; and tax-exempt interest income on municipal securities and loans.

Current tax law causes the Company’s current taxes payable to approximate or exceed the current provision for taxes on the income statement. Three provisions have had a significant effect on the Company’s current income tax liability: (1) the restrictions on the deductibility of loans & lease losses; (2) deductibility of retirement and other long-term employee benefits only when paid; and (3) the statutory deferral of deductibility of California franchise taxes on the Company’s federal return.

Financial Condition

This section discusses material changes in the Company’s balance sheet at June 30, 2015, as compared to December 31, 2014 and to June 30, 2014. As previously discussed (see “Overview”) the Company’s financial condition can be influenced by the seasonal banking needs of its agricultural customers.

Investment Securities and Federal Funds Sold

The investment portfolio provides the Company with an income alternative to loans & leases. The debt securities in the Company’s investment portfolio have historically been comprised primarily of: (1) mortgage-backed securities issued by federal government-sponsored entities; (2) debt securities issued by US Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, during 2012, when loan demand lagged deposit growth resulting in significant liquidity, the Company began to selectively add investment grade corporate securities (floating rate and fixed rate with maturities less than 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities. This portfolio of corporate securities was sold during the 3^rd quarter of 2014 in order to fund the Company’s increase in loan balances.

The Company’s investment portfolio at June 30, 2015 was $418.8 million compared to $430.4 million at the end of 2014, a decrease of $11.6 million or 2.7%. At June 30, 2014, the investment portfolio totaled $472.1 million. The mix of the investment portfolio has changed over the past three to five years. To protect against future increases in market interest rates, while at the same time generating some reasonable level of current yields, the Company has invested most of its available funds in either shorter term US Treasury, government agency & government-sponsored entity securities or shorter term (10, 15, and 20 year) mortgage-backed securities.

The Company's total investment portfolio currently represents 17.0% of the Company’s total assets as compared to 18.2% at December 31, 2014, and 21.9% at June 30, 2014.

As of June 30, 2015 the Company held $65.3 million of municipal investments, of which $47.3 million were bank-qualified municipal bonds, all classified as HTM. In order to comply with Section 939A of the Dodd-Frank Act, the Company: (1) only invests in bonds rated AA or better; and (2) performs its own credit analysis on new purchases of municipal bonds. As of June 30, 2015, ninety-eight percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of all municipal investments with particular attention paid to the approximately two percent ($539,000) of the portfolio that is not rated, and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security. In June 2014, the Company sold $375,000 of municipal bonds from a single issuer. The Company took this action under the provisions of ASC 320-10-25-6(a), which allow for the sale of HTM securities where there is “evidence of a significant deterioration in the issuer’s creditworthiness.”

Not included in the investment portfolio are interest bearing deposits with banks and overnight investments in Federal Funds Sold. Interest bearing deposits with banks consisted of FRB deposits. The FRB currently pays interest on the deposits that banks maintain in their FRB accounts, whereas historically banks had to sell these Federal Funds to other banks in order to earn interest. 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 $46.3 million at June 30, 2015, $34.8 million at December 31, 2014 and $3.4 million at June 30, 2014.

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The Company classifies its investments as HTM, trading, or AFS. Securities are classified as HTM and are carried at amortized cost when the Company has the intent and ability to hold the securities to maturity. Trading securities are securities acquired for short-term appreciation and are carried at fair value, with unrealized gains and losses recorded in non-interest income. As of June 30, 2015, December 31, 2014 and June 30, 2014, there were no securities in the trading portfolio. Securities classified as AFS include securities, which may be sold to effectively manage interest rate risk exposure, prepayment risk, satisfy liquidity demands and other factors. These securities are reported at fair value with aggregate, unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes.

Loans & Leases

Loans & leases can be categorized by borrowing purpose and use of funds. Common examples of loans & leases made by the Company include:

Commercial and Agricultural Real Estate - These are loans secured by farmland, commercial real estate, multifamily residential properties, and other non-farm, non-residential properties within our market area. 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, and the income will be the Bank's primary source of repayment for the loan. Loans are made both on owner occupied and investor properties; generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe); have debt service coverage ratios of 1.00 or better with a target of greater than 1.20; 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 development and construction (the Company generally requires the borrower to fund the land acquisition) and are secured by commercial or residential real estate. These loans are generally made only to experienced local developers with whom the Bank has a successful track record; for projects 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 a written 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.

Residential 1^st Mortgages - 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, we will make loans on rural residential properties up to 20 acres. Most residential loans have terms from ten to twenty years and carry fixed rates priced off of 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.”

Home Equity Lines and Loans - These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed $250,000; Combined Loan To Value (CLTV) does not exceed 80%; 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 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 24 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 with an appropriate spread based on the amount of perceived risk in the loan.

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Commercial - These are 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 24 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 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 very minimal consumer loan portfolio, and loans are primarily made as an accommodation to deposit customers.

Leases –These are leases to businesses or individuals, for the purpose of 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 through the use of 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. ITC 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.

See “Item 3. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk” for a discussion about the credit risks the Company assumes and its overall credit risk management practices.

Each loan or lease type involves risks specific to the: (1) borrower; (2) collateral; and (3) loan & lease structure. See “Results of Operations - Provision and Allowance for Credit Losses” for a more detailed discussion of risks by loan & lease type. The Company’s current underwriting policies and standards are designed to mitigate the risks involved in each loan & lease type. The Company’s policies require that loans & leases are 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 & 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 & 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 is made.

In order to be responsive to borrower needs, the Company prices loans & 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-Interest Rate Risk).

Overall, the Company's loan & lease portfolio at June 30, 2015 totaled $1.8 billion, an increase of $318.9 million or 21.3% over June 30, 2014. This increase has occurred despite the continuing sluggish economic conditions in the Central Valley of California and is a result of: (1) the Company’s intensified business development efforts directed toward credit-qualified borrowers; (2) entry into the equipment leasing business; and (3) expansion of our service area into Walnut Creek, Concord, and Irvine. No assurances can be made that this growth in the loan & lease portfolio will continue.

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Loans & leases at June 30, 2015 increased $106.4 million from December 31, 2014, primarily as a result of strong growth in real estate segments offset to some extent by normal seasonal pay downs of loans made to the Company’s agricultural customers.

The following table sets forth the distribution of the loan & lease portfolio by type and percent as of the periods indicated.

Loan & Lease Portfolio	June 30, 2015				December 31, 2014				June 30, 2014
(in thousands)	$		%		$		%		$		%
Commercial Real Estate	$	575,355	31.5	%	$	495,316	28.9	%	$	432,652	28.7	%
Agricultural Real Estate		373,324	20.5	%		357,207	20.8	%		358,933	23.9	%
Real Estate Construction		116,983	6.4	%		96,519	5.6	%		81,647	5.4	%
Residential 1st Mortgages		189,039	10.4	%		171,880	10.0	%		160,418	10.7	%
Home Equity Lines and Loans		31,327	1.7	%		33,017	1.9	%		34,453	2.3	%
Agricultural		225,795	12.4	%		281,963	16.4	%		228,745	15.2	%
Commercial		256,386	14.1	%		230,819	13.5	%		179,948	12.0	%
Consumer & Other		4,984	0.3	%		4,719	0.3	%		4,881	0.3	%
Leases		49,791	2.7	%		44,217	2.6	%		22,155	1.5	%
Total Gross Loans & Leases		1,822,984	100.0	%		1,715,657	100.0	%		1,503,832	100.0	%
Less: Unearned Income		4,342				3,413				4,123
Subtotal		1,818,642				1,712,244				1,499,709
Less: Allowance for Credit Losses		39,037				35,401				34,290
Net Loans & Leases	$	1,779,605			$	1,676,843			$	1,465,419

Classified Loans & Leases and Non-Performing Assets

All loans & leases are assigned a credit risk grade using grading standards developed by bank regulatory agencies. See “Results of Operations - Provision and Allowance for Credit Losses” for more detail on risk grades. The Company utilizes the services of a third-party independent loan review firm to perform evaluations of individual loans & leases and review the credit risk grades the Company places on loans & leases. Loans & leases that are judged to exhibit a higher risk profile are referred to as “classified loans & leases,” and these loans & leases receive increased management attention. As of June 30, 2015, classified loans totaled $6.0 million compared to $3.6 million at December 31, 2014 and $3.4 million at June 30, 2014.

Classified loans & leases with higher levels of credit risk can be further designated as “impaired” loans & leases. A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. See “Results of Operations - Provision and Allowance for Credit Losses” for further details. Impaired loans & leases consist of: (1) non-accrual loans & leases; and/or (2) restructured loans & leases that are still performing (i.e., accruing interest).

Non-Accrual Loans & Leases - Accrual of interest on loans & 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 & leases are 90 days past due, but in management's judgment are well secured and in the process of collection, they may not be classified as non-accrual. When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed. Income on such loans & leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. As of June 30, 2015 non-accrual loans & leases totaled $2.9 million. At December 31, 2014 and June 30, 2014, non-accrual loans totaled $2.3 million and $2.5 million, respectively.

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Restructured Loans & Leases - A restructuring of a loan or lease constitutes a TDR under ASC 310-40, if the Company for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. Restructured loans or leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR loans, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment.

As of June 30, 2015, restructured loans & leases on accrual totaled $4.8 million as compared to $5.0 million at December 31, 2014. Restructured loans on accrual at June 30, 2014 were $4.2 million.

Other Real Estate - Loans where the collateral has been repossessed are classified as other real estate ("ORE") or, if the collateral is personal property, the loan is classified as other assets on the Company's financial statements.

The following table sets forth the amount of the Company's non-performing loans & leases (defined as non-accrual loans & leases plus accruing loans & leases past due 90 days or more) and ORE as of the dates indicated.

Non-Performing Assets

(in thousands)	June 30, 2015			Dec. 31, 2014			June 30, 2014
Non-Performing Loans & Leases	$	2,944		$	2,270		$	2,519
Other Real Estate		2,441			3,299			3,294
Total Non-Performing Assets	$	5,385		$	5,569		$	5,813
Non-Performing Loans & Leases as a % of Total Loans & Leases		0.16	%		0.13	%		0.17	%
Restructured Loans & Leases (Performing)	$	4,843		$	4,955		$	4,240

Although management believes that non-performing loans & 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. Specific reserves of $763,000, $940,000, and $994,000 have been established for non-performing loans & leases at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Foregone interest income on non-accrual loans & leases which would have been recognized during the period, if all such loans & leases had been current in accordance with their original terms, totaled $55,000 for the six months ended June 30, 2015, $92,000 for the year ended December 31, 2014, and $6,000 for the six months ended June 30, 2014.

The Company reported $2.4 million of ORE at June 30, 2015, and $3.3 million at both December 31, 2014, and June 30, 2014. These values are all net of a reserve for ORE valuation adjustments in the amount of $3.7 million at June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

Except for those classified and non-performing loans & leases discussed above, the Company’s management is not aware of any loans & leases as of June 30, 2015, 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 Central Valley was one of the hardest hit areas in the country during the recession. In many areas housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has stabilized throughout most of the Central Valley, housing prices for the most part have not recovered significantly and unemployment levels remain well above those in other areas of the state and country.

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· The state of California has experienced drought conditions since 2013. Although management continues to believe that current conditions will not have a material impact on credit quality during the 2015 growing season, the lack of rain continues to have an adverse impact on our agricultural customers’ operating costs, crop yields and crop quality. The longer the drought continues, the more significant this impact will become, particularly if ground water levels begin to significantly deteriorate or riparian rights are further curtailed. See “Part II. Other Information, Item 1A. Risk Factors” for additional information.

In addition to the other information set forth in this report, readers should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in the Company’s 2014 Annual Report on Form 10-K.

Deposits

One of the key sources of funds to support earning assets is the generation of deposits from the Company’s customer base. The ability to grow the customer base and subsequently deposits is a significant element in the performance of the Company.

The Company's deposit balances at June 30, 2015 have increased $301.1 million or 16.2% compared to June 30, 2014. In addition to the Company’s ongoing business development activities for deposits, the following factors positively impacted year-over-year deposit growth: (1) the Federal government’s decision to permanently increase FDIC deposit insurance limits from $100,000 to $250,000 per depositor; (2) 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 territory; and (3) the Company’s expansion of its service area into Walnut Creek, Concord, and Irvine. The Company expects that, at some point, deposit customers may begin to diversify how they invest their money (e.g., move funds back into the stock market or other investments) and this could impact future deposit growth.

Although total deposits have increased 16.2% since June 30, 2014, the Company continues to focus on increasing low cost transaction and savings accounts:

· Demand and interest-bearing transaction accounts increased $149.4 million or 18.4% since June 30, 2014.

· Savings and money market accounts have increased $75.9 million or 12.0% since June 30, 2014.

· Time deposit accounts have increased $75.7 million or 18.1% since June 30, 2014.

The Company's deposit balances at June 30, 2015 have increased $99.1 million or 4.8% compared to December 31, 2014. Savings and money market deposits increased 9.6% or $61.9 million while demand and interest-bearing transaction accounts increased by $10.9 million or 1.1% and time deposit accounts increased by $26.3 million or 5.6%. Deposit trends in the first half of the year can be impacted by the seasonal needs of our agricultural customers.

Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings

Lines of credit with the Federal Reserve Bank and the Federal Home Loan Bank are other key sources of funds to support earning assets. 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 at June 30, 2015, December 31, 2014, or June 30, 2014. There were no Federal Funds purchased or advances from the FRB at June 30, 2015, December 31, 2014 or June 30, 2014.

As of June 30, 2015 the Company has additional borrowing capacity of $279.1 million with the Federal Home Loan Bank and $321.3 million with the Federal Reserve Bank. Borrowings under these lines are collateralized with loans or securities that have been accepted for pledging at the FHLB and FRB.

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Long-Term Subordinated Debentures

On December 17, 2003, the Company raised $10 million through an offering of trust-preferred securities (“TPS”). See Note 13 located in “Item 8. Financial Statements and Supplementary Data” of the Company’s 2014 Annual Report on Form 10-K. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our TPS will continue to qualify as regulatory capital (See “Basel III Regulatory Capital Rules”). These securities accrue interest at a variable rate based upon 3-month LIBOR plus 2.85%. Interest rates reset quarterly and were 3.13% at June 30, 2015, 3.09% at December 31, 2014 and 3.08% at June 30, 2014. The average rate paid for these securities for the first half of 2015 was 3.15% compared to 3.13% for the first half of 2014. 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.

Capital

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 $241.2 million at June 30, 2015, $233.2 million at December 31, 2014, and $221.8 million at June 30, 2014.

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios set forth in the table below (all terms as defined in the regulations). As of June 30, 2015, that the Company and the Bank exceeded all capital adequacy requirements to which they are subject.

In its most recent notification from the FDIC the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain certain ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution’s categories.

(in thousands)	Actual					Regulatory Capital Requirements					To Be Well Capitalized Under Prompt Corrective Action Provisions
The Company:	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2015
Total Capital Ratio	$	277,013		12.67	%	$	174,934		8.0	%		N/A		N/A
Common Equity Tier 1 Capital Ratio	$	249,533		11.41	%	$	98,400		4.5	%		N/A		N/A
Tier 1 Capital Ratio	$	249,533		11.41	%	$	131,200		6.0	%		N/A		N/A
Tier 1 Leverage Ratio	$	249,533		10.35	%	$	96,479		4.0	%		N/A		N/A

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(in thousands)	Actual					Regulatory Capital Requirements					To Be Well Capitalized Under Prompt Corrective Action Provisions
The Bank:	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2015
Total Capital Ratio	$	276,760		12.66	%	$	174,922		8.0	%	$	218,653		10.0	%
Common Equity Tier 1 Capital Ratio	$	249,282		11.40	%	$	98,394		4.5	%	$	142,124		6.5	%
Tier 1 Capital Ratio	$	249,282		11.40	%	$	131,192		6.0	%	$	174,922		8.0	%
Tier 1 Leverage Ratio	$	249,282		10.34	%	$	96,413		4.0	%	$	120,517		5.0	%

As previously discussed (see “Long-Term Subordinated Debentures”), in order to supplement its regulatory capital base, during December 2003 the Company issued $10 million of trust preferred securities. On March 1, 2005, the Federal Reserve Board issued its final rule effective April 11, 2005, concerning the regulatory capital treatment of trust preferred securities (“TPS”) by bank holding companies (“BHCs”). Under the final rule BHCs may include TPS in Tier 1 capital in an amount equal to 25% of the sum of core capital net of goodwill. Any portion of trust-preferred securities not qualifying as Tier 1 capital would qualify as Tier 2 capital subject to certain limitations. The Company has received notification from the Federal Reserve Bank of San Francisco that all of the Company’s trust preferred securities currently qualify as Tier 1 capital.

The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on September 11, 2012, the Board of Directors approved increasing the funds available for the Company’s common stock repurchase programto $20 millionover the three-year period ending September 30, 2015. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of the Company’s 2014 Annual Report on Form 10-K for additional information.

There were no stock repurchases during the first half of 2015 or 2014. The remaining dollar value of shares that may yet be purchased under the Company’s Common Stock Repurchase Plan is approximately $20 million.

On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Registrar and Transfer Company as Rights Agent. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of the Company’s 2014 Annual Report on Form 10-K for further explanation.

On January 23, 2015, the Company issued 1,700 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $450 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as amended, the regulations promulgated thereunder. Most of the proceeds were contributed to the Bank as equity capital.

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Basel III Regulatory Capital Rules

Both the FRB and FDIC have approved final rules that substantially amend the regulatory risk-based capital rules previously applicable to the Company and the Bank. These rules would implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of Risk Weighted Assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a "capital conservation buffer" of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA, and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount.

The final rules also implement other revisions to the current capital rules but, in general, those revisions are not as onerous as originally thought when the proposed rules were issued in June 2012. For instance, the Company’s subordinated debentures will continue to qualify for Tier 1 under the rules. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity.

Critical Accounting Policies and Estimates

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the Company’s financial statements management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These judgments govern areas such as the allowance for credit losses, the fair value of financial instruments and accounting for income taxes.

For a full discussion of the Company’s critical accounting policies and estimates see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2014 Annual Report on Form 10-K.

Off Balance Sheet Commitments

In the normal course of business the Company enters into financial instruments with off balance sheet risks in order to meet the financing needs of its customers. These financial instruments consist of 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.

(in thousands)	June 30, 2015		December 31, 2014		June 30, 2014
Commitments to Extend Credit	$	638,190	$	539,288	$	503,061
Letters of Credit		12,136		9,734		7,570
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		1,511		2,042		342

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.

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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 are issued for 18 months or less. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Additionally, the Company maintains a reserve for off balance sheet commitments which totaled $142,000 at June 30, 2015, December 31, 2014, and June 30, 2014. We do not anticipate any material losses as a result of these transactions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

The Company has adopted risk management policies and procedures, which aim to ensure the proper control and management of all risk factors inherent in the operation of the Company, most importantly credit risk, interest rate risk and liquidity risk. These risk factors are not mutually exclusive. It is recognized that any product or service offered by the Company may expose the Company to one or more of these risk factors.

Credit Risk

Credit risk is the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance.

Credit risk in the investment portfolio and correspondent bank accounts is addressed through defined limits in the Company’s policy statements. In addition, certain securities carry insurance to enhance credit quality of the bond.

In order to control credit risk in the loan & lease portfolio the Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower, and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. However, as a financial institution that assumes credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The allowance for credit losses is maintained at a level considered by management to be adequate to provide for risks inherent in the loan & lease portfolio. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs.

The Company’s methodology for assessing the appropriateness of the allowance is applied on a regular basis and considers all loans & leases. The systematic methodology consists of three parts.

Part 1 - includes a detailed analysis of the loan & lease portfolio in two phases. The first phase is conducted in accordance with the “Receivables” topic of the FASB ASC. Individual loans & leases are reviewed to identify them for impairment. A loan or lease is impaired when principal and interest are deemed uncollectible in accordance with the original contractual terms of the loan or lease. Impairment is measured as either the expected future cash flows discounted at each loan’s or lease’s effective interest rate, the fair value of the loan’s or lease’s collateral if the loan or lease is collateral dependent, or an observable market price of the loan or lease, if one exists. Upon measuring the impairment, the Company will ensure an appropriate level of allowance is present or established.

Central to the first phase of the analysis of the loan & lease portfolio is the risk rating system. The originating credit officer assigns each borrower an initial risk rating, which is based primarily on a thorough analysis of that borrower’s financial position in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior credit administration personnel. Credits are monitored by credit administration personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary. Risk ratings are reviewed by both the Company’s independent third-party credit examiners and bank examiners from the DBO and FDIC.

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Based on the risk rating system, specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates that the loan or lease is impaired and there is a probability of loss. Management performs a detailed analysis of these loans & leases, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral, and assessment of the guarantors. Management then determines the inherent loss potential and allocates a portion of the allowance for losses as a specific allowance for each of these credits.

The second phase is conducted by segmenting the loan & lease portfolio by risk rating and into groups of loans & leases with similar characteristics in accordance with the “Contingency” topic of the FASB ASC. In this second phase, groups of loans & leases with similar characteristics are reviewed and the appropriate allowance factor is applied based on the historical average charge-off rate for each particular group of loans or leases.

Part 2 - considers qualitative internal and external factors that may affect a loan or lease’s collectability, is based upon management’s evaluation of various conditions, the effects of which are not directly measured in the determination of the historical and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the second element of the analysis of the allowance include, but are not limited to the following conditions that existed as of the balance sheet date:

§ general economic and business conditions affecting the key service areas of the Company;

§ credit quality trends (including trends in collateral values, delinquencies and non-performing loans & leases);

§ loan & lease volumes, growth rates and concentrations;

§ loan & lease portfolio seasoning;

§ specific industry and crop conditions;

§ recent loss experience; and

§ duration of the current business cycle.

Part 3 - An unallocated allowance often occurs due to the imprecision in estimating and allocating allowance balances associated with macro factors such as: (1) the continuing sluggish economic conditions in the Central Valley; and (2) the long term impact of drought conditions currently being experienced in California.

Management reviews all of these conditions in discussion with the Company’s senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s evaluation of the inherent loss related to such condition is reflected in the second element of the allowance or in the unallocated allowance.

Management believes, that based upon the preceding methodology, and using information currently available, the allowance for credit losses at June 30, 2015 was adequate. No assurances can be given that future events may not result in increases in delinquencies, non-performing loans & leases, or net loan & lease charge-offs that would require increases in the provision for credit losses and thereby adversely affect the results of operations.

Interest Rate Risk

The mismatch between maturities of interest bearing assets and liabilities results in uncertainty in the Company’s earnings and economic value and is referred to as interest rate risk. The Company does not attempt to predict interest rates and positions the balance sheet in a manner, which seeks to minimize, to the extent possible, the effects of changing interest rates.

The Company measures interest rate risk in terms of potential impact on both its economic value and earnings. The methods for governing the amount of interest rate risk include: (1) analysis of asset and liability mismatches (Gap analysis); (2) the utilization of a simulation model; and (3) limits on maturities of investment, loan & lease, and deposit and borrowing products, which reduces the market volatility of those instruments.

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The Gap analysis measures, at specific time intervals, the divergence between earning assets and interest-bearing liabilities for which repricing opportunities will occur. A positive difference, or Gap, indicates that earning assets will reprice faster than interest-bearing liabilities. This will generally produce a greater net interest margin during periods of rising interest rates and a lower net interest margin during periods of declining interest rates. Conversely, a negative Gap will generally produce a lower net interest margin during periods of rising interest rates and a greater net interest margin during periods of decreasing interest rates.

The interest rates paid on interest bearing liabilities do not always move in unison with the rates charged on loans & leases. In addition, the magnitude of changes in the rates charged on loans & leases is not always proportionate to the magnitude of changes in the rate paid for interest bearing liabilities. Consequently, changes in interest rates do not necessarily result in an increase or decrease in the net interest margin solely as a result of the differences between repricing opportunities of earning assets or interest-bearing liabilities.

The Company also utilizes the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. The sensitivity of the Company’s net interest income is measured over a rolling one-year horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and the interest expense paid on all interest-bearing liabilities reflected on the Company’s balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon assuming no balance sheet growth, given a 200 basis point upward and a 100 basis point downward shift in interest rates. A shift in rates over a 12-month period is assumed. Results that exceed policy limits, if any, are analyzed for risk tolerance and reported to the Board with appropriate recommendations. At June 30, 2015, the Company’s estimated net interest income sensitivity to changes in interest rates, as a percent of net interest income was an increase in net interest income of 2.97% if rates increase by 200 basis points and a decrease in net interest income of 0.50% if rates decline 100 basis points. Comparatively, at December 31, 2014, the Company’s estimated net interest income sensitivity to changes in interest rates, as a percent of net interest income was an increase in net interest income of 2.98% if rates increase by 200 basis points and a decrease in net interest income of 0.17% if rates decline 100 basis points.

The estimated sensitivity does not necessarily represent a Company forecast and the results may not be indicative of actual changes to the Company’s net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape; prepayments on loans & leases and securities; pricing strategies on loans & leases and deposits; replacement of asset and liability cash flows; and other assumptions. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.

Liquidity Risk

Liquidity risk is the risk to earnings or capital resulting from the Company’s inability to meet its obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect the Company’s ability to liquidate assets or acquire funds quickly and with minimum loss of value. The Company endeavors to maintain a cash flow adequate to fund operations, handle fluctuations in deposit levels, respond to the credit needs of borrowers, and to take advantage of investment opportunities as they arise.

The Company’s principal operating sources of liquidity include (see “Item 8. Financial Statements and Supplementary Data – Consolidated Statements of Cash Flows” of the Company’s 2014 Annual Report on Form 10-K) cash and cash equivalents, cash provided by operating activities, principal payments on loans & leases, proceeds from the maturity or sale of investments, and growth in deposits. To supplement these operating sources of funds the Company maintains Federal Funds credit lines of $71.0 million and repurchase lines of $100.0 million with major banks. As of June 30, 2015 the Company has additional borrowing capacity of $279.1 million with the FHLB and $321.3 million with the FRB. Borrowings under these lines are collateralized with loans or securities that have been accepted for pledging at the FHLB and FRB.

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At June 30, 2015, the Company had available sources of liquidity, which included cash and cash equivalents and unpledged investment securities AFS of approximately $279 million, which represents 12.04% of total assets.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. Based on this evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2015, there were no changes in the Company’s internal controls or in other factors that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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 to the risk factors previously disclosed under “Item 1A. Risk Factors” in the Company’s 2014 Annual Report to Shareholders on Form 10-K except for the risks drought described below.

Our Financial Results Can Be Impacted By The Cyclicality and Seasonality Of Our Agricultural Business And The Risks Related Thereto - The Company has provided financing to agricultural customers in the Central Valley throughout its history. We recognize the cyclical nature of the industry, often caused by fluctuating commodity prices and changing climatic conditions, and manage these risks accordingly. The Company remains committed to providing credit to agricultural customers and will always have a material exposure to this industry. Although the Company’s loan portfolio is believed to be well diversified, at various times during the first six months of 2015 approximately 38% of the Company’s loan balances were outstanding to agricultural borrowers. Commitments are well diversified across various commodities, including dairy, grapes, walnuts, almonds, cherries, apples, pears, and various row crops. Additionally, many individual borrowers are themselves diversified across commodity types, reducing their exposure, and therefore the Company’s, to cyclical downturns in any one commodity.

The State of California has experienced drought conditions since 2013 and the farming belt of the Central Valley is often cited as an example of an area experiencing extreme drought. However, it is important to understand that not all areas of the state have been impacted equally, and this is particularly true in the Central Valley, which stretches some 450 miles from Bakersfield in the south to Redding in the north. The vast majority of the Company’s agricultural customers are located in the more northern portion of the Central Valley, an area that benefits from the drainage of the Sacramento, American, Mokelumne and Stanislaus rivers. As a result, at the current time farmers in this area still have access to reasonable ground water sources that are economical to pump.

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In addition to pumping water from ground water sources, many of our agricultural customers have senior riparian water rights which provide them the legal right to access surface water from the rivers that abut their property. In the spring of 2015 the State of California took the extreme step of threatening to curtail certain riparian water rights for those farmers taking water from the Delta, and as a result affected growers agreed to voluntarily cutback 25% of their normal water usage as opposed to undertaking a protracted legal fight. Even with these cutbacks, at the current time our agricultural customers still have access to sufficient levels of water to satisfy their needs.

Importantly, the Company has minimal credit exposure in the more southern portion of the Central Valley, defined broadly as an area south of Highway 152, but more importantly the Fresno area and south (including the Westlands Water District). In most of these areas ground water levels have been depleted, making farmers increasingly dependent on the delivery of surface water from the Central Valley Project, which has already begun cutting back deliveries to many farmers.

In order to monitor this situation the Company (i) regularly reviews ground water level reports provided by California’s Department of Water Resources, (ii) requires water budgets and plans from all of our agricultural borrowers that detail the sources of their irrigation water and the irrigation requirements to achieve their crop plan; and (iii) in the case of new permanent crop development projects, requires well tests.

Although management continues to believe that current conditions will not have a material impact on credit quality during the 2015 growing season, the lack of rain continues to have an adverse impact on our agricultural customers’ operating costs, crop yields and crop quality. The longer the drought continues, the more significant this impact will become, particularly if ground water levels begin to significantly deteriorate or riparian rights are further curtailed.

The Company’s service areas can also be significantly impacted by the seasonal operations of the agricultural industry. As a result, the Company’s financial results can be influenced by the banking needs of its agricultural customers (e.g., generally speaking during the spring and summer customers draw down their deposit balances and increase loan borrowing to fund the purchase of equipment and the planting of crops. Correspondingly, deposit balances are replenished and loans repaid in late fall and winter as crops are harvested and sold).

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no shares repurchased by Farmers & Merchants Bancorp during the first six months of 2015. The remaining dollar value of shares that may yet be purchased under the Company’s Stock Repurchase Plan is approximately $20.0 million.

The common stock of Farmers & Merchants Bancorp is not widely held or listed on any exchange. However, trades are reported on the OTCQX (prior to January 12, 2015, the Over the Counter (“OTC”) Bulletin Board) under the symbol “FMCB.” Additionally, management is aware that there are private transactions in the Company’s common stock.

On January 23, 2015, the Company issued 1,700 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $450 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as amended, the regulations promulgated thereunder. Most of the proceeds were contributed to the Bank as equity capital.

ITEM 3. Defaults Upon Senior Securities

Not applicable

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ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

None

ITEM 6. Exhibits

See “Index to Exhibits”

SIGNATURES

Pursuant to the requirement 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:  August 7, 2015	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President
	& Chief Executive Officer
	(Principal Executive Officer)
Date:  August 7, 2015	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial & Accounting Officer)

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Index to Exhibits

Exhibit No.		Description
	10.1	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Kent A. Steinwert, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.3	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Deborah E. Skinner, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.4	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Kenneth W. Smith, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.6	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Stephen W. Haley, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.8	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Jay J. Colombini, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.9	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and James P. Daugherty, filed on Registrant’s Form 10-Q for the quarter ended June 30, 2015.
	10.10	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Ryan J. Misasi, filed on the Registrants Form 10-Q for the quarter ended June 30, 2015.
	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	Certifications 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	XBRL Instance Document
	101.SCH	XBRL Schema Document
	101.CAL	XBRL Calculation Linkbase Document
	101.LAB	XBRL Label Linkbase Document
	101.PRE	XBRL Presentation Linkbase Document
	101.DEF	XBRL Definition Linkbase Document

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EX-10.1

Exhibit 10.1

PRESIDENT & CHIEF EXECUTIVE OFFICER

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”) and Farmers & Merchants Bancorp, a Delaware corporation (the “Company” or “Bancorp”) their successors and assigns (hereinafter collectively referred to as “Employer”), and Kent A. Steinwert (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as President and Chief Executive Officer of the Bank and Company under the direction of Bank’s and Company’s Board of Directors and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the Bank’s and Company’s Board of Directors in connection with the conduct of the Employer’s business.  Employee shall report to such Boards of Directors and shall have the powers and duties customarily associated with the office of chief executive officer.  During the term of this Agreement, the Company and Bank shall use their best efforts to cause Employee to be elected to their respective Boards of Directors.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Board of Directors not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Board of Directors in their sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $795,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Salary Component”, “Farmers & Merchants Bank of Central California Split Dollar Agreement”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

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Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy.

Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Board of Directors and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to two (2) times Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in a lump sum no later than thirty (30) days following the Separation Date, provided that any payment delayed pending the effectiveness of the release shall be paid in a lump sum on the next pay day following the effectiveness of the release.

2. A document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement.

3. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

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The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Bancorp. Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) two (2) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $250,000; (C) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (D) a gross-up payment as defined and set forth herein in Section 8.01.4.

Employer will also (i) provide employee with a document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement (the “Split Dollar Agreement”) and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement (the “Circle of Funds Agreement”), and (ii) if not previously done, contribute such assets as are necessary to fund its obligations under both agreements, including but not limited to (i) all insurance policies on the life of Employee taken out to provide funding for the Split Dollar Agreement, and (ii) cash in an amount to fund the estimated Circle of Funds payments over the remaining actuarially forecasted life span of the Employee, to an irrevocable grantor trust that conforms substantially with the model trust published in IRS Revenue Procedure 92-64, subject to a trustee selected by the Company prior to the Change of Control.

In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

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Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $250,000; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

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b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

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Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .5% (one-half of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $150,000 and a maximum of $600,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

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Employee Initials ____

Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

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C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

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(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

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Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Board of Directors.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

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The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

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PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

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D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

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Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

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Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee
By:	/s/ Edward Corum, Jr.
	Edward Corum Jr.
	Member of the Personnel Committee
By:	/s/ Kevin Sanguinetti
	Kevin Sanguinetti
	Member of the Personnel Committee

Employee:	/s/ Kent A. Steinwert	Date:  June 23, 2015
	Kent A. Steinwert

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EX-10.3

Exhibit 10.3

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and Deborah E. Skinner (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Chief Administrative Officer under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $300,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Salary Component”, “Farmers & Merchants Bank of Central California Split Dollar Agreement”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

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Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to one (1) times Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 12 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. A document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement.

3. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

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Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) two (2) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; (C) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (D) a gross-up payment as defined and set forth herein in Section 8.01.4.

Employer will also (i) provide employee with a document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement (the “Split Dollar Agreement”) and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement (the “Circle of Funds Agreement”), and (ii) if not previously done, contribute such assets as are necessary to fund its obligations under both agreements, including but not limited to (i) all insurance policies on the life of Employee taken out to provide funding for the Split Dollar Agreement, and (ii) cash in an amount to fund the estimated Circle of Funds payments over the remaining actuarially forecasted life span of the Employee, to an irrevocable grantor trust that conforms substantially with the model trust published in IRS Revenue Procedure 92-64, subject to a trustee selected by the Company prior to the Change of Control.

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In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

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b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

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6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .25% (one-quarter of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $75,000 and a maximum of $300,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

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Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

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C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

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(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

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Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

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C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

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Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

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C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

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Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

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Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ Deborah E. Skinner	Date:  June 23, 2015
	Deborah E. Skinner

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EX-10.4

Exhibit 10.4

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and Kenneth W. Smith (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Senior Credit Officer under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $315,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Salary Component”, “Farmers & Merchants Bank of Central California Split Dollar Agreement”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

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Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to one (1) times Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 12 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. A document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement.

3. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

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Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) two (2) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; (C) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (D) a gross-up payment as defined and set forth herein in Section 8.01.4.

Employer will also (i) provide employee with a document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement (the “Split Dollar Agreement”) and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement (the “Circle of Funds Agreement”), and (ii) if not previously done, contribute such assets as are necessary to fund its obligations under both agreements, including but not limited to (i) all insurance policies on the life of Employee taken out to provide funding for the Split Dollar Agreement, and (ii) cash in an amount to fund the estimated Circle of Funds payments over the remaining actuarially forecasted life span of the Employee, to an irrevocable grantor trust that conforms substantially with the model trust published in IRS Revenue Procedure 92-64, subject to a trustee selected by the Company prior to the Change of Control.

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In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

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b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

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6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .25% (one-quarter of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $75,000 and a maximum of $300,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

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Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

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C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

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(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

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Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

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C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

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Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

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C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

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Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

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Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ Kenneth W. Smith	Date:  June 23, 2015
	Kenneth W. Smith

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EX-10.6

Exhibit 10.6

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and Stephen W. Haley (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Chief Financial Officer under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $315,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Salary Component”, “Farmers & Merchants Bank of Central California Split Dollar Agreement”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

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Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to one (1) times Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 12 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. A document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement.

3. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

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The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) two (2) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; (C) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (D) a gross-up payment as defined and set forth herein in Section 8.01.4.

Employer will also (i) provide employee with a document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement (the “Split Dollar Agreement”) and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement (the “Circle of Funds Agreement”), and (ii) if not previously done, contribute such assets as are necessary to fund its obligations under both agreements, including but not limited to (i) all insurance policies on the life of Employee taken out to provide funding for the Split Dollar Agreement, and (ii) cash in an amount to fund the estimated Circle of Funds payments over the remaining actuarially forecasted life span of the Employee, to an irrevocable grantor trust that conforms substantially with the model trust published in IRS Revenue Procedure 92-64, subject to a trustee selected by the Company prior to the Change of Control.

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In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) $125,000; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

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b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

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6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .25% (one-quarter of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $75,000 and a maximum of $300,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

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Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

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C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

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(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

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Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

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C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

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Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

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C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

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Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

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Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ Stephen W. Haley	Date:  June 23, 2015
	Stephen W. Haley

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EX-10.8

Exhibit 10.8

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and Jay J. Colombini (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Wholesale Banking Division Manager under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $240,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the“Farmers & Merchants Bank of Central California Split Dollar Agreement”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

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Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to nine months (.75x) of Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 9 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. A document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement.

3. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

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Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

Employer will also (i) provide employee with a document acknowledging all responsibilities under the Farmers & Merchants Bank of Central California Split Dollar Agreement (the “Split Dollar Agreement”) and the related Farmers & Merchants Bank of Central California Executive Bonus Agreement (the “Circle of Funds Agreement”), and (ii) if not previously done, contribute such assets as are necessary to fund its obligations under both agreements, including but not limited to (i) all insurance policies on the life of Employee taken out to provide funding for the Split Dollar Agreement, and (ii) cash in an amount to fund the estimated Circle of Funds payments over the remaining actuarially forecasted life span of the Employee, to an irrevocable grantor trust that conforms substantially with the model trust published in IRS Revenue Procedure 92-64, subject to a trustee selected by the Company prior to the Change of Control.

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In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) a gross-up payment as defined and set forth herein in Section 8.01.4.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

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b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

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6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .166% (one-sixth of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $50,000 and a maximum of $200,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

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Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

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C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

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(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

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Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

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C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

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Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

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C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

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Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

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Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ Jay J. Colombini	Date:  June 23, 2015
	Jay J. Colombini

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EX-10.9

Exhibit 10.9

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and James P. Daugherty (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Wholesale Banking Division Manager under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $250,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

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Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to  nine months (.75x) of Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 9 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

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A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) a gross-up payment as defined and set forth herein in Section 8.01.4.

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Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

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It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .166% (one-sixth of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $50,000 and a maximum of $200,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

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PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

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A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

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Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

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C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

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PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

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The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

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A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

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F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

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Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

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FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ James P. Daugherty	Date:  June 23, 2015
	James P. Daugherty

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EX-10.10

Exhibit 10.10

EXECUTIVE VICE PRESIDENT

EMPLOYMENT, CONFIDENTIALITY

AND NON-DISCLOSURE AGREEMENT

PART I

PARTIES TO AGREEMENT

Section 1.01 - Parties:  This Employment Agreement (hereinafter referred to as the “Agreement”) is entered into by and between Farmers & Merchants Bank of Central California, a California banking corporation (the “Bank”), its successors and assigns (hereinafter referred to as “Employer”), and Ryan J. Misasi (hereinafter referred to as “Employee”).  Employer and Employee are sometimes collectively referred to hereinafter as the “Parties” and individually as a “Party”.

PART II

EMPLOYMENT

Section 2.01 - Employment:  Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment with Employer, in accordance with the terms and conditions set forth herein.

Section 2.02 - Term of Employment:  This Agreement shall become effective on July 1, 2015 provided Employee has executed and returned to Employer the general release of claims in the form attached hereto as Exhibit A.  This Agreement shall terminate on June 30, 2018 unless earlier terminated pursuant to the provisions of Part VII herein.  If this Agreement is not terminated pursuant to Part VII, and provided Employee enters into an effective general release of claims at that time in the form attached hereto as Exhibit A, the Agreement shall renew automatically for an additional two year term, and for successive additional two year terms thereafter, unless earlier terminated pursuant to the provisions of Part VII.

PART III

DUTIES OF EMPLOYEE

Section 3.01- General Duties:  During the term of this Agreement, Employee shall be employed as Executive Vice President and Retail Banking Division Manager under the direction of the President and Chief Executive Officer and shall perform and discharge well and faithfully the duties that may be assigned to Employee from time to time by the President and Chief Executive Officer in connection with the conduct of the Employer’s business.  Nothing herein shall preclude Employer’s Board of Directors or Chief Executive Officer from changing Employee’s title or duties as long as the resulting title and duties are reasonably commensurate with the education, employment background and qualifications of the Employee and involve similar responsibilities and scope of duties.

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Section 3.02 - Outside Activities:  Employee agrees that, while employed by Employer, Employee will refrain from any outside activities which actually or potentially are in direct conflict with the essential enterprise-related or reputational interest of Employer, that would cause disruption of the Employer’s operations, or that would be in direct competition with the Employer or assist competitors of the Employer.  It shall not be a violation of this Agreement for Employee (A) to serve on corporate, civic or charitable boards or committees, or (B) to deliver lectures or fulfill speaking engagements, so long as such activities do not significantly interfere with the performance of Employee’s responsibilities as an employee of the Employer; provided, however, that Employee shall give the Employer’s Chief Executive Officer not less than fourteen (14) days’ notice of any actions contemplated by clauses (A) or (B), and will refrain from any such action to which the Chief Executive Officer in his/her sole discretion, objects.  It shall not be a violation of this Agreement for Employee to manage personal investments, so long as such activities do not represent a conflict with Employer, as described in Employer’s Employee Code of Conduct, and other pertinent policies and agreements.

PART IV

COMPENSATION

Section 4.01 - Salary:  Employee shall be paid an annual base salary of no less than $280,000 per year.  This base salary shall be paid to Employee in such intervals and at such times as other salaried executives of Employer are paid.  Employer’s Board of Directors reserves the right to set the timing and level of salary adjustments for all employees and any particular employee at its sole discretion.

Section 4.02 - Incentive and Retention Programs:  Employee shall be eligible for an annual discretionary incentive bonus.  The amount of the bonus for a given year shall be determined by Employer’s Board of Directors annually by January 31st of each following year and shall be paid no later than February 28th of each following year, provided Employee is still employed by Employer on the payment date.  Employee shall be entitled to participate in the “Farmers & Merchants Bank of Central California Executive Retirement Plan – Equity Component”, “Farmers & Merchants Bank of Central California Executive Retirement Plan – Performance Component” and the “Farmers & Merchants Bank Deferred Compensation Plan”, the terms and conditions of which are set forth in separate agreements so titled.

PART V

BENEFITS

Section 5.01 - Benefits:  Employee shall be entitled to participate in whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing, disability insurance or other plans of general application, or other benefits which are in effect as to other executive officers of Employer, or as may be in effect from time to time, in accordance with the rules established for individual participation in any such plan.

Section 5.02 - Automobile/Automobile Allowance:  Employer shall provide Employee with either an automobile for business and incidental personal use or an automobile allowance as per Employer policy. However, at the sole discretion of the Board of Directors and/or the Employer’s Chief Executive Officer, the Employer reserves the right to change or eliminate this benefit at any time.

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Section 5.03 - Membership Fees:  Employer shall reimburse Employee for all appropriate and reasonable expenses incurred in performing Employee’s duties, including providing and paying for the dues and fees of membership in local social, service and civic clubs and/or organizations as Employer deems appropriate and necessary for enhancement of its presence within the local business community.  In order to be eligible for reimbursement of these expenses, Employee must obtain pre-approval for such memberships from Employer’s Chief Executive Officer and must provide Employer with receipts and documented evidence as is required by federal and state laws and regulations.

Section 5.04 - Directors and Officers Liability Insurance Coverage:  To the extent commercially reasonable to do so under prevailing conditions in the insurance market, Employer shall provide directors and officers liability insurance coverage for the protection of Employee on terms and conditions no less favorable to Employee than are in effect on the date that this Agreement shall become effective. Following any termination of Employee’s employment with Employer, such coverage shall be continued under substantially the same terms and conditions as are in effect immediately prior to such termination of employment at no cost to Employee until all applicable statutes of limitation expire with respect to claims arising prior to such termination of employment.  Employee expressly acknowledges, however, that Employer cannot and shall not guarantee the performance of the insurance company issuing such directors and officers liability insurance coverage pursuant to this Section.  In addition to the foregoing, Employer shall also continue to make indemnification and advancement of litigation expense payments to Employee to the maximum extent and for the maximum period permitted by law.

PART VI

EXPENSES

Section 6.01 - Travel and Entertainment Expenses:  During the term of this Agreement, Employer shall reimburse Employee for reasonable out of pocket expenses incurred in connection with Employer’s business, including travel expenses, food and lodging while away from Employee’s home, subject to such policies as Employer may from time to time establish for other officers of equivalent title.  Employee shall keep records of Employee’s travel and entertainment expenses in a form suitable to the Internal Revenue Service and the Franchise Tax Board to qualify this reimbursement as a federal and state income tax deduction for Employer.  In addition, Employee shall provide Employer with receipts for all expenses for which Employee seeks reimbursement.

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PART VII

TERMINATION OF EMPLOYMENT

Section 7.01 - Termination at Option of Employer:  Employer may terminate this Agreement at any time and without “Cause” (as defined below) by giving Employee sixty (60) days written notice of Employer’s intent to terminate this Agreement.  The 60th day after Notice of Termination shall be deemed Employee’s Separation Date.  In the event Employee’s employment is terminated by Employer pursuant to this Section, Employee shall be paid all accrued salary, accrued but unused vacation, and reimbursement expenses for which expense reports have been provided to Employer, or which are provided to Employer prior to the Separation Date, in accordance with Employer’s policies and this Agreement.  In addition to the foregoing amounts, if Employee is terminated by Employer pursuant to this Section, and subject to (A) Employee’s continued employment through, and termination of employment on, the Separation Date; (B) Employee’s continued loyalty to Employer, which includes, but is not limited to, Employee or any outside third party refraining from any announcements to anyone inside or outside Employer that the Employee is leaving Employer; and (C) Employee’s execution and non-revocation of a general release of all claims in the form attached hereto as Exhibit B, which release becomes irrevocable within 60 days following the Separation Date or such earlier deadline provided by Employer, then Employee will be entitled to receipt of the following Severance Package:

1. A Severance Payment equivalent to one (1) times Employee’s highest Annual Compensation for services (“Annual Compensation,” defined as Total Compensation as reported in Employer’s previous years’ proxy statements) which Employee has earned during Employee’s employment with Employer.  The Severance Payment shall be paid out in equal increments on regularly scheduled pay days for a period of 12 months following the Separation Date, provided that any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum on the next pay day following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein.  Such payments will cease, however, if Employee fails to comply with the provisions of Part IX of this Agreement.

2. Payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

Section 7.02- Termination for Cause:  Employer may terminate Employee’s employment at any time for “Cause” upon written Notice of Termination to Employee, setting forth in reasonable detail the basis for the determination of “Cause.”  Termination for Cause shall be effective immediately upon receipt of the Notice of Termination by Employee, and the date on which the Notice of Termination is received shall be deemed to be the Separation Date.  If Employee is terminated pursuant to this Section 7.02, Employee shall be entitled only to accrued salary, vacation and reimbursement of expenses for which expense reports have been provided to Employer, or which are provided to Employer within two weeks of the Separation Date, in accordance with Employer’s policies and this Agreement.  Employee shall be entitled to no further compensation or severance payment of any nature; provided however, that Employee will also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs in accordance with the terms of those plans, including any applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.

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“Cause” for purposes of this Agreement shall be defined as conviction of a felony resulting in a material adverse economic effect on Employer; provided that the determination of such material adverse economic effect shall in any case be made pursuant to a resolution duly adopted by a vote of no less than two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting duly held and called for such purpose; and provided further, that Employee shall be given reasonable notice of such meeting and shall have the opportunity, together with counsel, to be heard before the Board of Directors at any such meeting.

Section 7.03 - Termination at Option of Employee:  This Agreement may be terminated by Employee at Employee’s sole discretion by giving one hundred twenty (120) days written Notice of Resignation to Employer.  If Employee terminates his/her employment pursuant to this Section 7.03, and subject to Employee’s continued satisfactory performance of such tasks and duties that may be assigned to Employee through the Separation Date, and Employee’s continued loyalty to Employer through the Separation Date (which includes, but is not limited to, refraining from any announcements by Employee or any outside third party to anyone inside or outside Employer that the Employee is leaving Employer), Employee shall receive accrued salary and payment for accrued but unused vacation through the Separation Date.  Employee shall also be entitled to payment of all awards of qualified and nonqualified benefit plans and incentive and retention programs, in accordance with the terms of those plans, including applicable vesting and forfeiture provisions.  Any such payment or distribution from a nonqualified deferred compensation plan shall be governed by the terms of such plan relating to the timing of distributions.  Alternatively, Employer may, at its option, at any time after Employee gives written Notice of Resignation as herein provided, pay Employee’s accrued salary up to and including the effective Separation Date set forth in Employee’s Notice of Resignation, and thereupon immediately release and terminate Employee’s employment.  Notwithstanding the foregoing, if Employer determines at any time during the 120-day notice period that Employee materially breaches the obligations imposed by the provisions of this Section 7.03 and Part IX of this Agreement, Employer may shorten the notice period and accelerate the Separation Date, thereby reducing the compensation otherwise payable to Employee pursuant to this Section.

Section 7.04 - Option to Terminate on Permanent Disability of Employee:  Employer may terminate this Agreement if, during the term of this Agreement, Employee shall become “Permanently Disabled”, as that term is defined herein.  A termination pursuant to this Section 7.04 shall be deemed a termination without “Cause,” and shall be governed by the procedures, and shall entitle Employee to the Severance Package specified in Section 7.01. For purposes of this Agreement, Employee shall be deemed to have become Permanently Disabled if Employee is unable to perform his/her current duties, with or without reasonable accommodation, for an aggregate of 120 working days over a six month period, by reason of any medically determinable physical or mental impairment.  Employer may issue its Notice of Termination to Employee on or after the 90^th working day of Permanent Disability, as defined herein.

The Notice of Termination shall be deemed withdrawn and the Agreement shall remain in effect after a Notice of Termination has been given to Employee under the following circumstances.

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A. Within thirty (30) days of the Notice of Termination being given to Employee, Employee returns to the full performance of Employee’s duties and provides medical certification that Employee can perform the essential functions of Employee’s duties with or without reasonable accommodation.

B. Within thirty (30) days of the Notice of Termination being given to Employee, Employee requests a reasonable accommodation from Employer which would permit Employee to perform the essential functions of Employee’s duties and such reasonable accommodation can be provided by Employer without an undue hardship.

Section 7.05 – Non-Renewal of Agreement.  For the avoidance of doubt, if this Agreement is not renewed automatically by reason of Employee’s failure to execute an effective general release pursuant to Section 2.02, Employee will not be entitled to the Severance Package specified in Section 7.01.

Section 7.06 - Continuation of Medical Benefits:  In the event Employee’s employment is terminated Employee shall be afforded the right to continue his/her medical benefits to the extent provided in the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at his/her expense.  Employer shall provide Employee with the appropriate COBRA notification within the time required by the law from the Separation Date.

PART VIII

MERGERS AND ACQUISITIONS

Section 8.01 - Merger or Acquisition With a Change of Control.

1. Change of Control means a change of control of Farmers & Merchants Bancorp (“Bancorp”). Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of Bancorp immediately prior to a meeting of the shareholders of Bancorp which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of Bancorp following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 30% of the outstanding shares of any class of voting securities of Bancorp by any Person, (iii) a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing less than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof  (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded), or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to Bank, then such Change of Control shall be deemed for all purposes of this Agreement to also be a “Change of Control” of Bancorp.  For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than Bancorp, Employer, any other wholly owned subsidiary of Bancorp or any employee benefit plan(s) sponsored by Bancorp, Bank or other subsidiary of Bancorp.  Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred unless the change also constitutes the occurrence of a "change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Employee.

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2. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of a Change in Control of Employer or Bancorp under Section 8.01.1(i), (ii) or (iv), or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (i), (ii) or (iv) during the term of this Agreement and prior to Employee’s termination of employment, and in each case upon the execution by Employee and non-revocation of a general release of all claims provided by Employer, Employer will provide Employee with a Change of Control Compensation Package equal to (A) two (2) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) Employee’s monthly premium for continuation coverage under COBRA (as defined in Section 7.06), determined as of the closing or other occurrence of the Change of Control, multiplied by thirty-six (36) months, whether or not such continuation coverage is elected by Employee; and (C) a gross-up payment as defined and set forth herein in Section 8.01.4.

In addition, Employee will be entitled to payment of all awards of benefit plans and incentive and retention programs in accordance with the terms of those plans and programs, including applicable vesting and forfeiture provisions.

Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section (except for payments or distributions from or pursuant to any nonqualified deferred compensation plan), in one lump sum payment, less any withholding required by state, federal or local law.  Any payment or distribution from or pursuant to any nonqualified deferred compensation plan shall be governed by the terms of such plan.  If Employee becomes entitled to payment under this Section 8.01.2, Employee shall not be entitled to the Severance Package under Sections 7.01 or 7.04, notwithstanding Employee’s subsequent termination of employment pursuant to those Sections.

3. In the event of either (i) Employee’s termination of employment during the term of this Agreement and after the signing of an agreement providing for, or otherwise in anticipation of, a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (and not under (i), (ii) or (iv)) or (ii) a Change of Control of Employer or Bancorp under Section 8.01.1 (iii) (and not under (i), (ii) or (iv)) during the term of this Agreement and prior to Employee’s termination of employment, Employer will provide Employee with a Change of Control Compensation Package equal to (A) one (1) times Employee’s highest Annual Compensation paid before the earlier of the (i) termination of employment or (ii) Change of Control; (B) a gross-up payment as defined and set forth herein in Section 8.01.4.

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Upon the closing or other occurrence of the Change of Control transaction, and subject to the provisions of this Section 8.01, Employee shall receive disbursement of payments due Employee under this Section in one lump sum payment, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction.  If Employee becomes entitled to payment under this Section 8.01.3, Employee shall still be entitled to the Severance Package under Sections 7.01 or 7.04, should Employee’s subsequent termination of employment occur pursuant to those Sections.

4. Gross-Up Payment:  Employee shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to Section 8.01.4.a and any federal and state tax reimbursements due pursuant to Section 8.01.4.b.

a. In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to the Employee (hereinafter referred to as “Payments”) pursuant to the terms of this Agreement or otherwise in connection with or arising out of Employee’s employment with Employer or a change of control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Employee with respect to such Excise Tax, then Employee will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on Employee as a result of the payment and the Excise Taxes on any federal and state tax reimbursements as set forth in Section 8.01.4.b.

b. If Employer is obligated to pay Employee pursuant to Section 8.01.4.a, Employer shall also pay Employee an amount equal to the “total presumed federal and state taxes” that could be imposed on Employee with respect to the Excise Tax reimbursements due to Employee pursuant to Section 8.01.4.a and the federal and state tax reimbursements due to Employee pursuant to this section.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on Employee shall be conclusively calculated using a combined tax rate equal to the sum of the (a) the highest individual income tax rate in effect under Federal tax law applicable to Employee and the tax laws of the state in which Employee will be subject to tax on the payment and (b) the hospital insurance portion of FICA.

c. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

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It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in section 8.01.4.a) imposed applicable federal tax law, that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to section 8.01.4.b.

5. Determination of Eligibility for and Amount of Gross-Up Payment:  An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Employer’s expense by an accounting firm appointed by Employer prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to Employer and Employee prior to submission of the proposed Change of Control to Employer’s or Bancorp’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to Employee, Employee shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, Employer or its successor shall promptly pay to Employee any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon Employer and Employee, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to Employee.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, Employer or the entity acquiring control of Employer shall pay the Excise Tax and any penalties assessed by such taxing authority.

6. Excise Tax Withholding:  Notwithstanding anything contained in this Agreement to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, Employer or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Employer has actually withheld from the Payment or Payments.

Section 8.02 – Merger or Acquisition Without a Change of Control.  In the event of a merger, consolidation or sale of all, or substantially all, of the assets of Bancorp, wherein Bancorp’s shareholders immediately before such transaction shall own of record (immediately after such transaction) equity securities, other than any warrant or right to purchase such equity securities, of Bancorp or an acquiring entity or any parent entity thereof, possessing more than 70% of the voting power of Bancorp or such acquiring entity or any parent entity thereof (in making the determination of ownership of such equity securities immediately after such transaction, equity securities owned by shareholders of Bancorp immediately prior to the transaction as shareholders to another party to the transaction shall be disregarded) Employee shall be paid a transaction bonus of .166% (one-sixth of one percent) of the deal value (defined as “the sum of any cash and the fair market value of any securities or other assets or property available for distribution to the holders of the acquired company’s equity securities, including amounts distributed after the closing of the acquisition pursuant to any escrow, earn-out or other similar arrangement, after deduction of any items subtracted from proceeds to be distributed to holders of the acquired company’s equity securities, such as costs and fees  that are associated with the transaction”), subject to a minimum of $50,000 and a maximum of $200,000.  Said transaction bonus to be paid through a contribution to the Non-Qualified Executive Retirement Plan – Equity Component.

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PART IX

COVENANTS

Section 9.01 - Confidential Nature of Relationship.  Employee acknowledges (i) the highly competitive nature of the business and the industry in which Employer competes; (ii) that as a key executive of Employer he/she has participated in and will continue to participate in the service of current customers and/or the solicitation of prospective customers, through which, among other things, Employee has obtained and will continue to obtain knowledge of the “know-how” and business practices of Employer, in which matters Employer has a substantial proprietary interest; (iii) that his/her employment hereunder renders the performance of services which are special, unique, extraordinary and intellectual in character, and his/her position with Employer placed and places him/her in a position of confidence and trust with the customers and employees of Employer; and (iv) that his/her rendering of services to the customers of Employer necessarily requires the disclosure to Employee of Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials (as defined in Section 9.03 below) of Employer.  In the course of Employee’s employment with Employer, Employee has and will continue to develop a personal relationship with the customers and prospective customers (defined for purposes of this Agreement as customers that Employer is either actively soliciting or in the process of making a proposal for services to as of Employee’s Separation Date) of Employer and a knowledge of those customers’ and prospective customers’ affairs and requirements, and the relationship of Employer with its established clientele has been, and will continue to be, placed in Employee’s hands in confidence and trust.   Employee consequently agrees that it is a legitimate interest of Employer, and reasonable and necessary for the protection of the confidential information, goodwill and business of Employer, which is valuable to Employer, that Employee make the covenants contained herein.

Employee Initials ____

Section 9.02 - Restrictions:  Accordingly, Employee agrees that during the period that he/she is employed by Employer, unless in the normal course of business, he/she shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, directly or indirectly, and regardless of the reason for him/her ceasing to be employed by Employer, engage in the following:

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A. Disclosure of Proprietary Information or Materials.  Employee agrees that he/she will not directly or indirectly reveal, report, publish or disclose to any person, firm, or corporation not expressly authorized in writing by Employer’s Board of Directors to receive any Trade and Business Secret, Proprietary and Confidential Information or Employer Materials (as defined in Section 9.03 below).  Employee further agrees that he/she will not use any Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials for any purpose except to perform his/her employment duties for Employer and such Trade and Business Secret, Proprietary and Confidential Information and/or Employer Materials may not be used or disclosed by Employee for his/her own benefit or purpose or for the benefit or purpose of a subsequent employer.  These agreements will continue to apply after Employee is no longer employed by Employer so long as such Trade and Business Secrets, Proprietary and Confidential Information and Employer Materials are not nor have become, by legitimate means, generally known to the public.

B. Solicitation of Employees.  Employee recognizes that he/she possesses and will possess confidential information about other employees of Employer and its affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customer(s) of Employer and its affiliates.  Employee recognizes that the information he/she possesses and will possess about these other employees is not generally known, is of substantial value to Employer and its affiliates in developing their business and in securing and retaining customers, and in managing general daily operations of Employer, and has been and will be acquired by Employee because of his/her business position with Employer and its affiliates.  Employee agrees that at all times during his/her employment with Employer and for a period of twelve (12) months thereafter, Employee will not, directly or indirectly, solicit or recruit any employee of Employer or its affiliates for the purpose of being employed by, or serving as a consultant or information resource to, the Employee, or any competitor of Employer or its affiliates on whose behalf Employee is acting as an agent, representative or employee, and that Employee will not convey such confidential information or trade secrets about other employees of Employer and its affiliates to any other Person or legal entity.  In view of the nature of Employee’s employment with Employer, Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such solicitation or recruitment in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief, including financial compensation commensurate with damages caused, available to them.

C. Solicitation of Customers.  During the Employee’s employment by Employer and its affiliates and for a period of twelve (12) months after such employment ceases, the Employee shall not, directly or indirectly (whether as an officer, director, owner, employee, partner, consultant or other participant), use any Trade and Business Secret, Proprietary and Confidential information, or Employer Materials to identify, solicit or entice any Customer or Prospective Customer of Employer or its affiliates to make any changes whatsoever in their current or prospective relationships with Employer or its affiliates, and will not assist any other Person or entity to interfere with or dispute such current or prospective relationships.  If Employee leaves Employer and goes to work for a new employer that is a competitor of Employer, and if that new employer already has an existing relationship with a Customer or Prospective Customer of Employer or its affiliates, this paragraph does not preclude Employee from making contact with such Customer or Prospective Customer on the new employer’s behalf, so long as such contact otherwise complies with the provisions of this paragraph.  In view of the nature of the Employee’s employment with Employer, the Employee likewise agrees that Employer and its affiliates would be irreparably harmed by any such interference or competitive actions in violation of the terms of this paragraph and that Employer and its affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the Employee from engaging in any activity or threatened activity in violation of the terms of this paragraph, in addition to any other relief, including financial compensation commensurate with damages caused, available to them.

Employee Initials _____

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Section 9.03 – Definitions:

A.TRADE AND BUSINESS SECRETS means information, including a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

B.PROPRIETARY AND CONFIDENTIAL INFORMATION means trade secrets, computer programs, designs, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, or other information concerning Employer’s:

(i) Business Activities, including but not limited to: actual or anticipated strategic plans and initiatives; marketing plans, advertising and collateral materials; new product development plans; competitor analyses; analyses of internal financial performance; financial forecasts and budgets; customer and prospect strategies and lists; proprietary designs of facilities and other delivery systems and processes; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(ii) Customers, including but not limited to: information about  Employer’s customers or prospective customers, such as the customer’s or prospect’s key decision-makers; customer preferences; customer strategies; terms of any contractual arrangements with Employer; business considerations; loan, deposit and other product and service pricing, terms and conditions, repayment structures, fee arrangements, structure of guarantees from other entities; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

(iii) Employees, including but not limited to: names of and contact information for Employer’s employees; their compensation, incentive plans, retirement plans, terms of employment, areas of expertise, projects, and experience; and any similar information to which Employee has access by virtue of performing his/her duties for Employer.

“Proprietary and Confidential Information” includes any information, in whatever form or format, including that which has not been memorialized in writing.

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C.EMPLOYER MATERIALS means documents or other media or tangible items that contain or embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information concerning the business, operations or plans of Employer and its customers and prospective customers, whether such documents have been prepared by Employee or by others.  EMPLOYER MATERIALS include, but are not limited to blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, photographs of proprietary information or documents on cell phones, iPads or other electronic devices, photocopies of proprietary information or documents, emails, text messages, tapes or printouts, sound recordings and other printed, typewritten, handwritten or computer generated documents, as well as samples, prototypes, product collateral materials, advertising materials, models, products and the like.

Employee Initials ____

Section 9.04 - Return of Employer’s Property:  Upon termination of his/her employment with Employer for any reason, Employee will promptly deliver to Employer, without copying or summarizing, all Trade and Business Secrets, Proprietary and Confidential Information, and Employer Materials that are in Employee’s possession or under Employee’s control, including, without limitation, all physical property, keys, documents, lists, electronic storage media, cell phones, iPads, manuals, letters, notes, reports, including all originals, reproductions, recordings, disks, or other media.

Employee acknowledges that Employee has been apprised of the provisions of Labor Code Section 2860 which provides:  “Everything which an Employee acquires by virtue of his employment, except the compensation which is due him from his Employer, belongs to the Employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Employee understands that any work that Employee created or helped create at the request of Employer, including user manuals, training materials, sales materials, customer and prospective customer information and business data, process manuals, and other written and visual works, are works made for hire in which Employer owns the copyright.  Employee may not reproduce or publish these copyrighted works, except in the pursuit of his/her employment duties with Employer.

Employee Initials ____

Section 9.05 - Separate Covenants:  The covenants of Part IX of this Agreement shall be construed as separate covenants covering their particular subject matter.  In the event that any covenant shall be found to be judicially unenforceable, said covenant shall not affect the enforceability or validity of any other part of this Agreement.

Employee Initials ____

Section 9.06 - Continuing Obligation:  Employee’s obligations set forth in Part IX of this Agreement shall expressly continue in effect beyond Employee’s employment period in accordance with their terms and such obligations shall be binding on Employee’s assigns, executors, administrators and other legal representatives.

Employee Initials ____

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PART X

ARBITRATION

Section 10.01 - Dispute Resolution:  The Parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim, or controversy (“Grievance”) involving the interpretation of this Agreement, the terms and conditions of this Agreement, or any other claims arising out of Employee's employment with Employer or the termination thereof.  It is the intention of the Parties that the arbitration decision will be final and binding and that any and all Grievances shall be disposed of as described herein.

Section 10.02 - Process.

A.Grievance.  Any and all Grievances must be submitted in writing by the aggrieved Party.  A Grievance from Employee shall be submitted to Employer’s Chief Executive Officer.  Within Thirty (30) days following the submission of the written Grievance, the Party to whom the Grievance is submitted shall respond in writing.  If no written response is submitted within Thirty (30) days, the Grievance shall be deemed denied.

B.Mediation.  If the Grievance is denied, and before invoking the arbitration procedure described below, the parties shall first participate in mediation.  The mediator shall be selected by mutual agreement of the parties, and shall be conducted in San Joaquin County, California, or such other location as is mutually agreed.  The mediation cost (other than attorney fees) shall be borne by Employer.

C.Arbitration.  Unless otherwise prohibited by law or specified below, if the Grievance is denied and mediation is unsuccessful, either Party may, within Thirty (30) days of such denial, and prior to the expiration of any applicable statute of limitations, refer the Grievance to arbitration before a single arbitrator pursuant to the California Code of Civil Procedure, including Section 1283.05 permitting discovery.

The arbitrator shall be chosen by mutual agreement from a panel of arbitrators provided by JAMS or, if no agreement is reached, under the rules for Employment Dispute Resolution promulgated by JAMS.

The arbitrator’s award shall be in the form of a written opinion sufficient to allow for appropriate judicial review, shall be a final and binding determination of the dispute, and shall be fully enforceable as an arbitration award by the California courts in accordance with California law.

The arbitrator shall decide whether the conduct complained of violates the legal rights of the complaining party and, if so, shall determine and award the relief allowed by law.

Each party in such arbitration shall be responsible for its/his/her own attorneys’ fees, unless the arbitrator orders otherwise pursuant to applicable law.  Employer shall pay the cost of the arbitration if Employee prevails as determined by the arbitrator; if Employer prevails as determined by the arbitrator, Employee shall pay the cost of the arbitration only to the same extent as would be required had he/she prevailed in a civil suit under California Code of Civil Procedure Sections 1032, 1033 and 1033.5.

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The arbitrator shall not have jurisdiction or authority to change, add to or subtract from any of the lawful provisions of this Agreement.

D.Injunctive relief.  Notwithstanding anything to the contrary herein, nothing in this Part X is intended to prevent either Party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

E.Waiver of jury and court trial.  EMPLOYER AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT ARBITRATION SHALL BE THE SOLE FORUM FOR THE RESOLUTION OF ANY AND ALL DISPUTES, WHETHER IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, OR AS PART OF A COLLECTIVE ACTION, ARISING OUT OF OR RELATING TO THE EMPLOYMENT RELATIONSHIP.  SUCH DISPUTES INCLUDE, BUT ARE NOT LIMITED TO, CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), RETALIATION, WRONGFUL TERMINATION, BREACH OF WAGE AND HOUR LAWS, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, FAILURE TO PROVIDE COMPENSATION OR BENEFITS, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER CLAIMS OR DISPUTES, AND HEREBY WAIVES HIS/HER/ITS RIGHT TO PURSUE ANY CLAIM AGAINST THE OTHER PARTY IN ANY OTHER FORUM OR PROCEEDING, INCLUDING ANY RIGHT TO TRIAL BY JURY.

Nothing herein shall prevent Employee from filing an administrative charge with the California Department of Fair Employment and Housing or the federal Equal Employment Opportunity Commission; however, the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative agency with respect to any dispute which is arbitrable as herein set forth.

Employee Initials ____

PART XI

TAXES

Section 11.01 - Withholding:  All payments to be made to Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes as applicable.

Section 11.02 - Section 409A:

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A.Notwithstanding any provision to the contrary in this Agreement, Employer shall delay the commencement of payments or benefits coverage to which Employee would otherwise become entitled under the Agreement in connection with Employee’s termination of employment until the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Section 409A of the Code (defined below)) or (ii) the date of Employee’s death, if Employer in good faith determines that Employee is a “specified employee” within the meaning of that term under Code Section 409A at the time of such separation from service and that such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 11.02 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under the Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

B.In addition, to the extent Employer is required pursuant to this Agreement to reimburse expenses incurred by Employee, and such reimbursement obligation is subject to Section 409A of the Code, Employer shall reimburse any such eligible expenses by the end of the calendar year next following the calendar year in which the expense was incurred, subject to any earlier required deadline for payment otherwise applicable under this Agreement; provided, however, that the following sentence shall apply to any tax gross-up payment and related expense reimbursement obligation, including any payment obligations described in Section 8.01, to the extent subject to Section 409A.  Any such tax gross-up payment will be made by the end of the calendar year next following the calendar year in which Employee remits the related taxes.

C.For purposes of the provisions of this Agreement which require commencement of payments or benefits subject to Section 409A upon a termination of employment, the terms “termination of employment” and “Separation Date” shall mean a “separation from service” with Employer (as such term is defined in Treasury Regulations issued under Code Section 409A), notwithstanding anything in this Agreement to the contrary.

D.In each case where this Agreement provides for the payment to the Employee of an amount that constitutes nonqualified deferred compensation under Section 409A and such payment is subject to the execution and non-revocation of a release of claims, (1) any payments delayed pending the effectiveness of the release shall be accumulated and paid in a lump sum following the effectiveness of the release, with any remaining payments due paid in accordance with the schedule otherwise provided herein, and (2) if the period between the Separation Date and the last day on which the release could become irrevocable assuming the Employee’s latest possible execution and delivery of the release spans two calendar years, then such deferred payments shall not be made before the second calendar year, even if the release becomes irrevocable in the first calendar year, if such payments constitute nonqualified deferred compensation under Section 409A.

E.Any series of payments provided under this Agreement (excluding plans or agreements incorporated by reference) shall for all purposes of Code Section 409A be treated as a series of separate payments and not as single payments.

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F.The provisions of this Part XI are intended to comply with Code Section 409A and shall be interpreted consistent with such section.

PART XII

GENERAL PROVISIONS

Section 12.01 - Notices:  Any notice to be given to Employer under the terms of this Agreement, and any notice to be given to Employee, shall be addressed to such Party at the mailing address the Party may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given four days after the same shall be enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage or registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government or upon actual delivery to the Party by messenger or delivery service, with receipt acknowledged in writing by the Party to whom such notice is addressed.

Section 12.02 - Entire Agreement:  This Agreement and the agreements incorporated by reference herein (“Farmers & Merchants Bank of Central California Executive Retirement Plan” and “Farmers & Merchants Bank of Central California Deferred Compensation Plan”) supersede any and all other agreements or understandings, whether oral, implied, or in writing, between the parties hereto with respect to the subject matter hereof and contain all of the covenants and agreements between the Parties with respect to such matters in their entirety.  Each Party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any Party, or anyone acting on behalf of any Party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.  Any modification(s) to this Agreement will be effective only if in writing and signed by the Parties hereto.

Section 12.03 - Notwithstanding any other provision of this Agreement, this Agreement and all rights and obligations of the Parties hereunder shall be subject to the provisions of the Federal Deposit Insurance Act and the regulations adopted thereunder, including without limitation 12 Code of Federal Regulations, Part 359.

Section 12.04 - Partial Invalidity:  If any provisions in this Agreement are held by a court of competent jurisdiction or an arbitrator to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.

Section 12.05 - Continuing Obligations:  The obligations of the covenants contained in this Agreement shall survive the termination of the Agreement and any employment relationship between Employer and Employee.  Accordingly, neither Employer nor Employee shall be relieved of the continuing obligations of the covenants contained in this Agreement.

Section 12.06 - Employee’s Representations:  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants in it.  Employee represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other agreement or other legal obligation between Employee and any other person or entity.

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Section 12.07 - Governing Law:  This Agreement (not including any plans or agreements incorporated by reference) shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the laws of the State of California.

Section 12.08 - Full Settlement:  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amount shall not be reduced whether or not Employee obtains other employment.

Section 12.09 - Successors:  This Agreement shall be binding upon and enforceable against any successors to Employer. No duties provided for under this Agreement may be delegated by any of the parties hereto.  Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of Employer to assume expressly and agree as of the effective time of the Change of Control to perform this Agreement in the same matter and to the same extent that Employer would be required to perform it if no such succession had taken place. If any such successor pursuant to a Change of Control of Employer or Bancorp under Section 8.01.1(iii) (but not under (i), (ii) or (iv)) fails to so assume or agree as of the effective time of the Change in Control to perform this Agreement, then Employee shall immediately be entitled to a payment equal to the total Severance Payment described in Section 7.01.1, payable in one lump sum, less any withholding required by state, federal or local law, upon the closing or other occurrence of the Change in Control transaction, in addition to any payments that Employee may otherwise be entitled to receive under this Agreement, and without regard to any conditions on payment set forth in such Section 7.01 (including, but not limited to, conditions of continued employment, continued loyalty or execution and non-revocation of a release). As used herein, the term “Bank” shall mean Employer as hereinbefore defined and any successor to its business and assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

Section 12.10 - No Waiver:  The failure of any of the Parties hereto to insist on strict compliance with any provision of this Agreement, or the failure to assert any right of any Party hereto may have hereunder, shall not be deemed to be a waiver of such provision or right or of any other provision or right contained in this Agreement.

Section 12.11 – Advice of Counsel:  Employee warrants that he/she has consulted with legal counsel of his/her choice to advise him/her with respect to the terms and conditions of this Agreement.

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FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS & MERCHANTS BANCORP		Date:  June 23, 2015
By:	/s/ Stewart C. Adams, Jr.
	Stewart C. Adams, Jr.
	Chairman of the Personnel Committee

Employee:	/s/ Ryan J. Misasi	Date:  June 23, 2015
	Ryan J. Misasi

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EX-31.A

Exhibit 31(a)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Executive Officer

I, Kent A. Steinwert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 7, 2015	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President
	& Chief Executive Officer

EX-31.B

Exhibit 31(b)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Financial Officer

I, Stephen W. Haley, certify that:

1. I have reviewed this quarterly  report on Form 10-Q of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 7, 2015	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Farmers & Merchants Bancorp (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kent A. Steinwert, Chairman, President and Chief Executive Officer, and Stephen W. Haley, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. $ 1350), that:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. $ 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2015

/s/ Kent A. Steinwert

Kent A. Steinwert

Chairman, President

& Chief Executive Officer

/s/ Stephen W. Haley

Stephen W. Haley

Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Shareholders' Equity (Details) - Jan. 23, 2015 - $ / shares	Total
Shareholders' Equity [Abstract]
Issuance of common stock (in shares)	1,700
Per share price of shares issued (in dollars per share)	$ 450

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Loans & Leases and Allowance for Credit Losses, Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
With no related allowance recorded [Abstract]
Recorded Investment	$ 5,122	$ 3,274	$ 5,122	$ 3,274	$ 0
Unpaid Principal Balance	5,239	3,285	5,239	3,285	0
Average Recorded Investment	3,305	3,708	2,025	3,792	1,853
Interest Income Recognized	33	29	41	58	58
With an allowance recorded [Abstract]
Recorded Investment	2,669	3,486	2,669	3,486	7,229
Unpaid Principal Balance	2,874	3,666	2,874	3,666	7,518
Related Allowance	1,075	1,241	1,075	1,241	1,444
Average Recorded Investment	4,224	3,221	5,343	3,259	5,163
Interest Income Recognized	15	11	53	20	107
Recorded Investment, Total	7,791	6,760	7,791	6,760	7,229
Unpaid Principal Balance, Total	8,113	6,951	8,113	6,951	7,518
Related Allowance	1,075	1,241	1,075	1,241	1,444
Average Recorded Investment, Total	7,529	6,929	7,368	7,051	7,016
Interest Income Recognized, Total	48	40	94	78	165
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	802	97	802	97	0
Unpaid Principal Balance	802	97	802	97	0
Average Recorded Investment	497	98	297	99	49
Interest Income Recognized	2	2	4	4	4
With an allowance recorded [Abstract]
Recorded Investment					92
Unpaid Principal Balance					92
Related Allowance					2
Average Recorded Investment					47
Interest Income Recognized					4
Related Allowance					2
Residential 1st Mortgages [Member]
With no related allowance recorded [Abstract]
Recorded Investment	564		564
Unpaid Principal Balance	628		628
Average Recorded Investment	567		426
Interest Income Recognized	4		8
With an allowance recorded [Abstract]
Recorded Investment	355	442	355	442	937
Unpaid Principal Balance	426	527	426	527	1,069
Related Allowance	18	89	18	89	187
Average Recorded Investment	357	427	503	509	612
Interest Income Recognized	4	1	8	2	9
Related Allowance	18	89	18	89	187
Home Equity Lines & Loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment	620	0	620	0	0
Unpaid Principal Balance	660	0	660	0	0
Average Recorded Investment	641	339	486	339	169
Interest Income Recognized	0	0	1	0	0
With an allowance recorded [Abstract]
Recorded Investment	137	913	137	913	951
Unpaid Principal Balance	155	960	155	960	1,020
Related Allowance	7	182	7	182	190
Average Recorded Investment	138	654	342	598	803
Interest Income Recognized	1	3	2	3	10
Related Allowance	7	182	7	182	190
Agricultural [Member]
With no related allowance recorded [Abstract]
Recorded Investment	11	27	11	27	0
Unpaid Principal Balance	24	37	24	37	0
Average Recorded Investment	13	30	10	32	15
Interest Income Recognized	0	0	0	0	0
With an allowance recorded [Abstract]
Recorded Investment	443	473	443	473	461
Unpaid Principal Balance	443	473	443	473	473
Related Allowance	129	118	129	118	114
Average Recorded Investment	443	473	448	477	473
Interest Income Recognized	7	7	14	14	28
Related Allowance	129	118	129	118	114
Commercial [Member]
With no related allowance recorded [Abstract]
Recorded Investment	3,125	3,150	3,125	3,150	0
Unpaid Principal Balance	3,125	3,151	3,125	3,151	0
Average Recorded Investment	1,587	3,241	806	3,322	1,620
Interest Income Recognized	27	27	28	54	54
With an allowance recorded [Abstract]
Recorded Investment	1,694	1,613	1,694	1,613	4,742
Unpaid Principal Balance	1,804	1,657	1,804	1,657	4,813
Related Allowance	887	807	887	807	910
Average Recorded Investment	3,244	1,620	4,006	1,627	3,182
Interest Income Recognized	2	0	27	0	54
Related Allowance	887	807	887	807	910
Consumer & Other [Member]
With an allowance recorded [Abstract]
Recorded Investment	40	45	40	45	46
Unpaid Principal Balance	46	49	46	49	51
Related Allowance	34	45	34	45	41
Average Recorded Investment	42	47	44	48	46
Interest Income Recognized	1	0	2	1	2
Related Allowance	$ 34	$ 45	$ 34	$ 45	$ 41

XML

Investment Securities, Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities (Details) - USD ($)		Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		$ 348,609,000	$ 362,172,000	$ 398,343,000
Gross unrealized gains		3,955,000	5,030,000	6,275,000
Gross unrealized losses		1,140,000	660,000	2,886,000
Fair/Book value		351,424,000	366,542,000	401,732,000
Schedule of Held-to-maturity Securities [Line Items]
Book value		67,401,000	63,863,000	70,340,000
Gross unrealized gains		278,000	782,000	683,000
Gross unrealized losses		213,000	10,000	90,000
Fair value		67,466,000	64,635,000	70,933,000
Government Agency & Government Sponsored Entities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		11,063,000	78,051,000	18,230,000
Gross unrealized gains		58,000	61,000	194,000
Gross unrealized losses		0	3,000	0
Fair/Book value		11,121,000	78,109,000	18,424,000
US Treasury Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		80,212,000
Gross unrealized gains		85,000
Gross unrealized losses		59,000
Fair/Book value		80,238,000
Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	[1]	256,849,000	283,636,000	323,518,000
Gross unrealized gains	[1]	3,812,000	4,969,000	5,688,000
Gross unrealized losses	[1]	1,081,000	657,000	2,871,000
Fair/Book value	[1]	259,580,000	287,948,000	326,335,000
Corporate Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost				54,283,000
Gross unrealized gains				393,000
Gross unrealized losses				15,000
Fair/Book value				54,661,000
Other [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		485,000	485,000	2,312,000
Gross unrealized gains		0	0	0
Gross unrealized losses		0	0	0
Fair/Book value		485,000	485,000	2,312,000
Obligations of States and Political Subdivisions [Member]
Schedule of Held-to-maturity Securities [Line Items]
Book value		65,270,000	61,716,000	67,866,000
Gross unrealized gains		278,000	782,000	683,000
Gross unrealized losses		213,000	10,000	90,000
Fair value		65,335,000	62,488,000	68,459,000
Other [Member]
Schedule of Held-to-maturity Securities [Line Items]
Book value		2,131,000	2,147,000	2,474,000
Gross unrealized gains		0	0	0
Gross unrealized losses		0	0	0
Fair value		$ 2,131,000	$ 2,147,000	2,474,000
Municipal Bonds [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity securities sold				$ 375,000

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

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Investment Securities Available-for-Sale [Abstract]
Fair/Book value	$ 351,424	$ 366,542	$ 401,732
Investment Securities Held-to-Maturity [Abstract]
Fair value	67,466	64,635	70,933
Carrying Amount [Member]
Assets [Abstract]
Cash and Cash Equivalents	91,339	77,125	48,001
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	11,121	78,109	18,424
Obligations of States and Political Subdivisions			0
U.S. Treasury Notes	80,238
Mortgage Backed Securities	259,580	287,948	326,335
Corporate Securities			54,661
Other	485	485	2,312
Fair/Book value	351,424	366,542	401,732
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	65,270	61,716	67,866
Mortgage Backed Securities			0
Other	2,131	2,147	2,474
Fair value	67,401	63,863	70,340
FHLB Stock	7,795	7,677	7,677
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	561,582	484,061	421,538
Agricultural Real Estate	366,052	353,022	355,256
Real Estate Construction	114,806	94,850	80,357
Residential 1st Mortgages	188,308	170,858	159,324
Home Equity Lines and Loans	29,254	30,591	31,716
Agricultural	220,749	275,859	220,454
Commercial	247,508	222,624	172,571
Consumer & Other	4,767	4,501	4,688
Leases	48,099	42,006	21,047
Unallocated Allowance	(1,520)	(1,529)	(1,532)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,779,605	1,676,843	1,465,419
Accrued Interest Receivable	9,024	7,797	7,684
Deposits [Abstract]
Demand	613,042	610,133	499,133
Interest Bearing Transaction	349,404	341,397	313,879
Savings and Money Market	706,121	644,260	630,194
Time	494,569	468,283	418,829
Total Deposits	2,163,136	2,064,073	1,862,035
FHLB Advances & Securities Sold Under Agreement to Repurchase			12,000
Subordinated Debentures	10,310	10,310	10,310
Accrued Interest Payable	556	378	349
Estimated Fair Value [Member]
Assets [Abstract]
Cash and Cash Equivalents	91,339	77,125	48,001
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	11,121	78,109	18,424
Obligations of States and Political Subdivisions			0
U.S. Treasury Notes	80,238
Mortgage Backed Securities	259,580	287,948	326,335
Corporate Securities		0	54,661
Other	485	485	2,312
Fair/Book value	351,424	366,542	401,732
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	65,335	62,488	68,459
Mortgage Backed Securities		0	0
Other	2,131	2,147	2,474
Fair value	67,466	64,635	70,933
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	559,550	481,037	421,007
Agricultural Real Estate	362,035	353,288	358,283
Real Estate Construction	114,984	95,022	80,700
Residential 1st Mortgages	191,266	173,916	163,038
Home Equity Lines and Loans	31,021	32,456	33,854
Agricultural	219,967	274,195	219,426
Commercial	245,825	222,175	172,661
Consumer & Other	4,803	4,535	4,747
Leases	47,595	40,298	20,743
Unallocated Allowance	(1,520)	(1,529)	(1,532)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,775,526	1,675,393	1,472,927
Accrued Interest Receivable	9,024	7,797	7,684
Deposits [Abstract]
Demand	613,041	610,133	499,133
Interest Bearing Transaction	349,404	341,397	313,878
Savings and Money Market	706,122	644,260	630,195
Time	494,724	468,161	418,969
Total Deposits	2,163,291	2,063,951	1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase			12,000
Subordinated Debentures	6,252	6,227	6,222
Accrued Interest Payable	556	378	349
Estimated Fair Value [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Cash and Cash Equivalents	91,339	77,125	48,001
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	0	10,005	13,412
Obligations of States and Political Subdivisions			0
U.S. Treasury Notes	0
Mortgage Backed Securities	0	0	0
Corporate Securities			8,982
Other	175	175	2,002
Fair/Book value	175	10,180	24,396
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	0	0	0
Mortgage Backed Securities		0	0
Other	0	0	0
Fair value	0	0	0
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	0	0	0
Agricultural Real Estate	0	0	0
Real Estate Construction	0	0	0
Residential 1st Mortgages	0	0	0
Home Equity Lines and Loans	0	0	0
Agricultural	0	0	0
Commercial	0	0	0
Consumer & Other	0	0	0
Leases		0	0
Unallocated Allowance	0	0	0
Total Loans & Leases, Net of Deferred Fees & Allowance	0	0	0
Accrued Interest Receivable	0	0	0
Deposits [Abstract]
Demand	613,041	610,133	499,133
Interest Bearing Transaction	349,404	341,397	313,878
Savings and Money Market	706,122	644,260	630,195
Time	0	0	0
Total Deposits	1,668,567	1,595,790	1,443,206
FHLB Advances & Securities Sold Under Agreement to Repurchase			0
Subordinated Debentures	0	0	0
Accrued Interest Payable	0	0	0
Estimated Fair Value [Member] | Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0	0
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	11,121	68,104	5,012
Obligations of States and Political Subdivisions			0
U.S. Treasury Notes	80,238
Mortgage Backed Securities	259,580	287,948	326,335
Corporate Securities			45,679
Other	310	310	310
Fair/Book value	351,249	356,362	377,336
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	47,321	49,085	54,736
Mortgage Backed Securities			0
Other	2,131	2,147	2,474
Fair value	49,452	51,232	57,210
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	0	0	0
Agricultural Real Estate	0	0	0
Real Estate Construction	0	0	0
Residential 1st Mortgages	0	0	0
Home Equity Lines and Loans	0	0	0
Agricultural	0	0	0
Commercial	0	0	0
Consumer & Other	0	0	0
Leases		0	0
Unallocated Allowance	0	0	0
Total Loans & Leases, Net of Deferred Fees & Allowance	0	0	0
Accrued Interest Receivable	9,024	7,797	7,684
Deposits [Abstract]
Demand	0	0	0
Interest Bearing Transaction	0	0	0
Savings and Money Market	0	0	0
Time	494,724	468,161	418,969
Total Deposits	494,724	468,161	418,969
FHLB Advances & Securities Sold Under Agreement to Repurchase			12,000
Subordinated Debentures	6,252	6,227	6,222
Accrued Interest Payable	556	378	349
Estimated Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0	0
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	0	0	0
Obligations of States and Political Subdivisions			0
U.S. Treasury Notes	0
Mortgage Backed Securities	0	0	0
Corporate Securities		0	0
Other	0	0	0
Fair/Book value	0	0	0
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	18,014	13,403	13,723
Mortgage Backed Securities		0	0
Other	0	0	0
Fair value	18,014	13,403	13,723
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	559,550	481,037	421,007
Agricultural Real Estate	362,035	353,288	358,283
Real Estate Construction	114,984	95,022	80,700
Residential 1st Mortgages	191,266	173,916	163,038
Home Equity Lines and Loans	31,021	32,456	33,854
Agricultural	219,967	274,195	219,426
Commercial	245,825	222,175	172,661
Consumer & Other	4,803	4,535	4,747
Leases	47,595	40,298	20,743
Unallocated Allowance	(1,520)	(1,529)	(1,532)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,775,526	1,675,393	1,472,927
Accrued Interest Receivable	0	0	0
Deposits [Abstract]
Demand	0	0	0
Interest Bearing Transaction	0	0	0
Savings and Money Market	0	0	0
Time	0	0	0
Total Deposits	0	0	0
FHLB Advances & Securities Sold Under Agreement to Repurchase			0
Subordinated Debentures	0	0	0
Accrued Interest Payable	$ 0	$ 0	$ 0

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Significant Accounting Policies [Abstract]

Significant Accounting Policies

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. 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. In December 2003 the Company formed a wholly owned subsidiary, FMCB Statutory Trust I. FMCB Statutory Trust I is a non-consolidated subsidiary per Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and was formed for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Basis of Presentation

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

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three-month and six-month periods ended June 30, 2015 may not necessarily be indicative of future operating results.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the periods presented.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

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

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans or leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan's or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. 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 & 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 primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

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

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 & 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.

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 general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate.  These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As Lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Bank (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Unaudited Consolidated Statements of Income.

Dividends and Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted earnings per common share. See Note 6.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company reports one segment.

Derivative Instruments and Hedging Activities

The “Derivatives and Hedging” topic of the FASB ASC establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. Changes in the fair value of those derivatives are accounted for depending on the intended use of the derivative and the resulting designation under specified criteria. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, designed to minimize interest rate risk, the effective portions of the change in the fair value of the derivative are recorded in other comprehensive income (loss), net of related income taxes. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

From time to time, the Company utilizes derivative financial instruments such as interest rate caps, floors, swaps, and collars. These instruments are purchased and/or sold to reduce the Company’s exposure to changing interest rates. The Company marks to market the value of its derivative financial instruments and reflects gain or loss in earnings in the period of change or in other comprehensive income (loss). The Company was not utilizing any derivative instruments as of or for the periods ended June 30, 2015, December 31, 2014 or June 30, 3014.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

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Investment Securities, Pledged Securities (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2015	Dec. 31, 2014
Line of Credit Facility [Line Items]
Securities pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law	$ 329.0	$ 189.5	$ 178.8
Standby Letters of Credit [Member]
Line of Credit Facility [Line Items]
Standby letter of credit issued by FHLB	$ 165.0
Letter of Credit maturity date	Dec. 02, 2016
Maintenance fee on letter of credit per annum (in hundredths)	0.10%

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Investment Securities, Proceeds from Sales (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Proceeds from sales and calls of securities [Abstract]
Proceeds	$ 4,060	$ 6,969	$ 4,535	$ 9,917
Gains	5	31	6	34
Losses	$ 0	$ 0	$ 0	$ 0

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Loans & Leases and Allowance for Credit Losses, Allocation of The Allowance For Credit Losses by Portfolio Segment and By Impairment Methodology (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 38,940	$ 34,277	$ 35,401	$ 34,274	$ 34,274
Charge-Offs	(17)	(113)	(46)	(143)	(276)
Recoveries	64	126	3,032	159	228
Provision	50	0	650	0	1,175
Ending Balance	39,037	34,290	39,037	34,290	35,401
Ending Balance Individually Evaluated for Impairment	1,231	2,073	1,231	2,073	2,197
Ending Balance Collectively Evaluated for Impairment	37,806	32,217	37,806	32,217	33,204
Loans & Leases [Abstract]
Ending Balance	1,818,642	1,499,709	1,818,642	1,499,709	1,712,244
Ending Balance Individually Evaluated for Impairment	17,407	34,886	17,407	34,886	33,584
Ending Balance Collectively Evaluated for Impairment	1,801,235	1,464,823	1,801,235	1,464,823	1,678,660
Commercial Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	7,954	6,426	7,842	5,178	5,178
Charge-Offs	0	0	0	0	0
Recoveries	1	0	2,939	0	11
Provision	636	565	(2,190)	1,813	2,653
Ending Balance	8,591	6,991	8,591	6,991	7,842
Ending Balance Individually Evaluated for Impairment	61	218	61	218	377
Ending Balance Collectively Evaluated for Impairment	8,530	6,773	8,530	6,773	7,465
Loans & Leases [Abstract]
Ending Balance	570,173	428,529	570,173	428,529	491,903
Ending Balance Individually Evaluated for Impairment	4,163	21,719	4,163	21,719	20,066
Ending Balance Collectively Evaluated for Impairment	566,010	406,810	566,010	406,810	471,837
Agricultural Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	6,901	3,387	4,185	3,576	3,576
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	371	290	3,087	101	609
Ending Balance	7,272	3,677	7,272	3,677	4,185
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	7,272	3,677	7,272	3,677	4,185
Loans & Leases [Abstract]
Ending Balance	373,324	358,933	373,324	358,933	357,207
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	373,324	358,933	373,324	358,933	357,207
Real Estate Construction [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,916	1,077	1,669	654	654
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	261	213	508	636	1,015
Ending Balance	2,177	1,290	2,177	1,290	1,669
Ending Balance Individually Evaluated for Impairment	0	241	0	241	0
Ending Balance Collectively Evaluated for Impairment	2,177	1,049	2,177	1,049	1,669
Loans & Leases [Abstract]
Ending Balance	116,983	81,647	116,983	81,647	96,519
Ending Balance Individually Evaluated for Impairment	4,335	4,446	4,335	4,446	4,386
Ending Balance Collectively Evaluated for Impairment	112,648	77,201	112,648	77,201	92,133
Residential 1st Mortgages [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	673	1,100	1,022	1,108	1,108
Charge-Offs	0	(30)	0	(33)	(73)
Recoveries	2	0	2	0	0
Provision	56	24	(293)	19	(13)
Ending Balance	731	1,094	731	1,094	1,022
Ending Balance Individually Evaluated for Impairment	71	329	71	329	422
Ending Balance Collectively Evaluated for Impairment	660	765	660	765	600
Loans & Leases [Abstract]
Ending Balance	189,039	160,418	189,039	160,418	171,880
Ending Balance Individually Evaluated for Impairment	2,055	1,647	2,055	1,647	2,108
Ending Balance Collectively Evaluated for Impairment	186,984	158,771	186,984	158,771	169,772
Home Equity Lines and Loans [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,096	2,648	2,426	2,767	2,767
Charge-Offs	0	(65)	0	(65)	(70)
Recoveries	42	39	47	51	58
Provision	(65)	115	(400)	(16)	(329)
Ending Balance	2,073	2,737	2,073	2,737	2,426
Ending Balance Individually Evaluated for Impairment	49	315	49	315	329
Ending Balance Collectively Evaluated for Impairment	2,024	2,422	2,024	2,422	2,097
Loans & Leases [Abstract]
Ending Balance	31,327	34,453	31,327	34,453	33,017
Ending Balance Individually Evaluated for Impairment	1,541	1,597	1,541	1,597	1,643
Ending Balance Collectively Evaluated for Impairment	29,786	32,856	29,786	32,856	31,374
Agricultural [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	4,602	9,601	6,104	12,205	12,205
Charge-Offs	0	0	0	0	0
Recoveries	2	1	3	2	8
Provision	442	(1,311)	(1,061)	(3,916)	(6,109)
Ending Balance	5,046	8,291	5,046	8,291	6,104
Ending Balance Individually Evaluated for Impairment	129	118	129	118	114
Ending Balance Collectively Evaluated for Impairment	4,917	8,173	4,917	8,173	5,990
Loans & Leases [Abstract]
Ending Balance	225,795	228,745	225,795	228,745	281,963
Ending Balance Individually Evaluated for Impairment	454	534	454	534	461
Ending Balance Collectively Evaluated for Impairment	225,341	228,211	225,341	228,211	281,502
Commercial [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	8,941	6,426	8,195	5,697	5,697
Charge-Offs	0	0	(12)	0	(1)
Recoveries	2	72	4	77	86
Provision	(65)	879	691	1,603	2,413
Ending Balance	8,878	7,377	8,878	7,377	8,195
Ending Balance Individually Evaluated for Impairment	887	807	887	807	914
Ending Balance Collectively Evaluated for Impairment	7,991	6,570	7,991	6,570	7,281
Loans & Leases [Abstract]
Ending Balance	256,386	179,948	256,386	179,948	230,819
Ending Balance Individually Evaluated for Impairment	4,819	4,898	4,819	4,898	4,874
Ending Balance Collectively Evaluated for Impairment	251,567	175,050	251,567	175,050	225,945
Consumer & Other [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	212	171	218	176	176
Charge-Offs	(17)	(18)	(34)	(45)	(132)
Recoveries	15	14	37	29	65
Provision	7	26	(4)	33	109
Ending Balance	217	193	217	193	218
Ending Balance Individually Evaluated for Impairment	34	45	34	45	41
Ending Balance Collectively Evaluated for Impairment	183	148	183	148	177
Loans & Leases [Abstract]
Ending Balance	4,984	4,881	4,984	4,881	4,719
Ending Balance Individually Evaluated for Impairment	40	45	40	45	46
Ending Balance Collectively Evaluated for Impairment	4,944	4,836	4,944	4,836	4,673
Leases [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,499	921	2,211	639	639
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	33	187	321	469	1,572
Ending Balance	2,532	1,108	2,532	1,108	2,211
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	2,532	1,108	2,532	1,108	2,211
Loans & Leases [Abstract]
Ending Balance	50,631	22,155	50,631	22,155	44,217
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	50,631	22,155	50,631	22,155	44,217
Unallocated [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	3,146	2,520	1,529	2,274	2,274
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	(1,626)	(988)	(9)	(742)	(745)
Ending Balance	1,520	1,532	1,520	1,532	1,529
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	1,520	1,532	1,520	1,532	1,529
Loans & Leases [Abstract]
Ending Balance	0	0	0	0	0
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	0	0	0	0	0
Restructured Loans [Member]
Loans & Leases [Abstract]
Ending Balance Individually Evaluated for Impairment	$ 9,600	$ 28,100	$ 9,600	$ 28,100	$ 26,400

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Loans & Leases and Allowance for Credit Losses, Loan Portfolio Allocated by Management's Internal Risk Ratings (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 1,818,642	$ 1,712,244	$ 1,499,709
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	1,788,947	1,678,690	1,461,767
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	23,703	29,934	34,513
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	5,992	3,620	3,429
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	570,173	491,903	428,529
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	561,370	483,146	417,627
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	8,088	8,651	10,780
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	715	106	122
Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	373,324	357,207	358,933
Agricultural Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	373,324	357,207	358,933
Agricultural Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Agricultural Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	116,983	96,519	81,647
Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	115,320	94,887	80,015
Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	1,663	1,632	1,632
Real Estate Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Residential 1st Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	189,039	171,880	160,418
Residential 1st Mortgages [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	187,663	170,462	159,098
Residential 1st Mortgages [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	739	744	759
Residential 1st Mortgages [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	637	674	561
Home Equity Lines & Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	31,327	33,017	34,453
Home Equity Lines & Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	30,637	32,054	33,717
Home Equity Lines & Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	80	85	0
Home Equity Lines & Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	610	878	736
Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	225,795	281,963	228,745
Agricultural [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	225,075	281,232	227,891
Agricultural [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	453	679	785
Agricultural [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	267	52	69
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	256,386	230,819	179,948
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	240,190	211,036	157,709
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	12,680	18,143	20,557
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	3,516	1,640	1,682
Consumer & Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	4,984	4,719	4,881
Consumer & Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	4,737	4,449	4,622
Consumer & Other [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Consumer & Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	247	270	259
Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	50,631	44,217	22,155
Leases [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 50,631	44,217	22,155
Leases [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases		0	0
Leases [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases		$ 0	$ 0

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Operating Activities:
Net Income	$ 13,152	$ 12,386
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	650	0
Depreciation and Amortization	751	666
Net Amortization of Investment Security Premiums & Discounts	778	808
Net Gain on Sale of Investment Securities	(6)	(34)
Net Gain on Sale of Property & Equipment	0	(8)
Net Change in Operating Assets & Liabilities:
Net Decrease (Increase) in Interest Receivable and Other Assets	526	(4,105)
Net Increase (Decrease) in Interest Payable and Other Liabilities	427	(1,484)
Net Cash Provided by Operating Activities	16,278	8,229
Investing Activities:
Purchase of Investment Securities Available-for-Sale	(80,210)	(25,841)
Proceeds from Sold, Matured or Called Securities Available-for-Sale	93,217	35,466
Purchase of Investment Securities Held-to-Maturity	(8,753)	(12,194)
Proceeds from Matured or Called Securities Held-to-Maturity	5,185	10,366
Net Loans & Leases Paid, Originated or Acquired	(106,444)	(111,616)
Principal Collected on Loans & Leases Previously Charged Off	3,032	159
Additions to Premises and Equipment	(2,125)	(1,712)
Proceeds from Sale of Property & Equipment	0	23
Net Cash Used by Investing Activities	(96,098)	(105,349)
Financing Activities:
Net Increase in Deposits	99,063	54,344
Net Change in Other Borrowings	0	12,000
Cash Dividends	(5,029)	(4,900)
Net Cash Provided by Financing Activities	94,034	61,444
Increase (Decrease) in Cash and Cash Equivalents	14,214	(35,676)
Cash and Cash Equivalents at Beginning of Period	77,125	83,677
Cash and Cash Equivalents at End of Period	91,339	48,001
Supplementary Data
Cash Payments Made for Income Taxes	3,055	7,500
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans	765	0
Interest Paid	$ 1,449	$ 1,361

XML

Loans & Leases and Allowance for Credit Losses, Aging Analysis of Loan Portfolio by the Time Past Due (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	$ 0	$ 0	$ 0
Nonaccrual	2,944	2,270	2,519
Total Past Due	3,148	2,359	2,591
Current	1,815,494	1,709,885	1,497,118
Total Loans & Leases	1,818,642	1,712,244	1,499,709
30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	8	89	72
60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	196	0	0
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	715	0	0
Total Past Due	715	0	0
Current	569,458	491,903	428,529
Total Loans & Leases	570,173	491,903	428,529
Commercial Real Estate [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Real Estate [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	0
Total Past Due	0	0	0
Current	373,324	357,207	358,933
Total Loans & Leases	373,324	357,207	358,933
Agricultural Real Estate [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Agricultural Real Estate [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Real Estate Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	0
Total Past Due	0	0	0
Current	116,983	96,519	81,647
Total Loans & Leases	116,983	96,519	81,647
Real Estate Construction [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Real Estate Construction [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Residential 1st Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	72	77	289
Total Past Due	268	77	289
Current	188,771	171,803	160,129
Total Loans & Leases	189,039	171,880	160,418
Residential 1st Mortgages [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Residential 1st Mortgages [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	196	0	0
Home Equity Lines & Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	576	576	576
Total Past Due	576	655	576
Current	30,751	32,362	33,877
Total Loans & Leases	31,327	33,017	34,453
Home Equity Lines & Loans [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	79	0
Home Equity Lines & Loans [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	11	18	26
Total Past Due	11	18	26
Current	225,784	281,945	228,719
Total Loans & Leases	225,795	281,963	228,745
Agricultural [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Agricultural [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	1,559	1,586	1,613
Total Past Due	1,559	1,586	1,613
Current	254,827	229,233	178,335
Total Loans & Leases	256,386	230,819	179,948
Commercial [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Consumer & Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	11	13	15
Total Past Due	19	23	87
Current	4,965	4,696	4,794
Total Loans & Leases	4,984	4,719	4,881
Consumer & Other [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	8	10	72
Consumer & Other [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	0
Total Past Due	0	0	0
Current	50,631	44,217	22,155
Total Loans & Leases	50,631	44,217	22,155
Leases [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Leases [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0	$ 0

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Cash and Cash Equivalents:
Cash and Due from Banks	$ 45,017	$ 42,375	$ 44,567
Interest Bearing Deposits with Banks	46,322	34,750	3,434
Total Cash and Cash Equivalents	91,339	77,125	48,001
Investment Securities:
Available-for-Sale	351,424	366,542	401,732
Held-to-Maturity	67,401	63,863	70,340
Total Investment Securities	418,825	430,405	472,072
Loans & Leases:	1,818,642	1,712,244	1,499,709
Less: Allowance for Credit Losses	39,037	35,401	34,290
Loans & Leases, Net	1,779,605	1,676,843	1,465,419
Premises and Equipment, Net	27,195	25,821	23,918
Bank Owned Life Insurance	54,933	53,990	53,037
Interest Receivable and Other Assets	84,862	96,367	90,404
Total Assets	2,456,759	2,360,551	2,152,851
Deposits:
Demand	613,042	610,133	499,133
Interest Bearing Transaction	349,404	341,397	313,879
Savings and Money Market	706,121	644,260	630,194
Time	494,569	468,283	418,829
Total Deposits	2,163,136	2,064,073	1,862,035
Federal Home Loan Bank Advances	0	0	12,000
Subordinated Debentures	10,310	10,310	10,310
Interest Payable and Other Liabilities	42,149	52,990	46,684
Total Liabilities	2,215,595	2,127,373	1,931,029
Shareholders' Equity
Preferred Stock: No Par Value, 1,000,000 Shares Authorized, None Issued or Outstanding	0	0	0
Common Stock: Par Value $0.01, 7,500,000 Shares Authorized, 785,782, 784,082 and 777,882 'Shares Issued and Outstanding at June 30, 2015, December 31, 2014 and June 30, 2014, Respectively	8	8	8
Additional Paid-In Capital	78,569	77,804	75,014
Retained Earnings	160,956	152,833	144,836
Accumulated Other Comprehensive Income	1,631	2,533	1,964
Total Shareholders' Equity	241,164	233,178	221,822
Total Liabilities and Shareholders' Equity	$ 2,456,759	$ 2,360,551	$ 2,152,851

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss), net [Member]	Total
Balance at Dec. 31, 2013	$ 8	$ 75,014	$ 137,350	$ (2,468)	$ 209,904
Balance (in shares) at Dec. 31, 2013	777,882
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	$ 0	0	12,386	0	12,386
Cash Dividends Declared on Common Stock	0	0	(4,900)	0	(4,900)
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax	0	0	0	4,432	4,432
Balance at Jun. 30, 2014	$ 8	75,014	144,836	1,964	$ 221,822
Balance (in shares) at Jun. 30, 2014	777,882				777,882
Balance at Dec. 31, 2014	$ 8	77,804	152,833	2,533	$ 233,178
Balance (in shares) at Dec. 31, 2014	784,082				784,082
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	$ 0	0	13,152	0	$ 13,152
Cash Dividends Declared on Common Stock	0	0	(5,029)	0	(5,029)
Issuance of Common Stock	$ 0	765	0	0	765
Issuance of Common Stock (in shares)	1,700
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax	$ 0	0	0	(902)	(902)
Balance at Jun. 30, 2015	$ 8	$ 78,569	$ 160,956	$ 1,631	$ 241,164
Balance (in shares) at Jun. 30, 2015	785,782				785,782

XML

Fair Value Measurements (Details) - USD ($)	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Fair Value Measurements [Abstract]
Percentage of selling costs reduced in sales comparison approach (in hundredths)	10.00%
Consumer mortgage loans in the process of foreclosure value	$ 575,000
Available-for-Sale Securities [Abstract]
Fair/Book value	351,424,000	$ 366,542,000	$ 401,732,000
Recurring [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	11,121,000	78,109,000	18,424,000
US Treasury Notes	80,238,000
Mortgage Backed Securities	259,580,000	287,948,000	326,335,000
Corporate Securities			54,661,000
Other	485,000	485,000	2,312,000
Fair/Book value	351,424,000	366,542,000	401,732,000
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	0	10,005,000	13,412,000
US Treasury Notes	0
Mortgage Backed Securities	0	0	0
Corporate Securities			8,982,000
Other	175,000	175,000	2,002,000
Fair/Book value	175,000	10,180,000	24,396,000
Recurring [Member] | Other Observable Inputs (Level 2) [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	11,121,000	68,104,000	5,012,000
US Treasury Notes	80,238,000
Mortgage Backed Securities	259,580,000	287,948,000	326,335,000
Corporate Securities			45,679,000
Other	310,000	310,000	310,000
Fair/Book value	351,249,000	356,362,000	377,336,000
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	0	0	0
US Treasury Notes	0
Mortgage Backed Securities	0	0	0
Corporate Securities			0
Other	0	0	0
Fair/Book value	0	0	0
Nonrecurring [Member]
Impaired Loans [Abstract]
Commercial Real Estate		90,000
Residential 1st Mortgages	337,000	748,000	354,000
Home Equity Lines and Loans	128,000	759,000	729,000
Agricultural	313,000	346,000	354,000
Commercial	807,000	3,832,000	807,000
Consumer	6,000	6,000
Total Impaired Loans	1,591,000	5,781,000	2,244,000
Other Real Estate [Abstract]
Real Estate Construction	2,441,000	2,441,000	2,441,000
Agricultural Real Estate		858,000	853,000
Total Other Real Estate	2,441,000	3,299,000	3,294,000
Total Assets Measured at Fair Value On a Non-Recurring Basis	4,032,000	9,080,000	5,538,000
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Impaired Loans [Abstract]
Commercial Real Estate		0
Residential 1st Mortgages	0	0	0
Home Equity Lines and Loans	0	0	0
Agricultural	0	0	0
Commercial	0	0	0
Total Impaired Loans	0	0	0
Other Real Estate [Abstract]
Real Estate Construction	0	0	0
Agricultural Real Estate		0	0
Total Other Real Estate	0	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member]
Impaired Loans [Abstract]
Commercial Real Estate		0
Residential 1st Mortgages	0	0	0
Home Equity Lines and Loans	0	0	0
Agricultural	0	0	0
Commercial	0	0	0
Total Impaired Loans	0	0	0
Other Real Estate [Abstract]
Real Estate Construction	0	0	0
Agricultural Real Estate		0	0
Total Other Real Estate	0	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0	0
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Impaired Loans [Abstract]
Commercial Real Estate		90,000
Residential 1st Mortgages	337,000	748,000	354,000
Home Equity Lines and Loans	128,000	759,000	729,000
Agricultural	313,000	346,000	354,000
Commercial	807,000	3,832,000	807,000
Consumer	6,000	6,000
Total Impaired Loans	1,591,000	5,781,000	2,244,000
Other Real Estate [Abstract]
Real Estate Construction	2,441,000	2,441,000	2,441,000
Agricultural Real Estate		858,000	853,000
Total Other Real Estate	2,441,000	3,299,000	3,294,000
Total Assets Measured at Fair Value On a Non-Recurring Basis	$ 4,032,000	$ 9,080,000	$ 5,538,000

XML

Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value of Financial Instruments [Abstract]

Book Value and Estimated Fair Value of Financial Instruments

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated.

				Fair Value of Financial Instruments Using
June 30, 2015 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	91,339		$	91,339	$	-	$	-		$	91,339
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		11,121			-		11,121		-			11,121
U.S. Treasury Notes		80,238			-		80,238		-			80,238
Mortgage Backed Securities		259,580			-		259,580		-			259,580
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		351,424			175		351,249		-			351,424
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,270			-		47,321		18,014			65,335
Other		2,131			-		2,131		-			2,131
Total Investment Securities Held-to-Maturity		67,401			-		49,452		18,014			67,466
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		561,582			-		-		559,550			559,550
Agricultural Real Estate		366,052			-		-		362,035			362,035
Real Estate Construction		114,806			-		-		114,984			114,984
Residential 1st Mortgages		188,308			-		-		191,266			191,266
Home Equity Lines and Loans		29,254			-		-		31,021			31,021
Agricultural		220,749			-		-		219,967			219,967
Commercial		247,508			-		-		245,825			245,825
Consumer & Other		4,767			-		-		4,803			4,803
Leases		48,099							47,595			47,595
Unallocated Allowance		(1,520	)		-		-		(1,520	)		(1,520	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,779,605			-		-		1,775,526			1,775,526
Accrued Interest Receivable		9,024			-		9,024		-			9,024
Liabilities:
Deposits:
Demand		613,042			613,041		-		-			613,041
Interest Bearing Transaction		349,404			349,404		-		-			349,404
Savings and Money Market		706,121			706,122		-		-			706,122
Time		494,569			-		494,724		-			494,724
Total Deposits		2,163,136			1,668,567		494,724		-			2,163,291
Subordinated Debentures		10,310			-		6,252		-			6,252
Accrued Interest Payable		556			-		556		-			556

				Fair Value of Financial Instruments Using
December 31, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	77,125		$	77,125	$	-	$	-		$	77,125
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		78,109			10,005		68,104		-			78,109
Mortgage Backed Securities		287,948			-		287,948		-			287,948
Corporate Securities									-			-
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		366,542			10,180		356,362		-			366,542
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,716			-		49,085		13,403			62,488
Mortgage Backed Securities					-				-			-
Other		2,147			-		2,147		-			2,147
Total Investment Securities Held-to-Maturity		63,863			-		51,232		13,403			64,635
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		484,061			-		-		481,037			481,037
Agricultural Real Estate		353,022			-		-		353,288			353,288
Real Estate Construction		94,850			-		-		95,022			95,022
Residential 1st Mortgages		170,858			-		-		173,916			173,916
Home Equity Lines and Loans		30,591			-		-		32,456			32,456
Agricultural		275,859			-		-		274,195			274,195
Commercial		222,624			-		-		222,175			222,175
Consumer & Other		4,501			-		-		4,535			4,535
Leases		42,006			-		-		40,298			40,298
Unallocated Allowance		(1,529	)		-		-		(1,529	)		(1,529	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,676,843			-		-		1,675,393			1,675,393
Accrued Interest Receivable		7,797			-		7,797		-			7,797
Liabilities:
Deposits:
Demand		610,133			610,133		-		-			610,133
Interest Bearing Transaction		341,397			341,397		-		-			341,397
Savings and Money Market		644,260			644,260		-		-			644,260
Time		468,283			-		468,161		-			468,161
Total Deposits		2,064,073			1,595,790		468,161		-			2,063,951
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		378			-		378		-			378

				Fair Value of Financial Instruments Using
June 30, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	48,001		$	48,001	$	-	$	-		$	48,001
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		18,424			13,412		5,012		-			18,424
Obligations of States and Political Subdivisions		-			-		-		-			-
Mortgage Backed Securities		326,335			-		326,335		-			326,335
Corporate Securities		54,661			8,982		45,679		-			54,661
Other		2,312			2,002		310		-			2,312
Total Investment Securities Available-for-Sale		401,732			24,396		377,336		-			401,732
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,866			-		54,736		13,723			68,459
Mortgage Backed Securities		-			-		-		-			-
Other		2,474			-		2,474		-			2,474
Total Investment Securities Held-to-Maturity		70,340			-		57,210		13,723			70,933
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		421,538			-		-		421,007			421,007
Agricultural Real Estate		355,256			-		-		358,283			358,283
Real Estate Construction		80,357			-		-		80,700			80,700
Residential 1st Mortgages		159,324			-		-		163,038			163,038
Home Equity Lines and Loans		31,716			-		-		33,854			33,854
Agricultural		220,454			-		-		219,426			219,426
Commercial		172,571			-		-		172,661			172,661
Consumer & Other		4,688			-		-		4,747			4,747
Leases		21,047							20,743			20,743
Unallocated Allowance		(1,532	)		-		-		(1,532	)		(1,532	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,465,419			-		-		1,472,927			1,472,927
Accrued Interest Receivable		7,684			-		7,684		-			7,684
Liabilities:
Deposits:
Demand		499,133			499,133		-		-			499,133
Interest Bearing Transaction		313,879			313,878		-		-			313,878
Savings and Money Market		630,194			630,195		-		-			630,195
Time		418,829			-		418,969		-			418,969
Total Deposits		1,862,035			1,443,206		418,969		-			1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase		12,000			-		12,000		-			12,000
Subordinated Debentures		10,310			-		6,222		-			6,222
Accrued Interest Payable		349			-		349		-			349

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Fair Value Measurements, Quantitative Information (Details) - Jun. 30, 2015 - USD ($) $ in Thousands	Total
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 337
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	2.00%
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	5.00%
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	4.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 128
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	1.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	3.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	2.00%
Agricultural [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 313
Unobservable inputs	Capitalization Rate
Agricultural [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Agricultural [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Agricultural [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Commercial [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 807
Unobservable inputs	Capitalization Rate
Commercial [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Commercial [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Commercial [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate (in hundredths)	16.00%
Consumer [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 6
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Consumer [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	1.00%
Consumer [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	2.00%
Consumer [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	2.00%
Real Estate Construction [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 2,441
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	10.00%
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	10.00%
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales (in hundredths)	10.00%

XML

Significant Accounting Policies (Details) - 6 months ended Jun. 30, 2015	Component Category RiskFactor Segment
Investment Securities [Abstract]
Number of components into which amount of impairment is split	2
Loans & Leases [Abstract]
Period after which loans are placed on non accrual status, minimum	90 days
Allowance for Credit Losses [Abstract]
Consecutive months of payments	6 months
Number of primary components of overall allowance for credit losses	3
Number of categories into which risk ratings are grouped | Category	5
Number of risk factors on agricultural loans | RiskFactor	2
Income Taxes [Abstract]
Percentage likely of being realized upon settlement with the applicable taxing authority, minimum (in hundredths)	50.00%
Segment Reporting [Abstract]
Number of reportable segments | Segment	1
Buildings [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	30 years
Buildings [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	40 years
Furniture and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Furniture and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	7 years
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2015	Jun. 30, 2014
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash Dividends Declared per Share of Common Stock (in dollars per share)	$ 6.40	$ 6.30

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Shareholders' Equity
Preferred Stock, par value (in dollars per share)	$ 0	$ 0	$ 0
Preferred Stock, authorized (in shares)	1,000,000	1,000,000	1,000,000
Preferred Stock, issued (in shares)	0	0	0
Preferred Stock, outstanding (in shares)	0	0	0
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Common Stock, authorized (in shares)	7,500,000	7,500,000	7,500,000
Common Stock, issued (in shares)	785,782	784,082	777,882
Common Stock, outstanding (in shares)	785,782	784,082	777,882

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2015

Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

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

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three-month and six-month periods ended June 30, 2015 may not necessarily be indicative of future operating results.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the periods presented.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

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

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Loans & Leases

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans or leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan's or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. 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 & 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 primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

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

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 & 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.

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 general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate.  These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As Lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Bank (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Unaudited Consolidated Statements of Income.

Dividends and Basic Earnings Per Common Share

Dividends and Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted earnings per common share. See Note 6.

Segment Reporting

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company reports one segment.

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The “Derivatives and Hedging” topic of the FASB ASC establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. Changes in the fair value of those derivatives are accounted for depending on the intended use of the derivative and the resulting designation under specified criteria. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, designed to minimize interest rate risk, the effective portions of the change in the fair value of the derivative are recorded in other comprehensive income (loss), net of related income taxes. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

From time to time, the Company utilizes derivative financial instruments such as interest rate caps, floors, swaps, and collars. These instruments are purchased and/or sold to reduce the Company’s exposure to changing interest rates. The Company marks to market the value of its derivative financial instruments and reflects gain or loss in earnings in the period of change or in other comprehensive income (loss). The Company was not utilizing any derivative instruments as of or for the periods ended June 30, 2015, December 31, 2014 or June 30, 3014.

Comprehensive Income

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	FARMERS & MERCHANTS BANCORP
Entity Central Index Key	0001085913
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		785,782
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015

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Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2015

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

In January, 2014, the FASB issued Accounting Standards Update (ASU) 2014-04 - Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This Update clarifies when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The objective of the amendments in this Update is to reduce diversity in practice. An in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operation, cash flows, or disclosure.

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts, including leases and insurance contracts, are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. The amendments also require expanded disclosures concerning the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied retrospectively. Early application is not permitted. On July 9, 2015, the FASB approved a one year deferral on the effective date of this revised standard. Management is currently evaluating the impact of adoption.

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Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest Income
Interest and Fees on Loans & Leases	$ 19,606	$ 16,741	$ 38,733	$ 33,012
Interest on Deposits with Banks	65	41	123	105
Interest on Investment Securities:
Taxable	1,582	2,109	3,168	4,224
Exempt from Federal Tax	503	567	1,025	1,164
Total Interest Income	21,756	19,458	43,049	38,505
Interest Expense
Deposits	754	598	1,466	1,198
Subordinated Debentures	81	80	161	160
Total Interest Expense	835	678	1,627	1,358
Net Interest Income	20,921	18,780	41,422	37,147
Provision for Credit Losses	50	0	650	0
Net Interest Income After Provision for Credit Losses	20,871	18,780	40,772	37,147
Non-Interest Income
Service Charges on Deposit Accounts	865	984	1,763	1,922
Net Gain on Sale of Investment Securities	5	31	6	34
Increase in Cash Surrender Value of Life Insurance	479	473	943	928
Debit Card and ATM Fees	804	790	1,581	1,525
Net (Loss) Gain on Deferred Compensation Investments	(216)	1,087	549	1,530
Other	889	578	2,648	1,166
Total Non-Interest Income	2,826	3,943	7,490	7,105
Non-Interest Expense
Salaries and Employee Benefits	9,566	9,137	19,665	17,374
Net (Loss) Gain on Deferred Compensation Investments	(216)	1,087	549	1,530
Occupancy	746	635	1,385	1,257
Equipment	776	700	1,508	1,403
FDIC Insurance	297	262	581	514
Other	1,592	1,213	3,291	2,596
Total Non-Interest Expense	12,761	13,034	26,979	24,674
Income Before Income Taxes	10,936	9,689	21,283	19,578
Provision for Income Taxes	4,187	3,585	8,131	7,192
Net Income	$ 6,749	$ 6,104	$ 13,152	$ 12,386
Basic Earnings Per Common Share (in dollars per share)	$ 8.59	$ 7.84	$ 16.74	$ 15.92

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Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Measurements [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, 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 quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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 AFS 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.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & 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 impaired loans is generally based on recent real estate appraisals. 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 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

Other Real Estate (“ORE”) 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 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 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

At June 30, 2015, formal foreclosure proceedings were in process for $575,000 of consumer mortgage loans secured by residential real estate properties.

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

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	11,121	$	-	$	11,121	$	-
US Treasury Notes		80,238		-		80,238		-
Mortgage Backed Securities		259,580		-		259,580		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	351,424	$	175	$	351,249	$	-

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	78,109	$	10,005	$	68,104	$	-
Mortgage Backed Securities		287,948		-		287,948		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	366,542	$	10,180	$	356,362	$	-

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	18,424	$	13,412	$	5,012	$	-
Mortgage Backed Securities		326,335		-		326,335		-
Corporate Securities		54,661		8,982		45,679		-
Other		2,312		2,002		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	401,732	$	24,396	$	377,336	$	-

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the three and six-months ended June 30, 2015 and 2014, there were no transfers in or out of level 1, 2, or 3.

The following tables present information about the Company’s other real estate and impaired loans or leases, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgage	$	337	$	-	$	-	$	337
Home Equity Lines and Loans		128		-		-		128
Agricultural		313		-		-		313
Commercial		807		-		-		807
Consumer		6						6
Total Impaired Loans		1,591		-		-		1,591
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Total Other Real Estate		2,441		-		-		2,441
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	4,032	$	-	$	-	$	4,032

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	90	$	-	$	-	$	90
Residential 1st Mortgage		748		-		-		748
Home Equity Lines and Loans		759		-		-		759
Agricultural		346		-		-		346
Commercial		3,832		-		-		3,832
Consumer		6						6
Total Impaired Loans		5,781		-		-		5,781
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		858		-		-		858
Total Other Real Estate		3,299		-		-		3,299
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	9,080	$	-	$	-	$	9,080

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgages	$	354	$	-	$	-	$	354
Home Equity Lines and Loans		729		-		-		729
Agricultural		354		-		-		354
Commercial		807		-		-		807
Total Impaired Loans		2,244		-		-		2,244
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		853		-		-		853
Total Other Real Estate		3,294		-		-		3,294
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,538	$	-	$	-	$	5,538

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments.

Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	337	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	128	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	313	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	807	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	6	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

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Loans & Leases and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2015

Loans & Leases and Allowance for Credit Losses [Abstract]

Loans & Leases and Allowance for Credit Losses

3. Loans & Leases and Allowance for Credit Losses

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

June 30, 2015	Commercial Real Estate			Agricultural  Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2015	$	7,842		$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Charge-Offs		-			-		-		-			-			-			(12	)		(34	)		-		-			(46	)
Recoveries		2,939			-		-		2			47			3			4			37			-		-			3,032
Provision		(2,190	)		3,087		508		(293	)		(400	)		(1,061	)		691			(4	)		321		(9	)		650
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2015	$	7,954		$	6,901	$	1,916	$	673		$	2,096		$	4,602		$	8,941		$	212		$	2,499	$	3,146		$	38,940
Charge-Offs		-			-		-		-			-			-			-			(17	)		-		-			(17	)
Recoveries		1			-		-		2			42			2			2			15			-		-			64
Provision		636			371		261		56			(65	)		442			(65	)		7			33		(1,626	)		50
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Ending Balance Individually Evaluated for Impairment		61			-		-		71			49			129			887			34			-		-			1,231
Ending Balance Collectively Evaluated for Impairment		8,530			7,272		2,177		660			2,024			4,917			7,991			183			2,532		1,520			37,806
Loans & Leases:
Ending Balance	$	570,173		$	373,324	$	116,983	$	189,039		$	31,327		$	225,795		$	256,386		$	4,984		$	50,631	$	-		$	1,818,642
Ending Balance Individually Evaluated for Impairment		4,163			-		4,335		2,055			1,541			454			4,819			40			-		-			17,407
Ending Balance Collectively Evaluated for Impairment	$	566,010		$	373,324	$	112,648	$	186,984		$	29,786		$	225,341		$	251,567		$	4,944		$	50,631	$	-		$	1,801,235

December 31, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697		$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(73	)		(70	)		-			(1	)		(132	)		-		-			(276	)
Recoveries		11		-		-		-			58			8			86			65			-		-			228
Provision		2,653		609		1,015		(13	)		(329	)		(6,109	)		2,413			109			1,572		(745	)		1,175
Ending Balance- December 31, 2014	$	7,842	$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Ending Balance Individually Evaluated for Impairment		377		-		-		422			329			114			914			41			-		-			2,197
Ending Balance Collectively Evaluated for Impairment		7,465		4,185		1,669		600			2,097			5,990			7,281			177			2,211		1,529			33,204
Loans & Leases:
Ending Balance	$	491,903	$	357,207	$	96,519	$	171,880		$	33,017		$	281,963		$	230,819		$	4,719		$	44,217	$	-		$	1,712,244
Ending Balance Individually Evaluated for Impairment		20,066		-		4,386		2,108			1,643			461			4,874			46			-		-			33,584
Ending Balance Collectively Evaluated for Impairment	$	471,837	$	357,207	$	92,133	$	169,772		$	31,374		$	281,502		$	225,945		$	4,673		$	44,217	$	-		$	1,678,660

June 30, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697	$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(33	)		(65	)		-			-		(45	)		-		-			(143	)
Recoveries		-		-		-		-			51			2			77		29			-		-			159
Provision		1,813		101		636		19			(16	)		(3,916	)		1,603		33			469		(742	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2014	$	6,426	$	3,387	$	1,077	$	1,100		$	2,648		$	9,601		$	6,426	$	171		$	921	$	2,520		$	34,277
Charge-Offs		-		-		-		(30	)		(65	)		-			-		(18	)		-		-			(113	)
Recoveries		-		-		-		-			39			1			72		14			-		-			126
Provision		565		290		213		24			115			(1,311	)		879		26			187		(988	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Ending Balance Individually Evaluated for Impairment		218		-		241		329			315			118			807		45			-		-			2,073
Ending Balance Collectively Evaluated for Impairment		6,773		3,677		1,049		765			2,422			8,173			6,570		148			1,108		1,532			32,217
Loans & Leases:
Ending Balance	$	428,529	$	358,933	$	81,647	$	160,418		$	34,453		$	228,745		$	179,948	$	4,881		$	22,155	$	-		$	1,499,709
Ending Balance Individually Evaluated for Impairment		21,719		-		4,446		1,647			1,597			534			4,898		45			-		-			34,886
Ending Balance Collectively Evaluated for Impairment	$	406,810	$	358,933	$	77,201	$	158,771		$	32,856		$	228,211		$	175,050	$	4,836		$	22,155	$	-		$	1,464,823

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $9.6 million at June 30, 2015, $26.4 million at December 31, 2014 and $28.1 million at June 30, 2014, which are no longer disclosed or classified as TDR’s.

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

June 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	561,370	$	8,088	$	715	$	570,173
Agricultural Real Estate		373,324		-		-		373,324
Real Estate Construction		115,320		1,663		-		116,983
Residential 1st Mortgages		187,663		739		637		189,039
Home Equity Lines & Loans		30,637		80		610		31,327
Agricultural		225,075		453		267		225,795
Commercial		240,190		12,680		3,516		256,386
Consumer & Other		4,737		-		247		4,984
Leases		50,631						50,631
Total	$	1,788,947	$	23,703	$	5,992	$	1,818,642

December 31, 2014	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	483,146	$	8,651	$	106	$	491,903
Agricultural Real Estate		357,207		-		-		357,207
Real Estate Construction		94,887		1,632		-		96,519
Residential 1st Mortgages		170,462		744		674		171,880
Home Equity Lines and Loans		32,054		85		878		33,017
Agricultural		281,232		679		52		281,963
Commercial		211,036		18,143		1,640		230,819
Consumer & Other		4,449		-		270		4,719
Leases		44,217		-		-		44,217
Total	$	1,678,690	$	29,934	$	3,620	$	1,712,244

June 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	417,627	$	10,780	$	122	$	428,529
Agricultural Real Estate		358,933		-		-		358,933
Real Estate Construction		80,015		1,632		-		81,647
Residential 1st Mortgages		159,098		759		561		160,418
Home Equity Lines & Loans		33,717		-		736		34,453
Agricultural		227,891		785		69		228,745
Commercial		157,709		20,557		1,682		179,948
Consumer & Other		4,622		-		259		4,881
Leases		22,155		-		-		22,155
Total	$	1,461,767	$	34,513	$	3,429	$	1,499,709

See “Note 1. Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company. There were no loans or leases outstanding at June 30, 2015, December 31, 2014, and June 30, 2014, rated doubtful or loss.

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

(in thousands):

June 30, 2015	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	715	$	715	$	569,458	$	570,173
Agricultural Real Estate		-		-		-		-		-		373,324		373,324
Real Estate Construction		-		-		-		-		-		116,983		116,983
Residential 1st Mortgages		-		196		-		72		268		188,771		189,039
Home Equity Lines & Loans		-		-		-		576		576		30,751		31,327
Agricultural		-		-		-		11		11		225,784		225,795
Commercial		-		-		-		1,559		1,559		254,827		256,386
Consumer & Other		8		-		-		11		19		4,965		4,984
Leases		-		-		-		-		-		50,631		50,631
Total	$	8	$	196	$	-	$	2,944	$	3,148	$	1,815,494	$	1,818,642

December 31, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	491,903	$	491,903
Agricultural Real Estate		-		-		-		-		-		357,207		357,207
Real Estate Construction		-		-		-		-		-		96,519		96,519
Residential 1st Mortgages		-		-		-		77		77		171,803		171,880
Home Equity Lines and Loans		79		-		-		576		655		32,362		33,017
Agricultural		-		-		-		18		18		281,945		281,963
Commercial		-		-		-		1,586		1,586		229,233		230,819
Consumer & Other		10		-		-		13		23		4,696		4,719
Leases		-		-		-		-		-		44,217		44,217
Total	$	89	$	-	$	-	$	2,270	$	2,359	$	1,709,885	$	1,712,244

June 30, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	428,529	$	428,529
Agricultural Real Estate		-		-		-		-		-		358,933		358,933
Real Estate Construction		-		-		-		-		-		81,647		81,647
Residential 1st Mortgages		-		-		-		289		289		160,129		160,418
Home Equity Lines & Loans		-		-		-		576		576		33,877		34,453
Agricultural		-		-		-		26		26		228,719		228,745
Commercial		-		-		-		1,613		1,613		178,335		179,948
Consumer & Other		72		-		-		15		87		4,794		4,881
Leases		-		-		-		-		-		22,155		22,155
Total	$	72	$	-	$	-	$	2,519	$	2,591	$	1,497,118	$	1,499,709

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

							Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
June 30, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	802	$	802	$	-	$	497	$	2	$	297	$	4
Residential 1st Mortgages		564		628		-		567		4		426		8
Home Equity Lines & Loans		620		660		-		641		-		486		1
Agricultural		11		24		-		13		-		10		-
Commercial		3,125		3,125		-		1,587		27		806		28
	$	5,122	$	5,239	$	-	$	3,305	$	33	$	2,025	$	41
With an allowance recorded:
Residential 1st Mortgages	$	355	$	426	$	18		357	$	4		503		8
Home Equity Lines & Loans		137		155		7		138		1		342		2
Agricultural		443		443		129		443		7		448		14
Commercial		1,694		1,804		887		3,244		2		4,006		27
Consumer & Other		40		46		34		42		1		44		2
	$	2,669	$	2,874	$	1,075	$	4,224	$	15	$	5,343	$	53
Total	$	7,791	$	8,113	$	1,075	$	7,529	$	48	$	7,368	$	94

December 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average  Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	49	$	4
Home Equity Lines and Loans		-		-		-		169		-
Agricultural		-		-		-		15		-
Commercial		-		-		-		1,620		54
	$	-	$	-	$	-	$	1,853	$	58
With an allowance recorded:
Commercial Real Estate	$	92	$	92	$	2	$	47	$	4
Residential 1st Mortgages		937		1,069		187		612		9
Home Equity Lines and Loans		951		1,020		190		803		10
Agricultural		461		473		114		473		28
Commercial		4,742		4,813		910		3,182		54
Consumer & Other		46		51		41		46		2
	$	7,229	$	7,518	$	1,444	$	5,163	$	107
Total	$	7,229	$	7,518	$	1,444	$	7,016	$	165

							Three Months Ended June 30, 2014				Six Months Ended June 30, 2014
June 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	97	$	97	$	-	$	98	$	2	$	99	$	4
Home Equity Lines & Loans		-		-		-		339		-		339		-
Agricultural		27		37		-		30		-		32		-
Commercial		3,150		3,151		-		3,241		27		3,322		54
	$	3,274	$	3,285	$	-	$	3,708	$	29	$	3,792	$	58
With an allowance recorded:
Residential 1st Mortgages	$	442	$	527	$	89		427	$	1		509		2
Home Equity Lines & Loans		913		960		182		654		3		598		3
Agricultural		473		473		118		473		7		477		14
Commercial		1,613		1,657		807		1,620		-		1,627		-
Consumer & Other		45		49		45		47		-		48		1
	$	3,486	$	3,666	$	1,241	$	3,221	$	11	$	3,259	$	20
Total	$	6,760	$	6,951	$	1,241	$	6,929	$	40	$	7,051	$	78

Total recorded investment shown in the prior tables will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance tables. This is because the calculation of recorded investment takes into account charge-offs, net unamortized loan & lease fees & costs, unamortized premium or discount, and accrued interest. This table also excludes impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At June 30, 2015, the Company allocated $1.1 million of specific reserves to $6.5 million of troubled debt restructured loans & leases, of which $4.8 million were performing. The Company had no commitments at June 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three month period ending June 30, 2015, there were no loans & leases modified as a troubled debt restructuring. During the six month period ending June 30, 2015, the terms of certain loans & leases were modified as troubled debt restructurings. The modification of the terms of such loans & leases can include one or a combination of the following: a reduction of the stated interest rate; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate were for 10 years. Modifications involving an extension of the maturity date were for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2015 (in thousands):

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		-	$	-	$	-		1	$	131	$	119
Total		-	$	-	$	-		1	$	131	$	119

The TDR described above increased the allowance for credit losses by $0 and $114,000 for the three and six-month periods ending June 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and six-month periods ended June 30, 2015.

During the three and six-months ended June 30, 2015, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At December 31, 2014, the Company allocated $1.3 million of specific reserves to $6.6 million of troubled debt restructured loans, of which $5.0 million were performing. The Company had no commitments at December 31, 2014 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2014, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 4 to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 30 years.

The following table presents loans or leases by class modified as TDRs for the period ended December 31, 2014 (in thousands):

	December 31, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		5	$	857	$	804
Home Equity Lines and Loans		3		98		89
Agricultural		1		32		32
Commercial		1		18		18
Consumer & Other		1		7		7
Total		11	$	1,012	$	950

The troubled debt restructurings described above increased the allowance for credit losses by $28,000 and resulted in charge-offs of $63,000 for the twelve months ended December 31, 2014.

During the period ended December 31, 2014, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

At June 30, 2014, the Company allocated $1.1 million of specific reserves to $6.2 million of troubled debt restructured loans & leases, of which $4.2 million were performing. The Company had no commitments at June 30, 2014 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and six month periods ending June 30, 2014, the terms of certain loans & leases were modified as troubled debt restructurings. The modification of the terms of such loans & leases can include one or a combination of the following: a reduction of the stated interest rate; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate were for periods ranging from 5 years to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 5 years to 30 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2014 (in thousands):

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	69	$	60		3	$	316	$	305
Home Equity Lines & Loans		2		47		42		3		79		74
Total		3	$	116	$	102		6	$	395	$	379

The TDRs described above had no impact on the allowance for credit losses but resulted in charge-offs of $14,000 and $17,000 for the three and six-month periods ended June 30, 2014

During the three and six-months ended June 30, 2014, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

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Dividends and Basic Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2015

Dividends and Basic Earnings Per Common Share [Abstract]

Calculation of Basic Earnings per Share

The following table calculates the basic earnings per common share for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30				Six Months Ended June 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	6,749	$	6,104	$	13,152	$	12,386
Weighted Average Number of Common Shares Outstanding		785,782		777,882		785,575		777,882
Basic Earnings Per Common Share Amount	$	8.59	$	7.84	$	16.74	$	15.92

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2015

Investment Securities [Abstract]

Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities Available-for-Sale

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

(in thousands):

	Amortized		Gross Unrealized				Fair/Book
June 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	11,063	$	58	$	-	$	11,121
US Treasury Notes		80,212		85		59		80,238
Mortgage Backed Securities (1)		256,849		3,812		1,081		259,580
Other		485		-		-		485
Total	$	348,609	$	3,955	$	1,140	$	351,424

	Amortized		Gross Unrealized				Fair/Book
December 31, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	78,051	$	61	$	3	$	78,109
Mortgage Backed Securities (1)		283,636		4,969		657		287,948
Other		485		-		-		485
Total	$	362,172	$	5,030	$	660	$	366,542

	Amortized		Gross Unrealized				Fair/Book
June 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	18,230	$	194	$	-	$	18,424
Mortgage Backed Securities (1)		323,518		5,688		2,871		326,335
Corporate Securities		54,283		393		15		54,661
Other		2,312		-		-		2,312
Total	$	398,343	$	6,275	$	2,886	$	401,732

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

Book Values, Estimated Fair Values and Unrealized Gains and Losses of Investments Classified as Held-to-Maturity

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

	Book		Gross Unrealized				Fair
June 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	65,270	$	278	$	213	$	65,335
Other		2,131		-		-		2,131
Total	$	67,401	$	278	$	213	$	67,466

	Book		Gross Unrealized				Fair
December 31, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	61,716	$	782	$	10	$	62,488
Other		2,147		-		-		2,147
Total	$	63,863	$	782	$	10	$	64,635

	Book		Gross Unrealized				Fair
June 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,866	$	683	$	90	$	68,459
Other		2,474		-		-		2,474
Total	$	70,340	$	683	$	90	$	70,933

Amortized Cost and Estimated Fair Values of Investment Securities by Contractual Maturity

The amortized cost and estimated fair values of investment securities at June 30, 2015 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	10,482	$	10,488	$	2,731	$	2,733
After one year through five years		71,151		71,242		18,364		18,462
After five years through ten years		10,127		10,114		9,097		9,166
After ten years		-		-		37,209		37,105
		91,760		91,844		67,401		67,466
Investment securities not due at a single maturity date:
Mortgage Backed Securities		256,849		259,580		-		-
Total	$	348,609	$	351,424	$	67,401	$	67,466

Investments with Gross Unrealized Losses and Their Market Value Aggregated by Investment Category and Length of Time that Individual Securities Have Been in a Continuous Unrealized Loss Position

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

	Less Than 12 Months				12 Months or More				Total
June 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	35,117	$	59	$	-	$	-	$	35,117	$	59
Mortgage Backed Securities		42,839		942		7,796		139		50,635		1,081
Total	$	77,956	$	1,001	$	7,796	$	139	$	85,752	$	1,140
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	16,083	$	213	$	-	$	-	$	16,083	$	213
Total	$	16,083	$	213	$	-	$	-	$	16,083	$	213

	Less Than 12 Months				12 Months or More				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	66,980	$	3	$	-	$	-	$	66,980	$	3
Mortgage Backed Securities		14,487		151		33,574		506		48,061		657
Total	$	81,467	$	154	$	33,574	$	506	$	115,041	$	660
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	849	$	5	$	876	$	5	$	1,725	$	10
Total	$	849	$	5	$	876	$	5	$	1,725	$	10

	Less Than 12 Months				12 Months or More				Total
June 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	-	$	-	$	92,992	$	2,871		92,992	$	2,871
Corporate Securities		8,390		4		2,738		11		11,128		15
Total	$	8,390	$	4	$	95,730	$	2,882	$	104,120	$	2,886
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90
Total	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90

Proceeds from Sales and Calls of Securities

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	4,060	$	6,969	$	4,535	$	9,917
Gains		5		31		6		34
Losses		-		-		-		-

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Shareholders' Equity

6 Months Ended

Jun. 30, 2015

Shareholders' Equity [Abstract]

Shareholders' Equity

7. Shareholders’ Equity

On January 23, 2015, the Company issued 1,700 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $450 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as amended, the regulations promulgated thereunder. Most of the proceeds were contributed to the Bank as equity capital.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2015

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated.

				Fair Value of Financial Instruments Using
June 30, 2015 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	91,339		$	91,339	$	-	$	-		$	91,339
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		11,121			-		11,121		-			11,121
U.S. Treasury Notes		80,238			-		80,238		-			80,238
Mortgage Backed Securities		259,580			-		259,580		-			259,580
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		351,424			175		351,249		-			351,424
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		65,270			-		47,321		18,014			65,335
Other		2,131			-		2,131		-			2,131
Total Investment Securities Held-to-Maturity		67,401			-		49,452		18,014			67,466
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		561,582			-		-		559,550			559,550
Agricultural Real Estate		366,052			-		-		362,035			362,035
Real Estate Construction		114,806			-		-		114,984			114,984
Residential 1st Mortgages		188,308			-		-		191,266			191,266
Home Equity Lines and Loans		29,254			-		-		31,021			31,021
Agricultural		220,749			-		-		219,967			219,967
Commercial		247,508			-		-		245,825			245,825
Consumer & Other		4,767			-		-		4,803			4,803
Leases		48,099							47,595			47,595
Unallocated Allowance		(1,520	)		-		-		(1,520	)		(1,520	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,779,605			-		-		1,775,526			1,775,526
Accrued Interest Receivable		9,024			-		9,024		-			9,024
Liabilities:
Deposits:
Demand		613,042			613,041		-		-			613,041
Interest Bearing Transaction		349,404			349,404		-		-			349,404
Savings and Money Market		706,121			706,122		-		-			706,122
Time		494,569			-		494,724		-			494,724
Total Deposits		2,163,136			1,668,567		494,724		-			2,163,291
Subordinated Debentures		10,310			-		6,252		-			6,252
Accrued Interest Payable		556			-		556		-			556

				Fair Value of Financial Instruments Using
December 31, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	77,125		$	77,125	$	-	$	-		$	77,125
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		78,109			10,005		68,104		-			78,109
Mortgage Backed Securities		287,948			-		287,948		-			287,948
Corporate Securities									-			-
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		366,542			10,180		356,362		-			366,542
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		61,716			-		49,085		13,403			62,488
Mortgage Backed Securities					-				-			-
Other		2,147			-		2,147		-			2,147
Total Investment Securities Held-to-Maturity		63,863			-		51,232		13,403			64,635
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		484,061			-		-		481,037			481,037
Agricultural Real Estate		353,022			-		-		353,288			353,288
Real Estate Construction		94,850			-		-		95,022			95,022
Residential 1st Mortgages		170,858			-		-		173,916			173,916
Home Equity Lines and Loans		30,591			-		-		32,456			32,456
Agricultural		275,859			-		-		274,195			274,195
Commercial		222,624			-		-		222,175			222,175
Consumer & Other		4,501			-		-		4,535			4,535
Leases		42,006			-		-		40,298			40,298
Unallocated Allowance		(1,529	)		-		-		(1,529	)		(1,529	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,676,843			-		-		1,675,393			1,675,393
Accrued Interest Receivable		7,797			-		7,797		-			7,797
Liabilities:
Deposits:
Demand		610,133			610,133		-		-			610,133
Interest Bearing Transaction		341,397			341,397		-		-			341,397
Savings and Money Market		644,260			644,260		-		-			644,260
Time		468,283			-		468,161		-			468,161
Total Deposits		2,064,073			1,595,790		468,161		-			2,063,951
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		378			-		378		-			378

				Fair Value of Financial Instruments Using
June 30, 2014 (in thousands)	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	48,001		$	48,001	$	-	$	-		$	48,001
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		18,424			13,412		5,012		-			18,424
Obligations of States and Political Subdivisions		-			-		-		-			-
Mortgage Backed Securities		326,335			-		326,335		-			326,335
Corporate Securities		54,661			8,982		45,679		-			54,661
Other		2,312			2,002		310		-			2,312
Total Investment Securities Available-for-Sale		401,732			24,396		377,336		-			401,732
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,866			-		54,736		13,723			68,459
Mortgage Backed Securities		-			-		-		-			-
Other		2,474			-		2,474		-			2,474
Total Investment Securities Held-to-Maturity		70,340			-		57,210		13,723			70,933
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		421,538			-		-		421,007			421,007
Agricultural Real Estate		355,256			-		-		358,283			358,283
Real Estate Construction		80,357			-		-		80,700			80,700
Residential 1st Mortgages		159,324			-		-		163,038			163,038
Home Equity Lines and Loans		31,716			-		-		33,854			33,854
Agricultural		220,454			-		-		219,426			219,426
Commercial		172,571			-		-		172,661			172,661
Consumer & Other		4,688			-		-		4,747			4,747
Leases		21,047							20,743			20,743
Unallocated Allowance		(1,532	)		-		-		(1,532	)		(1,532	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,465,419			-		-		1,472,927			1,472,927
Accrued Interest Receivable		7,684			-		7,684		-			7,684
Liabilities:
Deposits:
Demand		499,133			499,133		-		-			499,133
Interest Bearing Transaction		313,879			313,878		-		-			313,878
Savings and Money Market		630,194			630,195		-		-			630,195
Time		418,829			-		418,969		-			418,969
Total Deposits		1,862,035			1,443,206		418,969		-			1,862,175
FHLB Advances & Securities Sold Under Agreement to Repurchase		12,000			-		12,000		-			12,000
Subordinated Debentures		10,310			-		6,222		-			6,222
Accrued Interest Payable		349			-		349		-			349

Fair value estimates presented herein are based on pertinent information available to management as of June 30, 2015, December 31, 2014, and June 30, 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purpose of these financial statements since that date, and; therefore, current estimates of fair value may differ significantly from the amounts presented above. The methods and assumptions used to estimate the fair value of each class of financial instrument listed in the table above are explained below.

Cash and Cash Equivalents - The carrying amounts reported in the balance sheet for cash and due from banks, interest bearing deposits with banks, federal funds sold, and securities purchased under agreements to resell are a reasonable estimate of fair value. All cash and cash equivalents are classified as Level 1.

Investment Securities - Fair values for investment securities 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. Based on the available market information the classification level could be 1, 2, or 3.

Federal Home Loan Bank Stock - It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans & Leases, Net of Deferred Fees & Allowance - Fair values of loans & leases are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans & leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans & leases with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans & leases are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans & leases do not necessarily represent an exit price.

Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-maturity certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

FHLB Advances & Securities Sold Under Agreement to Repurchase - The fair value of federal funds purchased and other short-term borrowings is approximated by the book value resulting in a Level 2 classification. The fair value for Federal Home Loan Bank advances is determined using discounted future cash flows resulting in a Level 2 classification.

Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable - The carrying amount of accrued interest receivable and payable approximates their fair value resulting in a Level 2 classification.

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Dividends and Basic Earnings Per Common Share

6 Months Ended

Jun. 30, 2015

Dividends and Basic Earnings Per Common Share [Abstract]

Dividends and Basic Earnings Per Common Share

6. Dividends and Basic Earnings Per Common Share

Farmers & Merchants Bancorp common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. On May 18, 2015, the Board of Directors of Farmers & Merchants Bancorp announced a mid-year cash dividend of $6.40 per share, a 1.6% increase over the $6.30 per share paid on July 1, 2014. The cash dividend was paid on July 1, 2015, to shareholders of record on June 9, 2015.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The following table calculates the basic earnings per common share for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30				Six Months Ended June 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	6,749	$	6,104	$	13,152	$	12,386
Weighted Average Number of Common Shares Outstanding		785,782		777,882		785,575		777,882
Basic Earnings Per Common Share Amount	$	8.59	$	7.84	$	16.74	$	15.92

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2015

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

8. Recent Accounting Pronouncements

In January, 2014, the FASB issued Accounting Standards Update (ASU) 2014-04 - Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This Update clarifies when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The objective of the amendments in this Update is to reduce diversity in practice. An in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operation, cash flows, or disclosure.

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts, including leases and insurance contracts, are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. The amendments also require expanded disclosures concerning the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied retrospectively. Early application is not permitted. On July 9, 2015, the FASB approved a one year deferral on the effective date of this revised standard. Management is currently evaluating the impact of adoption.

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Loans & Leases and Allowance for Credit Losses, Loans by Class Modified as Troubled Debt Restructured Loans (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Dec. 31, 2014 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Specific reserves	$ 1,100,000	$ 1,100,000	$ 1,100,000	$ 1,100,000	$ 1,300,000
Troubled debt restructured loans	6,500,000	6,200,000	6,500,000	6,200,000	6,600,000
Commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings	$ 0	$ 0	$ 0	$ 0	$ 0
Period of modifications involving a reduction of stated interest rate of the loan			10 years
Period of modifications involving extension of maturity date			10 years
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	0	3	1	6	11
Pre-Modification Outstanding Recorded Investment	$ 0	$ 116,000	$ 131,000	$ 395,000	$ 1,012,000
Post-Modification Outstanding Recorded Investment	0	102,000	119,000	379,000	950,000
Increase in allowance for credit losses due to TDR	0		114,000		28,000
TDR's charge-offs	$ 0	$ 14,000	$ 12,000	$ 17,000	$ 63,000
Number of loans modified as troubled debt restructurings with subsequent payment defaults | Loan	0	0	0	0	0
Period after which loan is considered to be in payment default			90 days	90 days	90 days
Minimum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications involving a reduction of stated interest rate of the loan				5 years	4 years
Period of modifications involving extension of maturity date				5 years	6 months
Maximum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications involving a reduction of stated interest rate of the loan				30 years	30 years
Period of modifications involving extension of maturity date				30 years	30 years
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructured loans	$ 4,800,000	$ 4,200,000	$ 4,800,000	$ 4,200,000	$ 5,000,000
Residential 1st Mortgages [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan		1		3	5
Pre-Modification Outstanding Recorded Investment		$ 69,000		$ 316,000	$ 857,000
Post-Modification Outstanding Recorded Investment		$ 60,000		$ 305,000	$ 804,000
Home Equity Lines & Loans [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan		2		3	3
Pre-Modification Outstanding Recorded Investment		$ 47,000		$ 79,000	$ 98,000
Post-Modification Outstanding Recorded Investment		$ 42,000		$ 74,000	$ 89,000
Agricultural [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan					1
Pre-Modification Outstanding Recorded Investment					$ 32,000
Post-Modification Outstanding Recorded Investment					$ 32,000
Commercial [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	0		1		1
Pre-Modification Outstanding Recorded Investment	$ 0		$ 131,000		$ 18,000
Post-Modification Outstanding Recorded Investment	$ 0		$ 119,000		$ 18,000
Consumer & Other [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan					1
Pre-Modification Outstanding Recorded Investment					$ 7,000
Post-Modification Outstanding Recorded Investment					$ 7,000

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Measurements [Abstract]

Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	11,121	$	-	$	11,121	$	-
US Treasury Notes		80,238		-		80,238		-
Mortgage Backed Securities		259,580		-		259,580		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	351,424	$	175	$	351,249	$	-

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	78,109	$	10,005	$	68,104	$	-
Mortgage Backed Securities		287,948		-		287,948		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	366,542	$	10,180	$	356,362	$	-

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	18,424	$	13,412	$	5,012	$	-
Mortgage Backed Securities		326,335		-		326,335		-
Corporate Securities		54,661		8,982		45,679		-
Other		2,312		2,002		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	401,732	$	24,396	$	377,336	$	-

Information about Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following tables present information about the Company’s other real estate and impaired loans or leases, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2015, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgage	$	337	$	-	$	-	$	337
Home Equity Lines and Loans		128		-		-		128
Agricultural		313		-		-		313
Commercial		807		-		-		807
Consumer		6						6
Total Impaired Loans		1,591		-		-		1,591
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Total Other Real Estate		2,441		-		-		2,441
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	4,032	$	-	$	-	$	4,032

			Fair Value Measurements At December 31, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	90	$	-	$	-	$	90
Residential 1st Mortgage		748		-		-		748
Home Equity Lines and Loans		759		-		-		759
Agricultural		346		-		-		346
Commercial		3,832		-		-		3,832
Consumer		6						6
Total Impaired Loans		5,781		-		-		5,781
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		858		-		-		858
Total Other Real Estate		3,299		-		-		3,299
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	9,080	$	-	$	-	$	9,080

			Fair Value Measurements At June 30, 2014, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Residential 1st Mortgages	$	354	$	-	$	-	$	354
Home Equity Lines and Loans		729		-		-		729
Agricultural		354		-		-		354
Commercial		807		-		-		807
Total Impaired Loans		2,244		-		-		2,244
Other Real Estate
Real Estate Construction		2,441		-		-		2,441
Agricultural Real Estate		853		-		-		853
Total Other Real Estate		3,294		-		-		3,294
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,538	$	-	$	-	$	5,538

Quantitative Information about Level 3 Fair Value Measurements for Financial Instruments Measured at Fair Value on a Nonrecurring Basis

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	337	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	128	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	313	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	807	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	6	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

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Investment Securities, Contract Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Amortized Cost [Abstract]
Within one year	$ 10,482
After one year through five years	71,151
After five years through ten years	10,127
After ten years	0
Amortized cost, excluding investment securities not due at a single maturity date	91,760
Investment securities not due at a single maturity date, mortgage-backed securities	256,849
Amortized cost	348,609
Fair/Book Value [Abstract]
Within one year	10,488
After one year through five years	71,242
After five years through ten years	10,114
After ten years	0
Fair/Book value, excluding investment securities not due at a single maturity date	91,844
Investment securities not due at a single maturity date, mortgage-backed securities	259,580
Fair/Book value	351,424	$ 366,542	$ 401,732
Book Value [Abstract]
Within one year	2,731
After one year through five years	18,364
After five years through ten years	9,097
After ten years	37,209
Book value, excluding investment securities not due at a single maturity date	67,401
Investment securities not due at a single maturity date, mortgage-backed securities	0
Book value	67,401	63,863	70,340
Fair Value [Abstract]
Within one year	2,733
After one year through five years	18,462
After five years through ten years	9,166
After ten years	37,105
Fair value, excluding investment securities not due at a single maturity date	67,466
Investment securities not due at a single maturity date, mortgage-backed securities	0
Fair value	$ 67,466	$ 64,635	$ 70,933

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Comprehensive Income (Unaudited) [Abstract]
Net Income	$ 6,749	$ 6,104	$ 13,152	$ 12,386
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities	(3,177)	4,633	(1,550)	7,681
Deferred Tax Benefit (Expense) Related to Unrealized Gains	1,335	(1,947)	651	(3,229)
Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income	(5)	(31)	(6)	(34)
Deferred Tax Benefit Related to Reclassification Adjustment	4	12	3	14
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities, Net of Tax	(1,843)	2,667	(902)	4,432
Total Other Comprehensive (Loss) Income	(1,843)	2,667	(902)	4,432
Comprehensive Income	$ 4,906	$ 8,771	$ 12,250	$ 16,818

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Investment Securities

6 Months Ended

Jun. 30, 2015

Investment Securities [Abstract]

Investment Securities

2. Investment Securities

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

(in thousands):

	Amortized		Gross Unrealized				Fair/Book
June 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	11,063	$	58	$	-	$	11,121
US Treasury Notes		80,212		85		59		80,238
Mortgage Backed Securities (1)		256,849		3,812		1,081		259,580
Other		485		-		-		485
Total	$	348,609	$	3,955	$	1,140	$	351,424

	Amortized		Gross Unrealized				Fair/Book
December 31, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	78,051	$	61	$	3	$	78,109
Mortgage Backed Securities (1)		283,636		4,969		657		287,948
Other		485		-		-		485
Total	$	362,172	$	5,030	$	660	$	366,542

	Amortized		Gross Unrealized				Fair/Book
June 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	18,230	$	194	$	-	$	18,424
Mortgage Backed Securities (1)		323,518		5,688		2,871		326,335
Corporate Securities		54,283		393		15		54,661
Other		2,312		-		-		2,312
Total	$	398,343	$	6,275	$	2,886	$	401,732

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

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

	Book		Gross Unrealized				Fair
June 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	65,270	$	278	$	213	$	65,335
Other		2,131		-		-		2,131
Total	$	67,401	$	278	$	213	$	67,466

	Book		Gross Unrealized				Fair
December 31, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	61,716	$	782	$	10	$	62,488
Other		2,147		-		-		2,147
Total	$	63,863	$	782	$	10	$	64,635

	Book		Gross Unrealized				Fair
June 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,866	$	683	$	90	$	68,459
Other		2,474		-		-		2,474
Total	$	70,340	$	683	$	90	$	70,933

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.

In June 2014, the Company sold $375,000 of municipal bonds from a single issuer. The Company took this action under the provisions of ASC 320-10-25-6(a), which allow for the sale of HTM securities where there is “evidence of a significant deterioration in the issuer’s creditworthiness.” The resulting income statement impact was not material.

The amortized cost and estimated fair values of investment securities at June 30, 2015 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	10,482	$	10,488	$	2,731	$	2,733
After one year through five years		71,151		71,242		18,364		18,462
After five years through ten years		10,127		10,114		9,097		9,166
After ten years		-		-		37,209		37,105
		91,760		91,844		67,401		67,466
Investment securities not due at a single maturity date:
Mortgage Backed Securities		256,849		259,580		-		-
Total	$	348,609	$	351,424	$	67,401	$	67,466

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

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

	Less Than 12 Months				12 Months or More				Total
June 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	35,117	$	59	$	-	$	-	$	35,117	$	59
Mortgage Backed Securities		42,839		942		7,796		139		50,635		1,081
Total	$	77,956	$	1,001	$	7,796	$	139	$	85,752	$	1,140
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	16,083	$	213	$	-	$	-	$	16,083	$	213
Total	$	16,083	$	213	$	-	$	-	$	16,083	$	213

	Less Than 12 Months				12 Months or More				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	66,980	$	3	$	-	$	-	$	66,980	$	3
Mortgage Backed Securities		14,487		151		33,574		506		48,061		657
Total	$	81,467	$	154	$	33,574	$	506	$	115,041	$	660
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	849	$	5	$	876	$	5	$	1,725	$	10
Total	$	849	$	5	$	876	$	5	$	1,725	$	10

	Less Than 12 Months				12 Months or More				Total
June 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	-	$	-	$	92,992	$	2,871		92,992	$	2,871
Corporate Securities		8,390		4		2,738		11		11,128		15
Total	$	8,390	$	4	$	95,730	$	2,882	$	104,120	$	2,886
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90
Total	$	4,740	$	32	$	5,137	$	58	$	9,877	$	90

As of June 30, 2015, the Company held 249 investment securities of which 51 were in a loss position for less than twelve months and 1 security was in a loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – There were no unrealized losses on the Company’s investment in securities of government agency and government sponsored entities at June 30, 2015 and June 30, 2014. The unrealized losses on the Company’s investment in securities of government agency and government sponsored entities at December 31, 2014 were $3,000. The unrealized losses were caused by interest rate fluctuations. Repayment of these investments is guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2014.

Mortgage Backed Securities – At June 30, 2015, seven mortgage backed security investments were in a loss position for less than 12 months and one was in a loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage backed securities were $1.08 million, $657,000, and $2.9 million at June 30, 2015, December 31, 2014, and June 30, 2014, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Obligations of States and Political Subdivisions - At June 30, 2015, forty obligations of states and political subdivisions were in a loss position for less than 12 months. None were in a loss position for 12 months or more.  As of June 30, 2015, over ninety-eight percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the two percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $213,000, $10,000, and $90,000 at June 30, 2015, December 31, 2014 and June 30, 2014, respectively. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were primarily caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Corporate Securities - The Company did not hold any corporate securities at June 30, 2015 or December 31, 2014. The unrealized losses on the Company’s investment in corporate securities at June 30, 2014 were $15,000. Changes in the prices of corporate securities are primarily influenced by: (1) changes in market interest rates; (2) changes in perceived credit risk in the general economy or in particular industries; (3) changes in the perceived credit risk of a particular company; and (4) day to day trading supply, demand and liquidity.

US Treasury Notes – At June 30, 2015, four US treasury notes were in a loss position for less than 12 months. None were in a loss position for 12 months or more. The unrealized losses on the Company's investments in US treasury notes were $59,000 at June 30, 2015. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2015. The Company did not hold any US treasury notes at December 31, 2014 or June 30, 2014.

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	4,060	$	6,969	$	4,535	$	9,917
Gains		5		31		6		34
Losses		-		-		-		-

Pledged Securities

As of June 30, 2015, securities carried at $189.5 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $178.8 million at December 31, 2014, and $329.0 million at June 30, 2014.

The decrease in pledged securities since June 30, 2014 was due to the Company’s use of a $165 million standby Letter of Credit (“LC”) issued by the FHLB as collateral for Public Deposits. The LC was issued December 4, 2014, and matures December 2, 2016, with a maintenance fee of 10 basis points per annum.

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Investment Securities, Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Security	Dec. 31, 2014 USD ($)	Jun. 30, 2014 USD ($)
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 77,956	$ 81,467	$ 8,390
Less than 12 months, unrealized loss	1,001	154	4
12 months or more, fair value	7,796	33,574	95,730
12 months or more, unrealized loss	139	506	2,882
Total, fair value	85,752	115,041	104,120
Total, unrealized loss	$ 1,140	660	2,886
Number of investment securities held | Security	249
Less than 12 months, number of positions | Security	51
12 months or more, number of positions | Security	1
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 16,083	849	4,740
Less than 12 months, unrealized loss	213	5	32
12 months or more, fair value	0	876	5,137
12 months or more, unrealized loss	0	5	58
Total, fair value	16,083	1,725	9,877
Total, unrealized loss	213	10	90
Government Agency & Government Sponsored Entities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value		66,980
Less than 12 months, unrealized loss		3
12 months or more, fair value		0
12 months or more, unrealized loss		0
Total, fair value		66,980
Total, unrealized loss		3
US Treasury Notes [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	35,117
Less than 12 months, unrealized loss	59
12 months or more, fair value	0
12 months or more, unrealized loss	0
Total, fair value	35,117
Total, unrealized loss	$ 59
Less than 12 months, number of positions | Security	4
12 months or more, number of positions | Security	0
Mortgage Backed Securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 42,839	14,487	0
Less than 12 months, unrealized loss	942	151	0
12 months or more, fair value	7,796	33,574	92,992
12 months or more, unrealized loss	139	506	2,871
Total, fair value	50,635	48,061	92,992
Total, unrealized loss	$ 1,081	657	2,871
Less than 12 months, number of positions | Security	7
12 months or more, number of positions | Security	1
Corporate Securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value			8,390
Less than 12 months, unrealized loss			4
12 months or more, fair value			2,738
12 months or more, unrealized loss			11
Total, fair value			11,128
Total, unrealized loss			15
Obligations of States and Political Subdivisions [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 16,083	849	4,740
Less than 12 months, unrealized loss	213	5	32
12 months or more, fair value	0	876	5,137
12 months or more, unrealized loss	0	5	58
Total, fair value	16,083	1,725	9,877
Total, unrealized loss	$ 213	$ 10	$ 90
Less than 12 months, number of positions | Security	40
12 months or more, number of positions | Security	0
Municipal Bonds [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Percentage of bank qualified municipal bond portfolio rated (in hundredths)	98.00%
Percentage of portfolio not rated (in hundredths)	2.00%

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Dividends and Basic Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Earnings per share for the period [Abstract]
Net Income	$ 6,749	$ 6,104	$ 13,152	$ 12,386
Weighted Average Number of Common Shares Outstanding (in shares)	785,782	777,882	785,575	777,882
Basic Earnings Per Common Share Amount (in dollars per share)	$ 8.59	$ 7.84	$ 16.74	$ 15.92
Mid-Year Cash Dividend 2015 [Member]
Dividends Payable [Line Items]
Dividends payable, date declared			May 18, 2015
Dividends on common stock (in dollars per share)			$ 6.40
Dividends payable, date of record			Jun. 09, 2015
Dividends payable, date paid			Jul. 01, 2015
Percentage increase in cash dividend per share (in hundredth)			1.60%
Mid-Year Cash Dividend 2014 [Member]
Dividends Payable [Line Items]
Dividends on common stock (in dollars per share)				$ 6.20
Dividends payable, date paid				Jul. 01, 2014

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Loans & Leases and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2015

Loans & Leases and Allowance for Credit Losses [Abstract]

Allocation of Allowance for Credit Losses by Portfolio Segment and by Impairment Methodology

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

June 30, 2015	Commercial Real Estate			Agricultural  Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2015	$	7,842		$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Charge-Offs		-			-		-		-			-			-			(12	)		(34	)		-		-			(46	)
Recoveries		2,939			-		-		2			47			3			4			37			-		-			3,032
Provision		(2,190	)		3,087		508		(293	)		(400	)		(1,061	)		691			(4	)		321		(9	)		650
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2015	$	7,954		$	6,901	$	1,916	$	673		$	2,096		$	4,602		$	8,941		$	212		$	2,499	$	3,146		$	38,940
Charge-Offs		-			-		-		-			-			-			-			(17	)		-		-			(17	)
Recoveries		1			-		-		2			42			2			2			15			-		-			64
Provision		636			371		261		56			(65	)		442			(65	)		7			33		(1,626	)		50
Ending Balance- June 30, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Ending Balance Individually Evaluated for Impairment		61			-		-		71			49			129			887			34			-		-			1,231
Ending Balance Collectively Evaluated for Impairment		8,530			7,272		2,177		660			2,024			4,917			7,991			183			2,532		1,520			37,806
Loans & Leases:
Ending Balance	$	570,173		$	373,324	$	116,983	$	189,039		$	31,327		$	225,795		$	256,386		$	4,984		$	50,631	$	-		$	1,818,642
Ending Balance Individually Evaluated for Impairment		4,163			-		4,335		2,055			1,541			454			4,819			40			-		-			17,407
Ending Balance Collectively Evaluated for Impairment	$	566,010		$	373,324	$	112,648	$	186,984		$	29,786		$	225,341		$	251,567		$	4,944		$	50,631	$	-		$	1,801,235

December 31, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697		$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(73	)		(70	)		-			(1	)		(132	)		-		-			(276	)
Recoveries		11		-		-		-			58			8			86			65			-		-			228
Provision		2,653		609		1,015		(13	)		(329	)		(6,109	)		2,413			109			1,572		(745	)		1,175
Ending Balance- December 31, 2014	$	7,842	$	4,185	$	1,669	$	1,022		$	2,426		$	6,104		$	8,195		$	218		$	2,211	$	1,529		$	35,401
Ending Balance Individually Evaluated for Impairment		377		-		-		422			329			114			914			41			-		-			2,197
Ending Balance Collectively Evaluated for Impairment		7,465		4,185		1,669		600			2,097			5,990			7,281			177			2,211		1,529			33,204
Loans & Leases:
Ending Balance	$	491,903	$	357,207	$	96,519	$	171,880		$	33,017		$	281,963		$	230,819		$	4,719		$	44,217	$	-		$	1,712,244
Ending Balance Individually Evaluated for Impairment		20,066		-		4,386		2,108			1,643			461			4,874			46			-		-			33,584
Ending Balance Collectively Evaluated for Impairment	$	471,837	$	357,207	$	92,133	$	169,772		$	31,374		$	281,502		$	225,945		$	4,673		$	44,217	$	-		$	1,678,660

June 30, 2014	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2014	$	5,178	$	3,576	$	654	$	1,108		$	2,767		$	12,205		$	5,697	$	176		$	639	$	2,274		$	34,274
Charge-Offs		-		-		-		(33	)		(65	)		-			-		(45	)		-		-			(143	)
Recoveries		-		-		-		-			51			2			77		29			-		-			159
Provision		1,813		101		636		19			(16	)		(3,916	)		1,603		33			469		(742	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2014	$	6,426	$	3,387	$	1,077	$	1,100		$	2,648		$	9,601		$	6,426	$	171		$	921	$	2,520		$	34,277
Charge-Offs		-		-		-		(30	)		(65	)		-			-		(18	)		-		-			(113	)
Recoveries		-		-		-		-			39			1			72		14			-		-			126
Provision		565		290		213		24			115			(1,311	)		879		26			187		(988	)		-
Ending Balance- June 30, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Ending Balance Individually Evaluated for Impairment		218		-		241		329			315			118			807		45			-		-			2,073
Ending Balance Collectively Evaluated for Impairment		6,773		3,677		1,049		765			2,422			8,173			6,570		148			1,108		1,532			32,217
Loans & Leases:
Ending Balance	$	428,529	$	358,933	$	81,647	$	160,418		$	34,453		$	228,745		$	179,948	$	4,881		$	22,155	$	-		$	1,499,709
Ending Balance Individually Evaluated for Impairment		21,719		-		4,446		1,647			1,597			534			4,898		45			-		-			34,886
Ending Balance Collectively Evaluated for Impairment	$	406,810	$	358,933	$	77,201	$	158,771		$	32,856		$	228,211		$	175,050	$	4,836		$	22,155	$	-		$	1,464,823

Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings

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

June 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	561,370	$	8,088	$	715	$	570,173
Agricultural Real Estate		373,324		-		-		373,324
Real Estate Construction		115,320		1,663		-		116,983
Residential 1st Mortgages		187,663		739		637		189,039
Home Equity Lines & Loans		30,637		80		610		31,327
Agricultural		225,075		453		267		225,795
Commercial		240,190		12,680		3,516		256,386
Consumer & Other		4,737		-		247		4,984
Leases		50,631						50,631
Total	$	1,788,947	$	23,703	$	5,992	$	1,818,642

December 31, 2014	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	483,146	$	8,651	$	106	$	491,903
Agricultural Real Estate		357,207		-		-		357,207
Real Estate Construction		94,887		1,632		-		96,519
Residential 1st Mortgages		170,462		744		674		171,880
Home Equity Lines and Loans		32,054		85		878		33,017
Agricultural		281,232		679		52		281,963
Commercial		211,036		18,143		1,640		230,819
Consumer & Other		4,449		-		270		4,719
Leases		44,217		-		-		44,217
Total	$	1,678,690	$	29,934	$	3,620	$	1,712,244

June 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	417,627	$	10,780	$	122	$	428,529
Agricultural Real Estate		358,933		-		-		358,933
Real Estate Construction		80,015		1,632		-		81,647
Residential 1st Mortgages		159,098		759		561		160,418
Home Equity Lines & Loans		33,717		-		736		34,453
Agricultural		227,891		785		69		228,745
Commercial		157,709		20,557		1,682		179,948
Consumer & Other		4,622		-		259		4,881
Leases		22,155		-		-		22,155
Total	$	1,461,767	$	34,513	$	3,429	$	1,499,709

Aging Analysis of Loan & Lease Portfolio by Time Past Due

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

(in thousands):

June 30, 2015	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	715	$	715	$	569,458	$	570,173
Agricultural Real Estate		-		-		-		-		-		373,324		373,324
Real Estate Construction		-		-		-		-		-		116,983		116,983
Residential 1st Mortgages		-		196		-		72		268		188,771		189,039
Home Equity Lines & Loans		-		-		-		576		576		30,751		31,327
Agricultural		-		-		-		11		11		225,784		225,795
Commercial		-		-		-		1,559		1,559		254,827		256,386
Consumer & Other		8		-		-		11		19		4,965		4,984
Leases		-		-		-		-		-		50,631		50,631
Total	$	8	$	196	$	-	$	2,944	$	3,148	$	1,815,494	$	1,818,642

December 31, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	491,903	$	491,903
Agricultural Real Estate		-		-		-		-		-		357,207		357,207
Real Estate Construction		-		-		-		-		-		96,519		96,519
Residential 1st Mortgages		-		-		-		77		77		171,803		171,880
Home Equity Lines and Loans		79		-		-		576		655		32,362		33,017
Agricultural		-		-		-		18		18		281,945		281,963
Commercial		-		-		-		1,586		1,586		229,233		230,819
Consumer & Other		10		-		-		13		23		4,696		4,719
Leases		-		-		-		-		-		44,217		44,217
Total	$	89	$	-	$	-	$	2,270	$	2,359	$	1,709,885	$	1,712,244

June 30, 2014	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	428,529	$	428,529
Agricultural Real Estate		-		-		-		-		-		358,933		358,933
Real Estate Construction		-		-		-		-		-		81,647		81,647
Residential 1st Mortgages		-		-		-		289		289		160,129		160,418
Home Equity Lines & Loans		-		-		-		576		576		33,877		34,453
Agricultural		-		-		-		26		26		228,719		228,745
Commercial		-		-		-		1,613		1,613		178,335		179,948
Consumer & Other		72		-		-		15		87		4,794		4,881
Leases		-		-		-		-		-		22,155		22,155
Total	$	72	$	-	$	-	$	2,519	$	2,591	$	1,497,118	$	1,499,709

Impaired Loans & Leases

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

							Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
June 30, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	802	$	802	$	-	$	497	$	2	$	297	$	4
Residential 1st Mortgages		564		628		-		567		4		426		8
Home Equity Lines & Loans		620		660		-		641		-		486		1
Agricultural		11		24		-		13		-		10		-
Commercial		3,125		3,125		-		1,587		27		806		28
	$	5,122	$	5,239	$	-	$	3,305	$	33	$	2,025	$	41
With an allowance recorded:
Residential 1st Mortgages	$	355	$	426	$	18		357	$	4		503		8
Home Equity Lines & Loans		137		155		7		138		1		342		2
Agricultural		443		443		129		443		7		448		14
Commercial		1,694		1,804		887		3,244		2		4,006		27
Consumer & Other		40		46		34		42		1		44		2
	$	2,669	$	2,874	$	1,075	$	4,224	$	15	$	5,343	$	53
Total	$	7,791	$	8,113	$	1,075	$	7,529	$	48	$	7,368	$	94

December 31, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average  Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	-	$	-	$	-	$	49	$	4
Home Equity Lines and Loans		-		-		-		169		-
Agricultural		-		-		-		15		-
Commercial		-		-		-		1,620		54
	$	-	$	-	$	-	$	1,853	$	58
With an allowance recorded:
Commercial Real Estate	$	92	$	92	$	2	$	47	$	4
Residential 1st Mortgages		937		1,069		187		612		9
Home Equity Lines and Loans		951		1,020		190		803		10
Agricultural		461		473		114		473		28
Commercial		4,742		4,813		910		3,182		54
Consumer & Other		46		51		41		46		2
	$	7,229	$	7,518	$	1,444	$	5,163	$	107
Total	$	7,229	$	7,518	$	1,444	$	7,016	$	165

							Three Months Ended June 30, 2014				Six Months Ended June 30, 2014
June 30, 2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	97	$	97	$	-	$	98	$	2	$	99	$	4
Home Equity Lines & Loans		-		-		-		339		-		339		-
Agricultural		27		37		-		30		-		32		-
Commercial		3,150		3,151		-		3,241		27		3,322		54
	$	3,274	$	3,285	$	-	$	3,708	$	29	$	3,792	$	58
With an allowance recorded:
Residential 1st Mortgages	$	442	$	527	$	89		427	$	1		509		2
Home Equity Lines & Loans		913		960		182		654		3		598		3
Agricultural		473		473		118		473		7		477		14
Commercial		1,613		1,657		807		1,620		-		1,627		-
Consumer & Other		45		49		45		47		-		48		1
	$	3,486	$	3,666	$	1,241	$	3,221	$	11	$	3,259	$	20
Total	$	6,760	$	6,951	$	1,241	$	6,929	$	40	$	7,051	$	78

Loans & Leases by Class Modified as Troubled Debt Restructured Loans

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2015 (in thousands):

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		-	$	-	$	-		1	$	131	$	119
Total		-	$	-	$	-		1	$	131	$	119

The following table presents loans or leases by class modified as TDRs for the period ended December 31, 2014 (in thousands):

	December 31, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		5	$	857	$	804
Home Equity Lines and Loans		3		98		89
Agricultural		1		32		32
Commercial		1		18		18
Consumer & Other		1		7		7
Total		11	$	1,012	$	950

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six-month periods ended June 30, 2014 (in thousands):

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	69	$	60		3	$	316	$	305
Home Equity Lines & Loans		2		47		42		3		79		74
Total		3	$	116	$	102		6	$	395	$	379