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 September 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 788,982 outstanding as of October 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 September 30, 2015, December 31, 2014 and September 30, 2014	3
	Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014	4
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014	5
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the Nine Months Ended September 30, 2015 and 2014	6
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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)
	Sept. 30, 2015		December 31, 2014		Sept. 30, 2014
Assets	(Unaudited)				(Unaudited)
Cash and Cash Equivalents:
Cash and Due from Banks	$	41,595	$	42,375	$	34,293
Interest Bearing Deposits with Banks		8,705		34,750		4,923
Total Cash and Cash Equivalents		50,300		77,125		39,216
Investment Securities:
Available-for-Sale		344,728		366,542		336,526
Held-to-Maturity		66,257		63,863		69,441
Total Investment Securities		410,985		430,405		405,967
Loans & Leases		1,910,270		1,712,244		1,615,771
Less: Allowance for Credit Losses		39,090		35,401		34,267
Loans & Leases, Net		1,871,180		1,676,843		1,581,504
Premises and Equipment, Net		26,856		25,821		24,927
Bank Owned Life Insurance		55,418		53,990		53,514
Interest Receivable and Other Assets		85,332		96,367		92,541
Total Assets	$	2,500,071	$	2,360,551	$	2,197,669
Liabilities
Deposits:
Demand	$	603,430	$	610,133	$	516,093
Interest Bearing Transaction		373,193		341,397		326,368
Savings and Money Market		672,052		644,260		614,137
Time		483,967		468,283		419,615
Total Deposits		2,132,642		2,064,073		1,876,213
Federal Home Loan Bank Advances		5,500		-		36,000
Subordinated Debentures		10,310		10,310		10,310
Interest Payable and Other Liabilities		100,495		52,990		47,910
Total Liabilities		2,248,947		2,127,373		1,970,433
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, 788,982, 784,082 and 777,882 Shares Issued and Outstanding at September 30, 2015, December 31, 2014 and September 30, 2014, Respectively		8		8		8
Additional Paid-In Capital		80,217		77,804		75,014
Retained Earnings		167,996		152,833		151,268
Accumulated Other Comprehensive Income		2,903		2,533		946
Total Shareholders' Equity		251,124		233,178		227,236
Total Liabilities and Shareholders' Equity	$	2,500,071	$	2,360,551	$	2,197,669

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 September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Interest Income
Interest and Fees on Loans & Leases	$	20,915	$	18,166		$	59,648	$	51,178
Interest on Deposits with Banks		36		5			159		110
Interest on Investment Securities:
Taxable		1,574		1,849			4,742		6,073
Exempt from Federal Tax		513		594			1,538		1,758
Total Interest Income		23,038		20,614			66,087		59,119
Interest Expense
Deposits		777		621			2,243		1,819
Borrowed Funds		-		5			-		5
Subordinated Debentures		83		82			244		242
Total Interest Expense		860		708			2,487		2,066
Net Interest Income		22,178		19,906			63,600		57,053
Provision for Credit Losses		-		-			650		-
Net Interest Income After Provision for Credit Losses		22,178		19,906			62,950		57,053
Non-Interest Income
Service Charges on Deposit Accounts		840		1,022			2,603		2,944
Net Gain on Sale of Investment Securities		266		4			272		38
Increase in Cash Surrender Value of Life Insurance		485		477			1,428		1,405
Debit Card and ATM Fees		808		797			2,389		2,322
Net Gain (Loss) on Deferred Compensation Investments		224		(37	)		773		1,493
Other		1,087		657			3,735		1,823
Total Non-Interest Income		3,710		2,920			11,200		10,025
Non-Interest Expense
Salaries and Employee Benefits		9,980		9,336			29,645		26,710
Net Gain (Loss) on Deferred Compensation Investments		224		(37	)		773		1,493
Occupancy		757		724			2,142		1,981
Equipment		786		714			2,294		2,117
FDIC Insurance		302		264			883		778
Other		2,439		1,541			5,730		4,137
Total Non-Interest Expense		14,488		12,542			41,467		37,216
Income Before Income Taxes		11,400		10,284			32,683		29,862
Provision for Income Taxes		4,360		3,852			12,491		11,044
Net Income	$	7,040	$	6,432		$	20,192	$	18,818
Basic Earnings Per Common Share	$	8.96	$	8.27		$	25.70	$	24.19

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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net Income	$	7,040		$	6,432		$	20,192		$	18,818
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities		2,460			(1,752	)		910			5,929
Deferred Tax Benefit (Expense) Related to Unrealized Gains		(1,033	)		736			(382	)		(2,493	)
Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income		(266	)		(4	)		(272	)		(38	)
Deferred Tax Benefit Related to Reclassification Adjustment		111			2			114			16
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities, Net of Tax		1,272			(1,018	)		370			3,414
Total Other Comprehensive (Loss) Income		1,272			(1,018	)		370			3,414
Comprehensive Income	$	8,312		$	5,414		$	20,562		$	22,232

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				-		-		18,818			-			18,818
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				-		-		-			3,414			3,414
Balance, September 30, 2014		777,882	$	8	$	75,014	$	151,268		$	946		$	227,236
Balance, January 1, 2015		784,082	$	8	$	77,804	$	152,833		$	2,533		$	233,178
Net Income				-		-		20,192			-			20,192
Cash Dividends Declared on														-
Common Stock ($6.40 per share)				-		-		(5,029	)		-			(5,029	)
Issuance of Common Stock		4,900		-		2,413		-			-			2,413
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax				-		-		-			370			370
Balance, September 30, 2015		788,982	$	8	$	80,217	$	167,996		$	2,903		$	251,124

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

6

FARMERS & MERCHANTS BANCORP
Consolidated Statements of Cash Flows (Unaudited)
	Nine Months Ended September 30,
(in thousands)	2015			2014
Operating Activities:
Net Income	$	20,192		$	18,818
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		650			-
Depreciation and Amortization		1,184			991
Net Amortization of Investment Security Premiums & Discounts		1,163			1,249
Net Gain on Sale of Investment Securities		(272	)		(38	)
Net Gain on Sale of Property & Equipment		(392	)		(15	)
Net Change in Operating Assets & Liabilities:
Net Increase in Interest Receivable and Other Assets		(1,245	)		(5,984	)
Net Increase (Decrease) in Interest Payable and Other Liabilities		60,303			(258	)
Net Cash Provided by Operating Activities		81,583			14,763
Investing Activities:
Purchase of Investment Securities Available-for-Sale		(134,407	)		(65,637	)
Proceeds from Sold, Matured or Called Securities Available-for-Sale		156,214			138,298
Purchase of Investment Securities Held-to-Maturity		(12,015	)		(15,660	)
Proceeds from Matured or Called Securities Held-to-Maturity		9,574			14,711
Net Loans & Leases Paid, Originated or Acquired		(198,093	)		(227,739	)
Principal Collected on Loans & Leases Previously Charged Off		3,106			197
Additions to Premises and Equipment		(2,498	)		(3,045	)
Proceeds from Sale of Property & Equipment		671			29
Net Cash Used by Investing Activities		(177,448	)		(158,846	)
Financing Activities:
Net Increase in Deposits		68,569			68,522
Net Changes in Other Borrowings		5,500			36,000
Cash Dividends		(5,029	)		(4,900	)
Net Cash Provided by Financing Activities		69,040			99,622
Decrease in Cash and Cash Equivalents		(26,825	)		(44,461	)
Cash and Cash Equivalents at Beginning of Period		77,125			83,677
Cash and Cash Equivalents at End of Period	$	50,300		$	39,216
Supplementary Data
Cash Payments Made for Income Taxes	$	5,175		$	10,900
Issuance of Common Stock to the Bank’s Non-Qualified Retirement Plans	$	2,413		$	-
Interest Paid	$	2,275		$	2,103

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 nine-month periods ended September 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' consolidated 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 September 30, 2015, December 31, 2014 or September 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		Gross Unrealized				Fair/Book
September 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	41,448	$	65	$	-	$	41,513
US Treasury Notes		30,069		231		-		30,300
Mortgage Backed Securities (1)		251,483		5,024		312		256,195
Corporate Securities		16,235		-		-		16,235
Other		485		-		-		485
Total	$	339,720	$	5,320	$	312	$	344,728
	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
September 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	13,220	$	141	$	-	$	13,361
Mortgage Backed Securities (1)		321,187		3,936		2,443		322,680
Other		485		-		-		485
Total	$	334,892	$	4,077	$	2,443	$	336,526

⁽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.

14

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
September 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	64,134	$	658	$	26	$	64,766
Other		2,123		-		-		2,123
Total	$	66,257	$	658	$	26	$	66,889
	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
September 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,206	$	725	$	17	$	67,914
Other		2,235		-		-		2,235
Total	$	69,441	$	725	$	17	$	70,149

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

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

	Available-for-Sale				Held-to-Maturity
September 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	26,719	$	26,722	$	2,124	$	2,123
After one year through five years		61,518		61,811		15,386		15,462
After five years through ten years		-		-		9,286		9,382
After ten years		-		-		39,461		39,922
		88,237		88,533		66,257		66,889
Investment securities not due at a single maturity date:
Mortgage Backed Securities		251,483		256,195		-		-
Total	$	339,720	$	344,728	$	66,257	$	66,889

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.

15

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
September 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Total	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,991	$	26	$	-	$	-	$	1,991	$	26
Total	$	1,991	$	26	$	-	$	-	$	1,991	$	26
	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
September 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	62,825	$	240	$	64,968	$	2,203		127,793	$	2,443
Total	$	62,825	$	240	$	64,968	$	2,203	$	127,793	$	2,443
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17
Total	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17

As of September 30, 2015, the Company held 261 investment securities of which 10 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 September 30, 2015 and September 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 September 30, 2015, five 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 $312,000, $657,000, and $2.4 million at September 30, 2015, December 31, 2014, and September 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 September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

Obligations of States and Political Subdivisions - At September 30, 2015, five 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 September 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 $26,000, $10,000, and $17,000 at September 30, 2015, December 31, 2014 and September 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 September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

Corporate Securities - There were no unrealized losses on the Company’s investments in corporate securities at September 30, 2015.  The Company did not hold any corporate securities December 31, 2014 or September 30, 2014. 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 – There were no unrealized losses on the Company’s investments in US treasury notes at September 30, 2015. The Company did not hold any US treasury notes at December 31, 2014 or September 30, 2014.

Proceeds from sales and calls of securities were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	53,465	$	85,433	$	58,000	$	95,349
Gains		266		811		272		845
Losses		-		807		-		807

17

Pledged Securities

As of September 30, 2015, securities carried at $197.8 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $178.8 million at December 31, 2014, and $360.0 million at September 30, 2014.

The decrease in pledged securities since September 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):

September 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	)		(55	)		-		-			(67	)
Recoveries		2,939			-		-		4			85			3			24			51			-		-			3,106
Provision		(1,536	)		3,295		719		(274	)		(356	)		(969	)		38			2			860		(1,129	)		650
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Charge-Offs		-			-		-		-			-			-			-			(21	)		-		-			(21	)
Recoveries		-			-		-		3			37			1			20			13			-		-			74
Provision		654			208		211		18			45			91			(653	)		7			539		(1,120	)		-
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Ending Balance Individually Evaluated for Impairment		61			-		-		70			35			120			879			31			-		-			1,196
Ending Balance Collectively Evaluated for Impairment		9,184			7,480		2,388		682			2,120			5,018			7,366			185			3,071		400			37,894
Loans & Leases:
Ending Balance	$	558,743		$	432,610	$	161,762	$	196,893		$	31,833		$	249,783		$	210,491		$	6,735		$	61,420	$	-		$	1,910,270
Ending Balance Individually Evaluated for Impairment		4,120			-		4,307		2,036			1,264			630			4,797			37			-		-			17,191
Ending Balance Collectively Evaluated for Impairment	$	554,623		$	432,610	$	157,455	$	194,857		$	30,569		$	249,153		$	205,694		$	6,698		$	61,420	$	-		$	1,893,079

18

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

September 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		-		-		-		(58	)		(70	)		-			-		(76	)		-		-			(204	)
Recoveries		12		-		-		-			54			3			83		45			-		-			197
Provision		2,608		370		1,026		92			(76	)		(6,426	)		2,135		76			1,206		(1,011	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Charge-Offs		-		-		-		(25	)		(5	)		-			-		(31	)		-		-			(61	)
Recoveries		12		-		-		-			3			1			6		16			-		-			38
Provision		795		269		390		73			(60	)		(2,510	)		532		43			737		(269	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Ending Balance Individually Evaluated for Impairment		190		-		239		370			328			120			912		42			-		-			2,201
Ending Balance Collectively Evaluated for Impairment		7,608		3,946		1,441		772			2,347			5,662			7,003		179			1,845		1,263			32,066
Loans & Leases:
Ending Balance	$	473,505	$	364,161	$	104,463	$	168,310		$	33,283		$	237,521		$	192,804	$	4,816		$	36,908	$	-		$	1,615,771
Ending Balance Individually Evaluated for Impairment		20,175		-		4,419		1,847			1,658			518			4,877		42			-		-			33,536
Ending Balance Collectively Evaluated for Impairment		453,330		364,161		100,044		166,463			31,625			237,003			187,927		4,774			36,908		-			1,582,235

19

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $9.3 million at September 30, 2015, $26.4 million at December 31, 2014 and $26.6 million at September 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):

September 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	550,011	$	8,038	$	694	$	558,743
Agricultural Real Estate		432,610		-		-		432,610
Real Estate Construction		160,133		1,629		-		161,762
Residential 1st Mortgages		195,477		733		683		196,893
Home Equity Lines & Loans		31,149		78		606		31,833
Agricultural		249,116		437		230		249,783
Commercial		197,193		9,752		3,546		210,491
Consumer & Other		6,461		-		274		6,735
Leases		61,420		-		-		61,420
Total	$	1,883,570	$	20,667	$	6,033	$	1,910,270

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

September 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	464,714	$	8,683	$	108	$	473,505
Agricultural Real Estate		364,161		-		-		364,161
Real Estate Construction		102,831		1,632		-		104,463
Residential 1st Mortgages		166,884		752		674		168,310
Home Equity Lines & Loans		32,309		88		886		33,283
Agricultural		236,760		695		66		237,521
Commercial		168,215		22,929		1,660		192,804
Consumer & Other		4,520		-		296		4,816
Leases		36,908		-		-		36,908
Total	$	1,577,302	$	34,779	$	3,690	$	1,615,771

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 rated doubtful or loss at September 30, 2015, December 31, 2014, and September 30, 2014.

20

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

(in thousands):

September 30, 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	$	-	$	-	$	-	$	696	$	696	$	558,047	$	558,743
Agricultural Real Estate		-		-		-		-		-		432,610		432,610
Real Estate Construction		-		-		-		-		-		161,762		161,762
Residential 1st Mortgages		74		196		-		68		338		196,555		196,893
Home Equity Lines & Loans		150		-		-		576		726		31,107		31,833
Agricultural		-		-		-		8		8		249,775		249,783
Commercial		-		-		-		1,545		1,545		208,946		210,491
Consumer & Other		6		-		-		11		17		6,718		6,735
Leases		-		-		-		-		-		61,420		61,420
Total	$	230	$	196	$	-	$	2,904	$	3,330	$	1,906,940	$	1,910,270

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

September 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	$	-	$	-	$	-	$	-	$	-	$	473,505	$	473,505
Agricultural Real Estate		-		-		-		-		-		364,161		364,161
Real Estate Construction		-		-		-		-		-		104,463		104,463
Residential 1st Mortgages		-		-		-		283		283		168,027		168,310
Home Equity Lines & Loans		92		-		-		575		667		32,616		33,283
Agricultural		-		-		-		25		25		237,496		237,521
Commercial		-		-		-		1,600		1,600		191,204		192,804
Consumer & Other		12		-		-		14		26		4,790		4,816
Leases		-		-		-		-		-		36,908		36,908
Total	$	104	$	-	$	-	$	2,497	$	2,601	$	1,613,170	$	1,615,771

21

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

							Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
September 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	$	821	$	821	$	-	$	812	$	2	$	468	$	6
Residential 1st Mortgages		557		623		-		561		4		471		12
Home Equity Lines & Loans		619		659		-		620		1		531		2
Agricultural		203		216		-		107		-		42		-
Commercial		3,118		3,118		-		3,122		26		1,578		54
	$	5,318	$	5,437	$	-	$	5,222	$	33	$	3,090	$	74
With an allowance recorded:
Residential 1st Mortgages	$	352	$	424	$	17	$	354	$	4	$	453		12
Home Equity Lines & Loans		135		153		7		136		2		273		4
Agricultural		427		427		120		435		7		443		21
Commercial		1,679		1,803		879		1,687		2		3,233		29
Consumer & Other		37		43		31		39		-		42		2
	$	2,630	$	2,850	$	1,054	$	2,651	$	15	$	4,444	$	68
Total	$	7,948	$	8,287	$	1,054	$	7,873	$	48	$	7,534	$	142

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 September 30, 2014				Nine Months Ended September 30, 2014
September 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	$	-	$	-	$	-	$	49	$	-	$	82	$	4
Home Equity Lines & Loans		-		-		-		-		-		226		-
Agricultural		-		-		-		14		-		26		-
Commercial		-		-		-		1,575		-		2,740		54
	$	-	$	-	$	-	$	1,638	$	-	$	3,074	$	58
With an allowance recorded:
Commercial Real Estate	$	94	$	94	$	2	$	47	$	2	$	16	$	2
Residential 1st Mortgages		658		771		131		550		1		522		3
Home Equity Lines & Loans		955		1,008		191		934		3		710		6
Agricultural		483		493		119		478		7		477		21
Commercial		4,744		4,801		908		3,179		27		2,144		27
Consumer & Other		43		47		43		44		1		47		2
	$	6,977	$	7,214	$	1,394	$	5,232	$	41	$	3,916	$	61
Total	$	6,977	$	7,214	$	1,394	$	6,870	$	41	$	6,990	$	119

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 September 30, 2015, the Company allocated $1.1 million of specific reserves to $6.6 million of troubled debt restructured loans & leases, of which $5.0 million were performing. The Company had no commitments at September 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and nine month period ending September 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 from 5 to 10 years. Modifications involving an extension of the maturity date were from 5 to 10 years.

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

	Three Months Ended September 30, 2015						Nine Months Ended September 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
Agricultural		1	$	194	$	194		1	$	194	$	194
Commercial		-		-		-		1		131		119
Total		1	$	194	$	194		2	$	325	$	313

The TDRs described above increased the allowance for credit losses by $0 and $70,000 for the three and nine-month periods ending September 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and nine-month periods ended September 30, 2015.

During the three and nine-months ended September 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.

At September 30, 2014, the Company allocated $1.3 million of specific reserves to $6.4 million of troubled debt restructured loans & leases, of which $4.5 million were performing. The Company had no commitments at September 30, 2014 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and nine month periods ending September 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 nine-month periods ended September 30, 2014 (in thousands):

	Three Months Ended September 30, 2014						Nine Months Ended September 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	$	248	$	222		4	$	565	$	528
Home Equity Lines & Loans		1		51		47		3		98		89
Agricultural		-		-		-		1		32		32
Total		2	$	299	$	269		8	$	695	$	649

The TDRs described above increased the allowance for credit losses by $51,000 and $50,000 and resulted in charge-offs of $30,000 and $46,000 for the three and nine-month periods ended September 30, 2014.

During the three and nine-months ended September 30, 2014, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

24

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%.

25

At September 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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	41,513	$	-	$	41,513	$	-
US Treasury Notes		30,300		30,300		-		-
Mortgage Backed Securities		256,195		-		256,195		-
Corporate Securities		16,235		-		16,235		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	344,728	$	30,475	$	314,253	$	-
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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 September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	13,361	$	13,361	$	-	$	-
Mortgage Backed Securities		322,680		39,566		283,114		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	336,526	$	53,102	$	283,424	$	-

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the nine months ended September 30, 2015, the year ended December 31, 2014, and the nine months ended September 30, 2014, there were no transfers in or out of level 1, 2, or 3.

26

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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Residential 1st Mortgage	$	334	$	-	$	-	$	334
Home Equity Lines and Loans		126		-		-		126
Agricultural		308		-		-		308
Commercial		800		-		-		800
Consumer		5						5
Total Impaired Loans		1,573		-		-		1,573
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	$	4,014	$	-	$	-	$	4,014
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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

27

			Fair Value Measurements At September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Commercial Real Estate	$	92	$	-	$	-	$	92
Residential 1st Mortgages		526		-		-		526
Home Equity Lines and Loans		763		-		-		763
Agricultural		363		-		-		363
Commercial		3,836		-		-		3,836
Total Impaired Loans		5,580		-		-		5,580
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	$	8,879	$	-	$	-	$	8,879

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 September 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	334	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	126	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	308	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	800	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	5	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 1%, 1	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

28

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
September 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	$	50,300		$	50,300	$	-	$	-		$	50,300
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		41,513			-		41,513		-			41,513
U.S. Treasury Notes		30,300			30,300		-		-			30,300
Mortgage Backed Securities		256,195			-		256,195		-			256,195
Corporate Securities		16,235			-		16,235		-			16,235
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		344,728			30,475		314,253		-			344,728
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		64,134			-		51,966		12,800			64,766
Other		2,123			-		2,123		-			2,123
Total Investment Securities Held-to-Maturity		66,257			-		54,089		12,800			66,889
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		549,498			-		-		552,323			552,323
Agricultural Real Estate		425,130			-		-		415,304			415,304
Real Estate Construction		159,374			-		-		159,295			159,295
Residential 1st Mortgages		196,141			-		-		199,565			199,565
Home Equity Lines and Loans		29,678			-		-		31,314			31,314
Agricultural		244,645			-		-		243,495			243,495
Commercial		202,246			-		-		200,932			200,932
Consumer & Other		6,519			-		-		6,543			6,543
Leases		58,349							58,854			58,854
Unallocated Allowance		(400	)		-		-		(400	)		(400	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,871,180			-		-		1,867,225			1,867,225
Accrued Interest Receivable		10,548			-		10,548		-			10,548
Liabilities:
Deposits:
Demand		603,430			603,430		-		-			603,430
Interest Bearing Transaction		373,193			373,193		-		-			373,193
Savings and Money Market		672,052			672,052		-		-			672,052
Time		483,967			-		484,018		-			484,018
Total Deposits		2,132,642			1,648,675		484,018		-			2,132,693
FHLB Advances & Securities Sold Under Agreement to Repurchase		5,500			-		5,500		-			5,500
Subordinated Debentures		10,310			-		6,292		-			6,292
Accrued Interest Payable		590			-		590		-			590

29

				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
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
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

30

				Fair Value of Financial Instruments Using
September 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	$	39,216		$	39,216	$	-	$	-		$	39,216
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		13,361			13,361		-		-			13,361
Mortgage Backed Securities		322,680			39,566		283,114		-			322,680
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		336,526			53,102		283,424		-			336,526
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,206			-		54,375		13,539			67,914
Other		2,235			-		2,235		-			2,235
Total Investment Securities Held-to-Maturity		69,441			-		56,610		13,539			70,149
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		465,707			-		-		462,469			462,469
Agricultural Real Estate		360,215			-		-		360,976			360,976
Real Estate Construction		102,783			-		-		103,095			103,095
Residential 1st Mortgages		167,168			-		-		169,971			169,971
Home Equity Lines and Loans		30,608			-		-		32,601			32,601
Agricultural		231,739			-		-		230,572			230,572
Commercial		184,889			-		-		184,466			184,466
Consumer & Other		4,595			-		-		4,619			4,619
Leases		35,063							33,519			33,519
Unallocated Allowance		(1,263	)		-		-		(1,263	)		(1,263	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,581,504			-		-		1,581,025			1,581,025
Accrued Interest Receivable		8,986			-		8,986		-			8,986
Liabilities:
Deposits:
Demand		516,093			516,093		-		-			516,093
Interest Bearing Transaction		326,368			326,368		-		-			326,368
Savings and Money Market		614,137			614,137		-		-			614,137
Time		419,615			-		419,663		-			419,663
Total Deposits		1,876,213			1,456,598		419,663		-			1,876,261
FHLB Advances & Securities Sold Under Agreement to Repurchase		36,000			-		36,000		-			36,000
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		314			-		314		-			314

31

Fair value estimates presented herein are based on pertinent information available to management as of September 30, 2015, December 31, 2014, and September 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.

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 September 30, 2015 and 2014.

32

	Three Months Ended September 30,				Nine Months Ended September 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	7,040	$	6,432	$	20,192	$	18,818
Weighted Average Number of Common Shares Outstanding		785,852		777,882		785,668		777,882
Basic Earnings Per Common Share Amount	$	8.96	$	8.27	$	25.70	$	24.19

7. Shareholders’ Equity

In January, 2015, the Company issued 1,700 shares of common stock and in September, 2015, the Company issued 3,200 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued in January had a price of $450 per share and the shares issued in September had a price of $515 per share. These share prices were based upon valuations 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. The proceeds from these issuances 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. Management is currently evaluating the impact of adoption.

In August 2015, the FASB issued ASU 2015-14 - Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

33

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 nine months ended September 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.

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).

34

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 nine months ended September 30, 2015, Farmers & Merchants Bancorp reported net income of $7,040,000 and $20,192,000, earnings per share of $8.96 and $25.70 and return on average assets of 1.14% and 1.12%, respectively. Return on average shareholders’ equity was 11.50% and 11.13% for the three and nine months ended September 30, 2015.

For the three and nine months ended September 30, 2014, Farmers & Merchants Bancorp reported net income of $6,432,000 and $18,818,000, basic earnings per common share of $8.27 and $24.19 and return on average assets of 1.19% and 1.18%, respectively. Return on average shareholders’ equity was 11.45% and 11.42% for the three and nine months ended September 30, 2014.

The primary reasons for the Company’s improved earnings performance in the first nine months of 2015 as compared to the same period last year were: (1) a $6.5 million increase in net interest income; and (2) a $1.2 million increase in non-interest income. These positive impacts were partially offset by: (1) a $650,000 increase in the provision for credit losses; (2) a $2.9 million increase in salaries and employee benefits; and (3) a $757,000 increase in marketing, product development and promotional expenses.

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

· Net income increased 7.3% to $20.2 million from $18.8 million.

· Earnings per share increased 6.2% to $25.70 from $24.19.

· Total assets increased 13.8% to $2.5 billion.

· Total loans & leases increased 18.2% to $1.9 billion.

· Total deposits increased 13.7% to $2.1 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 nine-month periods ended September 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.

35

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.”

36

Farmers & Merchants Bancorp

Quarterly Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Three Months Ended Sept 30, 2015									Three Months Ended Sept 30, 2014
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	55,575		$	36			0.26	%	$	7,921		$	5			0.25	%
Investment Securities:
U.S. Treasuries		56,338			190			1.35	%		-			-			0.00	%
U.S. Agencies		11,393			15			0.53	%		17,193			47			1.09	%
Municipals - Non-Taxable		63,964			787			4.92	%		68,404			912			5.33	%
Mortgage Backed Securities		251,550			1,361			2.16	%		307,586			1,721			2.24	%
Other		2,789			8			1.15	%		30,870			80			1.04	%
Total Investment Securities		386,034			2,361			2.45	%		424,053			2,760			2.60	%
Loans & Leases:
Real Estate		1,298,033			15,122			4.62	%		1,073,804			12,966			4.79	%
Home Equity Lines & Loans		31,475			445			5.61	%		33,716			462			5.44	%
Agricultural		227,551			2,335			4.07	%		232,929			2,338			3.98	%
Commercial		231,184			2,324			3.99	%		184,152			1,992			4.29	%
Consumer		4,891			68			5.52	%		4,742			65			5.44	%
Other		428			2			0.00	%		-			-			0.00	%
Leases		58,361			619			4.21	%		34,721			344			3.93	%
Total Loans & Leases		1,851,923			20,915			4.48	%		1,564,064			18,167			4.61	%
Total Earning Assets		2,293,532		$	23,312			4.03	%		1,996,038		$	20,932			4.16	%
Unrealized (Loss) Gain on Securities Available-for-Sale		3,044									2,975
Allowance for Credit Losses		(39,055	)								(34,297	)
Cash and Due From Banks		38,363									31,758
All Other Assets		167,004									167,975
Total Assets	$	2,462,888								$	2,164,449
Liabilities & Shareholders' Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	345,978		$	55			0.06	%	$	323,582		$	47			0.06	%
Savings and Money Market		704,878			313			0.18	%		626,248			277			0.18	%
Time Deposits		490,752			409			0.33	%		415,501			297			0.28	%
Total Interest Bearing Deposits		1,541,608			777			0.20	%		1,365,331			621			0.18	%
Federal Home Loan Bank Advances		279			-			0.00	%		13,139			5			0.15	%
Subordinated Debentures		10,310			83			3.19	%		10,310			82			3.16	%
Total Interest Bearing Liabilities		1,552,197		$	860			0.22	%		1,388,780		$	708			0.20	%
Interest Rate Spread								3.81	%								3.96	%
Demand Deposits (Non-Interest Bearing)		620,391									500,492
All Other Liabilities		45,440									50,392
Total Liabilities		2,218,028									1,939,664
Shareholders' Equity		244,860									224,785
Total Liabilities & Shareholders' Equity	$	2,462,888								$	2,164,449
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.07	%								0.06	%
Net Interest Income and Margin on Total Earning Assets					22,452			3.88	%					20,224			4.02	%
Tax Equivalent Adjustment					(275	)								(318	)
Net Interest Income				$	22,178			3.84	%				$	19,906			3.96	%

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 $1.5 million and $903,000 for the quarters ended September 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)

	Nine Months Ended Sept. 30, 2015									Nine Months Ended Sept. 30, 2014
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	83,902		$	159			0.25	%	$	57,889		$	110			0.25	%
Investment Securities:
U.S. Treasuries		34,954			350			1.34	%		-			-			0.00	%
U.S. Agencies		35,173			70			0.27	%		18,918			151			1.06	%
Municipals - Non-Taxable		61,847			2,361			5.09	%		65,425			2,698			5.50	%
Mortgage Backed Securities		264,820			4,301			2.17	%		320,742			5,536			2.30	%
Other		2,680			21			1.04	%		48,083			385			1.07	%
Total Investment Securities		399,474			7,103			2.37	%		453,168			8,770			2.58	%
Loans & Leases:
Real Estate		1,210,492			42,651			4.71	%		997,216			36,459			4.89	%
Home Equity Lines & Loans		31,290			1,297			5.54	%		34,299			1,429			5.57	%
Agricultural		222,430			6,691			4.02	%		221,024			6,632			4.01	%
Commercial		235,440			7,170			4.07	%		168,332			5,720			4.54	%
Consumer		4,889			199			5.44	%		5,249			210			5.35	%
Other		144			2			1.86	%		23			1			5.81	%
Leases		52,143			1,638			4.20	%		22,957			728			4.24	%
Total Loans & Leases		1,756,828			59,648			4.54	%		1,449,100			51,179			4.72	%
Total Earning Assets		2,240,204		$	66,910			3.99	%		1,960,157		$	60,059			4.10	%
Unrealized Gain on Securities Available-for-Sale		4,695									501
Allowance for Credit Losses		(37,833	)								(34,280	)
Cash and Due From Banks		37,387									31,500
All Other Assets		164,343									164,709
Total Assets	$	2,408,796								$	2,122,587
Liabilities & Shareholders' Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	343,133		$	147			0.06	%	$	306,693		$	120			0.05	%
Savings and Money Market		692,359			903			0.17	%		621,501			770			0.17	%
Time Deposits		489,185			1,193			0.33	%		421,274			929			0.29	%
Total Interest Bearing Deposits		1,524,677			2,243			0.20	%		1,349,468			1,819			0.18	%
Federal Home Loan Bank Advances		95			-			0.00	%		4,692			5			0.14	%
Subordinated Debentures		10,310			244			3.16	%		10,310			242			3.14	%
Total Interest Bearing Liabilities		1,535,082		$	2,487			0.22	%		1,364,470		$	2,066			0.20	%
Interest Rate Spread								3.78	%								3.89	%
Demand Deposits (Non-Interest Bearing)		590,457									488,677
All Other Liabilities		41,296									49,772
Total Liabilities		2,166,835									1,902,919
Shareholders' Equity		241,961									219,668
Total Liabilities & Shareholders' Equity	$	2,408,796								$	2,122,587
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.07	%								0.06	%
Net Interest Income and Margin on Total Earning Assets					64,423			3.84	%					57,993			3.96	%
Tax Equivalent Adjustment					(823	)								(940	)
Net Interest Income				$	63,600			3.80	%				$	57,053			3.89	%

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 $4.1 million and $2.8 million for the nine months ended September 30, 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 Sept. 30, 2015 compared to Sept. 30, 2014									Nine Months Ended Sept. 30, 2015 compared to Sept. 30, 2014
Interest Earning Assets	Volume			Rate			Net Chg.			Volume			Rate			Net Chg.
Interest Bearing Deposits with Banks	$	31		$	-		$	31		$	49		$	-		$	49
Investment Securities:
U.S. Treasuries		190			-			190			350			-			350
U.S. Agencies		(13	)		(19	)		(32	)		77			(158	)		(81	)
Municipals - Non-Taxable		(57	)		(67	)		(124	)		(142	)		(195	)		(337	)
Mortgage Backed Securities		(305	)		(55	)		(360	)		(922	)		(313	)		(1,235	)
Other		(80	)		8			(72	)		(356	)		(8	)		(364	)
Total Investment Securities		(265	)		(133	)		(398	)		(993	)		(674	)		(1,667	)
Loans & Leases:
Real Estate		2,620			(464	)		2,156			7,562			(1,370	)		6,192
Home Equity Lines & Loans		(32	)		15			(17	)		(125	)		(7	)		(132	)
Agricultural		(54	)		51			(3	)		42			17			59
Commercial		479			(147	)		332			2,095			(645	)		1,450
Consumer		2			1			3			(15	)		4			(11	)
Other		2			-			2			2			(1	)		1
Leases		249			26			275			917			(7	)		910
Total Loans & Leases		3,266			(518	)		2,748			10,478			(2,009	)		8,469
Total Earning Assets		3,032			(651	)		2,381			9,534			(2,683	)		6,851
Interest Bearing Liabilities
Interest Bearing Deposits:
Interest Bearing DDA		4			4			8			15			12			27
Savings and Money Market		35			1			36			91			42			133
Time		58			54			112			159			105			264
Total Interest Bearing Deposits		97			59			156			265			159			424
Other Borrowed Funds		(2	)		(3	)		(5	)		(2	)		(3	)		(5	)
Subordinated Debentures		-			1			1			-			2			2
Total Interest Bearing Liabilities		95			57			152			263			158			421
Total Change on a Tax Equivalent Basis	$	2,937		$	(708	)	$	2,229		$	9,271		$	(2,841	)	$	6,430

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

Third Quarter 2015 vs. Third Quarter 2014

Net interest income for the third quarter of 2015 increased 11.4% or $2.3 million to $22.2 million. On a fully taxable equivalent basis, net interest income increased 11.0% and totaled $22.5 million for the third quarter of 2015. As more fully discussed below, the increase in net interest income was primarily due to a $297.5 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 September 30, 2015, the Company’s net interest margin was 3.88% compared to 4.02% for the quarter ended September 30, 2014. This decrease in net interest margin was due primarily to a decline in earning asset yields.

Average loans & leases totaled $1.9 billion for the quarter ended September 30, 2015; an increase of $287.9 million compared to the average balance for the quarter ended September 30, 2014. Loans & leases increased from 78.4% of average earning assets at September 30, 2014 to 80.8% at September 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 4.48% for the quarter ended September 30, 2015, compared to 4.61% for the quarter ended September 30, 2014. Overall, the positive impact on interest revenue from the increase in loan & lease balances resulted in interest revenue from loans & leases increasing 15.1% to $20.9 million for quarter ended September 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 $386.0 million for the quarter ended September 30, 2015; a decrease of $38.0 million compared to the average balance for the quarter ended September 30, 2014. Tax equivalent interest income on securities decreased $398,000 to $2.36 million for the quarter ended September 30, 2015, compared to $2.76 million for the quarter ended September 30, 2014. The average investment portfolio yield, on a tax equivalent basis, was 2.45% for the quarter ended September 30, 2015, compared to 2.60% for the quarter ended September 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 September 30, 2015, were $55.6 million, an increase of $47.7 million compared to the average balance for the quarter ended September 30, 2014. Interest income on interest bearing deposits with banks for the quarter ended September 30, 2015, increased $31,000 to $36,000 compared to the quarter ended September 30, 2014.

Average interest-bearing liabilities increased $163.4 million or 11.8% during the third quarter of 2015. Of that increase: (1) interest-bearing transaction deposits increased $22.4 million; (2) savings and money market deposits increased $78.6 million; (3) time deposits increased $75.3 million; (4) Federal Home Loan Bank (“FHLB”) Advances decreased $12.9 million (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 $777,000 for the third quarter of 2015 as compared to $621,000 for the third quarter of 2014. The average rate paid on interest-bearing deposits was 0.20% for the third quarter of 2015 compared to 0.18% for the third quarter of 2014.

40

Nine Months Ending September 30, 2015 vs. Nine Months Ending September 30, 2014

During the first nine months of 2015, net interest income increased 11.5% to $63.6 million, compared to $57.1 million at September 30, 2014. On a fully taxable equivalent basis, net interest income increased 11.1% and totaled $64.4 million at September 30, 2015, compared to $58.0 million at September 30, 2014. The increase in net interest income was primarily due to a $280.0 million increase in average earning assets.

For the nine months ended September 30, 2015, the Company’s net interest margin was 3.84% compared to 3.96% 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 $307.7 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The yield on the loan & lease portfolio decreased 18 basis points to 4.54% for the nine months ended September 30, 2015 compared to 4.72% for the nine months ended September 30, 2014. This decrease in yield was offset by growth of average balance of loans resulting in interest income from loans & leases increasing 16.6% or $8.5 million for the first nine months of 2015.

Average investment securities were $399.5 million for the nine months ended September 30, 2015 compared to $453.2 million for the same period in 2014. The average tax equivalent yield for the nine months ended September 30, 2015 was 2.37% compared to 2.58% for the nine months ended September 30, 2014. This decrease in yield, combined with the decrease in balances, resulted in a decrease in interest income of $1.7 million or 19.0%, for the nine months endedSeptember 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 nine months ended September 30, 2015, was $83.9 million, an increase of $26.0 million compared to the average balance for the nine months ended September 30, 2014. Interest income on interest bearing deposits with banks for the nine months ended September 30, 2015, increased $49,000 to $159,000 compared to the nine months ended September 30, 2014.

Average interest-bearing liabilities increased $170.6 million or 12.5% during the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. Of that increase: (1) interest-bearing deposits increased $175.2 million; (2) FHLB advances decreased $4.6 million; and (3) subordinated debentures remained unchanged.

Total interest expense on interest bearing deposits was $2.2 million for the first nine months of 2015 compared to $1.8 million for the first nine months of 2014. The average rate paid on interest-bearing deposits was 0.20% in the first nine months of 2015 and 0.18% in the first nine 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.

41

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.

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 a 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:

42

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.

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.

43

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.

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 fully recovered and unemployment levels remain 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 September 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 nine months of 2015 compared to no provision during the first nine months of 2014. Net recoveries during the first nine months of 2015 were $3.0 million compared to net charge-offs of $7,000 in the first nine months of 2014. During the first nine months 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.

44

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2015			2014			2015			2014
Balance at Beginning of Period	$	39,037		$	34,290		$	35,401		$	34,274
Charge-Offs		(21	)		(61	)		(67	)		(204	)
Recoveries		74			38			3,106			197
Provision		-			-			650			-
Balance at End of Period	$	39,090		$	34,267		$	39,090		$	34,267

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

September 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	)		(55	)		-		-			(67	)
Recoveries		2,939			-		-		4			85			3			24			51			-		-			3,106
Provision		(1,536	)		3,295		719		(274	)		(356	)		(969	)		38			2			860		(1,129	)		650
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Charge-Offs		-			-		-		-			-			-			-			(21	)		-		-			(21	)
Recoveries		-			-		-		3			37			1			20			13			-		-			74
Provision		654			208		211		18			45			91			(653	)		7			539		(1,120	)		-
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090

The Allowance for Credit Losses at September 30, 2015 increased $3.7 million from December 31, 2014. The allowance allocated to the following categories of loans did change materially during the first nine months of 2015:

· While Commercial Real Estate allowance balances increased $1.4 million primarily due to increased loan balances, a $2.9 million recovery on a previously charged off loan resulted in a decrease of $1.5 million in the required provision.

· Agricultural Real Estate allowance balances increased $3.3 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.

· Real Estate Construction allowance balances increased $719,000 or 43% due to increased construction lending activity.

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.

45

Third Quarter of 2015 vs. Third Quarter of 2014

Non-interest income increased $790,000 or 27.1% for the three months ended September 30, 2015, compared to the same period of 2014. This increase was primarily due to: (1) a $262,000 net gain on sale of investment securities; (2) a $261,000 increase in net gain on deferred compensation investments; and (3) a $430,000 increase in other non-interest income, primarily comprised of the gain on sale of our Sacramento branch building. This increase was partially offset by a $182,000 decrease in service charges on deposit accounts related to the Company’s overdraft privilege service.

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.

Nine Months Ending September 30, 2015 vs. Nine Months Ending September 30, 2014

Non‑interest income increased $1.2 million or 11.7% for the nine months ended September 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; (2) a $284,000 increase in FHLB dividends as a result of the FHLB declaring a one-time special dividend; (3) a $234,000 net gain on sale of investment securities; and (4) a $392,000 gain on the sale of our Sacramento branch building. These increases were offset by: (1) a $341,000 decrease in service charges on deposit accounts related to the Company’s overdraft privilege service; and (2) a $720,000 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.

Third Quarter of 2015 vs. Third Quarter of 2014

Overall, non-interest expense increased $1.9 million or 15.5% for the three months ended September 30, 2015, compared to the same period in 2014. This increase was primarily comprised of: (1) a $644,000 increase in salaries and employee benefits primarily related to new staff added for the Walnut Creek and Concord offices, increased contributions to employee benefit plans, and administrative officer raises; (2) a $261,000 increase in net gain on deferred compensation investments; and (3) a $584,000 increase in marketing, product development and promotional expenses related to the Company’s expansion of its branch network in the bay area, development of deposit products, and the Bank’s upcoming 100^th anniversary.

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.

Nine Months Ending September 30, 2015 vs. Nine Months Ending September 30, 2014

Non-interest expense increased $4.3 million or 11.4% for the nine months ended September 30, 2015, compared to the same period of 2014. This increase was primarily due to: (1) a $2.9 million increase in salaries and employee benefits related to new staff added for the Walnut Creek and Concord offices, increased contributions to employee benefit plans, and administrative officer raises; (2) a $757,000 increase in marketing, product development and promotional expenses related to the Company’s expansion of its branch network  in the bay area, development of deposit products, and the Bank’s upcoming 100^th anniversary; and (3) increased legal fee expense. These increases were partially offset by a $720,000 decrease in net gain on deferred compensation investments for the first nine months of 2015 when compared to the same period in 2014.

46

Income Taxes

The provision for income taxes increased 13.2% to $4.4 million for the third quarter of 2015. The Company’s effective tax rate was 38.2% for the third quarter of 2015 and 37.5% for the third quarter of 2014.

The provision for income taxes increased 13.1% to $12.5 million for the first nine months of 2015. The Company’s effective tax rate for the first nine months of 2015 was 38.2% compared to 37.0% for the same period in 2014.

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 September 30, 2015, as compared to December 31, 2014 and to September 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, at certain times, the Company has selectively added 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.

The Company’s investment portfolio at September 30, 2015 was $411.0 million compared to $430.4 million at the end of 2014, a decrease of $19.4 million or 4.5%. At September 30, 2014, the investment portfolio totaled $405.9 million. Between September 29, 2015 and September 30, 2015, the Company purchased $54.7 million of investment securities. These trades had not settled by September 30, 2015. Since the Company accounts for securities purchases and sales using trade date accounting, they are reflected on the quarter-end balance sheet, which resulted in a comparable increase in other liabilities at September 30, 2015. To protect against future increases in market interest rates, while at the same time generating some reasonable level of current yields, the Company currently invests most of its available funds in either shorter term corporate, 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 16.4% of the Company’s total assets as compared to 18.2% at December 31, 2014, and 18.5% at September 30, 2014.

As of September 30, 2015 the Company held $64.1 million of municipal investments, of which $46.3 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 September 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 ($839,000) 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.

47

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 $8.7 million at September 30, 2015, $34.8 million at December 31, 2014 and $4.9 million at September 30, 2014.

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 September 30, 2015, December 31, 2014 and September 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 generally 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 10 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 1.25; 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 or LIBOR 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 40 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 36 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.

48

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 September 30, 2015 totaled $1.9 billion, an increase of $294.5 million or 18.2% over September 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.

49

Loans & leases at September 30, 2015 increased $198.0 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	September 30, 2015					December 31, 2014					September 30, 2014
(in thousands)	$		%			$		%			$		%
Commercial Real Estate	$	564,583		29.4	%	$	495,316		28.9	%	$	477,726		30.6	%
Agricultural Real Estate		432,610		22.6	%		357,207		20.8	%		364,161		24.1	%
Real Estate Construction		161,762		8.4	%		96,519		5.6	%		104,463		2.5	%
Residential 1st Mortgages		196,893		10.3	%		171,880		10.0	%		168,310		10.5	%
Home Equity Lines and Loans		31,833		1.7	%		33,017		1.9	%		33,283		2.9	%
Agricultural		249,783		13.0	%		281,963		16.4	%		237,521		16.5	%
Commercial		210,491		11.0	%		230,819		13.5	%		192,804		12.3	%
Consumer & Other		6,735		0.4	%		4,719		0.3	%		4,816		0.4	%
Leases		60,578		3.2	%		44,217		2.6	%		36,908		0.2	%
Total Gross Loans & Leases		1,915,268		100.0	%		1,715,657		100.0	%		1,619,992		100.0	%
Less: Unearned Income		4,998					3,413					4,221
Subtotal		1,910,270					1,712,244					1,615,771
Less: Allowance for Credit Losses		39,090					35,401					34,267
Net Loans & Leases	$	1,871,180				$	1,676,843				$	1,581,504

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 September 30, 2015, classified loans totaled $6.0 million compared to $3.6 million at December 31, 2014 and $3.7 million at September 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 September 30, 2015 non-accrual loans & leases totaled $2.9 million. At December 31, 2014 and September 30, 2014, non-accrual loans totaled $2.3 million and $2.5 million, respectively.

50

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 September 30, 2015, restructured loans & leases on accrual totaled $5.0 million as compared to $5.0 million at December 31, 2014. Restructured loans on accrual at September 30, 2014 were $4.5 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)	September 30, 2015			Dec. 31, 2014			September 30, 2014
Non-Performing Loans & Leases	$	2,904		$	2,270		$	2,497
Other Real Estate		2,441			3,299			3,299
Total Non-Performing Assets	$	5,345		$	5,569		$	5,796
Non-Performing Loans & Leases as a % of Total Loans & Leases		0.15	%		0.13	%		0.15	%
Restructured Loans & Leases (Performing)	$	5,001		$	4,955		$	4,476

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 $755,000, $940,000, and $990,000 have been established for non-performing loans & leases at September 30, 2015, December 31, 2014 and September 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 $100,000 for the nine months ended September 30, 2015, $92,000 for the year ended December 31, 2014, and $75,000 for the nine months ended September 30, 2014.

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

51

· 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 fully recovered and unemployment levels remain above those in other areas of the state and country.

· 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 September 30, 2015 have increased $256.4 million or 13.7% compared to September 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 13.7% since September 30, 2014, the Company continues to focus on increasing low cost transaction and savings accounts:

· Demand and interest-bearing transaction accounts increased $134.2 million or 15.9% since September 30, 2014.

· Savings and money market accounts have increased $57.9 million or 9.4% since September 30, 2014.

· Time deposit accounts have increased $64.4 million or 15.3% since September 30, 2014.

The Company's deposit balances at September 30, 2015 have increased $68.6 million or 3.3% compared to December 31, 2014. Savings and money market deposits increased 4.3% or $27.8 million while demand and interest-bearing transaction accounts increased by $25.1 million or 2.6% and time deposit accounts increased by $15.7 million or 3.3%. Deposit trends in the first nine months 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. FHLB Advances at September 30, 2015 were $5.5 million and $0 at December 31, 2014. FHLB advances were $36.0 million at September 30, 2014. There were no Federal Funds purchased or advances from the FRB at September 30, 2015, December 31, 2014 or September 30, 2014.

52

As of September 30, 2015 the Company has additional borrowing capacity of $319.1 million with the Federal Home Loan Bank and $331.8 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.

Long-Term Subordinated Debentures

On December 17, 2003, the Company raised $10.0 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 3.18% at September 30, 2015, 3.09% at December 31, 2014 and 3.08% at September 30, 2014. The average rate paid for these securities for the first nine months of 2015 was 3.16% compared to 3.14% for the first nine months 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 $251.1 million at September 30, 2015, $233.2 million at December 31, 2014, and $227.2 million at September 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 September 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 September 30, 2015
Total Capital Ratio	$	287,718		12.24	%	$	187,999		8.0	%		N/A		N/A
Common Equity Tier 1 Capital Ratio	$	258,221		10.99	%	$	105,749		4.5	%		N/A		N/A
Tier 1 Capital Ratio	$	258,221		10.99	%	$	140,999		6.0	%		N/A		N/A
Tier 1 Leverage Ratio	$	258,221		10.44	%	$	98,953		4.0	%		N/A		N/A

53

(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 September 30, 2015
Total Capital Ratio	$	287,643		12.24	%	$	187,987		8.0	%	$	234,984		10.0	%
Common Equity Tier 1 Capital Ratio	$	258,148		10.99	%	$	105,743		4.5	%	$	152,740		6.5	%
Tier 1 Capital Ratio	$	258,148		10.99	%	$	140,991		6.0	%	$	187,987		8.0	%
Tier 1 Leverage Ratio	$	258,148		10.44	%	$	98,922		4.0	%	$	123,653		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 August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018. 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 nine months 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 Computershare (formerly 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.

In January, 2015, the Company issued 1,700 shares of common stock and in September, 2015, the Company issued 3,200 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued in January had a price of $450 per share and the shares issued in September had a price of $515 per share. These share prices were based upon valuations 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. The proceeds from these issuances were contributed to the Bank as equity capital.

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.

54

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 September 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)	September 30, 2015		December 31, 2014		September 30, 2014
Commitments to Extend Credit	$	743,030	$	539,288	$	543,595
Letters of Credit		13,919		9,734		7,470
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		3,665		2,042		263

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.

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 $167,000 at September 30, 2015 and $142,000 at December 31, 2014 and September 30, 2014. We do not anticipate any material losses as a result of these transactions.

55

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.

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.

56

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 September 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.

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.

57

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 September 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 2.93% if rates increase by 200 basis points and a decrease in net interest income of 0.54% 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 September 30, 2015 the Company has additional borrowing capacity of $319.1 million with the FHLB and $331.8 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.

At September 30, 2015, the Company had available sources of liquidity, which included cash and cash equivalents and unpledged investment securities AFS of approximately $190 million, which represents 9.58% of total assets.

58

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 September 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 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 nine months of 2015 approximately 37% 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.

59

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 nine 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.

In January, 2015, the Company issued 1,700 shares of common stock and in September, 2015, the Company issued 3,200 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued in January had a price of $450 per share and the shares issued in September had a price of $515 per share. These share prices were based upon valuations 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. The proceeds from these issuances were contributed to the Bank as equity capital.

ITEM 3. Defaults Upon Senior Securities

Not applicable

60

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:  November 6, 2015	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President
	& Chief Executive Officer
	(Principal Executive Officer)
Date:  November 6, 2015	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial & Accounting Officer)

61

Index to Exhibits

Exhibit No.	Description
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

62

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:  November 6, 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: November 6, 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 September 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.

November 6, 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) - $ / shares	1 Months Ended
	Sep. 30, 2015	Jan. 31, 2015
Shareholders' Equity [Abstract]
Issuance of common stock (in shares)	3,200	1,700
Per share price of shares issued (in dollars per share)	$ 515	$ 450

XML

Loans & Leases and Allowance for Credit Losses, Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
With no related allowance recorded [Abstract]
Recorded Investment	$ 5,318	$ 0	$ 5,318	$ 0	$ 0
Unpaid Principal Balance	5,437	0	5,437	0	0
Average Recorded Investment	5,222	1,638	3,090	3,074	1,853
Interest Income Recognized	33	0	74	58	58
With an allowance recorded [Abstract]
Recorded Investment	2,630	6,977	2,630	6,977	7,229
Unpaid Principal Balance	2,850	7,214	2,850	7,214	7,518
Related Allowance	1,054	1,394	1,054	1,394	1,444
Average Recorded Investment	2,651	5,232	4,444	3,916	5,163
Interest Income Recognized	15	41	68	61	107
Recorded Investment, Total	7,948	6,977	7,948	6,977	7,229
Unpaid Principal Balance, Total	8,287	7,214	8,287	7,214	7,518
Related Allowance	1,054	1,394	1,054	1,394	1,444
Average Recorded Investment, Total	7,873	6,870	7,534	6,990	7,016
Interest Income Recognized, Total	48	41	142	119	165
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	821	0	821	0	0
Unpaid Principal Balance	821	0	821	0	0
Average Recorded Investment	812	49	468	82	49
Interest Income Recognized	2	0	6	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	557		557
Unpaid Principal Balance	623		623
Average Recorded Investment	561		471
Interest Income Recognized	4		12
With an allowance recorded [Abstract]
Recorded Investment	352	658	352	658	937
Unpaid Principal Balance	424	771	424	771	1,069
Related Allowance	17	131	17	131	187
Average Recorded Investment	354	550	453	522	612
Interest Income Recognized	4	1	12	3	9
Related Allowance	17	131	17	131	187
Home Equity Lines & Loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment	619	0	619	0	0
Unpaid Principal Balance	659	0	659	0	0
Average Recorded Investment	620	0	531	226	169
Interest Income Recognized	1	0	2	0	0
With an allowance recorded [Abstract]
Recorded Investment	135	955	135	955	951
Unpaid Principal Balance	153	1,008	153	1,008	1,020
Related Allowance	7	191	7	191	190
Average Recorded Investment	136	934	273	710	803
Interest Income Recognized	2	3	4	6	10
Related Allowance	7	191	7	191	190
Agricultural [Member]
With no related allowance recorded [Abstract]
Recorded Investment	203	0	203	0	0
Unpaid Principal Balance	216	0	216	0	0
Average Recorded Investment	107	14	42	26	15
Interest Income Recognized	0	0	0	0	0
With an allowance recorded [Abstract]
Recorded Investment	427	483	427	483	461
Unpaid Principal Balance	427	493	427	493	473
Related Allowance	120	119	120	119	114
Average Recorded Investment	435	478	443	477	473
Interest Income Recognized	7	7	21	21	28
Related Allowance	120	119	120	119	114
Commercial [Member]
With no related allowance recorded [Abstract]
Recorded Investment	3,118	0	3,118	0	0
Unpaid Principal Balance	3,118	0	3,118	0	0
Average Recorded Investment	3,122	1,575	1,578	2,740	1,620
Interest Income Recognized	26	0	54	54	54
With an allowance recorded [Abstract]
Recorded Investment	1,679	4,744	1,679	4,744	4,742
Unpaid Principal Balance	1,803	4,801	1,803	4,801	4,813
Related Allowance	879	908	879	908	910
Average Recorded Investment	1,687	3,179	3,233	2,144	3,182
Interest Income Recognized	2	27	29	27	54
Related Allowance	879	908	879	908	910
Consumer & Other [Member]
With an allowance recorded [Abstract]
Recorded Investment	37	43	37	43	46
Unpaid Principal Balance	43	47	43	47	51
Related Allowance	31	43	31	43	41
Average Recorded Investment	39	44	42	47	46
Interest Income Recognized	0	1	2	2	2
Related Allowance	$ 31	$ 43	$ 31	$ 43	$ 41

XML

Investment Securities, Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities (Details) - USD ($) $ in Thousands		Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		$ 339,720	$ 362,172	$ 334,892
Gross unrealized gains		5,320	5,030	4,077
Gross unrealized losses		312	660	2,443
Fair/Book value		344,728	366,542	336,526
Schedule of Held-to-maturity Securities [Line Items]
Book value		66,257	63,863	69,441
Gross unrealized gains		658	782	725
Gross unrealized losses		26	10	17
Fair value		66,889	64,635	70,149
Government Agency & Government Sponsored Entities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		41,448	78,051	13,220
Gross unrealized gains		65	61	141
Gross unrealized losses		0	3	0
Fair/Book value		41,513	78,109	13,361
US Treasury Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		30,069
Gross unrealized gains		231
Gross unrealized losses		0
Fair/Book value		30,300
Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	[1]	251,483	283,636	321,187
Gross unrealized gains	[1]	5,024	4,969	3,936
Gross unrealized losses	[1]	312	657	2,443
Fair/Book value	[1]	256,195	287,948	322,680
Corporate Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		16,235
Gross unrealized gains		0
Gross unrealized losses		0
Fair/Book value		16,235
Other [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		485	485	485
Gross unrealized gains		0	0	0
Gross unrealized losses		0	0	0
Fair/Book value		485	485	485
Obligations of States and Political Subdivisions [Member]
Schedule of Held-to-maturity Securities [Line Items]
Book value		64,134	61,716	67,206
Gross unrealized gains		658	782	725
Gross unrealized losses		26	10	17
Fair value		64,766	62,488	67,914
Other [Member]
Schedule of Held-to-maturity Securities [Line Items]
Book value		2,123	2,147	2,235
Gross unrealized gains		0	0	0
Gross unrealized losses		0	0	0
Fair value		$ 2,123	$ 2,147	$ 2,235

[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	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Investment Securities Available-for-Sale [Abstract]
Fair/Book value	$ 344,728	$ 366,542	$ 336,526
Investment Securities Held-to-Maturity [Abstract]
Fair value	66,889	64,635	70,149
Carrying Amount [Member]
Assets [Abstract]
Cash and Cash Equivalents	50,300	77,125	39,216
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	41,513	78,109	13,361
U.S. Treasury Notes	30,300
Mortgage Backed Securities	256,195	287,948	322,680
Corporate Securities	16,235
Other	485	485	485
Fair/Book value	344,728	366,542	336,526
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	64,134	61,716	67,206
Other	2,123	2,147	2,235
Fair value	66,257	63,863	69,441
FHLB Stock	7,795	7,677	7,677
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	549,498	484,061	465,707
Agricultural Real Estate	425,130	353,022	360,215
Real Estate Construction	159,374	94,850	102,783
Residential 1st Mortgages	196,141	170,858	167,168
Home Equity Lines and Loans	29,678	30,591	30,608
Agricultural	244,645	275,859	231,739
Commercial	202,246	222,624	184,889
Consumer & Other	6,519	4,501	4,595
Leases	58,349	42,006	35,063
Unallocated Allowance	(400)	(1,529)	(1,263)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,871,180	1,676,843	1,581,504
Accrued Interest Receivable	10,548	7,797	8,986
Deposits [Abstract]
Demand	603,430	610,133	516,093
Interest Bearing Transaction	373,193	341,397	326,368
Savings and Money Market	672,052	644,260	614,137
Time	483,967	468,283	419,615
Total Deposits	2,132,642	2,064,073	1,876,213
FHLB Advances & Securities Sold Under Agreement to Repurchase	5,500		36,000
Subordinated Debentures	10,310	10,310	10,310
Accrued Interest Payable	590	378	314
Estimated Fair Value [Member]
Assets [Abstract]
Cash and Cash Equivalents	50,300	77,125	39,216
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	41,513	78,109	13,361
U.S. Treasury Notes	30,300
Mortgage Backed Securities	256,195	287,948	322,680
Corporate Securities	16,235
Other	485	485	485
Fair/Book value	344,728	366,542	336,526
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	64,766	62,488	67,914
Other	2,123	2,147	2,235
Fair value	66,889	64,635	70,149
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	552,323	481,037	462,469
Agricultural Real Estate	415,304	353,288	360,976
Real Estate Construction	159,295	95,022	103,095
Residential 1st Mortgages	199,565	173,916	169,971
Home Equity Lines and Loans	31,314	32,456	32,601
Agricultural	243,495	274,195	230,572
Commercial	200,932	222,175	184,466
Consumer & Other	6,543	4,535	4,619
Leases	58,854	40,298	33,519
Unallocated Allowance	(400)	(1,529)	(1,263)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,867,225	1,675,393	1,581,025
Accrued Interest Receivable	10,548	7,797	8,986
Deposits [Abstract]
Demand	603,430	610,133	516,093
Interest Bearing Transaction	373,193	341,397	326,368
Savings and Money Market	672,052	644,260	614,137
Time	484,018	468,161	419,663
Total Deposits	2,132,693	2,063,951	1,876,261
FHLB Advances & Securities Sold Under Agreement to Repurchase	5,500		36,000
Subordinated Debentures	6,292	6,227	6,227
Accrued Interest Payable	590	378	314
Estimated Fair Value [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Cash and Cash Equivalents	50,300	77,125	39,216
Investment Securities Available-for-Sale [Abstract]
Government Agency & Government-Sponsored Entities	0	10,005	13,361
U.S. Treasury Notes	30,300
Mortgage Backed Securities	0	0	39,566
Corporate Securities	0
Other	175	175	175
Fair/Book value	30,475	10,180	53,102
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	0	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
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	603,430	610,133	516,093
Interest Bearing Transaction	373,193	341,397	326,368
Savings and Money Market	672,052	644,260	614,137
Time	0	0	0
Total Deposits	1,648,675	1,595,790	1,456,598
FHLB Advances & Securities Sold Under Agreement to Repurchase	0		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	41,513	68,104	0
U.S. Treasury Notes	0
Mortgage Backed Securities	256,195	287,948	283,114
Corporate Securities	16,235
Other	310	310	310
Fair/Book value	314,253	356,362	283,424
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	51,966	49,085	54,375
Other	2,123	2,147	2,235
Fair value	54,089	51,232	56,610
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
Unallocated Allowance	0	0	0
Total Loans & Leases, Net of Deferred Fees & Allowance	0	0	0
Accrued Interest Receivable	10,548	7,797	8,986
Deposits [Abstract]
Demand	0	0	0
Interest Bearing Transaction	0	0	0
Savings and Money Market	0	0	0
Time	484,018	468,161	419,663
Total Deposits	484,018	468,161	419,663
FHLB Advances & Securities Sold Under Agreement to Repurchase	5,500		36,000
Subordinated Debentures	6,292	6,227	6,227
Accrued Interest Payable	590	378	314
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
U.S. Treasury Notes	0
Mortgage Backed Securities	0		0
Corporate Securities	0
Other	0	0	0
Fair/Book value	0	0	0
Investment Securities Held-to-Maturity [Abstract]
Obligations of States and Political Subdivisions	12,800	13,403	13,539
Other	0	0	0
Fair value	12,800	13,403	13,539
Loans & Leases, Net of Deferred Fees & Allowance [Abstract]
Commercial Real Estate	552,323	481,037	462,469
Agricultural Real Estate	415,304	353,288	360,976
Real Estate Construction	159,295	95,022	103,095
Residential 1st Mortgages	199,565	173,916	169,971
Home Equity Lines and Loans	31,314	32,456	32,601
Agricultural	243,495	274,195	230,572
Commercial	200,932	222,175	184,466
Consumer & Other	6,543	4,535	4,619
Leases	58,854	40,298	33,519
Unallocated Allowance	(400)	(1,529)	(1,263)
Total Loans & Leases, Net of Deferred Fees & Allowance	1,867,225	1,675,393	1,581,025
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		0
Subordinated Debentures	0	0	0
Accrued Interest Payable	$ 0	$ 0	$ 0

XML

Significant Accounting Policies

9 Months Ended

Sep. 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 nine-month periods ended September 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' consolidated 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 September 30, 2015, December 31, 2014 or September 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.

XML

Investment Securities, Pledged Securities (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2014	Sep. 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	$ 360.0	$ 197.8	$ 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	0.10%

XML

Investment Securities, Proceeds from Sales (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Proceeds from sales and calls of securities [Abstract]
Proceeds	$ 53,465	$ 85,433	$ 58,000	$ 95,349
Gains	266	811	272	845
Losses	$ 0	$ 807	$ 0	$ 807

XML

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		9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 39,037	$ 34,290	$ 35,401	$ 34,274	$ 34,274
Charge-Offs	(21)	(61)	(67)	(204)	(276)
Recoveries	74	38	3,106	197	228
Provision	0	0	650	0	1,175
Ending Balance	39,090	34,267	39,090	34,267	35,401
Ending Balance Individually Evaluated for Impairment	1,196	2,201	1,196	2,201	2,197
Ending Balance Collectively Evaluated for Impairment	37,894	32,066	37,894	32,066	33,204
Loans & Leases [Abstract]
Ending Balance	1,910,270	1,615,771	1,910,270	1,615,771	1,712,244
Ending Balance Individually Evaluated for Impairment	17,191	33,536	17,191	33,536	33,584
Ending Balance Collectively Evaluated for Impairment	1,893,079	1,582,235	1,893,079	1,582,235	1,678,660
Commercial Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	8,591	6,991	7,842	5,178	5,178
Charge-Offs	0	0	0	0	0
Recoveries	0	12	2,939	12	11
Provision	654	795	(1,536)	2,608	2,653
Ending Balance	9,245	7,798	9,245	7,798	7,842
Ending Balance Individually Evaluated for Impairment	61	190	61	190	377
Ending Balance Collectively Evaluated for Impairment	9,184	7,608	9,184	7,608	7,465
Loans & Leases [Abstract]
Ending Balance	558,743	473,505	558,743	473,505	491,903
Ending Balance Individually Evaluated for Impairment	4,120	20,175	4,120	20,175	20,066
Ending Balance Collectively Evaluated for Impairment	554,623	453,330	554,623	453,330	471,837
Agricultural Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	7,272	3,677	4,185	3,576	3,576
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	208	269	3,295	370	609
Ending Balance	7,480	3,946	7,480	3,946	4,185
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	7,480	3,946	7,480	3,946	4,185
Loans & Leases [Abstract]
Ending Balance	432,610	364,161	432,610	364,161	357,207
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	432,610	364,161	432,610	364,161	357,207
Real Estate Construction [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,177	1,290	1,669	654	654
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	211	390	719	1,026	1,015
Ending Balance	2,388	1,680	2,388	1,680	1,669
Ending Balance Individually Evaluated for Impairment	0	239	0	239	0
Ending Balance Collectively Evaluated for Impairment	2,388	1,441	2,388	1,441	1,669
Loans & Leases [Abstract]
Ending Balance	161,762	104,463	161,762	104,463	96,519
Ending Balance Individually Evaluated for Impairment	4,307	4,419	4,307	4,419	4,386
Ending Balance Collectively Evaluated for Impairment	157,455	100,044	157,455	100,044	92,133
Residential 1st Mortgages [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	731	1,094	1,022	1,108	1,108
Charge-Offs	0	(25)	0	(58)	(73)
Recoveries	3	0	4	0	0
Provision	18	73	(274)	92	(13)
Ending Balance	752	1,142	752	1,142	1,022
Ending Balance Individually Evaluated for Impairment	70	370	70	370	422
Ending Balance Collectively Evaluated for Impairment	682	772	682	772	600
Loans & Leases [Abstract]
Ending Balance	196,893	168,310	196,893	168,310	171,880
Ending Balance Individually Evaluated for Impairment	2,036	1,847	2,036	1,847	2,108
Ending Balance Collectively Evaluated for Impairment	194,857	166,463	194,857	166,463	169,772
Home Equity Lines and Loans [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,073	2,737	2,426	2,767	2,767
Charge-Offs	0	(5)	0	(70)	(70)
Recoveries	37	3	85	54	58
Provision	45	(60)	(356)	(76)	(329)
Ending Balance	2,155	2,675	2,155	2,675	2,426
Ending Balance Individually Evaluated for Impairment	35	328	35	328	329
Ending Balance Collectively Evaluated for Impairment	2,120	2,347	2,120	2,347	2,097
Loans & Leases [Abstract]
Ending Balance	31,833	33,283	31,833	33,283	33,017
Ending Balance Individually Evaluated for Impairment	1,264	1,658	1,264	1,658	1,643
Ending Balance Collectively Evaluated for Impairment	30,569	31,625	30,569	31,625	31,374
Agricultural [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	5,046	8,291	6,104	12,205	12,205
Charge-Offs	0	0	0	0	0
Recoveries	1	1	3	3	8
Provision	91	(2,510)	(969)	(6,426)	(6,109)
Ending Balance	5,138	5,782	5,138	5,782	6,104
Ending Balance Individually Evaluated for Impairment	120	120	120	120	114
Ending Balance Collectively Evaluated for Impairment	5,018	5,662	5,018	5,662	5,990
Loans & Leases [Abstract]
Ending Balance	249,783	237,521	249,783	237,521	281,963
Ending Balance Individually Evaluated for Impairment	630	518	630	518	461
Ending Balance Collectively Evaluated for Impairment	249,153	237,003	249,153	237,003	281,502
Commercial [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	8,878	7,377	8,195	5,697	5,697
Charge-Offs	0	0	(12)	0	(1)
Recoveries	20	6	24	83	86
Provision	(653)	532	38	2,135	2,413
Ending Balance	8,245	7,915	8,245	7,915	8,195
Ending Balance Individually Evaluated for Impairment	879	912	879	912	914
Ending Balance Collectively Evaluated for Impairment	7,366	7,003	7,366	7,003	7,281
Loans & Leases [Abstract]
Ending Balance	210,491	192,804	210,491	192,804	230,819
Ending Balance Individually Evaluated for Impairment	4,797	4,877	4,797	4,877	4,874
Ending Balance Collectively Evaluated for Impairment	205,694	187,927	205,694	187,927	225,945
Consumer & Other [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	217	193	218	176	176
Charge-Offs	(21)	(31)	(55)	(76)	(132)
Recoveries	13	16	51	45	65
Provision	7	43	2	76	109
Ending Balance	216	221	216	221	218
Ending Balance Individually Evaluated for Impairment	31	42	31	42	41
Ending Balance Collectively Evaluated for Impairment	185	179	185	179	177
Loans & Leases [Abstract]
Ending Balance	6,735	4,816	6,735	4,816	4,719
Ending Balance Individually Evaluated for Impairment	37	42	37	42	46
Ending Balance Collectively Evaluated for Impairment	6,698	4,774	6,698	4,774	4,673
Leases [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,532	1,108	2,211	639	639
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	539	737	860	1,206	1,572
Ending Balance	3,071	1,845	3,071	1,845	2,211
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	3,071	1,845	3,071	1,845	2,211
Loans & Leases [Abstract]
Ending Balance	61,420	36,908	61,420	36,908	44,217
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	61,420	36,908	61,420	36,908	44,217
Unallocated [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,520	1,532	1,529	2,274	2,274
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	(1,120)	(269)	(1,129)	(1,011)	(745)
Ending Balance	400	1,263	400	1,263	1,529
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	400	1,263	400	1,263	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	$ 9,300	$ 26,600	$ 9,300	$ 26,600	$ 26,400

XML

Loans & Leases and Allowance for Credit Losses, Loan Portfolio Allocated by Management's Internal Risk Ratings (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 1,910,270	$ 1,712,244	$ 1,615,771
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	1,883,570	1,678,690	1,577,302
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	20,667	29,934	34,779
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,033	3,620	3,690
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	558,743	491,903	473,505
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	550,011	483,146	464,714
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	8,038	8,651	8,683
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	694	106	108
Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	432,610	357,207	364,161
Agricultural Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	432,610	357,207	364,161
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	161,762	96,519	104,463
Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	160,133	94,887	102,831
Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	1,629	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	196,893	171,880	168,310
Residential 1st Mortgages [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	195,477	170,462	166,884
Residential 1st Mortgages [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	733	744	752
Residential 1st Mortgages [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	683	674	674
Home Equity Lines & Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	31,833	33,017	33,283
Home Equity Lines & Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	31,149	32,054	32,309
Home Equity Lines & Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	78	85	88
Home Equity Lines & Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	606	878	886
Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	249,783	281,963	237,521
Agricultural [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	249,116	281,232	236,760
Agricultural [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	437	679	695
Agricultural [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	230	52	66
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	210,491	230,819	192,804
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	197,193	211,036	168,215
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	9,752	18,143	22,929
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	3,546	1,640	1,660
Consumer & Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,735	4,719	4,816
Consumer & Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,461	4,449	4,520
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	274	270	296
Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	61,420	44,217	36,908
Leases [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	61,420	44,217	36,908
Leases [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0	0
Leases [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 0	$ 0	$ 0

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Operating Activities:
Net Income	$ 20,192	$ 18,818
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	650	0
Depreciation and Amortization	1,184	991
Net Amortization of Investment Security Premiums & Discounts	1,163	1,249
Net Gain on Sale of Investment Securities	(272)	(38)
Net Gain on Sale of Property & Equipment	(392)	(15)
Net Change in Operating Assets & Liabilities:
Net Increase in Interest Receivable and Other Assets	(1,245)	(5,984)
Net Increase (Decrease) in Interest Payable and Other Liabilities	60,303	(258)
Net Cash Provided by Operating Activities	81,583	14,763
Investing Activities:
Purchase of Investment Securities Available-for-Sale	(134,407)	(65,637)
Proceeds from Sold, Matured or Called Securities Available-for-Sale	156,214	138,298
Purchase of Investment Securities Held-to-Maturity	(12,015)	(15,660)
Proceeds from Matured or Called Securities Held-to-Maturity	9,574	14,711
Net Loans & Leases Paid, Originated or Acquired	(198,093)	(227,739)
Principal Collected on Loans & Leases Previously Charged Off	3,106	197
Additions to Premises and Equipment	(2,498)	(3,045)
Proceeds from Sale of Property & Equipment	671	29
Net Cash Used by Investing Activities	(177,448)	(158,846)
Financing Activities:
Net Increase in Deposits	68,569	68,522
Net Change in Other Borrowings	5,500	36,000
Cash Dividends	(5,029)	(4,900)
Net Cash Provided by Financing Activities	69,040	99,622
Decrease in Cash and Cash Equivalents	(26,825)	(44,461)
Cash and Cash Equivalents at Beginning of Period	77,125	83,677
Cash and Cash Equivalents at End of Period	50,300	39,216
Supplementary Data
Cash Payments Made for Income Taxes	5,175	10,900
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans	2,413	0
Interest Paid	$ 2,275	$ 2,103

XML

Loans & Leases and Allowance for Credit Losses, Aging Analysis of Loan Portfolio by the Time Past Due (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	$ 0	$ 0	$ 0
Nonaccrual	2,904	2,270	2,497
Total Past Due	3,330	2,359	2,601
Current	1,906,940	1,709,885	1,613,170
Total Loans & Leases	1,910,270	1,712,244	1,615,771
30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	230	89	104
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	696	0	0
Total Past Due	696	0	0
Current	558,047	491,903	473,505
Total Loans & Leases	558,743	491,903	473,505
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	432,610	357,207	364,161
Total Loans & Leases	432,610	357,207	364,161
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	161,762	96,519	104,463
Total Loans & Leases	161,762	96,519	104,463
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	68	77	283
Total Past Due	338	77	283
Current	196,555	171,803	168,027
Total Loans & Leases	196,893	171,880	168,310
Residential 1st Mortgages [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	74	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	575
Total Past Due	726	655	667
Current	31,107	32,362	32,616
Total Loans & Leases	31,833	33,017	33,283
Home Equity Lines & Loans [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	150	79	92
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	8	18	25
Total Past Due	8	18	25
Current	249,775	281,945	237,496
Total Loans & Leases	249,783	281,963	237,521
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	1,545	1,586	1,600
Total Past Due	1,545	1,586	1,600
Current	208,946	229,233	191,204
Total Loans & Leases	210,491	230,819	192,804
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	14
Total Past Due	17	23	26
Current	6,718	4,696	4,790
Total Loans & Leases	6,735	4,719	4,816
Consumer & Other [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	6	10	12
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	61,420	44,217	36,908
Total Loans & Leases	61,420	44,217	36,908
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	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Cash and Cash Equivalents:
Cash and Due from Banks	$ 41,595	$ 42,375	$ 34,293
Interest Bearing Deposits with Banks	8,705	34,750	4,923
Total Cash and Cash Equivalents	50,300	77,125	39,216
Investment Securities:
Available-for-Sale	344,728	366,542	336,526
Held-to-Maturity	66,257	63,863	69,441
Total Investment Securities	410,985	430,405	405,967
Loans & leases	1,910,270	1,712,244	1,615,771
Less: Allowance for Credit Losses	39,090	35,401	34,267
Loans & Leases, Net	1,871,180	1,676,843	1,581,504
Premises and Equipment, Net	26,856	25,821	24,927
Bank Owned Life Insurance	55,418	53,990	53,514
Interest Receivable and Other Assets	85,332	96,367	92,541
Total Assets	2,500,071	2,360,551	2,197,669
Deposits:
Demand	603,430	610,133	516,093
Interest Bearing Transaction	373,193	341,397	326,368
Savings and Money Market	672,052	644,260	614,137
Time	483,967	468,283	419,615
Total Deposits	2,132,642	2,064,073	1,876,213
Federal Home Loan Bank Advances	5,500	0	36,000
Subordinated Debentures	10,310	10,310	10,310
Interest Payable and Other Liabilities	100,495	52,990	47,910
Total Liabilities	2,248,947	2,127,373	1,970,433
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, 788,982, 784,082 and 777,882 Shares Issued and Outstanding at September 30, 2015, December 31, 2014 and September 30, 2014, Respectively	8	8	8
Additional Paid-In Capital	80,217	77,804	75,014
Retained Earnings	167,996	152,833	151,268
Accumulated Other Comprehensive Income	2,903	2,533	946
Total Shareholders' Equity	251,124	233,178	227,236
Total Liabilities and Shareholders' Equity	$ 2,500,071	$ 2,360,551	$ 2,197,669

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	18,818	0	18,818
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	3,414	3,414
Balance at Sep. 30, 2014	$ 8	75,014	151,268	946	$ 227,236
Balance (in shares) at Sep. 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	20,192	0	$ 20,192
Cash Dividends Declared on Common Stock	0	0	(5,029)	0	(5,029)
Issuance of Common Stock	$ 0	2,413	0	0	2,413
Issuance of Common Stock (in shares)	4,900
Change in Net Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Tax	$ 0	0	0	370	370
Balance at Sep. 30, 2015	$ 8	$ 80,217	$ 167,996	$ 2,903	$ 251,124
Balance (in shares) at Sep. 30, 2015	788,982				788,982

XML

Fair Value Measurements (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Fair Value Measurements [Abstract]
Percentage of selling costs reduced in sales comparison approach	10.00%
Consumer mortgage loans in the process of foreclosure value	$ 575,000
Available-for-Sale Securities [Abstract]
Fair/Book value	344,728,000	$ 366,542,000	$ 336,526,000
Recurring [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	41,513,000	78,109,000	13,361,000
US Treasury Notes	30,300,000
Mortgage Backed Securities	256,195,000	287,948,000	322,680,000
Corporate Securities	16,235,000
Other	485,000	485,000	485,000
Fair/Book value	344,728,000	366,542,000	336,526,000
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	13,361,000
US Treasury Notes	30,300,000
Mortgage Backed Securities	0	0	39,566,000
Corporate Securities	0
Other	175,000	175,000	175,000
Fair/Book value	30,475,000	10,180,000	53,102,000
Recurring [Member] | Other Observable Inputs (Level 2) [Member]
Available-for-Sale Securities [Abstract]
Government Agency & Government-Sponsored Entities	41,513,000	68,104,000	0
US Treasury Notes	0
Mortgage Backed Securities	256,195,000	287,948,000	283,114,000
Corporate Securities	16,235,000
Other	310,000	310,000	310,000
Fair/Book value	314,253,000	356,362,000	283,424,000
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		0
Other	0	0	0
Fair/Book value	0	0	0
Nonrecurring [Member]
Impaired Loans [Abstract]
Commercial Real Estate		90,000	92,000
Residential 1st Mortgage	334,000	748,000	526,000
Home Equity Lines and Loans	126,000	759,000	763,000
Agricultural	308,000	346,000	363,000
Commercial	800,000	3,832,000	3,836,000
Consumer	5,000	6,000
Total Impaired Loans	1,573,000	5,781,000	5,580,000
Other Real Estate [Abstract]
Real Estate Construction	2,441,000	2,441,000	2,441,000
Agricultural Real Estate		858,000	858,000
Total Other Real Estate	2,441,000	3,299,000	3,299,000
Total Assets Measured at Fair Value On a Non-Recurring Basis	4,014,000	9,080,000	8,879,000
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Impaired Loans [Abstract]
Commercial Real Estate		0	0
Residential 1st Mortgage	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	0
Residential 1st Mortgage	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	92,000
Residential 1st Mortgage	334,000	748,000	526,000
Home Equity Lines and Loans	126,000	759,000	763,000
Agricultural	308,000	346,000	363,000
Commercial	800,000	3,832,000	3,836,000
Consumer	5,000	6,000
Total Impaired Loans	1,573,000	5,781,000	5,580,000
Other Real Estate [Abstract]
Real Estate Construction	2,441,000	2,441,000	2,441,000
Agricultural Real Estate		858,000	858,000
Total Other Real Estate	2,441,000	3,299,000	3,299,000
Total Assets Measured at Fair Value On a Non-Recurring Basis	$ 4,014,000	$ 9,080,000	$ 8,879,000

XML

Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 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
September 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	$	50,300		$	50,300	$	-	$	-		$	50,300
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		41,513			-		41,513		-			41,513
U.S. Treasury Notes		30,300			30,300		-		-			30,300
Mortgage Backed Securities		256,195			-		256,195		-			256,195
Corporate Securities		16,235			-		16,235		-			16,235
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		344,728			30,475		314,253		-			344,728
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		64,134			-		51,966		12,800			64,766
Other		2,123			-		2,123		-			2,123
Total Investment Securities Held-to-Maturity		66,257			-		54,089		12,800			66,889
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		549,498			-		-		552,323			552,323
Agricultural Real Estate		425,130			-		-		415,304			415,304
Real Estate Construction		159,374			-		-		159,295			159,295
Residential 1st Mortgages		196,141			-		-		199,565			199,565
Home Equity Lines and Loans		29,678			-		-		31,314			31,314
Agricultural		244,645			-		-		243,495			243,495
Commercial		202,246			-		-		200,932			200,932
Consumer & Other		6,519			-		-		6,543			6,543
Leases		58,349							58,854			58,854
Unallocated Allowance		(400	)		-		-		(400	)		(400	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,871,180			-		-		1,867,225			1,867,225
Accrued Interest Receivable		10,548			-		10,548		-			10,548
Liabilities:
Deposits:
Demand		603,430			603,430		-		-			603,430
Interest Bearing Transaction		373,193			373,193		-		-			373,193
Savings and Money Market		672,052			672,052		-		-			672,052
Time		483,967			-		484,018		-			484,018
Total Deposits		2,132,642			1,648,675		484,018		-			2,132,693
FHLB Advances & Securities Sold Under Agreement to Repurchase		5,500			-		5,500		-			5,500
Subordinated Debentures		10,310			-		6,292		-			6,292
Accrued Interest Payable		590			-		590		-			590

				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
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
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
September 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	$	39,216		$	39,216	$	-	$	-		$	39,216
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		13,361			13,361		-		-			13,361
Mortgage Backed Securities		322,680			39,566		283,114		-			322,680
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		336,526			53,102		283,424		-			336,526
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,206			-		54,375		13,539			67,914
Other		2,235			-		2,235		-			2,235
Total Investment Securities Held-to-Maturity		69,441			-		56,610		13,539			70,149
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		465,707			-		-		462,469			462,469
Agricultural Real Estate		360,215			-		-		360,976			360,976
Real Estate Construction		102,783			-		-		103,095			103,095
Residential 1st Mortgages		167,168			-		-		169,971			169,971
Home Equity Lines and Loans		30,608			-		-		32,601			32,601
Agricultural		231,739			-		-		230,572			230,572
Commercial		184,889			-		-		184,466			184,466
Consumer & Other		4,595			-		-		4,619			4,619
Leases		35,063							33,519			33,519
Unallocated Allowance		(1,263	)		-		-		(1,263	)		(1,263	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,581,504			-		-		1,581,025			1,581,025
Accrued Interest Receivable		8,986			-		8,986		-			8,986
Liabilities:
Deposits:
Demand		516,093			516,093		-		-			516,093
Interest Bearing Transaction		326,368			326,368		-		-			326,368
Savings and Money Market		614,137			614,137		-		-			614,137
Time		419,615			-		419,663		-			419,663
Total Deposits		1,876,213			1,456,598		419,663		-			1,876,261
FHLB Advances & Securities Sold Under Agreement to Repurchase		36,000			-		36,000		-			36,000
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		314			-		314		-			314

Fair value estimates presented herein are based on pertinent information available to management as of September 30, 2015, December 31, 2014, and September 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.

XML

Fair Value Measurements, Quantitative Information (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 334
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	2.00%
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	5.00%
Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	4.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 126
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	1.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	3.00%
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	2.00%
Agricultural [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 308
Unobservable inputs	Capitalization Rate
Agricultural [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Agricultural [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Agricultural [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Commercial [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 800
Unobservable inputs	Capitalization Rate
Commercial [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Commercial [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Commercial [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate	16.00%
Consumer [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Fair value	$ 5
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	1.00%
Consumer [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	1.00%
Consumer [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	1.00%
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	10.00%
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	10.00%
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	10.00%

XML

Significant Accounting Policies (Details)	9 Months Ended
	Sep. 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	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	9 Months Ended
	Sep. 30, 2015	Sep. 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

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2015	Dec. 31, 2014	Sep. 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)	788,982	784,082	777,882
Common Stock, outstanding (in shares)	788,982	784,082	777,882

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 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 nine-month periods ended September 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' consolidated 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 September 30, 2015, December 31, 2014 or September 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.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 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		788,982
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2015

XML

Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 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. Management is currently evaluating the impact of adoption.

In August 2015, the FASB issued ASU 2015-14 - Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Interest Income
Interest and Fees on Loans & Leases	$ 20,915	$ 18,166	$ 59,648	$ 51,178
Interest on Deposits with Banks	36	5	159	110
Interest on Investment Securities:
Taxable	1,574	1,849	4,742	6,073
Exempt from Federal Tax	513	594	1,538	1,758
Total Interest Income	23,038	20,614	66,087	59,119
Interest Expense
Deposits	777	621	2,243	1,819
Borrowed Funds	0	5	0	5
Subordinated Debentures	83	82	244	242
Total Interest Expense	860	708	2,487	2,066
Net Interest Income	22,178	19,906	63,600	57,053
Provision for Credit Losses	0	0	650	0
Net Interest Income After Provision for Credit Losses	22,178	19,906	62,950	57,053
Non-Interest Income
Service Charges on Deposit Accounts	840	1,022	2,603	2,944
Net Gain on Sale of Investment Securities	266	4	272	38
Increase in Cash Surrender Value of Life Insurance	485	477	1,428	1,405
Debit Card and ATM Fees	808	797	2,389	2,322
Net Gain (Loss) on Deferred Compensation Investments	224	(37)	773	1,493
Other	1,087	657	3,735	1,823
Total Non-Interest Income	3,710	2,920	11,200	10,025
Non-Interest Expense
Salaries and Employee Benefits	9,980	9,336	29,645	26,710
Net Gain (Loss) on Deferred Compensation Investments	224	(37)	773	1,493
Occupancy	757	724	2,142	1,981
Equipment	786	714	2,294	2,117
FDIC Insurance	302	264	883	778
Other	2,439	1,541	5,730	4,137
Total Non-Interest Expense	14,488	12,542	41,467	37,216
Income Before Income Taxes	11,400	10,284	32,683	29,862
Provision for Income Taxes	4,360	3,852	12,491	11,044
Net Income	$ 7,040	$ 6,432	$ 20,192	$ 18,818
Basic Earnings Per Common Share (in dollars per share)	$ 8.96	$ 8.27	$ 25.70	$ 24.19

XML

Fair Value Measurements

9 Months Ended

Sep. 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 September 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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	41,513	$	-	$	41,513	$	-
US Treasury Notes		30,300		30,300		-		-
Mortgage Backed Securities		256,195		-		256,195		-
Corporate Securities		16,235		-		16,235		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	344,728	$	30,475	$	314,253	$	-
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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 September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	13,361	$	13,361	$	-	$	-
Mortgage Backed Securities		322,680		39,566		283,114		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	336,526	$	53,102	$	283,424	$	-

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the nine months ended September 30, 2015, the year ended December 31, 2014, and the nine months ended September 30, 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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Residential 1st Mortgage	$	334	$	-	$	-	$	334
Home Equity Lines and Loans		126		-		-		126
Agricultural		308		-		-		308
Commercial		800		-		-		800
Consumer		5						5
Total Impaired Loans		1,573		-		-		1,573
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	$	4,014	$	-	$	-	$	4,014
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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 September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Commercial Real Estate	$	92	$	-	$	-	$	92
Residential 1st Mortgages		526		-		-		526
Home Equity Lines and Loans		763		-		-		763
Agricultural		363		-		-		363
Commercial		3,836		-		-		3,836
Total Impaired Loans		5,580		-		-		5,580
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	$	8,879	$	-	$	-	$	8,879

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 September 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	334	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	126	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	308	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	800	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	5	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 1%, 1	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

XML

Loans & Leases and Allowance for Credit Losses

9 Months Ended

Sep. 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):

September 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	)		(55	)		-		-			(67	)
Recoveries		2,939			-		-		4			85			3			24			51			-		-			3,106
Provision		(1,536	)		3,295		719		(274	)		(356	)		(969	)		38			2			860		(1,129	)		650
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Charge-Offs		-			-		-		-			-			-			-			(21	)		-		-			(21	)
Recoveries		-			-		-		3			37			1			20			13			-		-			74
Provision		654			208		211		18			45			91			(653	)		7			539		(1,120	)		-
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Ending Balance Individually Evaluated for Impairment		61			-		-		70			35			120			879			31			-		-			1,196
Ending Balance Collectively Evaluated for Impairment		9,184			7,480		2,388		682			2,120			5,018			7,366			185			3,071		400			37,894
Loans & Leases:
Ending Balance	$	558,743		$	432,610	$	161,762	$	196,893		$	31,833		$	249,783		$	210,491		$	6,735		$	61,420	$	-		$	1,910,270
Ending Balance Individually Evaluated for Impairment		4,120			-		4,307		2,036			1,264			630			4,797			37			-		-			17,191
Ending Balance Collectively Evaluated for Impairment	$	554,623		$	432,610	$	157,455	$	194,857		$	30,569		$	249,153		$	205,694		$	6,698		$	61,420	$	-		$	1,893,079

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

September 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		-		-		-		(58	)		(70	)		-			-		(76	)		-		-			(204	)
Recoveries		12		-		-		-			54			3			83		45			-		-			197
Provision		2,608		370		1,026		92			(76	)		(6,426	)		2,135		76			1,206		(1,011	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Charge-Offs		-		-		-		(25	)		(5	)		-			-		(31	)		-		-			(61	)
Recoveries		12		-		-		-			3			1			6		16			-		-			38
Provision		795		269		390		73			(60	)		(2,510	)		532		43			737		(269	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Ending Balance Individually Evaluated for Impairment		190		-		239		370			328			120			912		42			-		-			2,201
Ending Balance Collectively Evaluated for Impairment		7,608		3,946		1,441		772			2,347			5,662			7,003		179			1,845		1,263			32,066
Loans & Leases:
Ending Balance	$	473,505	$	364,161	$	104,463	$	168,310		$	33,283		$	237,521		$	192,804	$	4,816		$	36,908	$	-		$	1,615,771
Ending Balance Individually Evaluated for Impairment		20,175		-		4,419		1,847			1,658			518			4,877		42			-		-			33,536
Ending Balance Collectively Evaluated for Impairment		453,330		364,161		100,044		166,463			31,625			237,003			187,927		4,774			36,908		-			1,582,235

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $9.3 million at September 30, 2015, $26.4 million at December 31, 2014 and $26.6 million at September 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):

September 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	550,011	$	8,038	$	694	$	558,743
Agricultural Real Estate		432,610		-		-		432,610
Real Estate Construction		160,133		1,629		-		161,762
Residential 1st Mortgages		195,477		733		683		196,893
Home Equity Lines & Loans		31,149		78		606		31,833
Agricultural		249,116		437		230		249,783
Commercial		197,193		9,752		3,546		210,491
Consumer & Other		6,461		-		274		6,735
Leases		61,420		-		-		61,420
Total	$	1,883,570	$	20,667	$	6,033	$	1,910,270

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

September 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	464,714	$	8,683	$	108	$	473,505
Agricultural Real Estate		364,161		-		-		364,161
Real Estate Construction		102,831		1,632		-		104,463
Residential 1st Mortgages		166,884		752		674		168,310
Home Equity Lines & Loans		32,309		88		886		33,283
Agricultural		236,760		695		66		237,521
Commercial		168,215		22,929		1,660		192,804
Consumer & Other		4,520		-		296		4,816
Leases		36,908		-		-		36,908
Total	$	1,577,302	$	34,779	$	3,690	$	1,615,771

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 rated doubtful or loss at September 30, 2015, December 31, 2014, and September 30, 2014.

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

(in thousands):

September 30, 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	$	-	$	-	$	-	$	696	$	696	$	558,047	$	558,743
Agricultural Real Estate		-		-		-		-		-		432,610		432,610
Real Estate Construction		-		-		-		-		-		161,762		161,762
Residential 1st Mortgages		74		196		-		68		338		196,555		196,893
Home Equity Lines & Loans		150		-		-		576		726		31,107		31,833
Agricultural		-		-		-		8		8		249,775		249,783
Commercial		-		-		-		1,545		1,545		208,946		210,491
Consumer & Other		6		-		-		11		17		6,718		6,735
Leases		-		-		-		-		-		61,420		61,420
Total	$	230	$	196	$	-	$	2,904	$	3,330	$	1,906,940	$	1,910,270

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

September 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	$	-	$	-	$	-	$	-	$	-	$	473,505	$	473,505
Agricultural Real Estate		-		-		-		-		-		364,161		364,161
Real Estate Construction		-		-		-		-		-		104,463		104,463
Residential 1st Mortgages		-		-		-		283		283		168,027		168,310
Home Equity Lines & Loans		92		-		-		575		667		32,616		33,283
Agricultural		-		-		-		25		25		237,496		237,521
Commercial		-		-		-		1,600		1,600		191,204		192,804
Consumer & Other		12		-		-		14		26		4,790		4,816
Leases		-		-		-		-		-		36,908		36,908
Total	$	104	$	-	$	-	$	2,497	$	2,601	$	1,613,170	$	1,615,771

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

							Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
September 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	$	821	$	821	$	-	$	812	$	2	$	468	$	6
Residential 1st Mortgages		557		623		-		561		4		471		12
Home Equity Lines & Loans		619		659		-		620		1		531		2
Agricultural		203		216		-		107		-		42		-
Commercial		3,118		3,118		-		3,122		26		1,578		54
	$	5,318	$	5,437	$	-	$	5,222	$	33	$	3,090	$	74
With an allowance recorded:
Residential 1st Mortgages	$	352	$	424	$	17	$	354	$	4	$	453		12
Home Equity Lines & Loans		135		153		7		136		2		273		4
Agricultural		427		427		120		435		7		443		21
Commercial		1,679		1,803		879		1,687		2		3,233		29
Consumer & Other		37		43		31		39		-		42		2
	$	2,630	$	2,850	$	1,054	$	2,651	$	15	$	4,444	$	68
Total	$	7,948	$	8,287	$	1,054	$	7,873	$	48	$	7,534	$	142

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 September 30, 2014				Nine Months Ended September 30, 2014
September 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	$	-	$	-	$	-	$	49	$	-	$	82	$	4
Home Equity Lines & Loans		-		-		-		-		-		226		-
Agricultural		-		-		-		14		-		26		-
Commercial		-		-		-		1,575		-		2,740		54
	$	-	$	-	$	-	$	1,638	$	-	$	3,074	$	58
With an allowance recorded:
Commercial Real Estate	$	94	$	94	$	2	$	47	$	2	$	16	$	2
Residential 1st Mortgages		658		771		131		550		1		522		3
Home Equity Lines & Loans		955		1,008		191		934		3		710		6
Agricultural		483		493		119		478		7		477		21
Commercial		4,744		4,801		908		3,179		27		2,144		27
Consumer & Other		43		47		43		44		1		47		2
	$	6,977	$	7,214	$	1,394	$	5,232	$	41	$	3,916	$	61
Total	$	6,977	$	7,214	$	1,394	$	6,870	$	41	$	6,990	$	119

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 September 30, 2015, the Company allocated $1.1 million of specific reserves to $6.6 million of troubled debt restructured loans & leases, of which $5.0 million were performing. The Company had no commitments at September 30, 2015 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and nine month period ending September 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 from 5 to 10 years. Modifications involving an extension of the maturity date were from 5 to 10 years.

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

	Three Months Ended September 30, 2015						Nine Months Ended September 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
Agricultural		1	$	194	$	194		1	$	194	$	194
Commercial		-		-		-		1		131		119
Total		1	$	194	$	194		2	$	325	$	313

The TDRs described above increased the allowance for credit losses by $0 and $70,000 for the three and nine-month periods ending September 30, 2015, and resulted in charge-offs of $0 and $12,000 for the three and nine-month periods ended September 30, 2015.

During the three and nine-months ended September 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.

At September 30, 2014, the Company allocated $1.3 million of specific reserves to $6.4 million of troubled debt restructured loans & leases, of which $4.5 million were performing. The Company had no commitments at September 30, 2014 to lend additional amounts to customers with outstanding loans or leases that are classified as troubled debt restructurings.

During the three and nine month periods ending September 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 nine-month periods ended September 30, 2014 (in thousands):

	Three Months Ended September 30, 2014						Nine Months Ended September 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	$	248	$	222		4	$	565	$	528
Home Equity Lines & Loans		1		51		47		3		98		89
Agricultural		-		-		-		1		32		32
Total		2	$	299	$	269		8	$	695	$	649

The TDRs described above increased the allowance for credit losses by $51,000 and $50,000 and resulted in charge-offs of $30,000 and $46,000 for the three and nine-month periods ended September 30, 2014.

During the three and nine-months ended September 30, 2014, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

XML

Dividends and Basic Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2015

Dividends and Basic Earnings Per Common Share [Abstract]

Calculation of Basic Earnings per Share

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 September 30, 2015 and 2014.

	Three Months Ended September 30,				Nine Months Ended September 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	7,040	$	6,432	$	20,192	$	18,818
Weighted Average Number of Common Shares Outstanding		785,852		777,882		785,668		777,882
Basic Earnings Per Common Share Amount	$	8.96	$	8.27	$	25.70	$	24.19

XML

Investment Securities (Tables)

9 Months Ended

Sep. 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
September 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	41,448	$	65	$	-	$	41,513
US Treasury Notes		30,069		231		-		30,300
Mortgage Backed Securities (1)		251,483		5,024		312		256,195
Corporate Securities		16,235		-		-		16,235
Other		485		-		-		485
Total	$	339,720	$	5,320	$	312	$	344,728
	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
September 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	13,220	$	141	$	-	$	13,361
Mortgage Backed Securities (1)		321,187		3,936		2,443		322,680
Other		485		-		-		485
Total	$	334,892	$	4,077	$	2,443	$	336,526

⁽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
September 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	64,134	$	658	$	26	$	64,766
Other		2,123		-		-		2,123
Total	$	66,257	$	658	$	26	$	66,889
	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
September 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,206	$	725	$	17	$	67,914
Other		2,235		-		-		2,235
Total	$	69,441	$	725	$	17	$	70,149

Amortized Cost and Estimated Fair Values of Investment Securities by Contractual Maturity

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

	Available-for-Sale				Held-to-Maturity
September 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	26,719	$	26,722	$	2,124	$	2,123
After one year through five years		61,518		61,811		15,386		15,462
After five years through ten years		-		-		9,286		9,382
After ten years		-		-		39,461		39,922
		88,237		88,533		66,257		66,889
Investment securities not due at a single maturity date:
Mortgage Backed Securities		251,483		256,195		-		-
Total	$	339,720	$	344,728	$	66,257	$	66,889

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
September 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Total	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,991	$	26	$	-	$	-	$	1,991	$	26
Total	$	1,991	$	26	$	-	$	-	$	1,991	$	26
	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
September 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	62,825	$	240	$	64,968	$	2,203		127,793	$	2,443
Total	$	62,825	$	240	$	64,968	$	2,203	$	127,793	$	2,443
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17
Total	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17

Proceeds from Sales and Calls of Securities

Proceeds from sales and calls of securities were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	53,465	$	85,433	$	58,000	$	95,349
Gains		266		811		272		845
Losses		-		807		-		807

XML

Shareholders' Equity

9 Months Ended

Sep. 30, 2015

Shareholders' Equity [Abstract]

Shareholders' Equity

7. Shareholders’ Equity

In January, 2015, the Company issued 1,700 shares of common stock and in September, 2015, the Company issued 3,200 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued in January had a price of $450 per share and the shares issued in September had a price of $515 per share. These share prices were based upon valuations 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. The proceeds from these issuances were contributed to the Bank as equity capital.

XML

Fair Value of Financial Instruments

9 Months Ended

Sep. 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
September 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	$	50,300		$	50,300	$	-	$	-		$	50,300
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		41,513			-		41,513		-			41,513
U.S. Treasury Notes		30,300			30,300		-		-			30,300
Mortgage Backed Securities		256,195			-		256,195		-			256,195
Corporate Securities		16,235			-		16,235		-			16,235
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		344,728			30,475		314,253		-			344,728
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		64,134			-		51,966		12,800			64,766
Other		2,123			-		2,123		-			2,123
Total Investment Securities Held-to-Maturity		66,257			-		54,089		12,800			66,889
FHLB Stock		7,795			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		549,498			-		-		552,323			552,323
Agricultural Real Estate		425,130			-		-		415,304			415,304
Real Estate Construction		159,374			-		-		159,295			159,295
Residential 1st Mortgages		196,141			-		-		199,565			199,565
Home Equity Lines and Loans		29,678			-		-		31,314			31,314
Agricultural		244,645			-		-		243,495			243,495
Commercial		202,246			-		-		200,932			200,932
Consumer & Other		6,519			-		-		6,543			6,543
Leases		58,349							58,854			58,854
Unallocated Allowance		(400	)		-		-		(400	)		(400	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,871,180			-		-		1,867,225			1,867,225
Accrued Interest Receivable		10,548			-		10,548		-			10,548
Liabilities:
Deposits:
Demand		603,430			603,430		-		-			603,430
Interest Bearing Transaction		373,193			373,193		-		-			373,193
Savings and Money Market		672,052			672,052		-		-			672,052
Time		483,967			-		484,018		-			484,018
Total Deposits		2,132,642			1,648,675		484,018		-			2,132,693
FHLB Advances & Securities Sold Under Agreement to Repurchase		5,500			-		5,500		-			5,500
Subordinated Debentures		10,310			-		6,292		-			6,292
Accrued Interest Payable		590			-		590		-			590

				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
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
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
September 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	$	39,216		$	39,216	$	-	$	-		$	39,216
Investment Securities Available-for-Sale:
Government Agency & Government-Sponsored Entities		13,361			13,361		-		-			13,361
Mortgage Backed Securities		322,680			39,566		283,114		-			322,680
Other		485			175		310		-			485
Total Investment Securities Available-for-Sale		336,526			53,102		283,424		-			336,526
Investment Securities Held-to-Maturity:
Obligations of States and Political Subdivisions		67,206			-		54,375		13,539			67,914
Other		2,235			-		2,235		-			2,235
Total Investment Securities Held-to-Maturity		69,441			-		56,610		13,539			70,149
FHLB Stock		7,677			N/A		N/A		N/A			N/A
Loans & Leases, Net of Deferred Fees & Allowance:
Commercial Real Estate		465,707			-		-		462,469			462,469
Agricultural Real Estate		360,215			-		-		360,976			360,976
Real Estate Construction		102,783			-		-		103,095			103,095
Residential 1st Mortgages		167,168			-		-		169,971			169,971
Home Equity Lines and Loans		30,608			-		-		32,601			32,601
Agricultural		231,739			-		-		230,572			230,572
Commercial		184,889			-		-		184,466			184,466
Consumer & Other		4,595			-		-		4,619			4,619
Leases		35,063							33,519			33,519
Unallocated Allowance		(1,263	)		-		-		(1,263	)		(1,263	)
Total Loans & Leases, Net of Deferred Fees & Allowance		1,581,504			-		-		1,581,025			1,581,025
Accrued Interest Receivable		8,986			-		8,986		-			8,986
Liabilities:
Deposits:
Demand		516,093			516,093		-		-			516,093
Interest Bearing Transaction		326,368			326,368		-		-			326,368
Savings and Money Market		614,137			614,137		-		-			614,137
Time		419,615			-		419,663		-			419,663
Total Deposits		1,876,213			1,456,598		419,663		-			1,876,261
FHLB Advances & Securities Sold Under Agreement to Repurchase		36,000			-		36,000		-			36,000
Subordinated Debentures		10,310			-		6,227		-			6,227
Accrued Interest Payable		314			-		314		-			314

Fair value estimates presented herein are based on pertinent information available to management as of September 30, 2015, December 31, 2014, and September 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.

XML

Dividends and Basic Earnings Per Common Share

9 Months Ended

Sep. 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.

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 September 30, 2015 and 2014.

	Three Months Ended September 30,				Nine Months Ended September 30,
(net income in thousands)	2015		2014		2015		2014
Net Income	$	7,040	$	6,432	$	20,192	$	18,818
Weighted Average Number of Common Shares Outstanding		785,852		777,882		785,668		777,882
Basic Earnings Per Common Share Amount	$	8.96	$	8.27	$	25.70	$	24.19

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 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. Management is currently evaluating the impact of adoption.

In August 2015, the FASB issued ASU 2015-14 - Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

XML

Loans & Leases and Allowance for Credit Losses, Loans by Class Modified as Troubled Debt Restructured Loans (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2015 USD ($) Loan	Sep. 30, 2014 USD ($) Loan	Sep. 30, 2015 USD ($) Loan	Sep. 30, 2014 USD ($) Loan	Dec. 31, 2014 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Specific reserves	$ 1,100,000	$ 1,300,000	$ 1,100,000	$ 1,300,000	$ 1,300,000
Troubled debt restructured loans	6,600,000	$ 6,400,000	6,600,000	$ 6,400,000	6,600,000
Commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings	$ 0		$ 0		$ 0
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1	2	2	8	11
Pre-Modification Outstanding Recorded Investment	$ 194,000	$ 299,000	$ 325,000	$ 695,000	$ 1,012,000
Post-Modification Outstanding Recorded Investment	194,000	269,000	313,000	649,000	950,000
Increase in allowance for credit losses due to TDR	0	51,000	70,000	50,000	28,000
TDR's charge-offs	$ 0	30,000	$ 12,000	$ 46,000	$ 63,000
Number of loans modified as troubled debt restructurings with subsequent payment defaults | Loan	0		0		0
Stated Interest Rate Reduction [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications			5 years	5 years	4 years
Stated Interest Rate Reduction [Member] | Maximum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications			10 years	30 years	30 years
Extended Maturity [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications			5 years	5 years	6 months
Extended Maturity [Member] | Maximum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications			10 years	30 years	30 years
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructured loans	$ 5,000,000	$ 4,500,000	$ 5,000,000	$ 4,500,000	$ 5,000,000
Residential 1st Mortgages [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan		1		4	5
Pre-Modification Outstanding Recorded Investment		$ 248,000		$ 565,000	$ 857,000
Post-Modification Outstanding Recorded Investment		$ 222,000		$ 528,000	$ 804,000
Home Equity Lines & Loans [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan		1		3	3
Pre-Modification Outstanding Recorded Investment		$ 51,000		$ 98,000	$ 98,000
Post-Modification Outstanding Recorded Investment		$ 47,000		$ 89,000	$ 89,000
Agricultural [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1	0	1	1	1
Pre-Modification Outstanding Recorded Investment	$ 194,000	$ 0	$ 194,000	$ 32,000	$ 32,000
Post-Modification Outstanding Recorded Investment	$ 194,000	$ 0	$ 194,000	$ 32,000	$ 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

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	41,513	$	-	$	41,513	$	-
US Treasury Notes		30,300		30,300		-		-
Mortgage Backed Securities		256,195		-		256,195		-
Corporate Securities		16,235		-		16,235		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	344,728	$	30,475	$	314,253	$	-
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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 September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	13,361	$	13,361	$	-	$	-
Mortgage Backed Securities		322,680		39,566		283,114		-
Other		485		175		310		-
Total Assets Measured at Fair Value On a Recurring Basis	$	336,526	$	53,102	$	283,424	$	-

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 September 30, 2015, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Residential 1st Mortgage	$	334	$	-	$	-	$	334
Home Equity Lines and Loans		126		-		-		126
Agricultural		308		-		-		308
Commercial		800		-		-		800
Consumer		5						5
Total Impaired Loans		1,573		-		-		1,573
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	$	4,014	$	-	$	-	$	4,014
			Fair Value Measurements At December 31, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(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 September 30, 2014, Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
Commercial Real Estate	$	92	$	-	$	-	$	92
Residential 1st Mortgages		526		-		-		526
Home Equity Lines and Loans		763		-		-		763
Agricultural		363		-		-		363
Commercial		3,836		-		-		3,836
Total Impaired Loans		5,580		-		-		5,580
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	$	8,879	$	-	$	-	$	8,879

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 September 30, 2015:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Residential 1st Mortgage	$	334	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		2% -5%, 4	%
Home Equity Lines and Loans	$	126	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 3%, 2	%
Agricultural	$	308	Income Approach	Capitalization Rate		16% - 16%, 16	%
Commercial	$	800	Income Approach	Capitalization Rate		16% - 16%, 16	%
Consumer	$	5	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 1%, 1	%
Other Real Estate
Real Estate Construction	$	2,441	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10% - 10%, 10	%

XML

Investment Securities, Contract Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Amortized Cost [Abstract]
Within one year	$ 26,719
After one year through five years	61,518
After five years through ten years	0
After ten years	0
Amortized cost, excluding investment securities not due at a single maturity date	88,237
Investment securities not due at a single maturity date, mortgage-backed securities	251,483
Amortized cost	339,720
Fair/Book Value [Abstract]
Within one year	26,722
After one year through five years	61,811
After five years through ten years	0
After ten years	0
Fair/Book value, excluding investment securities not due at a single maturity date	88,533
Investment securities not due at a single maturity date, mortgage-backed securities	256,195
Fair/Book value	344,728	$ 366,542	$ 336,526
Book Value [Abstract]
Within one year	2,124
After one year through five years	15,386
After five years through ten years	9,286
After ten years	39,461
Book value, excluding investment securities not due at a single maturity date	66,257
Investment securities not due at a single maturity date, mortgage-backed securities	0
Book value	66,257	63,863	69,441
Fair Value [Abstract]
Within one year	2,123
After one year through five years	15,462
After five years through ten years	9,382
After ten years	39,922
Fair value, excluding investment securities not due at a single maturity date	66,889
Investment securities not due at a single maturity date, mortgage-backed securities	0
Fair value	$ 66,889	$ 64,635	$ 70,149

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Consolidated Statements of Comprehensive Income (Unaudited) [Abstract]
Net Income	$ 7,040	$ 6,432	$ 20,192	$ 18,818
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities	2,460	(1,752)	910	5,929
Deferred Tax Benefit (Expense) Related to Unrealized Gains	(1,033)	736	(382)	(2,493)
Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income	(266)	(4)	(272)	(38)
Deferred Tax Benefit Related to Reclassification Adjustment	111	2	114	16
Change in Net Unrealized Gain (Loss) on Available-for-Sale Securities, Net of Tax	1,272	(1,018)	370	3,414
Total Other Comprehensive (Loss) Income	1,272	(1,018)	370	3,414
Comprehensive Income	$ 8,312	$ 5,414	$ 20,562	$ 22,232

XML

Investment Securities

9 Months Ended

Sep. 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
September 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	41,448	$	65	$	-	$	41,513
US Treasury Notes		30,069		231		-		30,300
Mortgage Backed Securities (1)		251,483		5,024		312		256,195
Corporate Securities		16,235		-		-		16,235
Other		485		-		-		485
Total	$	339,720	$	5,320	$	312	$	344,728
	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
September 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	13,220	$	141	$	-	$	13,361
Mortgage Backed Securities (1)		321,187		3,936		2,443		322,680
Other		485		-		-		485
Total	$	334,892	$	4,077	$	2,443	$	336,526

⁽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
September 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	64,134	$	658	$	26	$	64,766
Other		2,123		-		-		2,123
Total	$	66,257	$	658	$	26	$	66,889
	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
September 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,206	$	725	$	17	$	67,914
Other		2,235		-		-		2,235
Total	$	69,441	$	725	$	17	$	70,149

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

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

	Available-for-Sale				Held-to-Maturity
September 30, 2015	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	26,719	$	26,722	$	2,124	$	2,123
After one year through five years		61,518		61,811		15,386		15,462
After five years through ten years		-		-		9,286		9,382
After ten years		-		-		39,461		39,922
		88,237		88,533		66,257		66,889
Investment securities not due at a single maturity date:
Mortgage Backed Securities		251,483		256,195		-		-
Total	$	339,720	$	344,728	$	66,257	$	66,889

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
September 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Total	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,991	$	26	$	-	$	-	$	1,991	$	26
Total	$	1,991	$	26	$	-	$	-	$	1,991	$	26
	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
September 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	62,825	$	240	$	64,968	$	2,203		127,793	$	2,443
Total	$	62,825	$	240	$	64,968	$	2,203	$	127,793	$	2,443
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17
Total	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17

As of September 30, 2015, the Company held 261 investment securities of which 10 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 September 30, 2015 and September 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 September 30, 2015, five 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 $312,000, $657,000, and $2.4 million at September 30, 2015, December 31, 2014, and September 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 September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

Obligations of States and Political Subdivisions - At September 30, 2015, five 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 September 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 $26,000, $10,000, and $17,000 at September 30, 2015, December 31, 2014 and September 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 September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

Corporate Securities - There were no unrealized losses on the Company’s investments in corporate securities at September 30, 2015.  The Company did not hold any corporate securities December 31, 2014 or September 30, 2014. 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 – There were no unrealized losses on the Company’s investments in US treasury notes at September 30, 2015. The Company did not hold any US treasury notes at December 31, 2014 or September 30, 2014.

Proceeds from sales and calls of securities were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	53,465	$	85,433	$	58,000	$	95,349
Gains		266		811		272		845
Losses		-		807		-		807

Pledged Securities

As of September 30, 2015, securities carried at $197.8 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $178.8 million at December 31, 2014, and $360.0 million at September 30, 2014.

The decrease in pledged securities since September 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.

XML

Investment Securities, Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($) Security	Dec. 31, 2014 USD ($)	Sep. 30, 2014 USD ($)
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 36,898	$ 81,467	$ 62,825
Less than 12 months, unrealized loss	256	154	240
12 months or more, fair value	7,593	33,574	64,968
12 months or more, unrealized loss	56	506	2,203
Total, fair value	44,491	115,041	127,793
Total, unrealized loss	$ 312	660	2,443
Number of investment securities held | Security	261
Less than 12 months, number of positions | Security	10
12 months or more, number of positions | Security	1
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 1,991	849	1,943
Less than 12 months, unrealized loss	26	5	11
12 months or more, fair value	0	876	2,556
12 months or more, unrealized loss	0	5	6
Total, fair value	1,991	1,725	4,499
Total, unrealized loss	26	10	17
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
Mortgage Backed Securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	36,898	14,487	62,825
Less than 12 months, unrealized loss	256	151	240
12 months or more, fair value	7,593	33,574	64,968
12 months or more, unrealized loss	56	506	2,203
Total, fair value	44,491	48,061	127,793
Total, unrealized loss	$ 312	657	2,443
Less than 12 months, number of positions | Security	5
12 months or more, number of positions | Security	1
Obligations of States and Political Subdivisions [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 1,991	849	1,943
Less than 12 months, unrealized loss	26	5	11
12 months or more, fair value	0	876	2,556
12 months or more, unrealized loss	0	5	6
Total, fair value	1,991	1,725	4,499
Total, unrealized loss	$ 26	$ 10	$ 17
Less than 12 months, number of positions | Security	5
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	98.00%
Percentage of portfolio not rated	2.00%

XML

Dividends and Basic Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings per share for the period [Abstract]
Net Income	$ 7,040	$ 6,432	$ 20,192	$ 18,818
Weighted Average Number of Common Shares Outstanding (in shares)	785,852	777,882	785,668	777,882
Basic Earnings Per Common Share Amount (in dollars per share)	$ 8.96	$ 8.27	$ 25.70	$ 24.19

XML

Loans & Leases and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 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):

September 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	)		(55	)		-		-			(67	)
Recoveries		2,939			-		-		4			85			3			24			51			-		-			3,106
Provision		(1,536	)		3,295		719		(274	)		(356	)		(969	)		38			2			860		(1,129	)		650
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2015	$	8,591		$	7,272	$	2,177	$	731		$	2,073		$	5,046		$	8,878		$	217		$	2,532	$	1,520		$	39,037
Charge-Offs		-			-		-		-			-			-			-			(21	)		-		-			(21	)
Recoveries		-			-		-		3			37			1			20			13			-		-			74
Provision		654			208		211		18			45			91			(653	)		7			539		(1,120	)		-
Ending Balance- September 30, 2015	$	9,245		$	7,480	$	2,388	$	752		$	2,155		$	5,138		$	8,245		$	216		$	3,071	$	400		$	39,090
Ending Balance Individually Evaluated for Impairment		61			-		-		70			35			120			879			31			-		-			1,196
Ending Balance Collectively Evaluated for Impairment		9,184			7,480		2,388		682			2,120			5,018			7,366			185			3,071		400			37,894
Loans & Leases:
Ending Balance	$	558,743		$	432,610	$	161,762	$	196,893		$	31,833		$	249,783		$	210,491		$	6,735		$	61,420	$	-		$	1,910,270
Ending Balance Individually Evaluated for Impairment		4,120			-		4,307		2,036			1,264			630			4,797			37			-		-			17,191
Ending Balance Collectively Evaluated for Impairment	$	554,623		$	432,610	$	157,455	$	194,857		$	30,569		$	249,153		$	205,694		$	6,698		$	61,420	$	-		$	1,893,079

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

September 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		-		-		-		(58	)		(70	)		-			-		(76	)		-		-			(204	)
Recoveries		12		-		-		-			54			3			83		45			-		-			197
Provision		2,608		370		1,026		92			(76	)		(6,426	)		2,135		76			1,206		(1,011	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Third Quarter Allowance for Credit Losses:
Beginning Balance- July 1, 2014	$	6,991	$	3,677	$	1,290	$	1,094		$	2,737		$	8,291		$	7,377	$	193		$	1,108	$	1,532		$	34,290
Charge-Offs		-		-		-		(25	)		(5	)		-			-		(31	)		-		-			(61	)
Recoveries		12		-		-		-			3			1			6		16			-		-			38
Provision		795		269		390		73			(60	)		(2,510	)		532		43			737		(269	)		-
Ending Balance- September 30, 2014	$	7,798	$	3,946	$	1,680	$	1,142		$	2,675		$	5,782		$	7,915	$	221		$	1,845	$	1,263		$	34,267
Ending Balance Individually Evaluated for Impairment		190		-		239		370			328			120			912		42			-		-			2,201
Ending Balance Collectively Evaluated for Impairment		7,608		3,946		1,441		772			2,347			5,662			7,003		179			1,845		1,263			32,066
Loans & Leases:
Ending Balance	$	473,505	$	364,161	$	104,463	$	168,310		$	33,283		$	237,521		$	192,804	$	4,816		$	36,908	$	-		$	1,615,771
Ending Balance Individually Evaluated for Impairment		20,175		-		4,419		1,847			1,658			518			4,877		42			-		-			33,536
Ending Balance Collectively Evaluated for Impairment		453,330		364,161		100,044		166,463			31,625			237,003			187,927		4,774			36,908		-			1,582,235

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):

September 30, 2015	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	550,011	$	8,038	$	694	$	558,743
Agricultural Real Estate		432,610		-		-		432,610
Real Estate Construction		160,133		1,629		-		161,762
Residential 1st Mortgages		195,477		733		683		196,893
Home Equity Lines & Loans		31,149		78		606		31,833
Agricultural		249,116		437		230		249,783
Commercial		197,193		9,752		3,546		210,491
Consumer & Other		6,461		-		274		6,735
Leases		61,420		-		-		61,420
Total	$	1,883,570	$	20,667	$	6,033	$	1,910,270

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

September 30, 2014	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	464,714	$	8,683	$	108	$	473,505
Agricultural Real Estate		364,161		-		-		364,161
Real Estate Construction		102,831		1,632		-		104,463
Residential 1st Mortgages		166,884		752		674		168,310
Home Equity Lines & Loans		32,309		88		886		33,283
Agricultural		236,760		695		66		237,521
Commercial		168,215		22,929		1,660		192,804
Consumer & Other		4,520		-		296		4,816
Leases		36,908		-		-		36,908
Total	$	1,577,302	$	34,779	$	3,690	$	1,615,771

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):

September 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	$	-	$	-	$	-	$	696	$	696	$	558,047	$	558,743
Agricultural Real Estate		-		-		-		-		-		432,610		432,610
Real Estate Construction		-		-		-		-		-		161,762		161,762
Residential 1st Mortgages		74		196		-		68		338		196,555		196,893
Home Equity Lines & Loans		150		-		-		576		726		31,107		31,833
Agricultural		-		-		-		8		8		249,775		249,783
Commercial		-		-		-		1,545		1,545		208,946		210,491
Consumer & Other		6		-		-		11		17		6,718		6,735
Leases		-		-		-		-		-		61,420		61,420
Total	$	230	$	196	$	-	$	2,904	$	3,330	$	1,906,940	$	1,910,270

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

September 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	$	-	$	-	$	-	$	-	$	-	$	473,505	$	473,505
Agricultural Real Estate		-		-		-		-		-		364,161		364,161
Real Estate Construction		-		-		-		-		-		104,463		104,463
Residential 1st Mortgages		-		-		-		283		283		168,027		168,310
Home Equity Lines & Loans		92		-		-		575		667		32,616		33,283
Agricultural		-		-		-		25		25		237,496		237,521
Commercial		-		-		-		1,600		1,600		191,204		192,804
Consumer & Other		12		-		-		14		26		4,790		4,816
Leases		-		-		-		-		-		36,908		36,908
Total	$	104	$	-	$	-	$	2,497	$	2,601	$	1,613,170	$	1,615,771

Impaired Loans & Leases

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

							Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
September 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	$	821	$	821	$	-	$	812	$	2	$	468	$	6
Residential 1st Mortgages		557		623		-		561		4		471		12
Home Equity Lines & Loans		619		659		-		620		1		531		2
Agricultural		203		216		-		107		-		42		-
Commercial		3,118		3,118		-		3,122		26		1,578		54
	$	5,318	$	5,437	$	-	$	5,222	$	33	$	3,090	$	74
With an allowance recorded:
Residential 1st Mortgages	$	352	$	424	$	17	$	354	$	4	$	453		12
Home Equity Lines & Loans		135		153		7		136		2		273		4
Agricultural		427		427		120		435		7		443		21
Commercial		1,679		1,803		879		1,687		2		3,233		29
Consumer & Other		37		43		31		39		-		42		2
	$	2,630	$	2,850	$	1,054	$	2,651	$	15	$	4,444	$	68
Total	$	7,948	$	8,287	$	1,054	$	7,873	$	48	$	7,534	$	142

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 September 30, 2014				Nine Months Ended September 30, 2014
September 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	$	-	$	-	$	-	$	49	$	-	$	82	$	4
Home Equity Lines & Loans		-		-		-		-		-		226		-
Agricultural		-		-		-		14		-		26		-
Commercial		-		-		-		1,575		-		2,740		54
	$	-	$	-	$	-	$	1,638	$	-	$	3,074	$	58
With an allowance recorded:
Commercial Real Estate	$	94	$	94	$	2	$	47	$	2	$	16	$	2
Residential 1st Mortgages		658		771		131		550		1		522		3
Home Equity Lines & Loans		955		1,008		191		934		3		710		6
Agricultural		483		493		119		478		7		477		21
Commercial		4,744		4,801		908		3,179		27		2,144		27
Consumer & Other		43		47		43		44		1		47		2
	$	6,977	$	7,214	$	1,394	$	5,232	$	41	$	3,916	$	61
Total	$	6,977	$	7,214	$	1,394	$	6,870	$	41	$	6,990	$	119

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 nine-month periods ended September 30, 2015 (in thousands):

	Three Months Ended September 30, 2015						Nine Months Ended September 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
Agricultural		1	$	194	$	194		1	$	194	$	194
Commercial		-		-		-		1		131		119
Total		1	$	194	$	194		2	$	325	$	313

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 nine-month periods ended September 30, 2014 (in thousands):

	Three Months Ended September 30, 2014						Nine Months Ended September 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	$	248	$	222		4	$	565	$	528
Home Equity Lines & Loans		1		51		47		3		98		89
Agricultural		-		-		-		1		32		32
Total		2	$	299	$	269		8	$	695	$	649