0001140361-24-025234.txt : 20240509 0001140361-24-025234.hdr.sgml : 20240509 20240509171053 ACCESSION NUMBER: 0001140361-24-025234 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20240331 FILED AS OF DATE: 20240509 DATE AS OF CHANGE: 20240509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS & MERCHANTS BANCORP CENTRAL INDEX KEY: 0001085913 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] ORGANIZATION NAME: 02 Finance IRS NUMBER: 943327828 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26099 FILM NUMBER: 24931846 BUSINESS ADDRESS: STREET 1: FARMERS AND MERCHANTS BANCORP STREET 2: 121 WEST PINE ST CITY: LODI STATE: CA ZIP: 95240-2184 BUSINESS PHONE: 2093672411 MAIL ADDRESS: STREET 1: FARMERS AND MERCHANTS BANCORP STREET 2: 121 WEST PINE ST CITY: LODI STATE: CA ZIP: 95240-2184 10-Q 1 ef20026298_10q.htm 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 March 31, 2024
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

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.01 Par Value Per Share

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 30, 2024, the registrant had 742,095 shares of common stock $0.01 par value per share, outstanding.

FARMERS & MERCHANTS BANCORP
FORM 10-Q
TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION
Page
 
 
 
 
 
Item 1 - Financial Statements
 
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
 
 
 
 
30
 
 
 
 
 
 50
 
 
 
 
 
52
 
 
 
 
PART II. - OTHER INFORMATION
 
 
 
 
 
 
53
 
Item 1A – Risk Factors
53
 
53
 
53
 
53
 
54
 
Item 6 – Exhibits
54
 
55

2
PART 1. FINANCIAL INFORMATION

Item 1.
Financial Statements

FARMERS & MERCHANTS BANCORP 
UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)
  
March 31,
2024
    
December 31,
2023
  
ASSETS
            
Cash and due from banks
  
$
65,796
    
$
72,267
  
Interest bearing deposits with banks
    
672,601
      
338,375
  
Total cash and cash equivalents
    
738,397
      
410,642
  
Securities available-for-sale, amortized cost $259,318 and $199,374, respectively
    
239,856
      
182,512
  
Securities held-to-maturity, fair value $649,775 and $671,585 respectively
    
806,971
      
817,688
  
Allowance for credit losses - securities held-to-maturity
     (450 )     (450 )
Total investment securities
    
1,046,377
      
999,750
  
Non-marketable securities
    
15,549
      
15,549
  
Loans and leases held-for-investment, net of unearned income
    
3,696,295
      
3,654,689
  
Allowance for credit losses - loans and leases
    
(75,018
)
    
(74,965
)
Loans and leases held for investment, net
    
3,621,277
      
3,579,724
  
Bank-owned life insurance
    
75,525
      
74,931
  
Premises and equipment, net
    
51,618
      
51,907
  
Deferred income tax assets
    
34,818
      
39,979
  
Accrued interest receivable
    
23,740
      
28,520
  
Goodwill
    
11,183
      
11,183
  
Other intangibles
    
2,099
      
2,236
  
Other real estate owned
    
873
      
873
  
Other assets
    
93,117
      
93,634
  
Total Assets
  
$
5,714,573
    
$
5,308,928
  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deposits:
                
Non-interest bearing
  
$
1,410,487
    
$
1,482,571
  
Interest bearing:
                
Demand
    
1,038,920
      
933,417
  
Savings and money market
    
1,632,720
      
1,607,479
  
Certificates of deposit
    
877,462
      
644,628
  
Total interest bearing
    
3,549,102
      
3,185,524
  
Total deposits
    
4,959,589
      
4,668,095
  
Federal Home Loan Bank advances
     100,000       -  
Subordinated debentures
    
10,310
      
10,310
  
Interest payable and other liabilities
    
79,457
      
80,768
  
Total Liabilities
    
5,149,356
      
4,759,173
  
                 
SHAREHOLDERS’ EQUITY
                
Preferred shares, no par value, 1,000,000 shares authorized and, none issued or outstanding
    
-
      
-
  
Common shares, $0.01 par value, 7,500,000 authorized, 742,770 and 747,971 issued and outstanding at March 31, 2024 and December 31, 2023, respectively
    
7
      
7
  
Additional paid-in capital
    
31,401
      
36,852
  
Retained earnings
    
548,123
      
525,360
  
Accumulated other comprehensive loss, net of taxes
    
(14,314
)
    
(12,464
)
TOTAL SHAREHOLDERS’ EQUITY
    
565,217
      
549,755
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$
5,714,573
    
$
5,308,928
  

See accompanying notes to the unaudited consolidated financial statements.

3
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 
  
Three Months Ended
March 31,
  
(Dollars in thousands, except share and per share amounts)
  
2024
    
2023
  
Interest income
            
Interest and fees on loans and leases
  
$
55,408
    
$
48,008
  
Interest and dividends on investment securities
    
6,703
      
5,663
  
Interest on deposits with others
    
4,530
      
5,961
  
Total interest income
    
66,641
      
59,632
  
 
                
Interest expense
                
Deposits
    
14,645
      
3,714
  
Borrowed funds
    
62
      
-
  
Subordinated debentures
    
221
      
196
  
Total interest expense
    
14,928
      
3,910
  
Net interest income
    
51,713
      
55,722
  
Provision for credit losses
    
-
      
1,500
  
Net interest income after provision for credit losses
    
51,713
      
54,222
  
Non-interest income
                
Card processing
    
1,629
      
1,591
  
Gain on BOLI death benefit
    
-
      
4,346
  
Net gain on deferred compensation benefits
    
1,158
      
896
  
Service charges on deposit accounts
    
748
      
634
  
Increase in cash surrender value of BOLI
    
595
      
444
  
Net loss on sale of securities available-for-sale
    
-
      
(5,686
)
Other
    
945
      
1,235
  
Total non-interest income
    
5,075
      
3,460
  
Non-interest expense
                
Salaries and employee benefits
    
17,503
      
19,584
  
Data processing
    
1,455
      
1,260
  
Occupancy
    
1,232
      
1,180
  
Net gain on deferred compensation benefits
    
1,158
      
896
  
Deposit insurance
    
712
      
692
  
Professional services
    
541
      
682
  
Marketing
    
480
      
470
  
Other
    
2,440
      
3,419
  
Total non-interest expense
    
25,521
      
28,183
  
INCOME BEFORE INCOME TAXES
    
31,267
      
29,499
  
Income tax expense
    
8,544
      
5,952
  
NET INCOME
  
$
22,723
    
$
23,547
  
 
                
Earnings per common share:
                
Basic
  
$
30.56
    
$
30.80
  
Diluted
  
$
30.56
    
$
30.80
  
 
                
Weighted average number of common shares
                
Basic
    
743,515
      
764,603
  
Diluted
    
743,515
      
764,603
  

See accompanying notes to the unaudited consolidated financial statements.

4
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
   
Three Months Ended
March 31,
  
(Dollars in thousands)
  
2024
    
2023
  
Net income
  
$
22,723
    
$
23,547
  
Other comprehensive income                
Unrealized (losses)/gains on available-for-sale securities
    
(2,600
)
    
2,362
  
Reclassification adjustment for losses on available-for-sale securities
    
-
      
5,685
  
Amortization of unrealized loss on securities transferred to held-to-maturity
    
(27
)
    
(30
)
Net unrealized (losses)/gains on available-for-sale securities
    
(2,627
)
    
8,017
  
Income tax benefit/(expense)
    
777
      
(2,379
)
Other comprehensive (loss)/income, net of tax
    
(1,850
)
    
5,638
  
Total comprehensive income
  
$
20,873
    
$
29,185
  

See accompanying notes to the unaudited consolidated financial statements.

5
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

   
For the three months ended March 31, 2024 and 2023
  
(Dollars in thousands, except share amounts)
  
Common
Shares
    
Amount
    
Additional
Paid-In
Capital
    
Retained Earnings
    
Accumulated
Other
Comprehensive
(Loss)/Income
    
Total
  
Balance as of December 31, 2022
    
768,337
    
$
8
    
$
57,206
    
$
449,932
    
$
(21,838
)
  
$
485,308
  
Net income
    
-
      
-
      
-
      
23,547
      
-
      
23,547
  
Other comprehensive income, net of tax
    
-
      
-
      
-
      
-
      
5,638
      
5,638
  
Repurchase of common stock
    
(5,406
)
    
-
      
(5,591
)
    
-
      
-
      
(5,591
)
Balance as of March 31, 2023
    
762,931
    
$
8
    
$
51,615
    
$
473,479
    
$
(16,200
)
  
$
508,902
  
 
                                                
Balance as of December 31, 2023
    
747,971
    
$
7
    
$
36,852
    
$
525,360
    
$
(12,464
)
  
$
549,755
  
Cumulative change from adoption of ASU 2023-02
                            
40
              
40
  
Net income
    
-
      
-
      
-
      
22,723
      
-
      
22,723
  
Other comprehensive loss, net of tax
    
-
      
-
      
-
      
-
      
(1,850
)
    
(1,850
)
Repurchase of common stock
    
(5,201
)
    
-
      
(5,451
)
    
-
      
-
      
(5,451
)
Balance as of March 31, 2024
    
742,770
    
$
7
    
$
31,401
    
$
548,123
    
$
(14,314
)
  
$
565,217
  

See accompanying notes to the unaudited consolidated financial statements.
                                                                                                                                                                                                                                                                      
6
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
   
Three Months Ended
March 31,
  
(Dollars in thousands)
  
2024
    
2023
  
Cash flows from operating activities:
            
Net income
  
$
22,723
    
$
23,547
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Provision for credit losses
    
-
      
1,500
  
Depreciation and amortization
    
698
      
596
  
Net amortization of securities premiums and discounts
    
(320
)
    
33
  
Increase in cash surrender value of BOLI
    
(595
)
    
(444
)
Gain on BOLI death benefit
    -       (4,346 )
Decrease in deferred income taxes, net
    
3,296
      
3,933
  
Loss on sale of securities available-for-sale
    
-
      
5,686
  
Net changes in:
                
Other assets
    
8,502
      
6,307
  
Other liabilities
    
477
      
4,864
  
Net cash provided by operating activities
    
34,781
      
41,676
  
Cash flows from investing activities:
                
Net change in loans and leases held-for-investment
    
(41,541
)
    
70,927
  
Purchase of available-for-sale securities
    
(63,764
)
    
(3,585
)
Purchase of held-to-maturity securities
    
(1,130
)
    
(1,350
)
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities
    
4,318
      
40,348
  
Proceeds from maturities, calls and pay downs of held-to-maturity securities
    
11,743
      
10,817
  
Purchase of premises and equipment
    
(410
)
    
(1,543
)
Purchase of other investments
    
(2,285
)
    
(2,008
)
Proceeds from bank-owned life insurance     -       11,752  
Net cash (used in)/ provided by investing activities
    
(93,069
)
    
125,358
  
Cash flows from financing activities:
                
Net increase/(decrease) in deposits
    
291,494
      
(220,107
)
Federal Home Loan Bank advances
     100,000       -  
Net cash used in share repurchases of common stock
    
(5,451
)
    
(5,591
)
Net cash provided by (used in) financing activities
    
386,043
      
(225,698
)
Net change in cash and cash equivalents
    
327,755
      
(58,664
)
Cash and cash equivalents, beginning of period
    
410,642
      
588,257
  
Cash and cash equivalents, end of period
  
$
738,397
    
$
529,593
  
                 
Supplemental disclosures of cash flow information:
                
Cash paid for interest
  
$
12,852
    
$
3,389
  
Income taxes paid
   $ -     $ 1  
                 
Supplemental disclosures of non-cash transactions:
                
Net change in unrealized gain/(losses) on securities available-for-sale
   $ 2,600     $ (8,047 )

See accompanying notes to the unaudited consolidated financial statements.

7

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Significant Accounting Policies

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

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

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

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

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

On January 1, 2024, the company adopted the FASB issued guidance within ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The company adopted this standard on January 1, 2024, with no material impact on the Company’s Consolidated Financial Statements.

8

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Basis of Presentation and Significant Accounting Policies—Continued
On January 1, 2024, the Company adopted the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The Amendments in ASU 2023-02 apply to all reporting entities that hold (1) tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or (2) an investment in a low income housing tax credit investments (“LIHTC”) structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC-specific guidance removed from FASB ASC 323-740, Investments – Equity Method and Joint Ventures: Income Taxes, has been applied. The amendments in ASU 2023-02 must be applied on either a modified retrospective or a retrospective basis (except as discussed in the ASU for LIHTC investments not accounted for using the proportional amortization method). The Company adopted this standard to use the proportional amortization method on January 1, 2024, with a $40,000 cumulative-effect adjustment to retained earnings under the modified retrospective method. Under the proportional amortization method the amortization of the LIHTC investments, income tax credits and other income tax benefits are now recognized in the income statement as a component of income tax expense (benefit) rather than other non-interest expense.

Accounting Standards Pending Adoption —The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

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

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

In December 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures”. ASU 2023-07 Requires public entities to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity’s chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis. ASU 2023-07 also clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met. ASU 2023-07 requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025. Early adoption is permitted. The Company is required to apply the amendments in this update retrospectively to all prior periods presented in the financial statements. The Company will update its segment related disclosures upon adoption.

9

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Basis of Presentation and Significant Accounting Policies—Continued
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for us on January 1, 2025, though early adoption is permitted. The Company will update its income tax disclosures upon adoption.

Note 2—Investment Securities

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


  Amortized      Gross Unrealized    
 
(Dollars in thousands)
  
Cost
    
Gains
    
Losses
    
Fair Value
  
As of March 31, 2024                                
U.S. Government-sponsored securities
   $
3,057
     $
9
     $
18
     $
3,048
  
Mortgage-backed securities (1)
    
235,499
      
1,739
      
21,145
      
216,093
  
Collateralized mortgage obligations (1)
    5,695       -       41       5,654  
Corporate securities
    
14,757
      
34
      
40
      
14,751
  
Other
    
310
      
-
      
-
      
310
  
Total available-for-sale securities
  
$
259,318
    
$
1,782
    
$
21,244
    
$
239,856
  

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


 
Amortized
   
Gross Unrealized
    
 
(Dollars in thousands)
  
Cost
    
Gains
    
Losses
    
Fair Value
  
As of December 31, 2023
                                
U.S. Government-sponsored securities
   $
3,230
     $
12
     $
18
     $
3,224
  
Mortgage-backed securities (1)
    
180,543
      
3,022
      
19,727
      
163,838
  
Collateralized mortgage obligations (1)
     548       -       13       535  
   Corporate securities     14,743       41       179       14,605  
Other
    
310
      
-
      
-
      
310
  
Total available-for-sale securities
  
$
199,374
    
$
3,075
    
$
19,937
    
$
182,512
  

(1) All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
10

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 2—Investment Securities—Continued

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

                      Allowance
 

 
Amortized
   
Gross Unrealized
    

    for Credit  
(Dollars in thousands)
  
Cost
    
Gains
    
Losses
    
Fair Value
    
Losses
  
As of March 31, 2024                              
Mortgage-backed securities (1)
  
$
656,028
    
$
3
    
$
142,770
    
$
513,261
     $ -  
Collateralized mortgage obligations (1)
     72,950
       -
       14,231
       58,719
       -
  
Municipal securities
     77,993       89       287       77,795       450  
Total held-to-maturity securities
  
$
806,971
    
$
92
    
$
157,288
    
$
649,775
     $ 450  

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

                      Allowance
  

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

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

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

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

11

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 2—Investment Securities—Continued

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



       
March 31, 2024
          
 
Less Than 12 Months
  
12 Months or More
  
Total
  
(Dollars in thousands)
Fair Value
  
Unrealized
Losses
  
Fair Value
  
Unrealized
Losses
  
Fair Value
  
Unrealized
Losses
  
Available-for-Sale Securities
                        
U.S. Government-sponsored securities
  
$
24
    
$
-
    
$
1,148
    
$
18
    
$
1,172
    
$
18
  
Mortgage-backed securities(1)
    
4,560
      
51
      
77,695
      
21,094
      
82,255
      
21,145
  
Collateralized mortgage obligations(1)
    
5,138
      
29
      
516
      
12
      
5,654
      
41
  
Corporate securities
    
-
      
-
      
9,989
      
40
      
9,989
      
40
  
Total available-for-sale securities
  
$
9,722
    
$
80
    
$
89,348
    
$
21,164
    
$
99,070
    
$
21,244
  



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



       
December 31, 2023
          
 
Less Than 12 Months
  
12 Months or More
  
Total
  
(Dollars in thousands)
Fair Value
  
Unrealized
Losses
  
Fair Value
  
Unrealized
Losses
  
Fair Value
  
Unrealized
Losses
  
Available-for-Sale Securities
                        
U.S. Government-sponsored securities
   $
33
     $
-
     $
1,235
     $
18
     $
1,268
     $
18
  
Mortgage-backed securities(1)
    
1,629
      
11
      
80,746
      
19,716
      
82,375
      
19,727
  
   Collateralized Mortgage Obligations(1)     -       -       535       13       535       13  
   Corporate securities     -       -       9,853       179       9,853       179  
Total available-for-sale securities
  
$
1,662
    
$
11
    
$
92,369
    
$
19,926
    
$
94,031
    
$
19,937
  



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


As of March 31, 2024 the Company held 182 available-for-sale securities of which 6 were in an unrealized loss position for less than twelve months and 138 securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company does not have the intent to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be impaired. Management evaluates the available-for-sale securities in an unrealized loss position, relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

The following table presents the activity in the allowance for credit losses for held-to-maturity securities by major type:
 
March 31, 2024
  
(Dollars in thousands)
Municipal
securities
  
Mortgage-backed
securities
  
Collateralized
mortgage
obligations
  
Total
  
Allowance for credit losses - securities
                
Beginning balance
  
$
450
    
$
-
    
$
-
    
$
450
  
Provision for credit losses
    
-
      
-
      
-
      
-
  
Ending balance
  
$
450
    
$
-
    
$
-
    
$
450
  

12

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 2—Investment Securities—Continued
December 31, 2023
  
(Dollars in thousands)
Municipal
securities
  
Mortgage-backed
securities
  
Collateralized
mortgage
obligations
  
Total
  
Allowance for credit losses - securities
                
Beginning Balance