10-Q 1 ef20029679_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 June 30, 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 July 31, 2024, the registrant had 738,565 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
 
 
 
 
 
32
 
 
 
 
 
 54
 
 
 
 
 
56
 
 
 
 
PART II. - OTHER INFORMATION
 
 
 
 
 
 
56
 
56
 
57
 
57
 
57
 
57
 
58
 
59

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)
  
June 30,
2024
    
December 31,
2023
  
ASSETS
            
Cash and due from banks
  
$
70,260
    
$
72,267
  
Interest bearing deposits with banks
    
225,676
      
338,375
  
Total cash and cash equivalents
    
295,936
      
410,642
  
Securities available-for-sale, amortized cost $271,970 and $199,374, respectively
    
251,413
      
182,512
  
Securities held-to-maturity, fair value $638,718 and $671,585, respectively
    
794,797
      
817,688
  
Allowance for credit losses - securities held-to-maturity
     (450 )     (450 )
Total investment securities
    
1,045,760
      
999,750
  
Non-marketable securities
    
15,549
      
15,549
  
Loans and leases held for investment, net of unearned income
    
3,682,370
      
3,654,689
  
Allowance for credit losses - loans and leases
    
(75,032
)
    
(74,965
)
Loans and leases held for investment, net
    
3,607,338
      
3,579,724
  
Bank-owned life insurance
    
73,654
      
74,931
  
Premises and equipment, net
    
51,306
      
51,907
  
Deferred income tax assets and income taxes receivable
    
43,821
      
50,071
  
Accrued interest receivable
    
27,195
      
28,520
  
Goodwill
    
11,183
      
11,183
  
Other intangibles
    
1,962
      
2,236
  
Other real estate owned
    
873
      
873
  
Other assets
    
92,908
      
83,542
  
TOTAL ASSETS
 
$
5,267,485
    
$
5,308,928
  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deposits:
                
Non-interest bearing
  
$
1,377,514
    
$
1,482,571
  
Interest bearing:
                
Demand
    
856,713
      
933,417
  
Savings and money market
    
1,609,334
      
1,607,479
  
Certificates of deposit
    
753,494
      
644,628
  
Total interest bearing
    
3,219,541
      
3,185,524
  
Total deposits
    
4,597,055
      
4,668,095
  
Subordinated debentures
    
10,310
      
10,310
  
Interest payable and other liabilities
    
83,900
      
80,768
  
TOTAL LIABILITIES
    
4,691,265
      
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, 739,308 and 747,971 issued and outstanding at June 30, 2024 and December 31, 2023, respectively
    
7
      
7
  
Additional paid-in capital
    
27,931
      
36,852
  
Retained earnings
    
563,383
      
525,360
  
Accumulated other comprehensive loss, net of taxes
    
(15,101
)
    
(12,464
)
TOTAL SHAREHOLDERS’ EQUITY
    
576,220
      
549,755
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$
5,267,485
    
$
5,308,928
  

See accompanying notes to the unaudited consolidated financial statements.

3
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME


 
  
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
(Dollars in thousands, except share and per share amounts)  
2024
    
2023
    
2024
    
2023
  
Interest income
                        
Interest and fees on loans and leases
  
$
56,190
    
$
49,690
    
$
111,598
    
$
97,698
  
Interest and dividends on investment securities
    
7,424
      
5,445
      
14,127
      
11,108
  
Interest on deposits with others
     6,217       5,882       10,747       11,843  
Total interest income
    
69,831
      
61,017
      
136,472
      
120,649
  
Interest expense
                                
Deposits
    
17,906
      
8,391
      
32,551
      
12,105
  
Borrowed funds
    924       -       986       -  
Subordinated debentures
    
220
      
204
      
441
      
400
  
Total interest expense
    
19,050
      
8,595
      
33,978
      
12,505
  
Net interest income
    
50,781
      
52,422
      
102,494
      
108,144
  
Provision for credit losses
    
-
      
2,557
      
-
      
4,057
  
Net interest income after provision for credit losses
    
50,781
      
49,865
      
102,494
      
104,087
  
Non-interest income
                                
Card processing
     1,764       1,712       3,393       3,303  
Service charges on deposit accounts
    
749
      
690
      
1,497
      
1,324
  
Increase in cash surrender value of BOLI
    
602
      
506
      
1,197
      
950
  
Gain on BOLI death benefit
     -       -       -       4,346  
Net loss on sale of securities available-for-sale
    
-
      
-
      
-
      
(5,686
)
Net gain on deferred compensation benefits
    
414
      
1,302
      
1,572
      
2,198
  
Other
    
1,238
      
1,237
      
2,183
      
2,472
  
Total non-interest income
    
4,767
      
5,447
      
9,842
      
8,907
  
Non-interest expense
                                
Salaries and employee benefits
    
17,999
      
17,937
      
35,502
      
37,521
  
Net gain on deferred compensation benefits
    
414
      
1,302
      
1,572
      
2,198
  
Data processing
    
1,535
      
1,307
      
2,990
      
2,567
  
Occupancy
    1,243       1,228       2,475       2,408  
Deposit insurance
     702       673       1,414       1,365  
Professional services
    621       673       1,162       1,355  
Marketing
    
562
      
425
      
1,042
      
895
  
Other
    
2,346
      
3,277
      
4,786
      
6,696
  
Total non-interest expense
    
25,422
      
26,822
      
50,943
      
55,005
  
INCOME BEFORE INCOME TAXES
    
30,126
      
28,490
      
61,393
      
57,989
  
Income tax expense
    
8,359
      
7,182
      
16,903
      
13,134
  
NET INCOME
  
$
21,767
    
$
21,308
    
$
44,490
    
$
44,855
  
                                 
Earnings per common share:
                                
Basic
   $ 29.39     $ 28.03     $ 59.95     $ 58.83  
Diluted
   $ 29.39     $ 28.03     $ 59.95     $ 58.83  
                                 
Weighted average number of common shares                                
Basic
     740,752       760,308       742,150       762,443  
Diluted
     740,752       760,308       742,150       762,443  

See accompanying notes to the unaudited consolidated financial statements.

4
FARMERS & MERCHANTS BANCORP 
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


 
  
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
(Dollars in thousands)  
2024
    
2023
    
2024
    
2023
  
Net income
  
$
21,767
    
$
21,308
    
$
44,490
    
$
44,855
  
Other comprehensive income
                                
Unrealized (losses)/gains on available-for-sale securities
   
(1,095
)
    
(1,191
)
    
(3,695
)
    
1,171
  
Reclassification adjustment for losses on available-for-sale securities
    
-
      
-
      
-
      
5,685
  
Amortization of unrealized loss on securities transferred to held-to-maturity
    
(22
)
    
(47
)
    
(49
)
    
(77
)
Net unrealized (losses)/gains on available-for-sale securities
     (1,117 )     (1,238 )     (3,744 )     6,779  
Income tax benefit/(expense)
    
330
      
375
      
1,107
      
(2,004
)
Other comprehensive (loss)/income, net of tax
    
(787
)
    
(863
)
    
(2,637
)
    
4,775
  
Total comprehensive income
  
$
20,980
    
$
20,445
    
$
41,853
    
$
49,630
  

See accompanying notes to the unaudited consolidated financial statements.

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

    For the three and six months ended June 30, 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 March 31, 2024
    
742,770
    
$
7
    
$
31,401
    
$
548,123
    
$
(14,314
)
  
$
565,217
  
Net income
     -       -      
-
      
21,767
      
-
      
21,767
  
Other comprehensive loss, net of tax
     -      
-
      
-
      
-
      
(787
)
    
(787
)
Cash dividends declared ($8.80 per share)
     -       -       -       (6,507 )     -       (6,507 )
Repurchase of common stock     (3,462 )     -       (3,470 )     -       -       (3,470 )
Balance as of June 30, 2024
    
739,308
    
$
7
    
$
27,931
    
$
563,383
    
$
(15,101
)
  
$
576,220
  
                                                 
Balance as of March 31, 2023
    
762,931
    
$
8
    
$
51,615
    
$
473,479
    
$
(16,200
)
  
$
508,902
  
Net income
     -       -      
-
      
21,308
      
-
      
21,308
  
Other comprehensive loss, net of tax
     -      
-
      
-
      
-
      
(863
)
    
(863
)
Cash dividends declared ($8.30 per share)
     -       -
       -       (6,286 )     -       (6,286 )
Repurchase of common stock
     (8,408 )     -       (8,352 )     -       -       (8,352 )
Balance as of June 30, 2023
    
754,523
    
$
8
    
$
43,263
    
$
488,501
    
$
(17,063
)
  
$
514,709
  

(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, 2023
    
747,971
    
$
7
    
$
36,852
    
$
525,360
    
$
(12,464
)
  
$
549,755
  
Cumulative change from adoption of ASU 2023-02
     -       -       -       40       -       40  
Net income
     -       -      
-
      
44,490
      
-
      
44,490
  
Other comprehensive loss, net of tax
     -      
-
      
-
      
-
      
(2,637
)
    
(2,637
)
Cash dividends declared ($8.80 per share)
     -       -       -       (6,507 )     -       (6,507 )
Repurchase of common stock     (8,663 )     -       (8,921 )     -       -       (8,921 )
Balance as of June 30, 2024
    
739,308
    
$
7
    
$
27,931
    
$
563,383
    
$
(15,101
)
  
$
576,220
  
                                                 
Balance as of December 31, 2022
    
768,337
    
$
8
    
$
57,206
    
$
449,932
    
$
(21,838
)
  
$
485,308
  
Net income
     -       -      
-
      
44,855
      
-
      
44,855
  
Other comprehensive income, net of tax
     -      
-
      
-
      
-
      
4,775
      
4,775
  
Cash dividends declared ($8.30 per share)
     -       -       -       (6,286 )     -       (6,286 )
Repurchase of common stock
     (13,814 )     -       (13,943 )     -       -       (13,943 )
Balance as of June 30, 2023
    
754,523
    
$
8
    
$
43,263
    
$
488,501
    
$
(17,063
)
  
$
514,709
  

See accompanying notes to the unaudited consolidated financial statements.

6
FARMERS & MERCHANTS BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
   
Six Months Ended
June 30,
  
(Dollars in thousands)
  
2024
    
2023
  
Cash flows from operating activities:
            
Net income
  
$
44,490
    
$
44,855
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Provision for credit losses
    
-
      
4,057
  
Depreciation and amortization
    
1,443
      
1,196
  
Net (accretion) amortization of securities premiums and discounts
    
(780
)
    
35
  
Increase (decrease)  in cash surrender value of BOLI
    
1,276
      
(950
)
Gain on BOLI death benefit
    -       (4,346 )
Decrease in deferred income taxes, net
    
7,854
      
1,773
  
Loss on sale of securities available-for-sale
    
-
      
5,686
  
Net changes in:
                
Other assets
    
(6,714
)
    
(2,636
)
Other liabilities
    
7,526
      
16,671
  
Net cash provided by operating activities
    
55,095
      
66,341
  
Cash flows from investing activities:
                
Net change in loans and leases held for investment
    
(27,594
)
    
6,388
  
Purchase of available-for-sale securities
    
(83,361
)
    
(4,515
)
Purchase of held-to-maturity securities
    
(2,028
)
    
(2,071
)
Proceeds from sales, maturities, calls and pay downs of available-for-sale securities
    
11,667
      
43,885
  
Proceeds from maturities, calls and pay downs of held-to-maturity securities
    
25,054
      
23,498
  
Purchase of premises and equipment
    
(844
)
    
(3,239
)
Purchase of other investments
    
(11,227
)
    
(2,166
)
Redemption of other investments
     5,000       -  
Proceeds from bank-owned life insurance     -       11,752  
Proceeds from sale of assets
     -       27  
Net cash (used in) provided by investing activities
    
(83,333
)
    
73,559
  
Cash flows from financing activities:
                
Net decrease in deposits
    
(71,040
)
    
(120,956
)
Cash dividends paid
     (6,507 )     (6,286 )
Net cash used in share repurchases of common stock
    
(8,921
)
    
(13,943
)
Net cash (used in) financing activities
    
(86,468
)
    
(141,185
)
Net change in cash and cash equivalents
    
(114,706
)
    
(1,285
)
Cash and cash equivalents, beginning of period
    
410,642
      
588,257
  
Cash and cash equivalents, end of period
  
$
295,936
    
$
586,972
  
                 
Supplemental disclosures of cash flow information:
                
Cash paid for interest
  
$
34,423
    
$
9,907
  
Income taxes paid
   $ 7,349     $ 16  
                 
Supplemental disclosures of non-cash transactions:
                
Net change in unrealized gains on securities available-for-sale
   $ 3,695     $ 6,857  

See accompanying notes to the unaudited consolidated financial statements.

7
FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED 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 June 30, 2024 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. All significant intercompany transactions and balances have been eliminated.

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

The information included in this Form 10-Q should be read in conjunction with our 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.

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Table of Contents

FARMERS & MERCHANTS BANCORP
NOTES TO UNAUDITED CONSOLIDATED STATEMENTS (Continued)
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 contra