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

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.

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.

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.

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.
                                                                                                                                                                                                                                                                      
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.


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
 
$