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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    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 0-14492
 FARMERS & MERCHANTS BANCORP, INC.
 OHIO
    
    34-1469491(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)307 North Defiance Street 
Archbold, Ohio
    
    43502(Address of principal 
Executive offices)
    
    (Zip Code)
   Title of each class 
None
    
    Name of each exchange on
which registered
None
  
 o þ
 o þ
 þ o
 o o
 o þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



FARMERS & MERCHANTS BANCORP, INC.
TABLE OF CONTENTS
 Form 10-K Items
    
    PAGEItem 1. Business
    
    
    3-11Item 1a. Risk Factors
    
    
    11-12Item 1b. Unresolved Staff Comments
    
    
    13Item 2. Properties
    
    
    13-14Item 3. Legal Proceedings
    
    
    14Item 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    14-17Item 6. Selected Financial Data
    
    
    17Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    18-39Item 7a. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39-40Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Disagreements on Accounting and Financial Disclosure
    
    
    75Item 9a. Controls and Procedures
    
    
    76Item 9b. Other Information
    
    
    76Item 10. Directors and Executive Officers of the Registrant
    
    
    77-79Item 11. Executive Compensation
    
    
    79Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    79Item 13. Certain Relationships and Related Transactions
    
    
    79Item 14. Principal Accountant Fees and Services
    
    
    79Item 15. Exhibits, Financial Schedules and Reports on Form 8-K
    
    
    80-81Signatures & Certifications
    
    
    82-87Total Pages:
    
    
    87EX-21EX-31.1EX-31.2EX-32.1EX-32.2
   2




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PART 1.
 
 ITEM 1. BUSINESS
 General
    Nature Of Activities
     3




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:
  st nd
 4




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:
  :
 :
      5




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Supervision and Regulation
 General
   Regulatory Agencies
   Holding Company Activities
     6




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Affiliate Transactions
  Interstate Banking and Branching
  Control Acquisitions
  Liability for Banking Subsidiaries
  7




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Regulatory Capital Requirements
  FDICIA
  Dividend Restrictions
  Deposit Insurance Assessments
   8




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Depositor Preference Statute
  Government Monetary Policy
  Capital Purchase Program
  9




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Additional Regulation
   Future Legislation
  ****Available Information:
 www.fm-bank.com
 10




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ITEM 1a. RISK FACTORS
 Significant Competition from an Array of Financial Service Providers
  Credit Risk
  Susceptibility to Changes in Regulation
  11




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Interest Rate Risk
   Attraction and Retention of Key Personnel
     12




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Dividend Payout Restrictions
  Anti-Takeover Provisions
  Operational Risks
  Limited Trading Market
  
 ITEM 1b. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   13




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Office
    
    
    
    LocationArchbold, Ohio
    
    
    
    1313 S Defiance StreetWauseon, Ohio
    
    
    
    1130 N Shoop Avenue
119 N Fulton StreetStryker, Ohio
    
    
    
    300 S Defiance StreetWest Unity, Ohio
    
    
    
    200 W Jackson StreetBryan, Ohio
    
    
    
    929 E High Street1000 S Main StreetDelta, Ohio
    
    
    
    101 Main StreetMontpelier, Ohio
    
    
    
    1150 E Main StreetNapoleon, Ohio
    
    
    
    2255 Scott StreetSwanton, Ohio
    
    
    
    7 Turtle Creek CircleDefiance, Ohio
    
    
    
    1175 Hotel DrivePerrysburg, Ohio
    
    
    
    7001 Lighthouse WayButler, Indiana
    
    
    
    200 S BroadwayAuburn, Indiana
    
    
    
    403 Erie PassAngola, Indiana
    
    
    
    2310 N Wayne StreetHicksville, Ohio
    
    
    
    100 N. Main Street
  
 ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. No longer applicable.
 PART II.
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  14




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##### Table of Contents



Stock Prices      2010Quarter
    
    Low
    
    
    High1st
    
    $
    16.00
    
    
    $
    19.002nd
    
    
    17.00
    
    
    
    20.003rd
    
    
    17.95
    
    
    
    19.454th
    
    
    16.95
    
    
    
    18.75
 Stock Prices 2009Quarter
    
    Low
    
    
    High1st
    
    $
    17.60
    
    
    $
    20.002nd
    
    
    17.55
    
    
    
    20.503rd
    
    
    19.25
    
    
    
    20.994th
    
    
    15.20
    
    
    
    19.00
     
 I. Year 2005 as the Base
 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010FMSB
    
    
    100.00
    
    
    
    102.11
    
    
    
    95.40
    
    
    
    97.31
    
    
    
    84.16
    
    
    
    94.87NASDAQ  COMPOSITE
    
    
    100.00
    
    
    
    110.33
    
    
    
    121.98
    
    
    
    74.11
    
    
    
    106.34
    
    
    
    124.87NASDAQ-BANK INDEX
    
    
    100.00
    
    
    
    113.65
    
    
    
    91.88
    
    
    
    73.53
    
    
    
    62.73
    
    
    
    70.25
 15




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##### Table of Contents



1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    Total2010
    
    0.18
    
    0.18
    
    0.18
    
    0.19
    
    0.732009
    
    0.18
    
    0.18
    
    0.18
    
    0.18
    
    0.72
     ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number ofShares Purchased as
    
    Remaining ShareTotal Number of
    
    Average Price Paid
    
    Part of Publicly
    
    RepurchasePeriod
    
    Shares Purchased
    
    per Share
    
    Announced Programs
    
    Authorization10/1/2010 to 10/31/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,27511/1/2010 to 11/30/2010
    
    
    5,000
    
    
    $
    18.00
    
    
    
    5,000
    
    
    
    167,27512/1/2010 to 12/31/2010
    
    
    15,405
    
    
    $
    17.61
    
    
    
    15,405
    
    
    
    151,870Total (I)
    
    
    20,405
    
    
    $
    17.70
    
    
    
    20,405
    
    
    
    151,870
 
 (1)
    
    The Company purchased shares in the market pursuant to stock repurchase program
publicly announced on December 18, 2009. On that date, the Board of Directors
authorized the repurchase of 200,000 common shares between January 1, 2010 and December
31, 2010. 20,405 shares were repurchased in the fourth quarter. In total for 2010,
48,130 shares were repurchased. 16




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Reclassification
  
 ITEM 6. SELECTED FINANCIAL DATA
 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
 Summary of Consolidated Statement of Income  UNAUDITED
 (In Thousands, except share data)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Summary of Income:Interest income
    
    $
    39,893
    
    
    $
    41,114
    
    
    $
    43,824
    
    
    $
    45,424
    
    
    $
    42,269Interest expense
    
    
    10,863
    
    
    
    13,220
    
    
    
    18,101
    
    
    
    21,722
    
    
    
    18,535Net Interest Income
    
    
    29,030
    
    
    
    27,894
    
    
    
    25,723
    
    
    
    23,702
    
    
    
    23,734Provision for loan loss
    
    
    5,325
    
    
    
    3,558
    
    
    
    1,787
    
    
    
    871
    
    
    
    525Net interest income after provision for loan loss
    
    
    23,705
    
    
    
    24,336
    
    
    
    23,936
    
    
    
    22,831
    
    
    
    23,209Other income (expense), net
    
    
    (14,342
    )
    
    
    (15,256
    )
    
    
    (14,763
    )
    
    
    (12,269
    )
    
    
    (11,966
    )Net income before income taxes
    
    
    9,363
    
    
    
    9,080
    
    
    
    9,173
    
    
    
    10,562
    
    
    
    11,243Income taxes
    
    
    2,382
    
    
    
    2,475
    
    
    
    2,450
    
    
    
    2,828
    
    
    
    3,107Net income
    
    $
    6,981
    
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136Per Share of Common Stock:Earnings per common share outstanding *Net income
    
    $
    1.48
    
    
    $
    1.39
    
    
    $
    1.39
    
    
    $
    1.52
    
    
    $
    1.57Dividends
    
    $
    0.730
    
    
    $
    0.720
    
    
    $
    0.680
    
    
    $
    0.640
    
    
    $
    0.575Weighted average number of shares outstanding
    
    
    4,721,235
    
    
    
    4,741,392
    
    
    
    4,846,310
    
    
    
    5,097,636
    
    
    
    5,186,329
 
 *
    
    Based on weighted average number of shares outstanding Summary of Consolidated Balance Sheet  UNAUDITED
 (In Thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Total assets
    
    $
    906,363
    
    
    $
    853,860
    
    
    $
    805,729
    
    
    $
    803,974
    
    
    $
    737,096Loans, net
    
    
    521,883
    
    
    
    563,911
    
    
    
    562,336
    
    
    
    523,474
    
    
    
    498,580Total Deposits
    
    
    724,513
    
    
    
    676,444
    
    
    
    615,732
    
    
    
    634,593
    
    
    
    585,409Stockholders equity
    
    
    94,403
    
    
    
    93,584
    
    
    
    90,547
    
    
    
    89,375
    
    
    
    87,732Key RatiosReturn on average equity
    
    
    7.38
    %
    
    
    7.19
    %
    
    
    7.51
    %
    
    
    8.71
    %
    
    
    9.64
    %Return on average assets
    
    
    0.80
    %
    
    
    0.80
    %
    
    
    0.84
    %
    
    
    1.06
    %
    
    
    1.14
    %Loans to deposits
    
    
    72.03
    %
    
    
    83.36
    %
    
    
    91.33
    %
    
    
    82.49
    %
    
    
    85.17
    %Capital to assets
    
    
    10.42
    %
    
    
    10.96
    %
    
    
    11.24
    %
    
    
    11.12
    %
    
    
    11.90
    %Dividend payout
    
    
    49.33
    %
    
    
    51.66
    %
    
    
    48.77
    %
    
    
    42.00
    %
    
    
    36.63
    %
 17




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Critical Accounting Policy and Estimates
        18




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2010 in Review
      19




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Material Changes in Results of Operations
       20




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December 31
    
    
    December 31
    
    
    December 312010
    
    
    2009
    
    

2008(In thousands)Capitalized Additions (Noninterest income)
    
    $
    685
    
    
    $
    1,158
    
    
    $
    447Amortizations (Noninterest expense)
    
    
    (684
    )
    
    
    (933
    )
    
    
    (370
    )Net Noninterest income
    
    $
    1
    
    
    $
    225
    
    
    $
    77
  21




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Net Interest Income
  22




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23




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24




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2010(In Thousands)Average
    
    
    Interest /Balance
    
    
    Dividends
    
    
    Yield/RateASSETSInterest Earning
Assets:Loans (1)
    
    $
    550,698
    
    
    $
    32,860
    
    
    
    6.00
    %Taxable investment securities
    
    
    176,885
    
    
    
    4,847
    
    
    
    2.74
    %Tax-exempt investment securities
    
    
    59,537
    
    
    
    2,091
    
    
    
    5.32
    %Federal funds sold & interest bearing deposits
    
    
    35,195
    
    
    
    95
    
    
    
    0.27
    %Total Interest Earning Assets
    
    
    822,315
    
    
    $
    39,893
    
    
    
    5.00
    %Non-Interest Earning Assets:Cash and
cash equivalents
    
    
    14,046Other assets
    
    
    42,096Total Assets
    
    $
    878,457LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing
Liabilities:Savings deposits
    
    $
    305,426
    
    
    $
    2,190
    
    
    
    0.72
    %Other time deposits
    
    
    321,018
    
    
    
    6,936
    
    
    
    2.16
    %Other borrowed money
    
    
    37,517
    
    
    
    1,459
    
    
    
    3.89
    %Federal funds
purchased and
securties sold under agreement to
repurchase
    
    
    46,530
    
    
    
    278
    
    
    
    0.60
    %Total Interest Bearing Liabilities
    
    
    710,491
    
    
    $
    10,863
    
    
    
    1.53
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    63,108Other
    
    
    10,207Total Liabilities
    
    
    783,806Shareholders Equity
    
    
    94,651Total Liabilities and Shareholders Equity
    
    $
    878,457Interest/Dividend income/yield
    
    
    
    
    
    $
    39,893
    
    
    
    5.00
    %Interest
Expense / yield
    
    
    
    
    
    $
    10,863
    
    
    
    1.53
    %Net Interest Spread
    
    
    
    
    
    $
    29,030
    
    
    
    3.47
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.68
    %
 25




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2009(In Thousands)Average
    
    
    Interest/Balance
    
    

Dividends
    
    

Yield/RateASSETSInterest Earning Assets:Loans (1)
    
    $
    558,869
    
    
    $
    33,585
    
    
    
    6.04
    %Taxable investment securities
    
    
    146,872
    
    
    
    5,798
    
    
    
    3.95
    %Tax-exempt investment securities
    
    
    46,736
    
    
    
    1,686
    
    
    
    5.47
    %Federal funds sold & interest bearing deposits
    
    
    11,937
    
    
    
    45
    
    
    
    0.38
    %Total Interest Earning Assets
    
    
    764,414
    
    
    $
    41,114
    
    
    
    5.52
    %Non-Interest Earning Assets:Cash and cash equivalents
    
    
    19,209Other assets
    
    
    39,007Total Assets
    
    $
    822,630LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing Liabilities:Savings deposits
    
    $
    257,345
    
    
    $
    1,755
    
    
    
    0.68
    %Other time deposits
    
    
    317,619
    
    
    
    9,252
    
    
    
    2.91
    %Other borrowed money
    
    
    38,498
    
    
    
    1,727
    
    
    
    4.49
    %Federal funds purchased and securities sold under agreement to
repurchase
    
    
    45,920
    
    
    
    486
    
    
    
    1.06
    %Total Interest Bearing Liabilities
    
    
    659,382
    
    
    $
    13,220
    
    
    
    2.00
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    57,630Other
    
    
    13,778Total Liabilities
    
    
    730,790Shareholders Equity
    
    
    91,840Total Liabilities and
Shareholders Equity
    
    $
    822,630Interest/Dividend income/yield
    
    
    
    
    
    $
    41,114
    
    
    
    5.52
    %Interest Expense / yield
    
    
    
    
    
    $
    13,220
    
    
    
    2.00
    %Net Interest Spread
    
    
    
    
    
    $
    27,894
    
    
    
    3.52
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.79
    %
 26




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2008(In Thousands)Average
    
    
    Interest/Balance
    
    
    Dividends
    
    
    Yield/RateASSETSInterest Earning Assets:Loans (1)
    
    $
    544,310
    
    
    $
    34,994
    
    
    
    6.46
    %Taxable investment securities
    
    
    146,877
    
    
    
    6,963
    
    
    
    4.74
    %Tax-exempt investment securities
    
    
    42,361
    
    
    
    1,594
    
    
    
    5.70
    %Federal funds sold & interest bearing deposits
    
    
    9,423
    
    
    
    273
    
    
    
    2.90
    %Total Interest Earning Assets
    
    
    742,971
    
    
    $
    43,824
    
    
    
    6.03
    %Non-Interest Earning Assets:Cash and cash equivalents
    
    
    19,399Other assets
    
    
    35,317Total Assets
    
    $
    797,687LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing Liabilities:Savings deposits
    
    $
    240,880
    
    
    $
    2,760
    
    
    
    1.15
    %Other time deposits
    
    
    314,005
    
    
    
    12,467
    
    
    
    3.97
    %Other borrowed money
    
    
    38,110
    
    
    
    1,747
    
    
    
    4.58
    %Federal
funds purchased and securities
sold under agreement to repurchase
    
    
    49,014
    
    
    
    1,127
    
    
    
    2.30
    %Total Interest Bearing Liabilities
    
    
    642,009
    
    
    $
    18,101
    
    
    
    2.82
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    53,208Other
    
    
    12,928Total Liabilities
    
    
    708,145Shareholders Equity
    
    
    89,542Total Liabilities and
Shareholders Equity
    
    $
    797,687Interest/Dividend income/yield
    
    
    
    
    
    $
    43,824
    
    
    
    6.03
    %Interest Expense / yield
    
    
    
    
    
    $
    18,101
    
    
    
    2.82
    %Net Interest Spread
    
    
    
    
    
    $
    25,723
    
    
    
    3.21
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.60
    %
  27




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2010
vs 2009(In Thousands)Net
    
    
    Due to change inChange
    
    

Volume
    
    

RateInterest Earning Assets:Loans
    
    $
    (725
    )
    
    $
    (494
    )
    
    $
    (231
    )Taxable investment securities
    
    
    (951
    )
    
    
    1,185
    
    
    
    (2,136
    )Tax-exempt investment securities
    
    
    405
    
    
    
    700
    
    
    
    (295
    )Federal funds sold & interest bearing deposits
    
    
    50
    
    
    
    88
    
    
    
    (38
    )Total Interest Earning Assets
    
    $
    (1,221
    )
    
    $
    1,479
    
    
    $
    (2,700
    )Interest Bearing Liabilities:Savings deposits
    
    $
    435
    
    
    $
    328
    
    
    $
    107Other time deposits
    
    
    (2,316
    )
    
    
    99
    
    
    
    (2,415
    )Other borrowed money
    
    
    (268
    )
    
    
    (44
    )
    
    
    (224
    )Federal
funds purchased and securities
sold under agreement to repurchase
    
    
    (208
    )
    
    
    6
    
    
    
    (214
    )Total Interest Bearing Liabilities
    
    $
    (2,357
    )
    
    $
    389
    
    
    $
    (2,746
    )
 2009 vs 2008(In Thousands)Net
    
    
    Due to change inChange
    
    
    Volume
    
    
    RateInterest Earning Assets:Loans
    
    $
    (1,409
    )
    
    $
    941
    
    
    $
    (2,350
    )Taxable investment securities
    
    
    (1,165
    )
    
    
    (0
    )
    
    
    (1,165
    )Tax-exempt investment securities
    
    
    92
    
    
    
    249
    
    
    
    (157
    )Federal funds sold & interest bearing deposits
    
    
    (228
    )
    
    
    73
    
    
    
    (301
    )Total Interest Earning Assets
    
    $
    (2,710
    )
    
    $
    1,263
    
    
    $
    (3,973
    )Interest Bearing Liabilities:
    
    $
    (1,005
    )
    
    $
    189
    
    
    $
    (1,194
    )Savings deposits
    
    
    (3,215
    )
    
    
    143
    
    
    
    (3,358
    )Other time deposits
    
    
    (20
    )
    
    
    18
    
    
    
    (38
    )Other borrowed money
    
    
    
    
    
    
    Federal
funds purchased and securities sold under agreement to repurchase
    
    
    (641
    )
    
    
    (71
    )
    
    
    (570
    )Total Interest Bearing Liabilities
    
    $
    (4,881
    )
    
    $
    279
    
    
    $
    (5,160
    )
  28




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##### Table of Contents



Allowance for Credit Losses
         Federal Income Taxes
  29




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##### Table of Contents



Financial Condition
  Securities
    (In
Thousands)2010
    
    
    2009
    
    
    2008U.S. Treasury
    
    $
    32,278
    
    
    $
    5,219
    
    
    $
    U.S. Government agency
    
    
    165,704
    
    
    
    104,676
    
    
    
    82,675Mortgage-backed securities
    
    
    24,531
    
    
    
    36,848
    
    
    
    51,826State and local governments
    
    
    64,804
    
    
    
    60,538
    
    
    
    43,160$
    287,317
    
    
    $
    207,281
    
    
    $
    177,661
  Maturities(Amounts in Thousands)After One YearWithin One Year
    
    
    
    
    
    
    Within Five YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. Treasury
    

    
    
    
    

    $
    0.00
    %
    
    $
    22,726
    
    
    
    1.06
    %U.S. Government agency
    
    
    
    
    
    
    0.00
    %
    
    
    126,890
    
    
    
    1.45
    %Mortgage-backed securities
    
    
    1,169
    
    
    
    4.25
    %
    
    
    2,600
    
    
    
    4.31
    %State and local governments
    
    
    2,092
    
    
    
    2.21
    %
    
    
    15,928
    
    
    
    2.77
    %Taxable state and local governments
    
    
    
    
    
    
    0.00
    %
    
    
    1,944
    
    
    
    3.14
    %
 30




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##### Table of Contents



Maturities(Amounts in Thousands)After Five YearsWithin Ten Years
    
    
    After Ten YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. Treasury
    
    $
    9,552
    
    
    
    1.62
    %
    
    
    
    
    
    $
    0.00
    %U.S. Government agency
    
    
    38,814
    
    
    
    2.26
    %
    
    
    
    
    
    
    0.00
    %Mortgage-backed securities
    
    
    2,564
    
    
    
    4.70
    %
    
    
    18,198
    
    
    
    4.63
    %State and local governments
    
    
    28,795
    
    
    
    3.31
    %
    
    
    15,078
    
    
    
    4.23
    %Taxable state and local governments
    
    
    967
    
    
    
    3.14
    %
    
    
    
    
    
    
    0.00
    %
  Loan Portfolio
   st
 (In Thousands)Loans:
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Commercial real estate
    
    $
    185,033
    
    
    $
    214,849
    
    
    $
    226,761
    
    
    $
    181,340
    
    
    $
    162,363Agricultural real estate
    
    
    33,650
    
    
    
    41,045
    
    
    
    48,607
    
    
    
    45,518
    
    
    
    49,564Consumer real estate
    
    
    95,271
    
    
    
    98,599
    
    
    
    89,773
    
    
    
    102,660
    
    
    
    86,688Commercial and industrial
    
    
    117,344
    
    
    
    120,543
    
    
    
    112,526
    
    
    
    104,188
    
    
    
    101,788Agricultural
    
    
    65,400
    
    
    
    59,813
    
    
    
    56,322
    
    
    
    58,809
    
    
    
    69,301Consumer
    
    
    29,008
    
    
    
    32,581
    
    
    
    26,469
    
    
    
    27,796
    
    
    
    27,388Industrial Development Bonds
    
    
    1,965
    
    
    
    2,552
    
    
    
    7,572
    
    
    
    9,289
    
    
    
    7,335$
    527,671
    
    
    $
    569,982
    
    
    $
    568,030
    
    
    $
    529,600
    
    
    $
    504,427
 31




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##### Table of Contents



(In Thousands)After OneWithin
    
    
    Year Within
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial Real Estate
    
    $
    36,523
    
    
    $
    105,168
    
    
    $
    43,342
    
    
    $
    185,033Agricultural Real Estate
    
    
    2,738
    
    
    
    13,546
    
    
    
    17,366
    
    
    
    33,650Consumer Real Estate
    
    
    8,009
    
    
    
    23,094
    
    
    
    64,168
    
    
    
    95,271Commercial and industrial loans
    
    
    83,554
    
    
    
    25,387
    
    
    
    8,403
    
    
    
    117,344Agricultural
    
    
    48,038
    
    
    
    14,196
    
    
    
    3,166
    
    
    
    65,400Consumer, Credit Card and Overdrafts
    
    
    6,002
    
    
    
    20,723
    
    
    
    2,283
    
    
    
    29,008Industrial Development Bonds
    
    
    556
    
    
    
    446
    
    
    
    963
    
    
    
    1,965
  (In Thousands)Fixed
    
    
    VariableRate
    
    
    Rate
    
    
    TotalCommercial Real Estate
    
    $
    57,162
    
    
    $
    91,314
    
    
    $
    148,476Agricultural Real Estate
    
    
    18,918
    
    
    
    11,682
    
    
    
    30,600Consumer Real Estate
    
    
    74,095
    
    
    
    13,267
    
    
    
    87,362Commercial and industrial loans
    
    
    26,831
    
    
    
    6,324
    
    
    
    33,155Agricultural
    
    
    17,138
    
    
    
    224
    
    
    
    17,362Consumer, Master Card and Overdrafts
    
    
    23,006
    
    
    
    3,664
    
    
    
    26,670Industrial Development Bonds
    
    
    1,409
    
    
    
    
    
    
    
    1,409
  (In Thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Nonaccrual loans
    
    $
    5,844
    
    
    $
    14,054
    
    
    $
    13,575
    
    
    
    4918
    
    
    
    4254Accruing loans past due 90 days or more
    
    
    48
    
    
    
    69
    
    
    
    2,524
    
    
    
    
    
    
    
    Total
    
    $
    5,892
    
    
    $
    14,123
    
    
    $
    16,099
    
    
    $
    4,918
    
    
    $
    4,254
  32




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33




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34




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##### Table of Contents



(In Thousands)2010
    
    
    2009
    
    
    2008Loans
    
    $
    527,589
    
    
    $
    569,919
    
    
    $
    568,030Daily average of outstanding loans
    
    $
    550,698
    
    
    $
    558,869
    
    
    $
    544,859Allowance for Loan Losses-Jan 1
    
    $
    6,008
    
    
    $
    5,496
    
    
    $
    5,922Loans Charged off:Commercial Real Estate
    
    
    1,147
    
    
    
    
    
    
    
    Ag Real Estate
    
    
    
    
    
    
    
    
    
    
    Consumer Real Estate
    
    
    507
    
    
    
    452
    
    
    
    194Commercial and Industrial
    
    
    4,188
    
    
    
    2,235
    
    
    
    71Agricultural
    
    
    136
    
    
    
    230
    
    
    
    1,912Consumer & other loans
    
    
    444
    
    
    
    371
    
    
    
    3846,422
    
    
    
    3,288
    
    
    
    2,561Loan Recoveries:Commercial Real Estate
    
    
    52
    
    
    
    
    
    
    
    Ag Real Estate
    
    
    
    
    
    
    
    
    
    
    Consumer Real Estate
    
    
    55
    
    
    
    11
    
    
    
    87Commercial and Industrial
    
    
    515
    
    
    
    72
    
    
    
    78Agricultural
    
    
    17
    
    
    
    6
    
    
    
    4Consumer & other loans
    
    
    156
    
    
    
    153
    
    
    
    179795
    
    
    
    242
    
    
    
    348Net Charge Offs
    
    
    5,627
    
    
    
    3,046
    
    
    
    2,213Provision for loan loss
    
    
    5,325
    
    
    
    3,558
    
    
    
    1,787Acquisition provision for loan loss
    
    
    
    
    
    
    
    
    
    
    Allowance for Loan & Lease Losses  Dec 31
    
    $
    5,706
    
    
    $
    6,008
    
    
    $
    5,496Allowance
for Unfunded Loan Commitments & Letters of Credit Dec 31
    
    
    153
    
    
    
    227
    
    
    
    226Total Allowance for Credit Losses  Dec 31
    
    $
    5,859
    
    
    $
    6,235
    
    
    $
    5,722Ratio of net charge-offs to average
Loans outstanding
    
    
    1.02
    %
    
    
    0.55
    %
    
    
    0.41
    %Ratio of the Allowance for Loan Loss to
Nonperforming Loans
    
    
    97.63
    %
    
    
    42.75
    %
    
    
    40.48
    %
 
 *
    
    Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days
not on nonaccrual.  35




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##### Table of Contents



2010
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Amount (000s)
    
    
    %
    
    
    Amount (000s)
    
    
    %
    
    
    Amount (000s)
    
    
    %
    
    
    Amount (000s)
    
    
    %
    
    
    Amount (000s)
    
    
    %Balance at End of Period Applicable To:Commercial Real Estate
    
    $
    1,868
    
    
    
    35.07
    
    
    $
    1,810
    
    
    
    37.69
    
    
    $
    1,810
    
    
    
    39.92
    
    
    $
    1,358
    
    
    
    34.24
    
    
    $
    1,221
    
    
    
    32.19Ag Real Estate
    
    
    122
    
    
    
    6.38
    
    
    
    120
    
    
    
    7.20
    
    
    
    130
    
    
    
    8.56
    
    
    
    117
    
    
    
    8.59
    
    
    
    162
    
    
    
    9.83Consumer Real Estate
    
    
    258
    
    
    
    16.31
    
    
    
    439
    
    
    
    17.30
    
    
    
    386
    
    
    
    15.80
    
    
    
    381
    
    
    
    19.38
    
    
    
    288
    
    
    
    17.19Commercial and Industrial
    
    
    2,354
    
    
    
    14.23
    
    
    
    2,494
    
    
    
    21.15
    
    
    
    2,278
    
    
    
    19.81
    
    
    
    1,859
    
    
    
    19.67
    
    
    
    2,721
    
    
    
    20.18Agricultural
    
    
    327
    
    
    
    22.24
    
    
    
    647
    
    
    
    10.49
    
    
    
    413
    
    
    
    9.92
    
    
    
    1,676
    
    
    
    11.10
    
    
    
    250
    
    
    
    13.74Consumer, Overdrafts and other loans
    
    
    777
    
    
    
    5.77
    
    
    
    498
    
    
    
    6.16
    
    
    
    479
    
    
    
    5.99
    
    
    
    531
    
    
    
    7.00
    
    
    
    634
    
    
    
    6.88Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Allowance for Loan & Lease Losses
    
    
    5,706
    
    
    
    100.00
    
    
    
    6,008
    
    
    
    100.00
    
    
    
    5,496
    
    
    
    100.00
    
    
    
    5,922
    
    
    
    100.00
    
    
    
    5,594
    
    
    
    100.00Off Balance Sheet Commitments
    
    
    153
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    168Total Allowance for Credit Losses
    
    $
    5,859
    
    
    
    
    
    
    $
    6,235
    
    
    
    
    
    
    $
    5,722
    
    
    
    
    
    
    $
    6,078
    
    
    
    
    
    
    $
    5,762
 Deposits
  (In Thousands)Over Three
    
    
    Over SixMonths
    
    
    Months Less
    
    
    OverUnder
    
    
    Less than
    
    
    Than One
    
    
    OneThree Months
    
    
    Six Months
    
    
    Year
    
    
    YearTime Deposits
    
    $
    30,925
    
    
    $
    25,178
    
    
    $
    24,969
    
    
    $
    51,299
  (In Thousands)Non-Interest
    
    
    Interest
    
    
    Savings
    
    
    TimeDDAs
    
    
    DDAs
    
    
    Accounts
    
    
    AccountsDecember 31, 2010:Average balance
    
    $
    60,489
    
    
    $
    167,382
    
    
    $
    138,044
    
    
    $
    321,018Average rate
    
    
    0.00
    %
    
    
    0.96
    %
    
    
    0.42
    %
    
    
    2.16
    %December 31, 2009:Average balance
    
    $
    55,793
    
    
    $
    145,259
    
    
    $
    112,086
    
    
    $
    317,619Average rate
    
    
    0.00
    %
    
    
    1.02
    %
    
    
    0.24
    %
    
    
    2.91
    %December 31, 2008:Average balance
    
    $
    52,152
    
    
    $
    130,887
    
    
    $
    109,993
    
    
    $
    314,005Average rate
    
    
    0.00
    %
    
    
    1.46
    %
    
    
    0.77
    %
    
    
    3.97
    %
 Liquidity
   36




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Daily Securities Sold Under Agreement to RepurchaseMaximum AmountAmount Outstanding
    
    
    
    
    
    
    Borrowings Outstanding
    
    
    Approximate Average
    
    
    Approximate Weightedat End of Period
    
    
    Weighted Average Rate
    
    
    Month End
    
    
    Outstanding in Period
    
    
    Average Interest Rate(000S)
    
    
    End of Period
    
    
    (000s)
    
    
    (000s)
    
    
    For the period2010
    
    $
    37,191
    
    
    
    0.36
    %
    
    $
    37,501
    
    
    $
    34,046
    
    
    
    0.36
    %2009
    
    $
    33,457
    
    
    
    0.42
    %
    
    $
    40,530
    
    
    $
    37,696
    
    
    
    0.48
    %2008
    
    $
    40,014
    
    
    
    0.50
    %
    
    $
    47,644
    
    
    $
    40,113
    
    
    
    1.96
    %
  37




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##### Table of Contents



Asset/Liability Management
    Impact of Inflation and Changing Prices
  Contractual Obligations
  Payment Due by Period (In Thousands)Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsSecurities sold under agreement to repurchase
    
    $
    51,241
    
    
    $
    51,241
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    317,364
    
    
    
    176,254
    
    
    
    106,498
    
    
    
    33,211
    
    
    
    1,401Dividends Payable
    
    
    894
    
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    Long Term Debt
    
    
    29,874
    
    
    
    13,212
    
    
    
    12,162
    
    
    
    4,500
    
    
    
    Total
    
    $
    399,373
    
    
    $
    241,601
    
    
    $
    118,660
    
    
    $
    37,711
    
    
    $
    1,401
 38




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##### Table of Contents



Capital Resources













ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market Risk






39



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##### Table of Contents



Interest Rate Shock on
    
    
    
    
    
    
    
    
    
    
    Interest Rate Shock onNet Interest Margin
    
    
    
    
    
    
    
    
    
    
    Net Interest IncomeNet Interest
    
    % Change
    
    
    Rate
    
    
    Rate
    
    
    Cumulative
    
    
    % ChangeMargin (Ratio)
    
    to Flat Rate
    
    
    Direction
    
    
    changes by
    
    
    Total ($000)
    
    
    to Flat Rate2.91%
    
    
    -0.19
    %
    
    Rising
    
    
    -6.10
    %
    
    
    24,633
    
    
    
    -6.54
    %2.98%
    
    
    -0.13
    %
    
    Rising
    
    
    -4.02
    %
    
    
    25,221
    
    
    
    -4.31
    %3.04%
    
    
    -0.07
    %
    
    Rising
    
    
    -2.19
    %
    
    
    25,739
    
    
    
    -2.34
    %3.10%
    
    
    0.00
    %
    
    Flat
    
    
    0
    
    
    
    26,356
    
    
    
    0.00
    %3.13%
    
    
    0.03
    %
    
    Falling
    
    
    0.86
    %
    
    
    26,607
    
    
    
    0.95
    %3.03%
    
    
    -0.07
    %
    
    Falling
    
    
    -2.34
    %
    
    
    25,733
    
    
    
    -2.36
    %2.92%
    
    
    -0.18
    %
    
    Falling
    
    
    -5.87
    %
    
    
    24,765
    
    
    
    -6.04
    %
  
 ITEM 8. FINANCIAL STATEMENTS
 Index To Consolidated Financial Statements
       40




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Report of Independent Registered Public Accounting Firm
 
     41




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##### Table of Contents



/s/ Plante & Moran, PLLCPlante & Moran, PLLC 
 42




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Balance Sheet
December 31, 2010 and 2009
(000s Omitted, Except Per Share Data)
 Farmers & Merchants Bancorp, Inc and Subsidiaries
Consolidated Balance Sheet
December 31, 2010 and 2009
 2010
    
    
    2009AssetsAssetsCash and due from banks (Note 1)
    
    $
    28,987
    
    
    $
    28,691Federal Funds Sold
    
    
    14,392
    
    
    
    4,957Total cash and cash equivalents
    
    
    43,379
    
    
    
    33,648Securities  available for sale (Note 3)
    
    
    287,317
    
    
    
    207,281Other Securities, at cost (Note 3)
    
    
    4,406
    
    
    
    4,448Loans, net (Note 4)
    
    
    521,883
    
    
    
    563,911Premises and equipment (Note 5)
    
    
    17,202
    
    
    
    16,053Goodwill (Note 2)
    
    
    4,074
    
    
    
    4,074Mortgage Servicing Rights (Note 6)
    
    
    2,178
    
    
    
    2,177Other Real Estate Owned
    
    
    4,468
    
    
    
    1,438Other assets (Note 2)
    
    
    21,456
    
    
    
    20,830Total Assets
    
    $
    906,363
    
    
    $
    853,860Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    70,554
    
    
    $
    65,302Interest-bearingNOW accounts
    
    
    176,897
    
    
    
    160,432Savings
    
    
    159,698
    
    
    
    123,753Time (Note 7)
    
    
    317,364
    
    
    
    326,957Total deposits
    
    
    724,513
    
    
    
    676,444Securities sold under agreement to repurchase (Note 8)
    
    
    51,241
    
    
    
    43,257FHLB Advances (Note 9)
    
    
    29,874
    
    
    
    34,199Dividend payable
    
    
    894
    
    
    
    853Accrued expenses and other liabilities (Note 10)
    
    
    5,438
    
    
    
    5,523Total liabilities
    
    
    811,960
    
    
    
    760,276Stockholders Equity (Note 14 and 15)Common stock  No par value - 6,500,000 shares
authorized; 5,200,000 shares issued & outstanding
    
    
    12,677
    
    
    
    12,677Treasury Stock - 477,106 Shares 2010, 437,551 Shares 2009
    
    
    (9,799
    )
    
    
    (9,082
    )Unearned Stock Awards - 28,925 Shares 2010, 27,775 Shares 2009
    
    
    (580
    )
    
    
    (573
    )Retained earnings
    
    
    91,567
    
    
    
    88,048Accumulated other comprehensive income
    
    
    538
    
    
    
    2,514Total stockholders equity
    
    
    94,403
    
    
    
    93,584Total Liabilities and Stockholders Equity
    
    $
    906,363
    
    
    $
    853,860
 See Notes to Consolidated Financial Statements
 43




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Statement of Income

Years Ended December 31, 2010, 2009 and 2008
(000s Omitted, Except Per Share Data)
 Farmers & Merchants Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008Interest IncomeLoans, including fees
    
    $
    32,860
    
    
    $
    33,585
    
    
    $
    34,994Debt securities:U.S. Treasury and government agency
    
    
    4,583
    
    
    
    5,496
    
    
    
    6,634Municipalities
    
    
    2,167
    
    
    
    1,788
    
    
    
    1,697Dividends
    
    
    188
    
    
    
    200
    
    
    
    226Federal funds sold
    
    
    26
    
    
    
    19
    
    
    
    273Other
    
    
    69
    
    
    
    26
    
    
    
    Total interest income
    
    
    39,893
    
    
    
    41,114
    
    
    
    43,824Interest ExpenseDeposits
    
    
    9,126
    
    
    
    11,007
    
    
    
    15,227Federal funds purchased and securities sold
under agreements to repurchase
    
    
    278
    
    
    
    486
    
    
    
    1,127Borrowed funds
    
    
    1,459
    
    
    
    1,727
    
    
    
    1,747Total interest expense
    
    
    10,863
    
    
    
    13,220
    
    
    
    18,101Net Interest Income  Before provision for loan losses
    
    
    29,030
    
    
    
    27,894
    
    
    
    25,723Provision for Loan Losses (Note 4)
    
    
    5,325
    
    
    
    3,558
    
    
    
    1,787Net Interest Income After ProvisionFor Loan Losses
    
    
    23,705
    
    
    
    24,336
    
    
    
    23,936Noninterest IncomeCustomer service fees
    
    
    3,464
    
    
    
    3,276
    
    
    
    3,436Other service charges and fees
    
    
    3,062
    
    
    
    2,541
    
    
    
    2,322Net gain on sale of loans
    
    
    1,395
    
    
    
    1,776
    
    
    
    708Net gain on sale of securities (Note 3)
    
    
    956
    
    
    
    230
    
    
    
    15Total noninterest income
    
    
    8,877
    
    
    
    7,823
    
    
    
    6,481Noninterest ExpensesSalaries and Wages
    
    
    8,773
    
    
    
    8,601
    
    
    
    8,715Employee benefits (Note 11)
    
    
    2,909
    
    
    
    3,018
    
    
    
    3,018Net occupancy expense
    
    
    1,099
    
    
    
    1,113
    
    
    
    1,029Furniture and equipment
    
    
    1,504
    
    
    
    1,504
    
    
    
    1,443Data processing
    
    
    953
    
    
    
    1,136
    
    
    
    1,234Franchise taxes
    
    
    904
    
    
    
    914
    
    
    
    863FDIC Assessment
    
    
    1,053
    
    
    
    1,306
    
    
    
    151Mortgage servicing rights amortization (Note 6)
    
    
    683
    
    
    
    933
    
    
    
    370Other general and administrative
    
    
    5,341
    
    
    
    4,554
    
    
    
    4,421Total other operating expenses
    
    
    23,219
    
    
    
    23,079
    
    
    
    21,244Income Before Income Taxes
    
    
    9,363
    
    
    
    9,080
    
    
    
    9,173Income Taxes (Note 10)
    
    
    2,382
    
    
    
    2,475
    
    
    
    2,450Net Income
    
    $
    6,981
    
    
    $
    6,605
    
    
    $
    6,723Earnings Per Share  Basic and Diluted
    
    $
    1.48
    
    
    $
    1.39
    
    
    $
    1.39Weighted Average Shares Outstanding
    
    
    4,721,235
    
    
    
    4,741,392
    
    
    
    4,846,310
 See Notes to Consolidated Financial Statements
 44




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##### Table of Contents



Farmers & Merchants Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Changes in Shareholders Equity
For the Years Ended December 31, 2010, 2009 and 2008
(000s Omitted, Except per Share Data)
 AccumulatedShares of
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Treasury
    
    
    Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Stock
    
    
    Stock
    
    
    Awards
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance  January 01, 2008
    
    
    4,943,840
    
    
    $
    12,677
    
    
    $
    (5,366
    )
    
    $
    (391
    )
    
    $
    81,575
    
    
    $
    880
    
    
    $
    89,375Cumulative effect of adoption of EITF 06-4 for post
retirement liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,723
    
    
    
    
    
    
    
    6,723Change in net unrealized gain on securities
sale, net of reclassification
adjustment and tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,356
    
    
    
    1,356Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,079Purchase of Treasury Stock
    
    
    (171,889
    )
    
    
    
    
    
    
    (3,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,576
    )Shares issued for vested stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Grant of Restricted Stock Awards-10,000 shares
(Net of Forfeiture  245)
    
    
    9,755
    
    
    
    
    
    
    
    215
    
    
    
    (210
    )
    
    
    
    
    
    
    
    
    
    
    5Cash dividends declared  $0.68 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,282
    )
    
    
    
    
    
    
    (3,282
    )Balance  December 31, 2008
    
    
    4,781,706
    
    
    $
    12,677
    
    
    $
    (8,727
    )
    
    $
    (503
    )
    
    $
    84,864
    
    
    $
    2,236
    
    
    $
    90,547Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,605
    
    
    
    
    
    
    
    6,605Change in net unrealized gain on securities
sale, net of reclassification
adjustment and tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278
    
    
    
    278Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,883Purchase of Treasury Stock
    
    
    (28,907
    )
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555
    )Shares issued for vested stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    123Grant of Restricted Stock Awards-10,000 shares
(Net of Forfeiture  350)
    
    
    9,650
    
    
    
    
    
    
    
    200
    
    
    
    (193
    )
    
    
    (8
    )
    
    
    
    
    
    
    (1
    )Cash dividends declared  $0.72 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,413
    )
    
    
    
    
    
    
    (3,413
    )Balance  December 31, 2009
    
    
    4,762,449
    
    
    $
    12,677
    
    
    $
    (9,082
    )
    
    $
    (573
    )
    
    $
    88,048
    
    
    $
    2,514
    
    
    $
    93,584Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,981
    
    
    
    
    
    
    
    6,981Change in net unrealized gain on securities
sale, net of reclassification
adjustment and tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,976
    )
    
    
    (1,976
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,005Purchase of Treasury Stock
    
    
    (48,130
    )
    
    
    
    
    
    
    (894
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (894
    )Shares issued for vested stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    151Grant of Restricted Stock Awards-10,150 shares
(Net of Forfeiture  1,575)
    
    
    8,575
    
    
    
    
    
    
    
    177
    
    
    
    (158
    )
    
    
    (18
    )
    
    
    
    
    
    
    1Cash dividends declared  $0.73 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,444
    )
    
    
    
    
    
    
    (3,444
    )Balance  December 31, 2010
    
    
    4,722,894
    
    
    $
    12,677
    
    
    $
    (9,799
    )
    
    $
    (580
    )
    
    $
    91,567
    
    
    $
    538
    
    
    $
    94,403
 See notes to Consolidated Financial Statements
 45




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Statement of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
(000s Omitted)
 2010
    
    
    2009
    
    
    2008Cash Flows from Operating ActivitiesNet income
    
    $
    6,981
    
    
    $
    6,605
    
    
    $
    6,723Adjustments to reconcile net income to net cash
from operating activities:Depreciation
    
    
    1,147
    
    
    
    1,171
    
    
    
    1,132Amortization of servicing rights
    
    
    684
    
    
    
    933
    
    
    
    370Amortization of Core Deposit Intangible
    
    
    235
    
    
    
    157
    
    
    
    157Provision for loan loss
    
    
    5,325
    
    
    
    3,558
    
    
    
    1,787Gain on sale of loans held for sale
    
    
    (1,392
    )
    
    
    (1,203
    )
    
    
    (968
    )Originations of loans held for sale
    
    
    (83,705
    )
    
    
    (118,491
    )
    
    
    (36,765
    )Proceeds from sale of loans held for sale
    
    
    82,315
    
    
    
    118,284
    
    
    
    37,735Accretion and amortization of securities
    
    
    1,595
    
    
    
    809
    
    
    
    300Deferred income tax expense (benefit)
    
    
    210
    
    
    
    142
    
    
    
    (39
    )Loss on sale of other assets
    
    
    109
    
    
    
    75
    
    
    
    194Gain on sales of securities
    
    
    (956
    )
    
    
    (230
    )
    
    
    (15
    )Change in other assets and other liabilities, net
    
    
    (1,113
    )
    
    
    (6,026
    )
    
    
    (1,943
    )Net cash provided by operating activities
    
    
    11,435
    
    
    
    5,784
    
    
    
    8,668Cash Flows from Investing ActivitiesActivity in securities:Sales
    
    
    55,700
    
    
    
    16,333
    
    
    
    25Maturities, prepayments and calls
    
    
    104,602
    
    
    
    78,292
    
    
    
    75,084Purchases
    
    
    (244,812
    )
    
    
    (124,354
    )
    
    
    (65,580
    )Loan and lease originations and principal collections, net
    
    
    38,094
    
    
    
    (3,723
    )
    
    
    (41,268
    )Proceeds from sales of assets
    
    
    716
    
    
    
    494
    
    
    
    1,102Additions to premises and equipment
    
    
    (2,294
    )
    
    
    (412
    )
    
    
    (1,081
    )Net cash paid for acquisition
    
    
    (1,141
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (49,135
    )
    
    
    (33,370
    )
    
    
    (31,718
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    48,069
    
    
    
    60,712
    
    
    
    (18,861
    )Net change in federal funds purchased and securitiessold under agreements to repurchase
    
    
    7,984
    
    
    
    (4,957
    )
    
    
    6,885Proceeds from issuance of long-term debt
    
    
    9,000
    
    
    
    
    
    
    
    19,600Repayment of long-term debt
    
    
    (13,326
    )
    
    
    (11,436
    )
    
    
    (5,781
    )Purchase of Treasury Stock
    
    
    (894
    )
    
    
    (555
    )
    
    
    (3,576
    )Cash dividends paid on common stock
    
    
    (3,402
    )
    
    
    (3,417
    )
    
    
    (3,217
    )Net cash provided by (used) financing activities
    
    
    47,431
    
    
    
    40,347
    
    
    
    (4,950
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    9,731
    
    
    
    12,761
    
    
    
    (28,000
    )Cash and Cash Equivalents  Beginning of Year
    
    
    33,648
    
    
    
    20,887
    
    
    
    48,887Cash and Cash Equivalents  End of Year
    
    $
    43,379
    
    
    $
    33,648
    
    
    $
    20,887Supplemental Information
Cash paid during the year for:Interest
    
    $
    11,244
    
    
    $
    13,275
    
    
    $
    18,756Income taxes
    
    $
    1,875
    
    
    $
    2,725
    
    
    $
    2,445
 See Notes to Consolidated Financial Statements
 46




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 1  Summary of Significant Accounting Policies
 Nature of Operations
  Consolidation Policy
  Use of Estimates
     Cash and Cash Equivalents
  Restrictions on Cash and Amounts Due from Banks
   47




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 1  Summary of Significant Accounting Policies (Continued)
 Securities
   Other Securities
  Loans
    Allowance for Loan Losses
    48




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 1  Summary of Significant Accounting Policies (Continued)
       Loans Held for Sale
  Servicing Assets
  49




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 1  Summary of Significant Accounting Policies (Continued)
 Goodwill and other Intangible Assets
   Off Balance Sheet Instruments
  Foreclosed Real Estate
  Bank Premises and Equipment
  Federal Income Tax
  Earnings Per Share
  Comprehensive Income
  50




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 1  Summary of Significant Accounting Policies (Continued)
  (In Thousands)2010
    
    
    2009
    
    
    2008Net unrealized gain (loss) on
available-for-sale securities
    
    $
    (2,037
    )
    
    $
    701
    
    
    $
    2,055Reclassification adjustment for gain on sale of
available-for-sale securities
    
    
    (956
    )
    
    
    (281
    )
    
    
    Net unrealized gains (losses)
    
    
    (2,993
    )
    
    
    420
    
    
    
    2,055Tax effect
    
    
    (1,017
    )
    
    
    142
    
    
    
    699Other comprehensive income (loss)
    
    $
    (1,976
    )
    
    $
    278
    
    
    $
    1,356
  Post Retirement Liability
  Reclassification
  Recent Accounting Pronouncements
   Note 2  Business Combination & Asset Purchase
   51




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 2  Business Combination & Asset Purchase (Continued)
   (Dollars in Thousands)Cash
    
    $
    114Loans, Net of Discount
    
    
    13,792Accrued Interest on Loans
    
    
    64Premises and Equipment
    
    
    1,803Core Deposit Intangible Asset
    
    
    1,087Other Assets
    
    
    11Total Assets Acquired
    
    $
    16,871Deposits
    
    $
    27,749Accrued Interest on Deposits
    
    
    13Other Liabilities
    
    
    10Total Liabilities Assumed
    
    $
    27,772Net Liabilities Assumed
    
    $
    (10,901
    )
    (In Thousands)Knisley
    
    
    Hicksville
    
    
    Total2011
    
    $
    157
    
    
    $
    155
    
    
    $
    3122012
    
    
    157
    
    
    
    155
    
    
    
    3122013
    
    
    157
    
    
    
    155
    
    
    
    3122014
    
    
    157
    
    
    
    155
    
    
    
    3122015
    
    
    
    
    
    
    155
    
    
    
    155Thereafter
    
    
    
    
    
    
    235
    
    
    
    235Total
    
    $
    628
    
    
    $
    1,010
    
    
    $
    1,638
 52




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 3  Securities
 The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
 (In Thousands)2010Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Treasury
    
    $
    32,698
    
    
    $
    
    
    
    $
    (420
    )
    
    $
    32,278U.S. Government agency
    
    
    166,000
    
    
    
    1,308
    
    
    
    (1,604
    )
    
    
    165,704Mort gage-backed securities
    
    
    23,282
    
    
    
    1,249
    
    
    
    
    
    
    
    24,531St ate and local governments
    
    
    64,522
    
    
    
    792
    
    
    
    (510
    )
    
    
    64,804Total available-for-sale securities
    
    $
    286,502
    
    
    $
    3,349
    
    
    $
    (2,534
    )
    
    $
    287,317
 (In Thousands)2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Treasury
    
    $
    5,244
    
    
    $
    
    
    
    $
    (25
    )
    
    $
    5,219U.S. Government agency
    
    
    103,311
    
    
    
    1,501
    
    
    
    (136
    )
    
    
    104,676Mort gage-backed securities
    
    
    35,209
    
    
    
    1,639
    
    
    
    
    
    
    
    36,848St ate and local governments
    
    
    59,708
    
    
    
    1,009
    
    
    
    (179
    )
    
    
    60,538Total available-for-sale securities
    
    $
    203,472
    
    
    $
    4,149
    
    
    $
    (340
    )
    
    $
    207,281
  1.
    
    The fair value of the security has significantly declined from book
value.2.
    
    A downgrade has occurred that lowered the credit rating to below
investment grade (below Baa3 by Moody and BBB  by Standard and Poors.)3.
    
    Dividends have been reduced or eliminated or scheduled interest payments
have not been made.4.
    
    The underwater security has longer than 10 years to maturity and the loss
position had existed for more than 3 years.5.
    
    Management does not possess both the intent and ability to hold the
security for a period of time sufficient to allow for any anticipated recovery in
fair value.
  53




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 3  Securities (Continued)
  2010(In Thousands)
    
    
    (In Thousands)Less Than Twelve Months
    
    
    Twelve Months & OverGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    (420
    )
    
    $
    32,278
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    (1,604
    )
    
    
    88,026
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and local governments
    
    
    (411
    )
    
    
    20,386
    
    
    
    (99
    )
    
    
    11,302Total available-for-sales securities
    
    $
    (2,435
    )
    
    $
    140,690
    
    
    $
    (99
    )
    
    $
    11,302
 2009(In Thousands)
    
    
    (In Thousands)Less Than Twelve Months
    
    
    Twelve Months & OverGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    (25
    )
    
    $
    5,219
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    (136
    )
    
    
    14,355
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and local governments
    
    
    (179
    )
    
    
    15,754
    
    
    
    
    
    
    
    Total available-for-sales securities
    
    $
    (340
    )
    
    $
    35,328
    
    
    $
    
    
    
    $
    
   (In Thousands)2010
    
    
    2009
    
    
    2008Gross realized gains
    
    $
    956
    
    
    $
    281
    
    
    $
    15Gross realized losses
    
    
    
    
    
    
    (51
    )
    
    
    Net realized gains
    
    $
    956
    
    
    $
    230
    
    
    $
    15Tax expense related to net realized gains
    
    $
    325
    
    
    $
    78
    
    
    $
    5
 54




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 3  Securities (Continued)
  (In Thousands)AmortizedCost
    
    
    Fair ValueOne year or less
    
    $
    2,067
    
    
    $
    2,092After one year through five years
    
    
    167,779
    
    
    
    167,488After five years through ten years
    
    
    78,167
    
    
    
    78,128After ten years
    
    
    15,207
    
    
    
    15,078Total
    
    $
    263,220
    
    
    $
    262,786Mortgage-backed securities
    
    
    23,282
    
    
    
    24,531Total
    
    $
    286,502
    
    
    $
    287,317
   Note 4  Loans
  (In Thousands)Loans:
    
    2010
    
    
    2009Commercial real estate
    
    $
    185,033
    
    
    $
    214,849Agricultural real estate
    
    
    33,650
    
    
    
    41,045Consumer real estate
    
    
    95,271
    
    
    
    98,599Commercial and industrial
    
    
    117,344
    
    
    
    120,543Agricultural
    
    
    65,400
    
    
    
    59,813Consumer
    
    
    29,008
    
    
    
    32,581Industrial Development Bonds
    
    
    1,965
    
    
    
    2,552527,671
    
    
    
    569,982Less: Net deferred loan fees and costs
    
    
    (82
    )
    
    
    (63
    )527,589
    
    
    
    569,919Less: Allowance for loan losses
    
    
    (5,706
    )
    
    
    (6,008
    )Loans  Net
    
    $
    521,883
    
    
    $
    563,911
 55




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
  (In Thousands)After OneWithin
    
    
    Year Within
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial Real Estate
    
    $
    36,523
    
    
    $
    105,168
    
    
    $
    43,342
    
    
    $
    185,033Agricultural Real Estate
    
    
    2,738
    
    
    
    13,546
    
    
    
    17,366
    
    
    
    33,650Consumer Real Estate
    
    
    8,009
    
    
    
    23,094
    
    
    
    64,168
    
    
    
    95,271Commercial and industrial
    
    
    83,554
    
    
    
    25,387
    
    
    
    8,403
    
    
    
    117,344Agricultural
    
    
    48,038
    
    
    
    14,196
    
    
    
    3,166
    
    
    
    65,400Consumer
    
    
    6,002
    
    
    
    20,723
    
    
    
    2,283
    
    
    
    29,008Industrial Development Bonds
    
    
    556
    
    
    
    446
    
    
    
    963
    
    
    
    1,965$
    185,420
    
    
    $
    202,560
    
    
    $
    139,691
    
    
    $
    527,671
  (In Thousands)Fixed
    
    
    VariableRate
    
    
    RateCommercial Real Estate
    
    $
    67,936
    
    
    $
    117,097Agricultural Real Estate
    
    
    19,983
    
    
    
    13,667Consumer Real Estate
    
    
    76,161
    
    
    
    19,110Commercial and industrial
    
    
    92,950
    
    
    
    24,394Agricultural
    
    
    58,939
    
    
    
    6,461Consumer
    
    
    23,959
    
    
    
    5,049Industrial Development Bonds
    
    
    1,965
    
    
    
    
     56




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
 RecordedGreater Than
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    Investment30-59 Days
    
    
    60-89 Days
    
    
    90 Days
    
    
    Total
    
    
    
    
    
    
    Financing
    
    
    > 90 DaysPast Due
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Current
    
    
    Receivables
    
    
    and AccruingDecember 31, 2010Consumer real estate
    
    $
    610
    
    
    $
    29
    
    
    $
    169
    
    
    $
    808
    
    
    $
    94,463
    
    
    $
    95,271
    
    
    $
    Agricultural real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,650
    
    
    
    33,650
    
    
    
    Agricultural
    
    
    
    
    
    
    
    
    
    
    1,474
    
    
    
    1,474
    
    
    
    63,926
    
    
    
    65,400
    
    
    
    Commercial Real Estate
    
    
    548
    
    
    
    
    
    
    
    445
    
    
    
    993
    
    
    
    184,040
    
    
    
    185,033
    
    
    
    Commercial and Industrial
    
    
    957
    
    
    
    52
    
    
    
    831
    
    
    
    1,840
    
    
    
    117,469
    
    
    
    119,309
    
    
    
    15Consumer
    
    
    147
    
    
    
    6
    
    
    
    33
    
    
    
    186
    
    
    
    28,822
    
    
    
    29,008
    
    
    
    33Total
    
    $
    2,262
    
    
    $
    87
    
    
    $
    2,952
    
    
    $
    5,301
    
    
    $
    522,370
    
    
    $
    527,671
    
    
    $
    48
  2010Consumer real estate
    
    $
    587Agricultural real estate
    
    
    531Agriculture
    
    
    1,474Commercial real estate
    
    
    1,705Commercial and industrial
    
    
    1,543Consumer
    
    
    4Total
    
    $
    5,844
  1.
    
    Zero (0) Unclassified. Any loan which has not been assigned a classification.2.
    
    One (1) Excellent. Credit to premier customers having the highest credit
rating based on an extremely strong financial condition, which compares favorably with
industry standards (upper quartile of RMA ratios). Financial statements indicate a
sound earnings and financial ratio trend for several years with satisfactory profit
margins and excellent liquidity exhibited. Prime credits may also be borrowers with
loans fully secured by highly liquid collateral such as traded stocks, bonds,
certificates of deposit, savings account, etc. No credit or collateral exceptions
exist and the loan adheres to the Banks loan policy in every respect. Financing
alternatives would be readily available and would qualify for unsecured credit. This
grade is summarized by high liquidity, minimum risk, strong ratios, and low handling
costs.3.
    
    Two (2) Good. Desirable loans of somewhat less stature than Grade 1, but with
strong financial statements. Loan supported by financial statements containing strong
balance sheets, generally with a leverage position less than 1.50, and a history of
profitability. Probability of serious financial deterioration is unlikely. Possessing
a sound repayment source (and a secondary source), which would allow repayment in a
reasonable period of time. Individual loans backed by liquid personal assets,
established history and unquestionable character.4.
    
    Three (3) Satisfactory. Satisfactory loans of average or slightly above
average risk  having some deficiency or vulnerability to changing economic
conditions, but still fully collectible. Projects should normally demonstrate
acceptable debt service coverage. Generally, customers should have a leverage position
less than 2.00. May be some weakness but with offsetting features of other support
readily available. Loans that are meeting the terms of repayment.
 57




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
 Loans may be graded 3 when there is no recent information on which to base a current risk
evaluation and the following conditions apply:At inception, the loan was properly underwritten and did not possess an unwarranted level
of credit risk;
 a.
    
    At inception, the loan was secured with collateral possessing a loan
value adequate to protect the Bank from loss;b.
    
    The loan exhibited two or more years of satisfactory repayment with a
reasonable reduction of the principal balance;c.
    
    During the period that the loan has been outstanding, there has been no
evidence of any credit weakness. Some examples of weakness include slow payment,
lack of cooperation by the borrower, breach of loan covenants, or the business is in
an industry which is known to be experiencing problems. If any of the credit
weaknesses is observed, a lower risk grade is warranted.
 5.
    
    Four (4) Satisfactory / Monitored. A 4 (Satisfactory/Monitored) risk grade
may be established for a loan considered satisfactory but which is of average credit
risk due to financial weakness or uncertainty. The loans warrant a higher than average
level of monitoring to ensure that weaknesses do not advance. The level of risk in
Satisfactory/Monitored classification is considered acceptable and within normal
underwriting guidelines, so long as the loan is given management supervision.6.
    
    Five (5) Special Mention. Loans that possess some credit deficiency or
potential weakness which deserves close attention, but which do not yet warrant
substandard classification. Such loans pose unwarranted financial risk that, if not
corrected, could weaken the loan and increase risk in the future. The key distinctions
of a 5 (Special Mention) classification are that (1) it is indicative of an unwarranted
level of risk, and (2) weaknesses are considered potential, versus defined,
impairments to the primary source of loan repayment and collateral.7.
    
    Six (6) Substandard. One or more of the following characteristics may be
exhibited in loans classified substandard:
 a.
    
    Loans, which possess a defined credit weakness and the likelihood that a
loan will be paid from the primary source, are uncertain. Financial deterioration
is underway and very close attention is warranted to ensure that the loan is
collected without loss.b.
    
    Loans are inadequately protected by the current net worth and paying
capacity of the borrower.c.
    
    The primary source of repayment is weakened, and the Bank is forced to
rely on a secondary source of repayment such as collateral liquidation or
guarantees.d.
    
    Loans are characterized by the distinct possibility that the Bank will
sustain some loss if deficiencies are not corrected.e.
    
    Unusual courses of action are needed to maintain a high probability of
repayment.f.
    
    The borrower is not generating enough cash flow to repay loan principal;
however, continues to make interest payments.g.
    
    The lender is forced into a subordinate position or unsecured collateral
position due to flaws in documentation.h.
    
    Loans have been restructured so that payment schedules, terms and
collateral represent concessions to the borrower when compared to the normal loan
terms.i.
    
    The lender is seriously contemplating foreclosure or legal action due to
the apparent deterioration in the loanj.
    
    There is significant deterioration in the market conditions and the
borrower is highly vulnerable to these conditions.
 8.
    
    Seven (7) Doubtful. One or more of the following characteristics may be
exhibited in loans classified Doubtful:
 a.
    
    Loans have all of the weaknesses of those classified as Substandard.
Additionally, however, these weaknesses make collection or liquidation in full based
on existing conditions improbable.b.
    
    The primary source of repayment is gone, and there is considerable doubt
as to the quality of the secondary source of repayment.c.
    
    The possibility of loss is high, but, because of certain important
pending factors which may strengthen the loan, loss classification is deferred until
its exact status is known. A Doubtful classification is established deferring the
realization of the loss.
 58




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
 9.
    
    Eight (8) Loss. Loans are considered uncollectable and of such little value
that continuing to carry them as assets on the institutions financial statements is
not feasible. Loans will be classified Loss when it is neither practical nor desirable
to defer writing off or reserving all or a portion of a basically worthless asset, even
though partial recovery may be possible at some time in the future.
  IndustrialAgriculture
    
    
    
    
    
    
    Commercial
    
    
    Commercial
    
    
    Development2010
    
    Real Estate
    
    
    Agriculture
    
    
    Real Estate
    
    
    and Industrial
    
    
    Bonds1-2
    
    $
    484
    
    
    $
    109
    
    
    $
    
    
    
    $
    341
    
    
    $
    2753
    
    
    12,216
    
    
    
    27,964
    
    
    
    23,017
    
    
    
    14,026
    
    
    
    7334
    
    
    19,624
    
    
    
    35,655
    
    
    
    148,481
    
    
    
    92,066
    
    
    
    9575
    
    
    208
    
    
    
    173
    
    
    
    6,765
    
    
    
    3,388
    
    
    
    6
    
    
    1,097
    
    
    
    1,474
    
    
    
    6,319
    
    
    
    6,688
    
    
    
    7
    
    
    21
    
    
    
    25
    
    
    
    451
    
    
    
    835
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    33,650
    
    
    $
    65,400
    
    
    $
    185,033
    
    
    $
    117,344
    
    
    $
    1,965
  Consumer2010
    
    Real EstateGradePass
    
    $
    93,958Special mention (5)
    
    
    387Substandard (6)
    
    
    639Doubtful (7)
    
    
    287Total
    
    $
    95,271
 Consumer
    
    
    Consumer2010
    
    Credit
    
    
    OtherPerforming
    
    $
    3,553
    
    
    $
    25,405Nonperforming
    
    
    5
    
    
    
    44Total
    
    $
    3,559
    
    
    $
    25,449
 59




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
  (In Thousands)2010
    
    
    2009Impaired loans without a
valuation allowance
    
    $
    2,849
    
    
    $
    10,804Impaired loans with a valuation
allowance
    
    
    1,520
    
    
    
    1,385Total impaired loans
    
    $
    4,369
    
    
    $
    12,189Valuation allowance related to
impaired loans
    
    $
    632
    
    
    $
    353Total non-accrual loans
    
    $
    5,844
    
    
    $
    14,054Total loans past-due ninety days or more and still accruing
    
    $
    48
    
    
    $
    69
 (In Thousands)2010
    
    
    2009
    
    
    2008Average investment in
impaired loans
    
    $
    10,136
    
    
    $
    13,643
    
    
    $
    10,767Interest income recognized
on impaired loans
    
    $
    61
    
    
    $
    290
    
    
    $
    341Interest income recognized on
a cash basis on impaired loans
    
    $
    41
    
    
    $
    290
    
    
    $
    332
     60




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
  Unpaid
    
    
    
    
    
    
    Average

    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedWith no related allowance recorded:Consumer real estate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Agriculture real estate
    
    
    219
    
    
    
    219
    
    
    
    
    
    
    
    119
    
    
    
    31Agriculture
    
    
    1,397
    
    
    
    1,397
    
    
    
    
    
    
    
    2,786
    
    
    
    Commercial real estate
    
    
    849
    
    
    
    1,699
    
    
    
    
    
    
    
    2,209
    
    
    
    26Commercial and industrial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,221
    
    
    
    2Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
        
   
    
    
        
    With a specific allowance recorded:Consumer real estate
    
    
    671
    
    
    
    701
    
    
    
    66
    
    
    
    1,375
    
    
    
    Agriculture real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Agriculture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    1Commercial real estate
    
    
    476
    
    
    
    476
    
    
    
    73
    
    
    
    296
    
    
    
    1Commercial and industrial
    
    
    757
    
    
    
    757
    
    
    
    493
    
    
    
    1,125
    
    
    
    Consumer
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals:Consumer real estate
    
    $
    671
    
    
    $
    701
    
    
    $
    66
    
    
    $
    1,375
    
    
    $
    Agriculture real estate
    
    $
    219
    
    
    $
    219
    
    
    $
    0
    
    
    $
    119
    
    
    $
    31Agriculture
    
    $
    1,397
    
    
    $
    1,397
    
    
    $
    0
    
    
    $
    2,791
    
    
    $
    1Commercial real estate
    
    $
    1,325
    
    
    $
    2,175
    
    
    $
    73
    
    
    $
    2,505
    
    
    $
    27Commercial and industrial
    
    $
    757
    
    
    $
    757
    
    
    $
    493
    
    
    $
    3,346
    
    
    $
    2Consumer
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   (In Thousands)2010
    
    
    2009
    
    
    2008Allowance for Loan LossesBalance at beginning of year
    
    $
    6,008
    
    
    $
    5,496
    
    
    $
    5,922Provision for loan loss
    
    
    5,325
    
    
    
    3,558
    
    
    
    1,787Loans charged off
    
    
    (6,422
    )
    
    
    (3,288
    )
    
    
    (2,561
    )Recoveries
    
    
    795
    
    
    
    242
    
    
    
    348Allowance for Loan & Leases Losses
    
    $
    5,706
    
    
    $
    6,008
    
    
    $
    5,496Allowance for Unfunded Loan Commitments &
Letters of Credit
    
    $
    153
    
    
    $
    227
    
    
    $
    226Total Allowance for Credit Losses
    
    $
    5,859
    
    
    $
    6,235
    
    
    $
    5,722
 61




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 4  Loans (Continued)
    Unfunded LoanConsumer
    
    
    Agriculture
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    Consumer (incl.
    
    
    Commitment &2010
    
    Real Estate
    
    
    Real Estate
    
    
    Agriculture
    
    
    Real Estate
    
    
    Commercial
    
    
    Credit Cards)
    
    
    Letters of Credit
    
    
    Unallocated
    
    
    TotalALLOWANCE
FOR CREDIT LOSSES:Beginning balance
    
    $
    439
    
    
    $
    120
    
    
    $
    647
    
    
    $
    1,810
    
    
    $
    2,494
    
    
    $
    497
    
    
    $
    227
    
    
    $
    1
    
    
    $
    6,235Charge Offs
    
    
    (507
    )
    
    
    
    
    
    
    (136
    )
    
    
    (1,147
    )
    
    
    (4,188
    )
    
    
    (444
    )
    
    
    
    
    
    
    
    
    
    
    (6,422
    )Recoveries
    
    
    55
    
    
    
    
    
    
    
    17
    
    
    
    52
    
    
    
    515
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    795Provision
    
    
    271
    
    
    
    2
    
    
    
    (201
    )
    
    
    1,153
    
    
    
    3,533
    
    
    
    171
    
    
    
    
    
    
    
    396
    
    
    
    5,325Other Non-interest expense related to unfunded
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    (74
    )Ending Balance
    
    $
    258
    
    
    $
    122
    
    
    $
    327
    
    
    $
    1,868
    
    
    $
    2,354
    
    
    $
    380
    
    
    $
    153
    
    
    $
    397
    
    
    $
    5,859Ending balance: individually evaluated for impairment
    
    $
    66
    
    
    
    
    
    
    
    
    
    
    $
    73
    
    
    $
    493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    632Ending balance: collectively evaluated for impairment
    
    $
    190
    
    
    $
    122
    
    
    $
    327
    
    
    $
    1,795
    
    
    $
    1,861
    
    
    $
    380
    
    
    $
    153
    
    
    $
    397
    
    
    $
    5,226Ending balance: loans acquired with deteriorated credit
quality
    
    $
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2FINANCING
RECEIVABLES:Ending balance
    
    $
    75,785
    
    
    $
    34,446
    
    
    
    65,400
    
    
    $
    204,327
    
    
    $
    119,262
    
    
    $
    28,451
    
    
    
    
    
    
    
    
    
    
    $
    527,671Ending balance: individually evaluated for impairment
    
    $
    671
    
    
    $
    219
    
    
    $
    1,397
    
    
    $
    1,325
    
    
    $
    757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,369Ending balance: collectively evaluated for impairment
    
    $
    75,114
    
    
    $
    34,227
    
    
    
    64,004
    
    
    $
    203,002
    
    
    $
    118,505
    
    
    $
    28,451
    
    
    
    
    
    
    
    
    
    
    $
    523,302Ending balance: loans acquired with deteriorated credit
quality
    
    $
    1,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,143
 Note 5  Premises and Equipment
  (In Thousands)2010
    
    
    2009Land
    
    $
    3,635
    
    
    $
    3,510Buildings (useful life 15-39 years)
    
    
    18,831
    
    
    
    17,200Furnishings (useful life 3-15 years)
    
    
    9,640
    
    
    
    9,43532,106
    
    
    
    30,145Less: Accumulated depreciation
    
    
    (14,904
    )
    
    
    (14,092
    )Premises and Equipment (Net)
    
    $
    17,202
    
    
    $
    16,053
  Note 6  Servicing
   62




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 6  Servicing (Continued)
   (In Thousands)2010
    
    
    2009Beginning Year
    
    $
    2,177
    
    
    $
    1,952Capitalized Additions
    
    
    685
    
    
    
    1,158Amortization
    
    
    (684
    )
    
    
    (933
    )Valuation Allowance
    
    
    
    
    
    
    End of Year
    
    $
    2,178
    
    
    $
    2,177
 Note 7  Deposits
  (In Thousands)2010
    
    
    2009Time deposits under $100,000
    
    $
    184,993
    
    
    $
    212,298Time deposits of $100,000 or more
    
    
    132,371
    
    
    
    114,659$
    317,364
    
    
    $
    326,957
  (In Thousands)2011
    
    $
    176,2542012
    
    
    72,5982013
    
    
    33,9002014
    
    
    23,8352015
    
    
    9,376thereafter
    
    
    1,401$
    317,364
 63




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 8   Securities Sold Under Agreement to Repurchase
 The Banks policy requires qualifying securities to be used as collateral for the
underlying repurchase agreements. As of December 31, 2010 and 2009 securities with a book
value of $74.8 million and $55.9 million, respectively, were pledged to secure the
repurchase agreements.
 Daily Securities Sold Under Agreement to RepurchaseMaximum AmountAmount Outstanding
    
    
    
    
    
    
    Borrowings Outstanding
    
    
    Approximate Average
    
    
    Approximate Weightedat End of Period
    
    
    Weighted Average Rate
    
    
    Month End
    
    
    Outstanding in Period
    
    
    Average Interest Rate(000s)
    
    
    End of Period
    
    
    (000s)
    
    
    (000s)
    
    
    For the Period2010
    
    $
    37,191
    
    
    
    0.36
    %
    
    $
    37,501
    
    
    $
    34,046
    
    
    
    0.36
    %2009
    
    $
    33,457
    
    
    
    0.42
    %
    
    $
    40,530
    
    
    $
    37,696
    
    
    
    0.48
    %2008
    
    $
    40,014
    
    
    
    0.50
    %
    
    $
    47,644
    
    
    $
    40,113
    
    
    
    1.96
    %
 Note 9   Federal Home Loan Bank Advances
 Long term debt consists of various loans from the Federal Home Loan Bank. Repayment
structures vary, ranging from monthly installments, annual payments or upon maturity.
Interest payments are due monthly with interest rates on the loans varying from 1.77% to
4.89%. Total borrowings were $29.9 million and $34.2 million for 2010 and 2009,
respectively. The advances are secured by $75.3 and $73.1 million of mortgage loans as
of December 31, 2010 and 2009, respectively under a blanket collateral agreement.
 The advances are subject to prepayment penalties and the provisions and conditions of the
credit policy of the Federal Home Loan Bank. Future obligations of the advances are as
follows at December 31, 2010:
 (In Thousands)2011
    
    $
    13,2122012
    
    
    5,0622013
    
    
    7,1002014
    
    
    4,5002015
    
    
    0$
    29,874
 Note 10  Federal Income Taxes
 The components of income tax expense (benefit) for the years ended December 31 are as
follows:
 (In Thousands)2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    2,172
    
    
    $
    2,333
    
    
    $
    2,489Deferred:Federal
    
    
    210
    
    
    
    142
    
    
    
    (39
    )$
    2,382
    
    
    $
    2,475
    
    
    $
    2,450
 64




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 10  Federal Income Taxes (Continued)
 The following is a reconciliation of the statutory federal income tax rate to the
effective tax rate:
 (In Thousands)2010
    
    
    2009
    
    
    2008Income tax at statutory rates
    
    $
    3,183
    
    
    $
    3,087
    
    
    $
    3,119Increase(decrease) resulting from:Tax exempt interest
    
    
    (744
    )
    
    
    (629
    )
    
    
    (654
    )Change in prior estimates and other
    
    
    (57
    )
    
    
    17
    
    
    
    (15
    )$
    2,382
    
    
    $
    2,475
    
    
    $
    2,450
 Deferred tax assets and liabilities at December 31 are comprised of the following:
 (In Thousands)2010
    
    
    2009Deferred Tax Assets:Allowance for loan losses
    
    $
    1,940
    
    
    $
    2,042Other
    
    
    749
    
    
    
    650Total deferred tax assets
    
    
    2,689
    
    
    
    2,692Deferred Tax Liabilities:Accreted discounts on bonds
    
    
    65
    
    
    
    56FHLB stock dividends
    
    
    860
    
    
    
    862Mortgage servicing rights
    
    
    741
    
    
    
    740Other
    
    
    899
    
    
    
    700Net unrealized gain on available-for-sale securities
    
    
    277
    
    
    
    1,295Total deferred tax liabilities
    
    
    2,842
    
    
    
    3,653Net Deferred Tax Liability
    
    $
    (153
    )
    
    $
    (961
    )
 Note 11  Employee Benefit Plan
 The Bank has established a 401(k) profit sharing plan, which allows eligible employees to
save at a minimum one percent of eligible compensation on a pre-tax basis, subject to
certain Internal Revenue Service limitations. The Bank will match 50% of employee 401(k)
contributions up to four percent of total eligible compensation. In addition, the Bank
may make a discretionary contribution from time to time. A participant is 100% vested in
the participants deferral contributions and employer matching contributions. A six-year
vesting schedule applies to employer discretionary contributions. Contributions to the
401(k) profit sharing plan for both the employer matching contribution and the
discretionary contribution were $551, $570, and $524 thousand for 2010, 2009 and 2008,
respectively.
 Restricted Stock Awards
 The Company has a Long-Term Stock Incentive Plan under which 10,150 shares of restricted
stock were issued to 53 employees during 2010 and 10,000 shares of restricted stock were
issued to 49 and 51 employees during 2009 and 2008, respectively. Under the plan, the
shares vest 100% in three years. During the 3 year vesting period, the employees
received dividends or dividend equivalent compensation on the shares. Due to employee
termination, there were 1,575 and 350 shares forfeited during 2010 and 2009,
respectively, 245 shares forfeited during 2008. During 2009, 5,450 shares awarded in 2006
were vested 100%. 36 employees were still employed and received the stock. During 2010,
7,425 shares awarded in 2007 were vested 100%. Forty employees were still employed and
received the stock. Compensation expense applicable to the restricted stock totaled
$191, $190, and $155 thousand for the year ending December 31, 2010, 2009 and 2008,
respectively.
 65




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 11  Employee Benefit Plan (Continued)
 The following table summarizes the activity of restricted stock awards:
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Beginning of period
    
    
    27,775
    
    
    
    23,575
    
    
    
    17,240Granted
    
    
    10,150
    
    
    
    10,000
    
    
    
    10,000Vested
    
    
    (7,375
    )
    
    
    (5,450
    )
    
    
    (3,420
    )Forfeited
    
    
    (1,575
    )
    
    
    (350
    )
    
    
    (245
    )Nonvested, end of period
    
    
    28,975
    
    
    
    27,775
    
    
    
    23,575
 As of December 31, 2010, there was $580 thousand of unrecognized compensation cost
related to the nonvested portion of restricted stock awards under the plan.
 Note 12  Related Party Transactions
 In the ordinary course of business, the Bank has granted loans to senior officers and
directors and their affiliated companies amounting to $8.0 and $9.5 million at December
31, 2010 and 2009, respectively. New loans approved during 2010 were $328 thousand, which
included $31 thousand of available funds at the time of approval. During 2010,
subsequent advances totaled $17.0 million and payments of $18.5 million were received.
The difference in related borrowings amounted to $1.5 million, net reduction. Deposits
of directors, executive officers and companies in which they have a direct or indirect
ownership as of December 31, 2010 and 2009, amounted to $3.8 million and $2.4 million,
respectively.
 Note 13  Off Balance Sheet Activities
 Credit Related Financial Instruments
 The Bank is a party to credit related financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing need of its customer. These
financial instruments include commitments to extend credit, Standby Letters of Credit,
and Commercial Letters of Credit. Such commitments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the consolidated
balance sheets.
 The Banks exposure to credit loss is represented by the contractual amount of these
commitments. The Bank follows the same credit policies in making commitments as it does
for on-balance-sheet instruments. The allowance for credit losses as it relates to
unfunded loan commitments (AULC) is included under other liabilities. The AULC as of
December 31, 2010 and 2009 was $153 thousand and
$227 thousand, respectively. At December 31, 2010 and 2009, the following financial
instruments were outstanding whose contract amounts represent credit risk:
 (In Thousands)2010
    
    
    2009Commitments to extend credit
    
    $
    157,935
    
    
    $
    151,696Credit card arrangements
    
    
    14,943
    
    
    
    16,569Standby letters of credit
    
    
    17,446
    
    
    
    18,085
 Commitments to extend credit, credit card arrangements and Standby Letters of Credit all
include exposure to some credit loss in the event of nonperformance of the customer. The
Banks credit policies and procedures for credit commitments and financial guarantees are
the same as those for extensions of credit that are recorded in the financial statements.
Due to the fact that these instruments have fixed maturity dates, and because many of
them expire without being drawn upon, they generally do not present any significant
liquidity risk to the Bank.
 66




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 13  Off Balance Sheet Activities (Continued)
 Collateral Requirements
 To reduce credit risk related to the use of credit-related financial instruments, the
Bank might deem it necessary to obtain collateral. The amount and nature of the
collateral obtained is based on the Banks credit evaluation of the customer. Collateral
held varies but may include cash, securities, accounts receivable, inventory, property,
plant, and real estate.Legal Contingencies
 Various legal claims also arise from time to time in the normal course of business,
which, in the opinion of management, will have no material effect on the Companys
consolidated financial statements.
 Note 14  Minimum Regulatory Capital Requirements
 The Company (on a consolidated basis) and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Companys and Banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off balance-sheet items as calculated under regulatory
accounting practices.
 The capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Prompt corrective
action provisions are not applicable to bank holding companies.
 Quantitative measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier I
capital to risk-weighted assets (as defined in the regulations), and Tier I capital to
adjusted total assets (as defined). Management believes, as of December 31, 2010, that
the Bank meets all the capital adequacy requirements to which it is subject.
 As of December 31, 2010 the most recent notification from the FDIC indicated the Bank was
categorized as well capitalized under the regulatory framework for prompt corrective
action. To remain categorized as well capitalized, the Bank will have to maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as disclosed in
the table to follow. There are no conditions or events since the most recent
notification that management believes have changed the Banks prompt corrective action
category.
 The Company and the Banks actual and required capital amounts and ratios as of December
31, 2010 and 2009 are as follows:
 67




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 14  Minimum Regulatory Capital Requirements (Continued)
 To Be Well CapitalizedUnder the PromptFor Capital
    
    
    Corrective ActionActual
    
    
    
    
    
    
    Adequacy Purposes
    
    
    Provisions(000s)
    
    
    
    
    
    
    (000s)
    
    
    
    
    
    
    (000s)As of December 31, 2010
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Risk-Based Capital
(to Risk Weighted Assets)
Consolidated
    
    $
    94,012
    
    
    
    14.95
    %
    
    $
    50,295
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    93,572
    
    
    
    14.88
    %
    
    
    50,300
    
    
    
    8.00
    %
    
    $
    62,876
    
    
    
    10.00
    %Tier 1 Capital
(to Risk Weighted Assets)
Consolidated
    
    
    88,153
    
    
    
    14.02
    %
    
    
    25,147
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    72,713
    
    
    
    11.56
    %
    
    
    25,150
    
    
    
    4.00
    %
    
    
    37,725
    
    
    
    6.00
    %Tier 1 Capital
(to Adjusted Total Assets)
Consolidated
    
    
    88,153
    
    
    
    9.82
    %
    
    
    35,901
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    72,713
    
    
    
    8.09
    %
    
    
    35,956
    
    
    
    4.00
    %
    
    
    44,946
    
    
    
    5.00
    %
 To Be Well CapitalizedUnder the PromptFor Capital
    
    
    Corrective ActionActual
    
    
    
    
    
    
    Adequacy Purposes
    
    
    Provisions(000s)
    
    
    
    
    
    
    (000s)
    
    
    
    
    
    
    (000s)As of December 31, 2009
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Risk-Based Capital
(to Risk Weighted Assets)
Consolidated
    
    $
    92,447
    
    
    
    14.14
    %
    
    $
    52,294
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    92,184
    
    
    
    14.10
    %
    
    
    52,305
    
    
    
    8.00
    %
    
    $
    65,382
    
    
    
    10.00
    %Tier 1 Capital
(to Risk Weighted Assets)
Consolidated
    
    
    86,212
    
    
    
    13.19
    %
    
    
    26,147
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    70,949
    
    
    
    10.85
    %
    
    
    26,153
    
    
    
    4.00
    %
    
    
    39,229
    
    
    
    6.00
    %Tier 1 Capital
(to Adjusted Total Assets)
Consolidated
    
    
    86,212
    
    
    
    10.33
    %
    
    
    33,393
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    70,949
    
    
    
    8.47
    %
    
    
    33,487
    
    
    
    4.00
    %
    
    
    41,858
    
    
    
    5.00
    %
 Note 15  Restrictions of Dividends & Inter-company Borrowings
 The Bank is restricted as to the amount of dividends that can be paid. Dividends declared
by the Bank that exceed the net income for the current year plus retained income for the
preceding two years must
be approved by federal and state regulatory agencies. Under this formula dividends of
$5.0 million may be paid without prior regulatory approval. Regardless of formal
regulatory restrictions, the Bank may not pay dividends that would result in its capital
levels being reduced below the minimum requirements shown above. Under current Federal
Reserve regulations, the Bank is limited as to the amount and type of loans it may make
to the Company and its non-bank subsidiary. These loans are subject to qualifying
collateral requirements on which the amount of the loan may be based.
 68




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 16  Fair Value of Financial Instruments
 Fair values of financial instruments are managements estimate of the values at which the
instruments could be exchanged in a transaction between willing parties. These estimates
are subjective and may vary significantly from amounts that would be realized in actual
transactions. In addition, other significant assets are not considered financial assets
including deferred tax assets, premises, equipment and intangibles. Further, the tax
ramifications related to the realization of the unrealized gains and losses can have a
significant effect on the fair value estimates and have not been considered in any of the
estimates.
 The following assumptions and methods were used in estimating the fair value for
financial instruments:Cash and Cash Equivalents
 The carrying amounts reported in the balance sheet for cash, cash equivalents and federal
funds sold approximate their fair values. Also included in this line item are the
carrying amounts of interest-bearing deposits maturing within ninety days which
approximate their fair values. Fair values of other interest-bearing deposits are
estimated using discounted cash flow analyses based on current rates for similar types of
deposits.
 Securities and Other Securities
 Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted
market prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments. The carrying value of
Federal Home Loan Bank stock approximates fair value based on the redemption provisions
of the Federal Home Loan Bank.
 Loans
 Most commercial and real estate mortgage loans are made on a variable rate basis. For
those variable-rate loans that re-price frequently, and with no significant change in
credit risk, fair values are based on carrying values. The fair values of the fixed rate
and all other loans are estimated using discounted cash flow analysis, using interest
rates currently being offered for loans with similar terms to borrowers with similar
credit quality.Deposits
 The fair values disclosed for deposits with no defined maturities are equal to their
carrying amounts, which represent the amount payable on demand. The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit approximate
their fair value at the reporting date. Fair value for fixed-rate certificates of
deposit are estimated using a discounted cash flow analysis that applies interest rates
currently being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.Short-Term Borrowings
 The carrying value of short-term borrowings approximates fair values.
 FHLB Advances
 Fair values or FHLB advances are estimated using discounted cash flow analysis based on
the Companys current incremental borrowing rates for similar types or borrowing
arrangements.Accrued Interest Receivable and Payable
 The carrying amounts of accrued interest approximate fair values.Dividends Payable
 The carrying amounts of dividends payable approximate their fair values and are generally
paid within forty days of declaration.
 69




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 16  Fair Value of Financial Instruments (Continued)
 Off Balance Sheet Financial Instruments
   (In Thousands)2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairFinancial Assets:Cash and Cash Equivalents
    
    $
    43,379
    
    
    $
    43,379
    
    
    $
    33,648
    
    
    $
    33,648Securities  available for sale
    
    
    287,317
    
    
    
    287,317
    
    
    
    207,281
    
    
    
    207,281Other Securities
    
    
    4,406
    
    
    
    4,406
    
    
    
    4,448
    
    
    
    4,448Loans, net
    
    
    521,883
    
    
    
    520,766
    
    
    
    563,911
    
    
    
    563,532Accrued interest receivable
    
    
    4,036
    
    
    
    4,036
    
    
    
    3,693
    
    
    
    3,693Financial Liabilities:Deposits
    
    $
    724,513
    
    
    $
    725,270
    
    
    $
    676,444
    
    
    $
    672,963Short-term debtRepurchase agreement sold
    
    
    51,241
    
    
    
    51,241
    
    
    
    43,257
    
    
    
    43,257Federal Home Loan Bank advances
    
    
    29,874
    
    
    
    30,764
    
    
    
    34,199
    
    
    
    34,947Accrued interest payable
    
    
    471
    
    
    
    471
    
    
    
    852
    
    
    
    852Dividends payable
    
    
    894
    
    
    
    894
    
    
    
    853
    
    
    
    853Off-Balance Sheet Financial InstrumentsCommitments to
extend credit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Fair Value Measurements
     70




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 16  Fair Value of Financial Instruments (Continued)
     Quoted Prices in Active
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Observable($ in Thousands)
    
    for Identical
    
    
    Inputs
    
    
    InputsDecember 31, 2010
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets-(Securities Available for Sale)U.S. Treasury
    
    $
    32,279
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    165,703
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    24,531
    
    
    
    
    
    
    
    State and local governments
    
    
    
    
    
    
    53,502
    
    
    
    11,302Total Securities Available for Sale
    
    $
    222,513
    
    
    $
    53,502
    
    
    $
    11,302
 Quoted Prices in Active
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Observablefor Identical
    
    
    Inputs
    
    
    InputsDecember 31, 2009
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets-(Securities Available for Sale)U.S. Treasury
    
    
    5,219
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    104,675
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    36,848
    
    
    
    
    
    
    
    State and local governments
    
    
    
    
    
    
    60,539
    
    
    
    Total Securities Available for Sale
    
    $
    146,742
    
    
    $
    60,539
    
    
    $
    
 71




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 16  Fair Value of Financial Instruments (Continued)
      Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2010Quoted Prices in Active
    
    
    
    
    
    
    
    
    
    
    Change inMarkets for
    
    
    Significant
    
    
    Significant
    
    
    fair value forBalance at
    
    
    Identical
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    twelve-month period($ in Thousands)
    
    December 31, 2010
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ended Dec 31, 2010Impaired loans
    
    $
    4,369
    
    
    $
    
    
    
    $
    
    
    
    $
    4,369
    
    
    $
    (850
    )Other real estate owned  residential
mortgages
    
    $
    2,110
    
    
    $
    
    
    
    $
    
    
    
    $
    2,110
    
    
    $
    (64
    )Other real estate owned  commercial
    
    $
    2,328
    
    
    $
    
    
    
    $
    
    
    
    $
    2,328
    
    
    $
    Total change in fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (914
    )
 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2009Quoted Prices in Active
    
    
    
    
    
    
    
    
    
    
    Change inMarkets for
    
    
    Significant
    
    
    Significant
    
    
    fair value forBalance at
    
    
    Identical
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    twelve-month period($ in Thousands)
    
    December 31, 2009
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ended Dec 31, 2009Impaired loans
    
    $
    12,189
    
    
    $
    
    
    
    $
    
    
    
    $
    12,189
    
    
    $
    (1,499
    )Other real estate owned  residential
mortgages
    
    $
    1,101
    
    
    $
    
    
    
    $
    
    
    
    $
    1,101
    
    
    $
    (19
    )Other real estate owned commercial
    
    $
    338
    
    
    $
    
    
    
    $
    
    
    
    $
    338
    
    
    $
    (40
    )Total change in fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,558
    )
  72




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note
17  Condensed Financial Statements of Parent Company
 (In
Thousands)Balance Sheet
    

2010
    
    

2009AssetsCash
    
    $
    598
    
    
    $
    471Related party receivables:Dividends & Accounts receivable from subsidiaries
    
    
    1,103
    
    
    
    1,060Note receivable from Bank subsidiary
    
    
    15,000
    
    
    
    15,000Investment in subsidiaries
    
    
    78,963
    
    
    
    78,322Total Assets
    
    $
    95,664
    
    
    $
    94,853LiabilitiesAccrued expenses
    
    $
    367
    
    
    $
    416Dividends payable
    
    
    894
    
    
    
    853Total Liabilities
    
    
    1,261
    
    
    
    1,269Stockholders EquityTotal Stockholders Equity
    
    
    94,403
    
    
    
    93,584Total Liabilities and Stockholders Equity
    
    $
    95,664
    
    
    $
    94,853
 (In Thousands)Statement of Income
    

2010
    
    

2009
    
    

2008IncomeDividends from subsidiaries
    
    $
    4,205
    
    
    $
    3,940
    
    
    $
    6,708Interest
    
    
    713
    
    
    
    713
    
    
    
    717Total Income
    
    
    4,918
    
    
    
    4,653
    
    
    
    7,425Operating Expenses
    
    
    472
    
    
    
    460
    
    
    
    364Income
Before Income Taxes and Equity in Undistributed Earnings (Distributions in excess
of earnings) and Subsidiaries
    
    
    4,446
    
    
    
    4,193
    
    
    
    7,061Income Taxes
    
    
    82
    
    
    
    161
    
    
    
    1674,364
    
    
    
    4,032
    
    
    
    6,894Equity in undistributed earnings (Distributions in
excess of earnings) of subsidiaries
    
    
    2,617
    
    
    
    2,573
    
    
    
    (171
    )Net Income
    
    $
    6,981
    
    
    $
    6,605
    
    
    $
    6,723
 73




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note
17  Condensed Financial Statements of Parent Company (Continued)
 (In
Thousands)Statements of Cash Flows
    

2010
    
    

2009
    
    

2008Cash Flows from Operating ActivitiesNet income
    
    $
    6,981
    
    
    $
    6,605
    
    
    $
    6,723Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Equity in undistributed net income (Distributions
in excess earnings) of subsidiaries
    
    
    (2,617
    )
    
    
    (2,573
    )
    
    
    171Changes in Assets and Liabilities:Account receivable
    
    
    
    
    
    
    
    
    
    
    Dividends receivable
    
    
    (42
    )
    
    
    (97
    )
    
    
    (162
    )Other Liabilities
    
    
    101
    
    
    
    193
    
    
    
    (228
    )Net Cash Provided by Operating Activities
    
    
    4,423
    
    
    
    4,128
    
    
    
    6,504Cash Flows from Investing ActivitiesReturn of Capital from Investment in Subsidiary
    
    
    
    
    
    
    
    
    
    
    Cash Flows from Financing ActivitiesPayment of dividends
    
    
    (3,402
    )
    
    
    (3,417
    )
    
    
    (3,217
    )Purchase of Treasury Stock
    
    
    (894
    )
    
    
    (555
    )
    
    
    (3,575
    )Net Change in Cash and Cash Equivalents
    
    
    127
    
    
    
    156
    
    
    
    (288
    )Cash and Cash EquivalentsBeginning of year
    
    
    471
    
    
    
    315
    
    
    
    603Cash and Cash EquivalentsEnd of year
    
    $
    598
    
    
    $
    471
    
    
    $
    315
 74




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2010, 2009, and 2008
 Note 18  Quarterly Financial Data
 (000s omitted except per share data)
 Quarterly Financial Data  UNAUDITED
 Quarter Ended in 2010Mar 31
    
    
    June 30
    
    
    Sep 30
    
    
    Dec 31Summary of Income:Interest income
    
    $
    10,325
    
    
    $
    9,868
    
    
    $
    10,025
    
    
    $
    9,675Interest expense
    
    
    2,920
    
    
    
    2,809
    
    
    
    2,677
    
    
    
    2,457Net Interest Income
    
    
    7,405
    
    
    
    7,059
    
    
    
    7,348
    
    
    
    7,218Provision for loan loss
    
    
    1,690
    
    
    
    1,984
    
    
    
    1,200
    
    
    
    451Net interest income after
provision for loan loss
    
    
    5,715
    
    
    
    5,075
    
    
    
    6,148
    
    
    
    6,767Other income (expense)
    
    
    (4,128
    )
    
    
    (3,335
    )
    
    
    (3,130
    )
    
    
    (3,749
    )Net income before income taxes
    
    
    1,587
    
    
    
    1,740
    
    
    
    3,018
    
    
    
    3,018Income taxes
    
    
    331
    
    
    
    397
    
    
    
    820
    
    
    
    834Net income
    
    $
    1,256
    
    
    $
    1,343
    
    
    $
    2,198
    
    
    $
    2,184Earnings per Common Share
    
    $
    0.27
    
    
    $
    0.28
    
    
    $
    0.47
    
    
    $
    0.46Average common shares outstanding
    
    
    4,734,674
    
    
    
    4,730,309
    
    
    
    4,710,402
    
    
    
    4,710,098
 Quarter Ended in 2009Mar 31
    
    
    June 30
    
    
    Sep 30
    
    
    Dec 31Summary of Income:Interest income
    
    $
    10,376
    
    
    $
    10,459
    
    
    $
    10,081
    
    
    $
    10,198Interest expense
    
    
    3,474
    
    
    
    3,427
    
    
    
    3,220
    
    
    
    3,099Net Interest Income
    
    
    6,902
    
    
    
    7,032
    
    
    
    6,861
    
    
    
    7,099Provision for loan loss
    
    
    659
    
    
    
    1,079
    
    
    
    1,432
    
    
    
    388Net interest income after
provision for loan loss
    
    
    6,243
    
    
    
    5,953
    
    
    
    5,429
    
    
    
    6,711Other income (expense)
    
    
    (3,880
    )
    
    
    (4,016
    )
    
    
    (3,739
    )
    
    
    (3,621
    )Net income before income taxes
    
    
    2,363
    
    
    
    1,937
    
    
    
    1,690
    
    
    
    3,090Income taxes
    
    
    633
    
    
    
    536
    
    
    
    414
    
    
    
    892Net income
    
    $
    1,730
    
    
    $
    1,401
    
    
    $
    1,276
    
    
    $
    2,198Earnings per common share
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.27
    
    
    $
    0.46Average common shares outstanding
    
    
    4,756,389
    
    
    
    4,742,910
    
    
    
    4,731,841
    
    
    
    4,734,674
 
 ITEM 9.
    
    CHANGE IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
  75




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##### Table of Contents



ITEM 9a. CONTROLS AND PROCEDURES
 MANAGEMENT REPORT REGARDING
DISCLOSURE CONTROLS AND PROCEDURES
  MANAGEMENT REPORT REGARDING INTERNAL CONTROL AND
COMPLIANCE WITH DESIGNATED LAWS AND REGULATIONS
      
 ITEM 9b. OTHER INFORMATION
  76




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 BOARD OF DIRECTORS
  Principal Occupation or
    
    Year FirstName
    
    Age
    
    Employment for Past Five Years
    
    Became DirectorDexter L. Benecke
    
    
    68
    
    
    President, Freedom Ridge, Inc.
    
    1999Steven A. Everhart
    
    
    56
    
    
    Self Employed
    
    2003Robert G. Frey
    
    
    70
    
    
    President, E.H. Frey & Sons, Inc.
    
    1987Jack C. Johnson
    
    
    58
    
    
    President, Hawks Clothing, Inc.
    
    1991Marcia S. Latta
    
    
    49
    
    
    Vice President for Advancement, DePauw University
    
    2009Steven J. Planson
    
    
    51
    
    
    Self-Employed Farmer
    
    2008Anthony J. Rupp
    
    
    61
    
    
    President, Rupp Furniture Co.
    
    2000David P. Rupp, Jr.
1
    
    
    69
    
    
    Attorney
    
    2001James C. Saneholtz
    
    
    64
    
    
    President, Saneholtz-McKarns, Inc.
    
    1995Kevin J. Sauder
    
    
    50
    
    
    President/CEO, Sauder Woodworking Co.
    
    2004Merle J. Short
    
    
    70
    
    
    Retired Farmer
    
    1987Paul S. Siebenmorgen
    
    
    61
    
    
    President/CEO of the Corporation and
The Farmers & Merchants State Bank
    
    2005Steven J. Wyse
    
    
    66
    
    
    Private Investor
    
    1991
  
 1
    
    David P. Rupp, Jr. is an attorney with
membership in the law firm of Plassman, Rupp, Short & Hagans of Archbold, Ohio.
The law firm has been retained by the Corporation, and its subsidiaries,
during the past twenty years and is to be retained currently. 77




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##### Table of Contents



EXECUTIVE OFFICERS
 Principal Occupation & Offices Held withName
    
    Age
    
    Corporation & Bank for Past Five YearsDavid P. Rupp, Jr.
    
    
    69
    
    
    ChairmanPaul S. Siebenmorgen
    
    
    61
    
    
    President & Chief Executive OfficerBarbara J. Britenriker
    
    
    49
    
    
    Executive Vice President
Chief Financial OfficerTodd A. Graham
    
    
    60
    
    
    Executive Vice President
Chief Lending OfficerEdward A. Leininger
    
    
    54
    
    
    Executive Vice President
Chief Operating OfficerRex D. Rice
    
    
    52
    
    
    Executive Vice President
Senior Commercial Banking Director
   www.fm-bank.com)
 78




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##### Table of Contents



ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   Equity Compensation Plan InformationNumber of securities remainingNumber of securities to be
    
    
    
    
    
    
    available for future issuanceissued upon exercise of
    
    
    Weighted-average exercise
    
    
    under equity compensationoutstanding options, warrants
    
    
    price of outstanding options,
    
    
    plans (excluding securitiesand rights
    
    
    warrants and rights
    
    
    reflected in column (a))( a )
    
    
    ( b )
    
    
    ( c )Equity compensation
plans approved by
security holders
    
    
    0
    
    
    $
    0.00
    
    
    
    754,180Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    $
    0.00
    
    
    
    0Total
    
    
    0
    
    
    $
    0.00
    
    
    
    754,180
 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  79




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 a.
    
    The Following documents are filed as part of this report.
 (1)
    
    Financial Statements (included in this 10-K under Item 8)
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders Equity
Consolidated Statements of Cash Flows
Note to Consolidated Financial Statements(2)
    
    Financial Statement Schedules
Five Year Summary of Operations
 b.
    
    Exhibits Required by Item 601 of Regulation S-K
 (3.1)
    
    a. Amended Articles of Incorporation are incorporated by reference
to the Companys Quarterly Report on Form 10-Q that was filed with
the Commission on August 1, 2006.(3.2)
    
    Code of Regulations are incorporated by reference to the Companys
Quarterly Report on Form 10-Q that was filed with the Commission on
May 10, 2004.(10.1)
    
    Change in Control Agreement executed by and between the Company and
Paul S. Siebenmorgen on November 27, 2007 (incorporated by
reference to the Current Report on Form 8-K filed with the
Commission on November 30, 2007).(10.2)
    
    Change in Control Agreement executed by and between the Company and
Barbara J. Britenriker on November 27, 2007 (incorporated by
reference to the Current Report on Form 8-K filed with the
Commission on November 30, 2007).(10.3)
    
    Change in Control Agreement executed by and between the Company and
Edward A. Leininger on November 27, 2007 (incorporated by reference
to the Current Report on Form 8-K filed with the Commission on
November 30, 2007).(10.4)
    
    Change in Control Agreement executed by and between the Company and
Rex D. Rice on November 27, 2007 (incorporated by reference to the
Current Report on Form 8-K filed with the Commission on November
30, 2007).(10.5)
    
    2005 Long-Term Stock Incentive Plan (incorporated by reference to
the Quarterly Report on Form 10-Q filed with the Commission on
October 27, 2005).(10.6)
    
    Form on Restricted Stock Agreement (incorporated by reference to
the Quarterly Report on Form 10-Q filed with the Commission on
October 27, 2005).
 80




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##### Table of Contents



ITEM 14.
    
    EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (Continued)
 (21)
    
    Subsidiaries of Farmers & Merchants Bancorp, Inc.(31.1)
    
    Certification of the Chief Executive Officer Required under Rule 13(a)-14(a)/15d-14(a)(31.2)
    
    Certification of the Chief Financial Officer Required under Rule 13(a)-14(a)/15d-14(a)(32.1)
    
    Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(32.2)
    
    Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 81




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##### Table of Contents



FARMERS & MERCHANTS BANCORP, INC
   By:
    /s/ Paul S. Siebenmorgen
    Date: February 25, 2011Paul S. SiebenmorgenChief Executive Officer
Director  /s/ Paul S. Siebenmorgen

Paul S Siebenmorgen
    
    Date: February 25, 2011
    
    /s/ Barbara J. Britenriker

Barbara J. Britenriker
    
    Date: February 25, 2011Chief Executive Officer
 (Principal Executive Officer)
    
    Chief Financial Officer(Principal Financial Officer/
Principal Accounting Officer)/s/ Dexter L. Benecke
    
    Date: February 25, 2011
    
    /s/ Steven A. Everhart
    
    Date: February 25, 2011Dexter L. Benecke, Director
    
    
    
    Steven A. Everhart, Director/s/ Robert G. Frey
    
    Date: February 25, 2011
    
    /s/ Jack C. Johnson
    
    Date: February 25, 2011Robert G. Frey, Director
    
    
    
    Jack C. Johnson, Director/s/ Marcia S. Latta
    
    Date: February 25, 2011
    
    /s/ Steven J. Planson
    
    Date: February 25, 2011Marcia S. Latta, Director
    
    
    
    Steven J. Planson, Director/s/ Anthony J. Rupp
    
    Date: February 25, 2011
    
    /s/ David P. Rupp, Jr
    
    Date: February 25, 2011Anthony J. Rupp, Director
    
    
    
    David P. Rupp, Jr., Director/s/ James C. Saneholtz
    
    Date: February 25, 2011
    
    /s/ Kevin J. Sauder
    
    Date: February 25, 2011James C. Saneholtz, Director
    
    
    
    Kevin J. Sauder, Director/s/ Merle J. Short
    
    Date: February 25, 2011
    
    /s/ Steven J. Wyse
    
    Date: February 25, 2011Merle J. Short, Director
    
    
    
    Steven J. Wyse, Director
 82