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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, 2008
 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)
 Registrants telephone number, including area code (419)446-2501
  Title of each class 
None
    
    Name of each exchange on
which registered
None
  
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



FARMERS & MERCHANTS BANCORP, INC.
 Form 10-K Items
    
    PAGEItem 1. Business
    
    
    3-9Item 1.a Risk Factors
    
    
    9-11Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12Item 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    12-15Item 6. Selected Financial Data
    
    
    16Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    17-36Item 7a. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36-38Item 8. Financial Statements and Supplementary Data
    
    
    38-67Item 9. Disagreements on Accounting and Financial Disclosure
    
    
    67Item 9a. Controls and Procedures
    
    
    67-68Item 9b. Other Information
    
    
    68Item 10. Directors and Executive Officers of the Registrant
    
    
    69-71Item 11. Executive Compensation
    
    
    71Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    71Item 13. Certain Relationships and Related Transactions
    
    
    72Item 14. Principal Accountant Fees and Services
    
    
    72Item 15. Exhibits, Financial Schedules and Reports on Form 8-K
    
    
    72-73Signatures and Certifications
    
    
    74EX-21EX-31.1EX-31.2EX-32.1EX-32.2
 Statements contained in this portion of the Companys annual report may be forward-looking
statements, as that term is defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by the use of such words as intend, believe,
expect, anticipate, should, planned, estimated, and potential. Such forward-looking
statements are based on current expectations, but may differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to, factors discussed in
documents filed by the Company with the Securities and Exchange Commission from time to time.
Other factors which could have a material adverse effect on the operations of the Company and its subsidiaries which include, but are not limited to,
changes in interest rates, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in the Banks market
area, changes in relevant accounting principles and guidelines and other factors over which
management has no control. The forward-looking statements are made as of the date of this report,
and the Company assumes no obligation to update the forward-looking statements or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.




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




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Supervision and Regulation
 General
   Regulatory Agencies
  4




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Holding Company Activities
     5




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Affiliate Transactions
  Interstate Banking and Branching
  Control Acquisitions
  Liability for Banking Subsidiaries
  6




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Regulatory Capital Requirements
  FDICIA
  Dividend Restrictions
  Deposit Insurance Assessments
   7




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Depositor Preference Statute
  Government Monetary Policy
  Capital Purchase Program
  Additional Regulation
  Future Legislation
  8




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Available Information:
   
 ITEM 1A. RISK FACTORS
 Significant Competition from an Array of Financial Service Providers
  Credit Risk
  Susceptibility to Changes in Regulation
  9




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Interest Rate Risk
   Attraction and Retention of Key Personnel
  Dividend Payout Restrictions
  10




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Anti-Takeover Provisions
  Operational Risks
  Limited Trading Market
  ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
     Office
    
    LocationArchbold, Ohio
    
    1313 S Defiance StreetWauseon, Ohio
    
    1130 N Shoop Avenue
119 N Fulton Street
 11




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Office
    
    LocationStryker, Ohio
    
    300 S Defiance StreetWest Unity, Ohio
    
    200 W Jackson StreetBryan, Ohio
    
    924 W High Street
1000 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 Street
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  PART II.
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   12




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Stock Prices2008 - quarter
    
    Quarter
    
    Low
    
    High1st
    
    $
    18.00
    
    
    $
    20.252nd
    
    
    19.05
    
    
    
    22.803rd
    
    
    20.05
    
    
    
    22.254th
    
    
    19.00
    
    
    
    21.35
 2007 - quarter
    
    Quarter
    
    Low
    
    High1st
    
    $
    22.10
    
    
    $
    23.502nd
    
    
    22.15
    
    
    
    23.003rd
    
    
    20.00
    
    
    
    22.504th
    
    
    18.05
    
    
    
    20.25
     
 13




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Year
2003 as the base
 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008FMSB
    
    $
    100.00
    
    
    $
    101.65
    
    
    $
    81.65
    
    
    $
    83.30
    
    
    $
    78.05
    
    
    $
    79.55NASDAQ-COMPOSITE
    
    $
    100.00
    
    
    $
    109.10
    
    
    $
    111.38
    
    
    $
    122.89
    
    
    $
    135.95
    
    
    $
    81.85NASDAQ-BANK INDEX
    
    $
    100.00
    
    
    $
    113.44
    
    
    $
    111.19
    
    
    $
    126.36
    
    
    $
    101.57
    
    
    $
    80.03
  1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    

4th Quarter
    
    Total2008
    
    $
    .16
    
    
    $
    .16
    
    
    $
    .18
    
    
    $
    .18
    
    
    $
    0.682007
    
    $
    .16
    
    
    $
    .16
    
    
    $
    .16
    
    
    $
    .16
    
    
    $
    0.64
   14




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ISSUER PURCHASES OF EQUITY SECURITIES
 Total Numberof SharesTotal
    
    
    
    
    
    Purchased asNumber of
    
    Average Price Paid
    
    Part of Publicly
    
    Remaining ShareShares
    
    per
    
    Announced
    
    RepurchasePeriod
    
    Purchased
    
    Share
    
    Programs
    
    Authorization10/1/2008 to
10/31/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,49211/1/2008 to
11/30/2008
    
    
    34,081
    
    
    $
    19.83
    
    
    
    34,081
    (1)
    
    
    85,41112/1/2008 to
12/31/2008
    
    
    7,300
    
    
    $
    20.00
    
    
    
    7,300
    (1)
    
    
    78,111Total
    
    
    41,381
    
    
    $
    19.86
    
    
    
    41,381
    (1)
    
    
    78,111
 
 (1)
    
    The Company purchased these shares pursuant to a stock repurchase program
publicly announced on November 16, 2007. On that date, the Board of Directors
authorized the repurchase of up to 250,000 common shares through December 31, 2008. Reclassification
  15




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ITEM 6. SELECTED FINANCIAL DATA
 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
 Summary of Consolidated Statement of Income  UNAUDITED
 (In Thousands, except share data)2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Summary of Income:Interest income
    
    $
    43,824
    
    
    $
    45,424
    
    
    $
    42,269
    
    
    $
    38,101
    
    
    $
    37,351Interest expense
    
    
    18,101
    
    
    
    21,722
    
    
    
    18,535
    
    
    
    13,539
    
    
    
    11,222Net Interest Income
    
    
    25,723
    
    
    
    23,702
    
    
    
    23,734
    
    
    
    24,562
    
    
    
    26,129Provision for loan loss
    
    
    1787
    
    
    
    871
    
    
    
    52
    
    
    
    (425
    )
    
    
    884Net interest income after
provision for loan loss
    
    
    23,936
    
    
    
    22,831
    
    
    
    23,209
    
    
    
    24,987
    
    
    
    25,245Other income (expense), net
    
    
    (14,763
    )
    
    
    (12,269
    )
    
    
    (11,966
    )
    
    
    (13,209
    )
    
    
    (13,442
    )Net income before
income taxes
    
    
    9,173
    
    
    
    10,562
    
    
    
    11,243
    
    
    
    11,778
    
    
    
    11,803Income taxes
    
    
    2,450
    
    
    
    2,828
    
    
    
    3,107
    
    
    
    3,202
    
    
    
    3,573Net income
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136
    
    
    $
    8,576
    
    
    $
    8,230Per Share of Common Stock:Earnings per common share outstanding *Net income
    
    $
    1.39
    
    
    $
    1.52
    
    
    $
    1.57
    
    
    $
    1.65
    
    
    $
    1.58Dividends
    
    $
    0.680
    
    
    $
    0.640
    
    
    $
    0.575
    
    
    $
    0.500
    
    
    $
    0.475Weighted average number
of shares outstanding
    
    
    4,846,310
    
    
    
    5,097,636
    
    
    
    5,186,329
    
    
    
    5,198,728
    
    
    
    5,200,000
 
 *
    
    Based on weighted average number of shares outstanding Summary of Consolidated Balance Sheet  UNAUDITED
 (In Thousands)2008
    
    2007
    
    2006
    
    2005
    
    2004Total assets
    
    $
    805,729
    
    
    $
    803,974
    
    
    $
    737,096
    
    
    $
    720,94
    
    
    $
    702,513Loans
    
    
    562,336
    
    
    
    523,474
    
    
    
    498,580
    
    
    
    458,704
    
    
    
    472,211Total Deposits
    
    
    615,732
    
    
    
    634,593
    
    
    
    585,409
    
    
    
    576,297
    
    
    
    574,205Stockholders equity
    
    
    90,547
    
    
    
    89,375
    
    
    
    87,732
    
    
    
    82,588
    
    
    
    78,845Key RatiosReturn on average equity
    
    
    7.51
    %
    
    
    8.71
    %
    
    
    9.64
    %
    
    
    10.62
    %
    
    
    10.72
    %Return on average assets
    
    
    0.84
    %
    
    
    1.06
    %
    
    
    1.14
    %
    
    
    1.22
    %
    
    
    1.16
    %Loans to deposits
    
    
    91.33
    %
    
    
    82.49
    %
    
    
    85.17
    %
    
    
    79.65
    %
    
    
    82.24
    %Capital to assets
    
    
    11.24
    %
    
    
    11.12
    %
    
    
    11.90
    %
    
    
    11.46
    %
    
    
    11.22
    %Dividend payout
    
    
    48.77
    %
    
    
    42.00
    %
    
    
    36.63
    %
    
    
    30.31
    %
    
    
    30.02
    %
 16




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Critical Accounting Policy and Estimates
       17




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2008 in Review
     18




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Material Changes in Results of Operations
   rd
 19




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20




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Net Interest Income
     21




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22




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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
    %Interest bearing deposits
    
    
    
    
    
    
    
    
    
    
    0.00
    %Federal funds sold
    
    
    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
    %
 23




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2007(In Thousands)Average
    
    
    Interest/Balance
    
    
    Dividends
    
    
    Yield/RateASSETSInterest Earning Assets:Loans (1)
    
    $
    502,815
    
    
    $
    37,429
    
    
    
    7.48
    %Taxable investment securities
    
    
    132,047
    
    
    
    6,181
    
    
    
    4.68
    %Tax exempt investment securities
    
    
    40,433
    
    
    
    1,533
    
    
    
    5.74
    %Interest bearing deposits
    
    
    286
    
    
    
    17
    
    
    
    5.94
    %Federal funds sold
    
    
    5,658
    
    
    
    264
    
    
    
    4.67
    %Total Interest Earning Assets
    
    
    681,239
    
    
    $
    45,424
    
    
    
    6.81
    %Non-Interest Earning Assets:Cash and cash equivalents
    
    
    17,318Other assets
    
    
    29,684Total Assets
    
    $
    728,241LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing Liabilities:Savings deposits
    
    $
    193,539
    
    
    $
    3,978
    
    
    
    2.06
    %Other time deposits
    
    
    312,515
    
    
    
    14,424
    
    
    
    4.62
    %Other borrowed money
    
    
    28,233
    
    
    
    1,317
    
    
    
    4.66
    %Federal funds purchased and securities
sold under agreement to repurchase
    
    
    41,549
    
    
    
    2,003
    
    
    
    4.82
    %Total Interest Bearing Liabilities
    
    
    575,836
    
    
    $
    21,722
    
    
    
    3.77
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    44,553Other
    
    
    19,029Total Liabilities
    
    
    639,418Shareholders Equity
    
    
    88,823Total Liabilities and
Shareholders Equity
    
    $
    728,241Interest/Dividend income/yield
    
    
    
    
    
    $
    45,424
    
    
    
    6.81
    %Interest Expense / yield
    
    
    
    
    
    
    21,722
    
    
    
    3.77
    %Net Interest Spread
    
    
    
    
    
    $
    23,702
    
    
    
    3.04
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.62
    %
 24




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2006( In Thousands)Average
    
    
    Interest/Balance
    
    
    Dividends
    
    
    Yield/RateASSETSInterest Earning Assets:Loans (1)
    
    $
    484,364
    
    
    $
    35,069
    
    
    
    7.28
    %Taxable investment securities
    
    
    129,406
    
    
    
    5,070
    
    
    
    3.92
    %Tax exempt investment securities
    
    
    49,202
    
    
    
    1,858
    
    
    
    5.72
    %Interest bearing deposits
    
    
    305
    
    
    
    13
    
    
    
    4.26
    %Federal funds sold
    
    
    5,086
    
    
    
    259
    
    
    
    5.09
    %Total Interest Earning Assets
    
    
    668,363
    
    
    $
    42,269
    
    
    
    6.49
    %Non-Interest Earning Assets:Cash and cash equivalents
    
    
    17,145Other assets
    
    
    26,881Total Assets
    
    $
    712,389LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing Liabilities:Savings deposits
    
    $
    192,754
    
    
    $
    3,784
    
    
    
    1.96
    %Other time deposits
    
    
    305,586
    
    
    
    12,063
    
    
    
    3.95
    %Other borrowed money
    
    
    30,311
    
    
    
    1,268
    
    
    
    4.18
    %Federal funds purchased and securities
sold under agreement to repurchase
    
    
    30,042
    
    
    
    1,420
    
    
    
    4.73
    %Total Interest Bearing Liabilities
    
    
    558,693
    
    
    $
    18,535
    
    
    
    3.32
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    45,531Other
    
    
    23,764Total Liabilities
    
    
    627,988Shareholders Equity
    
    
    84,401Total
Liabilities and Shareholders Equity
    
    $
    712,389Interest/Dividend income/yield
    
    
    
    
    
    $
    42,269
    
    
    
    6.49
    %Interest Expense / yield
    
    
    
    
    
    
    18,535
    
    
    
    3.32
    %Net Interest Spread
    
    
    
    
    
    $
    23,734
    
    
    
    3.18
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.72
    %
 25




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2008 vs 2007(In Thousands)Net
    
    
    Due to Change inInterest Earned On:
    
    Change
    
    
    Volume
    
    
    RateLoans
    
    $
    (2,435
    )
    
    $
    3,104
    
    
    $
    (5,539
    )Taxable investment securities
    
    
    782
    
    
    
    694
    
    
    
    88Tax-exempt investment securities
    
    
    61
    
    
    
    111
    
    
    
    (50
    )Interest bearing deposits
    
    
    (17
    )
    
    
    (17
    )
    
    
    Federal funds sold
    
    
    9
    
    
    
    176
    
    
    
    (167
    )Total Interest Earning Assets
    
    $
    (1,600
    )
    
    $
    4,068
    
    
    $
    (5,668
    )Interest Paid On:Savings deposits
    
    $
    (1,218
    )
    
    $
    973
    
    
    $
    (2,191
    )Other time deposits
    
    
    (1,957
    )
    
    
    69
    
    
    
    (2,026
    )Other borrowed money
    
    
    430
    
    
    
    460
    
    
    
    (30
    )Federal funds purchased andsecurties sold under agreement to
repurchase
    
    
    (876
    )
    
    
    360
    
    
    
    (1,236
    )Total Interest Bearing Liabilities
    
    $
    (3,621
    )
    
    $
    1,862
    
    
    $
    (5,483
    )
 26




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##### Table of Contents



2007 vs 2006(In Thousands)Net
    
    
    Due to Change inChange
    
    
    Volume
    
    
    RateInterest
Earned On:Loans
    
    $
    2,360
    
    
    $
    1,343
    
    
    $
    1,017Taxable investment securities
    
    
    1,111
    
    
    
    103
    
    
    
    1,008Tax-exempt investment securities
    
    
    (325
    )
    
    
    (502
    )
    
    
    177Interest bearing deposits
    
    
    4
    
    
    
    (1
    )
    
    
    5Federal funds sold
    
    
    5
    
    
    
    29
    
    
    
    (24
    )Total Interest Earning Assets
    
    $
    3,155
    
    
    $
    972
    
    
    $
    2,183Interest Paid On:Savings deposits
    
    $
    194
    
    
    $
    15
    
    
    $
    179Other time deposits
    
    
    2,361
    
    
    
    274
    
    
    
    2,087Other borrowed money
    
    
    49
    
    
    
    (87
    )
    
    
    136Federal funds purchased and
securties sold under agreement to
repurchase
    
    
    583
    
    
    
    544
    
    
    
    39Total Interest Bearing Liabilities
    
    $
    3,187
    
    
    $
    746
    
    
    $
    2,441
  Allowance
for Credit Losses
   27




---



##### Table of Contents



Non-interest
Income
  Non-interest Expense
    Federal Income Taxes
  Financial Condition
  28




---



##### Table of Contents



Securities
  (In Thousands)2008
    
    
    2007
    
    
    2006U.S. Government agency
    
    $
    82,675
    
    
    $
    104,737
    
    
    $
    91,355Mortgage-backed securities
    
    
    51,826
    
    
    
    39,367
    
    
    
    31,264State and local governments
    
    
    43,160
    
    
    
    41,467
    
    
    
    45,495$
    177,661
    
    
    $
    185,571
    
    
    $
    168,114
  Maturities(Amounts in Thousands)After One YearWithin One Year
    
    
    
    
    
    Within Five YearsU.S. Government agency
    
    
    24,882
    
    
    
    3.63
    %
    
    
    32,865
    
    
    
    4.66
    %Mortgage-backed securities
    
    
    5,460
    
    
    
    3.44
    %
    
    
    36,844
    
    
    
    4.77
    %State and local governments
    
    
    7,195
    
    
    
    3.66
    %
    
    
    15,601
    
    
    
    3.64
    %Taxable state and local governments
    
    
    543
    
    
    
    6.29
    %
    
    
    2,079
    
    
    
    3.50
    %
 Maturities(Amounts in Thousands)After Five YearsWithin Ten Years
    
    
    
After Ten YearsAmount
    
    Yield
    
    Amount
    
    YieldU.S. Government agency
    
    
    24,928
    
    
    
    5.35
    %
    
    
    
    
    
    
    0.00
    %Mortgage-backed securities
    
    
    9,469
    
    
    
    5.37
    %
    
    
    53
    
    
    
    4.89
    %State and local governments
    
    
    16,932
    
    
    
    3.92
    %
    
    
    810
    
    
    
    3.91
    %Taxable state and local governments
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
 
 Loan
Portfolio
  st
 29




---



##### Table of Contents



(In Thousands)2008
    
    2007
    
    2006
    
    2005
    
    2004Loans:Commercial Real Estate
    
    $
    226,761
    
    
    $
    181,340
    
    
    $
    162,363
    
    
    $
    113,283
    
    
    $
    102,314Agricultural Real Estate
    
    
    48,607
    
    
    
    45,518
    
    
    
    49,564
    
    
    
    50,777
    
    
    
    49,772Consumer Real Estate
    
    
    89,773
    
    
    
    102,660
    
    
    
    86,688
    
    
    
    115,831
    
    
    
    133,772Commercial/industrial
    
    
    112,526
    
    
    
    104,188
    
    
    
    101,788
    
    
    
    81,893
    
    
    
    88,303Agricultural
    
    
    56,322
    
    
    
    58,809
    
    
    
    69,301
    
    
    
    61,502
    
    
    
    56,239Consumer
    
    
    26,469
    
    
    
    27,796
    
    
    
    27,388
    
    
    
    31,935
    
    
    
    38,768Industrial Development Bonds
    
    
    7,572
    
    
    
    9,289
    
    
    
    7,335
    
    
    
    9,237
    
    
    
    10,687Total Loans
    
    $
    568,030
    
    
    $
    529,600
    
    
    $
    504,427
    
    
    $
    464,458
    
    
    $
    479,856
  Maturities (In Thousands)After OneWithin
    
    Year Within
    
    AfterOne Year
    
    Five Years
    
    Five Years
    
    TotalCommercial Real Estate
    
    $
    3,976
    
    
    $
    28,661
    
    
    $
    194,124
    
    
    $
    226,761Agricultural Real Estate
    
    
    495
    
    
    
    4,363
    
    
    
    43,749
    
    
    $
    48,607Consumer Real Estate
    
    
    3,098
    
    
    
    13,974
    
    
    
    72,701
    
    
    $
    89,773Commercial and Industrial Loans
    
    
    49,955
    
    
    
    39,159
    
    
    
    23,412
    
    
    $
    112,526Agricultural
    
    
    38,574
    
    
    
    16,333
    
    
    
    1,415
    
    
    $
    56,322Consumer, Master Card and Overdrafts
    
    
    4,956
    
    
    
    19,452
    
    
    
    2,061
    
    
    $
    26,469Industrial Development Bonds
    
    
    5,245
    
    
    
    1,270
    
    
    
    1,057
    
    
    $
    7,572
  (In Thousands)Fixed
    
    VariableRate
    
    RateCommercial Real Estate
    
    $
    32,865
    
    
    $
    189,920Agricultural Real Estate
    
    
    7,175
    
    
    
    40,938Consumer Real Estate
    
    
    27,642
    
    
    
    59,715Commercial and Industrial
    
    
    34,724
    
    
    
    24,276Agricultural
    
    
    15,593
    
    
    
    2,155Consumer, Overdrafts and other loans
    
    
    24,036
    
    
    
    1,200Industrial Development Bonds
    
    
    2,055
    
    
    
    
 30




---



##### Table of Contents



(In Thousands)2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Non-accrual loans
    
    $
    13,575
    
    
    $
    4,918
    
    
    $
    4,254
    
    
    $
    4,663
    
    
    $
    6,059Accruing loans past due
90 days or more
    
    
    2,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    393Total
    
    $
    16,099
    
    
    $
    4,918
    
    
    $
    4,254
    
    
    $
    4,663
    
    
    $
    6,452
     
   31




---



##### Table of Contents



32




---



##### Table of Contents



(In Thousands)2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Loans
    
    $
    568,030
    
    
    $
    529,600
    
    
    $
    504,427
    
    
    $
    464,488
    
    
    $
    479,681Daily average of outstanding loans
    
    $
    544,859
    
    
    $
    503,296
    
    
    $
    484,663
    
    
    $
    469,326
    
    
    $
    491,104Allowance for Loan Losses-Jan. 1
    
    $
    5,922
    
    
    $
    5,594
    
    
    $
    5,388
    
    
    $
    6,814
    
    
    $
    6,614Loans Charged off:Commercial Real Estate
    
    
    
    
    
    
    376
    
    
    
    214
    
    
    
    82
    
    
    
    11Agricultural Real Estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Consumer Real Estate
    
    
    194
    
    
    
    252
    
    
    
    167
    
    
    
    347
    
    
    
    537Commercial and Industrial
    
    
    71
    
    
    
    538
    
    
    
    282
    
    
    
    933
    
    
    
    417Agricultural
    
    
    1,912
    
    
    
    42
    
    
    
    
    
    
    
    12
    
    
    
    102Consumer & Other Loans
    
    
    384
    
    
    
    368
    
    
    
    322
    
    
    
    722
    
    
    
    7392,561
    
    
    
    1,576
    
    
    
    985
    
    
    
    2,096
    
    
    
    1,826Loan Recoveries:Commercial Real Estate
    
    
    
    
    
    
    25
    
    
    
    2
    
    
    
    
    
    
    
    Agricultural Real Estate
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    20
    
    
    
    Consumer Real Estate
    
    
    87
    
    
    
    5
    
    
    
    24
    
    
    
    52
    
    
    
    38Commercial and Industrial
    
    
    78
    
    
    
    359
    
    
    
    
    
    
    
    580
    
    
    
    514Agricultural
    
    
    4
    
    
    
    103
    
    
    
    74
    
    
    
    31
    
    
    
    185Consumer & Other Loans
    
    
    179
    
    
    
    240
    
    
    
    352
    
    
    
    412
    
    
    
    405348
    
    
    
    732
    
    
    
    666
    
    
    
    1,095
    
    
    
    1,142Net Charge Offs
    
    
    2,213
    
    
    
    844
    
    
    
    319
    
    
    
    1,001
    
    
    
    684Provision for loan loss
    
    
    1,787
    
    
    
    871
    
    
    
    525
    
    
    
    (425
    )
    
    
    884Acquisition allowance for loan loss
    
    
    
    
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    Allowance for Loan & Lease Losses  Dec 31
    
    $
    5,496
    
    
    $
    5,922
    
    
    $
    5,594
    
    
    $
    5,388
    
    
    $
    6,814Allowance for Unfunded Loan Commitments
& Letters of Credit Dec 31
    
    $
    226
    
    
    $
    156
    
    
    $
    168
    
    
    $
    841
    
    
    $
    686Total Allowance for Credit Losses  Dec 31
    
    $
    5,722
    
    
    $
    6,078
    
    
    $
    5,762
    
    
    $
    6,229
    
    
    $
    7,500Ratio of net charge-offs to averageLoans outstanding
    
    
    0.41
    %
    
    
    0.17
    %
    
    
    0.07
    %
    
    
    0.21
    %
    
    
    0.14
    %
  2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Amount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amount(000s)
    
    
    %
    
    
    (000s)
    
    
    %
    
    
    (000s)
    
    
    %
    
    
    (000s)
    
    
    %
    
    
    (000s)
    
    
    %Balance at End of Period Applicable To:Commercial Real Estate
    
    $
    1,810
    
    
    
    39.92
    %
    
    $
    1,358
    
    
    
    34.24
    %
    
    $
    1,221
    
    
    
    32.19
    %
    
    $
    756
    
    
    
    24.39
    %
    
    $
    671
    
    
    
    21.32
    %Agricultural Real Estate
    
    
    130
    
    
    
    8.56
    %
    
    
    117
    
    
    
    8.60
    %
    
    
    162
    
    
    
    9.82
    %
    
    
    88
    
    
    
    10.93
    %
    
    
    264
    
    
    
    10.37
    %Consumer Real Estate
    
    
    386
    
    
    
    15.80
    %
    
    
    381
    
    
    
    19.39
    %
    
    
    288
    
    
    
    17.19
    %
    
    
    719
    
    
    
    24.95
    %
    
    
    615
    
    
    
    27.88
    %Commercial & Industrial
    
    
    2,278
    
    
    
    19.81
    %
    
    
    1,859
    
    
    
    19.67
    %
    
    
    2,721
    
    
    
    20.18
    %
    
    
    2,246
    
    
    
    17.63
    %
    
    
    3,152
    
    
    
    18.40
    %Agricultural
    
    
    413
    
    
    
    9.92
    %
    
    
    1,676
    
    
    
    11.10
    %
    
    
    250
    
    
    
    13.74
    %
    
    
    275
    
    
    
    13.24
    %
    
    
    423
    
    
    
    11.72
    %Consumer, Overdrafts and other loans
    
    
    479
    
    
    
    5.99
    %
    
    
    531
    
    
    
    7.00
    %
    
    
    634
    
    
    
    6.88
    %
    
    
    526
    
    
    
    8.86
    %
    
    
    665
    
    
    
    10.31
    %Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    778
    
    
    
    
    
    
    
    1,024Allowance for Loan & Lease Losses
    
    $
    5,496
    
    
    
    100.00
    %
    
    $
    5,922
    
    
    
    100.00
    %
    
    $
    5,594
    
    
    
    100.00
    %
    
    $
    5,388
    
    
    
    100.00
    %
    
    $
    6,814
    
    
    
    100.00
    %Off Balance Sheet Commitments
    
    $
    226
    
    
    
    
    
    
    $
    156
    
    
    
    
    
    
    $
    168
    
    
    
    
    
    
    $
    841
    
    
    
    
    
    
    $
    686Total Allowance for Credit Losses
    
    $
    5,722
    
    
    
    
    
    
    $
    6,078
    
    
    
    
    
    
    $
    5,762
    
    
    
    
    
    
    $
    6,229
    
    
    
    
    
    
    $
    7,500
 33




---



##### Table of Contents



Deposits
  (In Thousands)Over Three
    
    Over SixMonths
    
    Months Less
    
    OverUnder
    
    Less than
    
    Than One
    
    OneThree Months
    
    Six Months
    
    Year
    
    YearTime Deposits
    
    $
    16,146
    
    
    $
    17,507
    
    
    $
    10,456
    
    
    $
    32,975
  (In Thousands)Demand
    
    NOW
    
    Savings
    
    TimeDeposits
    
    Accounts
    
    Accounts
    
    AccountsDecember 31, 2008:Average balance
    
    $
    52,152
    
    
    $
    130,887
    
    
    $
    109,993
    
    
    $
    314,005Average rate
    
    
    0.00
    %
    
    
    1.46
    %
    
    
    0.77
    %
    
    
    3.97
    %December 31, 2007:Average balance
    
    $
    44,331
    
    
    $
    84,674
    
    
    $
    108,864
    
    
    $
    312,515Average rate
    
    
    0.00
    %
    
    
    2.30
    %
    
    
    1.87
    %
    
    
    4.58
    %December 31, 2006:Average balance
    
    $
    45,531
    
    
    $
    83,154
    
    
    $
    109,601
    
    
    $
    305,586Average rate
    
    
    0.00
    %
    
    
    2.16
    %
    
    
    1.81
    %
    
    
    3.95
    %
 Liquidity
   34




---



##### Table of Contents



Securities Sold Under Agreement to RepurchaseMaximum AmountAmount Oustanding
    
    
    
    
    
    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 Period2008
    
    $
    40,014
    
    
    
    0.50
    %
    
    $
    47,644
    
    
    $
    40,113
    
    
    
    1.96
    %2007
    
    $
    35,059
    
    
    
    3.72
    %
    
    $
    39,205
    
    
    $
    31,513
    
    
    
    4.64
    %2006
    
    $
    28,433
    
    
    
    4.83
    %
    
    $
    29,712
    
    
    $
    23,903
    
    
    
    3.64
    %
  Asset/Liability Management
   35




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##### Table of Contents



Impact of Inflation And Changing Prices
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
   36




---



##### 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 Rate3.29%
    
    
    -8.10
    %
    
    Rising
    
    
    3.00
    %
    
    
    25,909
    
    
    
    -8.15
    %3.39%
    
    
    -5.37
    %
    
    Rising
    
    
    2.00
    %
    
    
    26,677
    
    
    
    -5.42
    %3.49%
    
    
    -2.67
    %
    
    Rising
    
    
    1.00
    %
    
    
    27,440
    
    
    
    -2.72
    %3.58%
    
    
    0.00
    %
    
    Flat
    
    
    0
    
    
    
    28,207
    
    
    
    0.00
    %3.65%
    
    
    1.89
    %
    
    Falling
    
    
    -1.00
    %
    
    
    28,882
    
    
    
    2.39
    %3.67%
    
    
    2.49
    %
    
    Falling
    
    
    -2.00
    %
    
    
    29,104
    
    
    
    3.18
    %3.68%
    
    
    2.64
    %
    
    Falling
    
    
    -3.00
    %
    
    
    29,265
    
    
    
    3.75
    %
  Contractual Obligations
  37




---



##### Table of Contents



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
    
    $
    48,214
    
    
    $
    48,214
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    293,908
    
    
    
    157,141
    
    
    
    130,012
    
    
    
    5,538
    
    
    
    1,217Dividends Payable
    
    
    857
    
    
    
    857Long Term Debt
    
    
    45,635
    
    
    
    11,436
    
    
    
    26,537
    
    
    
    7,662
    
    
    
    Total
    
    $
    388,614
    
    
    $
    217,648
    
    
    $
    156,549
    
    
    $
    13,200
    
    
    $
    1,217
 Capital Resources
    
 ITEM 8. FINANCIAL STATEMENTS
 Index To Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    
    39Consolidated Balance Sheet at December 31, 2008 and 2007
    
    
    41Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006
    
    
    42Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2008,
2007 and 2006
    
    
    43Consolidated Statements of Cash Flow for the years ended December 31, 2008, 2007 and 2006
    
    
    44Notes to Consolidated Financial Statements
    
    
    45
 38




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
  39




---



##### Table of Contents



40




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 
 Consolidated Balance Sheet
December 31, 2008 and 2007
(000s Omitted, Except Per Share Data)
 2008
    
    
    2007AssetsAssetsCash and due from banks (Note 1)
    
    $
    19,148
    
    
    $
    21,753Federal Funds Sold
    
    
    1,739
    
    
    
    27,134Total cash and cash equivalents
    
    
    20,887
    
    
    
    48,887Securities  available for sale (Note 3)
    
    
    177,661
    
    
    
    185,571Other Securities, at cost (Note 3)
    
    
    4,498
    
    
    
    4,346Loans, net (Note 4)
    
    
    562,336
    
    
    
    523,474Premises and equipment (Note 5)
    
    
    16,806
    
    
    
    17,051Goodwill (Note 2)
    
    
    4,074
    
    
    
    4,007Other assets (Note 2, 6 & 10)
    
    
    19,467
    
    
    
    20,638Total Assets
    
    $
    805,729
    
    
    $
    803,974Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    62,582
    
    
    $
    75,670Interest-bearingNOW accounts
    
    
    136,760
    
    
    
    105,471Savings
    
    
    122,482
    
    
    
    129,080Time (Note 7)
    
    
    293,908
    
    
    
    324,372Total deposits
    
    
    615,732
    
    
    
    634,593Securities sold under agreement to repurchase (Note 8)
    
    
    48,214
    
    
    
    41,329FHLB Advances (Note 9)
    
    
    45,635
    
    
    
    31,816Dividend payable
    
    
    857
    
    
    
    795Accrued expenses and other liabilities
    
    
    4,744
    
    
    
    6,066Total liabilities
    
    
    715,182
    
    
    
    714,599Stockholders 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  418,294 Shares 2008, 256,160 Shares 2007
    
    
    (8,727
    )
    
    
    (5,366
    )Unearned
Stock Awards  23,575 Shares 2008, 17,240
Shares 2007
    
    
    (503
    )
    
    
    (391
    )Retained earnings
    
    
    84,864
    
    
    
    81,575Accumulated other comprehensive income
    
    
    2,236
    
    
    
    880Total stockholders equity
    
    
    90,547
    
    
    
    89,375Total Liabilities and Stockholders Equity
    
    $
    805,729
    
    
    $
    803,974
  41




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 
 Consolidated Statement of Income
Years Ended December 31, 2008, 2007 and 2006
(000s Omitted, Except Per Share Data)
 2008
    
    
    2007
    
    
    2006Interest IncomeLoans, including fees
    
    $
    34,994
    
    
    $
    37,429
    
    
    $
    35,069Debt securities:U.S. Treasury and government agency
    
    
    6,634
    
    
    
    5,813
    
    
    
    4,615Municipalities
    
    
    1,697
    
    
    
    1,635
    
    
    
    2,086Dividends
    
    
    226
    
    
    
    266
    
    
    
    227Federal funds sold
    
    
    273
    
    
    
    264
    
    
    
    259Other
    
    
    
    
    
    
    17
    
    
    
    13Total interest income
    
    
    43,824
    
    
    
    45,424
    
    
    
    42,269Interest ExpenseDeposits
    
    
    15,227
    
    
    
    18,402
    
    
    
    15,847Federal funds purchased and securities sold
under agreements to repurchase
    
    
    1,127
    
    
    
    2,003
    
    
    
    1,420Borrowed funds
    
    
    1,747
    
    
    
    1,317
    
    
    
    1,268Total interest expense
    
    
    18,101
    
    
    
    21,722
    
    
    
    18,535Net
Interest Income Before provision for loan losses
    
    
    25,723
    
    
    
    23,702
    
    
    
    23,734Provision for Loan Losses(Note 4)
    
    
    1,787
    
    
    
    871
    
    
    
    525Net Interest Income After ProvisionFor Loan Losses
    
    
    23,936
    
    
    
    22,831
    
    
    
    23,209Noninterest IncomeCustomer service fees
    
    
    3,436
    
    
    
    3,201
    
    
    
    3,548Other service charges and fees
    
    
    2,322
    
    
    
    2,569
    
    
    
    2,212Net gain on sale of loans
    
    
    708
    
    
    
    617
    
    
    
    683Net gain (loss) on sale of securities
    
    
    15
    
    
    
    
    
    
    
    (10
    )Total noninterest income
    
    
    6,481
    
    
    
    6,387
    
    
    
    6,433Noninterest ExpensesSalaries and Wages
    
    
    8,715
    
    
    
    8,084
    
    
    
    8,304Employee benefits (Note 11)
    
    
    3,018
    
    
    
    2,804
    
    
    
    2,456Occupancy expense
    
    
    1,029
    
    
    
    564
    
    
    
    605Furniture and equipment
    
    
    1,443
    
    
    
    1,321
    
    
    
    1,421Data processing
    
    
    1,234
    
    
    
    1,019
    
    
    
    998Franchise taxes
    
    
    863
    
    
    
    873
    
    
    
    839Mortgage servicing rights amortization (Note 6)
    
    
    370
    
    
    
    257
    
    
    
    263Other general and administrative
    
    
    4,572
    
    
    
    3,734
    
    
    
    3,513Total other operating expenses
    
    
    21,244
    
    
    
    18,656
    
    
    
    18,399Income Before Income Taxes
    
    
    9,173
    
    
    
    10,562
    
    
    
    11,243Income Taxes (Note 10)
    
    
    2,450
    
    
    
    2,828
    
    
    
    3,107Net Income
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136Earnings Per Share  Basic and Diluted
    
    $
    1.39
    
    
    $
    1.52
    
    
    $
    1.57Weighted Average Shares Outstanding
    
    
    4,846,310
    
    
    
    5,097,636
    
    
    
    5,186,329
  42




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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, 2008, 2007, and 2006
(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, 2006
    
    
    5,199,920
    
    
    
    12,677
    
    
    
    (2
    )
    
    
    (113
    )
    
    
    71,933
    
    
    
    (1,907
    )
    
    
    82,588Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,136
    
    
    
    
    
    
    
    8,136Change in net unrealized gain on securities
available for
sale, net of reclassification adjustment
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    933
    
    
    
    933Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,069Purchase of Treasury Stock
    
    
    (42,000
    )
    
    
    
    
    
    
    (945
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (945
    )Grant of Restricted Stock Awards-6100 shares
(Net of Forfeiture  200)
    
    
    5,900
    
    
    
    
    
    
    
    131
    
    
    
    (131
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared  $0.575 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,980
    )
    
    
    
    
    
    
    (2,980
    )Balance December 31, 2006
    
    
    5,163,820
    
    
    
    12,677
    
    
    
    (816
    )
    
    
    (244
    )
    
    
    77,089
    
    
    
    (974
    )
    
    
    87,732Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,734
    
    
    
    
    
    
    
    7,734Change in net unrealized gain on securities
available for
sale, net of reclassification adjustment
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,854
    
    
    
    1,854Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,588Purchase of Treasury Stock
    
    
    (228,000
    )
    
    
    
    
    
    
    (4,710
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,710
    )Shares issued for vested stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Grant of Restricted Stock Awards-8760 shares
(Net of Forfeiture  740)
    
    
    8,020
    
    
    
    
    
    
    
    160
    
    
    
    (160
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared  $0.64 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,248
    )
    
    
    
    
    
    
    (3,248
    )Balance  December 31, 2007
    
    
    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
available for
sale, net of reclassification adjustment
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    $
    90,547
  43




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 
 Consolidated Statement of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
(000s Omitted)
 2008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136Adjustments to reconcile net income to net cash
from operating activities:Depreciation
    
    
    1,132
    
    
    
    1,059
    
    
    
    1,107Amortization of servicing rights
    
    
    370
    
    
    
    257
    
    
    
    263Amortization of Core Deposit Intangible
    
    
    157
    
    
    
    
    
    
    
    Provision for loan loss
    
    
    1,787
    
    
    
    871
    
    
    
    525Accretion and amortization of securities
    
    
    300
    
    
    
    131
    
    
    
    382Deferred income taxes (benefit)
    
    
    (39
    )
    
    
    (170
    )
    
    
    282(Gain) loss on sale of other assets
    
    
    194
    
    
    
    4
    
    
    
    5Realized (gain) loss on sales of securities, net
    
    
    (15
    )
    
    
    
    
    
    
    10Change in other assets and other liabilities, net
    
    
    (1,943
    )
    
    
    (1,343
    )
    
    
    2,670Net cash provided by operating activities
    
    
    8,666
    
    
    
    8,543
    
    
    
    13,380Cash Flows from Investing ActivitiesActivity in securities:Sales
    
    
    25
    
    
    
    215
    
    
    
    19,006Maturities, prepayments and calls
    
    
    75,084
    
    
    
    80,876
    
    
    
    61,654Purchases
    
    
    (65,580
    )
    
    
    (95,804
    )
    
    
    (44,382
    )Loan and lease originations and principal collections, net
    
    
    (41,266
    )
    
    
    6,620
    
    
    
    (41,630
    )Proceeds from sales of assets
    
    
    1,102
    
    
    
    
    
    
    
    1Additions to premises and equipment
    
    
    (1,081
    )
    
    
    (2,675
    )
    
    
    (428
    )Purchase of Bank Owned Life Insurance
    
    
    
    
    
    
    (3,000
    )
    
    
    Net cash paid for acquisition
    
    
    
    
    
    
    (2,400
    )
    
    
    Net cash used in investing activities
    
    
    (31,716
    )
    
    
    (16,168
    )
    
    
    (5,779
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    (18,861
    )
    
    
    12,108
    
    
    
    9,112Net change in federal funds purchased and securities
sold under agreements to repurchase
    
    
    6,885
    
    
    
    6,511
    
    
    
    13,660Proceeds from issuance of long-term debt
    
    
    19,600
    
    
    
    15,000
    
    
    
    Repayment of long-term debt
    
    
    (5,781
    )
    
    
    (6,417
    )
    
    
    (11,720
    )Purchase of Treasury Stock
    
    
    (3,576
    )
    
    
    (4,710
    )
    
    
    (945
    )Cash dividends paid on common stock
    
    
    (3,217
    )
    
    
    (3,227
    )
    
    
    (3,050
    )Net cash provided (used) by financing activities
    
    
    (4,950
    )
    
    
    19,265
    
    
    
    7,057Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (28,000
    )
    
    
    11,640
    
    
    
    14,658Cash and
Cash Equivalents Beginning of Year
    
    
    48,887
    
    
    
    37,247
    
    
    
    22,589Cash and
Cash Equivalents End of Year
    
    $
    20,887
    
    
    $
    48,887
    
    
    $
    37,247Supplemental InformationCash paid during the year for:Interest
    
    $
    18,756
    
    
    $
    21,721
    
    
    $
    18,235Income taxes
    
    $
    2,445
    
    
    $
    3,120
    
    
    $
    2,757
  44




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies
 Nature of Operations
  Consolidation Policy
  Use of Estimates
     Cash and Cash Equivalents
  45




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
 Restrictions on Cash and Amounts Due from Banks
   Securities
   Other Securities
  Loans
   46




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
  Allowance for Loan Losses
      Loans Held for Sale
  47




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
 Servicing Assets
  Goodwill and other Intangible Assets
   Off Balance Sheet Instruments
  Bank Premises and Equipment
  Federal Income Tax
  Earnings Per Share
  48




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 1  Summary of Significant Accounting Policies (Continued)
  Comprehensive Income
   (In Thousands)2008
    
    
    2007
    
    
    2006Net Unrealized gain (loss) on
available-for-sale securities
    
    $
    2,055
    
    
    $
    2,810
    
    
    $
    1,404Tax Effect
    
    
    (699
    )
    
    
    (956
    )
    
    
    (478
    )Net-of-tax amount
    
    
    1,356
    
    
    
    1,854
    
    
    
    926Reclassification adjustment for gain on sale of
available-for-sale securities
    
    $
    
    
    
    $
    
    
    
    $
    10Tax Effect
    
    
    
    
    
    
    
    
    
    
    (3
    )Net-of-tax amount
    
    
    
    
    
    
    
    
    
    
    7Other comprehensive income
    
    $
    1,356
    
    
    $
    1,854
    
    
    $
    933
 Post Retirement Liability
  Reclassification
   49




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 2  Business Combination
    (Dollars in Thousands)Cash and Cash Equivalents
    
    $
    8,154Securities
    
    
    50Other Securities
    
    
    297Loans, Net of Allowance
    
    
    31,734Premises and Equipment
    
    
    1,250Core Deposit Intangible Asset
    
    
    1,100Goodwill
    
    
    4,074Other Assets
    
    
    1,425Total Assets Acquired
    
    $
    48,084Deposits
    
    $
    37,076Other Liabilities
    
    
    387Total Liabilities Assumed
    
    $
    37,463Net Assets Acquired
    
    $
    10,621
  [(In Thousands)2009
    
    $
    1572010
    
    
    1572011
    
    
    1572012
    
    
    1572013
    
    
    157Thereafter
    
    
    158$
    943
 Note 3  Securities
  50




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 NOTE 3  Securities (Continued)
 (In Thousands)2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Government agency
    
    $
    80,477
    
    
    $
    2,198
    
    
    $
    
    
    
    $
    82,675Mortgage-backed securities
    
    
    50,831
    
    
    
    1,052
    
    
    
    57
    
    
    
    51,826State and local governments
    
    
    42,964
    
    
    
    561
    
    
    
    365
    
    
    
    43,160$
    174,272
    
    
    $
    3,811
    
    
    $
    422
    
    
    $
    177,661
 (In Thousands)2007Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Government agency
    
    $
    103,512
    
    
    $
    1,321
    
    
    $
    96
    
    
    $
    104,737Mortgage-backed securities
    
    
    39,461
    
    
    
    187
    
    
    
    281
    
    
    
    39,367State and local governments
    
    
    41,264
    
    
    
    302
    
    
    
    99
    
    
    
    41,467$
    184,237
    
    
    $
    1,810
    
    
    $
    476
    
    
    $
    185,571
  2008(In Thousands)
    
    (In Thousands)Less Than Twelve Months
    
    Twelve Months & OverGross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    UnrealizedU S Government agency
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage-backed securities
    
    
    46
    
    
    
    4,390
    
    
    
    11
    
    
    
    1,822State and local governments
    
    
    326
    
    
    
    11,899
    
    
    
    39
    
    
    
    482
 51




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 NOTE 3  Securities (Continued)
 2007(In Thousands)
    
    
    (In Thousands)Less Than Twelve Months
    
    
    Twelve Months & OverGross
    
    
    

    
    
    GrossUnrealized
    
    
    
    
    
    UnrealizedLosses
    
    Fair Value
    
    Losses
    
    Fair ValueU S Government agency
    
    $
    
    
    
    $
    991
    
    
    $
    96
    
    
    $
    20,897Mortgage-backed securities
    
    
    2
    
    
    
    5,079
    
    
    
    279
    
    
    
    13,803State and local governments
    
    
    4
    
    
    
    1,621
    
    
    
    95
    
    
    
    13,117
   (In Thousands)2008
    
    
    2007
    
    
    2006Gross realized gains
    
    $
    15
    
    
    $
    
    
    
    $
    27Gross realized losses
    
    
    
    
    
    
    
    
    
    
    (37
    )Net Realized Gains (Losses)
    
    $
    15
    
    
    $
    
    
    
    $
    (10
    )Tax expense (benefit)
related to net realized
gains (losses)
    
    $
    5
    
    
    $
    
    
    
    $
    (3
    )
  (In Thousands)AmortizedCost
    
    
    Fair ValueOne year or less
    
    $
    15,188
    
    
    $
    15,405After one year through five years
    
    
    39,834
    
    
    
    40,764After five years through ten years
    
    
    55,231
    
    
    
    56,769After ten years
    
    
    36,149
    
    
    
    36,441Subtotal
    
    $
    146,402
    
    
    $
    149,379Mortgage Backed Securities
    
    
    27,870
    
    
    
    28,282Total
    
    $
    174,272
    
    
    $
    177,661
 52




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
   NOTE 4  Loans
  (In Thousands)2008
    
    
    2007Loans:Commercial Real Estate
    
    $
    226,761
    
    
    $
    181,340Agricultural Real Estate
    
    
    48,607
    
    
    
    45,518Consumer Real Estate
    
    
    89,773
    
    
    
    102,660Commercial and industrial
    
    
    112,526
    
    
    
    104,188Agricultural
    
    
    56,322
    
    
    
    58,809Consumer, Overdrafts and other loans
    
    
    26,469
    
    
    
    27,796Industrial Development Bonds
    
    
    7,572
    
    
    
    9,289568,030
    
    
    
    529,600Less: Deferred loan fees and costs
    
    
    (198
    )
    
    
    (204
    )567,832
    
    
    
    529,396Less: Allowance for loan losses
    
    
    (5,496
    )
    
    
    (5,922
    )Loans  Net
    
    $
    562,336
    
    
    $
    523,474
  Principal Payments Due WithinTwo to
    
    AfterOne Year
    
    Five Years
    
    Five YearsCommercial Real Estate
    
    $
    3,976
    
    
    $
    28,661
    
    
    $
    194,124Agricultural Real Estate
    
    
    495
    
    
    
    4,363
    
    
    
    43,749Consumer Real Estate
    
    
    3,098
    
    
    
    13,974
    
    
    
    72,701Commercial and industrial loans
    
    
    49,955
    
    
    
    39,159
    
    
    
    23,412Agricultural
    
    
    38,574
    
    
    
    16,333
    
    
    
    1,415Consumer, Master Card and Overdrafts
    
    
    4,956
    
    
    
    19,452
    
    
    
    2,061Industrial Development Bonds
    
    
    5,246
    
    
    
    1,270
    
    
    
    1,057
 53




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 4  Loans (Continued)
  (In Thousands)Fixed
    
    VariableRate
    
    RateCommercial Real Estate
    
    $
    36,610
    
    
    $
    190,151Agricultural Real Estate
    
    
    7,643
    
    
    
    40,964Consumer Real Estate
    
    
    29,066
    
    
    
    60,707Commercial and industrial loans
    
    
    40,295
    
    
    
    72,231Agricultural
    
    
    27,602
    
    
    
    28,720Consumer, Master Card and Overdrafts
    
    
    25,135
    
    
    
    1,334Industrial Development Bonds
    
    
    7,572
    
    
    
    
    (In Thousands)2008
    
    
    2007
    
    
    2006Allowance for Loan LossesBalance at beginning of year
    
    $
    5,922
    
    
    $
    5,594
    
    
    $
    5,388Provision for loan loss
    
    
    1,787
    
    
    
    871
    
    
    
    525Loans charged off
    
    
    (2,561
    )
    
    
    (1,576
    )
    
    
    (985
    )Recoveries
    
    
    348
    
    
    
    732
    
    
    
    666Acquisition allowance for loan loss
    
    
    
    
    
    
    301
    
    
    
    Allowance for Loan & Leases Losses
    
    $
    5,496
    
    
    $
    5,922
    
    
    $
    5,594Allowance for Unfunded Loan Commitments &
Letters of Credit
    
    $
    226
    
    
    $
    156
    
    
    $
    168Total Allowance for Credit Losses
    
    $
    5,722
    
    
    $
    6,078
    
    
    $
    5,762
   54




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 4  Loans (Continued)
  (In Thousands)2008
    
    
    2007Impaired loans without a
valuation allowance
    
    $
    9,582
    
    
    $
    4,648Impaired loans with a valuation
allowance
    
    
    2,095
    
    
    
    4,619Total impaired loans
    
    $
    11,677
    
    
    $
    9,267Valuation allowance related to
impaired loans
    
    $
    466
    
    
    $
    1,642Total non-accrual loans
    
    $
    13,575
    
    
    $
    4,918Total loans past-due ninety days or more and still accruing
    
    $
    2,524
    
    
    $
    
 (In Thousands)2008
    
    
    2007
    
    
    2006Average investment in
impaired loans
    
    $
    10,767
    
    
    $
    6,975
    
    
    $
    6,588Interest income recognized
on impaired loans
    
    $
    341
    
    
    $
    592
    
    
    $
    288Interest income recognized on
a cash basis on impaired loans
    
    $
    332
    
    
    $
    161
    
    
    $
    167
  NOTE 5  Premises and Equipment
  (In Thousands)2008
    
    
    2007Land
    
    $
    3,510
    
    
    $
    3,411Buildings (useful life 15-39 years)
    
    
    17,133
    
    
    
    17,224Furnishings (useful life 3-15 years)
    
    
    10,226
    
    
    
    9,84330,869
    
    
    
    30,478Less: Accumulated depreciation
    
    
    (14,063
    )
    
    
    (13,427
    )Premises and Equipment (Net)
    
    $
    16,806
    
    
    $
    17,051
 Note 6  Servicing
   55




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 6  Servicing (Continued)
   (In Thousands)2008
    
    
    2007Beginning Year
    
    $
    1,893
    
    
    $
    1,798Capitalized Additions
    
    
    447
    
    
    
    352Amortization
    
    
    (370
    )
    
    
    (257
    )Valuation Allowance
    
    
    
    
    
    
    End of Year
    
    $
    1,970
    
    
    $
    1,893
 Note 7  Deposits
  (In Thousands)2008
    
    
    2007Time deposits under $100,000
    
    $
    216,824
    
    
    $
    244,916Time deposits of $100,000 or more
    
    
    77,084
    
    
    
    79,456$
    293,908
    
    
    $
    324,372
  (In Thousands)2009
    
    $
    157,1412010
    
    
    100,5672011
    
    
    29,4482012
    
    
    4,4082013
    
    
    1,130thereafter
    
    
    1,217$
    293,908
 Note 8   Securities Sold Under Agreement to Repurchase
  56




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2008, 2007, and 2006
 Note 9   Federal Home Loan Bank Advances
   (In Thousands2009
    
    $
    11,4362010
    
    
    13,3252011
    
    
    13,2122012
    
    
    5,0622013
    
    
    2,600$
    45,635
 Note 10  Federal Income Taxes
  (In Thousands)2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    2,489
    
    
    $
    2,998
    
    
    $
    2,825Deferred:Federal
    
    
    (39
    )
    
    
    (170
    )
    
    
    282$
    2,450
    
    
    $
    2,828
    
    
    $
    3,107
  (In Thousands)2008
    
    
    2007
    
    
    2006Income tax at statutory rates
    
    $
    3,119
    
    
    $
    3,591
    
    
    $
    3,826Increase(decrease) resulting from:Tax exempt interest
    
    
    (654
    )
    
    
    (650
    )
    
    
    (749
    )Change in prior estimates and other
    
    
    (15
    )
    
    
    (113
    )
    
    
    30$
    2,450
    
    
    $
    2,828
    
    
    $
    3,107
 57




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2008, 2007, and 2006
 Note 10  Federal Income Taxes (Continued)
  (In Thousands)2008
    
    
    2007Deferred Tax Assets:Allowance for loan losses
    
    $
    1,869
    
    
    $
    2,013Other
    
    
    751
    
    
    
    369Total deferred tax assets
    
    
    2,620
    
    
    
    2,382Deferred Tax Liabilities:Accreted discounts on bonds
    
    
    55
    
    
    
    74FHLB stock dividends
    
    
    862
    
    
    
    798Mortgage servicing rights
    
    
    667
    
    
    
    641Other
    
    
    560
    
    
    
    432Net unrealized gain on available-
for-sale securities
    
    
    1,153
    
    
    
    454Total deferred tax liabilities
    
    
    3,297
    
    
    
    2,399Net Deferred Tax Asset (Liability)
    
    $
    (677
    )
    
    $
    (17
    )
 Note 11  Employee Benefit Plan
   Note 12  Related Party Transactions
  58




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2008, 2007, and 2006
 Note 12  Related Party Transactions (Continued)
  Note 13  Off Balance Sheet Activities
 Credit Related Financial Instruments
   (In Thousands)2008
    
    2007Commitments to extend credit
    
    $
    156,575
    
    
    $
    133,529Credit card arrangements
    
    
    15,840
    
    
    
    16,132Standby letters of credit
    
    
    20,418
    
    
    
    13,742
  Collateral Requirements
  Legal Contingencies
  59




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2008, 2007, and 2006
 Note 14  Minimum Regulatory Capital Requirements
     To Be Well CapitalizedUnder the PromptFor Capital
    

Corrective
ActionActual
    
    
    
    
    

Adequacy
Purposes
    
    
    Provisions(000s)
    
    
    
    
    
    (000s)
    
    
    
    
    
    (000s)As of December 31, 2008
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Risk-Based Capital
(to Risk Weighted Assets)
Consolidated
    
    $
    89,017
    
    
    
    13.95
    %
    
    $
    51,036
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    88,941
    
    
    
    13.94
    %
    
    
    51,048
    
    
    
    8.00
    %
    
    $
    63,810
    
    
    
    10.00
    %Tier 1 Capital
(to Risk Weighted Assets)
Consolidated
    
    
    83,294
    
    
    
    13.06
    %
    
    
    25,518
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    68,218
    
    
    
    10.69
    %
    
    
    25,524
    
    
    
    4.00
    %
    
    
    38,286
    
    
    
    6.00
    %Tier 1 Capital
(to Adjusted Total Assets)
Consolidated
    
    
    83,294
    
    
    
    10.50
    %
    
    
    31,716
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    68,218
    
    
    
    8.59
    %
    
    
    31,766
    
    
    
    4.00
    %
    
    
    39,708
    
    
    
    5.00%
 60




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2008, 2007, and 2006
 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, 2007
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Risk-Based Capital
(to Risk Weighted Assets)
Consolidated
    
    $
    90,565
    
    
    
    15.51
    %
    
    $
    46,726
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/Farmers & Merchants State Bank
    
    
    90,627
    
    
    
    15.51
    %
    
    
    46,736
    
    
    
    8.00
    %
    
    $
    58,421
    
    
    
    10.00
    %Tier 1 Capital
(to Risk Weighted Assets)
Consolidated
    
    
    84,488
    
    
    
    14.47
    %
    
    
    23,363
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/Farmers & Merchants State Bank
    
    
    69,550
    
    
    
    11.91
    %
    
    
    23,368
    
    
    
    4.00
    %
    
    
    35,052
    
    
    
    6.00
    %Tier 1 Capital
(to Adjusted Total Assets)
Consolidated
    
    
    84,488
    
    
    
    11.49
    %
    
    
    29,407
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/Farmers & Merchants State Bank
    
    
    69,550
    
    
    
    9.47
    %
    
    
    29,382
    
    
    
    4.00
    %
    
    
    36,728
    
    
    
    5.00
    %
 Note 15  Restrictions of Dividends & Inter-company Borrowings
  Note 16  Fair Value of Financial Instruments
   Cash and Cash Equivalents
  61




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Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 16  Fair Value of Financial Instruments (Continued)
 Securities and Other Securities
  Loans
  Deposits
  Borrowings
  Accrued Interest Receivable and Payable
  Dividends Payable
  Off Balance Sheet Financial Instruments
   62




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 16  Fair Value of Financial Instruments (Continued)
 (In Thousands)2008
    
    2007Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial Assets:Cash and Cash Equivalents
    
    $
    20,887
    
    
    $
    20,887
    
    
    $
    48,887
    
    
    $
    48,887Securities  available for sale
    
    
    177,661
    
    
    
    177,661
    
    
    
    185,571
    
    
    
    185,571Other Securities
    
    
    4,498
    
    
    
    4,498
    
    
    
    4,346
    
    
    
    4,346Loans, net
    
    
    562,336
    
    
    
    562,049
    
    
    
    523,474
    
    
    
    524,773Interest receivable
    
    
    4,048
    
    
    
    4,048
    
    
    
    5,343
    
    
    
    5,343Financial Liabilities:Deposits
    
    $
    615,732
    
    
    $
    614,495
    
    
    $
    634,593
    
    
    $
    631,020Short-term debt
    
    
    48,214
    
    
    
    48,214
    
    
    
    41,329
    
    
    
    41,329Repurchase agreement soldLong term debt
    
    
    45,635
    
    
    
    44,940
    
    
    
    31,816
    
    
    
    32,035Interest payable
    
    
    907
    
    
    
    907
    
    
    
    1,562
    
    
    
    1,562Dividends payable
    
    
    857
    
    
    
    857
    
    
    
    795
    
    
    
    795Off-Balance Sheet Financial Instruments
Commitments to
extend credit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Fair Value Measurements
        63




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 Note 16  Fair Value of Financial Instruments (Continued)
 ($ in Thousands)Quoted Prices inActive
    
    
    Significant
    
    
    SignificantMarkets for Identical
    
    
    Observable Inputs
    
    
    Observable Inputs
    
    
    Balance atAssets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008Assets-(Securities Available for Sale)
    
    $
    0
    
    
    $
    177,661
    
    
    $
    0
    
    
    $
    177,661Liabilities
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
     64




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 NOTE 17  Condensed Financial Statements of Parent Company
 Balance
Sheet
 (In Thousands)2008
    
    
    2007AssetsCash
    
    $
    315
    
    
    $
    603Related party receivables:Dividends & Accounts receivable from subsidiaries
    
    
    963
    
    
    
    801Note receivable from Bank subsidiary
    
    
    15,000
    
    
    
    15,000Investment in subsidiaries
    
    
    75,471
    
    
    
    74,437Total Assets
    
    $
    91,749
    
    
    $
    90,841Liabilities
    
    
    
    
    
    $Accrued expenses
    
    $
    345
    
    
    $
    671Dividends payable
    
    
    857
    
    
    
    795Total Liabilities
    
    
    1,202
    
    
    
    1,466Stockholders EquityTotal Stockholders Equity
    
    $
    90,547
    
    
    $
    89,375Total Liabilities and Stockholders Equity
    
    $
    91,749
    
    
    $
    90,841
 Statement
of Income
 (In Thousands)2008
    
    
    2007
    
    
    2006IncomeDividends from subsidiaries
    
    $
    6,708
    
    
    $
    6,238
    
    
    $
    3,985Interest
    
    
    717
    
    
    
    712
    
    
    
    713Total Income
    
    
    7,425
    
    
    
    6,950
    
    
    
    4,698Operating Expenses
    
    
    364
    
    
    
    383
    
    
    
    353Income Before Income Taxes and Equity in
Undistributed Earnings (Distributions in
excess
of earnings) and Subsidiaries
    
    
    7,061
    
    
    
    6,567
    
    
    
    4,345Income Taxes
    
    
    167
    
    
    
    105
    
    
    
    1486,894
    
    
    
    6,462
    
    
    
    4,197Equity in undistributed earnings
(Distributions in
excess of earnings) of subsidiaries
    
    
    (171
    )
    
    
    1,272
    
    
    
    3,939Net Income
    
    $
    6,723
    
    
    $
    7,734
    
    
    
    8,136
 65




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##### Table of Contents



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 NOTE 17  Condensed Financial Statements of Parent Company (Continued)
 (In Thousands)2008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Equity in undistributed net income (Distributions
in excess earnings) of subsidiaries
    
    
    171
    
    
    
    (1,272
    )
    
    
    (3,939
    )Changes in Assets and Liabilities:Account receivable
    
    
    
    
    
    
    35
    
    
    
    (35
    )Dividends receivable
    
    
    (162
    )
    
    
    (26
    )
    
    
    325Other Liabilities
    
    
    (228
    )
    
    
    428
    
    
    
    99Net Cash Provided byOperating Activities
    
    
    6,504
    
    
    
    6,899
    
    
    
    4,586Cash Flows from Investing ActivitiesReturn of Capital from Investment in Subsidiary
    
    
    
    
    
    
    725Cash Flows from Financing ActivitiesPayment of dividends
    
    
    (3,217
    )
    
    
    (3,227
    )
    
    
    (3,050
    )Purchase of Treasury Stock
    
    
    (3,575
    )
    
    
    (4,710
    )
    
    
    (945
    )Net Change in Cash and
Cash Equivalents
    
    
    (288
    )
    
    
    (313
    )
    
    
    591Cash and Cash EquivalentsBeginning of year
    
    
    603
    
    
    
    916
    
    
    
    325Cash and Cash EquivalentsEnd of year
    
    $
    315
    
    
    $
    603
    
    
    $
    916
 66




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##### Table of Contents



Farmers
& Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008, 2007, and 2006
 (000s omitted except per share data)
  Quarter Ended in 2008Mar 31
    
    
    June 30
    
    
    Sep 30
    
    
    Dec 31Summary of Income:Interest income
    
    $
    11,211
    
    
    $
    11,134
    
    
    $
    10,816
    
    
    $
    10,663Interest expense
    
    
    5,254
    
    
    
    4,659
    
    
    
    4,431
    
    
    
    3,757Net Interest Income
    
    
    5,957
    
    
    
    6,475
    
    
    
    6,385
    
    
    
    6,906Provision for loan loss
    
    
    269
    
    
    
    180
    
    
    
    33
    
    
    
    1,305Net interest income after
provision for loan loss
    
    
    5,688
    
    
    
    6,295
    
    
    
    6,352
    
    
    
    5,601Other income (expense)
    
    
    (3,539
    )
    
    
    (3,474
    )
    
    
    (3,910
    )
    
    
    (3,840
    )Net income before income taxes
    
    
    2,149
    
    
    
    2,821
    
    
    
    2,442
    
    
    
    1,761Income taxes
    
    
    581
    
    
    
    782
    
    
    
    659
    
    
    
    428Net income
    
    $
    1,568
    
    
    $
    2,039
    
    
    $
    1,783
    
    
    $
    1,333Earnings per Common Share
    
    $
    0.32
    
    
    $
    0.42
    
    
    $
    0.37
    
    
    $
    0.28Average common shares outstanding
    
    
    4,917,707
    
    
    
    4,867,824
    
    
    
    4,822,467
    
    
    
    4,778,681
 Quarter Ended in 2007Mar 31
    
    
    June 30
    
    
    Sep 30
    
    
    Dec 31Summary of Income:Interest income
    
    $
    11,389
    
    
    $
    11,369
    
    
    $
    11,384
    
    
    $
    11,282Interest expense
    
    
    5,175
    
    
    
    5,370
    
    
    
    5,577
    
    
    
    5,600Net Interest Income
    
    
    6,214
    
    
    
    5,999
    
    
    
    5,807
    
    
    
    5,682Provision for loan loss
    
    
    (19
    )
    
    
    154
    
    
    
    309
    
    
    
    427Net interest income after
provision for loan loss
    
    
    6,233
    
    
    
    5,845
    
    
    
    5,498
    
    
    
    5,255Other income (expense)
    
    
    (3,342
    )
    
    
    (3,076
    )
    
    
    (3,171
    )
    
    
    (2,680
    )Net income before income taxes
    
    
    2,891
    
    
    
    2,769
    
    
    
    2,327
    
    
    
    2,575Income taxes
    
    
    815
    
    
    
    778
    
    
    
    623
    
    
    
    612Net income
    
    $
    2,076
    
    
    $
    1,991
    
    
    $
    1,704
    
    
    $
    1,963Earnings per common share
    
    $
    0.40
    
    
    $
    0.39
    
    
    $
    0.33
    
    
    $
    0.40Average common shares outstanding
    
    
    5,149,967
    
    
    
    5,117,901
    
    
    
    5,093,169
    
    
    
    5,031,867
 
 ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Management Report Regarding Disclosure Controls and Procedures
  67




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ITEM 9B. OTHER INFORMATION
  68




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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
    
    66
    
    President, Freedom Ridge, Inc.
    
    1999Steven A. Everhart
    
    54
    
    Secretary/Treasurer, MBC Holdings, Inc.
    
    2003Robert G. Frey
    
    68
    
    President, E. H. Frey & Sons, Inc.
    
    1987Jack C. Johnson
    
    56
    
    President, Hawks Clothing, Inc.
    
    1991Marcia S. Latta1
    
    47
    
    Vice President, BGSU Foundation
    
    2009Steven J. Planson2
    
    49
    
    Self-Employed Farmer
    
    2008Anthony J. Rupp
    
    59
    
    President, Rupp Furniture Co.
    
    2000David P. Rupp, Jr.3
    
    67
    
    Attorney
    
    2001James C. Saneholtz
    
    62
    
    President, Saneholtz-McKarns, Inc.
    
    1995Kevin J. Sauder
    
    48
    
    President/CEO, Sauder Woodworking Co.
    
    2004Merle J. Short
    
    68
    
    Chairman, ProMow, Inc.
    
    1987
 
 1
    
    Ms. Latta was appointed to the Board of Directors of
the Company and The Farmers & Merchants State Bank on January 16, 2009.2
    
    Mr. Planson was appointed to the Board of Directors of
the Company and the Farmers & Merchants State Bank on January 10, 2008.3
    
    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. 69




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##### Table of Contents



Principal Occupation or
    
    Year FirstName
    
    Age
    
    Employment for Past Five Years
    
    Became DirectorPaul S. Siebenmorgen
    
    59
    
    President/CEO of the Corporation andThe Farmers & Merchants State Bank
    
    2005Steven J. Wyse
    
    64
    
    Private Investor
    
    1991
  EXECUTIVE OFFICERS
 Principal Occupation & Offices Held withName
    
    Age
    
    Corporation & Bank for Past Five YearsDavid P. Rupp, Jr.
    
    67
    
    ChairmanPaul S. Siebenmorgen
    
    59
    
    President & Chief Executive OfficerBarbara J. Britenriker
    
    47
    
    Executive Vice PresidentChief Financial OfficerTodd A. Graham
    
    58
    
    Executive Vice PresidentChief Lending OfficerEdward A. Leininger
    
    52
    
    Executive Vice PresidentChief Operating OfficerRex D. Rice
    
    50
    
    Executive Vice PresidentSenior Commercial Banking Director
   70




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   71




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##### Table of Contents



Equity Compensation Plan InformationNumber of securitiesremaining available for futureNumber of securities to be
    
    Weighted-average exercise
    
    issuance under equityissued upon exercise of
    
    price of outstanding
    
    compensation plansoutstanding options,
    
    options, warrants and
    
    (excluding securitieswarrants and rights
    
    rights
    
    reflected in column (a))( a )
    
    ( b )
    
    ( c )Equity compensation
plans approved by
security holders
    
    0
    
    $0.00
    
    782,160Equity compensation
plans not approved by
security holders
    
    0
    
    $0.00
    
    0Total
    
    0
    
    $0.00
    
    782,160
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  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 AccountantsConsolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Changes in
Shareholders EquityConsolidated Statements of Cash FlowsNote to Consolidated Financial Statements
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (Continued)
 (2
    )
    
    Financial Statement Schedules
Five Year Summary of Operations(3
    )
    
    Exhibits Required by Item 601 of Regulation S-K(3.1
    )
    
    a. Articles of Incorporation are incorporated by
reference to the Companys  Quarterly Report on Form 10-Q that
was filed with the Commission on May 10, 2004.b. Certificate of Amendment to the Companys Articles of
Incorporation is incorporated by reference to the Companys Current
Report on Form 8-K that was filed with the Commission on April 26,
2006.
 72




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##### Table of Contents



(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 of Restricted Stock Agreement (incorporated by reference to the
Quarterly Report on Form 10-Q filed with the Commission on October 27,
2005)(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.
 73




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##### Table of Contents



FARMERS & MERCHANTS BANCORP, INC
 
   By:
    
    /s/ Paul S. Siebenmorgen
    
    Date:
    
    February 25, 2009Paul S. Siebenmorgen
Chief Executive Officer
Director
  /s/ Paul S. Siebenmorgen
    
    Date: February 25, 2009Paul S. Siebenmorgen
Chief Executive Officer
(Principal Executive Officer)/s/ Dexter L. Benecke
    
    Date: February 25, 2009Dexter L. Benecke, Director/s/ Robert G. Frey
    
    Date: February 25, 2009Robert G. Frey, Director/s/ Marcia S. Latta
    
    Date: February 25, 2009Marcia S. Latta, Director/s/ Anthony J. Rupp
    
    Date: February 25, 2009Anthony J. Rupp, Director/s/ James C. Saneholtz
    
    Date: February 25, 2009James C. Saneholtz, Director/s/ Merle J. Short
    
    Date: February 25, 2009Merle J. Short, Director/s/ Barbara J. Britenriker
    
    Date: February 25, 2009Barbara J. Britenriker
Chief Financial Officer
(Principal Financial Officer/
Principal Accounting Officer)/s/ Steven A. Everhart
    
    Date: February 25, 2009Steven A. Everhart, Director/s/ Jack C. Johnson
    
    Date: February 25, 2009Jack C. Johnson, Director/s/ Steven J. Planson
    
    Date: February 25, 2009Steven J. Planson, Director/s/ David P. Rupp, Jr
    
    Date: February 25, 2009David P. Rupp, Jr., Director/s/
Kevin J. Sauder
    
    Date: February 25, 2009Kevin J. Sauder, Director/s/ Steven J. Wyse
    
    Date: February 25, 2009Steven J. Wyse, Director
 74