UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K-A
 (Amendment No. 1)
 
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2009
 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
  Name of each exchange onTitle of each class
    
    which registeredNone
    
    None
  
 o þ
 o þ
 þ o
 o o
 þ o
  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
    
    
    4-12Item 1a.
    
    Risk Factors
    
    
    12-14Item 1b.
    
    Unresolved Staff Comments
    
    
    15Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    15Item 4.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    16-18Item 5.
    
    Selected Financial Data
    
    
    18Item 6.
    
    Management Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19-41Item 6a.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41-42Item 7.
    
    Financial Statements and Supplementary Data
    
    
    42-73Item 8.
    
    Disagreements on Accounting and Financial Disclosure
    
    
    73Item 8a.
    
    Controls and Procedures
    
    
    74Item 8b.
    
    Other Information
    
    
    74Item 9.
    
    Directors and Executive Officers of the Registrant
    
    
    75-76Item 10.
    
    Executive Compensation
    
    
    77Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    77Item 12.
    
    Certain Relationships and Related Transactions
    
    
    77Item 13.
    
    Principal Accountant Fees and Services
    
    
    77Item 14.
    
    Exhibits, Financial Schedules and Reports on Form 8-K
    
    
    78-79Signatures & Certifications
    
    
    80-84Total Pages:
    
    
    84
 2




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EXPLANATORY NOTE
 
 
  
 
  
 
 FORWARD LOOKING STATEMENTS
 
 
  
 PART 1.
 ITEM 1. BUSINESS:
 General
  3




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Nature Of Activities
 
  
 
  
 
  
 
  
 
  
 
  
 4




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5




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Consumer Loans
    
    Max LTVCars/Vans/Light TrucksAll yearsPurchases/retail value (fees & tax)
    
    
    110
    %Indirect/retail value (fees & taxes)
    
    
    110
    %Indirect with Add-ons
    
    
    130
    %Vehicles secured /retail value
    
    
    65
    %Boats/Campers/Motorcycles/RVs/Motor Coach< 2 Years
    
    
    90
    %≥ 3 Years
    
    
    80
    %Snowmobiles/Four Wheelers/Jet Skies/MowersNew
    
    
    85
    %Used
    
    
    80
    %1-4 Family Residential PropertiesIn-House
    
    
    90
    %*Rental
    
    
    75
    %**Secondary (See Terms of Secondary Market Program)Home
Equity/Jr. Liens
credit score 720 and higher
    
    
    80
    %Home
Equity
credit score less than 720
    
    
    75
    %Home
Equity/Jr. Liens
(non-F&M priority lien)
    
    
    75
    %Home
Equity/Jr. Liens
(manufactured home/condo)
    
    
    N/ABridge Loan
    
    
    80
    %Construction  The lesser of 80% of fair market value or 90% of hard cost.Raw Land / Lot Improved
    
    
    75
    %Raw Land / Lot Unimproved
    
    
    65
    %Non-Conforming Property
    
    
    N/AJumbo Loan
    
    
    75
    %Refer to Secondary Market GuidelinesState of Michigan Property
    
    
    75
    %State of Michigan Property with PMI
    
    
    90
    %State of Indiana Property
    
    
    80
    %State of Indiana Property with PMI
    
    
    90
    %
 
 
 
 *
    
    PMI Insurance Requiredif LTV Exceeds 80%.**
    
    Not to exceed the lower of cost or
appraisal. 
 6




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Commercial / Agriculture Real EstateCommercial Real Estate
    
    
    80
    %Agriculture Real Estate
    
    
    70
    *Construction  The lesser of 80% of fair market value or 90% of hard cost.Secondary (See Terms of Secondary Market)Single Purpose Real Estate
    
    
    70
    %
 
 
 
 *
    
    On all appraisals completed in 2008. 80% on
appraisals completed prior to 2008. 
 
 Commercial / AgricultureAccounts ReceivableA/R 90 days with aging
    
    up to 80%(Eligible  see procedures for definition)A/R without aging
    
    up to 35%
 
 
 InventoryInventory
    
    up to 50%(Eligible  see procedures for definition)Inventory Raw Material
    
    
    50
    %WIP (Work in Process)
    
    
    0
    %Finished Goods
    
    
    50
    %Stored Grain
    
    
    80
    %Warehouse Receipts of Grain
    
    87% or max. Established by the Reg.Assigned Insured Growing Crops
    
    75% of input costFeeder Livestock (Purchase or Existing)
    
    80% of FMVBreeding Livestock
    
    
    50
    %Floor Plan Used Vehicles
    
    80% of wholesaleFloor Plan New RVs/Campers
    
    80% of wholesaleFloor Plan Manufactured Homes
    
    80% of wholesaleEquipmentNew Equipment
    
    up to 80% of invoiceExisting Equipment
    
    up to 50% of listed equipmentAppraisal of existing
    
    up to 75% of market valueRestaurant / Bar
    
    up to 35% of market valueHeavy Trucks
    
    up to 75% of market valueTitled Trailers
    
    up to 75% of market valueAircraft
    
    up to 75% of appraised fair market value
 
 7




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8




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Supervision and Regulation
 General
   Regulatory Agencies
   Holding Company Activities
   9




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Affiliate Transactions
  Interstate Banking and Branching
  10




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Control Acquisitions
  Liability for Banking Subsidiaries
  Regulatory Capital Requirements
  FDICIA
  Dividend Restrictions
 11




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Deposit Insurance Assessments
   Depositor Preference Statute
  Government Monetary Policy
  Capital Purchase Program
  Additional Regulation
  12




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Future Legislation
  Available Information:
   ITEM
1a. RISK FACTORS
 Significant Competition from an Array of Financial Service Providers
  Credit Risk
  13




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Susceptibility to Changes in Regulation
  Interest Rate Risk
   Attraction and Retention of Key Personnel
  14




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Dividend Payout Restrictions
  15




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Anti-Takeover Provisions
  Operational Risks
  Limited Trading Market
  ITEM 1b. UNRESOLVED STAFF COMMENTS
  ITEM 2. PROPERTIES
     16




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Office
    
    LocationArchbold, Ohio
    
    1313 S Defiance StreetWauseon, Ohio
    
    1130 N Shoop Avenue119 N Fulton StreetStryker, Ohio
    
    300 S Defiance StreetWest Unity, Ohio
    
    200 W Jackson StreetBryan, Ohio
    
    929 E High Street1000 S Main StreetDelta, Ohio
    
    101 Main StreetMontpelier, Ohio
    
    1150 E Main StreetNapoleon, Ohio
    
    2255 Scott StreetSwanton, Ohio
    
    7 Turtle Creek CircleDefiance, Ohio
    
    1175 Hotel DrivePerrysburg, Ohio
    
    7001 Lighthouse WayButler, Indiana
    
    200 S BroadwayAuburn, Indiana
    
    403 Erie PassAngola, Indiana
    
    2310 N Wayne Street
  ITEM 3. LEGAL PROCEEDINGS
  PART II.
 ITEM 4. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   17




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##### 



Stock Prices2009  quarter
    
    Quarter
    
    Low
    
    High1st
    
    $
    17.60
    
    
    $
    20.002nd
    
    
    17.55
    
    
    
    20.503rd
    
    
    19.25
    
    
    
    20.994th
    
    
    15.20
    
    
    
    19.00
 2008  quarter
    
    Quarter
    
    Low
    
    High1st
    
    $
    18.00
    
    
    $
    20.252nd
    
    
    19.05
    
    
    
    22.803rd
    
    
    20.05
    
    
    
    22.254th
    
    
    19.00
    
    
    
    21.35
     
 
  
 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009FMAO
    
    $
    100.00
    
    
    $
    80.00
    
    
    $
    81.65
    
    
    $
    76.40
    
    
    $
    77.90
    
    
    $
    67.60NASDAQ-COMPOSITE
    
    $
    100.00
    
    
    $
    102.09
    
    
    $
    112.64
    
    
    $
    124.61
    
    
    $
    75.02
    
    
    $
    108.82NASDAQ-BANK INDEX
    
    $
    100.00
    
    
    $
    98.02
    
    
    $
    111.40
    
    
    $
    89.54
    
    
    $
    70.55
    
    
    $
    58.97
  18




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##### 



1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    Total2009
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .722008
    
    $
    .16
    
    
    $
    .16
    
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .68
   ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number ofShares PurchasedTotal Number
    
    
    
    
    
    as Part of Publicly
    
    Remaining Shareof Shares
    
    Average Price
    
    Announced
    
    RepurchasePeriod
    
    Purchased
    
    Paid per Share
    
    Programs
    
    Authorization10/1/2009 to
10/31/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,09311/1/2009 to
11/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,09312/1/2009 to
12/31/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,093Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,093
 
 (1)
    
    On January 16, 2009, the Company announced the authorization by its Board of
Directors for the Companys repurchase, either on the open market, or in privately
negotiated transactions, of up to 225,000 shares of its outstanding common stock
commencing on January 16, 2009 and ending December 31, 2009. 19




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##### 



Reclassification
  ITEM 5. SELECTED FINANCIAL DATA
 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
 Summary of Consolidated Statement of Income  UNAUDITED
 (In Thousands, except share data)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Summary of Income:Interest income
    
    $
    41,114
    
    
    $
    43,824
    
    
    $
    45,424
    
    
    $
    42,269
    
    
    $
    38,101Interest expense
    
    
    13,220
    
    
    
    18,101
    
    
    
    21,722
    
    
    
    18,535
    
    
    
    13,539Net Interest Income
    
    
    27,894
    
    
    
    25,723
    
    
    
    23,702
    
    
    
    23,734
    
    
    
    24,562Provision for loan loss
    
    
    3,558
    
    
    
    1,787
    
    
    
    871
    
    
    
    525
    
    
    
    (425
    )Net interest income after
provision for loan loss
    
    
    24,336
    
    
    
    23,936
    
    
    
    22,831
    
    
    
    23,209
    
    
    
    24,987Other income (expense), net
    
    
    (15,256
    )
    
    
    (14,763
    )
    
    
    (12,269
    )
    
    
    (11,966
    )
    
    
    (13,209
    )Net income before
income taxes
    
    
    9,080
    
    
    
    9,173
    
    
    
    10,562
    
    
    
    11,243
    
    
    
    11,778Income taxes
    
    
    2,475
    
    
    
    2,450
    
    
    
    2,828
    
    
    
    3,107
    
    
    
    3,202Net income
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734
    
    
    $
    8,136
    
    
    $
    8,576Per Share of Common Stock:Earnings per common share outstanding *Net income
    
    $
    1.39
    
    
    $
    1.39
    
    
    $
    1.52
    
    
    $
    1.57
    
    
    $
    1.65Dividends
    
    $
    0.720
    
    
    $
    0.680
    
    
    $
    0.640
    
    
    $
    0.575
    
    
    $
    0.500Weighted average number
of shares outstanding
    
    
    4,741,392
    
    
    
    4,846,310
    
    
    
    5,097,636
    
    
    
    5,186,329
    
    
    
    5,198,728
 
 *
    
    Based on weighted average number of shares outstanding Summary of Consolidated Balance Sheet  UNAUDITED
 (In Thousands)2009
    
    2008
    
    2007
    
    2006
    
    2005Total assets
    
    $
    853,860
    
    
    $
    805,729
    
    
    $
    803,974
    
    
    $
    737,096
    
    
    $
    720,945Loans
    
    
    563,911
    
    
    
    562,336
    
    
    
    523,474
    
    
    
    498,580
    
    
    
    458,704Total Deposits
    
    
    676,444
    
    
    
    615,732
    
    
    
    634,593
    
    
    
    585,409
    
    
    
    576,297Stockholders equity
    
    
    93,584
    
    
    
    90,547
    
    
    
    89,375
    
    
    
    87,732
    
    
    
    82,588Key RatiosReturn on average equity
    
    
    7.19
    %
    
    
    7.51
    %
    
    
    8.71
    %
    
    
    9.64
    %
    
    
    10.62
    %Return on average assets
    
    
    0.80
    %
    
    
    0.84
    %
    
    
    1.06
    %
    
    
    1.14
    %
    
    
    1.22
    %Loans to deposits
    
    
    83.36
    %
    
    
    91.33
    %
    
    
    82.49
    %
    
    
    85.17
    %
    
    
    79.65
    %Capital to assets
    
    
    10.96
    %
    
    
    11.24
    %
    
    
    11.12
    %
    
    
    11.90
    %
    
    
    11.46
    %Dividend payout
    
    
    51.66
    %
    
    
    48.77
    %
    
    
    42.00
    %
    
    
    36.63
    %
    
    
    30.31
    %
 20




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Critical Accounting Policy and Estimates
      21




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2009 in Review
   
  
 22




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Material Changes in Results of Operations
    23




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24




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##### 



December 31,
    
    
    December 31,(In Thousands)
    
    2009
    
    
    2008Beginning Balance, January 1
    
    $
    1,970
    
    
    $
    1,893Capitalized Additions
    
    
    1,158
    
    
    
    447Amortizations
    
    
    (933
    )
    
    
    (370
    )Valuation Allowance
    
    
    0
    
    
    
    0Ending Balance, December 31, 2009
    
    $
    2,195
    
    
    $
    1,970
 
    25




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Net Interest Income
  26




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27




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##### 



2009(In Thousands)Average
    
    
    Interest/Balance
    
    
    Dividends
    
    
    Yield/RateASSETSInterest Earning Assets:Loans (1)
    
    $
    558,869
    
    
    $
    33,585
    
    
    
    6.04
    %Taxable investment securities
    
    
    146,872
    
    
    
    5,798
    
    
    
    3.95
    %Tax exempt investment securities
    
    
    46,736
    
    
    
    1,686
    
    
    
    5.47
    %Interest bearing deposits
    
    
    
    
    
    
    
    
    
    
    0.00
    %Federal funds sold
    
    
    11,937
    
    
    
    45
    
    
    
    0.38
    %Total Interest Earning Assets
    
    
    764,414
    
    
    $
    41,114
    
    
    
    5.52
    %Non-Interest Earning Assets:Cash and cash equivalents
    
    
    19,209Other assets
    
    
    39,007Total Assets
    
    $
    822,630LIABILITIES AND SHAREHOLDERS EQUITYInterest Bearing Liabilities:Savings deposits
    
    $
    257,345
    
    
    $
    1,755
    
    
    
    0.68
    %Other time deposits
    
    
    317,619
    
    
    
    9,252
    
    
    
    2.91
    %Other borrowed money
    
    
    38,498
    
    
    
    1,727
    
    
    
    4.49
    %Federal funds purchased and securities
sold under agreement to repurchase
    
    
    45,920
    
    
    
    486
    
    
    
    1.06
    %Total Interest Bearing Liabilities
    
    
    659,382
    
    
    $
    13,220
    
    
    
    2.00
    %Non-Interest Bearing Liabilities:Non-interest bearing demand deposits
    
    
    57,630Other
    
    
    13,778Total Liabilities
    
    
    730,790Shareholders Equity
    
    
    91,840Total Liabilities and
Shareholders Equity
    
    $
    822,630Interest/Dividend income/yield
    
    
    
    
    
    $
    41,114
    
    
    
    5.52
    %Interest Expense / yield
    
    
    
    
    
    
    13,220
    
    
    
    2.00
    %Net Interest Spread
    
    
    
    
    
    $
    27,894
    
    
    
    3.51
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    3.79
    %
 28




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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
    %
 29




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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
    %
 
 (1)
    
    For purposes of these computations, non-accruing loans are included in the daily average
outstanding loan amounts. 30




---



##### 



2009 vs 2008(In Thousands)Net
    
    
    Due to Change inChange
    
    
    Volume
    
    
    RateInterest Earned On:Loans
    
    $
    (1,409
    )
    
    $
    941
    
    
    $
    (2,350
    )Taxable investment securities
    
    
    (1,165
    )
    
    
    
    
    
    
    (1,165
    )Tax-exempt investment securities
    
    
    92
    
    
    
    249
    
    
    
    (157
    )Interest bearing deposits
    
    
    
    
    
    
    
    
    
    
    Federal funds sold
    
    
    (228
    )
    
    
    73
    
    
    
    (301
    )Total Interest Earning Assets
    
    $
    (2,710
    )
    
    $
    1,263
    
    
    $
    (3,973
    )Interest Paid On:Savings deposits
    
    $
    (1,005
    )
    
    $
    189
    
    
    $
    (1,194
    )Other time deposits
    
    
    (3,215
    )
    
    
    143
    
    
    
    (3,358
    )Other borrowed money
    
    
    (20
    )
    
    
    18
    
    
    
    (38
    )Federal funds purchased and
securties sold under agreement to
repurchase
    
    
    (641
    )
    
    
    (71
    )
    
    
    (570
    )Total Interest Bearing Liabilities
    
    $
    (4,881
    )
    
    $
    279
    
    
    $
    (5,160
    )
 2008 vs 2007(In Thousands)Net
    
    
    Due to Change inChange
    
    
    Volume
    
    
    RateInterest Earned On:Loans
    
    $
    (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 and
securties sold under agreement to
repurchase
    
    
    (876
    )
    
    
    360
    
    
    
    (1,236
    )Total Interest Bearing Liabilities
    
    $
    (3,621
    )
    
    $
    1,862
    
    
    $
    (5,483
    )
 31




---



##### 



Allowance for Credit Losses
  
  
 
  
 
  
 32




---



##### 



Non-interest Income
  Non-interest Expense
   Federal Income Taxes
  Financial Condition
 33




---



##### 



Securities
 
  
 
  
  (In Thousands)2009
    
    
    2008
    
    
    2007U.S. Treasury
    
    $
    5,219
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    104,676
    
    
    
    82,675
    
    
    
    104,737Mortgage-backed securities
    
    
    36,848
    
    
    
    51,826
    
    
    
    39,367State and local governments
    
    
    60,538
    
    
    
    43,160
    
    
    
    41,467$
    207,281
    
    
    $
    177,661
    
    
    $
    185,571
  Maturities(Amounts in Thousands)After One YearWithin One Year
    
    Within Five YearsAmount
    
    Yield
    
    Amount
    
    YieldU.S. Treasury
    
    $
    
    
    
    
    0.00
    %
    
    $
    5,219
    
    
    
    1.26
    %U.S. Government agency
    
    
    31,037
    
    
    
    2.90
    %
    
    
    63,947
    
    
    
    3.05
    %Mortgage-backed securities
    
    
    4,846
    
    
    
    3.77
    %
    
    
    32,002
    
    
    
    4.91
    %State and local governments
    
    
    15,095
    
    
    
    3.93
    %
    
    
    18,578
    
    
    
    3.40
    %Taxable state and local governments
    
    
    
    
    
    
    0.00
    %
    
    
    2,089
    
    
    
    3.50
    %
 34




---



##### 



Maturities(Amounts in Thousands)After Five YearsWithin Ten Years
    
    After Ten YearsAmount
    
    Yield
    
    Amount
    
    YieldU.S. Treasury
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %U.S. Government agency
    
    
    9,692
    
    
    
    5.33
    %
    
    
    
    
    
    
    0.00
    %Mortgage-backed securities
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %State and local governments
    
    
    22,281
    
    
    
    3.67
    %
    
    
    2,495
    
    
    
    3.78
    %Taxable state and local governments
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
  Loan Portfolio
  
  
 st
 (In Thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Loans:Commercial Real Estate
    
    $
    214,849
    
    
    $
    226,761
    
    
    $
    181,340
    
    
    $
    162,363
    
    
    $
    113,283Agricultural Real Estate
    
    
    41,045
    
    
    
    48,607
    
    
    
    45,518
    
    
    
    49,564
    
    
    
    50,777Consumer Real Estate
    
    
    98,599
    
    
    
    89,773
    
    
    
    102,660
    
    
    
    86,688
    
    
    
    115,831Commercial/industrial
    
    
    120,543
    
    
    
    112,526
    
    
    
    104,188
    
    
    
    101,788
    
    
    
    81,893Agricultural
    
    
    59,813
    
    
    
    56,322
    
    
    
    58,809
    
    
    
    69,301
    
    
    
    61,502Consumer
    
    
    32,581
    
    
    
    26,469
    
    
    
    27,796
    
    
    
    27,388
    
    
    
    31,935Industrial Development Bonds
    
    
    2,552
    
    
    
    7,572
    
    
    
    9,289
    
    
    
    7,335
    
    
    
    9,237Total Loans
    
    $
    569,982
    
    
    $
    568,030
    
    
    $
    529,600
    
    
    $
    504,427
    
    
    $
    464,458
  35




---



##### 



Maturities (In Thousands)After OneWithin
    
    Year Within
    
    AfterOne Year
    
    Five Years
    
    Five Years
    
    TotalCommercial Real Estate
    
    $
    12,811
    
    
    $
    157,856
    
    
    $
    44,182
    
    
    $
    214,849Agricultural Real Estate
    
    
    1,410
    
    
    
    14,450
    
    
    
    25,185
    
    
    $
    41,045Consumer Real Estate
    
    
    8,035
    
    
    
    23,915
    
    
    
    66,649
    
    
    $
    98,599Commercial and Industrial Loans
    
    
    78,939
    
    
    
    32,898
    
    
    
    8,706
    
    
    $
    120,543Agricultural
    
    
    43,253
    
    
    
    13,861
    
    
    
    2,699
    
    
    $
    59,813Consumer, Master Card and Overdrafts
    
    
    5,882
    
    
    
    19,741
    
    
    
    6,958
    
    
    $
    32,581Industrial Development Bonds
    
    
    862
    
    
    
    639
    
    
    
    1,051
    
    
    $
    2,552
  (In Thousands)Fixed
    
    VariableRate
    
    RateCommercial Real Estate
    
    $
    26,398
    
    
    $
    175,640Agricultural Real Estate
    
    
    4,337
    
    
    
    35,298Consumer Real Estate
    
    
    20,069
    
    
    
    70,495Commercial and Industrial
    
    
    15,924
    
    
    
    25,680Agricultural
    
    
    9,508
    
    
    
    7,052Consumer, Overdrafts and other loans
    
    
    26,696
    
    
    
    3Industrial Development Bonds
    
    
    1,690
    
    
    
    
  (In Thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Non-accrual loans
    
    $
    14,054
    
    
    $
    13,575
    
    
    $
    4,918
    
    
    $
    4,254
    
    
    $
    4,663Accruing loans past due
90 days or more
    
    
    69
    
    
    
    2,524
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,123
    
    
    $
    16,099
    
    
    $
    4,918
    
    
    $
    4,254
    
    
    $
    4,663
   36




---



##### 



37




---



##### 



38




---



##### 



(In Thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Loans
    
    $
    569,982
    
    
    $
    568,030
    
    
    $
    529,600
    
    
    $
    504,427
    
    
    $
    464,488Daily average of outstanding loans
    
    $
    559,261
    
    
    $
    544,859
    
    
    $
    503,296
    
    
    $
    484,663
    
    
    $
    469,326Allowance for Loan Losses-Jan 1
    
    $
    5,496
    
    
    $
    5,922
    
    
    $
    5,594
    
    
    $
    5,388
    
    
    $
    6,814Loans Charged off:Commercial Real Estate
    
    
    
    
    
    
    
    
    
    
    376
    
    
    
    214
    
    
    
    82
 
 39




---



##### 



(In Thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Ag Real Estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer Real Estate
    
    
    452
    
    
    
    194
    
    
    
    252
    
    
    
    167
    
    
    
    347Commercial and Industrial
    
    
    2,235
    
    
    
    71
    
    
    
    538
    
    
    
    282
    
    
    
    933Agricultural
    
    
    230
    
    
    
    1,912
    
    
    
    42
    
    
    
    
    
    
    
    12Consumer & other loans
    
    
    371
    
    
    
    384
    
    
    
    368
    
    
    
    322
    
    
    
    7223,288
    
    
    
    2,561
    
    
    
    1,576
    
    
    
    983
    
    
    
    2,096Loan Recoveries:Commercial Real Estate
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    2
    
    
    
    Ag Real Estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    20Consumer Real Estate
    
    
    11
    
    
    
    87
    
    
    
    5
    
    
    
    24
    
    
    
    52Commercial and Industrial
    
    
    72
    
    
    
    78
    
    
    
    359
    
    
    
    
    
    
    
    580Agricultural
    
    
    6
    
    
    
    4
    
    
    
    103
    
    
    
    74
    
    
    
    31Consumer & other loans
    
    
    153
    
    
    
    179
    
    
    
    240
    
    
    
    352
    
    
    
    412242
    
    
    
    348
    
    
    
    732
    
    
    
    666
    
    
    
    1,095Net Charge Offs
    
    
    3,047
    
    
    
    2,213
    
    
    
    844
    
    
    
    319
    
    
    
    1,001Provision for loan loss
    
    
    3,558
    
    
    
    1,787
    
    
    
    871
    
    
    
    525
    
    
    
    (425
    )Acquisition provision for loan loss
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    
    
    
    
    Allowance for Loan & Lease Losses  Dec 31
    
    $
    6,008
    
    
    $
    5,496
    
    
    $
    5,922
    
    
    $
    5,594
    
    
    $
    5,388Allowance for Unfunded Loan Commitments
& Letters of Credit Dec 31
    
    $
    227
    
    
    $
    226
    
    
    $
    156
    
    
    $
    168
    
    
    $
    841Total Allowance for Credit Losses  Dec 31
    
    $
    6,235
    
    
    $
    5,722
    
    
    $
    6,078
    
    
    $
    5,762
    
    
    $
    6,229Ratio of net charge-offs to average
Loans outstanding
    
    
    0.54
    %
    
    
    0.41
    %
    
    
    0.17
    %
    
    
    0.07
    %
    
    
    0.21
    %Ratio of the Allowance for Loan Loss to
Nonperforming Loans*
    
    
    42.75
    %
    
    
    40.48
    %
    
    
    106.44
    %
    
    
    N/A
    
    
    
    N/A
 
 
 
 *
    
    Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days
not on nonaccrual. 
 40




---



##### 



2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005Amount
    
    
    
    
    
    
    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
    
    
    
    37.69
    %
    
    $
    1,810
    
    
    
    39.92
    %
    
    $
    1,358
    
    
    
    34.24
    %
    
    $
    1,221
    
    
    
    32.19
    %
    
    $
    756
    
    
    
    24.39
    %Agricultural Real Estate
    
    
    120
    
    
    
    7.20
    %
    
    
    130
    
    
    
    8.56
    %
    
    
    117
    
    
    
    8.60
    %
    
    
    162
    
    
    
    9.82
    %
    
    
    88
    
    
    
    10.93
    %Consumer Real Estate
    
    
    439
    
    
    
    17.30
    %
    
    
    386
    
    
    
    15.80
    %
    
    
    381
    
    
    
    19.39
    %
    
    
    288
    
    
    
    17.19
    %
    
    
    719
    
    
    
    24.95
    %Commercial & Industrial
    
    
    2,494
    
    
    
    21.14
    %
    
    
    2,278
    
    
    
    19.81
    %
    
    
    1,859
    
    
    
    19.67
    %
    
    
    2,721
    
    
    
    20.18
    %
    
    
    2,246
    
    
    
    17.63
    %Agricultural
    
    
    647
    
    
    
    10.49
    %
    
    
    413
    
    
    
    9.92
    %
    
    
    1,676
    
    
    
    11.10
    %
    
    
    250
    
    
    
    13.74
    %
    
    
    275
    
    
    
    13.24
    %Consumer, Overdrafts and other loans
    
    
    498
    
    
    
    5.72
    %
    
    
    479
    
    
    
    5.99
    %
    
    
    531
    
    
    
    7.00
    %
    
    
    634
    
    
    
    6.88
    %
    
    
    526
    
    
    
    8.86
    %Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    778Allowance for Loan & Lease Losses
    
    $
    6,008
    
    
    
    100.00
    %
    
    $
    5,496
    
    
    
    100.00
    %
    
    $
    5,922
    
    
    
    100.00
    %
    
    $
    5,594
    
    
    
    100.00
    %
    
    $
    5,388
    
    
    
    100.00
    %Off Balance Sheet Commitments
    
    $
    227
    
    
    
    
    
    
    $
    226
    
    
    
    
    
    
    $
    156
    
    
    
    
    
    
    $
    168
    
    
    
    
    
    
    $
    841Total Allowance for Credit Losses
    
    $
    6,235
    
    
    
    
    
    
    $
    5,722
    
    
    
    
    
    
    $
    6,078
    
    
    
    
    
    
    $
    5,762
    
    
    
    
    
    
    $
    6,229
 Deposits
  (In Thousands)Over Three
    
    Over SixMonths
    
    Months Less
    
    OverUnder
    
    Less than
    
    Than One
    
    OneThree Months
    
    Six Months
    
    Year
    
    YearTime Deposits
    
    $
    28,631
    
    
    $
    22,205
    
    
    $
    31,901
    
    
    $
    31,922
  (In Thousands)Non-Interest
    
    
    Interest
    
    
    Savings
    
    
    TimeDDAs
    
    
    DDAs
    
    
    Accounts
    
    
    AccountsDecember 31, 2009:Average balance
    
    $
    55,793
    
    
    $
    145,259
    
    
    $
    112,086
    
    
    $
    317,619Average rate
    
    
    0.00
    %
    
    
    1.02
    %
    
    
    0.24
    %
    
    
    2.91
    %December 31, 2008:Average balance
    
    $
    52,152
    
    
    $
    130,887
    
    
    $
    109,993
    
    
    $
    314,005Average rate
    
    
    0.00
    %
    
    
    1.46
    %
    
    
    0.77
    %
    
    
    3.97
    %December 31, 2007:Average balance
    
    $
    44,331
    
    
    $
    84,674
    
    
    $
    108,864
    
    
    $
    312,515Average rate
    
    
    0.00
    %
    
    
    2.30
    %
    
    
    1.87
    %
    
    
    4.58
    %
 Liquidity
 
  
 41




---



##### 



Daily 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 Period2009
    
    $
    33,457
    
    
    
    0.42
    %
    
    $
    40,530
    
    
    $
    37,696
    
    
    
    0.48
    %2008
    
    $
    40,014
    
    
    
    0.50
    %
    
    $
    47,644
    
    
    $
    40,113
    
    
    
    1.96
    %2007
    
    $
    35,059
    
    
    
    3.72
    %
    
    $
    39,205
    
    
    $
    31,513
    
    
    
    4.64
    %
  42




---



##### 



Asset/Liability Management
    Impact of Inflation And Changing Prices
  Contractual Obligations
  43




---



##### 



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
    
    $
    43,257
    
    
    $
    43,257Time Deposits
    
    
    326,957
    
    
    
    221,435
    
    
    
    89,100
    
    
    
    14,977
    
    
    
    1,445Dividends Payable
    
    
    853
    
    
    
    853Long Term Debt
    
    
    34,199
    
    
    
    13,325
    
    
    
    18,274
    
    
    
    2,600Total
    
    $
    405,266
    
    
    $
    278,870
    
    
    $
    107,374
    
    
    $
    17,577
    
    
    $
    1,445
 Capital Resources
    
 ITEM 6a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Market Risk
 
  
  44




---



##### 



Interest Rate Shock on
    
    
    
    
    
    Interest Rate Shock onNet Interest Margin
    
    
    
    
    
    Net Interest IncomeNet Interest
    
    % Change
    
    Rate
    
    Rate
    
    Cumulative
    
    % ChangeMargin (Ratio)
    
    to Flat Rate
    
    Direction
    
    changes by
    
    Total ($000)
    
    to Flat Rate2.77%
    
    
    -10.98
    %
    
    Rising
    
    
    3.00
    %
    
    
    23,220
    
    
    
    -10.43
    %2.88%
    
    
    -7.27
    %
    
    Rising
    
    
    2.00
    %
    
    
    24,127
    
    
    
    -6.93
    %2.99%
    
    
    -3.61
    %
    
    Rising
    
    
    1.00
    %
    
    
    25,028
    
    
    
    -3.46
    %3.11%
    
    
    0.00
    %
    
    Flat
    
    
    0
    
    
    
    25,924
    
    
    
    0.00
    %3.20%
    
    
    3.12
    %
    
    Falling
    
    
    -1.00
    %
    
    
    26,874
    
    
    
    3.66
    %3.27%
    
    
    5.42
    %
    
    Falling
    
    
    -2.00
    %
    
    
    27,487
    
    
    
    6.03
    %3.32%
    
    
    7.02
    %
    
    Falling
    
    
    -3.00
    %
    
    
    27,977
    
    
    
    7.92
    %
  ITEM 7. FINANCIAL STATEMENTS
 Index To Consolidated Financial Statements
  45




---



##### 



46




---



##### 



Report of Independent Registered Public Accounting Firm
 
    47




---



##### 



/s/ Plante & Moran, PLLCPlante & Moran, PLLC 
 48




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Balance Sheet
December 31, 2009 and 2008
(000s Omitted, Except Per Share Data)
 2009
    
    
    2008AssetsAssetsCash and due from banks (Note 1)
    
    $
    28,691
    
    
    $
    19,148Federal Funds Sold
    
    
    4,957
    
    
    
    1,739Total cash and cash equivalents
    
    
    33,648
    
    
    
    20,887Securities  available for sale (Note 3)
    
    
    207,281
    
    
    
    177,661Other Securities, at cost (Note 3)
    
    
    4,448
    
    
    
    4,498Loans, net (Note 4)
    
    
    563,911
    
    
    
    562,336Premises and equipment (Note 5)
    
    
    16,053
    
    
    
    16,806Goodwill (Note 2)
    
    
    4,074
    
    
    
    4,074Other assets (Note 2 & 6)
    
    
    24,445
    
    
    
    19,467Total Assets
    
    $
    853,860
    
    
    $
    805,729Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    65,302
    
    
    $
    62,582Interest-bearingNOW accounts
    
    
    160,432
    
    
    
    136,760Savings
    
    
    123,753
    
    
    
    122,482Time (Note 7)
    
    
    326,957
    
    
    
    293,908Total deposits
    
    
    676,444
    
    
    
    615,732Securities sold under agreement to repurchase (Note 8)
    
    
    43,257
    
    
    
    48,214FHLB Advances (Note 9)
    
    
    34,199
    
    
    
    45,635Dividend payable
    
    
    853
    
    
    
    857Accrued expenses and other liabilities (Note 10)
    
    
    5,523
    
    
    
    4,744Total liabilities
    
    
    760,276
    
    
    
    715,182Stockholders 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  437,551 Shares 2009, 418,294 Shares 2008
    
    
    (9,082
    )
    
    
    (8,727
    )Unearned Stock Awards  27,775 Shares 2009, 23,575 Shares 2008
    
    
    (573
    )
    
    
    (503
    )Retained earnings
    
    
    88,048
    
    
    
    84,864Accumulated other comprehensive income
    
    
    2,514
    
    
    
    2,236Total stockholders equity
    
    
    93,584
    
    
    
    90,547Total Liabilities and Stockholders Equity
    
    $
    853,860
    
    
    $
    805,729
  49




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Statement of Income
Years Ended December 31, 2009, 2008 and 2007
(000s Omitted, Except Per Share Data)
 2009
    
    
    2008
    
    
    2007Interest IncomeLoans, including fees
    
    $
    33,585
    
    
    $
    34,994
    
    
    $
    37,429Debt securities:U.S. Treasury and government agency
    
    
    5,496
    
    
    
    6,634
    
    
    
    5,813Municipalities
    
    
    1,788
    
    
    
    1,697
    
    
    
    1,635Dividends
    
    
    200
    
    
    
    226
    
    
    
    266Federal funds sold
    
    
    19
    
    
    
    273
    
    
    
    264Other
    
    
    26
    
    
    
    
    
    
    
    17Total interest income
    
    
    41,114
    
    
    
    43,824
    
    
    
    45,424Interest ExpenseDeposits
    
    
    11,007
    
    
    
    15,227
    
    
    
    18,402Federal funds purchased and securities sold
under agreements to repurchase
    
    
    486
    
    
    
    1,127
    
    
    
    2,003Borrowed funds
    
    
    1,727
    
    
    
    1,747
    
    
    
    1,317Total interest expense
    
    
    13,220
    
    
    
    18,101
    
    
    
    21,722Net Interest Income Before provision for loan losses
    
    
    27,894
    
    
    
    25,723
    
    
    
    23,702Provision for Loan Losses(Note 4)
    
    
    3,558
    
    
    
    1,787
    
    
    
    871Net Interest Income After Provision For Loan Losses
    
    
    24,336
    
    
    
    23,936
    
    
    
    22,831Noninterest IncomeCustomer service fees
    
    
    3,276
    
    
    
    3,436
    
    
    
    3,201Other service charges and fees
    
    
    2,541
    
    
    
    2,322
    
    
    
    2,569Net gain on sale of loans
    
    
    1,776
    
    
    
    708
    
    
    
    617Net gain on sale of securities
    
    
    230
    
    
    
    15
    
    
    
    Total noninterest income
    
    
    7,823
    
    
    
    6,481
    
    
    
    6,387Noninterest ExpensesSalaries and Wages
    
    
    8,601
    
    
    
    8,715
    
    
    
    8,084Employee benefits (Note 11)
    
    
    3,018
    
    
    
    3,018
    
    
    
    2,804Occupancy expense
    
    
    1,113
    
    
    
    1,029
    
    
    
    564Furniture and equipment
    
    
    1,504
    
    
    
    1,443
    
    
    
    1,321Data processing
    
    
    1,136
    
    
    
    1,234
    
    
    
    1,019Franchise taxes
    
    
    914
    
    
    
    863
    
    
    
    873FDIC Assessment
    
    
    1,306
    
    
    
    151
    
    
    
    67Mortgage servicing rights amortization (Note 6)
    
    
    933
    
    
    
    370
    
    
    
    257Other general and administrative
    
    
    4,554
    
    
    
    4,421
    
    
    
    3,667Total other operating expenses
    
    
    23,079
    
    
    
    21,244
    
    
    
    18,656Income Before Income Taxes
    
    
    9,080
    
    
    
    9,173
    
    
    
    10,562Income Taxes (Note 10)
    
    
    2,475
    
    
    
    2,450
    
    
    
    2,828Net Income
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734Earnings Per Share  Basic and Diluted
    
    $
    1.39
    
    
    $
    1.39
    
    
    $
    1.52Weighted Average Shares Outstanding
    
    
    4,741,392
    
    
    
    4,846,310
    
    
    
    5,097,636
  50




---



##### 



Farmers & Merchants Bancorp, Inc. and Subsidiaries
 Consolidated
Statement of Changes in Shareholders Equity
For the Years Ended December 31, 2009, 2008, and 2007
(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, 2007
    
    
    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
sale, net of reclassification adjustment
and tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,356
    
    
    
    1,356Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,079Purchase of Treasury Stock
    
    
    (171,889
    )
    
    
    
    
    
    
    (3,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,576
    )Shares issued for vested
stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Grant of Restricted Stock Awards-10,000
shares
(Net of Forfeiture  245)
    
    
    9,755
    
    
    
    
    
    
    
    215
    
    
    
    (210
    )
    
    
    
    
    
    
    
    
    
    
    5Cash dividends declared 
$0.68 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,282
    )
    
    
    
    
    
    
    (3,282
    )Balance December 31, 2008
    
    
    4,781,706
    
    
    $
    12,677
    
    
    $
    (8,727
    )
    
    $
    (503
    )
    
    $
    84,864
    
    
    $
    2,236
    
    
    $
    90,547Comprehensive income (Note 1):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,605
    
    
    
    
    
    
    
    6,605Change in net unrealized gain
on securities
sale, net of reclassification adjustment
and tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278
    
    
    
    278Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,883Purchase of Treasury Stock
    
    
    (28,907
    )
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555
    )Shares issued for vested
stock awardsGrant of Restricted Stock Awards-10,000
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    (8
    )
    
    
    
    
    
    
    115(Net of Forfeiture  350)
    
    
    9,650
    
    
    
    
    
    
    
    200
    
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    7Cash dividends declared 
$0.72 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,413
    )
    
    
    
    
    
    
    (3,413
    )Balance December 31, 2009
    
    
    4,762,449
    
    
    $
    12,677
    
    
    $
    (9,082
    )
    
    $
    (573
    )
    
    $
    88,048
    
    
    $
    2,514
    
    
    $
    93,584
  51




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Consolidated Statement of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
(000s Omitted)
 2009
    
    
    2008
    
    
    2007Cash Flows from Operating ActivitiesNet income
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734Adjustments to reconcile net income to net cash
from operating activities:Depreciation
    
    
    1,171
    
    
    
    1,132
    
    
    
    1,059Amortization of servicing rights
    
    
    933
    
    
    
    370
    
    
    
    257Amortization of Core Deposit Intangible
    
    
    157
    
    
    
    157
    
    
    
    Provision for loan loss
    
    
    3,558
    
    
    
    1,787
    
    
    
    871Accretion and amortization of securities
    
    
    809
    
    
    
    300
    
    
    
    131Deferred income taxes (benefit)
    
    
    142
    
    
    
    (39
    )
    
    
    (170
    )(Gain) loss on sale of other assets
    
    
    75
    
    
    
    194
    
    
    
    4Realized (gain) loss on sales of securities, net
    
    
    (230
    )
    
    
    (15
    )
    
    
    Change in other assets and other liabilities, net
    
    
    (6,026
    )
    
    
    (1,943
    )
    
    
    (1,343
    )Net cash provided by operating activities
    
    
    7,194
    
    
    
    8,666
    
    
    
    8,543Cash Flows from Investing ActivitiesActivity in securities:Sales
    
    
    16,333
    
    
    
    25
    
    
    
    215Maturities, prepayments and calls
    
    
    78,292
    
    
    
    75,084
    
    
    
    80,876Purchases
    
    
    (124,354
    )
    
    
    (65,580
    )
    
    
    (95,804
    )Loan and lease originations and principal collections, net
    
    
    (5,133
    )
    
    
    (41,266
    )
    
    
    6,620Proceeds from sales of assets
    
    
    494
    
    
    
    1,102
    
    
    
    Additions to premises and equipment
    
    
    (412
    )
    
    
    (1,081
    )
    
    
    (2,675
    )Purchase of Bank Owned Life Insurance
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Net cash paid for acquisition
    
    
    
    
    
    
    
    
    
    
    (2,400
    )Net cash used in investing activities
    
    
    (34,780
    )
    
    
    (31,716
    )
    
    
    (16,168
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    60,712
    
    
    
    (18,861
    )
    
    
    12,108Net change in federal funds purchased and securities
sold under agreements to repurchase
    
    
    (4,957
    )
    
    
    6,885
    
    
    
    6,511Proceeds from issuance of long-term debt
    
    
    
    
    
    
    19,600
    
    
    
    15,000Repayment of long-term debt
    
    
    (11,436
    )
    
    
    (5,781
    )
    
    
    (6,417
    )Purchase of Treasury Stock
    
    
    (555
    )
    
    
    (3,576
    )
    
    
    (4,710
    )Cash dividends paid on common stock
    
    
    (3,417
    )
    
    
    (3,217
    )
    
    
    (3,227
    )Net cash provided (used) by financing activities
    
    
    40,347
    
    
    
    (4,950
    )
    
    
    19,265Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    12,761
    
    
    
    (28,000
    )
    
    
    11,640Cash and
Cash Equivalents Beginning of Year
    
    
    20,887
    
    
    
    48,887
    
    
    
    37,247Cash and
Cash Equivalents End of Year
    
    $
    33,648
    
    
    $
    20,887
    
    
    $
    48,887Supplemental InformationCash paid during the year for:Interest
    
    $
    13,275
    
    
    $
    18,756
    
    
    $
    21,721Income taxes
    
    $
    2,725
    
    
    $
    2,445
    
    
    $
    3,120
  52




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 1  Summary of Significant Accounting Policies
 Nature of Operations
 The Farmers & Merchants Bancorp, Inc. (the Company) through its bank subsidiary, The
Farmers & Merchants State Bank (the Bank) provides a variety of financial services to
individuals and small businesses through its offices in Northwest Ohio and Northeast
Indiana.
 Consolidation Policy
 The consolidated financial statements include the accounts of Farmers & Merchants
Bancorp, Inc. and its wholly-owned subsidiaries, The Farmers & Merchants State Bank (the
Bank), a commercial banking institution, and the Farmers & Merchants Life Insurance
Company, a reinsurance company for life, accident and health insurance for the Banks
consumer credits. The Farmers & Merchants Life Insurance Company was dissolved during
2007 with the Bank no longer offering the insurance product to its non-residential real
estate consumers. The Bank continues to offer credit insurance related products to our
residential real estate customers; however, it is through an unrelated third party
vendor. All significant inter-company balances and transactions have been eliminated.
 Use of Estimates
 The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Material estimates
that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of mortgage servicing
rights. Actual results could differ from those estimates.
 The determination of the adequacy of the allowance for loan losses is based on estimates
that are particularly susceptible to significant changes in the economic environment and
market conditions. In connection with the determination of the estimated losses on
loans, management obtains independent appraisals for significant collateral.
 The Banks loans are generally secured by specific items of collateral including real
property, consumer assets, and business assets. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors ability to honor their contracts is
dependent on local economic conditions in the agricultural industry.
 While management uses available information to recognize losses on loans, further
reductions in the carrying amounts of loans may be necessary based on changes in local
economic conditions. In addition regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans. Such agencies
may require the Bank to recognize additional losses based on their judgments about
information available to them at the time of their examination. Because of
these factors, it is reasonably possible that the estimated losses on loans may change
materially in the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
 Cash and Cash Equivalents
 For purposes of the consolidated statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. This includes cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds are purchased and sold for one day periods.
 53




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 1  Summary of Significant Accounting Policies (Continued)
 Restrictions on Cash and Amounts Due from Banks
 The Bank is required to maintain average balances on hand with the Federal Reserve Bank.
The aggregate reserve was $4.0 million for December 31, 2009 and it was $3.0 million for
December 31, 2008.
 The Company and its subsidiaries maintain cash balances with high quality credit
institutions. At times such balances may be in excess of the federally insured limits.
 Securities
 Debt securities are classified as available-for-sale. Securities available-for-sale are
carried at fair value with unrealized gains and losses reported in other comprehensive
income. Realized gains and losses on securities available for sale are included in other
income (expense) and, when applicable, are reported as a reclassification adjustment, net
of tax, in other comprehensive income. Gains and losses on sales of securities are
determined on the specific-identification method.
 Declines in the fair value of securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial condition
and near-term prospects of the issuer, and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. The related write-downs are included in earnings as
realized losses.
 Other Securities
 Other Securities consists of Federal Home Loan Bank of Cincinnati and Indianapolis stock,
Bankers Bank stock, and Farmer Mac stock. These stocks are carried at cost and are held
to enable the Bank to conduct business with the entities. The Federal Home Loan Banks
sell and purchase their stock at par; therefore cost approximates market value. The
Federal Home Loan Bank of Cincinnati stock is held as collateral security for all
indebtedness of the Bank to the Federal Home Loan Bank.
 Loans
 Loans that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off are reported at the amount of unpaid principal, reduced by
unearned discounts and deferred loan fees and costs, as well as, by the allowance for
loan losses. Interest income is accrued on a daily basis based on the principal
outstanding.
 Generally, a loan is classified as nonaccrual and the accrual of interest income is
generally discontinued when a loan becomes ninety days past due as to principal or
interest and these loans are placed on a cash basis for purposes of income recognition.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the principal and accrued interest,
and the loan is in the process of collection. When a loan is placed on nonaccrual
status, all previously accrued and unpaid interest receivable is charged against income.
 Loan origination and commitment fees and certain direct loan origination costs are
deferred and amortized as a net adjustment to the related loans yield. The Bank is
generally amortizing these costs over the contractual life of such loans.
 54




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 1  Summary of Significant Accounting Policies (Continued)
 Allowance for Loan Losses
 The allowance for loan losses is established through a provision for loan losses charged
to income. Loans deemed to be uncollectable and changes in the allowance relating to
loans are charged against the allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.
 The allowance for loan losses is evaluated on a regular basis by management and is based
on managements periodic review of the collectability of the loans in light of historical
experiences, the nature and volume of the loan portfolio, adverse situations that may
affect the borrowers ability to repay, estimated value of any underlying collateral, and
prevailing economic conditions. This evaluation is inherently subjective, as it requires
estimates that are subject to revision as more information becomes available.
 The allowance consists of specific, general and unallocated components. The specific
component relates to loans that are classified as doubtful, substandard or special
mention. For such loans that are also classified as impaired, an allowance is established
when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general component covers
non-classified loans and is based on historical loss experience adjusted for qualitative
factors. The unallocated component is maintained to cover uncertainties that could affect
managements estimate of probable losses. The unallocated component of the allowance
reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
 A loan is considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including length of the delay, the
reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a
loan by loan basis for commercial and agricultural loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans
obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
 
 At 120 days delinquent, secured consumer loans are charged down to the value of the
collateral, if repossession of the collateral is assured and/or in the process of
repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the
collateral or sooner upon the recognition of collateral deficiency.
 
 
 For the majority of the Banks impaired loans, the Bank will apply the observable market
price methodology. However, the Bank may also utilize a measurement incorporating the
present value of expected future cash flows discounted at the loans effective rate of
interest. To determine observable market price, collateral asset values securing an
impaired loan are periodically evaluated. Maximum time of
re-evaluation is every 12 months for chattels and titled
vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily
relied upon. Until such time that updated appraisals are received, the Bank may discount
the collateral value used.
 
 Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly,
the Bank does not separately identify individual consumer loans for impairment
disclosures.
 55




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 1  Summary of Significant Accounting Policies (Continued)
 
 Loans Held for Sale
 Loans originated and intended for sale in the secondary market are carried at the lower
of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are
recognized in a valuation allowance by charges to income.
 
 
 Servicing Assets
 Servicing assets are recognized as separate assets when rights are acquired through
purchase or through sale of financial assets. Capitalized servicing rights are reported
in other assets and are amortized into noninterest expense in proportion to, and over the
period of, the estimated future net servicing income of the underlying financial assets.
Servicing assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by
predominant characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based
upon discounted cash flows using market based assumptions. Impairment is recognized
through a valuation allowance for an individual stratum, to the extent that fair value is
less than the capitalized amount for the stratum. Fees received for servicing loans
owned by investors are based on a percentage of the outstanding monthly principal balance
of such loans and are included in operating income as loan payments are received. Costs
of servicing loans are charged to expense as incurred.
 Goodwill and other Intangible Assets
 Goodwill results from business acquisitions and represents the excess of the purchase
price over the fair value of acquired tangible assets and liabilities and identifiable
intangible assets. Goodwill is assessed at least annually for impairment and any such
impairment is recognized in the period identified.
 Other intangible assets consist of core deposit intangible assets arising from business
acquisitions. They are initially measured at fair value and then are amortized on a
straight line method over their estimated useful lives.
 Off Balance Sheet Instruments
 In the ordinary course of business, the Bank has entered into commitments to extend
credit, including commitments under credit card arrangements, commercial letters of
credit and standby letters of credit. Such financial instruments are recorded when they
are funded.
 Bank Premises and Equipment
 Land is carried at cost. Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is based on the estimated useful lives of the various
properties and is computed using straight line and accelerated methods. Costs for maintenance and
repairs are charged to operations as incurred. Gains and losses on dispositions are
included in current operations.
 Federal Income Tax
 Deferred income tax assets and liabilities are determined using the liability (or balance
sheet) method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the various temporary differences between the book and tax
bases of the various balance sheet assets and liabilities and gives current recognition
to changes in tax rates and laws.
 56




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 1  Summary of Significant Accounting Policies (Continued)
 
 Earnings Per Share
 Basic earnings per share represent income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Basic and
dilutive earnings per share are the same as the restricted stock grants are primarily
anti-dilutive.
 
 
 Comprehensive Income
 Accounting principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet. Such items, along with net income,
are components of comprehensive income.
 The components of other comprehensive income and related tax effects are as follows:
 (In Thousands)2009
    
    2008
    
    2007Net Unrealized gain on
available-for-sale securities
    
    $
    701
    
    
    $
    2,055
    
    
    $
    2,810Reclassification adjustment for gain on sale of
available-for-sale securities
    
    $
    (281
    )
    
    $
    
    
    
    $
    Net unrealized gains
    
    $
    420
    
    
    $
    2,055
    
    
    $
    2,810Tax Effect
    
    $
    142
    
    
    $
    699
    
    
    $
    956Other comprehensive income
    
    $
    278
    
    
    $
    1,356
    
    
    $
    1,854
 Other securities, not classified as available for sale, had a realized loss of $51
thousand for 2009 and a $15 thousand gain in 2008. Those amounts are not included in the
above table.
 Post Retirement Liability
 In September 2006, the accounting for deferred compensation and postretirement benefit
aspects of endorsement split-dollar life insurance arrangements was changed. Effective in
2008, liability and related compensation costs are recognized for endorsement
split-dollar life insurance policies that provide a benefit to an employee extending to
postretirement periods. This accounting pronouncement was applied as a change in
accounting principle through a cumulative-effect adjustment to retained earnings as of
January 01, 2008 approximating $152,000.
 Reclassification
 Certain amounts in the 2008 and 2007 consolidated financial statements have been
reclassified to conform with the 2009 presentation.
 Note 2  Business Combination
 On December 31, 2007, the Bank acquired 100% of the outstanding shares of Knisely Bank.
Knisely Bank was merged with and into the Bank, and the Knisely Bank offices now operate
as branches of the Bank. The merger enabled the Company to increase its market share in
a community contiguous to its existing markets.
 The aggregate acquisition cost of Knisely Bank was $10.4 million, which was all paid in
cash. Direct acquisition costs approximated $222 thousand. The acquisition cost in
excess of the net assets and identifiable intangible assets acquired, has been recorded
as goodwill of $4 million. Goodwill that is deductible for tax purposes is approximately
$3.85 million.
 57




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 2  Business Combination (Continued)
 In connection with the acquisition, the Company recognized core deposit intangible assets
of $1.1 million, which are being amortized on a straight line basis over the estimated
remaining economic useful life of the deposits of 7 years. There was no amortization of
the core deposit intangibles for the year ended December 31, 2007, but $157,000 was
amortized in 2008 and 2009. Amortization of the core deposit intangibles remaining is
scheduled to be as follows:
 (In Thousands)2010
    
    
    1572011
    
    
    1572012
    
    
    1572013
    
    
    1572014
    
    
    158$
    786
 Note 3  Securities
 The amortized cost and fair value of securities, with gross unrealized gains and losses,
follows:
 (In Thousands)2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Treasury
    
    $
    5,244
    
    
    $
    
    
    
    $
    (25
    )
    
    $
    5,219U.S. Government agency
    
    
    103,311
    
    
    
    1,501
    
    
    
    (136
    )
    
    
    104,676Mortgage-backed securities
    
    
    35,209
    
    
    
    1,639
    
    
    
    
    
    
    
    36,848State and local governments
    
    
    59,708
    
    
    
    1,009
    
    
    
    (179
    )
    
    
    60,538$
    203,472
    
    
    $
    4,149
    
    
    $
    (340
    )
    
    $
    207,281
 (In Thousands)2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-Sale:U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    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
 58




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 3  Securities (Continued)
 Information pertaining to securities with gross unrealized losses at December 31, 2009
and 2008, aggregated by investment category and length of time that
individual securities have been in a continuous loss position follows:
 2009(In Thousands)
    
    (In Thousands)Less Than Twelve Months
    
    Twelve Months & OverGross
    
    
    
    
    
    GrossUnrealized
    
    Fair
    
    Unrealized
    
    FairLosses
    
    Value
    
    Losses
    
    ValueU.S. Treasury
    
    $
    25
    
    
    $
    5,219
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    136
    
    
    
    14,355
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and local governments
    
    
    179
    
    
    
    15,754
    
    
    
    
    
    
    
    
 2008(In Thousands)
    
    (In Thousands)Less Than Twelve Months
    
    Twelve Months & OverGross
    
    
    
    
    
    GrossUnrealized
    
    Fair
    
    Unrealized
    
    FairLosses
    
    Value
    
    Losses
    
    ValueU.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    U.S. Government agency
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    46
    
    
    
    4,390
    
    
    
    11
    
    
    
    1,822State and local governments
    
    
    326
    
    
    
    11,899
    
    
    
    39
    
    
    
    482
   (In Thousands)2009
    
    
    2008
    
    
    2007Gross realized gains
    
    $
    281
    
    
    $
    15
    
    
    $
    Gross realized losses
    
    
    (51
    )
    
    
    
    
    
    
    $
    
    
    
    $
    Net Realized Gains
    
    $
    230
    
    
    $
    15
    
    
    $
    Tax expense related to net realized gains
    
    $
    78
    
    
    $
    5
    
    
    $
    
 59




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 3  Securities (Continued)
  (In Thousands)AmortizedCost
    
    
    Fair ValueOne year or less
    
    $
    13,335
    
    
    $
    13,631After one year through five years
    
    
    80,554
    
    
    
    81,402After five years through ten years
    
    
    56,302
    
    
    
    57,221After ten years
    
    
    18,072
    
    
    
    18,179Subtotal
    
    $
    168,263
    
    
    $
    170,433Mortgage Backed Securities
    
    
    35,209
    
    
    
    36,848Total
    
    $
    203,472
    
    
    $
    207,281
   60




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 4  Loans
  (In Thousands)2009
    
    
    2008Loans:Commercial Real Estate
    
    $
    214,849
    
    
    $
    226,761Agricultural Real Estate
    
    
    41,045
    
    
    
    48,607Consumer Real Estate
    
    
    98,599
    
    
    
    89,773Commercial and industrial
    
    
    120,543
    
    
    
    112,526Agricultural
    
    
    59,813
    
    
    
    56,322Consumer, Overdrafts and other loans
    
    
    32,581
    
    
    
    26,469Industrial Development Bonds
    
    
    2,552
    
    
    
    7,572569,982
    
    
    
    568,030Less: Deferred loan fees and costs
    
    
    (63
    )
    
    
    (198
    )569,919
    
    
    
    567,832Less: Allowance for loan losses
    
    
    (6,008
    )
    
    
    (5,496
    )Loans  Net
    
    $
    563,911
    
    
    $
    562,336
 
 
  (In Thousands)Principal Payments Due WithinTwo to
    
    AfterOne Year
    
    Five Years
    
    Five YearsCommercial Real Estate
    
    $
    12,811
    
    
    $
    157,856
    
    
    $
    44,182Agricultural Real Estate
    
    
    1,410
    
    
    
    14,450
    
    
    
    25,185Consumer Real Estate
    
    
    8,035
    
    
    
    23,915
    
    
    
    66,649Commercial and industrial loans
    
    
    78,939
    
    
    
    32,898
    
    
    
    8,706Agricultural
    
    
    43,253
    
    
    
    13,861
    
    
    
    2,699Consumer, Master Card and Overdrafts
    
    
    5,882
    
    
    
    19,741
    
    
    
    6,958Industrial Development Bonds
    
    
    862
    
    
    
    639
    
    
    
    1,051
 61




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 4  Loans (Continued)
 
  (In Thousands)Fixed
    
    VariableRate
    
    RateCommercial Real Estate
    
    $
    31,218
    
    
    $
    183,631Agricultural Real Estate
    
    
    4,902
    
    
    
    36,143Consumer Real Estate
    
    
    23,153
    
    
    
    75,446Commercial and industrial loans
    
    
    26,412
    
    
    
    94,131Agricultural
    
    
    14,538
    
    
    
    45,275Consumer, Master Card and Overdrafts
    
    
    27,677
    
    
    
    4,904Industrial Development Bonds
    
    
    2,552
    
    
    
    
   (In Thousands)2009
    
    
    2008
    
    
    2007Allowance for Loan LossesBalance at beginning of year
    
    $
    5,496
    
    
    $
    5,922
    
    
    $
    5,594Provision for loan loss
    
    
    3,558
    
    
    
    1,787
    
    
    
    871Loans charged off
    
    
    (3,288
    )
    
    
    (2,561
    )
    
    
    (1,576
    )Recoveries
    
    
    242
    
    
    
    348
    
    
    
    732Acquisition allowance for loan loss
    
    
    
    
    
    
    
    
    
    
    301Allowance for Loan & Leases Losses
    
    $
    6,008
    
    
    $
    5,496
    
    
    $
    5,922Allowance for Unfunded Loan Commitments &
Letters of Credit
    
    $
    227
    
    
    $
    226
    
    
    $
    156Total Allowance for Credit Losses
    
    $
    6,235
    
    
    $
    5,722
    
    
    $
    6,078
 
 
   62




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 4  Loans (Continued)
 
  (In Thousands)2009
    
    
    2008Impaired loans without a
valuation allowance
    
    $
    10,804
    
    
    $
    9,582Impaired loans with a valuation
allowance
    
    
    1,385
    
    
    
    2,095Total impaired loans
    
    $
    12,189
    
    
    $
    11,677Valuation allowance related to
impaired loans
    
    $
    353
    
    
    $
    466Total non-accrual loans
    
    $
    14,054
    
    
    $
    13,575Total loans past-due ninety days or more and still accruing
    
    $
    69
    
    
    $
    2,524
 (In Thousands)2009
    
    
    2008
    
    
    2007Average investment in
impaired loans
    
    $
    13,643
    
    
    $
    10,767
    
    
    $
    6,975Interest income recognized
on impaired loans
    
    $
    290
    
    
    $
    341
    
    
    $
    592Interest income recognized on
a cash basis on impaired loans
    
    $
    290
    
    
    $
    332
    
    
    $
    161
  
  
 
  
 63




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 5  Premises and Equipment
  (In Thousands)2009
    
    
    2008Land
    
    $
    3,510
    
    
    $
    3,510Buildings (useful life 15-39 years)
    
    
    17,200
    
    
    
    17,133Furnishings (useful life 3-15 years)
    
    
    9,435
    
    
    
    10,22630,145
    
    
    
    30,869Less: Accumulated depreciation
    
    
    (14,092
    )
    
    
    (14,063
    )Premises and Equipment (Net)
    
    $
    16,053
    
    
    $
    16,806
 Note 6  Servicing
   64




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 6  Servicing (Continued)
   (In Thousands)2009
    
    
    2008Beginning Year
    
    $
    1,970
    
    
    $
    1,893Capitalized Additions
    
    
    1,158
    
    
    
    447Amortization
    
    
    (933
    )
    
    
    (370
    )Valuation Allowance
    
    
    
    
    
    
    End of Year
    
    $
    2,195
    
    
    $
    1,970
 Note 7  Deposits
  (In Thousands)2009
    
    
    2008Time deposits under $100,000
    
    $
    212,298
    
    
    $
    216,824Time deposits of $100,000 or more
    
    
    114,659
    
    
    
    77,084$
    326,957
    
    
    $
    293,908
  (In Thousands)2010
    
    
    221,4352011
    
    
    65,2172012
    
    
    23,8832013
    
    
    10,2042014
    
    
    4,773thereafter
    
    
    1,445$
    326,957
 65




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 8   Securities Sold Under Agreement to Repurchase
  Daily Securities Sold Under Agreement to RepurchaseWeighted
    
    
    
    
    
    ApproximateAmount
    
    Average
    
    Maximum Amount
    
    Average
    
    ApproximateOutstanding at
    
    Rate
    
    Borrowings
    
    Outstanding in
    
    Weighted AverageEnd of Period
    
    End of
    
    Outstanding Month
    
    Period
    
    Interest Rate for the(000s)
    
    Period
    
    End (000s)
    
    (000s)
    
    Period2009
    
    $
    33,457
    
    
    
    0.42
    %
    
    $
    40,530
    
    
    $
    37,696
    
    
    
    0.48
    %2008
    
    $
    40,014
    
    
    
    0.50
    %
    
    $
    47,644
    
    
    $
    40,113
    
    
    
    1.96
    %2007
    
    $
    35,059
    
    
    
    3.72
    %
    
    $
    39,205
    
    
    $
    31,513
    
    
    
    4.64
    %
 Note 9   Federal Home Loan Bank Advances
   (In Thousands)2010
    
    
    13,3252011
    
    
    13,2122012
    
    
    5,0622013
    
    
    2,600$
    34,199
 Note 10  Federal Income Taxes
  (In Thousands)2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    2,333
    
    
    $
    2,489
    
    
    $
    2,998Deferred:Federal
    
    
    142
    
    
    
    (39
    )
    
    
    (170
    )$
    2,475
    
    
    $
    2,450
    
    
    $
    2,828
 66




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##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 10  Federal Income Taxes (Continued)
  (In Thousands)2009
    
    
    2008
    
    
    2007Income tax at statutory rates
    
    $
    3,087
    
    
    $
    3,119
    
    
    $
    3,591Increase(decrease) resulting from:Tax exempt interest
    
    
    (629
    )
    
    
    (654
    )
    
    
    (650
    )Change in prior estimates and other
    
    
    17
    
    
    
    (15
    )
    
    
    (113
    )$
    2,475
    
    
    $
    2,450
    
    
    $
    2,828
  (In Thousands)2009
    
    
    2008Deferred Tax Assets:Allowance for loan losses
    
    $
    2,042
    
    
    $
    1,869Other
    
    
    650
    
    
    
    751Total deferred tax assets
    
    
    2,692
    
    
    
    2,620Deferred Tax Liabilities:Accreted discounts on bonds
    
    
    56
    
    
    
    55FHLB stock dividends
    
    
    862
    
    
    
    862Mortgage servicing rights
    
    
    740
    
    
    
    667Other
    
    
    700
    
    
    
    560Net unrealized gain on
available-for-sale securities
    
    
    1,295
    
    
    
    1,153Total deferred tax liabilities
    
    
    3,653
    
    
    
    3,297Net Deferred Tax Liability
    
    $
    (961
    )
    
    $
    (677
    )
 Note 11  Employee Benefit Plan
   67




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 12  Related Party Transactions
   Note 13  Off Balance Sheet Activities
 Credit Related Financial Instruments
   (In Thousands)2009
    
    2008Commitments to extend credit
    
    $
    151,696
    
    
    $
    156,575Credit card arrangements
    
    
    16,569
    
    
    
    15,840Standby letters of credit
    
    
    18,085
    
    
    
    20,418
  Collateral Requirements
  Legal Contingencies
  68




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 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, 2009
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Risk-Based Capital
(to Risk Weighted Assets)Consolidated
    
    $
    92,447
    
    
    
    14.14
    %
    
    $
    52,294
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    92,184
    
    
    
    14.10
    %
    
    
    52,305
    
    
    
    8.00
    %
    
    $
    65,382
    
    
    
    10.00
    %Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    86,212
    
    
    
    13.19
    %
    
    
    26,147
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    70,949
    
    
    
    10.85
    %
    
    
    26,153
    
    
    
    4.00
    %
    
    
    39,229
    
    
    
    6.00
    %Tier 1 Capital
(to Adjusted Total Assets)Consolidated
    
    
    86,212
    
    
    
    10.33
    %
    
    
    33,393
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFarmers & Merchants State Bank
    
    
    70,949
    
    
    
    8.47
    %
    
    
    33,487
    
    
    
    4.00
    %
    
    
    41,858
    
    
    
    5.00
    %
 69




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 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)Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs 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
    %
 Note 15  Restrictions of Dividends & Inter-company Borrowings
  Note 16  Fair Value of Financial Instruments
   Cash and Cash Equivalents
  70




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 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
   71




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 16  Fair Value of Financial Instruments (Continued)
 (In Thousands)2009
    
    2008Carrying
    
    Fair
    
    Carrying
    
    FairFinancial Assets:Cash and Cash Equivalents
    
    $
    33,648
    
    
    $
    33,648
    
    
    $
    20,887
    
    
    $
    20,887Securities  available for sale
    
    
    207,281
    
    
    
    207,281
    
    
    
    177,661
    
    
    
    177,661Other Securities
    
    
    4,448
    
    
    
    4,448
    
    
    
    4,498
    
    
    
    4,498Loans, net
    
    
    563,911
    
    
    
    563,532
    
    
    
    562,336
    
    
    
    562,049Interest receivable
    
    
    3,693
    
    
    
    3,693
    
    
    
    4,048
    
    
    
    4,048Financial Liabilities:Deposits
    
    $
    676,444
    
    
    $
    672,963
    
    
    $
    615,732
    
    
    $
    614,495Short-term debtRepurchase agreement sold
    
    
    43,257
    
    
    
    43,257
    
    
    
    48,214
    
    
    
    48,214Long term debt
    
    
    34,199
    
    
    
    34,947
    
    
    
    45,635
    
    
    
    44,940Interest payable
    
    
    852
    
    
    
    852
    
    
    
    907
    
    
    
    907Dividends payable
    
    
    853
    
    
    
    853
    
    
    
    857
    
    
    
    857Off-Balance Sheet Financial Instruments
Commitments to
extend credit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Fair Value Measurements
   
  
  
  
 72




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 16  Fair Value of Financial Instruments (Continued)
 
   
 
   
  
 ($ in Thousands)
    
    Significant
    
    Quoted PricesSignificant
    
    Markets for
    
    in ActiveUnobservable Inputs
    
    Identical
    
    Observable12/31/2009
    
    Assets (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets  Securities Available for SaleU.S. Treasury
    
    $
    5,219U.S. Government agency
    
    $
    104,675Mortgage-backed securities
    
    $
    36,848State and local governments
    
    $
    0
    
    
    $
    60,539
    
    
    $
    0Total Securities Available for Sale
    
    $
    0
    
    
    $
    146,742
    
    
    $
    60,539Liabilities
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 12/31/2008
    
    Assets (Level 1)
    
    (Level 2)
    
    (Level 3)Assets  Securities Available for SaleU.S. Treasury
    
    $
    0U.S. Government agency
    
    $
    82,674Mortgage-backed securities
    
    $
    51,827State and local governments
    
    $
    0
    
    
    $
    43,160
    
    
    $
    0Total Securities Available for Sale
    
    $
    0
    
    
    $
    134,501
    
    
    $
    43,160Liabilities
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 73




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 16  Fair Value of Financial Instruments (Continued)
 
 
  
 
  
   
 
  74




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 
 Note 16  Fair Value of Financial Instruments (Continued)
 
 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2009Quoted Prices
    
    
    
    
    
    
    
    
    
    Change in fairin Active
    
    
    
    
    
    
    
    
    
    value forMarkets for
    
    Significant
    
    Significant
    
    twelve-monthBalance at
    
    Identical
    
    Observable
    
    Unobservable
    
    period ended($ in Thousands)
    
    12/31/09
    
    Assets (Level 1)
    
    Inputs (Level 2)
    
    Inputs (Level 3)
    
    Dec. 31, 2009Impaired loans
    
    $
    12,189
    
    
    
    
    
    
    
    
    
    
    $
    12,189
    
    
    $

    113Other real estate owned  residential
mortgages
    
    $
    964
    
    
    
    
    
    
    
    
    
    
    $
    964
    
    
    $

    (19
    )Other real estate owned commercial
    
    $
    475
    
    
    
    
    
    
    
    
    
    
    $
    475
    
    
    $
    (40
    )Total change in fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    54
 
 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2008Quoted Prices inActive
    
    
    
    
    
    
    
    
    
    
    Change inMarkets for
    
    
    Significant
    
    
    Significant
    
    
    fair value forBalance at
    
    
    Identical
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    twelve-month period($ in Thousands)
    
    12/31/08
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ended Dec. 31, 2008Impaired loans
    
    $
    11,677
    
    
    
    
    
    
    
    
    
    
    $
    11,677
    
    
    $
    1,176Other real estate owned - residential
mortgages
    
    $
    427
    
    
    
    
    
    
    
    
    
    
    $
    427
    
    
    $
    (22
    )Other real estate owned commercial
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    Total change in fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,154
 
 75




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31, 2009, 2008, and 2007
 Note 17  Condensed Financial Statements of Parent Company
 Balance Sheet
 (In Thousands)2009
    
    
    2008AssetsCash
    
    $
    471
    
    
    $
    315Related party receivables:Dividends & Accounts receivable from subsidiaries
    
    
    1,060
    
    
    
    963Note receivable from Bank subsidiary
    
    
    15,000
    
    
    
    15,000Investment in subsidiaries
    
    
    78,322
    
    
    
    75,471Total Assets
    
    $
    94,853
    
    
    $
    91,749LiabilitiesAccrued expenses
    
    $
    416
    
    
    $
    345Dividends payable
    
    
    853
    
    
    
    857Total Liabilities
    
    
    1,269
    
    
    
    1,202Stockholders EquityTotal Stockholders Equity
    
    $
    93,584
    
    
    $
    90,547Total Liabilities and Stockholders Equity
    
    $
    94,853
    
    
    $
    91,749
 Statement of Income
 (In Thousands)2009
    
    
    2008
    
    
    2007IncomeDividends from subsidiaries
    
    $
    3,940
    
    
    $
    6,708
    
    
    $
    6,238Interest
    
    
    713
    
    
    
    717
    
    
    
    712Total Income
    
    
    4,653
    
    
    
    7,425
    
    
    
    6,950Operating Expenses
    
    
    460
    
    
    
    364
    
    
    
    383Income Before Income Taxes and Equity in
Undistributed Earnings (Distributions in excess
of earnings) and Subsidiaries
    
    
    4,193
    
    
    
    7,061
    
    
    
    6,567Income Taxes
    
    
    161
    
    
    
    167
    
    
    
    1054,032
    
    
    
    6,894
    
    
    
    6,462Equity in undistributed earnings (Distributions in
excess of earnings) of subsidiaries
    
    
    2,573
    
    
    
    (171
    )
    
    
    1,272Net Income
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734
 76




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 17  Condensed Financial Statements of Parent Company (Continued)
 Statements of Cashflows
 (In Thousands)2009
    
    
    2008
    
    
    2007Cash Flows from Operating ActivitiesNet income
    
    $
    6,605
    
    
    $
    6,723
    
    
    $
    7,734Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Equity in undistributed net income (Distributions
in excess earnings) of subsidiaries
    
    
    (2,573
    )
    
    
    171
    
    
    
    (1,272
    )Changes in Assets and Liabilities:Account receivable
    
    
    
    
    
    
    
    
    
    
    35Dividends receivable
    
    
    (97
    )
    
    
    (162
    )
    
    
    (26
    )Other Liabilities
    
    
    193
    
    
    
    (228
    )
    
    
    428Net Cash Provided by
Operating Activities
    
    
    4,128
    
    
    
    6,504
    
    
    
    6,899Cash Flows from Investing ActivitiesReturn of Capital from Investment in Subsidiary
    
    
    
    
    
    
    
    
    
    
    725Cash Flows from Financing ActivitiesPayment of dividends
    
    
    (3,417
    )
    
    
    (3,217
    )
    
    
    (3,227
    )Purchase of Treasury Stock
    
    
    (555
    )
    
    
    (3,575
    )
    
    
    (4,710
    )Net Change in Cash and
Cash Equivalents
    
    
    156
    
    
    
    (288
    )
    
    
    (313
    )Cash and Cash EquivalentsBeginning of year
    
    
    315
    
    
    
    603
    
    
    
    916Cash and Cash EquivalentsEnd of year
    
    $
    471
    
    
    $
    315
    
    
    $
    603
 77




---



##### 



Farmers & Merchants Bancorp, Inc and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2009, 2008, and 2007
 Note 18  Quarterly Financial Data
 (000s omitted except per share data)
  Quarter Ended in 2009Mar 31
    
    
    June 30
    
    
    Sep 30
    
    
    Dec 31Summary of Income:Interest income
    
    $
    10,376
    
    
    $
    10,459
    
    
    $
    10,081
    
    
    $
    10,198Interest expense
    
    
    3,474
    
    
    
    3,427
    
    
    
    3,220
    
    
    
    3,099Net Interest Income
    
    
    6,902
    
    
    
    7,032
    
    
    
    6,861
    
    
    
    7,099Provision for loan loss
    
    
    659
    
    
    
    1,079
    
    
    
    1,432
    
    
    
    388Net interest income after
provision for loan loss
    
    
    6,243
    
    
    
    5,953
    
    
    
    5,429
    
    
    
    6,711Other income (expense)
    
    
    (3,880
    )
    
    
    (4,016
    )
    
    
    (3,739
    )
    
    
    (3,621
    )Net income before income taxes
    
    
    2,363
    
    
    
    1,937
    
    
    
    1,690
    
    
    
    3,090Income taxes
    
    
    633
    
    
    
    536
    
    
    
    414
    
    
    
    892Net income
    
    $
    1,730
    
    
    $
    1,401
    
    
    $
    1,276
    
    
    $
    2,198Earnings per Common Share
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.27
    
    
    $
    0.46Average common shares outstanding
    
    
    4,756,389
    
    
    
    4,742,910
    
    
    
    4,731,841
    
    
    
    4,734,674
 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
 ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
  78




---



##### 



ITEM 8a. CONTROLS AND PROCEDURES
 
 Management Report Regarding Disclosure Controls and Procedures
 The Company carried out an evaluation, under the supervision and with the participation of
the Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 31, 2009, pursuant to Exchange Act 13a-15.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective as of
December 31, 2009, in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the Companys periodic
SEC filings.
 
      
 ITEM 8b. OTHER INFORMATION
 
  79




---



##### 



PART III
 ITEM 9. 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
    
    
    67
    
    
    President, Freedom Ridge, Inc.
    
    
    1999Steven A. Everhart
    
    
    55
    
    
    Secretary/Treasurer, MBC Holdings, Inc.
    
    
    2003Robert G. Frey
    
    
    69
    
    
    President, E.H. Frey & Sons, Inc.
    
    
    1987Jack C. Johnson
    
    
    57
    
    
    President, Hawks Clothing, Inc.
    
    
    1991Marcia S. Latta1
    
    
    48
    
    
    Vice President, BGSU Foundation
    
    
    2009Steven J. Planson
    
    
    50
    
    
    Self-Employed Farmer
    
    
    2008Anthony J. Rupp
    
    
    60
    
    
    President, Rupp Furniture Co.
    
    
    2000David P. Rupp, Jr.2
    
    
    68
    
    
    Attorney
    
    
    2001James C. Saneholtz
    
    
    63
    
    
    President, Saneholtz-McKarns, Inc.
    
    
    1995Kevin J. Sauder
    
    
    49
    
    
    President/CEO, Sauder Woodworking Co.
    
    
    2004Merle J. Short
    
    
    69
    
    
    Chairman, ProMow, Inc.
    
    
    1987Paul S. Siebenmorgen
    
    
    60
    
    
    President/CEO of the Corporation and
The Farmers & Merchants State Bank
    
    
    2005Steven J. Wyse
    
    
    65
    
    
    Private Investor
    
    
    1991
  
 1
    
    Ms. Latta was appointed to the Board of
Directors of the Company and The Farmers & Merchants State Bank on January 16,
2009.2
    
    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. 80




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EXECUTIVE OFFICERS
 Principal Occupation & Offices Held withName
    
    Age
    
    Corporation & Bank for Past Five YearsDavid P. Rupp, Jr.
    
    
    68
    
    
    ChairmanPaul S. Siebenmorgen
    
    
    60
    
    
    President & Chief Executive OfficerBarbara J. Britenriker
    
    
    48
    
    
    Executive Vice President
Chief Financial OfficerTodd A. Graham
    
    
    59
    
    
    Executive Vice President
Chief Lending OfficerEdward A. Leininger
    
    
    53
    
    
    Executive Vice President
Chief Operating OfficerRex D. Rice
    
    
    51
    
    
    Executive Vice President
Senior Commercial Banking Director
    81




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ITEM 10. EXECUTIVE COMPENSATION
  ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   Number of securitiesremaining available forEquity Compensation Plan Information
    
    future issuance underNumber of securities to be
    
    Weighted-average exercise
    
    equity compensationissued upon exercise of
    
    price of outstanding
    
    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
    
    
    
    762,755Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    $
    0.00
    
    
    
    0Total
    
    
    0
    
    
    $
    0.00
    
    
    
    762,755
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 The information called for herein is presented in the proxy statement to be furnished in
connection with the solicitation of proxies on behalf of the Board of Directors of the
Registrant for use at its Annual Meeting to be held on April 15, 2010, and is incorporated
herein by reference.
 ITEM 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 82




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83




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##### 



PART IV
 ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 a.
    
    The Following documents are filed as part of this report.
 (1)
    
    Financial Statements (included in this 10-K under Item 8)
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders Equity
Consolidated Statements of Cash Flows
Note to Consolidated Financial Statements(2)
    
    Financial Statement Schedules
Five Year Summary of Operations
 b.
    
    Exhibits Required by Item 601 of Regulation S-K
 (3)
    
    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.
 (3.1)
    
    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).
 84




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##### 



(10.6)
    
    Form on Restricted Stock Agreement (incorporated by reference to
the Quarterly Report on Form 10-Q filed with the Commission on
October 27, 2005).
 ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (Continued)
 (21)
    
    Subsidiaries of Farmers & Merchants Bancorp, Inc.(31.1)
    
    Certification of the Chief Executive Officer Required under Rule 13(a)-14(a)/15d-14(a)(31.2)
    
    Certification of the Chief Financial Officer Required under Rule 13(a)-14(a)/15d-14(a)(32.1)
    
    Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 85




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##### 



(32.2)
    
    Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 86




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##### 



FARMERS & MERCHANTS BANCORP, INC
   
 By:
    
    /s/ Paul S. Siebenmorgen
    
    Date:
    
    December 29, 2010Paul S. SiebenmorgenChief Executive OfficerDirector
 
  
 /s/ Paul S. Siebenmorgen
    
    Date: December 29, 2010Paul S SiebenmorgenChief Executive Officer (Principal Executive Officer)/s/ Dexter L. Benecke
    
    Date: December 29, 2010Dexter L. Benecke, Director/s/ Robert G. Frey
    
    Date: December 29, 2010Robert G. Frey, Director/s/ Marcia S. Latta
    
    Date: December 29, 2010Marcia S. Latta, Director/s/ Anthony J. Rupp
    
    Date: December 29, 2010Anthony J. Rupp, Director/s/ James C. Saneholtz
    
    Date: December 29, 2010James C. Saneholtz, Director/s/ Merle J. Short
    
    Date: December 29, 2010Merle J. Short, Director/s/ Barbara J. Britenriker
    
    Date: December 29, 2010Barbara J. BritenrikerChief Financial Officer(Principal Financial Officer/Principal Accounting Officer)/s/ Steven A. Everhart
    
    Date: December 29, 2010Steven A. Everhart, Director/s/ Jack C. Johnson
    
    Date: December 29, 2010Jack C. Johnson, Director/s/ Steven J. Planson
    
    Date: December 29, 2010Steven J. Planson, Director/s/ David P. Rupp, Jr
    
    Date: December 29, 2010David P. Rupp, Jr., Director/s/ Kevin J. Sauder
    
    Date: December 29, 2010Kevin J. Sauder, Director/s/ Steven J. Wyse
    
    Date: December 29, 2010Steven J. Wyse, Director
 
 87