10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________.

Commission File Number:  000-26099

FARMERS & MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Delaware	94-3327828
(State or other jurisdiction of incorporation or organization)	(I.R.S.  Employer Identification No.)

111 W. Pine Street, Lodi, California	95240
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (209) 367-2300

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.01 Par Value Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)   Yes ☐ No ☒

The aggregate market value of the Registrant's common stock held by non-affiliates on June 30, 2017 (based on the last reported trade on June 30, 2017) was $501,396,000.

The number of shares of Common Stock outstanding as of February 28, 2018: 812,304

Documents Incorporated by Reference:

Portions of the definitive Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A are incorporated by reference in Part III, Items 10 through 14.

FARMERS & MERCHANTS BANCORP

FORM 10-K

TABLE OF CONTENTS

		Page
	PART I
Introduction		3
Item  1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	22
Item  2.	Properties	22
Item  3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosures	22
	PART II
Item  5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item  6.	Selected Financial Data	26
Item  7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
Item  8.	Financial Statements and Supplementary Data	59
Item  9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	99
Item 9A.	Controls and Procedures	99
Item 9B.	Other Information	100
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	101
Item 11.	Executive Compensation	102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
Item 13.	Certain Relationships and Related Transactions, and Director Independence	102
Item 14.	Principal Accounting Fees and Services	102
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	103
Item 16.	Form 10-K Summary	104
Signatures		105

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Introduction – Forward Looking Statements

This Form 10-K contains various forward-looking statements, usually containing the words “estimate,” “project,” “expect,” “objective,” “goal,” or similar expressions and includes assumptions concerning Farmers & Merchants Bancorp’s (together with its subsidiaries, the “Company” or “we”) operations, future results, and prospects. These forward-looking statements are based upon current expectations and are subject to risks and uncertainties. In connection with the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors which could cause the actual results of events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include the following: (1) economic conditions in the Central Valley of California; (2) significant changes in interest rates and loan prepayment speeds; (3) credit risks of lending and investment activities; (4) changes in federal and state banking laws or regulations; (5) competitive pressure in the banking industry; (6) changes in governmental fiscal or monetary policies; (7) uncertainty regarding the economic outlook resulting from the continuing war on terrorism, as well as actions taken or to be taken by the U.S. or other governments as a result of further acts or threats of terrorism; (8) water management issues in California and the resulting impact on the Company’s agricultural customers; (9) expansion into new geographic markets and new lines of business;(10) impact of the recently enacted Tax Cuts and Jobs Act and (11) other factors discussed in Item 1A. Risk Factors.

Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

PART I

Item 1. Business

General Development of the Business

August 1, 1916, marked the first day of business for Farmers & Merchants Bank (the “Bank”). The Bank was incorporated under the laws of the State of California and licensed as a state-chartered bank. Farmers & Merchants’ first venture out of Lodi occurred when the Galt office opened in 1948. Since then the Bank has opened full-service branches in Linden, Manteca, Riverbank, Modesto, Sacramento, Elk Grove, Turlock, Hilmar, Stockton, Merced, Walnut Creek and Concord.

During 2016, the Company completed the acquisition of Delta National Bancorp, the parent company of Delta Bank, N.A., headquartered in Manteca, California. This enabled the Company to expand its presence in to both Manteca and Riverbank.

In January 2018, the Company opened a loan production office (“LPO”) in Napa, California and is currently building out a full service branch location that should be ready for occupancy in the third quarter of 2018.

In addition to 26 full-service branches and 1 LPO, the Bank serves the needs of its customers through a stand-alone ATM located on the grounds of the Lodi Grape Festival. In 2007, the Bank began offering certain banking products over the internet at www.fmbonline.com.

On March 10, 1999, the Company, pursuant to a reorganization, acquired all of the voting stock of the Bank. The Company is a bank holding company incorporated in the State of Delaware and registered under the Bank Holding Company Act of 1956, as amended. The Company’s outstanding securities as of December 31, 2017, consisted of 812,304 shares of common stock, $0.01 par value and no shares of preferred stock issued. The Bank is the Company’s principal asset.

The Bank’s two wholly owned subsidiaries are Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation is currently dormant and Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

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F & M Bancorp, Inc. was created in March 2002 to protect the name “F & M Bank.” During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name, “F & M Bank,” as part of a larger effort to enhance the Company’s image and build brand name recognition. Since 2002, the Company has converted all of its daily operating and image advertising to the “F & M Bank” name and the Company’s logo, slogan and signage were redesigned to incorporate the trade name, “F & M Bank.”

During 2003, the Company formed a wholly owned Connecticut statutory business trust, FMCB Statutory Trust I, for the sole purpose of issuing trust-preferred securities. See Note 14, located in “Item 8. Financial Statements and Supplementary Data.”

The Company’s principal business is to serve as a holding company for the Bank and for other banking or banking related subsidiaries, which the Company may establish or acquire. As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds from the Bank. Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company. See “Supervision and Regulation - Dividends and Other Transfer of Funds.”

The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits. See “Supervision and Regulation – Deposit Insurance.”

As a bank holding company, the Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”). The Bank is a California state-chartered non-FRB member bank subject to the regulation and examination of the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”).

Service Area

Since 2014, the Company has broadened its geographic footprint by opening offices in Walnut Creek,  Concord and Napa. The Company continues to look for opportunities to further expand its branch network in the East Bay area of San Francisco.

At the present time, the Company’s primary service area remains the mid Central Valley of California, including Sacramento, San Joaquin, Stanislaus and Merced counties, where we operate 24 full-service branches and one stand-alone ATM. This area encompasses:

· Sacramento Metropolitan Statistical Area (“MSA”), with branches in Sacramento, Elk Grove and Galt. This MSA has a Population of 2.33 million and a Per Capita Income of approximately $53,100. The MSA includes significant employment in the following sectors: state and local government; agriculture; and trade, transportation and utilities. Unemployment currently stands at 4.6%.

· Stockton MSA, with branches in Lodi, Linden, Stockton and Manteca. This MSA has a Population of 0.75 million and a Per Capita Income of approximately $41,300. The MSA includes significant employment in the following sectors: state and local government; agriculture; trade, transportation, and utilities; and education and health services. Unemployment currently stands at 7.2%.

· Modesto MSA, with branches in Modesto, Riverbank and Turlock. This MSA has a Population of 0.55 million and a Per Capita Income of approximately $42,700. The MSA includes significant employment in the following sectors: agriculture; trade, transportation and utilities; state and local government; and education and health services. Unemployment currently stands at 7.5%.

· Merced MSA with branches in Hilmar and Merced. This MSA has a Population of 0.27 million and a Per Capita Income of approximately $38,900. The MSA includes significant employment in the following sectors: agriculture; state and local government; and trade, transportation and utilities. Unemployment currently stands at 9.5%.

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All of the Company’s Central Valley service areas are heavily influenced by the agricultural industry, however, with the exception of the State of California in the Sacramento MSA, no single employer represents a material concentration of jobs in any of our service areas.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview” and “Financial Condition – Loans & Leases” for additional discussion regarding the Company’s market conditions.

Through its network of banking offices, the Company emphasizes personalized service along with a broad range of banking services to businesses and individuals located in the service areas of its offices. Although the Company focuses on marketing its services to small and medium sized businesses, a broad range of retail banking services are made available to the local consumer market.

The Company offers a wide range of deposit instruments. These include checking, savings, money market, time certificates of deposit, individual retirement accounts and online banking services for both business and personal accounts.

The Company provides a broad complement of lending products, including commercial, commercial real estate, real estate construction, agribusiness, consumer, credit card, residential real estate loans, and equipment leases. Commercial products include term loans, leases, lines of credit and other working capital financing and letters of credit. Financing products for individuals include automobile financing, lines of credit, residential real estate, home improvement and home equity lines of credit.

The Company also offers a wide range of specialized services designed for the needs of its commercial accounts. These services include a credit card program for merchants, lockbox and other collection services, account reconciliation, investment sweep, on-line account access, and electronic funds transfers by way of domestic and international wire and automated clearinghouse.

The Company makes investment products available to customers, including mutual funds and annuities. These investment products are offered through a third party, which employs investment advisors to meet with and provide investment advice to the Company’s customers.

Employees

At December 31, 2017, the Company employed 330 full time equivalent employees. The Company believes that its employee relations are satisfactory.

Competition

The banking and financial services industry in California generally, and in the Company’s market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial service providers. The Company competes with other major commercial banks, diversified financial institutions, credit unions, savings institutions, money market and other mutual funds, mortgage companies, and a variety of other non-banking financial services and advisory companies. Federal legislation encourages competition between different types of financial service providers and has fostered new entrants into the financial services market. It is anticipated that this trend will continue. Using the financial holding company structure, insurance companies and securities firms may compete more directly with banks and bank holding companies.

Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Company. In order to compete with other financial service providers, the Company relies upon personal contact by its officers, directors, employees, and stockholders, along with various promotional activities and specialized services. In those instances where the Company is unable to accommodate a customer’s needs, the Company may arrange for those services to be provided through its correspondents.

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Government Policies

The Company’s profitability, like most financial institutions, is primarily dependent on interest rate differentials. The difference between the interest rates paid by the Company on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Company on its interest-earning assets, such as loans & leases extended to its customers and securities held in its investment portfolio, comprise the major portion of the Company’s earnings. These rates are highly sensitive to many factors that are beyond the control of the Company and the Bank, such as inflation, recession and unemployment. The impact that changes in economic conditions might have on the Company and the Bank cannot be predicted.

The business of the Company is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans & leases, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on the Company of any future changes in monetary and fiscal policies cannot be predicted.

From time to time, legislative acts, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This legislation may change banking statutes and the operating environment of the Company and the Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings institutions, credit unions, and other financial institutions. The Company cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implemented regulations, would have on the financial condition or results of operations of the Company or any of its subsidiaries.

Supervision and Regulation

General

Bank holding companies and banks are extensively regulated under both federal and state law. The regulation is intended primarily for the protection of the banking system and the deposit insurance fund and not for the benefit of stockholders of the Company. Set forth below is a summary description of the material laws and regulations, which relate to the operations of the Company and the Bank. This description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

The Company

The Company is a registered bank holding company and is subject to regulation under the Bank Holding Company Act of 1956 (“BHCA”), as amended. Accordingly, the Company’s operations are subject to extensive regulation and examination by the FRB. The Company is required to file with the FRB quarterly and annual reports and such additional information as the FRB may require pursuant to the BHCA. The FRB conducts periodic examinations of the Company.

The FRB may require that the Company terminate an activity or terminate control of or liquidate or divest certain subsidiaries of affiliates when the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt. Under certain circumstances, the Company must file written notice and obtain approval from the FRB prior to purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the FRB, a bank holding company and its non-banking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with an extension of credit, lease or sale of property, or furnishing of services. For example, with certain exceptions, a bank may not condition an extension of credit on a promise by its customer to obtain other services provided by it, its holding company or other subsidiaries, or on a promise by its customer not to obtain other services from a competitor. In addition, federal law imposes certain restrictions on transactions between Farmers & Merchants Bancorp and its subsidiaries. Further, the Company is required by the FRB to maintain certain levels of capital. See “Capital Standards.”

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The Company is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to its subsidiaries. However, the Company, subject to the prior notice and/or approval of the FRB, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Under FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB’s policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. This support may be required at times when a bank holding company may not be able to provide such support. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB’s regulations or both.

The Company is not a financial holding company for purposes of the FRB.

The Company is also a bank holding company within the meaning of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the DBO.

The Company’s securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, the Company is subject to the reporting, proxy solicitation and other requirements and restrictions of the Exchange Act.

The Bank

The Bank, as a California chartered non-FRB member bank, is subject to primary supervision, periodic examination and regulation by the DBO and the FDIC. If, as a result of an examination of the Bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory, or that the Bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a California chartered bank would result in a revocation of the Bank’s charter. The DBO has many of the same remedial powers.

Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank’s operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans & leases, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, and capital requirements. Further, the Bank is required to maintain certain levels of capital. See “Capital Standards.”

The USA Patriot Act

Title III of the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) includes numerous provisions for fighting international money laundering and blocking terrorism access to the U.S. financial system. The USA Patriot Act requires certain additional due diligence and record keeping practices, including, but not limited to, new customers, correspondent, and private banking accounts.

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Part of the USA Patriot Act requires covered financial institutions to: (i) establish an anti-money laundering program; (ii) establish appropriate anti-money laundering policies, procedures and controls; (iii) appoint a Bank Secrecy Act officer responsible for day-to-day compliance; and (iv) conduct independent audits. The USA Patriot Act also expands penalties for violation of the anti-money laundering laws, including expanding the circumstances under which funds in a bank account may be forfeited. The USA Patriot Act also requires covered financial institutions to respond, under certain circumstances, to requests for information from federal banking agencies within 120 hours.

Privacy Restrictions

The Gramm-Leach-Bliley Act (“GLBA”) requires financial institutions in the U.S. to provide certain privacy disclosures to customers and consumers, to comply with certain restrictions on the sharing and usage of personally identifiable information, and to implement and maintain commercially reasonable customer information safeguarding standards.

The Company believes that it complies with all provisions of the GLBA and all implementing regulations and the Bank has developed appropriate policies and procedures to meet its responsibilities in connection with the privacy provisions of GLBA.

Dividends and Other Transfer of Funds

Dividends from the Bank constitute the principal source of cash to the Company. The Company is a legal entity separate and distinct from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Company. Under such restrictions, the amount available for payment of dividends to the Company by the Bank totaled $40.6 million at December 31, 2017. During 2017, the Bank paid $23.6 million in dividends to the Company.

The FDIC and the DBO also have authority to prohibit the Bank from engaging in activities that, in their opinion, constitute unsafe or unsound practices in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the FDIC or the DBO could assert that the payment of dividends or other payments might, under some circumstances, be an unsafe or unsound practice. Further, the FRB and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by banks or bank holding companies under their jurisdiction. Compliance with the standards set forth in such guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends that the Bank or the Company may pay. An insured depository institution is prohibited from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized. The DBO may impose similar limitations on the Bank. See “Prompt Corrective Regulatory Action and Other Enforcement Mechanisms” and “Capital Standards” for a discussion of these additional restrictions on capital distributions.

Transactions with Affiliates

The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of the Company or other affiliates, the purchase of, or investments in stock or other securities thereof, the taking of such securities as collateral for loans & leases, and the purchase of assets of the Company or other affiliates. Such restrictions prevent the Company and other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in the Company or to or in any other affiliates are limited, individually, to 10% of the Bank’s capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the Bank’s capital and surplus (as defined by federal regulations).

In addition, the Company and its operating subsidiaries generally may not purchase a low-quality asset from an affiliate, and other specified transactions between the Company or its operating subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices.

Also, the Company and its operating subsidiaries may engage in transactions with affiliates only on terms and under conditions that are substantially the same, or at least as favorable to the Company or its subsidiaries, as those prevailing at the time for comparable transactions with (or that in good faith would be offered to) non-affiliated companies.

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California law also imposes certain restrictions with respect to transactions with affiliates. Additionally, limitations involving the transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See “Prompt Corrective Action and Other Enforcement Mechanisms.”

Capital Standards

The FRB and the FDIC have established risk-based capital guidelines with respect to the maintenance of appropriate levels of capital by United States banking organizations. These guidelines are intended to provide a measure of capital that reflects the risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as commercial loans.

In 2013, both the FRB and the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. These rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act as hereinafter defined.

The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a "capital conservation buffer" of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.

The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity. For further information on the Company and the Bank’s risk-based capital ratios see Note 15 located in “Item 8. Financial Statements and Supplementary Data.”

Prompt Corrective Action and Other Enforcement Mechanisms

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective Federal regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management, and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An “undercapitalized” institution must develop a capital restoration plan. At December 31, 2017, the Bank exceeded all of the required ratios for classification as “well capitalized.” It should be noted; however, that the Bank’s capital category is determined solely for the purpose of applying the federal banking agencies’ prompt corrective action regulations and the capital category may not constitute an accurate representation of the Bank’s overall financial condition or prospects.

An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions.

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Banking agencies have also adopted regulations which mandate that regulators take into consideration: (i) concentrations of credit risk; (ii) interest rate risk (when the interest rate sensitivity of an institution’s assets does not match the sensitivity of its liabilities or its off-balance-sheet position); and (iii) risks from non-traditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. That evaluation will be made as a part of the institution’s regular safety and soundness examination. In addition, the banking agencies have amended their regulatory capital guidelines to incorporate a measure for market risk. In accordance with the amended guidelines, any company with significant trading activity must incorporate a measure for market risk in its regulatory capital calculations.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, any condition imposed in writing by the agency, or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company.

Federal banking regulators have also issued final guidance regarding commercial real estate (“CRE”) lending. This guidance suggests that institutions that are potentially exposed to significant CRE concentration risk will be subject to increased regulatory scrutiny. Institutions that have experienced rapid growth in CRE lending, have notable exposure to a specific type of CRE lending, or are approaching or exceed certain supervisory criteria that measure an institution’s CRE portfolio against its capital levels, may be subject to such increased regulatory scrutiny. The Company’s CRE portfolio may be viewed as falling within one or more of the foregoing categories, and accordingly may become subject to increased regulatory scrutiny because of the CRE portfolio. Institutions that are determined by their regulator to have an undue concentration in CRE lending may be required to maintain levels of capital in excess of the statutory minimum requirements and/or be required to reduce their concentration in CRE loans. As of the Company’s most recent regulatory examination, the FDIC determined that, at that time, the Company did not have any undue concentrations in CRE lending. No guarantees can be made that this classification will not change as a result of future regulatory examinations.

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan & lease documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees, and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, any insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets; (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses; (iii) compare problem asset totals to capital; (iv) take appropriate corrective action to resolve problem assets; (v) consider the size and potential risks of material asset concentrations; and (vi) provide periodic asset quality reports with adequate information for management and the Board of Directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

Deposit Insurance

After the passage of the Dodd-Frank Act, the deposits of the Bank are now insured by the FDIC up to $250,000 per insured depositor.

The Federal Deposit Insurance Reform Act of 2005 provided the FDIC Board of Directors the authority to set the designated reserve ratio for the Deposit Insurance Fund (“DIF”) between 1.15% and 1.50%. The FDIC must adopt a restoration plan when the reserve ratio falls below 1.15% and begin paying dividends when the reserve ratio exceeds 1.35%.

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Under the Dodd-Frank Act, the minimum designated reserve ratio of the DIF increased from 1.15% to 1.35% of estimated insured deposits. Additionally, the Dodd-Frank Act revised the assessment base against which an insured depository institution’s deposit insurance premiums paid to the DIF will be calculated. On February 7, 2011, the FDIC approved a final rule, as mandated by Dodd-Frank, changing the deposit insurance assessment system from one that is based on total domestic deposits to one that is based on average consolidated total assets minus average tangible equity. The new rule took effect for the quarter beginning April 1, 2011.

The Bank’s FDIC premiums were $932,000 in 2017 and $1.17 million in 2016. Future increases in insurance premiums could have adverse effects on the operating expenses and results of operations of the Company. Management cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the Bank’s primary regulator. Management of the Company is not aware of any practice, condition or violation that might lead to termination of the Company’s deposit insurance.

Community Reinvestment Act (“CRA”) and Fair Lending

The Bank is subject to certain fair lending requirements involving lending, investing, and other CRA activities. CRA requires each insured depository institution to identify the communities served by the institution’s offices and to identify the types of credit and investments the institution is prepared to extend within such communities including low and moderate-income neighborhoods. It also requires the institution’s regulators to assess the institution’s performance in meeting the credit needs of its community and to take such assessment into consideration in reviewing applications for mergers, acquisitions, relocation of existing branches, opening of new branches, and other transactions. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws.

A bank’s compliance with the Community Reinvestment Act is assessed using an evaluation system, which bases CRA ratings on an institution’s lending, service and investment performance. An unsatisfactory rating may be the basis for denying a merger application. The Bank’s latest CRA examination was completed by the Federal Deposit Insurance Corporation in August 2016 and the Bank received an overall Outstanding rating in complying with its CRA obligations.

Consumer Protection Regulations

The Company’s lending activities are subject to a variety of statutes and regulations designed to protect consumers, including the Fair Credit Reporting Act, Equal Credit Opportunity Act, the Fair Housing Act, the Truth-in-Lending Act, the Unfair, Deceptive or Abusive Acts and Practices and the Dodd-Frank Act. Deposit operations are also subject to laws and regulations that protect consumer rights including Funds Availability, Truth in Savings, and Electronic Funds Transfers. Additional rules govern check writing ability on certain interest earning accounts and prescribe procedures for complying with administrative subpoenas of financial records. Additionally, effective October 26, 2013, there is a new provision of the Federal Reserve Regulation E to accommodate the new Remittance Transfer Rule requirement of the Dodd-Frank Act concerning international wires.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

On July 21, 2010, President Obama signed into law the sweeping financial regulatory reform, Dodd-Frank Act, that implements significant changes to the regulation of the financial services industry, including provisions that, among other things:

· Centralize responsibility for consumer financial protection by creating a new agency within the Federal Reserve Board, the Bureau of Consumer Financial Protection, with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that would apply to all banks and thrifts.

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· Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to bank holding companies.

· Require the FDIC to seek to make its capital requirements for banks countercyclical so that the amount of capital required to be maintained increases in times of economic expansion and decreases in times of economic contraction.

· Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital.

· Implement corporate governance revisions, including executive compensation and proxy access by stockholders.

· Make permanent the $250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000, and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions.

· Repeal the federal prohibitions on the payment of interest on demand deposits effective July 21, 2011, thereby permitting depository institutions to pay interest on business transaction and other accounts.

Many aspects of the Dodd-Frank Act are subject to rulemaking by various regulatory agencies and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally. The elimination of the prohibition on the payment of interest on demand deposits could materially increase our interest expense, depending on our competitors' responses.

The Trump Administration signed an executive order in February 2017 calling for the review of existing financial laws and regulations, including the Dodd-Frank Act, in order to reduce the regulatory burden on U.S. companies, including financial institutions. At this time, no details on the proposed reforms have been published and we are uncertain whether the intended deregulation will have a significant impact on the Company. It is unlikely that all changes will be able to be implemented by regulatory agencies and that Congressional approval of many changes will be required. While Dodd-Frank primarily targets reforms for systemically important financial service providers, the law’s influence has, and is expected to continue to, filter down in varying degrees to smaller institutions.

Notice and Approval Requirements Related to Control

Banking laws impose notice, approval and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution. These laws include the BHCA and the Change in Bank Control Act. Among other things, these laws require regulatory filings by a stockholder or other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution or bank holding company. The determination whether an investor "controls" a depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, a party is deemed to control a depository institution or other company if the party owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a party may be presumed to control a depository institution or other company if the investor owns or controls 10% or more of any class of voting stock. Ownership by family members, affiliated parties, or parties acting in concert, is typically aggregated for these purposes. If a party's ownership of the Company were to exceed certain thresholds, the investor could be deemed to "control" the Company for regulatory purposes. This could subject the investor to regulatory filings or other regulatory consequences.

In addition, except under limited circumstances, bank holding companies are prohibited from acquiring, without prior approval:

• control of any other bank or bank holding company or all or substantially all the assets thereof; or

• more than 5% of the voting shares of a bank or bank holding company which is not already a subsidiary.

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Incentive Compensation

The Dodd-Frank Act requires the federal bank regulators and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Company and the Bank, having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal stockholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies proposed such regulations in April 2011, but the regulations have not been finalized. If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which the Company may structure compensation for our executives.

The FRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

Available Information

Company reports filed with the SEC including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and ownership reports filed by directors, executive officers and principal stockholders can be accessed through the Company’s website at http://www.fmbonline.com. The link to the SEC is on the About Us page.

Item 1A. Risk Factors

An investment in our common stock is subject to risks inherent in our business. The material risks and uncertainties that management believes may affect our business are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this 10-K Report. The risks and uncertainties described below are not the only ones facing our business. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This 10-K Report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Risks Associated With Our Business

Economic Conditions Nationally And In Our Service Areas Could Adversely Affect Our Operations And/Or Cause Us To Sustain Losses- The national economy and the economy of other portions of California have, for the most part, experienced solid improvements over the past several years. However, the economy of the Central Valley of California, which remains the Company’s primary market area, despite having improved, continues to experience challenges. This is reflected in:

· continuing public sector financial stress, both at the local and statewide level. See “Item 1. Business – Service Area.” For example, the State of California, a large employer in one of the Company’s market territories, continues to experience financial challenges, particularly relating to the funding of pension and other financial commitments made to retired employees, and the City of Stockton, which exited bankruptcy in February, 2015 but still faces financial challenges; and

· levels of unemployment that remain above statewide and nationwide averages and home prices that have improved but remain below peak levels in many market segments.

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Although we have initiated efforts to broaden our geographic footprint, our retail and commercial banking operations remain concentrated in Sacramento, San Joaquin, Stanislaus and Merced Counties. See “Item 1. Business – Service Area.” As a result of this geographic concentration, our results of operations depend largely upon economic conditions in these areas. Whereas much of this area has improved, real estate values remain below peak prices and unemployment remains above most other areas in the state and country. As a result, risk still remains from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans or leases. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan & lease performance and diversifying our credit portfolio. These policies and procedures; however, may not prevent unexpected losses that could materially adversely affect our results of operations in general and the market value of our stock. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview - Looking Forward: 2018 and Beyond.”

Additionally, despite the stability of our earnings over the last several years, economic uncertainties may continue for the foreseeable future and the full extent of the repercussions on our local economies in general and our business in particular are still not fully known at this time. Such events may have a negative effect on: (i) our ability to service our existing customers and attract new customers; (ii) the ability of our borrowers to operate their business as successfully as in the past; (iii) the financial security and net worth of our customers; and (iv) the ability of our customers to repay their loans or leases with us in accordance with the terms thereof.

Our Allowance For Credit Losses May Not Be Adequate To Cover Actual Losses - A significant source of risk arises from the possibility that losses could be sustained because borrowers, guarantors, and related parties may fail to perform in accordance with the terms of their loans & leases. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Unexpected losses may arise from a wide variety of specific or systemic factors, many of which are beyond our ability to predict, influence, or control.

Like all financial institutions, we maintain an allowance for credit losses to provide for loan & lease defaults and non-performance. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Provision and Allowance for Credit Losses.” The allowance is funded from a provision for credit losses, which is a charge to our income statement. Our allowance for credit losses may not be adequate to cover actual loan & lease losses, and future provisions for credit losses could materially and adversely affect our business, financial condition, results of operations and cash flows. The allowance for credit losses reflects our estimate of the probable losses in our loan & lease portfolio at the relevant balance sheet date. Our allowance for credit losses is based on prior experience, as well as an evaluation of the known risks in the current portfolio, composition and growth of the loan & lease portfolio and other economic factors. The determination of an appropriate level of credit loss allowance is an inherently difficult process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control and these losses may exceed current estimates.

The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans and lessees to make their lease payments. The level of uncertainty concerning current economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the allowance for credit losses.

While we believe that our allowance for credit losses is adequate to cover our estimate of the current probable losses, we cannot assure you that we will not increase the allowance for credit losses further or that regulators will not require us to increase this allowance. Either of these occurrences could materially adversely affect our business, financial condition, results of operations and cash flows.

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In June 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update, Financial Instruments: Credit Losses (“CECL”), which establishes a new impairment framework also known as the "current expected credit loss model." In contrast to the incurred loss model currently used by financial entities like us, the current expected credit loss model requires an allowance be recognized based on the expected credit losses (i.e. all contractual cash flows that the entity does not expect to collect from financial assets or commitments to extend credit). It requires the consideration of more forward-looking information than is permitted under current U.S. generally accepted accounting principles. In addition to relevant information about past events and current conditions, such as borrowers’ current creditworthiness, quantitative and qualitative factors specific to borrowers, and the economic environment in which the entity operates, the new model requires consideration of reasonable and supportable forecasts that affect the expected collectability of the financial assets’ remaining contractual cash flows, and evaluation of the forecasted direction of the economic cycle, as well as time value of money. This proposed impairment framework is expected to have wide reaching implications to financial institutions such as us. The CECL model will become effective for the Bank for the fiscal year beginning after December 15, 2019. Although the new CECL standard is currently not expected to have a significant impact on the Bank’s ALLL, the transition to the CECL model will require significantly greater data requirements and changes to methodologies to accurately account for expected loss. There can be no assurance that the Bank will not be required to increase its reserves and ALLL as a result of the implementation of CECL.See Note 21, located in “Item 8. Financial Statements and Supplementary Data.”

We Are Dependent On Real Estate And Downturns In The Real Estate Market Could Hurt Our Business - A significant portion of our loan portfolio is dependent on real estate. See “Item 1. Business – Supervision and Regulation - Prompt Corrective Action and Other Enforcement Mechanisms.” At December 31, 2017, real estate served as the principal source of collateral with respect to approximately 71% of our loans outstanding. Stresses in economic conditions in our local markets or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of real estate owned by us, as well as our financial condition and results of operations in general and the market value of our common stock.

Acts of nature, including earthquakes, floods and fires, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition.

Our Real Estate Lending Also Exposes Us To The Risk Of Environmental Liabilities - In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third persons for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

Our Business Is Subject To Interest Rate Risk And Changes In Interest Rates May Adversely Affect Our Performance And Financial Condition - Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans & leases, the credit profile of our borrowers, the rates received on loans & leases and securities and rates paid on deposits and borrowings. The difference between the rates received on loans & leases and securities and the rates paid on deposits and borrowings is known as the net interest margin. Like many financial institutions, our net interest margin has declined over the past 10 years. Despite the FRB increasing short-term interest rates by 1.25% since December 2015, continued low interest rates and aggressive competitor pricing strategies may continue to adversely impact our net interest margin in 2018.

Continuing low levels of market interest rates could adversely affect our earnings. The FRB regulates the supply of money and credit in the United States. Its policies determine, in large part, the cost of funds for lending and investing and the yield earned on those loans, leases and investments, which impact the Company’s net interest margin. Beginning in September 2007 the FRB implemented a series of rate reductions in response to the then current state of the national economy and housing market as well as the volatility of financial markets. Despite the FRB increasing short-term interest rates by 1.25% since December 2015 they remain at historically low levels. When interest rates are low, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates, and prepay their existing loans. Under those circumstances, we would not be able to reinvest those prepayments in assets earning interest rates as high as the rates on the prepaid loans. In addition, our CRE and commercial loans, which carry interest rates that, in general, adjust in accordance with changes in the prime rate, will adjust to lower rates. We are also significantly affected by the level of loan & lease demand available in our market. The inability to make sufficient loans & leases directly affects the interest income we earn. Lower loan & lease demand will generally result in lower interest income realized as we place funds in lower yielding investments. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview - Looking Forward: 2018 and Beyond.”

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Although we believe our current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates and increasing competition may have an adverse effect on our business, financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Interest Income/Net Interest Margin” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.”

Our Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models - The processes we use to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

Failure To Successfully Execute Our Strategy Could Adversely Affect Our Performance - Our financial performance and profitability depends on our ability to execute our corporate growth strategy. Continued growth however, may present operating and other problems that could adversely affect our business, financial condition and results of operations. Accordingly, there can be no assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced. Factors that may adversely affect our ability to attain our long-term financial performance goals include those stated elsewhere in this section, as well as the:

· inability to maintain or increase net interest margin;

· inability to control non-interest expense, including, but not limited to, rising employee and healthcare costs and the costs of regulatory compliance;

· inability to maintain or increase non-interest income;

· the need to raise additional capital to support growth and regulatory requirements; and

· continuing ability to expand through de novo branching or otherwise.

Growth May Produce Unfavorable Outcomes - We seek to expand our franchise safely and consistently. A successful growth strategy requires us to manage multiple aspects of the business simultaneously, such as following adequate loan underwriting standards, balancing loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintaining sufficient capital, and recruiting, training and retaining qualified professionals.

Our growth strategy also includes acquisition possibilities (such as Delta National Bancorp) that either enhance our market presence or have potential for improved profitability through financial management, economies of scale or expanded services. We may be exposed to difficulties in combining the operations of acquired institutions into our own operations, which may prevent us from achieving the expected benefits from our acquisition activities. Inherent uncertainties exist in integrating the operations of an acquired institution and there is no assurance that we will be able to do so successfully. Among the issues that we could face are:

• unexpected problems with operations, personnel, technology or credit;

• loss of customers and employees of the acquiree;

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• difficulty in working with the acquiree's employees and customers;

• the assimilation of the acquiree's operations, culture and personnel;

• instituting and maintaining uniform standards, controls, procedures and policies; and

• litigation risk not discovered during the due diligence period.

Undiscovered factors as a result of an acquisition could bring liabilities against us, our management and the management of the institutions we acquire. These factors could contribute to our not achieving the expected benefits from our acquisitions within desired time frames, if at all. Further, although we anticipate cost savings as a result of the merger, we may not be able to fully realize those savings. Any cost savings that are realized may be offset by losses in revenues or other charges to earnings.

New Market Areas And New Lines Of Business Or New Products And Services May Subject Us To Additional Risks. A Failure To Successfully Manage These Risks May Have A Material Adverse Effect On Our Business - As part of our growth strategy, we have implemented and may continue to implement new market areas and new lines of business. We recently have begun to (i) expand into the East Bay area of San Francisco, which is a new market area for us, and (ii) introduce equipment leasing as a new product line. There are risks and uncertainties associated with these efforts, particularly in instances where such product lines are not fully mature. In developing and marketing new lines of business and/or new products and services and/or shifting the focus of our asset mix and/or expanding into new markets, we may invest significant time and resources. Initial timetables may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives in these markets and shifting market preferences, may also impact the successful implementation. Failure to successfully manage these risks could have an adverse effect on our business, financial condition and results of operations.

Our Financial Results Can Be Impacted By The Cyclicality and Seasonality Of Our Agricultural Business And The Risks Related Thereto - The Company has provided financing to agricultural customers in the Central Valley throughout its history. We recognize the cyclical nature of the industry, often caused by fluctuating commodity prices, changing climatic conditions and the availability of seasonal labor, and manage these risks accordingly. The Company remains committed to providing credit to agricultural customers and will always have a material exposure to this industry. Although the Company’s loan portfolio is believed to be well diversified, at various times during 2017 approximately 36% of the Company’s loan balances were outstanding to agricultural borrowers. Commitments are well diversified across various commodities, including dairy, grapes, walnuts, almonds, cherries, apples, pears, and various row crops. Additionally, many individual borrowers are themselves diversified across commodity types, reducing their exposure, and therefore the Company’s, to cyclical downturns in any one commodity.

The Company’s service areas can also be significantly impacted by the seasonal operations of the agricultural industry. As a result, the Company’s financial results can be influenced by the banking needs of its agricultural customers (e.g., generally speaking during the spring and summer customers draw down their deposit balances and increase loan borrowing to fund the purchase of equipment and the planting of crops. Correspondingly, deposit balances are replenished and loans repaid in late fall and winter as crops are harvested and sold).

The Impact of Climate and Government on The Availability of Water is a Long Term Risk That Could Affect Our Customers’ Businesses - The State of California experienced drought conditions from 2013 through most of 2016. Although significant levels of rain and snow in late 2016 and early 2017 alleviated drought conditions in many areas of California, including those in the Company’s primary service area, the long-term risks associated with the availability of water continue to exist.

The farming belt of the Central Valley was often cited as an example of an area that experienced extreme drought during 2013 - 2016. However, it is important to understand that not all areas of the state were impacted equally, and this is particularly true in the Central Valley, which stretches some 450 miles from Bakersfield in the south to Redding in the north. The vast majority of the Company’s agricultural customers are located in the more northern portion of the Central Valley, an area that benefits from the drainage of the Sacramento, American, Mokelumne and Stanislaus rivers. As a result, even during the worst of the drought farmers in this area still had access to reasonable ground water sources that were economical to pump.

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Importantly, the Company has minimal credit exposure in the more southern portion of the Central Valley, defined broadly as an area south of Highway 152, but more importantly the Fresno area and south (including the Westlands Water District). In most of these areas ground water levels were depleted, making farmers increasingly dependent on the delivery of surface water from the Central Valley Project, which cut back deliveries to many farmers during the worst of the drought.

In addition to the impact of climate on the availability of water, the “politics” of water, and how the state and federal governments ultimately manage this resource, could also impact how much water our customers have access to. As an example, many of our agricultural customers have senior riparian water rights, which provide them the legal right to access surface water from the rivers that abut their property. In the spring of 2015, the State of California took the extreme step of threatening to curtail certain riparian water rights for those farmers taking water from the Delta, and as a result affected growers agreed to voluntarily cutback 25% of their normal water usage as opposed to undertaking a protracted legal fight. Even with these cutbacks, our agricultural customers still had access to sufficient levels of water to satisfy their needs, however, this situation points out how the “politics” of water can also affect the availability of water.

The Company monitors the water situation through: (i) regularly reviewing ground water level reports provided by California’s Department of Water Resources; (ii) requiring water budgets and plans from all of our agricultural borrowers that detail the sources of their irrigation water and the irrigation requirements to achieve their crop plan; and (iii) in the case of new permanent crop development projects, requiring well tests. We recognize that the availability of water remains a long-term risk in the Central Valley.

We Face Strong Competition From Financial Service Companies And Other Companies That Offer Banking Services That Could Adversely Impact Our Business - The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans & leases. We compete for loans & leases principally through the interest rates and loan & lease fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services business may reduce our market share, decrease loan & lease demand, cause the prices we charge for our services to fall, or decrease our net interest margin by forcing us to offer lower lending interest rates and pay higher deposit interest rates. Therefore, our results may differ in future periods depending upon the nature or level of competition.

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Many of our competitors offer products and services that we do not offer, and many have substantially greater resources, such as greater capital resources and more access to longer term, lower cost funding sources. Many also have greater name recognition and market presence that benefit them in attracting business. In addition, larger competitors may be able to price loans & lease and deposits more aggressively than we do. Our larger competitors generally have easier access to capital, and often on better terms. Some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured state-chartered banks, national banks and federal savings institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services. Other competitors are subject to similar regulation but have the advantages of larger established customer bases, higher lending limits, extensive branch networks, numerous automated teller machines, greater advertising and marketing budgets or other factors. Some of our competitors have other advantages, such as tax exemption in the case of credit unions, and lesser regulation in the case of mortgage companies and specialty finance companies.

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Deposit Insurance Assessments Could Increase At Any Time, Which Will Adversely Affect Profits - FDIC deposit insurance expense for the years 2017, 2016, and 2015 was $932,000, $1.17 million, and $1.19 million, respectively. During 2011, the FDIC changed its methodology for calculating deposit premiums, See “Item 1. Business – Supervision and Regulation – Deposit Insurance.” Any increases could have adverse effects on the operating expenses and results of operations of the Company.

We May Not Be Able To Attract And Retain Skilled People - Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most of our activities can be intense and we may not be able to hire people or to retain them. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

Our Internal Operations Are Subject To A Number Of Risks - We are subject to certain operations risks, including, but not limited to, information system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. We maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, but should such an event occur that is not prevented or detected by our internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on our business, financial condition or results of operations.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan & leases and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

Natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans and lessees to make lease payments, impair the value of collateral securing loans & leases, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Operations in several of our markets could be disrupted by both the evacuation of large portions of the population as well as damage and or lack of access to our banking and operation facilities. While we have not experienced such an occurrence to date, other natural disasters, acts of war or terrorism or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

We Depend On Cash Dividends From The Bank To Meet Our Cash Obligations - As a holding company, dividends from the Bank provide a substantial portion of our cash flow used to service the interest payments on our subordinated debentures issued in 2003 and our other obligations, including cash dividends. See “Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” Various statutory provisions restrict the amount of dividends our subsidiary bank can pay to us without regulatory approval.

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A Lack Of Liquidity Could Adversely Affect Our Operations And Jeopardize Our Business, Financial Condition And Results Of Operations - Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. An inability to raise funds through deposits, borrowings, the sale of our investment securities, Federal Home Loan Bank advances, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our most important source of funds consists of deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff. If customers move money out of bank deposits and into other investments, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

Other primary sources of funds consist of cash flows from operations, investment maturities and sales of investment securities and proceeds from the issuance and sale of any equity and debt securities to investors. Additional liquidity is provided by the ability to borrow from the Federal Reserve Bank and the Federal Home Loan Bank and our ability to raise brokered deposits. We also may borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the bank or non-bank financial services industries or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the bank or non-bank financial services industries.

As of December 31, 2017, approximately $1.4 billion, or 51.9%, of our deposits consisted of interest-bearing demand deposits, savings and money market accounts. Based on past experience, we believe that our deposit accounts are relatively stable sources of funds. If we increase interest rates paid to retain deposits, our earnings may be adversely affected, which could have an adverse effect on our business, financial condition and results of operations. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to our stockholders or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

Cyber Security Is A Growing Risk For Financial Institutions - Our business requires the secure handling of sensitive client information. We also rely heavily on communications and information systems to conduct our business. Cyber incidents include intentional attacks and unintentional events that may present unauthorized access to digital systems that disrupt operations, corrupt data, release sensitive information or cause denial-of-service on our websites. We store, process and transmit account information in connection with lending and deposit relationships, including funds transfer and online banking. A breach of cyber-security systems of the Bank, our vendors or customers, or widely publicized breaches of other financial institutions could significantly harm our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and financial liability. While we have systems and procedures designed to prevent security breaches, we cannot be certain that advances in criminal capabilities, physical system or network break-ins or inappropriate access will not compromise or breach the technology protecting our networks or proprietary client information.

We process debit card transactions initiated by our customers at merchant locations around the world. When a merchant is impacted by a cyber breach, we are exposed to the risk of financial losses due to fraudulent card activity, as well as increases in associated operational expense.

We Rely On Third-Party Vendors For Important Aspects Of Our Operation - We depend on the accuracy and completeness of information and systems provided by certain key vendors, including but not limited to data processing, payroll processing, technology support, investment safekeeping and accounting. Our ability to operate, as well as our financial condition and results of operations, could be negatively affected in the event of an interruption of an information system, an undetected error, a cyber breach, or in the event of a natural disaster whereby certain vendors are unable to maintain business continuity.

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We May Be Adversely Affected By The Soundness Of Other Financial Institutions - Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, broker-dealers, investment banks and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated if our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or cover the derivative exposure due. Any such losses could have a material adverse effect on our business, financial condition and results of operations.

Deterioration Of Credit Quality Or Insolvency Of Insurance Companies May Impede Our Ability To Recover Losses - The financial crisis led certain major insurance companies to be downgraded by rating agencies. We have property, casualty and financial institution risk coverage underwritten by several insurance companies. In addition, some of our investments in obligations of state and political subdivisions are insured by insurance companies. While we closely monitor credit ratings of our insurers and insurers of our municipality securities, and we are poised to make quick changes if needed, we cannot predict an unexpected inability to honor commitments. We also invest in bank-owned life insurance policies on certain members of senior Management, which may lose value in the event of the carriers' insolvency. In the event that our bank-owned life insurance policy carriers' credit ratings fall below investment grade, we may exchange policies underwritten by them to another carrier at a cost charged by the original carrier, or we may terminate the policies that may result in adverse tax consequences.

Our loan portfolio is also primarily secured by properties located in earthquake or fire-prone zones. In the event of a disaster that causes pervasive damage to the region in which we operate, not only the Bank, but also the loan collateral may suffer losses not recovered by insurance.

Risks Associated With Our Industry

We Are Subject To Government Regulation That Could Limit Or Restrict Our Activities, Which In Turn Could Adversely Impact Our Financial Performance - The financial services industry is regulated extensively and we are subject to examination, supervision and comprehensive regulations by various regulatory agencies. Federal and state regulations are designed primarily to protect the deposit insurance funds and consumers, and not to benefit our stockholders. These regulations can sometimes impose significant limitations on our operations and increase our cost of doing business.

Further, federal monetary policy, particularly as implemented by the FRB, significantly affects economic conditions for us.

Proposals to change the laws and regulations governing the operations and taxation of, and federal insurance premiums paid by, banks and other financial institutions and companies that control such institutions are frequently raised in the U.S. Congress, the California legislature and before bank regulatory authorities. The likelihood of any major changes in the future and the impact such changes, including the Dodd-Frank Act, might have on us or the Bank are impossible to determine. Similarly, proposals to change the accounting treatment applicable to banks and other depository institutions are frequently raised by the SEC, the federal banking agencies, the IRS and other appropriate authorities. The likelihood and impact of any additional future changes in law or regulation and the impact such changes might have on us or the Bank are impossible to determine at this time.

Risks Associated With Our Stock

Our Stock Trades Less Frequently Than Others - The Company’s common stock is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol "FMCB." Management is aware that there are private transactions in the Company’s common stock. However, the limited trading market for the Company’s common stock may make it difficult for stockholders to dispose of their shares.

Our Stock Price Is Affected By A Variety Of Factors - Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors discussed in this section, including, among other things:

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· actual or anticipated variations in quarterly results of operations;

· operating and stock price performance of other companies that investors deem comparable to our Company;

· news reports relating to trends, concerns and other issues in the financial services industry;

· available investment liquidity in our market area since our stock is not listed on any exchange; and

· perceptions in the marketplace regarding our Company and/or its competitors.

Our Common Stock Is Not An Insured Deposit - Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.

Item 1B. Unresolved Staff Comments

The Company has no unresolved comments received from staff at the SEC.

Item 2. Properties

Farmers & Merchants Bancorp along with its subsidiaries are headquartered in Lodi, California. Executive offices are located at 111 W. Pine Street. Banking services are provided in twenty-seven locations in the Company's service area. Of the twenty- seven locations, seventeen are owned and ten are leased. The expiration of these leases occurs between the years 2020 and 2026. See Note 20, located in “Item 8. Financial Statements and Supplementary Data.”

Item 3. Legal Proceedings

Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against the Company or its subsidiaries. Based upon information available to the Company, its review of such lawsuits and claims and consultation with its counsel, the Company believes the liability relating to these actions, if any, would not have a material adverse effect on its consolidated financial statements.

There are no material proceedings adverse to the Company to which any director, officer or affiliate of the Company is a party.

Item 4. Mine Safety Disclosures

Not Applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common stock of Farmers & Merchants Bancorp is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.” Additionally, management is aware that there are private transactions in the Company’s common stock.

The following table summarizes the actual high, low, and close sale prices for the Company's common stock since the first quarter of 2016. These figures are based on activity posted on the OTCQX and on private transactions between individual stockholders that are reported to the Company. Since there is limited trading in our stock, (See “Item 1A. Risk Factors – Risks Associated With Our Stock”) the “Close” sale prices represent the volume weighted average close prices for the last month of the quarter.

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	Calendar Quarter	High		Low		Close		Cash Dividends Declared (Per Share)
2017	Fourth quarter	$	689	$	635	$	676	$	6.80
	Third quarter		645		605		639		-
	Second quarter		630		595		620		6.75
	First quarter		640		595		605		-

	Calendar Quarter	High		Low		Close		Cash Dividends Declared (Per Share)
2016	Fourth quarter	$	650	$	595	$	622	$	6.55
	Third quarter		600		550		596		-
	Second quarter		645		501		579		6.55
	First quarter		644		501		544		-

As of January 31, 2018, there were approximately 1,642 stockholders of record of the Company’s common stock. However, since approximately 15% of our common stock shares are held by brokers on behalf of stockholders, we are unable to estimate the total number of stockholders.

The Company and, before the Company was formed, the Bank, has paid cash dividends for the past 83 consecutive years. There are limitations under Delaware corporate law as to the amounts of cash dividends that may be paid by the Company. Additionally, if we decided to defer interest on our 2003 subordinated debentures, we would be prohibited from paying cash dividends on the Company’s common stock. The Company is dependent on cash dividends paid by the Bank to fund its cash dividend payments to its stockholders. There are regulatory limitations on cash dividends that may be paid by the Bank under state and federal laws. See “Item 1. Business – Supervision and Regulation.”

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018.

Repurchases under the program may be made from time to time on the open market or through private transactions. The repurchase program also requires that no purchases may be made if the Bank would not remain “well-capitalized” after the repurchase.

There were no shares repurchased by the Company during 2017. The approximate dollar value of shares that may yet be purchased under the program is $20 million.

On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Computershare (formerly Registrar and Transfer Company), as Rights Agent, and the Company declared a dividend of a right to acquire one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock, $0.01 par value per share, to stockholders of record at the close of business on August 15, 2008. Generally, the Rights are only triggered and become exercisable if a person or group (the “Acquiring Person”) acquires beneficial ownership of 10 percent or more of the Company’s common stock or announces a tender offer for 10 percent or more of the Company’s common stock.

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The Rights Plan is similar to plans adopted by many other publicly traded companies. The effect of the Rights Plan is to discourage any potential acquirer from triggering the Rights without first convincing Farmers & Merchants Bancorp’s Board of Directors that the proposed acquisition is fair to, and in the best interest of, all of the stockholders of the Company. The provisions of the Plan, if triggered by the Acquiring Person, will substantially dilute the equity and voting interest of any potential acquirer unless the Board of Directors approves of the proposed acquisition (under Article XV of the Company’s Certificate of Incorporation, the Board of Directors has the authority to consider any and all factors in determining whether an acquisition is in the best interests of the Company and its stockholders). Each Right, if and when exercisable, will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value, at a purchase price of $1,200 for each one one-hundredth of a share, subject to adjustment. Each holder of a Right (except for the Acquiring Person, whose Rights will be null and void upon such event) shall thereafter have the right to receive, upon exercise, that number of Common Shares of the Company having a market value of two times the exercise price of the Right. At any time before a person becomes an Acquiring Person, the Rights can be redeemed, in whole, but not in part, by Farmers and Merchants Bancorp’s Board of Directors at a price of $0.001 per Right.

The Rights Plan was set to expire on August 5, 2018. On November 19, 2015, the Board of Directors approved a seven-year extension of the term of the Rights Plan.  Pursuant to an Amendment to the Rights Agreement dated February 18, 2016, the term of the Rights Plan was extended from August 5, 2018 to August 5, 2025. The extension of the term of the Rights Plan was intended as a means to continue to guard against abusive takeover tactics and was not in response to any particular proposal. The Board also increased the purchase price under the Rights Plan to $1,600 per one one-hundredth of a preferred share from $1,200, to reflect the increase in the market price of the Company’s common stock over the past several years.

During 2017, the Company issued 4,975 shares of common stock, which were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued had prices ranging from $590 per share to $595 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital. See Note 15, located in “Item 8. Financial Statements and Supplementary Data.”

During 2016, the Company issued 16,542 shares of common stock, of which 4,610 shares were contributed to the Bank’s non-qualified defined contribution retirement plans and 11,932 shares were issued in the acquisition of Delta National Bancorp. The shares issued had prices ranging from $525 per share to $580 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

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Performance Graphs

The following graph compares the Company’s cumulative total stockholder return on common stock from December 31, 2012 to December 31, 2017 to that of: (i) the Morningstar Banks Index - Regional (US) Industry Group; and (ii) the cumulative total return of the New York Stock Exchange market index. The graph assumes an initial investment of $100 on December 31, 2012 and reinvestment of dividends. The stock price performance set forth in the following graph is not necessarily indicative of future price performance. The Company’s stock price data is based on activity posted on the OTCQX and on private transactions between individual stockholders that are reported to the Company. This data was furnished by Zacks SEC Compliance Services Group.

This graph shall not be deemed filed or incorporated by reference into any filing under the Securities Act of 1933.

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Item 6. Selected Financial Data

Summary of Income:	2017			2016			2015			2014			2013
Total Interest Income	$	114,612		$	99,266		$	90,075		$	81,521		$	76,531
Total Interest Expense		6,289			4,196			3,325			2,813			2,891
Net Interest Income		108,323			95,070			86,750			78,708			73,640
Provision for Credit Losses		2,850			6,335			750			1,175			425
Net Interest Income After Provision for Credit Losses		105,473			88,735			86,000			77,533			73,215
Total Non-Interest Income		16,762			15,257			14,575			14,329			15,937
Total Non-Interest Expense		67,754			58,172			56,259			51,366			50,870
Income Before Income Taxes		54,481			45,820			44,316			40,496			38,282
Provision for Income Taxes		26,111			16,097			16,924			15,094			14,221
Net Income	$	28,370		$	29,723		$	27,392		$	25,402		$	24,061
Balance Sheet Data:
Total Assets	$	3,075,452		$	2,922,121		$	2,615,345		$	2,360,551		$	2,076,073
Loans & Leases		2,215,295			2,177,601			1,996,359			1,712,244			1,388,236
Allowance for Credit Losses		50,342			47,919			41,523			35,401			34,274
Investment Securities		536,056			506,372			430,533			430,405			473,144
Deposits		2,723,228			2,581,711			2,277,532			2,064,073			1,807,691
Shareholders' Equity		299,660			279,981			251,835			233,178			209,904
Selected Ratios:
Return on Average Assets		0.94	%		1.12	%		1.12	%		1.17	%		1.21	%
Return on Average Equity		9.66	%		11.17	%		11.21	%		11.43	%		11.54	%
Dividend Payout Ratio		38.71	%		35.25	%		37.08	%		39.05	%		40.41	%
Average Loans & Leases to Average Deposits		82.18	%		88.63	%		84.44	%		79.99	%		74.28	%
Average Equity to Average Assets		9.77	%		10.05	%		10.02	%		10.28	%		10.52	%
Period-end Shareholders' Equity to Total Assets		9.74	%		9.58	%		9.63	%		9.88	%		10.11	%
Basic Per Share Data:
Net Income (1)	$	35.03		$	37.44		$	34.82		$	32.64		$	30.93
Cash Dividends Per Share	$	13.55		$	13.10		$	12.90		$	12.70		$	12.50

⁽¹⁾ Based on the weighted average number of shares outstanding of 809,834, 793,970, 786,582, 778,358, and 777,882 for the years ended December 31, 2017, 2016, 2015, 2014, and 2013, respectively.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Although the Company has initiated efforts to expand its geographic footprint into the East Bay area of San Francisco,  California (see Item 1: Business – Service Area), the Company’s primary service area remains the mid Central Valley of California, a region that can be significantly impacted by the seasonal needs of the agricultural industry. Accordingly, discussion of the Company’s Financial Condition and Results of Operations is influenced by the seasonal banking needs of its agricultural customers (e.g., during the spring and summer customers draw down their deposit balances and increase loan borrowing to fund the purchase of equipment and planting of crops. Correspondingly, deposit balances are replenished and loans repaid in late fall and winter as crops are harvested and sold).

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The Five-Year Period: 2013 through 2017

Through much of 2007 the economy in our primary service area was strong, the stock market rising and individuals and businesses doing well. Then in October 2007 the financial markets started what would become a major adjustment and an economic recession began, the impact of which is still being felt today in the Central Valley of California. The Central Valley was one of the hardest hit areas in the country during the recession. In many areas housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has improved throughout most of the Central Valley, in many of the Company’s market segments housing prices remain below peak levels and unemployment levels remain above those in other areas of the state and country.

Despite this challenging economic environment, in management’s opinion, the Company’s operating performance over the past five years has been exceptionally strong.

We use certain non-GAAP financial measures to provide supplemental information regarding our performance. Income Tax Expense for the year ended 2017 includes a one-time, non-cash $6.3 million charge related to the re-measurement of the Company’s Deferred Tax Asset (“DTA”) as a result of the passage of the Tax Cuts and Jobs Act in 2017. We believe that presenting Adjusted Net Income, excluding the impact of the DTA re-measurement charge, provides additional clarity to the users of financial statements regarding core financial performance and allows for a better year-over-year comparison of trends in core profitability.

(in thousands, except per share data)

Financial Performance Indicator	2017			2016			2015			2014			2013
Pre Tax Income	$	54,481		$	45,820		$	44,316		$	40,496		$	38,282
Income Tax Expense		26,111			16,097			16,924			15,094			14,221
Effect of Income Tax Rate Change
DTA Re-measurement		(6,300	)		-			-			-			-
Adjusted Income Tax Expense		19,811			16,097			16,924			15,094			14,221
Non-GAAP Adjusted Net Income		34,670			29,723			27,392			25,402			24,061
Effect of Income Tax Rate Change
DTA Re-measurement		(6,300	)		-			-			-			-
Net Income (See Note 1)	$	28,370		$	29,723		$	27,392		$	25,402		$	24,061
Total Assets		3,075,452			2,922,121			2,615,345			2,360,551			2,076,073
Total Loans & Leases		2,215,295			2,177,601			1,996,359			1,712,244			1,388,236
Total Deposits		2,723,228			2,581,711			2,277,532			2,064,073			1,807,691
Total Shareholders’ Equity		299,660			279,981			251,835			233,178			209,904
Total Risk-Based Capital Ratio		13.07	%		12.80	%		12.23	%		12.93	%		13.99	%
Non-Performing Loans as a % of Total Loans		0.00	%		0.14	%		0.11	%		0.13	%		0.19	%
Substandard Loans as a % of Total Loans		0.40	%		0.29	%		0.31	%		0.21	%		0.41	%
Net Charge-Offs (Recoveries) to Average Loans		0.02	%		0.00	%		(0.30	%)		0.00	%		0.03	%
Loan Loss Allowance as a % of Total Loans		2.27	%		2.19	%		2.07	%		2.06	%		2.46	%
Return on Average Assets		0.94	%		1.12	%		1.12	%		1.17	%		1.21	%
Adjusted Return on Average Assets		1.15	%		1.12	%		1.12	%		1.17	%		1.21	%
Return on Average Equity		9.66	%		11.17	%		11.21	%		11.43	%		11.54	%
Adjusted Return on Average Equity		11.79	%		11.17	%		11.21	%		11.43	%		11.54	%
Earnings Per Share		35.03			37.44			34.82			32.64			30.93
Adjusted Earnings Per Share		42.81			37.44			34.82			32.64			30.93
Cash Dividends Per Share		13.55			13.10			12.90			12.70			12.50
Cash Dividends Declared		10,982			10,478			10,157			9,919			9,723

Note 1 – On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by the President. Among other things, this legislation reduces the corporate tax rate from 35% to 21% beginning January 1, 2018. Although the Company believes that this reduction in the corporate tax rate will have a significant positive impact on future financial performance, U.S. generally accepted accounting principles require that all companies re-measure their DTA’s using the new lower tax rate as of the date of enactment of the legislation. As a result the Company’s net income for 2017 includes a $6.3 million re-measurement reflected as a one-time, non-cash increase to income tax expense in the 4^th quarter. Our situation is not unique in that the majority of all financial institutions reported significant DTA re-measurements in the 4^th quarter.  Excluding the impact of the $6.3 million DTA re-measurement, non-GAAP adjusted net income for the year totaled $34.6 million, an increase of $5.0 million or 16.8% over the prior year, which would have resulted in an adjusted return on average assets of 1.15% and adjusted return on average equity of 11.79%.

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Management believes that the Company’s performance compared very favorably to its peer banks during the five-year period ending December 31, 2017:

· Net income over the five-year period totaled $134.9 million.

· Return on Average Assets averaged 1.11% over the five-year period.

· Total assets increased 55.7% from $1.9 billion at December 31, 2012 to $3.1 billion at December 31, 2017.

· Total loans & leases increased 77.7% from $1.2 billion at December 31, 2012 to $2.2 billion at December 31, 2017.

· Total deposits increased 58.1% from $1.7 billion at December 31, 2012 to $2.7 billion at December 31, 2017.

More recently:

· In 2017, the Company earned $28.4 million for a return on average assets of .94%. Without the impact of the re-measurement of the deferred tax asset the Company would have earned non-GAAP adjusted net income of $34.6 million for a return on average assets of 1.15%.

· In 2017, the Company increased its cash dividend per share by 3.4% over 2016 levels, and our strong financial performance has allowed us to increase dividends every year during this five-year period.

· The Company’s total risk based capital ratio was 13.07% at December 31, 2017, and the Bank achieved the highest regulatory classification of “well capitalized” in each of the previous five years. See “Financial Condition – Capital.”

· The Company continued to diversify its: (1) geographic footprint by acquiring Delta National Bancorp with branches in Turlock, Manteca and Riverbank.

· The Company’s asset quality remains very strong compared to peer banks at the present time, when measured by: (1) net charge-offs at 0.02% of average loans & leases during 2017; (2) no non-accrual loans at December 31, 2017; and (3) substandard loans & leases totaling 0.40% of total loans & leases at December 31, 2017. See “Results of Operations – Provision and Allowance for Credit Losses” and “Financial Condition – Classified Loans & Leases and Non-Performing Assets.”

Because of this strong earnings performance, capital position, and asset quality, stockholders have benefited from the fact that cash dividends per share have increased 12.0% since 2012, and totaled $64.75 per share over the five-year period. The 2017 dividend of $13.55 per share represents a 2.00% yield based upon the December 31, 2017 closing stock price of $676 per share (See “Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”).

28

Looking Forward: 2018 and Beyond

In management’s opinion, the following key issues will continue to influence the financial results of the Company in 2018 and future years:

· The Company’s earnings are heavily dependent on its net interest margin, which is sensitive to such factors as: (1) market interest rates; (2) the mix of our earning assets and interest-bearing liabilities; and (3) competitor pricing strategies.

- Since December 2015, the FRB has increased short-term market rates by 1.25%. However, market rates remain historically low, and although short-term rates are generally expected to increase in 2018 Management does not expect them to change significantly.

- Loan growth picked-up substantially in 2016 - 2017, partially as a result of our expansion into Walnut Creek, Concord and equipment leasing, but we still face a very competitive business environment. No assurances can be given that this recent growth in the loan & lease portfolio will continue.

- Aggressive competitor pricing for loans, leases and deposits continues to require the Company to respond in order to retain key customers.

The combination of sustained low market interest rates and aggressive competitor pricing has caused the Company’s net interest margin to decline from a high of 5.18% for the year ended December 31, 2006 to 3.88% for the year ended December 31, 2017. Although the increase in short-term interest rates has helped the Company’s loan yields, many of these other factors may continue to adversely affect the net interest margin in 2018. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.”

· The Company’s results are impacted by changes in the credit quality of its borrowers. Substandard loans & leases totaled $8.9 million or .40% of total loans & leases at December 31, 2017 vs. $6.4 million or 0.29% of total loans at December 31, 2016. Management believes, based on information currently available, that these levels are adequately covered by the Company’s $50.3 million allowance for credit losses as of December 31, 2017. See “Results of Operations - Provision and Allowance for Credit Losses” and “Financial Condition – Classified Loans & Leases and Non-Performing Assets.” The Company’s provision for credit losses was $2.9 million in 2017, compared to $6.3 million in 2016 and $750,000 in 2015. See “Item 1A. Risk Factors.”

· FDIC deposit insurance expense for the years 2017, 2016, and 2015 was $932,000 million, $1.17 million, and $1.19 million, respectively. In 2011, the FDIC changed its methodology for calculating deposit premiums. See “Item 1. Business – Supervision and Regulation – Deposit Insurance.” While FDIC deposit insurance assessments have stabilized in recent years, they remain well above the pre-recession level the Company paid in 2007.

· Since the passage of the Dodd-Frank Act in 2010, Congress and the former Obama Administration implemented broad changes to the regulation of consumer financial products and the financial services industry as a whole. These changes could significantly affect the Company’s product offerings, pricing and profitability in areas such as debit and credit cards, home mortgages and deposit service charges. What ultimate impact the new Trump Administration will have on deregulation and/or tax relief is yet unknown.

· The Company has (i) expanded its geographic footprint through denovo branch expansion in Walnut Creek and Concord, CA and through acquisition in Manteca and Riverbank, CA and (ii) established equipment leasing as a new line of business. Although Management believes that these initiatives will result in increased asset growth and earnings, along with reduced concentration risks, the start-up costs related to staff and facilities are significant and will take time to recoup.

· The company will benefit significantly in 2018 and thereafter from the reduction of the federal corporate tax rate which changes from 35% to 21% pursuant to the recently enacted Tax Cuts and Jobs Act.

29

Results of Operations

The following discussion and analysis is intended to provide a better understanding of Farmers & Merchants Bancorp and its subsidiaries’ performance during each of the years in the three-year period ended December 31, 2017 and the material changes in financial condition, operating income, and expense of the Company and its subsidiaries as shown in the accompanying financial statements.

Impact of Delta National Bancorp Acquisition on Results of Operations

On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp.  Since the acquisition took place late in the year, and Delta National Bancorp had only $112 million in assets (less than 4% of Farmers & Merchants Bancorp’s total assets), the post-acquisition impact on the Company’s 2016 Results of Operations was immaterial with the exception of a Bargain Purchase Gain of $1.83 million that was booked as non-interest income and $910,000 in acquisition expenses that were booked as non-interest expense (see Note 2, located in “Item 8. Financial Statements and Supplementary Data”). Accordingly, limited discussion of the acquisition’s impact on operating income and expense is included in the following discussion.

Net Interest Income/Net Interest Margin

The tables on the following pages reflect the Company's average balance sheets and volume and rate analysis for the years ending 2017, 2016 and 2015. Average balance amounts for assets and liabilities are the computed average of daily balances.

Net interest income is the amount by which the interest and fees on loans & leases and other interest-earning assets exceed the interest paid on interest-bearing sources of funds. For the purpose of analysis, the interest earned on tax-exempt investments and municipal loans is adjusted to an amount comparable to interest subject to normal income taxes. This adjustment is referred to as “tax equivalent” adjustment and is noted wherever applicable. The presentation of net interest income and net interest margin on a tax equivalent basis is a common practice within the banking industry.

The Volume and Rate Analysis of Net Interest Income summarizes the changes in interest income and interest expense based on changes in average asset and liability balances (volume) and changes in average rates (rate). For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in volume (change in volume multiplied by initial rate); (2) changes in rate (change in rate multiplied by initial volume); and (3) changes in rate/volume, also called “changes in mix” (allocated in proportion to the respective volume and rate components).

The Company’s earning assets and rate sensitive liabilities are subject to repricing at different times, which exposes the Company to income fluctuations when interest rates change. In order to minimize income fluctuations, the Company attempts to match asset and liability maturities. However, some maturity mismatch is inherent in the asset and liability mix. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.”

30

Farmers & Merchants Bancorp

Year-to-Date Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Year Ended December 31, 2017
Assets	Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	176,283		$	2,060			1.17	%
Investment Securities:
U.S. Treasuries		81,833			891			1.09	%
U.S. Govt SBA		33,255			522			1.57	%
Government Agency & Government-Sponsored Entities		3,104			88			2.84	%
Obligations of States and Political Subdivisions - Non-Taxable		56,484			2,676			4.74	%
Mortgage Backed Securities		287,114			6,595			2.30	%
Other		1,170			27			2.31	%
Total Investment Securities		462,960			10,799			2.33	%
Loans & Leases
Real Estate		1,556,122			73,710			4.74	%
Home Equity Lines and Loans		32,606			1,658			5.08	%
Agricultural		263,711			12,059			4.57	%
Commercial		238,650			11,117			4.66	%
Consumer		5,557			289			5.20	%
Other		1,653			37			2.24	%
Leases		80,389			3,812			4.74	%
Total Loans & Leases		2,178,688			102,682			4.71	%
Total Earning Assets		2,817,931		$	115,541			4.10	%
Unrealized Gain on Securities Available-for-Sale		674
Allowance for Credit Losses		(49,439	)
Cash and Due From Banks		45,063
All Other Assets		192,978
Total Assets	$	3,007,207
Liabilities & Shareholders' Equity
Interest Bearing Deposits
Interest Bearing DDA	$	533,480		$	1,053			0.20	%
Savings and Money Market		812,127			1,303			0.16	%
Time Deposits		565,412			3,509			0.62	%
Total Interest Bearing Deposits		1,911,019			5,865			0.31	%
Federal Home Loan Bank Advances		1			-			0.00	%
Subordinated Debt		10,310			424			4.11	%
Total Interest Bearing Liabilities		1,921,330		$	6,289			0.33	%
Interest Rate Spread								3.77	%
Demand Deposits		740,088
All Other Liabilities		51,979
Total Liabilities		2,713,397
Shareholders' Equity		293,810
Total Liabilities & Shareholders' Equity	$	3,007,207
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.10	%
Net Interest Income and Margin on Total Earning Assets					109,252			3.88	%
Tax Equivalent Adjustment					(929	)
Net Interest Income				$	108,323			3.84	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan interest income includes fee income and unearned discount in the amount of $4.9 million for the year ended December 31, 2017. Non-accrual loans and lease financing receivables have been included in the average balances. Yields on securities available-for-sale are based on historical cost.

31

Farmers & Merchants Bancorp

Year-to-Date Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Year Ended December 31, 2016
Assets	Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	53,659		$	287			0.53	%
Investment Securities:
U.S. Treasuries		60,191			572			0.95	%
U.S. Govt SBA		2,323			55			2.37	%
Government Agency & Government-Sponsored Entities		25,624			197			0.77	%
Obligations of States and Political Subdivisions - Non-Taxable		60,332			2,920			4.84	%
Mortgage Backed Securities		215,528			4,663			2.16	%
Other		781			18			2.30	%
Total Investment Securities		364,779			8,425			2.31	%
Loans & Leases
Real Estate		1,460,300			66,969			4.59	%
Home Equity Lines and Loans		31,939			1,562			4.89	%
Agricultural		266,053			10,908			4.10	%
Commercial		216,593			8,886			4.10	%
Consumer		4,987			307			6.16	%
Other		1,943			44			2.26	%
Leases		68,353			2,894			4.23	%
Total Loans & Leases		2,050,168			91,570			4.47	%
Total Earning Assets		2,468,606		$	100,282			4.06	%
Unrealized Gain on Securities Available-for-Sale		4,895
Allowance for Credit Losses		(43,684	)
Cash and Due From Banks		44,385
All Other Assets		173,313
Total Assets	$	2,647,515
Liabilities & Shareholders' Equity
Interest Bearing Deposits
Interest Bearing DDA	$	423,305		$	526			0.12	%
Savings and Money Market		725,127			1,087			0.15	%
Time Deposits		513,105			2,194			0.43	%
Total Interest Bearing Deposits		1,661,537			3,807			0.23	%
Federal Home Loan Bank Advances		3,924			18			0.46	%
Subordinated Debt		10,310			371			3.60	%
Total Interest Bearing Liabilities		1,675,771		$	4,196			0.25	%
Interest Rate Spread								3.81	%
Demand Deposits		651,709
All Other Liabilities		53,950
Total Liabilities		2,381,430
Shareholders' Equity		266,085
Total Liabilities & Shareholders' Equity	$	2,647,515
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.08	%
Net Interest Income and Margin on Total Earning Assets					96,086			3.89	%
Tax Equivalent Adjustment					(1,016	)
Net Interest Income				$	95,070			3.85	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan interest income includes fee income and unearned discount in the amount of $5.1 million for the year ended December 31, 2016. Non-accrual loans and lease financing receivables have been included in the average balances. Yields on securities available-for-sale are based on historical cost.

32

Farmers & Merchants Bancorp

Year-to-Date Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Year Ended December 31, 2015
Assets	Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	66,729		$	172			0.26	%
Investment Securities:
U.S. Treasuries		34,040			451			1.32	%
Government Agency & Government-Sponsored Entities		36,882			185			0.50	%
Obligations of States and Political Subdivisions - Non-Taxable		62,016			3,121			5.03	%
Mortgage Backed Securities		260,579			5,641			2.16	%
Other		5,323			34			0.64	%
Total Investment Securities		398,840			9,432			2.36	%
Loans & Leases
Real Estate		1,251,061			58,701			4.69	%
Home Equity Lines and Loans		31,918			1,709			5.35	%
Agricultural		229,850			9,201			4.00	%
Commercial		229,449			9,374			4.09	%
Consumer		4,820			266			5.52	%
Other		604			14			2.32	%
Leases		54,763			2,293			4.19	%
Total Loans & Leases		1,802,465			81,558			4.52	%
Total Earning Assets		2,268,034		$	91,162			4.02	%
Unrealized Gain on Securities Available-for-Sale		4,483
Allowance for Credit Losses		(38,560	)
Cash and Due From Banks		38,419
All Other Assets		165,348
Total Assets	$	2,437,724
Liabilities & Shareholders' Equity
Interest Bearing Deposits
Interest Bearing DDA	$	350,917		$	243			0.07	%
Savings and Money Market		690,561			1,155			0.17	%
Time Deposits		487,560			1,591			0.33	%
Total Interest Bearing Deposits		1,529,038			2,989			0.20	%
Federal Home Loan Bank Advances		3,937			7			0.18	%
Subordinated Debt		10,310			329			3.19	%
Total Interest Bearing Liabilities		1,543,285		$	3,325			0.22	%
Interest Rate Spread								3.80	%
Demand Deposits		605,592
All Other Liabilities		44,476
Total Liabilities		2,193,353
Shareholders' Equity		244,371
Total Liabilities & Shareholders' Equity	$	2,437,724
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.07	%
Net Interest Income and Margin on Total Earning Assets					87,837			3.87	%
Tax Equivalent Adjustment					(1,087	)
Net Interest Income				$	86,750			3.82	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan interest income includes fee income and unearned discount in the amount of $5.7 million for the year ended December 31, 2015. Non-accrual loans and lease financing receivables have been included in the average balances. Yields on securities available-for-sale are based on historical cost.

33

Farmers & Merchants Bancorp

Volume and Rate Analysis of Net Interest Revenue

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	2017 versus 2016
	Amount of Increase
	(Decrease) Due to Change in:
Interest Earning Assets	Volume			Rate			Net Chg.
Interest Bearing Deposits with Banks	$	1,168		$	605		$	1,773
Investment Securities:
U.S. Treasuries		227			92			319
U.S. Govt SBA		492			(25	)		467
Government Agency & Government-Sponsored Entities		(287	)		178			(109	)
Obligations of States and Political Subdivisions - Non-Taxable		(237	)		(7	)		(244	)
Mortgage Backed Securities		1,629			303			1,932
Other		8			1			9
Total Investment Securities		1,832			542			2,374
Loans & Leases:
Real Estate		4,491			2,250			6,741
Home Equity Lines and Loans		33			63			96
Agricultural		(97	)		1,248			1,151
Commercial		957			1,274			2,231
Consumer		33			(51	)		(18	)
Other		(6	)		(1	)		(7	)
Leases		546			372			918
Total Loans & Leases		5,957			5,155			11,112
Total Earning Assets		8,957			6,302			15,259
Interest Bearing Liabilities
Interest Bearing Deposits:
Interest Bearing DDA		161			366			527
Savings and Money Market		137			79			216
Time Deposits		243			1,072			1,315
Total Interest Bearing Deposits		541			1,517			2,058
Other Borrowed Funds		(9	)		(9	)		(18	)
Subordinated Debt		-			53			53
Total Interest Bearing Liabilities		532			1,561			2,093
Total Change	$	8,425		$	4,741		$	13,166

Notes:  Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total "net change."  The above figures have been rounded to the nearest whole number.

34

Farmers & Merchants Bancorp

Volume and Rate Analysis of Net Interest Revenue

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	2016 versus 2015
	Amount of Increase
	(Decrease) Due to Change in:
Interest Earning Assets	Volume			Rate			Net Chg.
Interest Bearing Deposits with Banks	$	(40	)	$	155		$	115
Investment Securities:
U.S. Treasuries		275			(154	)		121
U.S. Govt SBA		55			-			55
Government Agency & Government-Sponsored Entities		(68	)		80			12
Municipals - Taxable		-			-			-
Obligations of States and Political Subdivisions - Non-Taxable		(83	)		(118	)		(201	)
Mortgage Backed Securities		(975	)		(3	)		(978	)
Other		(48	)		32			(16	)
Total Investment Securities		(844	)		(163	)		(1,007	)
Loans & Leases:
Real Estate		9,622			(1,355	)		8,267
Home Equity Lines and Loans		1			(148	)		(147	)
Agricultural		1,479			228			1,707
Commercial		(527	)		39			(488	)
Consumer		9			32			41
Other		30			-			30
Leases		575			26			601
Total Loans & Leases		11,189			(1,178	)		10,011
Total Earning Assets		10,305			(1,186	)		9,119
Interest Bearing Liabilities
Interest Bearing Deposits:
Interest Bearing DDA		58			225			283
Savings and Money Market		56			(124	)		(68	)
Time Deposits		87			516			603
Total Interest Bearing Deposits		201			617			818
Other Borrowed Funds		-			11			11
Subordinated Debt		-			42			42
Total Interest Bearing Liabilities		201			670			871
Total Change	$	10,104		$	(1,856	)	$	8,248

Notes:  Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total "net change."  The above figures have been rounded to the nearest whole number.

35

2017 Compared to 2016

Net interest income increased 13.9% to $108.3 million during 2017. On a fully tax equivalent basis, net interest income increased 13.7% and totaled $109.3 million during 2017 compared to $96.1 million for 2016. As more fully discussed below, the increase in net interest income was primarily due to a $349.3 million increase in average earning assets.

Net interest income on a tax equivalent basis, expressed as a percentage of average total earning assets, is referred to as the net interest margin. For 2017, the Company’s net interest margin was 3.88% compared to 3.89% in 2016. This decrease in net interest margin was due primarily to a decrease in the mix of loans and leases as a percentage of total earning assets.

Average loans & leases totaled $2.2 billion for the year ended December 31, 2017; an increase of $128.5 million compared to the year ended December 31, 2016. Loans & leases decreased from 83.1% of average earning assets during 2016 to 77.3% in 2017. The year-to-date yield on the loan & lease portfolio increased to 4.71% for the year ended December 31, 2017, compared to 4.47% for the year ended December 31, 2016. This higher yield combined with the impact of increased average loan & lease balances resulted in interest revenue from loans & leases increasing 12.1% to $102.7 million for 2017. The Company continues to experience aggressive competitor pricing for loans & leases to which it may need to respond in order to retain key customers. This could place negative pressure on future loan & lease yields and net interest margin.

The investment portfolio is the other main component of the Company’s earning assets. Historically, the Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities. Since the risk factor for these types of investments is generally lower than that of loans & leases, the yield earned on investments is generally less than that of loans & leases.

Average investment securities increased $98.2 million in 2017 compared to the average balance during 2016. As a result, tax equivalent interest income on securities increased $2.4 million to $10.8 million for the year ended December 31, 2017, compared to $8.4 million for the year ended December 31, 2016. The average yield, on a tax equivalent basis, in the investment portfolio was 2.33% in 2017 compared to 2.31% in 2016. This overall increase in yield was caused primarily by an increase in the mix of mortgage-backed securities as a percentage of total securities and a decrease in the balance of lower yielding Government Agency & Government-Sponsored Entities investments. See “Financial Condition – Investment Securities” for a discussion of the Company’s investment strategy in 2017. Net interest income on the Schedule of Year-to-Date Average Balances and Interest Rates is shown on a tax equivalent basis, which is higher than net interest income as reflected on the Consolidated Statements of Income because of adjustments that relate to income on securities that are exempt from federal income taxes.

Interest-bearing deposits with banks and overnight investments in Federal Funds Sold are additional earning assets available to the Company. Average interest-bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earn interest at the Fed Funds rate, which increased to 1.50% in December 2017. Average interest-bearing deposits with banks for the year ended December 31, 2017, was $176.3 million, an increase of $122.6 million compared to the average balance for the year ended December 31, 2016. Interest income on interest-bearing deposits with banks for the year ended December 31, 2017, increased $1.8 million to $2.1 million from the year ended December 31, 2016.

Average interest-bearing liabilities increased $245.6 million or 14.7% during the twelve months ended December 31, 2017, primarily in lower cost interest-bearing DDA, and savings and money market deposits. See “Financial Condition – Deposits” for a discussion of trends in the Company’s deposit base. Total interest expense on deposits was $5.9 million for 2017 and $3.8 million for 2016. The average rate paid on interest-bearing deposits was 0.31% in 2017 and 0.23% in 2016. See “Overview – Looking Forward: 2018 and Beyond” for a discussion of factors influencing the Company’s future deposit rates and their impact on net interest margin.

36

2016 Compared to 2015

Net interest income increased 9.6% to $95.1 million during 2016. On a fully tax equivalent basis, net interest income increased 9.4% and totaled $96.1 million during 2016 compared to $87.8 million for 2015. As more fully discussed below, the increase in net interest income was primarily due to an increase in average earning assets assisted somewhat by a small increase in the net interest margin.

Net interest income on a tax equivalent basis, expressed as a percentage of average total earning assets, is referred to as the net interest margin. For 2016, the Company’s net interest margin was 3.89% compared to 3.87% in 2015. This increase in net interest margin was due primarily to an increase in the mix of loans and leases as a percentage of total earning assets.

Average loans & leases totaled $2.1 billion for the year ended December 31, 2016; an increase of $247.7 million compared to the year ended December 31, 2015. Loans & leases increased from 79.5% of average earning assets during 2015 to 83.1% in 2016. The year-to-date yield on the loan & lease portfolio declined to 4.47% for the year ended December 31, 2016, compared to 4.52% for the year ended December 31, 2015. This lower yield partially offset the impact of an increase in average loan & lease balances but still resulted in interest revenue from loans & leases increasing 12.3% to $91.6 million for 2016.

The investment portfolio is the other main component of the Company’s earning assets. Historically, the Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities. Since the risk factor for these types of investments is generally lower than that of loans & leases, the yield earned on investments is generally less than that of loans & leases.

Average investment securities decreased $34.1 million in 2016 compared to the average balance during 2015. As a result, tax equivalent interest income on securities decreased $1.0 million to $8.4 million for the year ended December 31, 2016, compared to $9.4 million for the year ended December 31, 2015. The average yield, on a tax equivalent basis, in the investment portfolio was 2.31% in 2016 compared to 2.36% in 2015. This overall decrease in yield was caused primarily by a decrease in the mix of mortgage-backed securities as a percentage of total securities and an increase in the mix of lower yielding short-term U.S. Treasury securities.

Interest-bearing deposits with banks and overnight investments in Federal Funds Sold are additional earning assets available to the Company. Average interest-bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earn interest at the Fed Funds rate, which increased to 0.75% in December 2016. Average interest-bearing deposits with banks for the year ended December 31, 2016, was $53.7 million, a decrease of $13.1 million compared to the average balance for the year ended December 31, 2015. Interest income on interest-bearing deposits with banks for the year ended December 31, 2016, increased $115,000 to $287,000 from the year ended December 31, 2015.

Average interest-bearing liabilities increased $132.5 million or 8.9% during the twelve months ended December 31, 2016, primarily in lower cost interest-bearing DDA, and savings and money market deposits. See “Financial Condition – Deposits” for a discussion of trends in the Company’s deposit base. Total interest expense on deposits was $3.8 million for 2016 and $3.0 million for 2015. The average rate paid on interest-bearing deposits was 0.23% in 2016 and 0.20% in 2015. Since most of the Company’s interest-bearing deposits are priced off of short-term market rates, the Company continues to benefit from the impact of lower market interest rates.

Provision and Allowance for Credit Losses

As a financial institution that assumes lending and credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction), and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. Management reports regularly to the Board of Directors regarding trends and conditions in the loan & lease portfolio and regularly conducts credit reviews of individual loans & leases. Loans & leases that are performing but have shown some signs of weakness are subject to more stringent reporting and oversight.

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Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans & leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan’s or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) under ASC 310-40, if the Company for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans or leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment.

The determination of the general reserve for loans or leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, and qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer & other; and (9) equipment leases. See “Financial Condition – Loans & Leases” for examples of loans & leases made by the Company. The allowance for credit losses attributable to each portfolio segment, which includes both impaired loans & leases and loans & leases that are not impaired, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

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Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

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Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the weakness in residential real estate values over the past five years. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

In addition, the Company's and Bank's regulators, including the FRB, DBO and FDIC, as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Provision for Credit Losses

Changes in the provision for credit losses between years are the result of management’s evaluation, based upon information currently available, of the adequacy of the allowance for credit losses relative to factors such as the credit quality of the loan & lease portfolio, loan & lease growth, current credit losses, and the prevailing economic climate and its effect on borrowers’ ability to repay loans & leases in accordance with the terms of the notes.

The Central Valley of California was one of the hardest hit areas in the country during the recession. In many areas, housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has improved throughout most of the Central Valley, in many of the Company’s market segments housing prices remain below peak levels and unemployment rates remain above those in other areas of the state and country. While, in management’s opinion, the Company’s levels of net charge-offs and non-performing assets as of December 31, 2017, compare very favorably to our peers at the present time, carefully managing credit risk remains a key focus of the Company.

The State of California experienced drought conditions from 2013 through most of 2016.  Although significant levels of rain and snow in late 2016 and early 2017 alleviated drought conditions in many areas of California, including those in the Company’s primary service area, the long-term risks associated with the availability of water continue to exist.  See “Item 1A. Risk Factors” for additional information.

The provision for credit losses totaled $2.9 million in 2017 compared to $6.3 million in 2016. Net charge offs during 2017 were $427,000 compared to net recoveries of $61,000 during 2016 and net recoveries of $5.4 million in 2015. During 2015, the Company was able to fully recover $5.2 million that was charged-off in 2010 on restructured commercial real estate and construction loans. In addition to the full recovery of the charged off principal, this transaction also resulted in the recovery of $353,000 in interest income and the client’s payment of a financing fee of $1.1 million. See “Critical Accounting Policies and Estimates – Allowance for Credit Losses” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk.”

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The following table summarizes the activity and the allocation of the allowance for credit losses for the years indicated. (in thousands)

	2017			2016			2015			2014			2013
Allowance for Credit Losses Beginning of Year	$	47,919		$	41,523		$	35,401		$	34,274		$	34,217
Provision Charged to Expense		2,850			6,335			750			1,175			425
Charge-Offs:
Commercial Real Estate		109			-			-			-			6
Agricultural Real Estate		-			-			-			-			575
Real Estate Construction		-			-			-			-			-
Residential 1st Mortgages		53			21			-			73			16
Home Equity Lines and Loans		3			46			-			70			91
Agricultural		374			-			-			-			23
Commercial		-			-			12			1			60
Consumer & Other		146			105			84			132			120
Total Charge-Offs		685			172			96			276			891
Recoveries:
Commercial Real Estate		109			2			2,939			11			-
Agricultural Real Estate		-			-			-			-			-
Real Estate Construction		-			-			2,225			-			-
Residential 1st Mortgages		40			26			8			-			-
Home Equity Lines and Loans		8			103			87			58			115
Agricultural		17			-			4			8			42
Commercial		8			47			136			86			312
Consumer & Other		76			55			69			65			54
Total Recoveries		258			233			5,468			228			523
Net (Charge-Offs) Recoveries		(427	)		61			5,372			(48	)		(368	)
Total Allowance for Credit Losses, End of Year	$	50,342		$	47,919		$	41,523		$	35,401		$	34,274
Ratios:
Allowance for Credit Losses to:
Total Loans & Leases at Year End		2.27	%		2.19	%		2.07	%		2.06	%		2.00	%
Average Loans & Leases		2.31	%		2.34	%		2.30	%		2.36	%		2.70	%
Consolidated Net (Charge-Offs) Recoveries  to:
Total Loans & Leases at Year End		(0.02	%)		0.00	%		0.27	%		(0.00	%)		(0.02	%)
Average Loans & Leases		(0.02	%)		0.00	%		0.30	%		(0.00	%)		(0.03	%)

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The table below breaks out year-to-date activity by portfolio segment (in thousands):

December 31, 2017	Commercial  Real  Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st  Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer &  Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342

Overall, the Allowance for Credit Losses as of December 31, 2017 increased $2.4 million from December 31, 2016. The allowance allocated to the following categories of loans changed as indicated during the twelve months ended December 31, 2017:

· Agricultural and Agricultural Real Estate allowance balances increased $3.4 million due primarily to an increase of substandard loans related to one borrower offset somewhat by a decrease in Agricultural loan balances.

· Real Estate Construction allowance balances decreased $1.4 million due to a decrease in loan balances combined with a decline in the overall risk of the portfolio as several major projects moved out of the construction phase and into lease-up.

· Commercial allowance balances increased $682,000 due to an increase in loan balances.

· Lease allowance balances decreased $223,000 due to the Company’s assessment that approximately five years of experience in this financing segment supported the elimination of the qualitative factor for “new market segments” in the loan loss allowance.

	Allowance Allocation at December 31,
(in thousands)	2017 Amount		Percent of Loans in Each Category to  Total Loans			2016  Amount		Percent of Loans in Each  Category to Total Loans			2015 Amount		Percent of Loans in Each Category to Total Loans			2014 Amount		Percent of Loans in Each Category to  Total Loans			2013 Amount		Percent of Loans in Each Category to Total Loans
Commercial Real Estate	$	10,922		31.1	%	$	11,110		30.9	%	$	10,063		30.4	%	$	7,842		28.9	%	$	5,178		29.5	%
Agricultural Real Estate		12,085		22.5	%		9,450		21.4	%		6,881		21.2	%		4,185		20.8	%		3,576		23.6	%
Real Estate Construction		1,846		4.5	%		3,223		8.1	%		2,485		7.6	%		1,669		5.6	%		654		3.0	%
Residential 1st Mortgages		815		11.7	%		865		11.1	%		789		10.3	%		1,022		10.0	%		1,108		10.9	%
Home Equity Lines and Loans		2,324		1.6	%		2,140		1.4	%		2,146		1.7	%		2,426		1.9	%		2,767		2.5	%
Agricultural		8,159		12.3	%		7,381		13.5	%		6,308		14.7	%		6,104		16.4	%		12,205		18.4	%
Commercial		9,197		12.0	%		8,515		10.0	%		7,836		10.5	%		8,195		13.5	%		5,697		10.8	%
Consumer & Other		209		0.3	%		200		0.3	%		175		0.3	%		218		0.3	%		176		0.4	%
Leases		3,363		4.0	%		3,586		3.3	%		3,294		3.3	%		2,211		2.6	%		639		0.9	%
Unallocated		1,422					1,449					1,546					1,529					2,274
Total	$	50,342		100.0	%	$	47,919		100.0	%	$	41,523		100.0	%	$	35,401		100.0	%	$	34,274		100.0	%

As of December 31, 2017, the allowance for credit losses was $50.3 million, which represented 2.27% of the total loan & lease balance. At December 31, 2016, the allowance for credit losses was $47.9 million or 2.19% of the total loan & lease balance. After reviewing all factors above, based upon information currently available, management concluded that the allowance for credit losses as of December 31, 2017, was adequate.

Non-Interest Income

Non-interest income includes: (1) service charges and fees from deposit accounts; (2) net gains and losses from investment securities; (3) increases in the cash surrender value of bank owned life insurance; (4) debit card and ATM fees; (5) net gains and losses on non-qualified deferred compensation plan investments; and (6) fees from other miscellaneous business services. See “Overview – Looking Forward: 2018 and Beyond.”

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2017 Compared to 2016

Non‑interest income totaled $16.8 million for 2017, an increase of $1.5 million or 9.9% from non-interest income of $15.3 million for 2016.

Service charges on deposit accounts totaled $3.5 million for 2017, an increase of $77,000 or 2.1% from service charges on deposit accounts of $3.4 million in 2016. This was due primarily to fees related to the Company’s Overdraft Privilege Service.

Net (loss) gain on investment securities was a net gain of $131,000 in 2017 compared to a net loss of $284,000 for 2016. See “Financial Condition-Investment Securities” for a discussion of the Company’s investment strategy.

Debit card and ATM fees totaled $3.9 million in 2017, an increase of 14.0% or $475,000 from $3.4 million in 2016. This was primarily due to increased numbers of cardholders and increased account activity.

Net gains on deferred compensation plan investments were $2.6 million in 2017 compared to net gains of $2.0 million in 2016. See Note 17, located in “Item 8. Financial Statements and Supplementary Data” for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although Generally Accepted Accounting Principles require these investment gains/losses be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no effect on the Company’s net income.

There was no bargain purchase gain in 2017 as this gain related to the purchase of Delta National Bancorp, which took place in 2016.

Other non-interest income was $4.9 million, an increase of $1.8 million or 60.2% from 2016. This increase was primarily comprised of: (1) a $1.1 million increase in the gain on sale of fixed assets related to the disposition of one of the Company’s properties; (2) $453,000 in non-recurring fees from certain loan customers; and (3) $402,000 in dividend income on equity securities.

2016 Compared to 2015

Non‑interest income totaled $15.3 million, an increase of $682,000 or 4.7% from non-interest income of $14.6 million for 2015.

Service charges on deposit accounts totaled $3.4 million, a decrease of $82,000 or 2.4% from service charges on deposit accounts of $3.5 million in 2015. This was due primarily to a decrease in fees related to the Company’s Overdraft Privilege Service.

Net (loss) gain on investment securities was a net loss of $284,000 in 2016 compared to a net gain of $275,000 for 2015.

Net gains on deferred compensation plan investments were $2.0 million in 2016 compared to net gains of $1.4 million in 2015.

The Company completed its acquisition of Delta National Bancorp in November 2016. This acquisition resulted in a bargain purchase gain of $1.8 million (see Note 2, located in “Item 8. Financial Statements and Supplementary Data.”)

Other non-interest income was $3.1 million, a decrease of $1.3 million or 29.8% from 2015. This decrease was primarily comprised of (1) a $1.1 million financing fee related to the full recovery of a loan previously charged off; and (2) a $392,000 gain on the sale of our Sacramento branch building; both of which occurred in 2015.

Non-Interest Expense

Non-interest expense for the Company includes expenses for: (1) salaries and employee benefits; (2) net gains and losses on non-qualified deferred compensation plan investments; (3) occupancy; (4) equipment; (5) supplies; (6) legal fees; (7) professional services; (8) data processing; (9) marketing; (10) deposit insurance; and (11) other miscellaneous expenses.

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2017 Compared to 2016

Overall, non-interest expense totaled $67.8 million for 2017, an increase of $9.6 million or 16.5% from the year ended December 31, 2016.

Salaries and employee benefits increased $3.8 million or 9.0% in 2017, primarily related to: (1) new staff from the acquisition of Delta National Bancorp; (2) bank wide raises that occurred in mid-2017; and (3) increased contributions to retirement and profit sharing plans.

Net gains on deferred compensation plan investments were $2.6 million in 2017 compared to net gains of $2.0 million in 2016. See Note 17, located in “Item 8. Financial Statements and Supplementary Data” for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although Generally Accepted Accounting Principles require these investment gains/losses be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no effect on the Company’s net income.

Occupancy expense in 2017 totaled $3.5 million, an increase of $558,000 or 18.7% from 2016 and equipment expense in 2017 totaled $4.0 million, an increase of $501,000 or 14.3% from 2016. Both of these increases were primarily related to operating expenses associated with: (1) 3 new branches from the acquisition of Delta National Bancorp and (2) remodeling existing branch offices.

Legal expenses decreased $819,000 from 2016 and totaled $424,000. This decrease was primarily due to legal fees related to: (1) changes to the Company’s by-laws and extension of the Company’s shareholder rights agreement; (2) trademark/branding issues; and (3) the Delta National Bancorp acquisition, which were paid in 2016.

Gain on sale of ORE property totaled $414,000 in 2017 compared to $5.9 million for 2016.  During 2016, the Company sold at a substantial gain a large parcel of ORE that was acquired through foreclosure in 2008.

Other non-interest expense decreased $108,000, or 1.1%, to $9.9 million in 2017 compared to $10.0 million in 2016.

2016 Compared to 2015

Overall, non-interest expense totaled $58.2 million, an increase of $1.9 million or 3.4% for the year ended December 31, 2016.

Salaries and employee benefits increased $2.3 million or 5.6% primarily related to: (1) new staff added for the branches opened in Walnut Creek and Concord, CA and the Company’s equipment leasing activities; (2) bank wide raises that occurred in mid-2015; and (3) increased contributions to retirement and profit sharing plans.

Net gains on deferred compensation plan investments were $2.0 million in 2016 compared to net gains of $1.4 million in 2015.

Occupancy expense in 2016 totaled $3.0 million, an increase of $101,000 or 3.5% from 2015 and equipment expense in 2016 totaled $3.5 million, an increase of $331,000 or 10.5% from 2015. Both of these increases were primarily related to operating lease payments and depreciation expense associated with: (1) expanding into Walnut Creek and Concord, CA and the equipment leasing business; (2) remodeling existing branch offices; and (3) replacing all ATM’s with the newest generation of technology.

Legal expenses increased $822,000 from 2015 and totaled $1.2 million. This increase was primarily due to legal fees related to: (1) changes to the Company’s by-laws and extension of the Company’s shareholder rights agreement; (2) trademark/branding issues; and (3) the Delta National Bancorp acquisition.

Gain on sale of ORE property totaled $5.9 million in 2016 compared to $299,000 for 2015.  During 2016, the Company sold at a substantial gain a large parcel of ORE that was acquired through foreclosure in 2008.

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Other non-interest expense increased $3.5 million, or 52.6%, to $10.0 million in 2016 compared to $6.6 million in 2015. The major components of this increase were: (1) a $1.1 million increase in professional fees of which $633,100 was related to the acquisition of Delta National Bancorp; (2) a $1.1 million increase in amortization expense related to an increase in low income housing tax credit investments (see Income Taxes” for the offsetting credits related to these investments); (3) a $335,000 increase in recruitment and staff training expenses related to the addition of new staff as the Company expands its geographic footprint and business activities; and (4) a $126,000 increase in contributions.

Income Taxes

The provision for income taxes increased $10.0 million during 2017. The effective federal and state tax rate was higher than the statutory rate of 42% due to the signing of the Tax Cuts and Jobs Act by President Trump on December 22, 2017. As a result, during the 4^th quarter of 2017, all companies were required to re-measure their deferred tax assets (DTA) and deferred tax liabilities (DTL) at the new corporate tax rate of 21%. This one-time re-measurement resulted in a $6.3 million increase to the Company’s income tax provision. This DTA re-measurement accompanied by an 8.7% increase in pre-tax earnings resulted in the tax provision increase. The Company will benefit significantly in 2018 from the reduction of the federal corporate tax rate which changes from 35% to 21%.

With the exception of the one-time DTA re-measurement, tax law causes the Company’s taxes payable to approximate or exceed the current provision for taxes on the income statement. Three provisions have had a significant effect on the Company’s current income tax liability:  (1) the restrictions on the deductibility of credit losses; (2) deductibility of pension and other long-term employee benefits only when paid; and (3) the statutory deferral of deductibility of California franchise taxes on the Company’s federal return.

Financial Condition

Investment Securities and Federal Funds Sold

The investment portfolio provides the Company with an income alternative to loans & leases. The debt securities in the Company’s investment portfolio have historically been comprised primarily of: (1) mortgage-backed securities issued by federal government-sponsored entities; (2) debt securities issued by US Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times, the Company has selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities.

The Company’s investment portfolio at December 31, 2017 was $536.1 million compared to $506.4 million at December 31, 2016, an increase of $29.7 million or 5.9%. To protect against future increases in market interest rates, while at the same time generating some reasonable level of current yields, the Company currently invests most of its available funds in either shorter term U.S. Treasury, government agency & government-sponsored entity securities or shorter term (10, 15, and 20 year) mortgage-backed securities. As part of the acquisition of Delta National Bancorp, the Company now owns $29.4 million of floating rate U.S. Government SBA securities.

The Company's total investment portfolio currently represents 17.4% of the Company’s total assets as compared to 17.3% at December 31, 2016.

As of December 31, 2017, the Company held $54.5 million of municipal investments, of which $37.7 million were bank-qualified municipal bonds, all classified as held-to-maturity (“HTM”). In order to comply with Section 939A of the Dodd-Frank Act, the Company performs its own credit analysis on new purchases of municipal bonds. As of December 31, 2017, ninety-nine percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of all municipal investments with particular attention paid to the approximately one percent ($295,000) of the portfolio that is not rated, and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

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Not included in the investment portfolio are interest bearing deposits with banks and overnight investments in Federal Funds Sold. Interest bearing deposits with banks consisted primarily of FRB deposits. The FRB currently pays interest on the deposits that banks maintain in their FRB accounts, whereas historically banks had to sell these Federal Funds to other banks in order to earn interest. Since balances at the FRB are effectively risk free, the Company elected to maintain its excess cash at the FRB. Interest bearing deposits with banks totaled $121.2 million at December 31, 2017 and $43.9 million at December 31, 2016.

The Company classifies its investments as held-to-maturity, trading, or available-for-sale (“AFS”). Securities are classified as held-to-maturity and are carried at amortized cost when the Company has the intent and ability to hold the securities to maturity. Trading securities are securities acquired for short-term appreciation and are carried at fair value, with unrealized gains and losses recorded in non-interest income. As of December 31, 2017 and December 31, 2016, there were no securities in the trading portfolio. Securities classified as available-for-sale include securities, which may be sold to effectively manage interest rate risk exposure, prepayment risk, satisfy liquidity demands and other factors. These securities are reported at fair value with aggregate, unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes.

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Investment Portfolio

The following table summarizes the balances and distributions of the investment securities held on the dates indicated.

	Available for Sale		Held to Maturity		Available for Sale		Held to Maturity		Available for Sale		Held to Maturity
December 31:  (in thousands)	2017				2016				2015
U.S. Treasury Notes	$	144,164	$	-	$	134,428	$	-	$	72,884	$	-
U.S. Government SBA		29,380		-		36,314		-		-		-
Government Agency & Government Sponsored Entities		3,128		-		3,241		-		33,251		-
Obligations of States and Political Subdivisions - Non-Taxable		-		54,460		-		58,109		-		61,396
Mortgage Backed Securities		301,914		-		273,270		-		262,493		-
Other		3,010		-		1,010		-		509		-
Total Book Value	$	481,596	$	54,460	$	448,263	$	58,109	$	369,137	$	61,396
Fair Value	$	481,596	$	55,236	$	448,263	$	58,408	$	369,137	$	62,388

Analysis of Investment Securities Available-for-Sale

The following table is a summary of the relative maturities and yields of the Company's investment securities Available-for-Sale as of December 31, 2017.

December 31, 2017 (in thousands)	Fair Value		Average Yield
U.S. Treasury
One year or less	$	109,935		1.05	%
After one year through five years		24,926		1.01	%
After five years through ten years		9,303		2.28	%
Total U.S. Treasury Securities		144,164		1.13	%
U.S. Government SBA
One year or less		44		2.63	%
After one year through five years		1,925		2.55	%
After five years through ten years		3,619		2.95	%
After ten years		23,792		2.33	%
Total U.S. Government Securities		29,380		2.42	%
Government Agency & Government Sponsored Entities
After one year through five years		3,128		2.89	%
Total Government Agency & Government Sponsored Entities		3,128		2.89	%
Other
One year or less		3,010		2.25	%
Total Other Securities		3,010		2.25	%
Mortgage Backed Securities		301,914		2.39	%
Total Investment Securities Available-for-Sale	$	481,596		2.02	%

Note:  The average yield for floating rate securities is calculated using the current stated yield.

Analysis of Investment Securities Held-to-Maturity

The following table is a summary of the relative maturities and yields of the Company's investment securities Held-to-Maturity as of December 31, 2017. Non-taxable Obligations of States and Political Subdivisions have been calculated on a fully taxable equivalent basis.

December 31, 2017 (in thousands)	Book Value		Average Yield
Obligations of States and Political Subdivisions - Non-Taxable
One year or less	$	1,760		6.17	%
After one year through five years		8,659		4.55	%
After five years through ten years		14,155		4.10	%
After ten years		29,886		5.14	%
Total Obligations of States and Political Subdivisions - Non-Taxable		54,460		4.81	%
Total Investment Securities Held-to-Maturity	$	54,460		4.81	%

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Loans & Leases

Loans & leases can be categorized by borrowing purpose and use of funds. Common examples of loans & leases made by the Company include:

Commercial and Agricultural Real Estate - These are loans secured by farmland, commercial real estate, multifamily residential properties, and other non-farm, non-residential properties  generally within our market area. Commercial mortgage term loans can be made if the property is either income producing or scheduled to become income producing based upon acceptable pre-leasing, and the income will be the Bank's primary source of repayment for the loan. Loans are made both on owner occupied and investor properties; generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe); have debt service coverage ratios of 1.00 or better with a target of greater than 1.20; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.

Real Estate Construction - These are loans for development and construction (the Company generally requires the borrower to fund the land acquisition) and are secured by commercial or residential real estate. These loans are generally made only to experienced local developers with whom the Bank has a successful track record; for projects in our service area; with Loan To Value (LTV) below 75%; and where the property can be developed and sold within 2 years. Commercial construction loans are made only when there is a written take-out commitment from the Bank or an acceptable financial institution or government agency. Most acquisition, development and construction loans are tied to the prime rate or LIBOR with an appropriate spread based on the amount of perceived risk in the loan.

Residential 1^st Mortgages - These are loans primarily made on owner occupied residences; generally underwritten to income and LTV guidelines similar to those used by FNMA and FHLMC; however, we will make loans on rural residential properties up to 20 acres. Most residential loans have terms from ten to twenty years and carry fixed rates priced off of treasury rates. The Company has always underwritten mortgage loans based upon traditional underwriting criteria and does not make loans that are known in the industry as “subprime,” “no or low doc,” or “stated income.”

Home Equity Lines and Loans - These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed $250,000; Combined Loan To Value (CLTV) does not exceed 80%; FICO scores are at or above 670; Total Debt Ratios do not exceed 43%; and in some situations the Company is in a 1^st lien position.

Agricultural - These are loans and lines of credit made to farmers to finance agricultural production. Lines of credit are extended to finance the seasonal needs of farmers during peak growing periods; are usually established for periods no longer than 12 to 24 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.

Commercial - These are loans and lines of credit to businesses that are sole proprietorships, partnerships, LLC’s and corporations. Lines of credit are extended to finance the seasonal working capital needs of customers during peak business periods; are usually established for periods no longer than 12 to 24 months; are often secured by general filing liens on accounts receivable, inventory and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a plant or purchase of a business; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.

Consumer - These are loans to individuals for personal use, and primarily include loans to purchase automobiles or recreational vehicles, and unsecured lines of credit. The Company has a minimal consumer loan portfolio, and loans are primarily made as an accommodation to deposit customers.

Leases –These are leases to businesses or individuals, for the purpose of financing the acquisition of equipment. They can be either “finance leases” where the lessee retains the tax benefits of ownership but obtains 100% financing on their equipment purchases; or “true tax leases” where the Company, as lessor, places reliance on equipment residual value and in doing so obtains the tax benefits of ownership. Leases typically have a maturity of three to ten years, and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

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The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk” for a discussion about the credit risks the Company assumes and its overall credit risk management practices.

Each loan or lease type involves risks specific to the: (1) borrower; (2) collateral; and (3) loan & lease structure. See “Results of Operations - Provision and Allowance for Credit Losses” for a more detailed discussion of risks by loan & lease type. The Company’s current underwriting policies and standards are designed to mitigate the risks involved in each loan & lease type. The Company’s policies require that loans & leases are approved only to those borrowers exhibiting a clear source of repayment and the ability to service existing and proposed debt. The Company’s underwriting procedures for all loan & lease types require careful consideration of the borrower, the borrower’s financial condition, the borrower’s management capability, the borrower’s industry, and the economic environment affecting the loan or lease.

Most loans & leases made by the Company are secured, but collateral is the secondary or tertiary source of repayment; cash flow is our primary source of repayment. The quality and liquidity of collateral are important and must be confirmed before the loan is made.

In order to be responsive to borrower needs, the Company prices loans & leases: (1) on both a fixed rate and adjustable rate basis; (2) over different terms; and (3) based upon different rate indices; as long as these structures are consistent with the Company’s interest rate risk management policies and procedures. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Interest Rate Risk” for further details.

Overall, the Company's loan & lease portfolio at December 31, 2017 totaled $2.2 billion, an increase of $37.7 million or 1.7% over December 31, 2016. This increase has occurred as a result of: (1) the Company’s business development efforts directed toward credit-qualified borrowers; (2) entry into the equipment leasing business; and (3) expansion of our service area into Walnut Creek and Concord. No assurances can be made that this growth in the loan & lease portfolio will continue.

The following table sets forth the distribution of the loan & lease portfolio by type and percent as of December 31 of the years indicated.

	2017					2016					2015					2014					2013
(in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Commercial Real Estate	$	691,639		31.1	%	$	674,445		30.9	%	$	609,602		30.4	%	$	495,316		28.9	%	$	411,037		29.5	%
Agricultural Real Estate		499,231		22.5	%		467,685		21.4	%		424,034		21.2	%		357,207		20.8	%		328,264		23.6	%
Real Estate Construction		100,206		4.5	%		176,462		8.1	%		151,974		7.6	%		96,519		5.6	%		41,092		3.0	%
Residential 1st Mortgages		260,751		11.7	%		242,247		11.1	%		206,405		10.3	%		171,880		10.0	%		151,292		10.9	%
Home Equity Lines and Loans		34,525		1.6	%		31,625		1.4	%		33,056		1.7	%		33,017		1.9	%		35,477		2.5	%
Agricultural		273,582		12.3	%		295,325		13.5	%		293,966		14.7	%		281,963		16.4	%		256,414		18.4	%
Commercial		265,703		12.0	%		217,577		10.0	%		210,804		10.5	%		230,819		13.5	%		150,398		10.8	%
Consumer & Other		6,656		0.3	%		6,913		0.3	%		6,592		0.3	%		4,719		0.3	%		5,052		0.4	%
Leases		88,957		4.0	%		70,986		3.3	%		65,054		3.3	%		44,217		2.6	%		12,733		0.9	%
Total Gross Loans & Leases		2,221,250		100.0	%		2,183,265		100.0	%		2,001,487		100.0	%		1,715,657		100.0	%		1,391,759		100.0	%
Less: Unearned Income		5,955					5,664					5,128					3,413					3,523
Subtotal		2,215,295					2,177,601					1,996,359					1,712,244					1,388,236
Less: Allowance for Credit Losses		50,342					47,919					41,523					35,401					34,274
Loans & Leases, Net	$	2,164,953				$	2,129,682				$	1,954,836				$	1,676,843				$	1,353,962

There were no concentrations of loans exceeding 10% of total loans which were not otherwise disclosed as a category of loans in the above table.

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The following table shows the maturity distribution and interest rate sensitivity of the loan portfolio of the Company on December 31, 2017.

(in thousands)	One Year or Less			Over One Year to Five Years			Over Five Years			Total
Commercial Real Estate	$	41,785		$	169,991		$	473,185		$	684,961
Agricultural Real Estate		12,794			77,619			408,818			499,231
Real Estate Construction		72,246			24,345			3,615			100,206
Residential 1st Mortgages		384			9,423			250,944			260,751
Home Equity Lines and Loans		12			743			33,770			34,525
Agricultural		154,670			91,277			27,635			273,582
Commercial		124,238			103,011			38,454			265,703
Consumer & Other		752			5,552			352			6,656
Leases		331			40,571			48,778			89,680
Total	$	407,212		$	522,532		$	1,285,551		$	2,215,295
Rate Sensitivity:
Fixed Rate	$	52,727		$	276,272		$	559,516		$	888,515
Variable Rate		354,485			246,260			726,035			1,326,780
Total	$	407,212		$	522,532		$	1,285,551		$	2,215,295
Percent		18.38	%		23.59	%		58.03	%		100.00	%

Classified Loans & Leases and Non-Performing Assets

All loans & leases are assigned a credit risk grade using grading standards developed by bank regulatory agencies. See “Results of Operations - Provision and Allowance for Credit Losses” for more detail on risk grades. The Company utilizes the services of a third-party independent loan & lease review firm to perform evaluations of individual loans & leases and review the credit risk grades the Company places on loans & leases. Loans & leases that are judged to exhibit a higher risk profile are referred to as “classified” and these loans & leases receive increased management attention. As of December 31, 2017, classified loans & leases totaled $8.9 million compared to $6.4 million at December 31, 2016.

Classified loans & leases with higher levels of credit risk can be further designated as “impaired” loans & leases. A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. See “Results of Operations - Provision and Allowance for Credit Losses” for further details. Impaired loans & leases consist of: (1) non-accrual loans & leases; and/or (2) restructured loans & leases that are still performing (i.e., accruing interest).

Non-Accrual Loans & Leases - Accrual of interest on loans & leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with respect to interest or principal. When loans & leases are 90 days past due, but in management's judgment are well secured and in the process of collection, they may not be classified as non-accrual. When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed. Income on such loans & leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. As of December 31, 2017 and 2016, non-accrual loans & leases totaled $0 and $3.1 million.

Restructured Loans & Leases - A restructuring of a loan or lease constitutes a TDR under ASC 310-40, if the Company for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. Restructured loans or leases typically present an elevated level of credit risk, as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR loans, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment.

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At December 31, 2017, restructured loans totaled $6.3 million all of which were performing and at December 31, 2016, restructured loans totaled $7.5 million with $6.0 million performing.

Other Real Estate - Loans where the collateral has been repossessed are classified as other real estate ("ORE") or, if the collateral is personal property, the loan is classified as other assets on the Company's financial statements.

The following table sets forth the amount of the Company's non-performing loans & leases and ORE as of December 31 of the years indicated.

	December 31,
(in thousands)	2017			2016			2015			2014			2013
Non-Accrual Loans & Leases
Commercial Real Estate	$	-		$	-		$	19		$	-		$	-
Agricultural Real Estate		-			1,304			-			-			-
Real Estate Construction		-			-			-			-			-
Residential 1st Mortgages		-			95			65			77			324
Home Equity Lines and Loans		-			-			538			576			406
Agricultural		-			243			-			18			35
Commercial		-			1,426			1,524			1,586			1,815
Consumer & Other		-			6			10			13			16
Total Non-Accrual Loans & Leases		-			3,074			2,156			2,270			2,596
Accruing Loans & Leases Past Due 90 Days or More
Commercial Real Estate		-			-			-			-			-
Agricultural Real Estate		-			-			-			-			-
Real Estate Construction		-			-			-			-			-
Residential 1st Mortgages		-			-			-			-			-
Home Equity Lines and Loans		-			-			-			-			-
Agricultural		-			-			-			-			-
Commercial		-			-			-			-			-
Consumer & Other		-			-			-			-			-
Total Accruing Loans & Leases Past Due 90 Days or More		-			-			-			-			-
Total Non-Performing Loans & Leases	$	-		$	3,074		$	2,156		$	2,270		$	2,596
Other Real Estate Owned	$	873		$	3,745		$	2,441		$	3,299		$	4,611
Total Non-Performing Assets	$	873		$	6,819		$	4,597		$	5,569		$	7,207
Restructured Loans & Leases (Performing)	$	6,301		$	4,462		$	4,953		$	4,955		$	4,649
Non-Performing Loans & Leases as a Percent of Total Loans & Leases		0.00	%		0.14	%		0.11	%		0.13	%		0.19	%

Although management believes that non-performing loans & leases are generally well-secured and that potential losses are provided for in the Company’s allowance for credit losses, there can be no assurance that future deterioration in economic conditions and/or collateral values will not result in future credit losses. See Note 6, located in “Item 8. Financial Statements and Supplementary Data” for an allocation of the allowance classified to impaired loans & leases.

The Company reported $873,000 of ORE at December 31, 2017, and $3.7 million at December 31, 2016. ORE at December 31, 2017 consisted of commercial land.

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Except for those classified and non-performing loans & leases discussed above, the Company’s management is not aware of any loans & leases as of December 31, 2017, for which known financial problems of the borrower would cause serious doubts as to the ability of these borrowers to materially comply with their present loan or lease repayment terms, or any known events that would result in the loan or lease being designated as non-performing at some future date. However:

· The Central Valley was one of the hardest hit areas in the country during the recession. In many areas housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has improved throughout most of the Central Valley, in many of the Company’s market segments housing prices remain below peak levels and unemployment levels remain above those in other areas of the state and country.

· The State of California experienced drought conditions from 2013 through most of 2016. Although significant levels of rain and snow in late 2016 and early 2017 have alleviated drought conditions in many areas of California, including those in the Company’s primary service area, the long-term risks associated with the availability of water continue to exist. See “Item 1A. Risk Factors” for additional information.

· The agricultural industry is facing challenges associated with: (1) weakness in export markets due to proposed changes in trade policies; (2) tight labor markets and higher wages due to legislative changes at the state and federal levels; and (3) proposed changes in immigration policy and the resulting impact on the labor pool.

Deposits

One of the key sources of funds to support earning assets is the generation of deposits from the Company’s customer base. The ability to grow the customer base and subsequently deposits is a significant element in the performance of the Company.

The following table sets forth, by time remaining to maturity, the Company’s time deposits in amounts of $250,000 or more at December 31, 2017.

(in thousands)
Time Deposits of $250,000 or More
Three Months or Less	$	117,306
Over Three Months Through Six Months		33,656
Over Six Months Through Twelve Months		43,959
Over Twelve Months		17,653
Total Time Deposits of $250,000 or More	$	212,574

Refer to the Year-To-Date Average Balances and Rate Schedules located in this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on separate deposit categories.

At December 31, 2017, deposits totaled $2.7 billion. This represents an increase of 5.5% or $141.5 million from December 31, 2016. In addition to the Company’s ongoing business development activities for deposits, the following factors positively impacted year-over-year deposit growth: (1) the Company’s strong financial results and position and F&M Bank’s reputation as one of the most safe and sound banks in its market area; and (2) the Company’s expansion of its service area into Walnut Creek and Concord. The Company expects that, at some point, deposit customers may begin to diversify how they invest their money (e.g., move funds back into the stock market or other investments) and this could impact future deposit growth.

Although total deposits have increased 5.5% since December 31, 2016, the Company’s focus continues to be on increasing low cost transaction and savings accounts:

· Demand and interest-bearing transaction accounts increased $182.8 million or 14.6% since December 31, 2016.

· Savings and money market accounts have increased $53.6 million or 7.1% since December 31, 2016.

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· Time deposit accounts have decreased $94.9 million or 16.6% since December 31, 2016, primarily due to the Company’s decision not to renew $90.0 million in high rate public funds time deposit accounts from the State of California.

Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings

Lines of Credit with the Federal Reserve Bank and Federal Home Loan Bank are other key sources of funds to support earning assets. These sources of funds are also used to manage the Bank’s interest rate risk exposure; and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. There were no FHLB advances at December 31, 2017 or 2016. There were no Federal Funds purchased or advances from the FRB at December 31, 2017 or 2016.

Long-Term Subordinated Debentures

On December 17, 2003, the Company raised $10.0 million through the sale of subordinated debentures to an off-balance sheet trust and its sale of trust-preferred securities. See Note 14, located in “Item 8. Financial Statements and Supplementary Data.” Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our TPS will continue to qualify as regulatory capital. These securities accrue interest at a variable rate based upon 3-month London InterBank Offered Rate (“LIBOR”) plus 2.85%. Interest rates reset quarterly (the next reset is March 16, 2018) and the rate was 4.45% as of December 31, 2017. The average rate paid for these securities was 4.11% in 2017 and 3.60% in 2016. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company’s common stock.

Capital

The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support business growth and to insure depositor protection. Shareholders’ Equity totaled $300.3 million at December 31, 2017, and $280.0 million at the end of 2016.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a material effect on the Company and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a "capital conservation buffer" of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.

The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity.

In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. For further information on the Company’s and the Bank’s risk-based capital ratios, see Note 15, located in “Item 8. Financial Statements and Supplementary Data.”

53

As previously discussed, in order to supplement its regulatory capital base, during December 2003, the Company issued $10.0 million of trust preferred securities. In accordance with the provisions of the “Consolidation” topic of the FASB Accounting Standards Codification (“ASC”), the Company does not consolidate the subsidiary trust, which has issued the trust-preferred securities.

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

In 2017 and 2016, the Company did not repurchase any shares under the Stock Repurchase Program. The remaining dollar value of shares that may yet be purchased under the Company’s Stock Repurchase Program is approximately $20 million.

On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Computershare (formerly Registrar and Transfer Company) as Rights Agent. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further explanation.

During 2017, the Company issued 4,975 shares of common stock, which were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued had prices ranging from $590 per share to $595 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital. See Note 15, located in “Item 8. Financial Statements and Supplementary Data.”

During 2016, the Company issued 16,542 shares of common stock, of which 4,610 shares were contributed to the Bank’s non-qualified defined contribution retirement plans and 11,932 shares were issued in the acquisition of Delta National Bancorp. The shares issued had prices ranging from $525 per share to $580 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

During 2015, the Company issued 6,705 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The average share price of these newly issued shares was $501 per share. The share price for each issuance was based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

Critical Accounting Policies and Estimates

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the Company’s financial statements management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes that the most significant subjective judgments that it makes include the following:

Allowance for Credit Losses - As a financial institution, which assumes lending and credit risks as a principal element in its business, the Company anticipates that credit losses will be experienced in the normal course of business. Accordingly, the allowance for credit losses is maintained at a level considered adequate by management to provide for losses that are inherent in the portfolio. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. Management employs a systematic methodology for determining the allowance for credit losses. On a quarterly basis, management reviews the credit quality of the loan & lease portfolio and considers problem loans & leases, delinquencies, internal credit reviews, current economic conditions, loan & lease loss experience, and other factors in determining the adequacy of the allowance balance.

54

While the Company utilizes a systematic methodology in determining its allowance, the allowance is based on estimates, and ultimate losses may vary from current estimates. The estimates are reviewed periodically and, as adjustments become necessary, are reported in earnings in the periods in which they become known. For additional information, see Note 6, located in “Item 8. Financial Statements and Supplementary Data.”

Fair Value - The Company discloses the fair value of financial instruments and the methods and significant assumptions used to estimate those fair values. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization. For additional information, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Credit Risk” and Notes 18 and 19 located in “Item 8. Financial Statements and Supplementary Data.”

Income Taxes - The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year. For additional information, see Note 1, located in “Item 8. Financial Statements and Supplementary Data.”

Off-Balance-Sheet Arrangements

Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or research and development services with the Company. The Company had the following off balance sheet commitments as of the dates indicated.

(in thousands)	December 31, 2017		December 31, 2016
Commitments to Extend Credit	$	735,678	$	609,653
Letters of Credit		20,061		20,444
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		759		1,835

The Company's exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer's creditworthiness are performed on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third party. Most standby letters of credit are issued for 12 months or less. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Additionally, the Company maintains a reserve for off balance sheet commitments, which totaled $267,000 at December 31, 2017 and $267,000 at December 31, 2016. We do not anticipate any material losses as a result of these transactions.

55

Aggregate Contractual Obligations and Commitments

The following table presents, as of December 31, 2017, our significant and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. For further information on the nature of each obligation type, see applicable note disclosures located in “Item 8. Financial Statements and Supplementary Data.”

(in thousands)	Total		1 Year or Less		2-3 Years		4-5 Years		More Than 5 Years
Operating Lease Obligations	$	2,695	$	670	$	1,278	$	608	$	139
Long-Term Subordinated Debentures		10,310		-		-		-		10,310
Deferred Compensation (1)		47,755		2,970		1,796		1,061		41,928
Total	$	60,760	$	3,640	$	3,074	$	1,669	$	52,377

⁽¹⁾ These amounts represent obligations to participants under the Company's various non-qualified deferred compensation plans. All amounts have been fully funded in to a Rabbi Trust as of December 31, 2017. See Note 17 located in “Item 8. Financial Statements and Supplementary Data.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Risk Management

The Company has adopted risk management policies and procedures, which aim to ensure the proper control and management of all risk factors inherent in the operation of the Company, most importantly credit risk, interest rate risk and liquidity risk. These risk factors are not mutually exclusive. It is recognized that any product or service offered by the Company may expose the Company to one or more of these risk factors.

Credit Risk

Credit risk is the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance.

Credit risk in the investment portfolio and correspondent bank accounts is addressed through defined limits in the Company’s policy statements. In addition, certain securities carry insurance to enhance credit quality of the bond.

In order to control credit risk in the loan & lease portfolio the Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower, and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. However, as a financial institution that assumes credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The allowance for credit losses is maintained at a level considered by management to be adequate to provide for risks inherent in the loan & lease portfolio. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs.

The Company’s methodology for assessing the appropriateness of the allowance is applied on a regular basis and considers all loans & leases. The systematic methodology consists of three parts.

56

Part 1 - includes a detailed analysis of the loan & lease portfolio in two phases. The first phase is conducted in accordance with the “Receivables” topic of the FASB ASC. Individual loans & leases are reviewed to identify them for impairment. A loan or lease is impaired when principal and interest are deemed uncollectible in accordance with the original contractual terms of the loan or lease. Impairment is measured as either the expected future cash flows discounted at each loan’s or lease’s effective interest rate, the fair value of the loan’s or lease’s collateral if the loan or lease is collateral dependent, or an observable market price of the loan or lease, if one exists. Upon measuring the impairment, the Company will ensure an appropriate level of allowance is present or established.

Central to the first phase of the analysis of the loan & lease portfolio is the risk rating system. The originating credit officer assigns each borrower an initial risk rating, which is based primarily on a thorough analysis of that borrower’s financial position in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior credit administration personnel. Credits are monitored by credit administration personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary. Risk ratings are reviewed by both the Company’s independent third-party credit examiners and bank examiners from the DBO and FDIC.

Based on the risk rating system, specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates that the loan or lease is impaired and there is a probability of loss. Management performs a detailed analysis of these loans & leases, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral, and assessment of the guarantors. Management then determines the inherent loss potential and allocates a portion of the allowance for losses as a specific allowance for each of these credits.

The second phase is conducted by segmenting the loan & lease portfolio by risk rating and into groups of loans & leases with similar characteristics in accordance with the “Contingency” topic of the FASB ASC. In this second phase, groups of loans & leases with similar characteristics are reviewed and the appropriate allowance factor is applied based on the historical average charge-off rate for each particular group of loans or leases.

Part 2 - considers qualitative internal and external factors that may affect a loan or lease’s collectability, is based upon management’s evaluation of various conditions, the effects of which are not directly measured in the determination of the historical and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the second element of the analysis of the allowance include, but are not limited to the following conditions that existed as of the balance sheet date:

§ general economic and business conditions affecting the key service areas of the Company;

§ credit quality trends (including trends in collateral values, delinquencies and non-performing loans & leases);

§ loan & lease volumes, growth rates and concentrations;

§ loan & lease portfolio seasoning;

§ specific industry and crop conditions;

§ recent loss experience; and

§ duration of the current business cycle.

Part 3 - An unallocated allowance often occurs due to the imprecision in estimating and allocating allowance balances associated with macro factors such as: (1) the improving but still challenging economic conditions in the Central Valley; and (2) the long-term risks associated with the availability of water in the Central Valley.

Management reviews all of these conditions in discussion with the Company’s senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s evaluation of the inherent loss related to such condition is reflected in the second element of the allowance or in the unallocated allowance.

Management believes, that based upon the preceding methodology, and using information currently available, the allowance for credit losses at December 31, 2017 was adequate. No assurances can be given that future events may not result in increases in delinquencies, non-performing loans & leases, or net loan & lease charge-offs that would require increases in the provision for credit losses and thereby adversely affect the results of operations.

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Interest Rate Risk

The mismatch between maturities of interest sensitive assets and liabilities results in uncertainty in the Company’s earnings and economic value and is referred to as interest rate risk. The Company does not attempt to predict interest rates and positions the balance sheet in a manner, which seeks to minimize, to the extent possible, the effects of changing interest rates.

The Company measures interest rate risk in terms of potential impact on both its economic value and earnings. The methods for governing the amount of interest rate risk include: (1) analysis of asset and liability mismatches (Gap analysis); (2) the utilization of a simulation model; and (3) limits on maturities of investment, loan & lease, and deposit products, which reduces the market volatility of those instruments.

The Gap analysis measures, at specific time intervals, the divergence between earning assets and interest bearing liabilities for which repricing opportunities will occur. A positive difference, or Gap, indicates that earning assets will reprice faster than interest-bearing liabilities. This will generally produce a greater net interest margin during periods of rising interest rates and a lower net interest margin during periods of declining interest rates. Conversely, a negative Gap will generally produce a lower net interest margin during periods of rising interest rates and a greater net interest margin during periods of decreasing interest rates.

The interest rates paid on deposit accounts do not always move in unison with the rates charged on loans & leases. In addition, the magnitude of changes in the rates charged on loans & leases is not always proportionate to the magnitude of changes in the rate paid for deposits. Consequently, changes in interest rates do not necessarily result in an increase or decrease in the net interest margin solely as a result of the differences between repricing opportunities of earning assets or interest bearing liabilities.

The Company also utilizes the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. The sensitivity of the Company’s net interest income is measured over a rolling one-year horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest earning assets and the interest expense paid on all interest bearing liabilities reflected on the Company’s balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon assuming no balance sheet growth, given a 200 basis point upward and a 100 basis point downward shift in interest rates. A shift in rates over a 12-month period is assumed. Results that exceed policy limits, if any, are analyzed for risk tolerance and reported to the Board with appropriate recommendations. At December 31, 2017, the Company’s estimated net interest income sensitivity to changes in interest rates, as a percent of net interest income was an increase in net interest income of 2.83% if rates increase by 200 basis points and a decrease in net interest income of 4.42% if rates decline 100 basis points.

The estimated sensitivity does not necessarily represent a Company forecast and the results may not be indicative of actual changes to the Company’s net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape; prepayments on loans & leases and securities; pricing strategies on loans & leases and deposits; replacement of asset and liability cash flows; and other assumptions. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.

Liquidity Risk

Liquidity risk is the risk to earnings or capital resulting from the Company’s inability to meet its obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect the Company’s ability to liquidate assets or acquire funds quickly and with minimum loss of value. The Company endeavors to maintain a cash flow adequate to fund operations, handle fluctuations in deposit levels, respond to the credit needs of borrowers, and to take advantage of investment opportunities as they arise.

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The Company’s principal operating sources of liquidity include (see “Item 8. Financial Statements and Supplementary Data – Consolidated Statements of Cash Flows”) cash and cash equivalents, cash provided by operating activities, principal payments on loans & leases, proceeds from the maturity or sale of investments, and growth in deposits. To supplement these operating sources of funds the Company maintains Federal Funds credit lines of $77 million and repurchase lines of $130 million with major banks. As of December 31, 2017, the Company has additional borrowing capacity of $455.2 million with the Federal Home Loan Bank and $381.4 million with the Federal Reserve Bank. Borrowings under these lines are collateralized with loans or securities that have been accepted for pledging at the FHLB and FRB.

At December 31, 2017, the Company had available sources of liquidity, which included cash and cash equivalents and unpledged investment securities available-for-sale of approximately $424.0 million, which represents 14% of total assets.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES

	Page
Report of Management on Internal Control Over Financial Reporting	60
Report of Independent Registered Public Accounting Firm	61
Consolidated Financial Statements
Consolidated Balance Sheets – December 31, 2017, and 2016	62
Consolidated Statements of Income – Years ended December 31, 2017, 2016 and 2015	63
Consolidated Statements of Comprehensive Income – Years Ended December 31, 2017, 2016 and 2015	64
Consolidated Statements of Changes in Shareholders' Equity – Years ended December 31, 2017, 2016 and 2015	65
Consolidated Statements of Cash Flows - Years Ended December 31, 2017, 2016 and 2015	66
Notes to Consolidated Financial Statements	67

59

Farmers & Merchants Bancorp

Report of Management on Internal Control Over Financial Reporting

Management of Farmers & Merchants Bancorp and Subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

The Company’s system of internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and fair presentation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 as described in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.

Moss Adams LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, was engaged to express an opinion as to the fairness of presentation of such financial statements. Moss Adams LLP was also engaged to audit the effectiveness of the Company’s internal control over financial reporting. The report of Moss Adams LLP follows this report.

/s/ Kent A. Steinwert	/s/ Stephen W. Haley
Kent A. Steinwert	Stephen W. Haley
Chairman, President & Chief Executive Officer	Executive Vice President & Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Farmers & Merchants Bancorp

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Farmers & Merchants Bancorp and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidatedfinancial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting included in Item 8. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Moss Adams LLP

Los Angeles, California

March 15, 2018

We have served as the Company’s auditor since 2013.

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Farmers & Merchants Bancorp

Consolidated Balance Sheets

(in thousands except share and per share data)

	December 31,
Assets	2017			2016
Cash and Cash Equivalents:
Cash and Due from Banks	$	65,956		$	54,896
Interest Bearing Deposits with Banks		121,193			43,964
Total Cash and Cash Equivalents		187,149			98,860
Investment Securities:
Available-for-Sale		481,596			448,263
Held-to-Maturity		54,460			58,109
Total Investment Securities		536,056			506,372
Loans & Leases:		2,215,295			2,177,601
Less: Allowance for Credit Losses		50,342			47,919
Loans& Leases, Net		2,164,953			2,129,682
Premises and Equipment, Net		28,679			29,229
Bank Owned Life Insurance		59,583			57,761
Interest Receivable and Other Assets		99,032			100,217
Total Assets	$	3,075,452		$	2,922,121
Liabilities
Deposits:
Demand	$	832,652		$	756,236
Interest-Bearing Transaction		601,476			495,063
Savings and Money Market		813,703			760,119
Time		475,397			570,293
Total Deposits		2,723,228			2,581,711
Subordinated Debentures		10,310			10,310
Interest Payable and Other Liabilities		42,254			50,119
Total Liabilities		2,775,792			2,642,140
Commitments & Contingencies (See Note 20)
Shareholders' Equity
Preferred Stock:  No Par Value, 1,000,000 Shares Authorized, None Issued or Outstanding		-			-
Common Stock:  Par Value $0.01, 7,500,000 Shares Authorized, 812,304 and 807,329 Shares Issued and Outstanding at December 31, 2017 and 2016, respectively.		8			8
Additional Paid-In Capital		93,624			90,671
Retained Earnings		206,845			189,313
Accumulated Other Comprehensive Income		(817	)		(11	)
Total Shareholders' Equity		299,660			279,981
Total Liabilities and Shareholders' Equity	$	3,075,452		$	2,922,121

The accompanying notes are an integral part of these consolidated financial statements

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Farmers & Merchants Bancorp

Consolidated Statements of Income

(in thousands except per share data)

	Year Ended December 31,
	2017			2016			2015
Interest Income
Interest and Fees on Loans & Leases	$	102,682		$	91,570		$	81,558
Interest on Deposits with Banks		2,060			287			172
Interest on Investment Securities:
Taxable		8,123			5,505			6,311
Exempt from Federal Tax		1,747			1,904			2,034
Total Interest Income		114,612			99,266			90,075
Interest Expense
Deposits		5,865			3,807			2,989
Borrowed Funds		-			18			7
Subordinated Debentures		424			371			329
Total Interest Expense		6,289			4,196			3,325
Net Interest Income		108,323			95,070			86,750
Provision for Credit Losses		2,850			6,335			750
Net Interest Income After Provision for Credit Losses		105,473			88,735			86,000
Non-Interest Income
Service Charges on Deposit Accounts		3,453			3,376			3,458
Net Gain (Loss) on Investment Securities		131			(284	)		275
Increase in Cash Surrender Value of Life Insurance		1,822			1,864			1,908
Debit Card and ATM Fees		3,873			3,398			3,183
Net Gain on Deferred Compensation Investments		2,563			1,999			1,375
Bargain Purchase Gain		-			1,832			-
Other		4,920			3,072			4,376
Total Non-Interest Income		16,762			15,257			14,575
Non-Interest Expense
Salaries and Employee Benefits		45,746			41,981			39,683
Net Gain on Deferred Compensation Investments		2,563			1,999			1,375
Occupancy		3,543			2,985			2,884
Equipment		3,994			3,493			3,162
Marketing		1,027			1,191			1,254
Legal		424			1,243			421
FDIC Insurance		932			1,174			1,193
Gain on Sale of ORE		(414	)		(5,941	)		(299	)
Other		9,939			10,047			6,586
Total Non-Interest Expense		67,754			58,172			56,259
Income Before Income Taxes		54,481			45,820			44,316
Provision for Income Taxes		26,111			16,097			16,924
Net Income	$	28,370		$	29,723		$	27,392
Basic Earnings Per Common Share	$	35.03		$	37.44		$	34.82

The accompanying notes are an integral part of these consolidated financial statements

63

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Comprehensive Income

(in thousands)

	Year Ended December 31,
	2017			2016			2015
Net Income	$	28,370		$	29,723		$	27,392
Other Comprehensive Loss
Net Unrealized Loss on Available-for-Sale Securities		(1,011	)		(1,330	)		(3,069	)
Deferred Tax Benefit Related to Unrealized Losses		281			559			1,290
Reclassification Adjustment for Realized (Gain) Loss on Available-for-Sale Securities Included in Net Income		(131	)		284			(275	)
Tax Expense (Benefit) Related to Reclassification Adjustment		55			(119	)		116
Change in Net Unrealized Loss on Available-for-Sale Securities, Net of Tax		(806	)		(606	)		(1,938	)
Total Other Comprehensive Loss		(806	)		(606	)		(1,938	)
Comprehensive Income	$	27,564		$	29,117		$	25,454

The accompanying notes are an integral part of these consolidated financial statements

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Farmers & Merchants Bancorp

Consolidated Statements of Changes in Shareholders' Equity

(in thousands except share and per share data)

	Common Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders' Equity
Balance, January 1, 2015		784,082	$	8	$	77,804	$	152,833		$	2,533		$	233,178
Net Income								27,392						27,392
Cash Dividends Declared on Common Stock ($12.90 per share)								(10,157	)					(10,157	)
Issuance of Common Stock		6,705				3,360								3,360
Change in Net Unrealized Gain on Securities Available-for-Sale											(1,938	)		(1,938	)
Balance, December 31, 2015		790,787	$	8	$	81,164	$	170,068		$	595		$	251,835
Net Income								29,723						29,723
Cash Dividends Declared on Common Stock ($13.10 per share)								(10,478	)					(10,478	)
Issuance of Common Stock		16,542				9,507								9,507
Change in Net Unrealized Gain on Securities Available-for-Sale											(606	)		(606	)
Balance, December 31, 2016		807,329	$	8	$	90,671	$	189,313		$	(11	)	$	279,981
Net Income								28,370						28,370
Cash Dividends Declared on Common Stock ($13.55 per share)								(10,982	)					(10,982	)
Issuance of Common Stock		4,975				2,953								2,953
Tax Adjustment of Available-for-Sale Securities Reclassed from AOCI								144			(144	)		-
Change in Net Unrealized (Loss) on Securities Available-for-Sale											(662	)		(662	)
Balance, December 31, 2017		812,304	$	8	$	93,624	$	206,845		$	(817	)	$	299,660

The accompanying notes are an integral part of these consolidated financial statements

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Farmers & Merchants Bancorp

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2017			2016			2015
Operating Activities
Net Income	$	28,370		$	29,723		$	27,392
Adjustments to Reconcile Net Income to Net Cash Provided  by Operating Activities:
Provision for Credit Losses		2,850			6,335			750
Depreciation and Amortization		2,186			1,896			1,685
Provision for Deferred Income Taxes		12,605			(2,299	)		(907	)
Net Amortization of Investment Security Premium & Discounts		1,430			1,481			1,554
Amortization of Core Deposit Intangible		110			13			-
Accretion of Discount on Acquired Loans		(202	)		(43	)		-
Net (Gain) Loss  on Investment Securities		(131	)		284			(275	)
Net (Gain) Loss on Sale of Property & Equipment		(1,189	)		71			(383	)
Net Gain on sale of ORE		(414	)		(5,941	)		(299	)
Net Gain from Acquisition		-			(1,832	)		-
Net Change in Operating Assets & Liabilities:
Net (Increase) Decrease in Interest Receivable and Other Assets		(275	)		1,056			4,685
Net (Decrease) Increase in Interest Payable and Other Liabilities		(5,396	)		4,068			3,125
Net Cash Provided by Operating Activities		39,944			34,812			37,327
Investing Activities
Purchase of Investment Securities Available-for-Sale		(325,573	)		(497,797	)		(203,996	)
Proceeds from Sold, Matured, or Called Securities Available-for-Sale		289,857			426,142			227,157
Purchase of Investment Securities Held-to-Maturity		(1,205	)		(2,264	)		(17,747	)
Proceeds from Matured, or Called Securities Held-to-Maturity		4,794			5,499			18,031
Net Loans & Leases Paid, Originated or Acquired		(38,178	)		(148,960	)		(284,211	)
Principal Collected on Loans & Leases Previously Charged Off		259			232			5,468
Cash Acquired in Acquisition, Net of Cash Paid		-			31,751			-
Additions to Premises and Equipment		(4,254	)		(1,504	)		(2,726	)
Purchase of Other Investment		(14,380	)		(6,825	)		(2,110	)
Proceeds from Sale of Property & Equipment		3,304			-			670
Proceeds from Sale of ORE		3,186			8,282			1,156
Net Cash Used in Investing Activities		(82,190	)		(185,444	)		(258,308	)
Financing Activities
Net Increase in Deposits		141,517			200,524			213,459
Cash Dividends		(10,982	)		(10,478	)		(10,157	)
Net Cash Provided by Financing Activities		130,535			190,046			203,302
Increase (Decrease) in Cash and Cash Equivalents		88,289			39,414			(17,679	)
Cash and Cash Equivalents at Beginning of Year		98,860			59,446		$	77,125
Cash and Cash Equivalents at End of Year	$	187,149		$	98,860		$	59,446
Supplementary Data
Loans Transferred to Foreclosed Assets (ORE)	$	-		$	538		$	-
Cash Payments Made for Income Taxes	$	13,942		$	12,891		$	8,475
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans	$	2,953		$	2,586		$	3,360
Interest Paid	$	6,005		$	3,856		$	3,190
Acquisitions:
Fair Value of Assets Acquired	$	-		$	114,871		$	-
Fair Value of Liabilities Acquired	$	-		$	103,861		$	-
Issuance of Common Stock to Acquired Bank's Shareholders	$	-		$	6,921		$	-

The accompanying notes are an integral part of these consolidated financial statements

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Notes to Consolidated Financial Statements

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. F & M Bancorp, Inc. was created in March 2002 to protect the name F & M Bank. During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name “F & M Bank” as part of a larger effort to enhance the Company’s image and build brand name recognition. In December 2003, the Company formed a wholly owned subsidiary, FMCB Statutory Trust I, for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). FMCB Statutory Trust I is a non-consolidated subsidiary.

On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp, headquartered in Manteca, California, and the parent holding company for Delta Bank N.A., a locally owned and operated community bank established in 1973.  As of the acquisition date, Delta National Bancorp had approximately $112 million in assets and four branch locations in the communities of Manteca, Riverbank, Modesto and Turlock. At the effective time of the acquisition, Delta National Bancorp was merged into Farmers & Merchants Bancorp and Delta Bank, N.A. was merged into Farmers & Merchants Bank of Central California.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

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Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

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A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company's credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

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Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

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Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

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The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 16 for additional information.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company only reports one segment.

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

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Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred. The Company applied this guidance to the acquisition of Delta National Bancorp that was consummated on November 18, 2016. The Company's consolidated financial statements reflect the operations of Delta National Bancorp from November 19, 2016 through December 31, 2016.

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

2. Business Combinations

Delta National Bancorp

On November 18, 2016, the Company completed the acquisition of Delta National Bancorp. Delta National Bancorp was incorporated under the laws of the State of California on December 21, 1981, for the purpose of serving as a bank holding company under the Bank Holding Act of 1956. Its wholly owned subsidiary, Delta Bank, N.A., operated as a commercial bank with branches in the cities of Manteca, Riverbank, Turlock, and Modesto, California. The acquisition enhances our market presence and added $32.4 million in loans, $103.7 million in deposits and $38.7 million in investment securities to the Company. Effective December 9, 2016, the Modesto branch was closed after Management determined that our customers and the business community could be easily supported from our current Modesto location. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. The acquisition was treated as a "reorganization" within the meaning of section 368(a)(1)(A) of the Internal Revenue Code and is considered tax-free for U.S. federal income tax purposes.

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3. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows:

(in thousands)

December 31, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

December 31, 2016	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,127	$	114	$	-	$	3,241
US Treasury Notes		134,755		5		332		134,428
US Govt SBA		36,532		42		260		36,314
Mortgage Backed Securities (1)		272,858		1,725		1,313		273,270
Other		1,010		-		-		1,010
Total	$	448,282	$	1,886	$	1,905	$	448,263

⁽¹⁾ All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows: (in thousands)

December 31, 2017	Book Value		Gross Unrealized				Fair Value
			Gains		Losses
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

December 31, 2016	Book Value		Gross Unrealized				Fair Value
			Gains		Losses
Obligations of States and Political Subdivisions	$	58,109	$	339	$	40	$	58,408
Total	$	58,109	$	339	$	40	$	58,408

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

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The amortized cost and estimated fair values of investment securities at December 31, 2017 by contractual maturity are shown in the following tables. (in thousands)

	Available-for-Sale				Held-to-Maturity
December 31, 2017	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within One Year	$	113,065	$	112,989	$	1,760	$	1,769
After One Year Through Five Years		30,207		29,979		8,659		8,664
After Five Years Through Ten Years		13,044		12,922		14,155		14,347
After Ten Years		23,939		23,792		29,886		30,456
		180,255		179,682		54,460		55,236
Investment Securities Not Due at a Single Maturity Date:
Mortgage Backed Securities		302,502		301,914		-		-
Total	$	482,757	$	481,596	$	54,460	$	55,236

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated. (in thousands)

	Less Than 12 Months				12 Months or More				Total
December 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	94,281	$	144	$	49,883	$	298	$	144,164	$	442
US Govt SBA		8,379		51		12,900		157		21,279		208
Mortgage Backed Securities		126,863		932		43,208		595		170,071		1,527
Total	$	229,523	$	1,127	$	105,991	$	1,050	$	335,514	$	2,177

	Less Than 12 Months				12 Months or More				Total
December 31, 2016	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	99,429	$	332	$	-	$	-	$	99,429	$	332
US Govt SBA		27,483		260		-		-		27,483		260
Mortgage Backed Securities		123,157		1,313		-		-		123,157		1,313
Total	$	250,069	$	1,905	$	-	$	-	$	250,069	$	1,905
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	7,251	$	40	$	-	$	-	$	7,251	$	40
Total	$	7,251	$	40	$	-	$	-	$	7,251	$	40

As of December 31, 2017, the Company held 476 investment securities of which 97 were in an unrealized loss position for less than twelve months and 98 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At December 31, 2017, no securities of government agency and government sponsored entities were in a loss position for less than 12 months and none were in a loss position for 12 months or more. There were no unrealized losses on the Company's investments in securities of government agency and government sponsored entities at December 31, 2017 or December 31, 2016. Repayment of these investments is guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017.

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U.S. Treasury Notes – At December 31, 2017, 7 U.S. Treasury Note security investments were in a loss position for less than 12 months and 2 were in a loss position for 12 months or more. The unrealized losses on the Company's investment in US treasury notes were $442,000 at December 31, 2017 and $332,000 at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

U.S. Government SBA – At December 31, 2017, 54 U.S. Government SBA security investments were in a loss position for less than 12 months and 70 were in a loss position for 12 months or more. The unrealized losses on the Company's investment in U.S. Government SBA were $208,000 at December 31, 2017 and $260,000 at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

Mortgage Backed Securities - At December 31, 2017, 26 mortgage backed security investments were in a loss position for less than 12 months and 36 was in a loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage-backed securities were $1.5 million at December 31, 2017 and $1.3 million at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 or 2016.

Obligations of States and Political Subdivisions - At December 31, 2017, no obligations of states and political subdivisions were in a loss position for less than 12 months. None were in a loss position for 12 months or more. As of December 31, 2017, over ninety-nine percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or the issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the one percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligation of states and political subdivisions were $0 at December 31, 2017 and $40,000 at December 31, 2016. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

Proceeds from sales and calls of these securities were as follows:

(in thousands) Gross Gross Gross	Gross Proceeds		Gross Gains		Gross  Losses
2017	$	7,831	$	143	$	12
2016	$	105,941	$	250	$	534
2015	$	61,335	$	275	$	-

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Pledged Securities

As of December 31, 2017, securities carried at $214.5 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $171.9 million at December 31, 2016.

Investment in Unconsolidated Subsidiary

On April 5, 2017, the Company purchased 4.9% of the voting shares of Bank of Rio Vista, Rio Vista, California for $1.4 million.  On July 3, 2017, the Federal Reserve Bank of San Francisco approved the Company’s application to acquire an additional 34.55% of the voting shares for $10.5 million.  The purchase of the additional shares closed on July 20, 2017. The Company, as per requirements outlined in ASC 323-10-15-6, does not have the ability to exercise significant influence over BORV’s operating and financial policies. Accordingly, the investment in BORV is accounted for under the cost method of accounting as Other Assets.

4. Federal Home Loan Bank Stock and Other Equity Securities, at Cost

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock and other equity securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $22.6 million at December 31, 2017 and $9.2 million at December 31, 2016.

5. Loans & Leases

Loans & leases as of December 31 consisted of the following:

(in thousands)	2017		2016
Commercial Real Estate	$	691,639	$	674,445
Agricultural Real Estate		499,231		467,685
Real Estate Construction		100,206		176,462
Residential 1st Mortgages		260,751		242,247
Home Equity Lines and Loans		34,525		31,625
Agricultural		273,582		295,325
Commercial		265,703		217,577
Consumer & Other		6,656		6,913
Leases		88,957		70,986
Total Gross Loans & Leases		2,221,250		2,183,265
Less: Unearned Income		5,955		5,664
Subtotal		2,215,295		2,177,601
Less: Allowance for Credit Losses		50,342		47,919
Loans & Leases, Net	$	2,164,953	$	2,129,682

At December 31, 2017, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”) were $618.4 million and $568.6 million, respectively. The borrowing capacity on these loans was $521.2 million from FHLB and $381.4 million from the FRB.

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6. Allowance for Credit Losses

The following tables show the allocation of the allowance for credit losses at December 31, 2017 and December 31, 2016 by portfolio segment and by impairment methodology (in thousands):

December 31, 2017	Commercial Real Estate			Agricultural  Real Estate		Real Estate Construction			Residential 1st  Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer  & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment		680,139			499,231		100,206			258,378			34,185			273,582			263,969		6,646			89,680			-			2,206,016

December 31, 2016	Commercial  Real Estate		Agricultural  Real Estate		Real Estate Construction		Residential 1st  Mortgages			Home Equity  Lines & Loans			Agricultural		Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2016	$	10,063	$	6,881	$	2,485	$	789		$	2,146		$	6,308	$	7,836	$	175		$	3,294	$	1,546		$	41,523
Charge-Offs		-		-		-		(21	)		(46	)		-		-		(105	)		-		-			(172	)
Recoveries		2		-		-		26			103			-		47		55			-		-			233
Provision		1,045		2,569		738		71			(63	)		1,073		632		75			292		(97	)		6,335
Ending Balance- December 31, 2016	$	11,110	$	9,450	$	3,223	$	865		$	2,140		$	7,381	$	8,515	$	200		$	3,586	$	1,449		$	47,919
Ending Balance Individually Evaluated for Impairment		-		-		-		70			18			128		608		7			-		-			831
Ending Balance Collectively Evaluated for Impairment		11,110		9,450		3,223		795			2,122			7,253		7,907		193			3,586		1,449			47,088
Loans & Leases:
Ending Balance	$	668,046	$	467,685	$	176,462	$	242,247		$	31,625		$	295,325	$	217,577	$	6,913		$	71,721	$	-		$	2,177,601
Ending Balance Individually Evaluated for Impairment		1,932		1,304		-		2,126			402			625		4,464		10			-		-			10,863
Ending Balance Collectively Evaluated for Impairment		666,114		466,381		176,462		240,121			31,223			294,700		213,113		6,903			71,721		-			2,166,738

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $3.0 million and $3.3 million at December 31, 2017 and 2016, respectively, which are no longer disclosed or classified as TDR’s.

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The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Pass		Special  Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

December 31, 2016	Pass		Special  Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	659,694	$	6,817	$	1,535	$	668,046
Agricultural Real Estate		464,997		1,384		1,304		467,685
Real Estate Construction		176,462		-		-		176,462
Residential 1st Mortgages		241,816		47		384		242,247
Home Equity Lines and Loans		31,558		-		67		31,625
Agricultural		283,525		11,366		434		295,325
Commercial		208,172		6,974		2,431		217,577
Consumer & Other		6,705		-		208		6,913
Leases		71,721		-		-		71,721
Total	$	2,144,650	$	26,588	$	6,363	$	2,177,601

See Note 1. Significant Accounting Policies – Allowance for Credit Losses for a description of the internal risk ratings used by the Company. There were no loans & leases outstanding at December 31, 2017 and 2016 rated doubtful or loss.

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The following tables show an aging analysis of the loan & lease portfolio by the time past due at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	668,046	$	668,046
Agricultural Real Estate		-		-		-		1,304		1,304		466,381		467,685
Real Estate Construction		-		-		-		-		-		176,462		176,462
Residential 1st Mortgages		-		-		-		95		95		242,152		242,247
Home Equity Lines and Loans		-		-		-		-		-		31,625		31,625
Agricultural		-		-		-		243		243		295,082		295,325
Commercial		-		-		-		1,425		1,425		216,152		217,577
Consumer & Other		10		-		-		7		17		6,896		6,913
Leases		-		-		-		-		-		71,721		71,721
Total	$	10	$	-	$	-	$	3,074	$	3,084	$	2,174,517	$	2,177,601

There were no non-accrual loans & leases at December 31, 2017. At December 31, 2016, non-accrual loans & leases were $3.1 million. Interest income forgone on loans & leases placed on non-accrual status was $0, $127,000, and $109,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

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The following tables show information related to impaired loans & leases at and for the year ended December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	184	$	184	$	-	$	354	$	7
Agricultural Real Estate		1,305		1,305		-		569		3
Residential 1st Mortgages		451		504		-		404		10
Home Equity Lines and Loans		-		-		-		181		-
Agricultural		-		-		-		144		5
Commercial		3,023		3,023		-		3,053		133
	$	4,963	$	5,016	$	-	$	4,705	$	158
With an allowance recorded:
Residential 1st Mortgages	$	430	$	469	$	21	$	336	$	13
Home Equity Lines and Loans		90		97		5		123		4
Agricultural		625		625		128		581		22
Commercial		1,441		1,640		608		1,536		8
Consumer & Other		6		13		6		12		-
	$	2,592	$	2,844	$	768	$	2,588	$	47
Total	$	7,555	$	7,860	$	768	$	7,293	$	205

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table. This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. At December 31, 2016, the Company allocated $736,000 of specific reserves to $5.9 million of troubled debt restructured loans, of which $4.5 million were performing. The Company had no commitments at December 31, 2017 and December 31, 2016 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

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Modifications involving a reduction of the stated interest rate of the loan ranged from 3 to 5 years. Modifications involving an extension of the maturity date ranged from 3 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding  Recorded  Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2	$	673	$	630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $44,000 for the twelve months ended December 31, 2017.

During the period ended December 31, 2017, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

During the period ending December 31, 2016, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 5 to 10 years. Modifications involving an extension of the maturity date were for periods ranging from 5 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2016 (in thousands):

	December 31, 2016
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded  Investment		Post-Modification Outstanding  Recorded  Investment
Commercial Real Estate		1	$	112	$	112
Residential 1st Mortgages		2		289		281
Home Equity Lines and Loans		2		305		286
Total		5	$	706	$	679

The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $27,000 for the twelve months ended December 31, 2016.

During the period ended December 31, 2016, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

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7. Premises and Equipment

Premises and equipment as of December 31^st, consisted of the following:

(in thousands)	2017		2016
Land and Buildings	$	36,018	$	37,003
Furniture, Fixtures, and Equipment		20,399		20,196
Leasehold Improvements		3,117		2,439
Subtotal		59,534		59,638
Less:  Accumulated Depreciation and Amortization		30,855		30,409
Total	$	28,679	$	29,229

Depreciation and amortization on premises and equipment included in occupancy and equipment expense amounted to $2,186,000, $1,896,000, and $1,685,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Total rental expense for premises was $688,000, $644,000, and $604,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Rental income was $169,000, $102,000, and $94,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

8. Other Real Estate

The Bank reported $837,000 in other real estate at December 31, 2017, and $3.7 million at December 31, 2016. Other real estate includes property no longer utilized for business operations and property acquired through foreclosure proceedings. These properties are carried at fair value less selling costs determined at the date acquired. Losses, if any, arising from properties acquired through foreclosure are charged against the allowance for loan losses at the time of foreclosure. Subsequent declines in value, periodic holding costs, and net gains or losses on disposition are included in other operating expense as incurred. Other real estate is reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets.

9. Time Deposits

Time Deposits of $250,000 or more as of December 31 were as follows:

(in thousands)	2017		2016
Balance	$	212,574	$	289,955

At December 31, 2017, the scheduled maturities of time deposits were as follows:

(in thousands)	Scheduled Maturities
2018	$	426,874
2019		30,219
2020		10,317
2021		3,100
2022		4,887
Total	$	475,397

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10. Income Taxes

Current and deferred income tax expense (benefit) provided for the years ended December 31 consisted of the following:

(in thousands)	2017		2016			2015
Current
Federal	$	9,460	$	13,101		$	11,979
State		4,046		4,832			4,446
Total Current		13,506		17,933			16,425
Deferred
Federal		11,154		(1,607	)		383
State		1,451		(229	)		116
Total Deferred		12,605		(1,836	)		499
Total Provision for Taxes	$	26,111	$	16,097		$	16,924

The total provision for income taxes differs from the federal statutory rate as follows:

	2017						2016						2015
(in thousands)	Amount			Rate			Amount			Rate			Amount			Rate
Tax Provision at Federal Statutory Rate	$	19,068			35.0	%	$	16,037			35.0	%	$	15,510			35.0	%
Interest on Obligations of States and Political Subdivisions exempt from Federal Taxation		(617	)		(1.1	%)		(675	)		(1.5	%)		(711	)		(1.6	%)
State and Local Income Taxes, Net of Federal Income Tax Benefit		3,573			6.5	%		2,992			6.5	%		2,966			6.7	%
Bank Owned Life Insurance		(696	)		(1.3	%)		(731	)		(1.6	%)		(712	)		(1.6	%)
Low-Income Housing Tax Credit		(1,546	)		(2.8	%)		(1,201	)		(2.6	%)		(291	)		(0.7	%)
Bargain Purchase Gain		-			0.0	%		(641	)		(1.4	%)		-			0.0	%
Deferred Tax Asset Remeasurement		6,256			11.5	%		-			0.0	%		-			0.0	%
Other, Net		73			0.1	%		316			0.7	%		162			0.4	%
Total Provision for Taxes	$	26,111			47.9	%	$	16,097			35.1	%	$	16,924			38.2	%

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The components of net deferred tax assets as of December 31 are as follows: The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company's Consolidated Balance Sheet.

(in thousands)	2017			2016
Deferred Tax Assets
Allowance for Credit Losses	$	14,962		$	20,260
Accrued Liabilities		7,421			9,807
Deferred Compensation		8,996			14,166
State Franchise Tax		850			1,680
Acquired Net Operating Loss		756			1,135
Fair Value Adjustment on Loans Acquired		242			429
Fair Value Adjustment on ORE Acquired		108			299
Unrealized Loss on Securities Available-for-Sale		373			58
Low-Income Housing Investment		470			366
Other		17			233
Total Deferred Tax Assets	$	34,195		$	48,433
Deferred Tax Liabilities
Premises and Equipment		(1,361	)		(1,707	)
Securities Accretion		(164	)		(341	)
Leasing Activities		(12,389	)		(14,868	)
Core Deposit Intangible Asset		(247	)		(398	)
Prepaid		(964	)		(314	)
Other		(944	)		(494	)
Total Deferred Tax Liabilities		(16,069	)		(18,122	)
Net Deferred Tax Assets	$	18,126		$	30,311

The Tax Cuts and Jobs Act, which lowers the Company’s previous 35% federal corporate tax rate to 21%, was signed into law by President Trump on December 22, 2017. In accordance with the ASC Topic 740, Income Taxes, companies must recognize the effect of tax law changes in the period of enactment. As a result, the Company is required to re-measure its deferred tax assets (DTA) and deferred tax liabilities (DTL) at the new tax rate of 21%. This onetime re-measurement resulted in a $6.3 million increase in the Company’s income tax provision. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets. The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheet.

The Company and its subsidiaries file income tax returns in the U.S. federal and California jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by the tax authorities for the years before 2013.

11. Short Term Borrowings

As of December 31, 2017 and 2016, the Company had unused lines of credit available for short-term liquidity purposes of $1.0 billion and $962.8 million, respectively. Federal Funds purchased and advances are generally issued on an overnight basis. There were no advances from the FHLB at December 31, 2017 or 2016. There were no Federal Funds purchased or advances from the FRB at December 31, 2017 or 2016.

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12.  Securities Sold Under Agreement to Repurchase

Securities Sold Under Agreement to Repurchase are used as secured borrowing alternatives to FHLB Advances or FRB Borrowings.

At December 31, 2017 and December 31, 2016, the Company had no securities sold under agreement to repurchase.

13. Federal Home Loan Bank Advances

The Company had no short-term or long-term advances from the Federal Home Loan Bank of San Francisco at December 31, 2017 or 2016.

In accordance with the Collateral Pledge and Security Agreement, advances are secured by all FHLB stock held by the Company. At December 31, 2017, $618.4 million in loans were approved for pledging as collateral on borrowing lines with the FHLB. The borrowing capacity on these loans was $521.2 million.

14.  Long-term Subordinated Debentures

In December 2003, the Company formed a wholly owned Connecticut statutory business trust, FMCB Statutory Trust I (“Statutory Trust I”), which issued $10.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures (the “Trust Preferred Securities”). The Company is not considered the primary beneficiary of the trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. These debentures qualify as Tier 1 capital under current regulatory guidelines. All of the common securities of Statutory Trust I are owned by the Company. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by FMCB Statutory Trust to purchase $10.3 million of junior subordinated debentures of the Company, which carry a floating rate based on three-month LIBOR plus 2.85%. The debentures represent the sole asset of Statutory Trust I. The Trust Preferred Securities accrue and pay distributions at a floating rate of three-month LIBOR plus 2.85% per annum of the stated liquidation value of $1,000 per capital security. The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment to the extent that Statutory Trust I has funds available therefore of: (i) accrued and unpaid distributions required to be paid on the Trust Preferred Securities; (ii) the redemption price with respect to any Trust Preferred Securities called for redemption by Statutory Trust I; and (iii) payments due upon a voluntary or involuntary dissolution, winding up, or liquidation of Statutory Trust I. The Trust Preferred Securities are mandatorily redeemable upon maturity of the subordinated debentures on December 17, 2033, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the subordinated debentures purchased by Statutory Trust I, in whole or in part, on or after December 17, 2008. As specified in the indenture, if the subordinated debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company’s common stock.

15. Shareholders' Equity

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018.

Repurchases under the program may be made from time to time on the open market or through private transactions. The repurchase program also requires that no repurchases may be made if the Bank would not remain “well-capitalized” after the repurchase. There were no stock repurchases made in 2017 or 2016.

Dividends from the Bank constitute the principal source of cash to the Company. The Company is a legal entity separate and distinct from the Bank. Under regulations controlling California state chartered banks, the Bank is, to some extent, limited in the amount of dividends that can be paid to the Company without prior approval of the California DBO. These regulations require approval if total dividends declared by a state chartered bank in any calendar year exceed the bank's net profits for that year combined with its retained net profits for the preceding two calendar years.

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During 2017, the Company issued 4,975 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued had prices ranging from $590 per share to $595 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

During 2016, the Company issued 16,542 shares of common stock, of which 4,610 shares were contributed to the Bank’s non-qualified defined contribution retirement plans and 11,932 shares were issued in the acquisition of Delta National Bancorp. The shares issued had prices ranging from $525 per share to $580 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

The Company and the Bank are subject to various federal regulatory capital requirements under the Basel III Capital Rules. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a "capital conservation buffer" of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.

The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity.

In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized  Under Prompt Corrective Action
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	330,041		12.66	%	$	208,552		8.0	%	$	260,691		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	342,210		13.07	%	$	209,532		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	297,232		11.40	%	$	117,311		4.5	%	$	169,449		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	299,401		11.43	%	$	117,862		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	297,232		11.40	%	$	156,414		6.0	%	$	208,552		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	309,250		11.81	%	$	157,150		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	297,232		9.65	%	$	123,178		4.0	%	$	153,972		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	309,250		9.99	%	$	123,790		4.0	%		N/A		N/A

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	319,776		12.79	%	$	199,958		8.0	%	$	249,947		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	319,983		12.80	%	$	199,981		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	288,324		11.54	%	$	112,476		4.5	%	$	162,466		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	278,981		11.16	%	$	112,489		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	288,323		11.54	%	$	149,968		6.0	%	$	199,958		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	288,527		11.54	%	$	149,986		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	288,324		10.08	%	$	114,409		4.0	%	$	143,011		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	288,527		10.07	%	$	114,568		4.0	%		N/A		N/A

16. Dividends and Basic Earnings Per Common Share

Total cash dividends during 2017 were $10,982,000 or $13.55 per share of common stock, an increase of 3.4% per share from $10,478,000 or $13.10 per share in 2016. In 2015, cash dividends totaled $10,157,000 or $12.90 per share.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The following table calculates the basic earnings per common share for the periods indicated.

(net income in thousands)	2017		2016		2015
Net Income	$	28,370	$	29,723	$	27,392
Weighted Average Number of Common Shares Outstanding		809,834		793,970		786,582
Basic Earnings Per Common Share	$	35.03	$	37.44	$	34.82

17. Employee Benefit Plans

Profit Sharing Plan

The Company, through the Bank, sponsors a Profit Sharing Plan for substantially all full-time employees of the Company with one or more years of service. Participants receive up to two annual employer contributions, one is discretionary and the other is mandatory. The discretionary contributions to the Profit Sharing Plan are determined annually by the Board of Directors. The discretionary contributions totaled $1.0 million, $975,000, and $925,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The mandatory contributions to the Profit Sharing Plan are made according to a predetermined set of criteria. Mandatory contributions totaled $1.2 million, $1.2 million, and $1.1 million for the years ended December 31, 2017, 2016, and 2015, respectively. Company employees are permitted, within limitations imposed by tax law, to make pretax contributions and after tax (Roth) contributions to the 401(k) feature of the Profit Sharing Plan. The Company does not match employee contributions within the 401(k) feature of the Profit Sharing Plan and the Company can terminate the Profit Sharing Plan at any time. Benefits pursuant to the Profit Sharing Plan vest 0% during the first year of participation, 25% per full year thereafter and after five years such benefits are fully vested.

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Executive Retirement Plan and Life Insurance Arrangements

The Company, through the Bank, sponsors an Executive Retirement Plan for certain executive level employees. The Executive Retirement Plan is a non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. The Plan is comprised of: (1) a Performance Component which makes contributions based upon long-term cumulative profitability and increase in market value of the Company; (2) a Salary Component which makes contributions based upon participant salary levels; and (3) an Equity Component for which contributions are discretionary and subject to Board of Directors approval. Executive Retirement Plan contributions are invested in a mix of financial instruments; however, Equity Component contributions are invested primarily in stock of the Company.

The Company expensed $4.3 million to the Executive Retirement Plan during the year ended December 31, 2017, $3.8 million during the year ended December 31, 2016 and $3.5 million during the year ended December 31, 2015. The Company’s total accrued liability under the Executive Retirement Plan was $43.3 million as of December 31, 2017 and $37.4 million as of December 31, 2016. All amounts have been fully funded into a Rabbi Trust as of December 31, 2017.

The Company has purchased single premium life insurance policies on the lives of certain key employees of the Company. These policies provide: (1) financial protection to the Company in the event of the death of a key employee; and (2) significant income to the Company to offset the expense associated with the Executive Retirement Plan and other employee benefit plans, since the interest earned on the cash surrender value of the policies is tax exempt as long as the policies are used to finance employee benefits. As compensation to each employee for agreeing to allow the Company to purchase an insurance policy on his or her life, split dollar agreements have been entered into with those employees. These agreements provide for a division of the life insurance death proceeds between the Company and each employee’s designated beneficiary or beneficiaries.

The Company earned tax-exempt interest on the life insurance policies of $1.8 million for the year ended December 31, 2017, and $1.9 million for the years ended December 31, 2016, and 2015. As of December 31, 2017 and 2016, the total cash surrender value of the insurance policies was $59.6 million and $57.8 million, respectively.

Senior Management Retention Plan

The Company, through the Bank, sponsors a Senior Management Retention Plan (“SMRP”) for certain senior level employees. The SMRP is a non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. All contributions are discretionary and subject to the Board of Directors approval. Contributions are invested primarily in stock of the Company. The Company expensed $765,000 to the SMRP during the year ended December 31, 2017, $627,000 during the year ended December 31, 2016 and $530,000 during the year ended December 31, 2015. The Company’s total accrued liability under the SMRP was $4.4 million as of December 31, 2017 and $3.4 million as of December 31, 2016. All amounts have been fully funded into a Rabbi Trust as of December 31, 2017.

18. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit, assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

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Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

Other Real Estate (“ORE”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

At December 31, 2017, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

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The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

			Fair Value Measurements At December 31, 2017, Using
	Fair Value		Quoted Prices  in Active Markets for Identical  Assets		Other Observable Inputs		Significant  Unobservable  Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

			Fair Value Measurements At December 31, 2016, Using
	Fair Value		Quoted Prices in Active Markets for Identical  Assets		Other Observable Inputs		Significant Unobservable  Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,241	$	-	$	3,241	$	-
US Treasury Notes		134,428		134,428		-		-
US Govt SBA		36,314				36,314
Mortgage Backed Securities		273,270		-		273,270		-
Other		1,010		200		310		500
Total Assets Measured at Fair Value On a Recurring Basis	$	448,263	$	134,628	$	313,135	$	500

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the year ended December 31, 2017, there were no transfers in or out of level 1, 2, or 3.

The available for sale investment security categorized as a Level 3 asset for year ended December 31, 2017 consisted of one $2.5 million investment in a limited liability company that purchases SBA loans. The Company increased this investment by $2.0 million during 2017. This security is not actively traded and is owned by a few investors. The significant unobservable data reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average lives and credit information, among other things. There were no gains or losses or transfers in or out of level 3 during the year ended December 31, 2017.

The following tables present information about the Company’s impaired loans & leases and other real estate, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans & leases are carried at fair value. Impaired loans & leases are only included in the following tables when their fair value is based upon an appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

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			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices  in Active  Markets for  Identical  Assets (Level 1)		Other Observable Inputs (Level 2)		Significant  Unobservable  Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

			Fair Value Measurements At December 31, 2016, Using
(in thousands)	Fair Value Total		Quoted Prices  in Active  Markets for  Identical Assets (Level 1)		Other  Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired Loans:
Residential 1st Mortgage	$	480	$	-	$	-	$	480
Home Equity Lines and Loans		83		-		-		83
Agricultural		497		-		-		497
Commercial		833		-		-		833
Total Impaired Loans		1,893		-		-		1,893
Other Real Estate:
Home Equity Lines and Loans		785		-		-		785
Real Estate Construction		2,960		-		-		2,960
Total Other Real Estate		3,745		-		-		3,745
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,638	$	-	$	-	$	5,638

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2017:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans:
Commercial Real Estate	$	2,595	Income Approach	Capitalization Rate		3.25%, 3.25 %
Residential 1st Mortgages	$	997	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 2 %
Home Equity Lines and Loans	$	75	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2 %
Commercial	$	1,514	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40 %
Other Real Estate:
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10 %

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19. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
December 31, 2017  (in thousands)	Carrying Amount		Quoted Prices  in Active  Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant  Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		29,580		449,516		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

			Fair Value of Financial Instruments Using
December 31, 2016 (in thousands)	Carrying Amount		Quoted Prices  in Active Markets for Identical Assets  (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total  Estimated  Fair Value
Assets:
Cash and Cash Equivalents	$	98,960	$	98,960	$	-	$	-	$	98,960
Investment Securities Available-for-Sale		448,263		134,628		313,135		500		448,263
Investment Securities Held-to-Maturity		58,109		-		40,415		17,993		58,408
FHLB Stock		8,872		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,129,682		-		-		2,107,060		2,107,060
Accrued Interest Receivable		10,047		-		10,047		-		10,047
Liabilities:
Deposits		2,581,711		2,011,418		569,183		-		2,580,601
Subordinated Debentures		10,310		-		6,578		-		6,578
Accrued Interest Payable		852		-		852		-		852

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Fair value estimates presented herein are based on pertinent information available to management as of December 31, 2017 and December 31, 2016. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purpose of these financial statements since that date, and; therefore, current estimates of fair value may differ significantly from the amounts presented above. The methods and assumptions used to estimate the fair value of each class of financial instrument listed in the table above are explained below.

Cash and Cash Equivalents - The carrying amounts reported in the balance sheet for cash and due from banks, interest-bearing deposits with banks, federal funds sold, and securities purchased under agreements to resell are a reasonable estimate of fair value. All cash and cash equivalents are classified as Level 1.

Investment Securities - Fair values for investment securities consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. Based on the available market information the classification level could be 1, 2, or 3.

Federal Home Loan Bank Stock - It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans & Leases, Net of Deferred Loan & Lease Fees & Allowance - Fair values of loans & leases are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans & leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans & leases are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans & leases do not necessarily represent an exit price.

Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-maturity certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable - The carrying amount of accrued interest receivable and payable approximates their fair value resulting in a Level 2 classification.

20. Commitments and Contingencies

In the normal course of business, the Company enters in to financial instruments with off balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments include commitments to extend credit, letters of credit, and other types of financial guarantees. The Company had the following off balance sheet commitments as of the dates indicated.

(in thousands)	December 31, 2017		December 31, 2016
Commitments to Extend Credit	$	735,678	$	609,653
Letters of Credit		20,061		20,444
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		759		1,835

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The Company's exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer's creditworthiness are performed on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third party. Outstanding standby letters of credit have maturity dates ranging from 1 to 60 months with final expiration in January 2023. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The Company is obligated under a number of noncancellable operating leases for premises and equipment used for banking purposes. Minimum future rental commitments under noncancellable operating leases as of December 31, 2017, were $670,000, $634,000, $644,000, $462,000, and $146,000 for the years 2018 through 2022, and $139,000 for the remaining term of the leases.

In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate liability, if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.

The Company may be required to maintain average reserves on deposit with the Federal Reserve Bank primarily based on deposits outstanding. There were no reserve requirements during 2017 or 2016.

21. Recent Accounting Developments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. Management does not expect the adoption of the ASU to have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is currently evaluating the provisions of this ASU and has created a cross-functional team to begin its implementation efforts of this new guidance. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

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In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Update modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. The Company is currently evaluating the impact the adoption of this update will have on the consolidated financial statements. As a financial institution, the Company’s largest component of revenue, interest income, is excluded from the scope of this ASU. The Company adopted this ASU on January 1, 2018.

22. Parent Company Financial Information

The following financial information is presented as of December 31 for the periods indicated.

Farmers & Merchants Bancorp

Condensed Balance Sheets

(in thousands)	2017		2016
Cash	$	332	$	228
Investment in Farmers & Merchants Bank of Central California		297,643		289,778
Investment Securities		409		409
Other Assets		12,006		184
Total Assets	$	310,390	$	290,599
Subordinated Debentures	$	10,310	$	10,310
Liabilities		420		308
Shareholders' Equity		299,660		279,981
Total Liabilities and Shareholders' Equity	$	310,390	$	290,599

Farmers & Merchants Bancorp

Condensed Statements of Income

	Year Ended December 31,
(in thousands)	2017			2016			2015
Equity in Undistributed Earnings in Farmers & Merchants Bank of Central California	$	5,575		$	17,043		$	17,352
Dividends from Subsidiary		23,575			14,275			10,875
Interest Income		13			11			10
Other Expenses, Net		(1,552	)		(2,485	)		(1,451	)
Tax Benefit		759			879			606
Net Income	$	28,370		$	29,723		$	27,392

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Farmers & Merchants Bancorp

Condensed Statements of Cash Flows

	Year Ended December 31,
(in thousands)	2017			2016			2015
Cash Flows from Operating Activities:
Net Income	$	28,370		$	29,723		$	27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Net Earnings from Subsidiary		(5,575	)		(17,043	)		(17,352	)
Net (Increase) Decrease in Other Assets		(11,822	)		(124	)		(79	)
Net Increase (Decrease) in Liabilities		112			49			141
Net Cash Provided by Operating Activities		11,085			12,605			10,102
Investing Activities:
Securities Sold or Matured		1			-			-
Payments for Business Acquisition		-			(2,207	)		-
Payments for Investments in Subsidiaries		(2,953	)		(2,586	)		(3,360	)
Net Cash Used by Investing Activities		(2,952	)		(4,793	)		(3,360	)
Financing Activities:
Issuance of Common Stock		2,953			2,586			3,360
Cash Dividends		(10,982	)		(10,478	)		(10,157	)
Net Cash Used by Financing Activities		(8,029	)		(7,892	)		(6,797	)
Increase (Decrease) in Cash and Cash Equivalents		104			(80	)		(55	)
Cash and Cash Equivalents at Beginning of Year		228			308			363
Cash and Cash Equivalents at End of Year	$	332		$	228		$	308

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23. Quarterly Unaudited Financial Data

The following tables set forth certain unaudited historical quarterly financial data for each of the eight consecutive quarters in 2017 and 2016. This information is derived from unaudited consolidated financial statements that include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

2017 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	27,242	$	28,069	$	29,609	$	29,692	$	114,612
Total Interest Expense		1,376		1,538		1,759		1,616		6,289
Net Interest Income		25,866		26,531		27,850		28,076		108,323
Provision for Credit Losses		600		650		1,600		-		2,850
Net Interest Income After
Provision for Credit Losses		25,266		25,881		26,250		28,076		105,473
Total Non-Interest Income		5,406		3,539		3,638		4,179		16,762
Total Non-Interest Expense		18,422		16,525		16,307		16,500		67,754
Income Before Income Taxes		12,250		12,895		13,581		15,755		54,481
Provision for Income Taxes		4,429		4,708		5,000		11,974		26,111
Net Income	$	7,821	$	8,187	$	8,581	$	3,781	$	28,370
Basic Earnings Per Common Share	$	9.68	$	10.12	$	10.59	$	4.64	$	35.03

2016 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	24,026	$	24,314	$	25,262	$	25,664	$	99,266
Total Interest Expense		920		951		1,110		1,215		4,196
Net Interest Income		23,106		23,363		24,152		24,449		95,070
Provision for Credit Losses		2,600		-		250		3,485		6,335
Net Interest Income After
Provision for Credit Losses		20,506		23,363		23,902		20,964		88,735
Total Non-Interest Income		2,721		2,875		4,553		5,108		15,257
Total Non-Interest Expense		12,019		14,737		16,414		15,002		58,172
Income Before Income Taxes		11,208		11,501		12,041		11,070		45,820
Provision for Income Taxes		4,036		4,169		4,503		3,389		16,097
Net Income	$	7,172	$	7,332	$	7,538	$	7,681	$	29,723
Basic Earnings Per Common Share	$	9.06	$	9.25	$	9.51	$	9.62	$	37.44

24. Subsequent Events

On February 27, 2018 the Company acquired an additional 8 shares of Bank of Rio Vista for $95,200, increasing our total ownership to 1,586 shares, or 39.65% of the total common shares outstanding.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

The Company maintains controls and procedures designed to ensure that all relevant information is recorded and reported in all filings of financial reports. Such information is reported to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In accordance with Rule 13a-15(b) of the Exchange Act, we carried out an evaluation as of December 31, 2017, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of December 31, 2017.

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There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

Management’s report on internal control over financial reporting is set forth in “Item 8. Financial Statements and Supplementary Data,” and is incorporated herein by reference. Moss Adams LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report, was engaged to audit the effectiveness of the Company’s internal control over financial reporting. The report of Moss Adams LLP, which is set forth in “Item 8. Financial Statements and Supplementary Data,” is incorporated herein by reference.

Item 9B. Other Information

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Set forth below is certain information regarding the Executive Officers of the Company and/or Bank:

Name and Position(s)	Age	Principal Occupation during the Past Five Years
Kent A. Steinwert Chairman, President & Chief Executive Officer of the Company and Bank	65	Chairman, President & Chief Executive Officer of the Company and Bank.
Deborah E. Skinner Executive Vice President & Chief  Administrative Officer of the Bank	55	Executive Vice President & Chief Administrative Officer of the Bank.
Stephen W. Haley Executive Vice President & Chief Financial Officer & Secretary of the Company and Bank	64	Executive Vice President & Chief Financial Officer of the Company and Bank.
Kenneth W. Smith Executive Vice President & Senior Credit Officer of the Company and Bank	58	Executive Vice President & Senior Credit Officer of the Company and Bank.
David M. Zitterow Executive Vice President, Wholesale Banking Division of the Bank	45	Executive Vice President, Wholesale Banking Division Manager – Farmers & Merchants Bank since May 2017. Senior Vice President – Northern California Regional Executive – Umpqua Bank, April 2014 – May 2017. Senior Vice President – Head of Business Banking - Umpqua Bank, July 2013 to April 2014. Senior Vice President – Commercial Banking Manager and Business Banking Manager – Umpqua Bank, April 2011 – July 2013.
Jay J. Colombini Executive Vice President, Wholesale Banking Division of the Bank	55	Executive Vice President, Wholesale Banking Division Manager of the Bank since November 15, 2013. Senior Vice President and Manager – Lodi Main Branch from August 1, 2012 through November 14, 2013.
Ryan J. Misasi Executive Vice President, Retail Banking Division of the Bank	41	Executive Vice President, Retail Banking Division of the Bank since May 29, 2014. Executive Vice President and Chief Retail Officer – Patelco Credit Union from December, 2011 to April, 2014.

101

Also, see “Election of Directors” and “Compliance with Section 16(a) of the Exchange Act” in the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders which will be filed with the SEC and which is incorporated herein by reference. During 2017, there were no changes in procedures for the election of directors.

The Company has adopted a Code of Conduct, which complies with the Code of Ethics requirements of the SEC. A copy of the Code of Conduct is posted on the Company’s website. The Company intends to disclose promptly any amendment to, or waiver from any provision of, the Code of Conduct applicable to senior financial officers, and any waiver from any provision of the Code of Conduct applicable to directors, on its website on the About Us page. The Company’s website address is www.fmbonline.com. This website address is for information only and is not intended to be an active link, or to incorporate any website information into this document.

Item 11. Executive Compensation

The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A. The Company does not have any equity compensation plans, which require disclosure under Item 201(d) of Regulation S-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.

Item 14. Principal Accounting Fees and Services

The information required by Item 14 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.

102

PART IV

Item 15. Exhibits and Financial Statement Schedules

   (a) (1) Financial Statements. Incorporated herein by reference, are listed in Item 8 hereof.

(2)  Financial Statement Schedules. Not applicable.

(3)  Exhibits.

Exhibit Number	Description
2.1	Agreement and Plan of Reorganization dated as of June 8, 2016, by and between Farmers & Merchants Bancorp and Delta National Bancorp and filed on the Registrant’s Current Report on Form 8-K dated June 10, 2016, is incorporated herein by reference.
3.1	Amended Certificate of Incorporation (incorporated by reference to Proposal #2 in the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2012 Annual Meeting of Stockholders, Appendices 1 and 2 to the Registrant's Definitive Proxy Statement on Schedule 14A for its 2007 Annual Meeting of Stockholders, and Exhibit 3(i) to the Registrant's Current Report on Form 8-K dated April 30, 1999).
3.2	Amended By-Laws (incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 4, 2016, the Registrant’s Current Report on Form 8-K dated September 19, 2008, Appendix 3 to the Registrant's Definitive Proxy Statement on Schedule 14A for its 2007 Annual Meeting of Stockholders, Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated June 7, 2005, and Exhibit 3(ii) to the Registrant's Current Report on Form 8-K dated April 30, 1999).
3.3	Certificate of Designation for the Series A Junior Participating Preferred Stock (included as Exhibit A to the Rights Agreement between Farmers & Merchants Bancorp and Registrar and Transfer Company, dated as of August 5, 2008, filed as Exhibit 4.1 below), filed on the Registrant’s Form 10-Q for the quarter ended June 30, 2008, is incorporated herein by reference.
4.1	Rights Agreement between Farmers & Merchants Bancorp and Registrar and Transfer Company, dated as of August 5, 2008, including Form of Right Certificate attached thereto as Exhibit B, filed on the Registrant’s Form 10-Q for the quarter ended June 30, 2008,  is incorporated herein by reference.
4.2	Amendment No. 1 to Rights Agreement between Farmers & Merchants Bancorp and Computershare Trust, N.A., as Rights Agent, dated as of February 18, 2016, incorporated herein by reference to Exhibit 4.2 of the Registrant’s Form 8-A/A filed on February 19, 2016.
10.1	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Kent A. Steinwert, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.3	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Deborah E. Skinner, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.4	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Kenneth W. Smith, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.6	Amended and Restated Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Stephen W. Haley, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.8	Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Jay J. Colombini, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.9	Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and James P. Daugherty, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.

103

10.10	Employment Agreement effective July 1, 2015, between Farmers & Merchants Bank of Central California and Ryan J. Misasi, filed on Registrant’s Form 10-Q for the quarter ended June 30,  2015, is incorporated herein by reference.
10.11	Employment Agreement effective May 1, 2017, between Farmers & Merchants Bank of Central California and David M. Zitterow, filed on the Registrant’s Current Report on Form 8-K dated June 30, 2017, is incorporated herein by reference.
10.15	Executive Retirement Plan – Performance Componentas amended on November 5, 2010, filed on Registrant’s Form 10-Q for the period ended September 30, 2010, is incorporated herein by reference.
10.16	Executive Retirement Plan – Retention Component as amended on November 5, 2010, filed on Registrant’s Form 10-Q for the period ended September 30, 2010, is incorporated herein by reference.
10.17	Executive Retirement Plan – Salary Component, amended and restated on November 29, 2014, filed on Registrant’s Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.
10.18	Deferred Compensation Plan of Farmers & Merchants Bank of Central California,, as amended on November 5, 2010, filed on Registrant’s Form 10-Q for the period ended September 30, 2010, is incorporated herein by reference.
10.19	Executive Retirement Plan – Equity Component, amended and restated on November 29, 2014, filed on Registrant’s Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.
10.20	Senior Management Retention Plan,, amended and restated on November 29, 2014, filed on Registrant’s Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.
14	Code of Conduct of Farmers & Merchants Bancorp,, filed on Registrant’s Form 10-K for the year ended December 31, 2003, is incorporated herein by reference.
21	Subsidiaries of the Registrant, filed on Registrant’s Form 10-K for the year ended December 31, 2003, is incorporated herein by reference.
31(a)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31(b)	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL    Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

* Filed herewith

Item 16. Form 10-K Summary

None

104

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Farmers & Merchants Bancorp
		(Registrant)
	By	/s/ Stephen W. Haley
Dated:  March 15, 2018		Stephen W. Haley
		Executive Vice President &
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 15, 2018.

/s/ Kent A. Steinwert
	Chairman, President & Chief Executive Officer
Kent A. Steinwert	(Principal Executive Officer)
/s/ Stephen W. Haley
	Executive Vice President & Chief Financial Officer
Stephen W. Haley	(Principal Financial and Accounting Officer)
/s/ Gary Long	/s/ Calvin Suess
Gary Long, Director	Calvin Suess, Director
/s/ Stewart C. Adams, Jr.	/s/ Kevin Sanguinetti
Stewart C. Adams, Jr., Director	Kevin Sanguinetti, Director
/s/ Edward Corum, Jr.	/s/ Steven K. Green
Edward Corum, Jr., Director	Steven K. Green, Director
/s/ Terrence A. Young
Terrence A. Young, Director

105

EX-31.A

Exhibit 31(a)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Executive Officer

I, Kent A. Steinwert, certify that:

1. I have reviewed this annual report on Form 10-K of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 15, 2018	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President & Chief Executive Officer

EX-31.B

Exhibit 31(b)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Financial Officer

I, Stephen W. Haley, certify that:

1. I have reviewed this annual  report on Form 10-K of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2018	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Farmers & Merchants Bancorp (the “Company”) on Form 10-K for the annual period ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kent A. Steinwert, Chairman, President and Chief Executive Officer, and Stephen W. Haley, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. $ 1350), that:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. $ 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 15, 2018

/s/ Kent A. Steinwert

Kent A. Steinwert

Chairman, President

 & Chief Executive Officer

/s/ Stephen W. Haley

Stephen W. Haley

Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Feb. 28, 2018	Jun. 30, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	FARMERS & MERCHANTS BANCORP
Entity Central Index Key	0001085913
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 501,396,000
Entity Common Stock, Shares Outstanding		812,304
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2017

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Cash and Cash Equivalents:
Cash and Due from Banks	$ 65,956	$ 54,896
Interest Bearing Deposits with Banks	121,193	43,964
Total Cash and Cash Equivalents	187,149	98,860
Investment Securities:
Available-for-Sale	481,596	448,263
Held-to-Maturity	54,460	58,109
Total Investment Securities	536,056	506,372
Loans & Leases:	2,215,295	2,177,601
Less: Allowance for Credit Losses	50,342	47,919
Loans & Leases, Net	2,164,953	2,129,682
Premises and Equipment, Net	28,679	29,229
Bank Owned Life Insurance	59,583	57,761
Interest Receivable and Other Assets	99,032	100,217
Total Assets	3,075,452	2,922,121
Deposits:
Demand	832,652	756,236
Interest-Bearing Transaction	601,476	495,063
Savings and Money Market	813,703	760,119
Time	475,397	570,293
Total Deposits	2,723,228	2,581,711
Subordinated Debentures	10,310	10,310
Interest Payable and Other Liabilities	42,254	50,119
Total Liabilities	2,775,792	2,642,140
Commitments & Contingencies (See Note 20)
Shareholders' Equity
Preferred Stock: No Par Value, 1,000,000 Shares Authorized, None Issued or Outstanding	0	0
Common Stock: Par Value $0.01, 7,500,000 Shares Authorized, 812,304 and 807,329 Shares Issued and Outstanding at December 31, 2017 and 2016, respectively.	8	8
Additional Paid-In Capital	93,624	90,671
Retained Earnings	206,845	189,313
Accumulated Other Comprehensive Income	(817)	(11)
Total Shareholders' Equity	299,660	279,981
Total Liabilities and Shareholders' Equity	$ 3,075,452	$ 2,922,121

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2017	Dec. 31, 2016
Shareholders' Equity
Preferred Stock, par value (in dollars per share)	$ 0	$ 0
Preferred Stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred Stock, shares issued (in shares)	0	0
Preferred Stock, shares outstanding (in shares)	0	0
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized (in shares)	7,500,000	7,500,000
Common Stock, shares issued (in shares)	812,304	807,329
Common Stock, shares outstanding (in shares)	812,304	807,329

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest Income
Interest and Fees on Loans & Leases	$ 102,682	$ 91,570	$ 81,558
Interest on Deposits with Banks	2,060	287	172
Interest on Investment Securities:
Taxable	8,123	5,505	6,311
Exempt from Federal Tax	1,747	1,904	2,034
Total Interest Income	114,612	99,266	90,075
Interest Expense
Deposits	5,865	3,807	2,989
Borrowed Funds	0	18	7
Subordinated Debentures	424	371	329
Total Interest Expense	6,289	4,196	3,325
Net Interest Income	108,323	95,070	86,750
Provision for Credit Losses	2,850	6,335	750
Net Interest Income After Provision for Credit Losses	105,473	88,735	86,000
Non-Interest Income
Service Charges on Deposit Accounts	3,453	3,376	3,458
Net Gain (Loss) on Investment Securities	131	(284)	275
Increase in Cash Surrender Value of Life Insurance	1,822	1,864	1,908
Debit Card and ATM Fees	3,873	3,398	3,183
Net Gain on Deferred Compensation Investments	2,563	1,999	1,375
Bargain Purchase Gain	0	1,832	0
Other	4,920	3,072	4,376
Total Non-Interest Income	16,762	15,257	14,575
Non-Interest Expense
Salaries and Employee Benefits	45,746	41,981	39,683
Net Gain on Deferred Compensation Investments	2,563	1,999	1,375
Occupancy	3,543	2,985	2,884
Equipment	3,994	3,493	3,162
Marketing	1,027	1,191	1,254
Legal	424	1,243	421
FDIC Insurance	932	1,174	1,193
Gain on Sale of ORE	(414)	(5,941)	(299)
Other	9,939	10,047	6,586
Total Non-Interest Expense	67,754	58,172	56,259
Income Before Income Taxes	54,481	45,820	44,316
Provision for Income Taxes	26,111	16,097	16,924
Net Income	$ 28,370	$ 29,723	$ 27,392
Basic Earnings Per Common Share (in dollars per share)	$ 35.03	$ 37.44	$ 34.82

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Consolidated Statements of Comprehensive Income [Abstract]
Net Income	$ 28,370	$ 29,723	$ 27,392
Other Comprehensive Loss
Net Unrealized Loss on Available-for-Sale Securities	(1,011)	(1,330)	(3,069)
Deferred Tax Benefit Related to Unrealized Losses	281	559	1,290
Reclassification Adjustment for Realized (Gain) Loss on Available-for-Sale Securities Included in Net Income	(131)	284	(275)
Tax Expense (Benefit) Related to Reclassification Adjustment	55	(119)	116
Change in Net Unrealized Loss on Available-for-Sale Securities, Net of Tax	(806)	(606)	(1,938)
Total Other Comprehensive Loss	(806)	(606)	(1,938)
Comprehensive Income	$ 27,564	$ 29,117	$ 25,454

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) Income [Member]	Total
Balance at Dec. 31, 2014	$ 8	$ 77,804	$ 152,833	$ 2,533	$ 233,178
Balance (in shares) at Dec. 31, 2014	784,082
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income			27,392		27,392
Cash Dividends Declared on Common Stock			(10,157)		(10,157)
Issuance of Common Stock		3,360			3,360
Issuance of Common Stock (in shares)	6,705
Change in Net Unrealized (Loss) Gain on Securities Available-for-Sale				(1,938)	(1,938)
Balance at Dec. 31, 2015	$ 8	81,164	170,068	595	251,835
Balance (in shares) at Dec. 31, 2015	790,787
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income			29,723		29,723
Cash Dividends Declared on Common Stock			(10,478)		(10,478)
Issuance of Common Stock		9,507			$ 9,507
Issuance of Common Stock (in shares)	16,542				16,542
Change in Net Unrealized (Loss) Gain on Securities Available-for-Sale				(606)	$ (606)
Balance at Dec. 31, 2016	$ 8	90,671	189,313	(11)	$ 279,981
Balance (in shares) at Dec. 31, 2016	807,329				807,329
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income			28,370		$ 28,370
Cash Dividends Declared on Common Stock			(10,982)		(10,982)
Issuance of Common Stock		2,953			$ 2,953
Issuance of Common Stock (in shares)	4,975				4,975
Tax Adjustment of Available-for-Sale Securities Reclassed from AOCI			144	(144)	$ 0
Change in Net Unrealized (Loss) Gain on Securities Available-for-Sale				(662)	(662)
Balance at Dec. 31, 2017	$ 8	$ 93,624	$ 206,845	$ (817)	$ 299,660
Balance (in shares) at Dec. 31, 2017	812,304				812,304

XML

Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash Dividends Declared per Share of Common Stock (in dollars per share)	$ 13.55	$ 13.10	$ 12.90

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Operating Activities
Net Income	$ 28,370	$ 29,723	$ 27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	2,850	6,335	750
Depreciation and Amortization	2,186	1,896	1,685
Provision for Deferred Income Taxes	12,605	(2,299)	(907)
Net Amortization of Investment Security Premium & Discounts	1,430	1,481	1,554
Amortization of Core Deposit Intangible	110	13	0
Accretion of Discount on Acquired Loans	(202)	(43)	0
Net (Gain) Loss on Investment Securities	(131)	284	(275)
Net (Gain) Loss on Sale of Property & Equipment	(1,189)	71	(383)
Net Gain on Sale of ORE	(414)	(5,941)	(299)
Net Gain from Acquisition	0	(1,832)	0
Net Change in Operating Assets & Liabilities:
Net (Increase) Decrease in Interest Receivable and Other Assets	(275)	1,056	4,685
Net (Decrease) Increase in Interest Payable and Other Liabilities	(5,396)	4,068	3,125
Net Cash Provided by Operating Activities	39,944	34,812	37,327
Investing Activities
Purchase of Investment Securities Available-for-Sale	(325,573)	(497,797)	(203,996)
Proceeds from Sold, Matured, or Called Securities Available-for-Sale	289,857	426,142	227,157
Purchase of Investment Securities Held-to-Maturity	(1,205)	(2,264)	(17,747)
Proceeds from Matured, or Called Securities Held-to-Maturity	4,794	5,499	18,031
Net Loans & Leases Paid, Originated or Acquired	(38,178)	(148,960)	(284,211)
Principal Collected on Loans & Leases Previously Charged Off	259	232	5,468
Cash Acquired in Acquisition, Net of Cash Paid	0	31,751	0
Additions to Premises and Equipment	(4,254)	(1,504)	(2,726)
Purchase of Other Investment	(14,380)	(6,825)	(2,110)
Proceeds from Sale of Property & Equipment	3,304	0	670
Proceeds from Sale of ORE	3,186	8,282	1,156
Net Cash Used in Investing Activities	(82,190)	(185,444)	(258,308)
Financing Activities
Net Increase in Deposits	141,517	200,524	213,459
Cash Dividends	(10,982)	(10,478)	(10,157)
Net Cash Provided by (Used in) Financing Activities	130,535	190,046	203,302
Increase (Decrease) in Cash and Cash Equivalents	88,289	39,414	(17,679)
Cash and Cash Equivalents at Beginning of Year	98,860	59,446	77,125
Cash and Cash Equivalents at End of Year	187,149	98,860	59,446
Supplementary Data
Loans Transferred to Foreclosed Assets (ORE)	0	538	0
Cash Payments Made for Income Taxes	13,942	12,891	8,475
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans	2,953	2,586	3,360
Interest Paid	6,005	3,856	3,190
Acquisitions:
Fair Value of Assets Acquired	0	114,871	0
Fair Value of Liabilities Acquired	0	103,861	0
Issuance of Common Stock to Acquired Bank's Shareholders	$ 0	$ 6,921	$ 0

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Significant Accounting Policies [Abstract]

Significant Accounting Policies

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. F & M Bancorp, Inc. was created in March 2002 to protect the name F & M Bank. During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name “F & M Bank” as part of a larger effort to enhance the Company’s image and build brand name recognition. In December 2003, the Company formed a wholly owned subsidiary, FMCB Statutory Trust I, for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). FMCB Statutory Trust I is a non-consolidated subsidiary.

On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp, headquartered in Manteca, California, and the parent holding company for Delta Bank N.A., a locally owned and operated community bank established in 1973.  As of the acquisition date, Delta National Bancorp had approximately $112 million in assets and four branch locations in the communities of Manteca, Riverbank, Modesto and Turlock. At the effective time of the acquisition, Delta National Bancorp was merged into Farmers & Merchants Bancorp and Delta Bank, N.A. was merged into Farmers & Merchants Bank of Central California.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company's credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 16 for additional information.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company only reports one segment.

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred. The Company applied this guidance to the acquisition of Delta National Bancorp that was consummated on November 18, 2016. The Company's consolidated financial statements reflect the operations of Delta National Bancorp from November 19, 2016 through December 31, 2016.

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

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Business Combinations

12 Months Ended

Dec. 31, 2017

Business Combinations [Abstract]

Business Combinations

2. Business Combinations

Delta National Bancorp

On November 18, 2016, the Company completed the acquisition of Delta National Bancorp. Delta National Bancorp was incorporated under the laws of the State of California on December 21, 1981, for the purpose of serving as a bank holding company under the Bank Holding Act of 1956. Its wholly owned subsidiary, Delta Bank, N.A., operated as a commercial bank with branches in the cities of Manteca, Riverbank, Turlock, and Modesto, California. The acquisition enhances our market presence and added $32.4 million in loans, $103.7 million in deposits and $38.7 million in investment securities to the Company. Effective December 9, 2016, the Modesto branch was closed after Management determined that our customers and the business community could be easily supported from our current Modesto location. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. The acquisition was treated as a "reorganization" within the meaning of section 368(a)(1)(A) of the Internal Revenue Code and is considered tax-free for U.S. federal income tax purposes.

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Investment Securities

12 Months Ended

Dec. 31, 2017

Investment Securities [Abstract]

Investment Securities

3. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows:

(in thousands)

	Amortized		Gross Unrealized				Fair/Book
December 31, 2017	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

	Amortized		Gross Unrealized				Fair/Book
December 31, 2016	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	3,127	$	114	$	-	$	3,241
US Treasury Notes		134,755		5		332		134,428
US Govt SBA		36,532		42		260		36,314
Mortgage Backed Securities (1)		272,858		1,725		1,313		273,270
Other		1,010		-		-		1,010
Total	$	448,282	$	1,886	$	1,905	$	448,263

⁽¹⁾ All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows: (in thousands)

	Book		Gross Unrealized				Fair
December 31, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

	Book		Gross Unrealized				Fair
December 31, 2016	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	58,109	$	339	$	40	$	58,408
Total	$	58,109	$	339	$	40	$	58,408

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at December 31, 2017 by contractual maturity are shown in the following tables. (in thousands)

	Available-for-Sale				Held-to-Maturity
December 31, 2017	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within One Year	$	113,065	$	112,989	$	1,760	$	1,769
After One Year Through Five Years		30,207		29,979		8,659		8,664
After Five Years Through Ten Years		13,044		12,922		14,155		14,347
After Ten Years		23,939		23,792		29,886		30,456
		180,255		179,682		54,460		55,236

Investment Securities Not Due at a Single Maturity Date:
Mortgage Backed Securities		302,502		301,914		-		-
Total	$	482,757	$	481,596	$	54,460	$	55,236

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated. (in thousands)

	Less Than 12 Months						12 Months or More						Total
December 31, 2017	Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss
Securities Available-for-Sale
US Treasury Notes		$	94,281		$	144		$	49,883		$	298		$	144,164		$	442
US Govt SBA			8,379			51			12,900			157			21,279			208
Mortgage Backed Securities			126,863			932			43,208			595			170,071			1,527
Total		$	229,523		$	1,127		$	105,991		$	1,050		$	335,514		$	2,177

	Less Than 12 Months				12 Months or More				Total
December 31, 2016	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	99,429	$	332	$	-	$	-	$	99,429	$	332
US Govt SBA		27,483		260		-		-		27,483		260
Mortgage Backed Securities		123,157		1,313		-		-		123,157		1,313
Total	$	250,069	$	1,905	$	-	$	-	$	250,069	$	1,905
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	7,251	$	40	$	-	$	-	$	7,251	$	40
Total	$	7,251	$	40	$	-	$	-	$	7,251	$	40

As of December 31, 2017, the Company held 476 investment securities of which 97 were in an unrealized loss position for less than twelve months and 98 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At December 31, 2017, no securities of government agency and government sponsored entities were in a loss position for less than 12 months and none were in a loss position for 12 months or more. There were no unrealized losses on the Company's investments in securities of government agency and government sponsored entities at December 31, 2017 or December 31, 2016. Repayment of these investments is guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017.

U.S. Treasury Notes – At December 31, 2017, 7 U.S. Treasury Note security investments were in a loss position for less than 12 months and 2 were in a loss position for 12 months or more. The unrealized losses on the Company's investment in US treasury notes were $442,000 at December 31, 2017 and $332,000 at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

U.S. Government SBA – At December 31, 2017, 54 U.S. Government SBA security investments were in a loss position for less than 12 months and 70 were in a loss position for 12 months or more. The unrealized losses on the Company's investment in U.S. Government SBA were $208,000 at December 31, 2017 and $260,000 at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

Mortgage Backed Securities - At December 31, 2017, 26 mortgage backed security investments were in a loss position for less than 12 months and 36 was in a loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage-backed securities were $1.5 million at December 31, 2017 and $1.3 million at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 or 2016.

Obligations of States and Political Subdivisions - At December 31, 2017, no obligations of states and political subdivisions were in a loss position for less than 12 months. None were in a loss position for 12 months or more. As of December 31, 2017, over ninety-nine percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or the issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the one percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligation of states and political subdivisions were $0 at December 31, 2017 and $40,000 at December 31, 2016. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2017 and December 31, 2016.

Proceeds from sales and calls of these securities were as follows:

(in thousands)	Gross Proceeds		Gross Gains		Gross Losses
2017	$	7,831	$	143	$	12
2016	$	105,941	$	250	$	534
2015	$	61,335	$	275	$	-

Pledged Securities

As of December 31, 2017, securities carried at $214.5 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $171.9 million at December 31, 2016.

Investment in Unconsolidated Subsidiary

On April 5, 2017, the Company purchased 4.9% of the voting shares of Bank of Rio Vista, Rio Vista, California for $1.4 million.  On July 3, 2017, the Federal Reserve Bank of San Francisco approved the Company’s application to acquire an additional 34.55% of the voting shares for $10.5 million.  The purchase of the additional shares closed on July 20, 2017. The Company, as per requirements outlined in ASC 323-10-15-6, does not have the ability to exercise significant influence over BORV’s operating and financial policies. Accordingly, the investment in BORV is accounted for under the cost method of accounting as Other Assets.

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Federal Home Loan Bank Stock and Other Equity Securities, at Cost

12 Months Ended

Dec. 31, 2017

Federal Home Loan Bank Stock and Other Equity Securities, at Cost [Abstract]

Federal Home Loan Bank Stock and Other Equity Securities, at Cost

4. Federal Home Loan Bank Stock and Other Equity Securities, at Cost

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock and other equity securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $22.6 million at December 31, 2017 and $9.2 million at December 31, 2016.

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Loans & Leases

12 Months Ended

Dec. 31, 2017

Loans & Leases [Abstract]

Loans & Leases

5. Loans & Leases

Loans & leases as of December 31 consisted of the following:

(in thousands)	2017		2016
Commercial Real Estate	$	691,639	$	674,445
Agricultural Real Estate		499,231		467,685
Real Estate Construction		100,206		176,462
Residential 1st Mortgages		260,751		242,247
Home Equity Lines and Loans		34,525		31,625
Agricultural		273,582		295,325
Commercial		265,703		217,577
Consumer & Other		6,656		6,913
Leases		88,957		70,986
Total Gross Loans & Leases		2,221,250		2,183,265
Less: Unearned Income		5,955		5,664
Subtotal		2,215,295		2,177,601
Less: Allowance for Credit Losses		50,342		47,919
Loans & Leases, Net	$	2,164,953	$	2,129,682

At December 31, 2017, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”) were $618.4 million and $568.6 million, respectively. The borrowing capacity on these loans was $521.2 million from FHLB and $381.4 million from the FRB.

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Allowance for Credit Losses

12 Months Ended

Dec. 31, 2017

Allowance for Credit Losses [Abstract]

Allowance for Credit Losses

6. Allowance for Credit Losses

The following tables show the allocation of the allowance for credit losses at December 31, 2017 and December 31, 2016 by portfolio segment and by impairment methodology (in thousands):

December 31, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment		680,139			499,231		100,206			258,378			34,185			273,582			263,969		6,646			89,680			-			2,206,016

December 31, 2016	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural		Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2016	$	10,063	$	6,881	$	2,485	$	789		$	2,146		$	6,308	$	7,836	$	175		$	3,294	$	1,546		$	41,523
Charge-Offs		-		-		-		(21	)		(46	)		-		-		(105	)		-		-			(172	)
Recoveries		2		-		-		26			103			-		47		55			-		-			233
Provision		1,045		2,569		738		71			(63	)		1,073		632		75			292		(97	)		6,335
Ending Balance- December 31, 2016	$	11,110	$	9,450	$	3,223	$	865		$	2,140		$	7,381	$	8,515	$	200		$	3,586	$	1,449		$	47,919
Ending Balance Individually Evaluated for Impairment		-		-		-		70			18			128		608		7			-		-			831
Ending Balance Collectively Evaluated for Impairment		11,110		9,450		3,223		795			2,122			7,253		7,907		193			3,586		1,449			47,088
Loans & Leases:
Ending Balance	$	668,046	$	467,685	$	176,462	$	242,247		$	31,625		$	295,325	$	217,577	$	6,913		$	71,721	$	-		$	2,177,601
Ending Balance Individually Evaluated for Impairment		1,932		1,304		-		2,126			402			625		4,464		10			-		-			10,863
Ending Balance Collectively Evaluated for Impairment		666,114		466,381		176,462		240,121			31,223			294,700		213,113		6,903			71,721		-			2,166,738

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $3.0 million and $3.3 million at December 31, 2017 and 2016, respectively, which are no longer disclosed or classified as TDR’s.

The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

December 31, 2016	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	659,694	$	6,817	$	1,535	$	668,046
Agricultural Real Estate		464,997		1,384		1,304		467,685
Real Estate Construction		176,462		-		-		176,462
Residential 1st Mortgages		241,816		47		384		242,247
Home Equity Lines and Loans		31,558		-		67		31,625
Agricultural		283,525		11,366		434		295,325
Commercial		208,172		6,974		2,431		217,577
Consumer & Other		6,705		-		208		6,913
Leases		71,721		-		-		71,721
Total	$	2,144,650	$	26,588	$	6,363	$	2,177,601

See Note 1. Significant Accounting Policies – Allowance for Credit Losses for a description of the internal risk ratings used by the Company. There were no loans & leases outstanding at December 31, 2017 and 2016 rated doubtful or loss.

The following tables show an aging analysis of the loan & lease portfolio by the time past due at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	668,046	$	668,046
Agricultural Real Estate		-		-		-		1,304		1,304		466,381		467,685
Real Estate Construction		-		-		-		-		-		176,462		176,462
Residential 1st Mortgages		-		-		-		95		95		242,152		242,247
Home Equity Lines and Loans		-		-		-		-		-		31,625		31,625
Agricultural		-		-		-		243		243		295,082		295,325
Commercial		-		-		-		1,425		1,425		216,152		217,577
Consumer & Other		10		-		-		7		17		6,896		6,913
Leases		-		-		-		-		-		71,721		71,721
Total	$	10	$	-	$	-	$	3,074	$	3,084	$	2,174,517	$	2,177,601

There were no non-accrual loans & leases at December 31, 2017. At December 31, 2016, non-accrual loans & leases were $3.1 million. Interest income forgone on loans & leases placed on non-accrual status was $0, $127,000, and $109,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

The following tables show information related to impaired loans & leases at and for the year ended December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	184	$	184	$	-	$	354	$	7
Agricultural Real Estate		1,305		1,305		-		569		3
Residential 1st Mortgages		451		504		-		404		10
Home Equity Lines and Loans		-		-		-		181		-
Agricultural		-		-		-		144		5
Commercial		3,023		3,023		-		3,053		133
	$	4,963	$	5,016	$	-	$	4,705	$	158
With an allowance recorded:
Residential 1st Mortgages	$	430	$	469	$	21	$	336	$	13
Home Equity Lines and Loans		90		97		5		123		4
Agricultural		625		625		128		581		22
Commercial		1,441		1,640		608		1,536		8
Consumer & Other		6		13		6		12		-
	$	2,592	$	2,844	$	768	$	2,588	$	47
Total	$	7,555	$	7,860	$	768	$	7,293	$	205

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table. This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. At December 31, 2016, the Company allocated $736,000 of specific reserves to $5.9 million of troubled debt restructured loans, of which $4.5 million were performing. The Company had no commitments at December 31, 2017 and December 31, 2016 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan ranged from 3 to 5 years. Modifications involving an extension of the maturity date ranged from 3 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2	$	673	$	630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $44,000 for the twelve months ended December 31, 2017.

During the period ended December 31, 2017, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

During the period ending December 31, 2016, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 5 to 10 years. Modifications involving an extension of the maturity date were for periods ranging from 5 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2016 (in thousands):

	December 31, 2016
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		1	$	112	$	112
Residential 1st Mortgages		2		289		281
Home Equity Lines and Loans		2		305		286
Total		5	$	706	$	679

The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $27,000 for the twelve months ended December 31, 2016.

During the period ended December 31, 2016, there were no payment defaults on loans modified as troubled debt restructurings within twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.

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Premises and Equipment

12 Months Ended

Dec. 31, 2017

Premises and Equipment [Abstract]

Premises and Equipment

7. Premises and Equipment

Premises and equipment as of December 31^st, consisted of the following:

(in thousands)	2017		2016
Land and Buildings	$	36,018	$	37,003
Furniture, Fixtures, and Equipment		20,399		20,196
Leasehold Improvements		3,117		2,439
Subtotal		59,534		59,638
Less:  Accumulated Depreciation and Amortization		30,855		30,409
Total	$	28,679	$	29,229

Depreciation and amortization on premises and equipment included in occupancy and equipment expense amounted to $2,186,000, $1,896,000, and $1,685,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Total rental expense for premises was $688,000, $644,000, and $604,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Rental income was $169,000, $102,000, and $94,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

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Other Real Estate

12 Months Ended

Dec. 31, 2017

Other Real Estate [Abstract]

Other Real Estate

8. Other Real Estate

The Bank reported $837,000 in other real estate at December 31, 2017, and $3.7 million at December 31, 2016. Other real estate includes property no longer utilized for business operations and property acquired through foreclosure proceedings. These properties are carried at fair value less selling costs determined at the date acquired. Losses, if any, arising from properties acquired through foreclosure are charged against the allowance for loan losses at the time of foreclosure. Subsequent declines in value, periodic holding costs, and net gains or losses on disposition are included in other operating expense as incurred. Other real estate is reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets.

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Time Deposits

12 Months Ended

Dec. 31, 2017

Time Deposits [Abstract]

Time Deposits

9. Time Deposits

Time Deposits of $250,000 or more as of December 31 were as follows:

(in thousands)	2017		2016
Balance	$	212,574	$	289,955

At December 31, 2017, the scheduled maturities of time deposits were as follows:

	Scheduled Maturitie
2018	$	426,874
2019		30,219
2020		10,317
2021		3,100
2022		4,887
Total	$	475,397

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Income Taxes

12 Months Ended

Dec. 31, 2017

Income Taxes [Abstract]

Income Taxes

10. Income Taxes

Current and deferred income tax expense (benefit) provided for the years ended December 31 consisted of the following:

(in thousands)	2017		2016			2015
Current
Federal	$	9,460	$	13,101		$	11,979
State		4,046		4,832			4,446
Total Current		13,056		17,933			16,425
Deferred
Federal		11,154		(1,607	)		383
State		1,451		(229	)		116
Total Deferred		12,605		(1,836	)		499
Total Provision for Taxes	$	26,111	$	16,097		$	16,924

The total provision for income taxes differs from the federal statutory rate as follows:

	2017						2016						2015
(in thousands)	Amount			Rate			Amount			Rate			Amount			Rate
Tax Provision at Federal Statutory Rate	$	19,068			35.0	%	$	16,037			35.0	%	$	15,510			35.0	%
Interest on Obligations of States and Political
Subdivisions exempt from Federal Taxation		(617	)		(1.1	%)		(675	)		(1.5	%)		(711	)		(1.6	%)
State and Local Income Taxes, Net of Federal Income Tax Benefit		3,573			6.5	%		2,992			6.5	%		2,966			6.7	%
Bank Owned Life Insurance		(696	)		(1.3	%)		(731	)		(1.6	%)		(712	)		(1.6	%)
Low-Income Housing Tax Credit		(1,546	)		(2.8	%)		(1,201	)		(2.6	%)		(291	)		(0.7	%)
Bargain Purchase Gain		-			0.0	%		(641	)		(1.4	%)		-			0.0	%
Deferred Tax Asset Remeasurement		6,256			11.5	%		-			0.0	%		-			0.0	%
Other, Net		73			0.1	%		316			0.7	%		162			0.4	%
Total Provision for Taxes	$	26,111			47.9	%	$	16,097			35.1	%	$	16,924			38.2	%

The components of net deferred tax assets as of December 31 are as follows: The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company's Consolidated Balance Sheet.

(in thousands)	2017			2016
Deferred Tax Assets
Allowance for Credit Losses	$	14,962		$	20,260
Accrued Liabilities		7,421			9,807
Deferred Compensation		8,996			14,166
State Franchise Tax		850			1,680
Acquired Net Operating Loss		756			1,135
Fair Value Adjustment on Loans Acquired		242			429
Fair Value Adjustment on ORE Acquired		108			299
Unrealized Loss on Securities Available-for-Sale		373			58
Low-Income Housing Investment		470			366
Other		17			233
Total Deferred Tax Assets	$	34,195		$	48,433
Deferred Tax Liabilities
Premises and Equipment		(1,361	)		(1,707	)
Securities Accretion		(164	)		(341	)
Leasing Activities		(12,389	)		(14,868	)
Core Deposit Intangible Asset		(247	)		(398	)
Prepaid		(964	)		(314	)
Other		(944	)		(494	)
Total Deferred Tax Liabilities		(16,069	)		(18,122	)
Net Deferred Tax Assets	$	18,126		$	30,311

The Tax Cuts and Jobs Act, which lowers the Company’s previous 35% federal corporate tax rate to 21%, was signed into law by President Trump on December 22, 2017. In accordance with the ASC Topic 740, Income Taxes, companies must recognize the effect of tax law changes in the period of enactment. As a result, the Company is required to re-measure its deferred tax assets (DTA) and deferred tax liabilities (DTL) at the new tax rate of 21%. This onetime re-measurement resulted in a $6.3 million increase in the Company’s income tax provision. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets. The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheet.

The Company and its subsidiaries file income tax returns in the U.S. federal and California jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by the tax authorities for the years before 2013.

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Short Term Borrowings

12 Months Ended

Dec. 31, 2017

Short Term Borrowings [Abstract]

Short Term Borrowings

11. Short Term Borrowings

As of December 31, 2017 and 2016, the Company had unused lines of credit available for short-term liquidity purposes of $1.0 billion and $962.8 million, respectively. Federal Funds purchased and advances are generally issued on an overnight basis. There were no advances from the FHLB at December 31, 2017 or 2016. There were no Federal Funds purchased or advances from the FRB at December 31, 2017 or 2016.

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Securities Sold Under Agreement to Repurchase

12 Months Ended

Dec. 31, 2017

Securities Sold Under Agreement to Repurchase [Abstract]

Securities Sold Under Agreement to Repurchase

12. Securities Sold Under Agreement to Repurchase

Securities Sold Under Agreement to Repurchase are used as secured borrowing alternatives to FHLB Advances or FRB Borrowings.

At December 31, 2017 and December 31, 2016, the Company had no securities sold under agreement to repurchase.

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Federal Home Loan Bank Advances

12 Months Ended

Dec. 31, 2017

Federal Home Loan Bank Advances [Abstract]

Federal Home Loan Bank Advances

13. Federal Home Loan Bank Advances

The Company had no short-term or long-term advances from the Federal Home Loan Bank of San Francisco at December 31, 2017 or 2016.

In accordance with the Collateral Pledge and Security Agreement, advances are secured by all FHLB stock held by the Company. At December 31, 2017, $618.4 million in loans were approved for pledging as collateral on borrowing lines with the FHLB. The borrowing capacity on these loans was $521.2 million.

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Long-term Subordinated Debentures

12 Months Ended

Dec. 31, 2017

Long-term Subordinated Debentures [Abstract]

Long-term Subordinated Debentures

14. Long-term Subordinated Debentures

In December 2003, the Company formed a wholly owned Connecticut statutory business trust, FMCB Statutory Trust I (“Statutory Trust I”), which issued $10.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures (the “Trust Preferred Securities”). The Company is not considered the primary beneficiary of the trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. These debentures qualify as Tier 1 capital under current regulatory guidelines. All of the common securities of Statutory Trust I are owned by the Company. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by FMCB Statutory Trust to purchase $10.3 million of junior subordinated debentures of the Company, which carry a floating rate based on three-month LIBOR plus 2.85%. The debentures represent the sole asset of Statutory Trust I. The Trust Preferred Securities accrue and pay distributions at a floating rate of three-month LIBOR plus 2.85% per annum of the stated liquidation value of $1,000 per capital security. The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment to the extent that Statutory Trust I has funds available therefore of: (i) accrued and unpaid distributions required to be paid on the Trust Preferred Securities; (ii) the redemption price with respect to any Trust Preferred Securities called for redemption by Statutory Trust I; and (iii) payments due upon a voluntary or involuntary dissolution, winding up, or liquidation of Statutory Trust I. The Trust Preferred Securities are mandatorily redeemable upon maturity of the subordinated debentures on December 17, 2033, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the subordinated debentures purchased by Statutory Trust I, in whole or in part, on or after December 17, 2008. As specified in the indenture, if the subordinated debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company’s common stock.

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Shareholders' Equity

12 Months Ended

Dec. 31, 2017

Shareholders' Equity [Abstract]

Shareholders' Equity

15. Shareholders' Equity

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018.

Repurchases under the program may be made from time to time on the open market or through private transactions. The repurchase program also requires that no repurchases may be made if the Bank would not remain “well-capitalized” after the repurchase. There were no stock repurchases made in 2017 or 2016.

Dividends from the Bank constitute the principal source of cash to the Company. The Company is a legal entity separate and distinct from the Bank. Under regulations controlling California state chartered banks, the Bank is, to some extent, limited in the amount of dividends that can be paid to the Company without prior approval of the California DBO. These regulations require approval if total dividends declared by a state chartered bank in any calendar year exceed the bank's net profits for that year combined with its retained net profits for the preceding two calendar years.

During 2017, the Company issued 4,975 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined contribution retirement plans. The shares issued had prices ranging from $590 per share to $595 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

During 2016, the Company issued 16,542 shares of common stock, of which 4,610 shares were contributed to the Bank’s non-qualified defined contribution retirement plans and 11,932 shares were issued in the acquisition of Delta National Bancorp. The shares issued had prices ranging from $525 per share to $580 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.

The Company and the Bank are subject to various federal regulatory capital requirements under the Basel III Capital Rules. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a "capital conservation buffer" of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.

The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity.

In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank’s category.

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	330,041		12.66	%	$	208,552		8.0	%	$	260,691		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	342,210		13.07	%	$	209,532		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	297,232		11.40	%	$	117,311		4.5	%	$	169,449		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	299,401		11.43	%	$	117,862		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	297,232		11.40	%	$	156,414		6.0	%	$	208,552		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	309,250		11.81	%	$	157,150		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	297,232		9.65	%	$	123,178		4.0	%	$	153,972		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	309,250		9.99	%	$	123,790		4.0	%		N/A		N/A

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	319,776		12.79	%	$	199,958		8.0	%	$	249,947		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	319,983		12.80	%	$	199,981		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	288,324		11.54	%	$	112,476		4.5	%	$	162,466		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	278,981		11.16	%	$	112,489		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	288,323		11.54	%	$	149,968		6.0	%	$	199,958		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	288,527		11.54	%	$	149,986		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	288,324		10.08	%	$	114,409		4.0	%	$	143,011		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	288,527		10.07	%	$	114,568		4.0	%		N/A		N/A

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Dividends and Basic Earnings Per Common Share

12 Months Ended

Dec. 31, 2017

Dividends and Basic Earnings Per Common Share [Abstract]

Dividends and Basic Earnings Per Common Share

16. Dividends and Basic Earnings Per Common Share

Total cash dividends during 2017 were $10,982,000 or $13.55 per share of common stock, an increase of 3.4% per share from $10,478,000 or $13.10 per share in 2016. In 2015, cash dividends totaled $10,157,000 or $12.90 per share.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The following table calculates the basic earnings per common share for the periods indicated.

(net income in thousands)	2017		2016		2015
Net Income	$	28,370	$	29,723	$	27,392
Weighted Average Number of Common Shares Outstanding		809,834		793,970		786,582
Basic Earnings Per Common Share	$	35.03	$	37.44	$	34.82

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2017

Employee Benefit Plans [Abstract]

Employee Benefit Plans

17. Employee Benefit Plans

Profit Sharing Plan

The Company, through the Bank, sponsors a Profit Sharing Plan for substantially all full-time employees of the Company with one or more years of service. Participants receive up to two annual employer contributions, one is discretionary and the other is mandatory. The discretionary contributions to the Profit Sharing Plan are determined annually by the Board of Directors. The discretionary contributions totaled $1.0 million, $975,000, and $925,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The mandatory contributions to the Profit Sharing Plan are made according to a predetermined set of criteria. Mandatory contributions totaled $1.2 million, $1.2 million, and $1.1 million for the years ended December 31, 2017, 2016, and 2015, respectively. Company employees are permitted, within limitations imposed by tax law, to make pretax contributions and after tax (Roth) contributions to the 401(k) feature of the Profit Sharing Plan. The Company does not match employee contributions within the 401(k) feature of the Profit Sharing Plan and the Company can terminate the Profit Sharing Plan at any time. Benefits pursuant to the Profit Sharing Plan vest 0% during the first year of participation, 25% per full year thereafter and after five years such benefits are fully vested.

Executive Retirement Plan and Life Insurance Arrangements

The Company, through the Bank, sponsors an Executive Retirement Plan for certain executive level employees. The Executive Retirement Plan is a non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. The Plan is comprised of: (1) a Performance Component which makes contributions based upon long-term cumulative profitability and increase in market value of the Company; (2) a Salary Component which makes contributions based upon participant salary levels; and (3) an Equity Component for which contributions are discretionary and subject to Board of Directors approval. Executive Retirement Plan contributions are invested in a mix of financial instruments; however, Equity Component contributions are invested primarily in stock of the Company.

The Company expensed $4.3 million to the Executive Retirement Plan during the year ended December 31, 2017, $3.8 million during the year ended December 31, 2016 and $3.5 million during the year ended December 31, 2015. The Company’s total accrued liability under the Executive Retirement Plan was $43.3 million as of December 31, 2017 and $37.4 million as of December 31, 2016. All amounts have been fully funded into a Rabbi Trust as of December 31, 2017.

The Company has purchased single premium life insurance policies on the lives of certain key employees of the Company. These policies provide: (1) financial protection to the Company in the event of the death of a key employee; and (2) significant income to the Company to offset the expense associated with the Executive Retirement Plan and other employee benefit plans, since the interest earned on the cash surrender value of the policies is tax exempt as long as the policies are used to finance employee benefits. As compensation to each employee for agreeing to allow the Company to purchase an insurance policy on his or her life, split dollar agreements have been entered into with those employees. These agreements provide for a division of the life insurance death proceeds between the Company and each employee’s designated beneficiary or beneficiaries.

The Company earned tax-exempt interest on the life insurance policies of $1.8 million for the year ended December 31, 2017, and $1.9 million for the years ended December 31, 2016, and 2015. As of December 31, 2017 and 2016, the total cash surrender value of the insurance policies was $59.6 million and $57.8 million, respectively.

Senior Management Retention Plan

The Company, through the Bank, sponsors a Senior Management Retention Plan (“SMRP”) for certain senior level employees. The SMRP is a non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. All contributions are discretionary and subject to the Board of Directors approval. Contributions are invested primarily in stock of the Company. The Company expensed $765,000 to the SMRP during the year ended December 31, 2017, $627,000 during the year ended December 31, 2016 and $530,000 during the year ended December 31, 2015. The Company’s total accrued liability under the SMRP was $4.4 million as of December 31, 2017 and $3.4 million as of December 31, 2016. All amounts have been fully funded into a Rabbi Trust as of December 31, 2017.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Measurements [Abstract]

Fair Value Measurements

18. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit, assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

Other Real Estate (“ORE”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

At December 31, 2017, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

(in thousands)	Fair Value Total		Fair Value Measurements At December 31, 2017, Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

(in thousands)	Fair Value Total		Fair Value Measurements At December 31, 2016, Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,241	$	-	$	3,241	$	-
US Treasury Notes		134,428		134,428		-		-
US Govt SBA		36,314				36,314
Mortgage Backed Securities		273,270		-		273,270		-
Other		1,010		200		310		500
Total Assets Measured at Fair Value On a Recurring Basis	$	448,263	$	134,628	$	313,135	$	500

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the year ended December 31, 2017, there were no transfers in or out of level 1, 2, or 3.

The available for sale investment security categorized as a Level 3 asset for year ended December 31, 2017 consisted of one $2.5 million investment in a limited liability company that purchases SBA loans. The Company increased this investment by $2.0 million during 2017. This security is not actively traded and is owned by a few investors. The significant unobservable data reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average lives and credit information, among other things. There were no gains or losses or transfers in or out of level 3 during the year ended December 31, 2017.

The following tables present information about the Company’s impaired loans & leases and other real estate, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans & leases are carried at fair value. Impaired loans & leases are only included in the following tables when their fair value is based upon an appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

			Fair Value Measurements At December 31, 2016, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Residential 1st Mortgage	$	480	$	-	$	-	$	480
Home Equity Lines and Loans		83		-		-		83
Agricultural		497		-		-		497
Commercial		833		-		-		833
Total Impaired Loans		1,893		-		-		1,893
Other Real Estate:
Home Equity Lines and Loans		785		-		-		785
Real Estate Construction		2,960		-		-		2,960
Total Other Real Estate		3,745		-		-		3,745
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,638	$	-	$	-	$	5,638

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2017

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans:
Commercial Real Estate	$	2,595	Income Approach	Capitalization Rate		3.25%, 3.25	%
Residential 1st Mortgages	$	997	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 2	%
Home Equity Lines and Loans	$	75	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2	%
Commercial	$	1,514	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40	%
Other Real Estate:
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10	%

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2017

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

19. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
December 31, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimatd Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		29,580		449,516		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

			Fair Value of Financial Instruments Using
December 31, 2016 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	98,960	$	98,960	$	-	$	-	$	98,960
Investment Securities Available-for-Sale		448,263		134,628		313,135		500		448,263
Investment Securities Held-to-Maturity		58,109		-		40,415		17,993		58,408
FHLB Stock		8,872		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,129,682		-		-		2,107,060		2,107,060
Accrued Interest Receivable		10,047		-		10,047		-		10,047
Liabilities:
Deposits		2,581,711		2,011,418		569,183		-		2,580,601
Subordinated Debentures		10,310		-		6,578		-		6,578
Accrued Interest Payable		852		-		852		-		852

Fair value estimates presented herein are based on pertinent information available to management as of December 31, 2017 and December 31, 2016. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purpose of these financial statements since that date, and; therefore, current estimates of fair value may differ significantly from the amounts presented above. The methods and assumptions used to estimate the fair value of each class of financial instrument listed in the table above are explained below.

Cash and Cash Equivalents - The carrying amounts reported in the balance sheet for cash and due from banks, interest-bearing deposits with banks, federal funds sold, and securities purchased under agreements to resell are a reasonable estimate of fair value. All cash and cash equivalents are classified as Level 1.

Investment Securities - Fair values for investment securities consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. Based on the available market information the classification level could be 1, 2, or 3.

Federal Home Loan Bank Stock - It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans & Leases, Net of Deferred Loan & Lease Fees & Allowance - Fair values of loans & leases are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans & leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans & leases are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans & leases do not necessarily represent an exit price.

Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-maturity certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable and Payable - The carrying amount of accrued interest receivable and payable approximates their fair value resulting in a Level 2 classification.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies [Abstract]

Commitments and Contingencies

20. Commitments and Contingencies

In the normal course of business, the Company enters in to financial instruments with off balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments include commitments to extend credit, letters of credit, and other types of financial guarantees. The Company had the following off balance sheet commitments as of the dates indicated.

(in thousands)	December 31, 2017		December 31, 2016
Commitments to Extend Credit	$	735,678	$	609,653
Letters of Credit		20,061		20,444
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		759		1,835

The Company's exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to support financial instruments with credit risk. Evaluations of each customer's creditworthiness are performed on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third party. Outstanding standby letters of credit have maturity dates ranging from 1 to 60 months with final expiration in January 2023. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The Company is obligated under a number of noncancellable operating leases for premises and equipment used for banking purposes. Minimum future rental commitments under noncancellable operating leases as of December 31, 2017, were $670,000, $634,000, $644,000, $462,000, and $146,000 for the years 2018 through 2022, and $139,000 for the remaining term of the leases.

In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate liability, if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.

The Company may be required to maintain average reserves on deposit with the Federal Reserve Bank primarily based on deposits outstanding. There were no reserve requirements during 2017 or 2016.

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Recent Accounting Developments

12 Months Ended

Dec. 31, 2017

Recent Accounting Developments [Abstract]

Recent Accounting Developments

21. Recent Accounting Developments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. Management does not expect the adoption of the ASU to have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is currently evaluating the provisions of this ASU and has created a cross-functional team to begin its implementation efforts of this new guidance. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Update modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. The Company is currently evaluating the impact the adoption of this update will have on the consolidated financial statements. As a financial institution, the Company’s largest component of revenue, interest income, is excluded from the scope of this ASU. The Company adopted this ASU on January 1, 2018.

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Parent Company Financial Information

12 Months Ended

Dec. 31, 2017

Parent Company Financial Information [Abstract]

Parent Company Financial Information

22. Parent Company Financial Information

The following financial information is presented as of December 31 for the periods indicated.

Farmers & Merchants Bancorp

Condensed Balance Sheets

(in thousands)	2017		2016
Cash	$	332	$	228
Investment in Farmers & Merchants Bank of Central California		297,643		289,778
Investment Securities		409		409
Other Assets		12,006		184
Total Assets	$	310,390	$	290,599
Subordinated Debentures	$	10,310	$	10,310
Liabilities		420		308
Shareholders' Equity		299,660		279,981
Total Liabilities and Shareholders' Equity	$	310,390	$	290,599

Farmers & Merchants Bancorp

Condensed Statements of Income

	Year Ended December 31,
(in thousands)	2017			2016			2015
Equity in Undistributed Earnings in Farmers & Merchants Bank of Central California	$	5,575		$	17,043		$	17,352
Dividends from Subsidiary		23,575			14,275			10,875
Interest Income		13			11			10
Other Expenses, Net		(1,552	)		(2,485	)		(1,451	)
Tax Benefit		759			879			606
Net Income	$	28,370		$	29,723		$	27,392

Farmers & Merchants Bancorp

Condensed Statements of Cash Flows

	Year Ended December 31,
(in thousands)	2017			2016			2015
Cash Flows from Operating Activities:
Net Income	$	28,370		$	29,723		$	27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Net Earnings from Subsidiary		(5,575	)		(17,043	)		(17,352	)
Net (Increase) Decrease in Other Assets		(11,822	)		(124	)		(79	)
Net Increase (Decrease) in Liabilities		112			49			141
Net Cash Provided by Operating Activities		11,085			12,605			10,102
Investing Activities:
Securities Sold or Matured		1			-			-
Payments for Business Acquisition		-			(2,207	)		-
Payments for Investments in Subsidiaries		(2,953	)		(2,586	)		(3,360	)
Net Cash Used by Investing Activities		(2,952	)		(4,793	)		(3,360	)
Financing Activities:
Issuance of Common Stock		2,953			2,586			3,360
Cash Dividends		(10,982	)		(10,478	)		(10,157	)
Net Cash Used By Financing Activities		(8,029	)		(7,892	)		(6,797	)
Increase (Decrease) in Cash and Cash Equivalents		104			(80	)		(55	)
Cash and Cash Equivalents at Beginning of Year		228			308			363
Cash and Cash Equivalents at End of Year	$	332		$	228		$	308

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Quarterly Unaudited Financial Data

12 Months Ended

Dec. 31, 2017

Quarterly Unaudited Financial Data [Abstract]

Quarterly Unaudited Financial Data

23. Quarterly Unaudited Financial Data

The following tables set forth certain unaudited historical quarterly financial data for each of the eight consecutive quarters in 2017 and 2016. This information is derived from unaudited consolidated financial statements that include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

2017 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	27,242	$	28,069	$	29,609	$	29,692	$	114,612
Total Interest Expense		1,376		1,538		1,759		1,616		6,289
Net Interest Income		25,866		26,531		27,850		28,076		108,323
Provision for Credit Losses		600		650		1,600		-		2,850
Net Interest Income After Provision for Credit Losses		25,266		25,881		26,250		28,076		105,473
Total Non-Interest Income		5,406		3,539		3,638		4,179		16,762
Total Non-Interest Expense		18,422		16,525		16,307		16,500		67,754
Income Before Income Taxes		12,250		12,895		13,581		15,755		54,481
Provision for Income Taxes		4,429		4,708		5,000		11,974		26,111
Net Income	$	7,821	$	8,187	$	8,581	$	3,781	$	28,370
Basic Earnings Per Common Share	$	9.68	$	10.12	$	10.59	$	4.64	$	35.03

2016 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	24,026	$	24,314	$	25,262	$	25,664	$	99,266
Total Interest Expense		920		951		1,110		1,215		4,196
Net Interest Income		23,106		23,363		24,152		24,449		95,070
Provision for Credit Losses		2,600		-		250		3,485		6,335
Net Interest Income After Provision for Credit Losses		20,506		23,363		23,902		20,964		88,735
Total Non-Interest Income		2,721		2,875		4,553		5,108		15,257
Total Non-Interest Expense		12,019		14,737		16,414		15,002		58,172
Income Before Income Taxes		11,208		11,501		12,041		11,070		45,820
Provision for Income Taxes		4,036		4,169		4,503		3,389		16,097
Net Income	$	7,172	$	7,332	$	7,538	$	7,681	$	29,723
Basic Earnings Per Common Share	$	9.06	$	9.25	$	9.51	$	9.62	$	37.44

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Subsequent Events

12 Months Ended

Dec. 31, 2017

Subsequent Events [Abstract]

Subsequent Events

24. Subsequent Events

On February 27, 2018 the Company acquired an additional 8 shares of Bank of Rio Vista for $95,200, increasing our total ownership to 1,586 shares, or 39.65% of the total common shares outstanding.

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans & Leases

Loans & Leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company's credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Acquired Loans

Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 16 for additional information.

Segment Reporting

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company only reports one segment.

Low Income Housing Tax Credit Investments (LIHTC)

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred. The Company applied this guidance to the acquisition of Delta National Bancorp that was consummated on November 18, 2016. The Company's consolidated financial statements reflect the operations of Delta National Bancorp from November 19, 2016 through December 31, 2016.

Intangible Assets

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

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Recent Accounting Developments (Policies)

12 Months Ended

Dec. 31, 2017

Recent Accounting Developments [Abstract]

Recent Accounting Developments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. Management does not expect the adoption of the ASU to have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is currently evaluating the provisions of this ASU and has created a cross-functional team to begin its implementation efforts of this new guidance. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Update modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. The Company is currently evaluating the impact the adoption of this update will have on the consolidated financial statements. As a financial institution, the Company’s largest component of revenue, interest income, is excluded from the scope of this ASU. The Company adopted this ASU on January 1, 2018.

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Investment Securities (Tables)

12 Months Ended

Dec. 31, 2017

Investment Securities [Abstract]

Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities Available-For-Sale

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows:

(in thousands)

	Amortized		Gross Unrealized				Fair/Book
December 31, 2017	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

	Amortized		Gross Unrealized				Fair/Book
December 31, 2016	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	3,127	$	114	$	-	$	3,241
US Treasury Notes		134,755		5		332		134,428
US Govt SBA		36,532		42		260		36,314
Mortgage Backed Securities (1)		272,858		1,725		1,313		273,270
Other		1,010		-		-		1,010
Total	$	448,282	$	1,886	$	1,905	$	448,263

⁽¹⁾ All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

Book Values, Estimated Fair Values and Unrealized Gains and Losses of Investments Classified as Held-To-Maturity

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows: (in thousands)

	Book		Gross Unrealized				Fair
December 31, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

	Book		Gross Unrealized				Fair
December 31, 2016	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	58,109	$	339	$	40	$	58,408
Total	$	58,109	$	339	$	40	$	58,408

Amortized Cost and Estimated Fair Values of Investment Securities by Contractual Maturity

The amortized cost and estimated fair values of investment securities at December 31, 2017 by contractual maturity are shown in the following tables. (in thousands)

	Available-for-Sale				Held-to-Maturity
December 31, 2017	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within One Year	$	113,065	$	112,989	$	1,760	$	1,769
After One Year Through Five Years		30,207		29,979		8,659		8,664
After Five Years Through Ten Years		13,044		12,922		14,155		14,347
After Ten Years		23,939		23,792		29,886		30,456
		180,255		179,682		54,460		55,236

Investment Securities Not Due at a Single Maturity Date:
Mortgage Backed Securities		302,502		301,914		-		-
Total	$	482,757	$	481,596	$	54,460	$	55,236

Investments with Gross Unrealized Losses and Market Value Aggregated by Investment Category and Length of Time That Individual Securities Have Been In a Continuous Unrealized Loss Position

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated. (in thousands)

	Less Than 12 Months						12 Months or More						Total
December 31, 2017	Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss
Securities Available-for-Sale
US Treasury Notes		$	94,281		$	144		$	49,883		$	298		$	144,164		$	442
US Govt SBA			8,379			51			12,900			157			21,279			208
Mortgage Backed Securities			126,863			932			43,208			595			170,071			1,527
Total		$	229,523		$	1,127		$	105,991		$	1,050		$	335,514		$	2,177

	Less Than 12 Months				12 Months or More				Total
December 31, 2016	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	99,429	$	332	$	-	$	-	$	99,429	$	332
US Govt SBA		27,483		260		-		-		27,483		260
Mortgage Backed Securities		123,157		1,313		-		-		123,157		1,313
Total	$	250,069	$	1,905	$	-	$	-	$	250,069	$	1,905
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	7,251	$	40	$	-	$	-	$	7,251	$	40
Total	$	7,251	$	40	$	-	$	-	$	7,251	$	40

Proceeds from Sales and Calls of Securities

Proceeds from sales and calls of these securities were as follows:

(in thousands)	Gross Proceeds		Gross Gains		Gross Losses
2017	$	7,831	$	143	$	12
2016	$	105,941	$	250	$	534
2015	$	61,335	$	275	$	-

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Loans & Leases (Tables)

12 Months Ended

Dec. 31, 2017

Loans & Leases [Abstract]

Schedule of Loans and Leases

Loans & leases as of December 31 consisted of the following:

(in thousands)	2017		2016
Commercial Real Estate	$	691,639	$	674,445
Agricultural Real Estate		499,231		467,685
Real Estate Construction		100,206		176,462
Residential 1st Mortgages		260,751		242,247
Home Equity Lines and Loans		34,525		31,625
Agricultural		273,582		295,325
Commercial		265,703		217,577
Consumer & Other		6,656		6,913
Leases		88,957		70,986
Total Gross Loans & Leases		2,221,250		2,183,265
Less: Unearned Income		5,955		5,664
Subtotal		2,215,295		2,177,601
Less: Allowance for Credit Losses		50,342		47,919
Loans & Leases, Net	$	2,164,953	$	2,129,682

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Allowance for Credit Losses (Tables)

12 Months Ended

Dec. 31, 2017

Allowance for Credit Losses [Abstract]

Allocation of Allowance for Credit Losses by Portfolio Segment and by Impairment Methodology

The following tables show the allocation of the allowance for credit losses at December 31, 2017 and December 31, 2016 by portfolio segment and by impairment methodology (in thousands):

December 31, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment		680,139			499,231		100,206			258,378			34,185			273,582			263,969		6,646			89,680			-			2,206,016

December 31, 2016	Commercial Real Estate		Agricultural Real Estate		Real Estate Construction		Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural		Commercial		Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2016	$	10,063	$	6,881	$	2,485	$	789		$	2,146		$	6,308	$	7,836	$	175		$	3,294	$	1,546		$	41,523
Charge-Offs		-		-		-		(21	)		(46	)		-		-		(105	)		-		-			(172	)
Recoveries		2		-		-		26			103			-		47		55			-		-			233
Provision		1,045		2,569		738		71			(63	)		1,073		632		75			292		(97	)		6,335
Ending Balance- December 31, 2016	$	11,110	$	9,450	$	3,223	$	865		$	2,140		$	7,381	$	8,515	$	200		$	3,586	$	1,449		$	47,919
Ending Balance Individually Evaluated for Impairment		-		-		-		70			18			128		608		7			-		-			831
Ending Balance Collectively Evaluated for Impairment		11,110		9,450		3,223		795			2,122			7,253		7,907		193			3,586		1,449			47,088
Loans & Leases:
Ending Balance	$	668,046	$	467,685	$	176,462	$	242,247		$	31,625		$	295,325	$	217,577	$	6,913		$	71,721	$	-		$	2,177,601
Ending Balance Individually Evaluated for Impairment		1,932		1,304		-		2,126			402			625		4,464		10			-		-			10,863
Ending Balance Collectively Evaluated for Impairment		666,114		466,381		176,462		240,121			31,223			294,700		213,113		6,903			71,721		-			2,166,738

Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings

The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

December 31, 2016	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	659,694	$	6,817	$	1,535	$	668,046
Agricultural Real Estate		464,997		1,384		1,304		467,685
Real Estate Construction		176,462		-		-		176,462
Residential 1st Mortgages		241,816		47		384		242,247
Home Equity Lines and Loans		31,558		-		67		31,625
Agricultural		283,525		11,366		434		295,325
Commercial		208,172		6,974		2,431		217,577
Consumer & Other		6,705		-		208		6,913
Leases		71,721		-		-		71,721
Total	$	2,144,650	$	26,588	$	6,363	$	2,177,601

Aging Analysis of Loan & Lease Portfolio by Time Past Due

The following tables show an aging analysis of the loan & lease portfolio by the time past due at December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	668,046	$	668,046
Agricultural Real Estate		-		-		-		1,304		1,304		466,381		467,685
Real Estate Construction		-		-		-		-		-		176,462		176,462
Residential 1st Mortgages		-		-		-		95		95		242,152		242,247
Home Equity Lines and Loans		-		-		-		-		-		31,625		31,625
Agricultural		-		-		-		243		243		295,082		295,325
Commercial		-		-		-		1,425		1,425		216,152		217,577
Consumer & Other		10		-		-		7		17		6,896		6,913
Leases		-		-		-		-		-		71,721		71,721
Total	$	10	$	-	$	-	$	3,074	$	3,084	$	2,174,517	$	2,177,601

Impaired Loans & Leases

The following tables show information related to impaired loans & leases at and for the year ended December 31, 2017 and December 31, 2016 (in thousands):

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	184	$	184	$	-	$	354	$	7
Agricultural Real Estate		1,305		1,305		-		569		3
Residential 1st Mortgages		451		504		-		404		10
Home Equity Lines and Loans		-		-		-		181		-
Agricultural		-		-		-		144		5
Commercial		3,023		3,023		-		3,053		133
	$	4,963	$	5,016	$	-	$	4,705	$	158
With an allowance recorded:
Residential 1st Mortgages	$	430	$	469	$	21	$	336	$	13
Home Equity Lines and Loans		90		97		5		123		4
Agricultural		625		625		128		581		22
Commercial		1,441		1,640		608		1,536		8
Consumer & Other		6		13		6		12		-
	$	2,592	$	2,844	$	768	$	2,588	$	47
Total	$	7,555	$	7,860	$	768	$	7,293	$	205

Loans & Leases by Class Modified as Troubled Debt Restructured Loans

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2	$	673	$	630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2016 (in thousands):

	December 31, 2016
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate		1	$	112	$	112
Residential 1st Mortgages		2		289		281
Home Equity Lines and Loans		2		305		286
Total		5	$	706	$	679

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2017

Premises and Equipment [Abstract]

Premises and Equipment

Premises and equipment as of December 31^st, consisted of the following:

(in thousands)	2017		2016
Land and Buildings	$	36,018	$	37,003
Furniture, Fixtures, and Equipment		20,399		20,196
Leasehold Improvements		3,117		2,439
Subtotal		59,534		59,638
Less:  Accumulated Depreciation and Amortization		30,855		30,409
Total	$	28,679	$	29,229

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Time Deposits (Tables)

12 Months Ended

Dec. 31, 2017

Time Deposits [Abstract]

Time Deposits of $250,000 or More

Time Deposits of $250,000 or more as of December 31 were as follows:

(in thousands)	2017		2016
Balance	$	212,574	$	289,955

Maturities of Time Deposits

At December 31, 2017, the scheduled maturities of time deposits were as follows:

	Scheduled Maturitie
2018	$	426,874
2019		30,219
2020		10,317
2021		3,100
2022		4,887
Total	$	475,397

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Taxes [Abstract]

Current and Deferred Income Tax Expense (Benefit)

Current and deferred income tax expense (benefit) provided for the years ended December 31 consisted of the following:

(in thousands)	2017		2016			2015
Current
Federal	$	9,460	$	13,101		$	11,979
State		4,046		4,832			4,446
Total Current		13,056		17,933			16,425
Deferred
Federal		11,154		(1,607	)		383
State		1,451		(229	)		116
Total Deferred		12,605		(1,836	)		499
Total Provision for Taxes	$	26,111	$	16,097		$	16,924

Total Provision for Income Taxes Reconciliation with Federal Statutory Rate

The total provision for income taxes differs from the federal statutory rate as follows:

	2017						2016						2015
(in thousands)	Amount			Rate			Amount			Rate			Amount			Rate
Tax Provision at Federal Statutory Rate	$	19,068			35.0	%	$	16,037			35.0	%	$	15,510			35.0	%
Interest on Obligations of States and Political
Subdivisions exempt from Federal Taxation		(617	)		(1.1	%)		(675	)		(1.5	%)		(711	)		(1.6	%)
State and Local Income Taxes, Net of Federal Income Tax Benefit		3,573			6.5	%		2,992			6.5	%		2,966			6.7	%
Bank Owned Life Insurance		(696	)		(1.3	%)		(731	)		(1.6	%)		(712	)		(1.6	%)
Low-Income Housing Tax Credit		(1,546	)		(2.8	%)		(1,201	)		(2.6	%)		(291	)		(0.7	%)
Bargain Purchase Gain		-			0.0	%		(641	)		(1.4	%)		-			0.0	%
Deferred Tax Asset Remeasurement		6,256			11.5	%		-			0.0	%		-			0.0	%
Other, Net		73			0.1	%		316			0.7	%		162			0.4	%
Total Provision for Taxes	$	26,111			47.9	%	$	16,097			35.1	%	$	16,924			38.2	%

Components of Net Deferred Tax Assets

The components of net deferred tax assets as of December 31 are as follows: The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company's Consolidated Balance Sheet.

(in thousands)	2017			2016
Deferred Tax Assets
Allowance for Credit Losses	$	14,962		$	20,260
Accrued Liabilities		7,421			9,807
Deferred Compensation		8,996			14,166
State Franchise Tax		850			1,680
Acquired Net Operating Loss		756			1,135
Fair Value Adjustment on Loans Acquired		242			429
Fair Value Adjustment on ORE Acquired		108			299
Unrealized Loss on Securities Available-for-Sale		373			58
Low-Income Housing Investment		470			366
Other		17			233
Total Deferred Tax Assets	$	34,195		$	48,433
Deferred Tax Liabilities
Premises and Equipment		(1,361	)		(1,707	)
Securities Accretion		(164	)		(341	)
Leasing Activities		(12,389	)		(14,868	)
Core Deposit Intangible Asset		(247	)		(398	)
Prepaid		(964	)		(314	)
Other		(944	)		(494	)
Total Deferred Tax Liabilities		(16,069	)		(18,122	)
Net Deferred Tax Assets	$	18,126		$	30,311

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2017

Shareholders' Equity [Abstract]

Compliance with Regulatory Capital Requirements under Banking Regulations

In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank’s category.

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	330,041		12.66	%	$	208,552		8.0	%	$	260,691		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	342,210		13.07	%	$	209,532		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	297,232		11.40	%	$	117,311		4.5	%	$	169,449		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	299,401		11.43	%	$	117,862		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	297,232		11.40	%	$	156,414		6.0	%	$	208,552		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	309,250		11.81	%	$	157,150		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	297,232		9.65	%	$	123,178		4.0	%	$	153,972		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	309,250		9.99	%	$	123,790		4.0	%		N/A		N/A

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Bank Capital to Risk Weighted Assets	$	319,776		12.79	%	$	199,958		8.0	%	$	249,947		10.0	%
Total Consolidated Capital to Risk Weighted Assets	$	319,983		12.80	%	$	199,981		8.0	%		N/A		N/A
Total Bank Common Equity Tier 1 Capital Ratio	$	288,324		11.54	%	$	112,476		4.5	%	$	162,466		6.5	%
Total Consolidated Common Equity Tier 1 Capital Ratio	$	278,981		11.16	%	$	112,489		4.5	%		N/A		N/A
Tier 1 Bank Capital to Risk Weighted Assets	$	288,323		11.54	%	$	149,968		6.0	%	$	199,958		8.0	%
Tier 1 Consolidated Capital to Risk Weighted Assets	$	288,527		11.54	%	$	149,986		6.0	%		N/A		N/A
Tier 1 Bank Capital to Average Assets	$	288,324		10.08	%	$	114,409		4.0	%	$	143,011		5.0	%
Tier 1 Consolidated Capital to Average Assets	$	288,527		10.07	%	$	114,568		4.0	%		N/A		N/A

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Dividends and Basic Earnings Per Common Share (Tables)

12 Months Ended

Dec. 31, 2017

Dividends and Basic Earnings Per Common Share [Abstract]

Calculation of Basic Earnings per Common Share

The following table calculates the basic earnings per common share for the periods indicated.

(net income in thousands)	2017		2016		2015
Net Income	$	28,370	$	29,723	$	27,392
Weighted Average Number of Common Shares Outstanding		809,834		793,970		786,582
Basic Earnings Per Common Share	$	35.03	$	37.44	$	34.82

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value Measurements [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

(in thousands)	Fair Value Total		Fair Value Measurements At December 31, 2017, Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

(in thousands)	Fair Value Total		Fair Value Measurements At December 31, 2016, Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,241	$	-	$	3,241	$	-
US Treasury Notes		134,428		134,428		-		-
US Govt SBA		36,314				36,314
Mortgage Backed Securities		273,270		-		273,270		-
Other		1,010		200		310		500
Total Assets Measured at Fair Value On a Recurring Basis	$	448,263	$	134,628	$	313,135	$	500

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following tables present information about the Company’s impaired loans & leases and other real estate, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans & leases are carried at fair value. Impaired loans & leases are only included in the following tables when their fair value is based upon an appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

			Fair Value Measurements At December 31, 2016, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Residential 1st Mortgage	$	480	$	-	$	-	$	480
Home Equity Lines and Loans		83		-		-		83
Agricultural		497		-		-		497
Commercial		833		-		-		833
Total Impaired Loans		1,893		-		-		1,893
Other Real Estate:
Home Equity Lines and Loans		785		-		-		785
Real Estate Construction		2,960		-		-		2,960
Total Other Real Estate		3,745		-		-		3,745
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,638	$	-	$	-	$	5,638

Quantitative Information about Level 3 Fair Value Measurements for Financial Instruments Measured at Fair Value on a Non-Recurring Basis

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2017

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans:
Commercial Real Estate	$	2,595	Income Approach	Capitalization Rate		3.25%, 3.25	%
Residential 1st Mortgages	$	997	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 2	%
Home Equity Lines and Loans	$	75	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 2	%
Commercial	$	1,514	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40	%
Other Real Estate:
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10	%

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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value of Financial Instruments [Abstract]

Book Value and Estimated Fair Value of Financial Instruments

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
December 31, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimatd Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		29,580		449,516		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

			Fair Value of Financial Instruments Using
December 31, 2016 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	98,960	$	98,960	$	-	$	-	$	98,960
Investment Securities Available-for-Sale		448,263		134,628		313,135		500		448,263
Investment Securities Held-to-Maturity		58,109		-		40,415		17,993		58,408
FHLB Stock		8,872		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,129,682		-		-		2,107,060		2,107,060
Accrued Interest Receivable		10,047		-		10,047		-		10,047
Liabilities:
Deposits		2,581,711		2,011,418		569,183		-		2,580,601
Subordinated Debentures		10,310		-		6,578		-		6,578
Accrued Interest Payable		852		-		852		-		852

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies [Abstract]

Off Balance Sheet Arrangements

The Company had the following off balance sheet commitments as of the dates indicated.

(in thousands)	December 31, 2017		December 31, 2016
Commitments to Extend Credit	$	735,678	$	609,653
Letters of Credit		20,061		20,444
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		759		1,835

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Parent Company Financial Information (Tables)

12 Months Ended

Dec. 31, 2017

Parent Company Financial Information [Abstract]

Condensed Balance Sheets

The following financial information is presented as of December 31 for the periods indicated.

Farmers & Merchants Bancorp

Condensed Balance Sheets

(in thousands)	2017		2016
Cash	$	332	$	228
Investment in Farmers & Merchants Bank of Central California		297,643		289,778
Investment Securities		409		409
Other Assets		12,006		184
Total Assets	$	310,390	$	290,599
Subordinated Debentures	$	10,310	$	10,310
Liabilities		420		308
Shareholders' Equity		299,660		279,981
Total Liabilities and Shareholders' Equity	$	310,390	$	290,599

Condensed Statements of Income

Farmers & Merchants Bancorp

Condensed Statements of Income

	Year Ended December 31,
(in thousands)	2017			2016			2015
Equity in Undistributed Earnings in Farmers & Merchants Bank of Central California	$	5,575		$	17,043		$	17,352
Dividends from Subsidiary		23,575			14,275			10,875
Interest Income		13			11			10
Other Expenses, Net		(1,552	)		(2,485	)		(1,451	)
Tax Benefit		759			879			606
Net Income	$	28,370		$	29,723		$	27,392

Condensed Statements of Cash Flows

Farmers & Merchants Bancorp

Condensed Statements of Cash Flows

	Year Ended December 31,
(in thousands)	2017			2016			2015
Cash Flows from Operating Activities:
Net Income	$	28,370		$	29,723		$	27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Net Earnings from Subsidiary		(5,575	)		(17,043	)		(17,352	)
Net (Increase) Decrease in Other Assets		(11,822	)		(124	)		(79	)
Net Increase (Decrease) in Liabilities		112			49			141
Net Cash Provided by Operating Activities		11,085			12,605			10,102
Investing Activities:
Securities Sold or Matured		1			-			-
Payments for Business Acquisition		-			(2,207	)		-
Payments for Investments in Subsidiaries		(2,953	)		(2,586	)		(3,360	)
Net Cash Used by Investing Activities		(2,952	)		(4,793	)		(3,360	)
Financing Activities:
Issuance of Common Stock		2,953			2,586			3,360
Cash Dividends		(10,982	)		(10,478	)		(10,157	)
Net Cash Used By Financing Activities		(8,029	)		(7,892	)		(6,797	)
Increase (Decrease) in Cash and Cash Equivalents		104			(80	)		(55	)
Cash and Cash Equivalents at Beginning of Year		228			308			363
Cash and Cash Equivalents at End of Year	$	332		$	228		$	308

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Quarterly Unaudited Financial Data (Tables)

12 Months Ended

Dec. 31, 2017

Quarterly Unaudited Financial Data [Abstract]

Schedule of Quarterly Financial Information

The following tables set forth certain unaudited historical quarterly financial data for each of the eight consecutive quarters in 2017 and 2016. This information is derived from unaudited consolidated financial statements that include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

2017 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	27,242	$	28,069	$	29,609	$	29,692	$	114,612
Total Interest Expense		1,376		1,538		1,759		1,616		6,289
Net Interest Income		25,866		26,531		27,850		28,076		108,323
Provision for Credit Losses		600		650		1,600		-		2,850
Net Interest Income After Provision for Credit Losses		25,266		25,881		26,250		28,076		105,473
Total Non-Interest Income		5,406		3,539		3,638		4,179		16,762
Total Non-Interest Expense		18,422		16,525		16,307		16,500		67,754
Income Before Income Taxes		12,250		12,895		13,581		15,755		54,481
Provision for Income Taxes		4,429		4,708		5,000		11,974		26,111
Net Income	$	7,821	$	8,187	$	8,581	$	3,781	$	28,370
Basic Earnings Per Common Share	$	9.68	$	10.12	$	10.59	$	4.64	$	35.03

2016 (in thousands except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Total Interest Income	$	24,026	$	24,314	$	25,262	$	25,664	$	99,266
Total Interest Expense		920		951		1,110		1,215		4,196
Net Interest Income		23,106		23,363		24,152		24,449		95,070
Provision for Credit Losses		2,600		-		250		3,485		6,335
Net Interest Income After Provision for Credit Losses		20,506		23,363		23,902		20,964		88,735
Total Non-Interest Income		2,721		2,875		4,553		5,108		15,257
Total Non-Interest Expense		12,019		14,737		16,414		15,002		58,172
Income Before Income Taxes		11,208		11,501		12,041		11,070		45,820
Provision for Income Taxes		4,036		4,169		4,503		3,389		16,097
Net Income	$	7,172	$	7,332	$	7,538	$	7,681	$	29,723
Basic Earnings Per Common Share	$	9.06	$	9.25	$	9.51	$	9.62	$	37.44

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Significant Accounting Policies (Details) $ in Thousands		12 Months Ended
	Nov. 18, 2016 USD ($) Branch	Dec. 31, 2017 USD ($) Component Category Factor Segment	Dec. 31, 2016 USD ($)
Business Acquisition [Line Items]
Assets | $		$ 3,075,452	$ 2,922,121
Investment Securities [Abstract]
Number of components into which amount of impairment is split | Component		2
Loans & Leases [Abstract]
Consecutive months of payments to demonstrate sustained period of performance		6 months
Allowance for Credit Losses [Abstract]
Number of primary components of overall allowance for loan losses | Component		3
Number of categories into which risk ratings are grouped | Category		5
Segment Reporting [Abstract]
Number of reportable segments | Segment		1
Minimum [Member]
Loans & Leases [Abstract]
Period after which loans are placed on non accrual status		90 days
Buildings [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		30 years
Buildings [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		40 years
Furniture and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		3 years
Furniture and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		7 years
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		5 years
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives		10 years
Agricultural Real Estate [Member]
Allowance for Credit Losses [Abstract]
Number of risk factors on loans | Factor		2
Agricultural [Member]
Allowance for Credit Losses [Abstract]
Number of risk factors on loans | Factor		2
Delta National Bancorp [Member]
Business Acquisition [Line Items]
Assets | $	$ 112,000
Number of branches | Branch	4

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Business Combinations (Details) - Delta National Bancorp [Member] $ in Millions	Nov. 18, 2016 USD ($)
Business Acquisition [Line Items]
Loans	$ 32.4
Deposits	103.7
Investments	$ 38.7

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Investment Securities, Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities (Details) - USD ($) $ in Thousands		Dec. 31, 2017	Dec. 31, 2016
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		$ 482,757	$ 448,282
Gross unrealized gains		1,016	1,886
Gross unrealized losses		2,177	1,905
Fair/Book value		481,596	448,263
Book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity [Abstract]
Book value		54,460	58,109
Gross unrealized gains		776	339
Gross unrealized losses		0	40
Fair value		55,236	58,408
Government Agency & Government-Sponsored Entities [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		3,080	3,127
Gross unrealized gains		48	114
Gross unrealized losses		0	0
Fair/Book value		3,128	3,241
US Treasury Notes [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		144,606	134,755
Gross unrealized gains		0	5
Gross unrealized losses		442	332
Fair/Book value		144,164	134,428
US Govt SBA [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		29,559	36,532
Gross unrealized gains		29	42
Gross unrealized losses		208	260
Fair/Book value		29,380	36,314
Mortgage Backed Securities [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost	[1]	302,502	272,858
Gross unrealized gains	[1]	939	1,725
Gross unrealized losses	[1]	1,527	1,313
Fair/Book value	[1]	301,914	273,270
Other [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		3,010	1,010
Gross unrealized gains		0	0
Gross unrealized losses		0	0
Fair/Book value		3,010	1,010
Obligations of States and Political Subdivisions [Member]
Book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity [Abstract]
Book value		54,460	58,109
Gross unrealized gains		776	339
Gross unrealized losses		0	40
Fair value		$ 55,236	$ 58,408

[1] All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

XML

Investment Securities, Contractual Maturity (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Amortized Cost [Abstract]
Within one year	$ 113,065
After one year through five years	30,207
After five years through ten years	13,044
After ten years	23,939
Amortized cost, excluding securities without single maturity date	180,255
Investment securities not due at a single maturity date, mortgage-backed securities	302,502
Amortized cost	482,757
Fair/Book Value [Abstract]
Within one year	112,989
After one year through five years	29,979
After five years through ten years	12,922
After ten years	23,792
Fair/Book value, excluding securities without single maturity date	179,682
Investment securities not due at a single maturity date, mortgage-backed securities	301,914
Fair/Book value	481,596	$ 448,263
Book Value [Abstract]
Within one year	1,760
After one year through five years	8,659
After five years through ten years	14,155
After ten years	29,886
Book value, excluding securities without single maturity date	54,460
Investment securities not due at a single maturity date, mortgage-backed securities	0
Book value	54,460	58,109
Fair Value [Abstract]
Within one year	1,769
After one year through five years	8,664
After five years through ten years	14,347
After ten years	30,456
Fair/Book value, excluding securities without single maturity date	55,236
Investment securities not due at a single maturity date, mortgage-backed securities	0
Fair value	$ 55,236	$ 58,408

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Investment Securities, Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) Security	Dec. 31, 2016 USD ($)
Available-for-sale Securities in Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value	$ 229,523	$ 250,069
Less than 12 months unrealized loss	1,127	1,905
12 months or more fair value	105,991	0
12 months or more unrealized loss	1,050	0
Total fair value	335,514	250,069
Total unrealized loss	$ 2,177	1,905
Number of investment securities held | Security	476
Less than 12 months, number of positions | Security	97
12 months or more, number of positions | Security	98
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value		7,251
Less than 12 months unrealized loss		40
12 months or more fair value		0
12 months or more unrealized loss		0
Total fair value		7,251
Total unrealized loss		40
US Treasury Notes [Member]
Available-for-sale Securities in Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value	$ 94,281	99,429
Less than 12 months unrealized loss	144	332
12 months or more fair value	49,883	0
12 months or more unrealized loss	298	0
Total fair value	144,164	99,429
Total unrealized loss	$ 442	332
Less than 12 months, number of positions | Security	7
12 months or more, number of positions | Security	2
US Govt SBA [Member]
Available-for-sale Securities in Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value	$ 8,379	27,483
Less than 12 months unrealized loss	51	260
12 months or more fair value	12,900	0
12 months or more unrealized loss	157	0
Total fair value	21,279	27,483
Total unrealized loss	$ 208	260
Less than 12 months, number of positions | Security	54
12 months or more, number of positions | Security	70
Mortgage Backed Securities [Member]
Available-for-sale Securities in Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value	$ 126,863	123,157
Less than 12 months unrealized loss	932	1,313
12 months or more fair value	43,208	0
12 months or more unrealized loss	595	0
Total fair value	170,071	123,157
Total unrealized loss	$ 1,527	1,313
Less than 12 months, number of positions | Security	26
12 months or more, number of positions | Security	36
Government Agency & Government-Sponsored Entities [Member]
Available-for-sale Securities in Continuous Unrealized Loss Position [Abstract]
Total unrealized loss	$ 0	0
Less than 12 months, number of positions | Security	0
12 months or more, number of positions | Security	0
Obligations of States and Political Subdivisions [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months fair value		7,251
Less than 12 months unrealized loss		40
12 months or more fair value		0
12 months or more unrealized loss		0
Total fair value		7,251
Total unrealized loss	$ 0	$ 40
Less than 12 months, number of positions | Security	0
12 months or more, number of positions | Security	0
Municipal Bonds [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Percentage of portfolio rated at either issue or issuer level	99.00%
Percentage of portfolio not rated	1.00%

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Investment Securities, Proceeds From Sales (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Proceeds from sales and calls of securities [Abstract]
Gross proceeds	$ 7,831	$ 105,941	$ 61,335
Gross gains	143	250	275
Gross losses	$ 12	$ 534	$ 0

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Investment Securities, Pledged Securities (Details) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Investment Securities [Abstract]
Securities pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law	$ 214.5	$ 171.9

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Investment Securities, Investment in Unconsolidated Subsidiary (Details) - Voting Shares of Bank of Rio Vista [Member] - USD ($) $ in Millions	Jul. 20, 2017	Apr. 05, 2017
Schedule of Cost-method Investments [Line Items]
Percentage of voting shares acquired		4.90%
Percentage of additional voting shares acquired	34.55%
Payments to acquire business	$ 10.5	$ 1.4

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Federal Home Loan Bank Stock and Other Equity Securities, at Cost (Details) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Bank Stock and Other Equity Securities, at Cost [Abstract]
FHLB stock and other equity securities	$ 22.6	$ 9.2

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Loans & Leases (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	$ 2,221,250	$ 2,183,265
Less: Unearned Income	5,955	5,664
Total Loans & Leases	2,215,295	2,177,601
Less: Allowance for Credit Losses	50,342	47,919	$ 41,523
Loans & Leases, Net	2,164,953	2,129,682
Collateral on borrowing lines	618,400
Federal Home Loan Bank [Member]
Loans and Leases Receivable Disclosure [Line Items]
Collateral on borrowing lines	618,400
Maximum borrowing capacity	521,200
Federal Reserve Bank [Member]
Loans and Leases Receivable Disclosure [Line Items]
Collateral on borrowing lines	568,600
Maximum borrowing capacity	381,400
Commercial Real Estate [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	691,639	674,445
Total Loans & Leases	684,961	668,046
Less: Allowance for Credit Losses	10,922	11,110	10,063
Agricultural Real Estate [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	499,231	467,685
Total Loans & Leases	499,231	467,685
Less: Allowance for Credit Losses	12,085	9,450	6,881
Real Estate Construction [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	100,206	176,462
Total Loans & Leases	100,206	176,462
Less: Allowance for Credit Losses	1,846	3,223	2,485
Residential 1st Mortgages [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	260,751	242,247
Total Loans & Leases	260,751	242,247
Less: Allowance for Credit Losses	815	865	789
Home Equity Lines and Loans [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	34,525	31,625
Total Loans & Leases	34,525	31,625
Less: Allowance for Credit Losses	2,324	2,140	2,146
Agricultural [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	273,582	295,325
Total Loans & Leases	273,582	295,325
Less: Allowance for Credit Losses	8,159	7,381	6,308
Commercial [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	265,703	217,577
Total Loans & Leases	265,703	217,577
Less: Allowance for Credit Losses	9,197	8,515	7,836
Consumer & Other [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	6,656	6,913
Total Loans & Leases	6,656	6,913
Less: Allowance for Credit Losses	209	200	175
Leases [Member]
Loans and Leases Receivable Disclosure [Line Items]
Total Gross Loans & Leases	88,957	70,986
Total Loans & Leases	89,680	71,721
Less: Allowance for Credit Losses	$ 3,363	$ 3,586	$ 3,294

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Allowance for Credit Losses, Allocation of The Allowance For Loan Losses by Portfolio Segment and By Impairment Methodology (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Allowance for Credit Losses [Roll Forward]
Beginning Balance				$ 47,919				$ 41,523	$ 47,919	$ 41,523
Charge-Offs									(685)	(172)
Recoveries									258	233
Provision	$ 0	$ 1,600	$ 650	600	$ 3,485	$ 250	$ 0	2,600	2,850	6,335	$ 750
Ending Balance	50,342				47,919				50,342	47,919	41,523
Ending Balance Individually Evaluated for Impairment	684				831				684	831
Ending Balance Collectively Evaluated for Impairment	49,658				47,088				49,658	47,088
Loans & Leases [Abstract]
Ending Balance	2,215,295				2,177,601				2,215,295	2,177,601
Ending Balance Individually Evaluated for Impairment	9,279				10,863				9,279	10,863
Ending Balance Collectively Evaluated for Impairment	2,206,016				2,166,738				2,206,016	2,166,738
Commercial Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				11,110				10,063	11,110	10,063
Charge-Offs									(109)	0
Recoveries									109	2
Provision									(188)	1,045
Ending Balance	10,922				11,110				10,922	11,110	10,063
Ending Balance Individually Evaluated for Impairment	366				0				366	0
Ending Balance Collectively Evaluated for Impairment	10,556				11,110				10,556	11,110
Loans & Leases [Abstract]
Ending Balance	684,961				668,046				684,961	668,046
Ending Balance Individually Evaluated for Impairment	4,822				1,932				4,822	1,932
Ending Balance Collectively Evaluated for Impairment	680,139				666,114				680,139	666,114
Agricultural Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				9,450				6,881	9,450	6,881
Charge-Offs									0	0
Recoveries									0	0
Provision									2,635	2,569
Ending Balance	12,085				9,450				12,085	9,450	6,881
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	12,085				9,450				12,085	9,450
Loans & Leases [Abstract]
Ending Balance	499,231				467,685				499,231	467,685
Ending Balance Individually Evaluated for Impairment	0				1,304				0	1,304
Ending Balance Collectively Evaluated for Impairment	499,231				466,381				499,231	466,381
Real Estate Construction [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				3,223				2,485	3,223	2,485
Charge-Offs									0	0
Recoveries									0	0
Provision									(1,377)	738
Ending Balance	1,846				3,223				1,846	3,223	2,485
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	1,846				3,223				1,846	3,223
Loans & Leases [Abstract]
Ending Balance	100,206				176,462				100,206	176,462
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	100,206				176,462				100,206	176,462
Residential 1st Mortgages [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				865				789	865	789
Charge-Offs									(53)	(21)
Recoveries									40	26
Provision									(37)	71
Ending Balance	815				865				815	865	789
Ending Balance Individually Evaluated for Impairment	73				70				73	70
Ending Balance Collectively Evaluated for Impairment	742				795				742	795
Loans & Leases [Abstract]
Ending Balance	260,751				242,247				260,751	242,247
Ending Balance Individually Evaluated for Impairment	2,373				2,126				2,373	2,126
Ending Balance Collectively Evaluated for Impairment	258,378				240,121				258,378	240,121
Home Equity Lines and Loans [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				2,140				2,146	2,140	2,146
Charge-Offs									(3)	(46)
Recoveries									8	103
Provision									179	(63)
Ending Balance	2,324				2,140				2,324	2,140	2,146
Ending Balance Individually Evaluated for Impairment	17				18				17	18
Ending Balance Collectively Evaluated for Impairment	2,307				2,122				2,307	2,122
Loans & Leases [Abstract]
Ending Balance	34,525				31,625				34,525	31,625
Ending Balance Individually Evaluated for Impairment	340				402				340	402
Ending Balance Collectively Evaluated for Impairment	34,185				31,223				34,185	31,223
Agricultural [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				7,381				6,308	7,381	6,308
Charge-Offs									(374)	0
Recoveries									17	0
Provision									1,135	1,073
Ending Balance	8,159				7,381				8,159	7,381	6,308
Ending Balance Individually Evaluated for Impairment	0				128				0	128
Ending Balance Collectively Evaluated for Impairment	8,159				7,253				8,159	7,253
Loans & Leases [Abstract]
Ending Balance	273,582				295,325				273,582	295,325
Ending Balance Individually Evaluated for Impairment	0				625				0	625
Ending Balance Collectively Evaluated for Impairment	273,582				294,700				273,582	294,700
Commercial [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				8,515				7,836	8,515	7,836
Charge-Offs									0	0
Recoveries									8	47
Provision									674	632
Ending Balance	9,197				8,515				9,197	8,515	7,836
Ending Balance Individually Evaluated for Impairment	220				608				220	608
Ending Balance Collectively Evaluated for Impairment	8,977				7,907				8,977	7,907
Loans & Leases [Abstract]
Ending Balance	265,703				217,577				265,703	217,577
Ending Balance Individually Evaluated for Impairment	1,734				4,464				1,734	4,464
Ending Balance Collectively Evaluated for Impairment	263,969				213,113				263,969	213,113
Consumer & Other [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				200				175	200	175
Charge-Offs									(146)	(105)
Recoveries									76	55
Provision									79	75
Ending Balance	209				200				209	200	175
Ending Balance Individually Evaluated for Impairment	8				7				8	7
Ending Balance Collectively Evaluated for Impairment	201				193				201	193
Loans & Leases [Abstract]
Ending Balance	6,656				6,913				6,656	6,913
Ending Balance Individually Evaluated for Impairment	10				10				10	10
Ending Balance Collectively Evaluated for Impairment	6,646				6,903				6,646	6,903
Leases [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				3,586				3,294	3,586	3,294
Charge-Offs									0	0
Recoveries									0	0
Provision									(223)	292
Ending Balance	3,363				3,586				3,363	3,586	3,294
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	3,363				3,586				3,363	3,586
Loans & Leases [Abstract]
Ending Balance	89,680				71,721				89,680	71,721
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	89,680				71,721				89,680	71,721
Unallocated [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance				$ 1,449				$ 1,546	1,449	1,546
Charge-Offs									0	0
Recoveries									0	0
Provision									(27)	(97)
Ending Balance	1,422				1,449				1,422	1,449	$ 1,546
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	1,422				1,449				1,422	1,449
Loans & Leases [Abstract]
Ending Balance	0				0				0	0
Ending Balance Individually Evaluated for Impairment	0				0				0	0
Ending Balance Collectively Evaluated for Impairment	0				0				0	0
Restructured Loans [Member]
Loans & Leases [Abstract]
Ending Balance Individually Evaluated for Impairment	$ 3,000				$ 3,300				$ 3,000	$ 3,300

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Allowance for Credit Losses, Loan Portfolio Allocated by Management's Internal Credit Ratings (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 2,215,295	$ 2,177,601
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	2,170,292	2,144,650
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	36,123	26,588
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	8,880	6,363
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0
Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	684,961	668,046
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	677,636	659,694
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,843	6,817
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	482	1,535
Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	499,231	467,685
Agricultural Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	488,672	464,997
Agricultural Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,529	1,384
Agricultural Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	4,030	1,304
Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	100,206	176,462
Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	90,728	176,462
Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	9,478	0
Real Estate Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0
Residential 1st Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	260,751	242,247
Residential 1st Mortgages [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	259,795	241,816
Residential 1st Mortgages [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	41	47
Residential 1st Mortgages [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	915	384
Home Equity Lines and Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	34,525	31,625
Home Equity Lines and Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	34,476	31,558
Home Equity Lines and Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0
Home Equity Lines and Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	49	67
Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	273,582	295,325
Agricultural [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	264,425	283,525
Agricultural [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,439	11,366
Agricultural [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	2,718	434
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	265,703	217,577
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	260,565	208,172
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	4,610	6,974
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	528	2,431
Consumer & Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,656	6,913
Consumer & Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	6,498	6,705
Consumer & Other [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	0	0
Consumer & Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	158	208
Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	89,680	71,721
Leases [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	87,497	71,721
Leases [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	2,183	0
Leases [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans & leases	$ 0	$ 0

XML

Allowance for Credit Losses, Aging Analysis of Loan Portfolio by the Time Past Due (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	$ 0	$ 0
Nonaccrual	0	3,074
Total Past Due	645	3,084
Current	2,214,650	2,174,517
Total Loans & Leases	2,215,295	2,177,601
Interest income forgone on nonaccrual loans	0	127	$ 109
30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	645	10
60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	0
Total Past Due	0	0
Current	684,961	668,046
Total Loans & Leases	684,961	668,046
Commercial Real Estate [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial Real Estate [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Agricultural Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	1,304
Total Past Due	0	1,304
Current	499,231	466,381
Total Loans & Leases	499,231	467,685
Agricultural Real Estate [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Agricultural Real Estate [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	0
Total Past Due	0	0
Current	100,206	176,462
Total Loans & Leases	100,206	176,462
Real Estate Construction [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate Construction [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Residential 1st Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	95
Total Past Due	448	95
Current	260,303	242,152
Total Loans & Leases	260,751	242,247
Residential 1st Mortgages [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	448	0
Residential 1st Mortgages [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Home Equity Lines and Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	0
Total Past Due	10	0
Current	34,515	31,625
Total Loans & Leases	34,525	31,625
Home Equity Lines and Loans [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	10	0
Home Equity Lines and Loans [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	243
Total Past Due	0	243
Current	273,582	295,082
Total Loans & Leases	273,582	295,325
Agricultural [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Agricultural [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	1,425
Total Past Due	180	1,425
Current	265,523	216,152
Total Loans & Leases	265,703	217,577
Commercial [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	180	0
Commercial [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Consumer & Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	7
Total Past Due	7	17
Current	6,649	6,896
Total Loans & Leases	6,656	6,913
Consumer & Other [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	7	10
Consumer & Other [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
90 Days and Still Accruing	0	0
Nonaccrual	0	0
Total Past Due	0	0
Current	89,680	71,721
Total Loans & Leases	89,680	71,721
Leases [Member] | 30-59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Leases [Member] | 60-89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0

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Allowance for Credit Losses, Impaired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
With no related allowance recorded [Abstract]
Recorded Investment	$ 1,015	$ 4,963
Unpaid Principal Balance	1,116	5,016
Average Recorded Investment	1,173	4,705
Interest Income Recognized	22	158
With an allowance recorded [Abstract]
Recorded Investment	5,303	2,592
Unpaid Principal Balance	5,364	2,844
Related Allowance	623	768
Average Recorded Investment	5,655	2,588
Interest Income Recognized	203	47
Total [Abstract]
Recorded Investment	6,318	7,555
Unpaid Principal Balance	6,480	7,860
Related Allowance	623	768
Average Recorded Investment	6,828	7,293
Interest Income Recognized	225	205
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	104	184
Unpaid Principal Balance	104	184
Average Recorded Investment	107	354
Interest Income Recognized	11	7
With an allowance recorded [Abstract]
Recorded Investment	2,973
Unpaid Principal Balance	2,961
Related Allowance	366
Average Recorded Investment	2,999
Interest Income Recognized	104
Total [Abstract]
Related Allowance	366
Agricultural Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0	1,305
Unpaid Principal Balance	0	1,305
Average Recorded Investment	488	569
Interest Income Recognized	0	3
Residential 1st Mortgages [Member]
With no related allowance recorded [Abstract]
Recorded Investment	911	451
Unpaid Principal Balance	1,012	504
Average Recorded Investment	532	404
Interest Income Recognized	11	10
With an allowance recorded [Abstract]
Recorded Investment	508	430
Unpaid Principal Balance	571	469
Related Allowance	25	21
Average Recorded Investment	469	336
Interest Income Recognized	16	13
Total [Abstract]
Related Allowance	25	21
Home Equity Lines and Loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Average Recorded Investment	16	181
Interest Income Recognized	0	0
With an allowance recorded [Abstract]
Recorded Investment	73	90
Unpaid Principal Balance	89	97
Related Allowance	4	5
Average Recorded Investment	74	123
Interest Income Recognized	3	4
Total [Abstract]
Related Allowance	4	5
Agricultural [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Average Recorded Investment	30	144
Interest Income Recognized	0	5
With an allowance recorded [Abstract]
Recorded Investment	0	625
Unpaid Principal Balance	0	625
Related Allowance	0	128
Average Recorded Investment	409	581
Interest Income Recognized	21	22
Total [Abstract]
Related Allowance	0	128
Commercial [Member]
With no related allowance recorded [Abstract]
Recorded Investment		3,023
Unpaid Principal Balance		3,023
Average Recorded Investment		3,053
Interest Income Recognized		133
With an allowance recorded [Abstract]
Recorded Investment	1,741	1,441
Unpaid Principal Balance	1,734	1,640
Related Allowance	220	608
Average Recorded Investment	1,693	1,536
Interest Income Recognized	59	8
Total [Abstract]
Related Allowance	220	608
Consumer & Other [Member]
With an allowance recorded [Abstract]
Recorded Investment	8	6
Unpaid Principal Balance	9	13
Related Allowance	8	6
Average Recorded Investment	11	12
Interest Income Recognized	0	0
Total [Abstract]
Related Allowance	$ 8	$ 6

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Allowance for Credit Losses, Loans by Class Modified as Troubled Debt Restructured Loans (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) Loan	Dec. 31, 2016 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Specific reserves	$ 623	$ 736
Troubled debt restructured loans		5,900
Commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings	$ 0	$ 0
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	6	5
Pre-Modification Outstanding Recorded Investment	$ 852	$ 706
Post-Modification Recorded Outstanding Investment	808	679
Increase in allowance for loan losses due to TDR	0	0
TDR's charge-offs	$ 44	$ 27
Number of loans modified as troubled debt restructurings with subsequent payment defaults | Loan	0	0
Threshold period after which loan is considered to be in payment default	90 days
Stated Interest Rate Reduction [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications	3 years	5 years
Stated Interest Rate Reduction [Member] | Maximum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications	5 years	10 years
Extended Maturity [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications	3 years	5 years
Extended Maturity [Member] | Maximum [Member]
Financing Receivable, Modifications [Line Items]
Period of modifications	10 years	10 years
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructured loans	$ 6,300	$ 4,500
Commercial Real Estate [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan		1
Pre-Modification Outstanding Recorded Investment		$ 112
Post-Modification Recorded Outstanding Investment		$ 112
Residential 1st Mortgages [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	2	2
Pre-Modification Outstanding Recorded Investment	$ 673	$ 289
Post-Modification Recorded Outstanding Investment	$ 630	$ 281
Home Equity Lines and Loans [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1	2
Pre-Modification Outstanding Recorded Investment	$ 32	$ 305
Post-Modification Recorded Outstanding Investment	$ 32	$ 286
Commercial [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	2
Pre-Modification Outstanding Recorded Investment	$ 138
Post-Modification Recorded Outstanding Investment	$ 138
Consumer & Other [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1
Pre-Modification Outstanding Recorded Investment	$ 9
Post-Modification Recorded Outstanding Investment	$ 8

XML

Premises and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Subtotal	$ 59,534	$ 59,638
Less: Accumulated Depreciation and Amortization	30,855	30,409
Total	28,679	29,229
Depreciation and amortization	2,186	1,896	$ 1,685
Total rental expense	688	644	604
Rental income	169	102	$ 94
Land and Buildings [Member]
Property, Plant and Equipment [Line Items]
Subtotal	36,018	37,003
Furniture, Fixtures, and Equipment [Member]
Property, Plant and Equipment [Line Items]
Subtotal	20,399	20,196
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Subtotal	$ 3,117	$ 2,439

XML

Other Real Estate (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Other Real Estate [Abstract]
Other real estate, net	$ 837	$ 3,700

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Time Deposits (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Time Deposits $250,000 or more [Abstract]
Balance	$ 212,574	$ 289,955
Maturities of Time Deposits [Abstract]
2018	426,874
2019	30,219
2020	10,317
2021	3,100
2022	4,887
Total	$ 475,397	$ 570,293

XML

Income Taxes, Current and Deferred Income Tax Expense (Benefit) (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Current [Abstract]
Federal									$ 9,460	$ 13,101	$ 11,979
State									4,046	4,832	4,446
Total Current									13,506	17,933	16,425
Deferred [Abstract]
Federal									11,154	(1,607)	383
State									1,451	(229)	116
Total Deferred									12,605	(1,836)	499
Total Provision for Taxes	$ 11,974	$ 5,000	$ 4,708	$ 4,429	$ 3,389	$ 4,503	$ 4,169	$ 4,036	$ 26,111	$ 16,097	$ 16,924

XML

Income Taxes, Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Effective Income Tax Rate Reconciliation, Amount [Abstract]
Tax Provision at Federal Statutory Rate									$ 19,068	$ 16,037	$ 15,510
Interest on Obligations of States and Political Subdivisions exempt from Federal Taxation									(617)	(675)	(711)
State and Local Income Taxes, Net of Federal Income Tax Benefit									3,573	2,992	2,966
Bank Owned Life Insurance									(696)	(731)	(712)
Low-Income Housing Tax Credit									(1,546)	(1,201)	(291)
Bargain Purchase Gain									0	(641)	0
Deferred Tax Asset Remeasurement									6,256	0	0
Other, Net									73	316	162
Total Provision for Taxes	$ 11,974	$ 5,000	$ 4,708	$ 4,429	$ 3,389	$ 4,503	$ 4,169	$ 4,036	$ 26,111	$ 16,097	$ 16,924
Effective Income Tax Rate Reconciliation, Percent [Abstract]
Tax Provision at Federal Statutory Rate									35.00%	35.00%	35.00%
Interest on Obligations of States and Political Subdivisions exempt from Federal Taxation									(1.10%)	(1.50%)	(1.60%)
State and Local Income Taxes, Net of Federal Income Tax Benefit									6.50%	6.50%	6.70%
Bank Owned Life Insurance									(1.30%)	(1.60%)	(1.60%)
Low-Income Housing Tax Credit									(2.80%)	(2.60%)	(0.70%)
Bargain Purchase Gain									(0.00%)	(1.40%)	(0.00%)
Deferred Tax Asset Remeasurement									11.50%	0.00%	0.00%
Other, Net									0.10%	0.70%	0.40%
Total Provision for Taxes									47.90%	35.10%	38.20%

XML

Income Taxes, Components of Net Deferred Tax Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Deferred Tax Assets [Abstract]
Allowance for Credit Losses		$ 14,962	$ 20,260
Accrued Liabilities		7,421	9,807
Deferred Compensation		8,996	14,166
State Franchise Tax		850	1,680
Acquired Net Operating Loss		756	1,135
Fair Value Adjustment on Loans Acquired		242	429
Fair Value Adjustment on ORE Acquired		108	299
Unrealized Loss on Securities Available-for-Sale		373	58
Low-Income Housing Investment		470	366
Other		17	233
Total Deferred Tax Assets		34,195	48,433
Deferred Tax Liabilities [Abstract]
Premises and Equipment		(1,361)	(1,707)
Securities Accretion		(164)	(341)
Leasing Activities		(12,389)	(14,868)
Core Deposit Intangible Asset		(247)	(398)
Prepaid		(964)	(314)
Other		(944)	(494)
Total Deferred Tax Liabilities		(16,069)	(18,122)
Net Deferred Tax Assets		$ 18,126	$ 30,311
Income Tax Disclosure [Line Items]
Tax Provision at Federal Statutory Rate		35.00%	35.00%	35.00%
Plan [Member]
Income Tax Disclosure [Line Items]
Tax Provision at Federal Statutory Rate	21.00%

XML

Short Term Borrowings (Details) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Short Term Borrowings [Abstract]
Unused lines of credit	$ 1,000.0	$ 962.8
Advances from FHLB	0.0	0.0
Federal Funds purchased or advances from FRB	$ 0.0	$ 0.0

XML

Securities Sold Under Agreement to Repurchase (Details) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Securities Sold Under Agreement to Repurchase [Abstract]
Securities sold under agreements to repurchase	$ 0	$ 0

XML

Federal Home Loan Bank Advances (Details) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Bank Advances [Abstract]
Federal Home Loan Bank Advances, long term	$ 0.0	$ 0.0
Federal Home Loan Bank Advances, short term	0.0	$ 0.0
Collateral on borrowing lines	618.4
Borrowing capacity	$ 521.2

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Long-term Subordinated Debentures (Details) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2017 USD ($) $ / shares
Debt Instrument [Line Items]
Guaranteed preferred beneficial interests	$ 10.0
Liquidation value (per capital security) | $ / shares	$ 1,000
Trust Preferred Securities redemption date	Dec. 17, 2033
Junior Subordinated Debentures [Member]
Debt Instrument [Line Items]
Junior subordinated debentures	$ 10.3
Junior Subordinated Debentures [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Term of variable rate	3 months
Basis spread on variable rate	2.85%

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Shareholders' Equity, Stock Repurchase Program, Dividends and Issuance of Common Stock (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Equity, Class of Treasury Stock [Line Items]
Approved funds available for common stock repurchase program	$ 20
Stock repurchase program, period in force	3 years
Number of shares of stock repurchased (in shares)	0	0
Retained net profit period	2 years
Issuance of common stock (in shares)	4,975	16,542
Issuance of common stock for contribution to non-qualified defined contribution retirement plans (in shares)	4,975	4,610
Minimum [Member]
Equity, Class of Treasury Stock [Line Items]
Per share price of shares issued (in dollars per share)	$ 590	$ 525
Maximum [Member]
Equity, Class of Treasury Stock [Line Items]
Per share price of shares issued (in dollars per share)	$ 595	$ 580
Delta National Bancorp [Member]
Equity, Class of Treasury Stock [Line Items]
Issuance of common stock in acquisition (in shares)		11,932

XML

Shareholders' Equity, Compliance with Regulatory Capital Requirements (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Total Capital to Risk Weighted Assets [Abstract]
Actual Amount	$ 342,210	$ 319,983
Current Regulatory Capital Requirement, Amount	$ 209,532	$ 199,981
Total Capital to Risk Weighted Assets, Ratio [Abstract]
Actual Ratio	13.07%	12.80%
Current Regulatory Capital Requirement, Ratio	8.00%	8.00%
Total Common Equity Tier 1 Capital [Abstract]
Actual Amount	$ 299,401	$ 278,981
Current Regulatory Capital Requirement, Amount	$ 117,862	$ 112,489
Total Common Equity Tier 1 Capital, Ratio [Abstract]
Actual Ratio	11.43%	11.16%
Current Regulatory Capital Requirement, Ratio	4.50%	4.50%
Tier 1 Capital to Risk Weighted Assets [Abstract]
Actual Amount	$ 309,250	$ 288,527
Current Regulatory Capital Requirement, Amount	$ 157,150	$ 149,986
Tier 1 Capital to Risk Weighted Assets, Ratio [Abstract]
Actual Ratio	11.81%	11.54%
Current Regulatory Capital Requirement Ratio	6.00%	6.00%
Tier 1 Capital to Average Assets [Abstract]
Actual Amount	$ 309,250	$ 288,527
Current Regulatory Capital Requirement, Amount	$ 123,790	$ 114,568
Tier 1 Capital to Average Assets, Ratio [Abstract]
Actual Ratio	9.99%	10.07%
Current Regulatory Capital Requirement, Ratio	4.00%	4.00%
Bank [Member]
Total Capital to Risk Weighted Assets [Abstract]
Actual Amount	$ 330,041	$ 319,776
Current Regulatory Capital Requirement, Amount	208,552	199,958
Well Capitalized Under Prompt Corrective Action, Amount	$ 260,691	$ 249,947
Total Capital to Risk Weighted Assets, Ratio [Abstract]
Actual Ratio	12.66%	12.79%
Current Regulatory Capital Requirement, Ratio	8.00%	8.00%
Well Capitalized Under Prompt Corrective Action, Ratio	10.00%	10.00%
Total Common Equity Tier 1 Capital [Abstract]
Actual Amount	$ 297,232	$ 288,324
Current Regulatory Capital Requirement, Amount	117,311	112,476
Well Capitalized Under Prompt Corrective Action, Amount	$ 169,449	$ 162,466
Total Common Equity Tier 1 Capital, Ratio [Abstract]
Actual Ratio	11.40%	11.54%
Current Regulatory Capital Requirement, Ratio	4.50%	4.50%
Well Capitalized Under Prompt Corrective Action, Ratio	6.50%	6.50%
Tier 1 Capital to Risk Weighted Assets [Abstract]
Actual Amount	$ 297,232	$ 288,323
Current Regulatory Capital Requirement, Amount	156,414	149,968
Well Capitalized Under Prompt Corrective Action, Amount	$ 208,552	$ 199,958
Tier 1 Capital to Risk Weighted Assets, Ratio [Abstract]
Actual Ratio	11.40%	11.54%
Current Regulatory Capital Requirement Ratio	6.00%	6.00%
Well Capitalized Under Prompt Corrective Action, Ratio	8.00%	8.00%
Tier 1 Capital to Average Assets [Abstract]
Actual Amount	$ 297,232	$ 288,324
Current Regulatory Capital Requirement, Amount	123,178	114,409
Well Capitalized Under Prompt Corrective Action, Amount	$ 153,972	$ 143,011
Tier 1 Capital to Average Assets, Ratio [Abstract]
Actual Ratio	9.65%	10.08%
Current Regulatory Capital Requirement, Ratio	4.00%	4.00%
Well Capitalized Under Prompt Corrective Action, Ratio	5.00%	5.00%

XML

Dividends and Basic Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Dividends and Basic Earnings Per Common Share [Abstract]
Cash dividends									$ 10,982	$ 10,478	$ 10,157
Cash dividends paid per share of common stock (in dollars per share)									$ 13.55	$ 13.10	$ 12.90
Percentage increase in cash dividend per share									3.40%
Earnings per share for the period [Abstract]
Net Income	$ 3,781	$ 8,581	$ 8,187	$ 7,821	$ 7,681	$ 7,538	$ 7,332	$ 7,172	$ 28,370	$ 29,723	$ 27,392
Weighted Average Number of Common Shares Outstanding (in shares)									809,834	793,970	786,582
Basic Earnings Per Common Share (in dollars per share)	$ 4.64	$ 10.59	$ 10.12	$ 9.68	$ 9.62	$ 9.51	$ 9.25	$ 9.06	$ 35.03	$ 37.44	$ 34.82

XML

Employee Benefit Plans (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) Contribution	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Tax-exempt interest earned on the life insurance policies	$ 1,822	$ 1,864	$ 1,908
Executive Officers [Member]
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Employer contribution	4,300	3,800	3,500
Total accrued liability	43,300	37,400
Tax-exempt interest earned on the life insurance policies	1,800	1,900	1,900
Cash surrender value of life insurance policies	59,600	57,800
Senior Level Employees [Member] | Senior Management Retention Plan [Member]
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Employer contribution	765	627	530
Total accrued liability	$ 4,400	3,400
Profit Sharing Plan [Member]
Defined Contribution Plan Disclosure [Line Items]
Defined Contribution Plan, Type [Extensible List]	us-gaap:PensionPlansDefinedBenefitMember
Minimum requisite service period	1 year
Number of annual employer contribution | Contribution	2
Employer discretionary contribution amount	$ 1,000	975	925
Employer mandatory contributions amount	$ 1,200	$ 1,200	$ 1,100
Annual vesting percentage, first year	0.00%
Annual vesting percentage, full year thereafter	25.00%
Benefit vesting period	5 years

XML

Fair Value Measurements, Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of selling costs		10.00%
Consumer mortgage loans in the process of foreclosure value		$ 0
Investment Securities Available-for-Sale		481,596	$ 448,263
Gains (losses) for assets categorized as Level 3 assets		0
Transfer into Level 3		0
Transfer out of Level 3		0
Government Agency & Government-Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		3,128	3,241
US Treasury Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		144,164	134,428
US Govt SBA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		29,380	36,314
Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale	[1]	301,914	273,270
Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		3,010	1,010
Significant Unobservable Inputs (Level 3) [Member] | SBA Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		2,500
Amount of increase in investment		2,000
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		481,596	448,263
Recurring [Member] | Government Agency & Government-Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		3,128	3,241
Recurring [Member] | US Treasury Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		144,164	134,428
Recurring [Member] | US Govt SBA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		29,380	36,314
Recurring [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		301,914	273,270
Recurring [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		3,010	1,010
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		144,364	134,628
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Government Agency & Government-Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | US Treasury Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		144,164	134,428
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | US Govt SBA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		200	200
Recurring [Member] | Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		334,732	313,135
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Government Agency & Government-Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		3,128	3,241
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | US Treasury Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | US Govt SBA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		29,380	36,314
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		301,914	273,270
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		310	310
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		2,500	500
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Government Agency & Government-Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | US Treasury Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | US Govt SBA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities Available-for-Sale		$ 2,500	$ 500

[1] All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

XML

Fair Value Measurements, Assets or Liabilities Measured at Fair Value on a Non-recurring Basis (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	$ 5,181	$ 1,893
Other Real Estate	873	3,745
Total Assets Measured at Fair Value On a Non-Recurring Basis	6,054	5,638
Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	2,595
Residential 1st Mortgages [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	997	480
Home Equity Lines and Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	75	83
Other Real Estate		785
Agricultural [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans		497
Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	1,514	833
Real Estate Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate	873	2,960
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Real Estate	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Residential 1st Mortgages [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Home Equity Lines and Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Real Estate		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Agricultural [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Real Estate Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate	0	0
Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Real Estate	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0
Other Observable Inputs (Level 2) [Member] | Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0
Other Observable Inputs (Level 2) [Member] | Residential 1st Mortgages [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Observable Inputs (Level 2) [Member] | Home Equity Lines and Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Real Estate		0
Other Observable Inputs (Level 2) [Member] | Agricultural [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans		0
Other Observable Inputs (Level 2) [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other Observable Inputs (Level 2) [Member] | Real Estate Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	5,181	1,893
Other Real Estate	873	3,745
Total Assets Measured at Fair Value On a Non-Recurring Basis	6,054	5,638
Significant Unobservable Inputs (Level 3) [Member] | Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	2,595
Significant Unobservable Inputs (Level 3) [Member] | Residential 1st Mortgages [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	997	480
Significant Unobservable Inputs (Level 3) [Member] | Home Equity Lines and Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	75	83
Other Real Estate		785
Significant Unobservable Inputs (Level 3) [Member] | Agricultural [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans		497
Significant Unobservable Inputs (Level 3) [Member] | Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	1,514	833
Significant Unobservable Inputs (Level 3) [Member] | Real Estate Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate	$ 873	$ 2,960

XML

Fair Value Measurements, Quantitative Information (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)
Impaired Loans [Member] | Commercial Real Estate [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Impaired Loans	$ 2,595
Unobservable inputs	Capitalization Rate
Impaired Loans [Member] | Commercial Real Estate [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate	3.25%
Impaired Loans [Member] | Commercial Real Estate [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate	3.25%
Impaired Loans [Member] | Commercial Real Estate [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate	3.25%
Impaired Loans [Member] | Residential 1st Mortgages [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Impaired Loans	$ 997
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Impaired Loans [Member] | Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	1.00%
Impaired Loans [Member] | Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	4.00%
Impaired Loans [Member] | Residential 1st Mortgages [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	2.00%
Impaired Loans [Member] | Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Impaired Loans	$ 75
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Impaired Loans [Member] | Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	1.00%
Impaired Loans [Member] | Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	2.00%
Impaired Loans [Member] | Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	2.00%
Impaired Loans [Member] | Commercial [Member] | Income Approach [Member]
Quantitative Information [Abstract]
Impaired Loans	$ 1,514
Unobservable inputs	Capitalization Rate
Impaired Loans [Member] | Commercial [Member] | Income Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Capitalization rate	2.95%
Impaired Loans [Member] | Commercial [Member] | Income Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Capitalization rate	8.70%
Impaired Loans [Member] | Commercial [Member] | Income Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Capitalization rate	3.40%
Other Real Estate [Member] | Real Estate Construction [Member] | Sales Comparison Approach [Member]
Quantitative Information [Abstract]
Other Real Estate	$ 873
Unobservable inputs	Adjustment for Difference Between Comparable Sales
Other Real Estate [Member] | Real Estate Construction [Member] | Sales Comparison Approach [Member] | Minimum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	10.00%
Other Real Estate [Member] | Real Estate Construction [Member] | Sales Comparison Approach [Member] | Maximum [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	10.00%
Other Real Estate [Member] | Real Estate Construction [Member] | Sales Comparison Approach [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Adjustment for difference between comparable sales	10.00%

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Assets [Abstract]
Investment Securities Available-for-Sale	$ 481,596	$ 448,263
Investment Securities Held-to-Maturity	55,236	58,408
Carrying Amount [Member]
Assets [Abstract]
Cash and Cash Equivalents	187,149	98,960
Investment Securities Available-for-Sale	481,596	448,263
Investment Securities Held-to-Maturity	54,460	58,109
FHLB Stock	10,342	8,872
Loans & Leases, Net of Deferred Fees & Allowance	2,164,953	2,129,682
Accrued Interest Receivable	10,999	10,047
Liabilities [Abstract]
Deposits	2,723,228	2,581,711
Subordinated Debentures	10,310	10,310
Accrued Interest Payable	1,137	852
Estimated Fair Value [Member]
Assets [Abstract]
Cash and Cash Equivalents	187,149	98,960
Investment Securities Available-for-Sale	481,596	448,263
Investment Securities Held-to-Maturity	55,236	58,408
Loans & Leases, Net of Deferred Fees & Allowance	2,137,987	2,107,060
Accrued Interest Receivable	10,999	10,047
Liabilities [Abstract]
Deposits	2,720,502	2,580,601
Subordinated Debentures	7,428	6,578
Accrued Interest Payable	1,137	852
Estimated Fair Value [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Cash and Cash Equivalents	187,149	98,960
Investment Securities Available-for-Sale	29,580	134,628
Investment Securities Held-to-Maturity	0	0
Loans & Leases, Net of Deferred Fees & Allowance	0	0
Accrued Interest Receivable	0	0
Liabilities [Abstract]
Deposits	2,247,831	2,011,418
Subordinated Debentures	0	0
Accrued Interest Payable	0	0
Estimated Fair Value [Member] | Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0
Investment Securities Available-for-Sale	449,516	313,135
Investment Securities Held-to-Maturity	38,492	40,415
Loans & Leases, Net of Deferred Fees & Allowance	0	0
Accrued Interest Receivable	10,999	10,047
Liabilities [Abstract]
Deposits	472,671	569,183
Subordinated Debentures	7,428	6,578
Accrued Interest Payable	1,137	852
Estimated Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0
Investment Securities Available-for-Sale	2,500	500
Investment Securities Held-to-Maturity	16,744	17,993
Loans & Leases, Net of Deferred Fees & Allowance	2,137,987	2,107,060
Accrued Interest Receivable	0	0
Liabilities [Abstract]
Deposits	0	0
Subordinated Debentures	0	0
Accrued Interest Payable	$ 0	$ 0

XML

Commitments and Contingencies (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Minimum future rental commitments under noncancellable operating leases [Abstract]
2018	$ 670
2019	634
2020	644
2021	462
2022	146
Due remaining term of the lease	139
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, amount, liability	735,678	$ 609,653
Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, amount, liability	$ 20,061	20,444
Letters of Credit [Member] | Minimum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off balance sheet risks maturity period	1 month
Letters of Credit [Member] | Maximum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off balance sheet risks maturity period	60 months
Performance Guarantees under Interest Rate Swap Contracts Entered into between our Borrowing Customers and Third Parties [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, amount, liability	$ 759	$ 1,835

XML

Parent Company Financial Information, Condensed Balance Sheets (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Balance Sheets [Abstract]
Investment Securities	$ 536,056	$ 506,372
Total Assets	3,075,452	2,922,121
Subordinated Debentures	10,310	10,310
Liabilities	2,775,792	2,642,140
Shareholders' Equity	299,660	279,981	$ 251,835	$ 233,178
Total Liabilities and Shareholders' Equity	3,075,452	2,922,121
Parent Company [Member]
Condensed Balance Sheets [Abstract]
Cash	332	228	$ 308	$ 363
Investment in Farmers & Merchants Bank of Central California	297,643	289,778
Investment Securities	409	409
Other Assets	12,006	184
Total Assets	310,390	290,599
Subordinated Debentures	10,310	10,310
Liabilities	420	308
Shareholders' Equity	299,660	279,981
Total Liabilities and Shareholders' Equity	$ 310,390	$ 290,599

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Parent Company Financial Information, Condensed Statements of Income (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Condensed Statements of Income [Abstract]
Interest Income	$ 28,076	$ 27,850	$ 26,531	$ 25,866	$ 24,449	$ 24,152	$ 23,363	$ 23,106	$ 108,323	$ 95,070	$ 86,750
Tax Benefit	(11,974)	(5,000)	(4,708)	(4,429)	(3,389)	(4,503)	(4,169)	(4,036)	(26,111)	(16,097)	(16,924)
Net Income	$ 3,781	$ 8,581	$ 8,187	$ 7,821	$ 7,681	$ 7,538	$ 7,332	$ 7,172	28,370	29,723	27,392
Parent Company [Member]
Condensed Statements of Income [Abstract]
Equity in Undistributed Earnings in Farmers & Merchants Bank of Central California									5,575	17,043	17,352
Dividends from Subsidiary									23,575	14,275	10,875
Interest Income									13	11	10
Other Expenses, Net									(1,552)	(2,485)	(1,451)
Tax Benefit									759	879	606
Net Income									$ 28,370	$ 29,723	$ 27,392

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Parent Company Financial Information, Condensed Statements of Cash Flows (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities [Abstract]
Net Income	$ 3,781	$ 8,581	$ 8,187	$ 7,821	$ 7,681	$ 7,538	$ 7,332	$ 7,172	$ 28,370	$ 29,723	$ 27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities [Abstract]
Net Cash Provided by Operating Activities									39,944	34,812	37,327
Investing Activities [Abstract]
Net Cash Used in Investing Activities									(82,190)	(185,444)	(258,308)
Financing Activities [Abstract]
Cash Dividends									(10,982)	(10,478)	(10,157)
Net Cash Provided by (Used in) Financing Activities									130,535	190,046	203,302
Increase (Decrease) in Cash and Cash Equivalents									88,289	39,414	(17,679)
Parent Company [Member]
Cash Flows from Operating Activities [Abstract]
Net Income									28,370	29,723	27,392
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities [Abstract]
Equity in Undistributed Net Earnings from Subsidiary									(5,575)	(17,043)	(17,352)
Net (Increase) Decrease in Other Assets									(11,822)	(124)	(79)
Net Increase (Decrease) in Liabilities									112	49	141
Net Cash Provided by Operating Activities									11,085	12,605	10,102
Investing Activities [Abstract]
Securities Sold or Matured									1	0	0
Payments for Business Acquisition									0	(2,207)	0
Payments for Investments in Subsidiaries									(2,953)	(2,586)	(3,360)
Net Cash Used in Investing Activities									(2,952)	(4,793)	(3,360)
Financing Activities [Abstract]
Issuance of Common Stock									2,953	2,586	3,360
Cash Dividends									(10,982)	(10,478)	(10,157)
Net Cash Provided by (Used in) Financing Activities									(8,029)	(7,892)	(6,797)
Increase (Decrease) in Cash and Cash Equivalents									104	(80)	(55)
Cash and Cash Equivalents at Beginning of Year				$ 228				$ 308	228	308	363
Cash and Cash Equivalents at End of Year	$ 332				$ 228				$ 332	$ 228	$ 308

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Quarterly Unaudited Financial Data (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Quarterly Unaudited Financial Data [Abstract]
Total Interest Income	$ 29,692	$ 29,609	$ 28,069	$ 27,242	$ 25,664	$ 25,262	$ 24,314	$ 24,026	$ 114,612	$ 99,266	$ 90,075
Total Interest Expense	1,616	1,759	1,538	1,376	1,215	1,110	951	920	6,289	4,196	3,325
Net Interest Income	28,076	27,850	26,531	25,866	24,449	24,152	23,363	23,106	108,323	95,070	86,750
Provision for Credit Losses	0	1,600	650	600	3,485	250	0	2,600	2,850	6,335	750
Net Interest Income After Provision for Credit Losses	28,076	26,250	25,881	25,266	20,964	23,902	23,363	20,506	105,473	88,735	86,000
Total Non-Interest Income	4,179	3,638	3,539	5,406	5,108	4,553	2,875	2,721	16,762	15,257	14,575
Total Non-Interest Expense	16,500	16,307	16,525	18,422	15,002	16,414	14,737	12,019	67,754	58,172	56,259
Income Before Income Taxes	15,755	13,581	12,895	12,250	11,070	12,041	11,501	11,208	54,481	45,820	44,316
Provision for Income Taxes	11,974	5,000	4,708	4,429	3,389	4,503	4,169	4,036	26,111	16,097	16,924
Net Income	$ 3,781	$ 8,581	$ 8,187	$ 7,821	$ 7,681	$ 7,538	$ 7,332	$ 7,172	$ 28,370	$ 29,723	$ 27,392
Basic Earnings Per Common Share (in dollars per share)	$ 4.64	$ 10.59	$ 10.12	$ 9.68	$ 9.62	$ 9.51	$ 9.25	$ 9.06	$ 35.03	$ 37.44	$ 34.82

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Subsequent Events (Details) - Bank of Rio Vista [Member] - Subsequent Event [Member]	Feb. 27, 2018 USD ($) shares
Subsequent Event [Line Items]
Number of additional shares acquired (in shares)	8
Value of additional shares acquired | $	$ 95,200
Total ownership of shares (in shares)	1,586
Percentage of ownership of common shares outstanding	39.65%