FARMERS & MERCHANTS BANCORP INC Fair Value Disclosure
Note 20 - Fair Value of Financial Instruments
Fair values of financial instruments are management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial
assets including deferred tax assets, Bank premises and equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.
Fair Value Measurements
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.
Available-for-sale securities - When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.
Interest rate swaps classified as Level 2 are valued using the prices obtained from an independent pricing service and not adjusted. The fair value of interest rate swaps with a positive fair value are reported as assets while interest rate swaps with a negative fair value are reported as liabilities.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds four local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
The estimated fair values, and related carrying or notional amounts, for on and off balance sheet financial instruments not carried at fair value as of December 31, 2025 and 2024, are reflected below.
|
|
(In Thousands) |
|
||||||||||||||||||||||||||||||||||||||
|
|
December 31, 2025 |
|
|
|
December 31, 2024 |
|
||||||||||||||||||||||||||||||||||
|
|
Carrying |
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Amount |
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
Amount |
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents |
|
$ |
97,718 |
|
|
$ |
97,718 |
|
|
$ |
97,718 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
176,351 |
|
|
$ |
176,351 |
|
|
$ |
176,351 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest-bearing time deposits |
|
|
1,498 |
|
|
|
1,491 |
|
|
|
- |
|
|
|
1,491 |
|
|
|
- |
|
|
|
|
2,482 |
|
|
|
2,472 |
|
|
|
- |
|
|
|
2,472 |
|
|
|
- |
|
Other securities |
|
|
13,032 |
|
|
|
13,032 |
|
|
|
- |
|
|
|
- |
|
|
|
13,032 |
|
|
|
|
14,400 |
|
|
|
14,400 |
|
|
|
- |
|
|
|
- |
|
|
|
14,400 |
|
Loans held for sale |
|
|
3,934 |
|
|
|
3,934 |
|
|
|
- |
|
|
|
- |
|
|
|
3,934 |
|
|
|
|
2,996 |
|
|
|
2,996 |
|
|
|
- |
|
|
|
- |
|
|
|
2,996 |
|
Loans, net |
|
|
2,685,990 |
|
|
|
2,653,152 |
|
|
|
- |
|
|
|
- |
|
|
|
2,653,152 |
|
|
|
|
2,536,043 |
|
|
|
2,485,297 |
|
|
|
- |
|
|
|
- |
|
|
|
2,485,297 |
|
Interest receivable |
|
|
13,621 |
|
|
|
13,621 |
|
|
|
- |
|
|
|
- |
|
|
|
13,621 |
|
|
|
|
12,657 |
|
|
|
12,657 |
|
|
|
- |
|
|
|
- |
|
|
|
12,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Noninterest-bearing deposits |
|
$ |
527,327 |
|
|
$ |
527,327 |
|
|
$ |
527,327 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
516,904 |
|
|
$ |
516,904 |
|
|
$ |
516,904 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest-bearing deposits |
|
|
1,605,623 |
|
|
|
1,605,435 |
|
|
|
- |
|
|
|
- |
|
|
|
1,605,435 |
|
|
|
|
1,522,280 |
|
|
|
1,521,097 |
|
|
|
- |
|
|
|
- |
|
|
|
1,521,097 |
|
Time deposits |
|
|
597,785 |
|
|
|
596,189 |
|
|
|
- |
|
|
|
- |
|
|
|
596,189 |
|
|
|
|
647,581 |
|
|
|
644,849 |
|
|
|
- |
|
|
|
- |
|
|
|
644,849 |
|
Total Deposits |
|
|
2,730,735 |
|
|
|
2,728,951 |
|
|
|
527,327 |
|
|
|
- |
|
|
|
2,201,624 |
|
|
|
|
2,686,765 |
|
|
|
2,682,850 |
|
|
|
516,904 |
|
|
|
- |
|
|
|
2,165,946 |
|
Fed funds purchased and |
|
|
37,718 |
|
|
|
37,718 |
|
|
|
- |
|
|
|
- |
|
|
|
37,718 |
|
|
|
|
27,218 |
|
|
|
27,218 |
|
|
|
- |
|
|
|
- |
|
|
|
27,218 |
|
Federal Home Loan Bank |
|
|
227,377 |
|
|
|
228,232 |
|
|
|
- |
|
|
|
- |
|
|
|
228,232 |
|
|
|
|
246,056 |
|
|
|
245,373 |
|
|
|
- |
|
|
|
- |
|
|
|
245,373 |
|
Subordinated notes |
|
|
34,933 |
|
|
|
33,834 |
|
|
|
- |
|
|
|
33,834 |
|
|
|
- |
|
|
|
|
34,818 |
|
|
|
31,983 |
|
|
|
- |
|
|
|
31,983 |
|
|
|
- |
|
Interest payable |
|
|
5,950 |
|
|
|
5,950 |
|
|
|
- |
|
|
|
- |
|
|
|
5,950 |
|
|
|
|
6,618 |
|
|
|
6,618 |
|
|
|
- |
|
|
|
- |
|
|
|
6,618 |
|
The following tables presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024 segregated by level within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|||
|
|
Active Markets |
|
|
Observable |
|
|
Observable |
|
|||
|
|
for Identical |
|
|
Inputs |
|
|
Inputs |
|
|||
December 31, 2025 |
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||
Assets-(Securities Available-for-Sale) |
|
|
|
|
|
|
|
|
|
|||
U.S. Treasury |
|
$ |
89,853 |
|
|
$ |
- |
|
|
$ |
- |
|
U.S. Government agencies |
|
|
30,080 |
|
|
|
101,881 |
|
|
|
- |
|
Mortgage-backed securities |
|
|
- |
|
|
|
143,382 |
|
|
|
- |
|
State and local governments |
|
|
1,483 |
|
|
|
53,938 |
|
|
|
1,455 |
|
Total Securities Available-for-Sale |
|
$ |
121,416 |
|
|
$ |
299,201 |
|
|
$ |
1,455 |
|
Interest rate swaps liabilities |
|
$ |
- |
|
|
$ |
(1,555 |
) |
|
$ |
- |
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|||
|
|
Active Markets |
|
|
Observable |
|
|
Observable |
|
|||
|
|
for Identical |
|
|
Inputs |
|
|
Inputs |
|
|||
December 31, 2024 |
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||
Assets-(Securities Available-for-Sale) |
|
|
|
|
|
|
|
|
|
|||
U.S. Treasury |
|
$ |
105,999 |
|
|
$ |
- |
|
|
$ |
- |
|
U.S. Government agencies |
|
|
20,035 |
|
|
|
115,131 |
|
|
|
- |
|
Mortgage-backed securities |
|
|
- |
|
|
|
120,631 |
|
|
|
- |
|
State and local governments |
|
|
- |
|
|
|
63,133 |
|
|
|
1,627 |
|
Total Securities Available-for-Sale |
|
$ |
126,034 |
|
|
$ |
298,895 |
|
|
$ |
1,627 |
|
Interest rate swaps liabilities |
|
$ |
- |
|
|
$ |
(976 |
) |
|
$ |
- |
|
The following tables present the changes in the Level 3 fair value category of which unobservable inputs are relied upon for the years ended December 31, 2025 and December 31, 2024:
|
|
(In Thousands) |
|
|||||||||
|
|
Fair Value Measurements Using Significant |
|
|||||||||
|
|
Unobservable Inputs (Level 3) |
|
|||||||||
|
|
State and Local |
|
|
State and Local |
|
|
State and Local |
|
|||
|
|
Governments |
|
|
Governments |
|
|
Governments |
|
|||
|
|
Tax-Exempt |
|
|
Taxable |
|
|
Total |
|
|||
Balance at January 1, 2025 |
|
$ |
353 |
|
|
$ |
1,274 |
|
|
$ |
1,627 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
(2 |
) |
|
Payments & Maturities |
|
|
(170 |
) |
|
|
- |
|
|
|
(170 |
) |
Balance at December 31, 2025 |
|
$ |
185 |
|
|
$ |
1,270 |
|
|
$ |
1,455 |
|
|
|
(In Thousands) |
|
|||||||||
|
|
Fair Value Measurements Using Significant |
|
|||||||||
|
|
Unobservable Inputs (Level 3) |
|
|||||||||
|
|
State and Local |
|
|
State and Local |
|
|
State and Local |
|
|||
|
|
Governments |
|
|
Governments |
|
|
Governments |
|
|||
|
|
Tax-Exempt |
|
|
Taxable |
|
|
Total |
|
|||
Balance at January 1, 2024 |
|
$ |
1,188 |
|
|
$ |
1,272 |
|
|
$ |
2,460 |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
|
Payments & Maturities |
|
|
(835 |
) |
|
|
- |
|
|
|
(835 |
) |
Balance at December 31, 2024 |
|
$ |
353 |
|
|
$ |
1,274 |
|
|
$ |
1,627 |
|
Most of the Company’s available for sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.
There were no securities that transferred in or out of Level 3 during 2025 or 2024.
The Company also has assets that, under certain conditions, are subject to measurement at fair value on a nonrecurring basis. At December 31, 2025 and 2024, such assets consist of collateral dependent loans and loan servicing rights. Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that have expected credit losses. The Company may also estimate the fair value of certain nonperforming loans using a discounted cash flow method of future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams and estimated realizable values of available collateral (typically based on outside appraisals).
At December 31, 2025, collateral dependent loans categorized as Level 3 were $860 thousand and $3.0 million at December 31, 2024. The specific allocation for collateral dependent loans was $145 thousand as of December 31, 2025 and $52 thousand as of December 31, 2024. The specific allocations are accounted for in the allowance for credit losses (see Note 4).
During 2024 and 2023, impairment was recognized on loan servicing rights based upon the independent third party’s quarterly valuations. A valuation allowance was established by strata to quantify the likely impairment of the value of the loan servicing rights to the Company. If the carrying amount of an individual strata exceeds the fair value, impairment was recorded on that strata so the servicing asset was carried at fair value.
The following tables present assets measured at fair value on a nonrecurring basis:
|
|
(In Thousands) |
|
|||||||||||||
|
|
Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2025 |
|
|||||||||||||
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
||||
|
|
|
|
|
Markets for |
|
|
Significant |
|
|
Significant |
|
||||
|
|
Balance at |
|
|
Identical |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
||||
|
|
December 31, 2025 |
|
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Collateral dependent |
|
$ |
715 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
715 |
|
Loan servicing |
|
|
1,556 |
|
|
|
- |
|
|
|
- |
|
|
|
1,556 |
|
|
|
(In Thousands) |
|
|||||||||||||
|
|
Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
||||
|
|
|
|
|
Markets for |
|
|
Significant |
|
|
Significant |
|
||||
|
|
Balance at |
|
|
Identical |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
||||
|
|
December 31, 2024 |
|
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Collateral dependent |
|
$ |
2,988 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,988 |
|
Loan servicing |
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2025 |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
State and local |
|
$ |
1,455 |
|
|
|
Credit strength of underlying project or entity / |
|
3.26-3.75% |
|
Collateral dependent |
|
|
715 |
|
|
|
|
20.00-50.00% |
||
Loan servicing |
|
|
1,556 |
|
|
|
Constant prepayment rate and probability of default / |
|
22.72-583.71% |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2024 |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
State and local |
|
$ |
1,627 |
|
|
|
Credit strength of underlying project or entity / |
|
-3.61-4.52% |
|
Collateral dependent |
|
|
2,988 |
|
|
|
|
20.00-30.00% |
||
Loan servicing |
|
|
(4 |
) |
|
|
Constant prepayment rate and probability of default / |
|
9.36-618.70% |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 22, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.