UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period March 31, 2025
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 001-38084
FARMERS & MERCHANTS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Ohio
34-1469491
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
307 North Defiance Street, Archbold, Ohio
43502
(Address of principal executive offices)
(Zip Code)
(419) 446-2501
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of Each Exchange
Common Stock, No Par Value
FMAO
NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
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 Exchange Act).
Yes ☐ No ☒
Indicate the number of shares of each of the issuers’ classes of common stock, as of the latest practicable date:
13,718,086
Class
Outstanding as of May 1, 2025
1
Washington, D.C. 20549
FORM 10Q
INDEX
Form 10-Q Items
Page
PART I.
FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2025 and December 31, 2024
Condensed Consolidated Statements of Income - Three Months Ended March 31, 2025 and March 31, 2024
5
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2025 and March 31, 2024
7
Condensed Consolidated Statements of Changes to Stockholders’ Equity - Three Months Ended March 31, 2025 and March 31, 2024
8
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2025 and March 31, 2024
10
Notes to Condensed Consolidated Financial Statements
12
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
48
Item 3.
Qualitative and Quantitative Disclosures About Market Risk
66
Item 4.
Controls and Procedures
67
PART II.
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
69
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
70
Signatures
71
101.INS
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (1)
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. (1)
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, 2025
December 31, 2024
(Unaudited)
Assets
Cash and due from banks
$
172,612
174,855
Federal funds sold
425
1,496
Total cash and cash equivalents
173,037
176,351
Interest-bearing time deposits
1,992
2,482
Securities - available-for-sale
438,568
426,556
Other securities, at cost
14,062
14,400
Loans held for sale
2,331
2,996
Loans, net of allowance for credit losses of $26,352 and $25,826
2,555,552
2,536,043
Premises and equipment
33,163
33,828
Goodwill
86,358
Loan servicing rights
5,805
5,656
Bank owned life insurance
35,116
34,872
Other assets
42,802
45,181
Total Assets
3,388,786
3,364,723
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing
502,318
516,904
Interest-bearing
NOW accounts
874,881
850,462
Savings
696,635
671,818
Time
626,450
647,581
Total deposits
2,700,284
2,686,765
Securities sold under agreements to repurchase
27,258
27,218
Federal Home Loan Bank (FHLB) advances
245,474
246,056
Subordinated notes, net of unamortized issuance costs
34,846
34,818
Dividend payable
2,997
Accrued expenses and other liabilities
33,326
31,659
Total liabilities
3,044,185
3,029,512
Commitments and Contingencies
Stockholders' Equity
Common stock - No par value 20,000,000 shares authorized; issued 14,564,425 shares 3/31/25 and 12/31/24; outstanding 13,718,336 shares 3/31/25 and 13,699,536 shares 12/31/24
135,407
135,565
Treasury stock - 846,089 shares 3/31/25 and 864,889 shares 12/31/24
(10,768
)
(10,985
Retained earnings
240,079
235,854
Accumulated other comprehensive loss
(20,117
(25,223
Total stockholders' equity
344,601
335,211
Total Liabilities and Stockholders' Equity
See Notes to Condensed Consolidated Unaudited Financial Statements.
Note: The December 31, 2024, Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of that date.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Three Months Ended
March 31, 2024
Interest Income
Loans, including fees
37,072
35,200
Debt securities:
U.S. Treasury and government agencies
2,097
1,045
Municipalities
382
394
Dividends
338
333
-
Other
1,113
1,675
Total interest income
41,002
38,654
Interest Expense
13,988
15,279
Federal funds purchased and securities sold under agreements to repurchase
271
284
Borrowed funds
2,550
2,689
Subordinated notes
Total interest expense
17,093
18,536
Net Interest Income - Before Provision for Credit Losses
23,909
20,118
Provision for (Recovery of) Credit Losses - Loans
811
(289
Recovery of Credit Losses - Off Balance Sheet Credit Exposures
(260
(266
Net Interest Income - After Provision for Credit Losses
23,358
20,673
Noninterest Income
Customer service fees
381
598
Other service charges and fees
1,124
1,057
Interchange income
1,421
1,429
Loan servicing income
762
539
Net gain on sale of loans
107
Increase in cash surrender value of bank owned life insurance
244
216
Loss on sale of other assets owned
(54
Total noninterest income
4,162
3,946
Noninterest Expense
Salaries and wages
7,878
7,846
Employee benefits
2,404
2,171
Net occupancy expense
1,199
1,027
Furniture and equipment
1,278
1,353
Data processing
557
500
Franchise taxes
397
555
ATM expense
491
473
Advertising
503
530
FDIC assessment
465
580
Servicing rights amortization - net
127
168
Loan expense
228
229
Consulting fees
745
186
Professional fees
559
445
Intangible asset amortization
Other general and administrative
1,484
1,333
Total noninterest expense
18,760
17,841
(continued)
(Unaudited) (Continued)
Income Before Income Taxes
8,760
6,778
Income Taxes
1,808
1,419
Net Income
6,952
5,359
Basic Earnings Per Share
0.51
0.39
Diluted Earnings Per Share
Dividends Declared
0.22125
0.22
See Notes to Condensed Consolidated Unaudited Financial Statements
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive Income (Loss) (Net of Tax):
Net unrealized gain (loss) on available-for-sale securities
6,464
(1,995
Reclassification adjustment for realized loss on sale of available-for-sale securities
Tax expense (benefit)
1,358
(418
Other comprehensive income (loss)
5,106
(1,577
Comprehensive Income
12,058
3,782
Farmers & Merchants Bancorp, Inc. and Subsidiaries
CONDENSED Consolidated StatementS of Changes TO Stockholders’ Equity
For the THREE Months Ended March 31, 2025
(IN THOUSANDS, Except Per Share Data)
Accumulated
Shares of
Total
Common
Treasury
Retained
Comprehensive
Stockholders'
Stock
Earnings
Loss
Equity
Balance - January 1, 2025
13,699,536
Net income
Other comprehensive income
Purchase of treasury stock
(981
(23
Issuance of 20,731 shares of restricted stock (Net of forfeitures - 950)
19,781
(510
240
270
Stock-based compensation expense
352
Cash dividends declared - $0.22125 per share
(2,997
Balance - March 31, 2025
13,718,336
For the THREE months Ended March 31, 2024
Balance - January 1, 2024
13,664,641
135,515
(11,040
221,080
(29,012
316,543
Other comprehensive loss
(4,490
(94
Issuance of 23,369 shares of restricted stock (Net of forfeitures - 250)
23,119
(467
283
184
434
Cash dividends declared - $0.22 per share
(2,975
Balance - March 31, 2024
13,683,270
135,482
(10,851
223,648
(30,589
317,690
9
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Adjustments to reconcile net income to net cash from operating activities:
Depreciation
986
990
Amortization of premiums on available-for-sale securities, net
93
321
Capitalized additions to servicing rights
(276
(75
Servicing rights amortization and impairment
Amortization of core deposit intangible
414
Amortization of customer list intangible
31
Net accretion of fair value adjustments
(590
(681
Amortization of subordinated note issuance costs
28
29
Provision for (recovery of) credit losses - loans
Recovery of credit losses - off balance sheet credit exposures
Gain on sale of loans held for sale
(284
(107
Originations of loans held for sale
(12,958
(7,559
Proceeds from sale of loans held for sale
13,907
6,832
(Gain) loss on derivatives
(8
14
54
(244
(216
Change in other assets and other liabilities, net
1,874
(3,916
Net cash provided by operating activities
11,009
1,483
Cash Flows from Investing Activities
Activity in available-for-sale securities:
Maturities, prepayments and calls
8,175
3,909
Purchases
(13,816
(316
Activity in other securities, at cost:
(472
(535
Proceeds from redemption of FHLB stock
810
548
Change in interest-bearing time deposits
490
Additions to premises and equipment
(386
(219
Net (increase) decrease on loan originations and principal collections
(19,079
38,960
Net cash (used in) provided by investing activities
(24,278
42,352
Cash Flows from Financing Activities
Net change in deposits
13,519
13,919
Net change in federal funds purchased and securities sold under agreements to repurchase
40
Repayment of FHLB advances
(585
(9,105
Cash dividends paid on common stock
(2,996
(2,974
Net cash provided by financing activities
9,955
1,746
Net (Decrease) Increase in Cash and Cash Equivalents
(3,314
45,581
Cash and Cash Equivalents - Beginning of year
142,201
Cash and Cash Equivalents - End of period
187,782
Supplemental Information
Supplemental cash flow information:
Interest paid
17,567
18,554
Income taxes paid
2,210
Supplemental noncash disclosures:
Cash dividends declared not paid
2,975
11
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION AND OTHER
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X; accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that are expected for the year ended December 31, 2025. The condensed consolidated balance sheet of the Company as of December 31, 2024, has been derived from the audited consolidated balance sheet of the Company as of that date. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Farmers & Merchants Bancorp, Inc. (the "Company")'s Annual Report on Form 10-K for the year ended December 31, 2024.
The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The Company’s principal source of revenue is interest income from loans and investment securities. The Company also earns noninterest income from various banking and financial services offered primarily through Farmers & Merchants State Bank (the "Bank"). Interest income is primarily recognized on an accrual basis according to nondiscretionary formulas written in contracts, such as loan agreements or investment security contracts. The Company also earns noninterest income from various banking and financial services provided to business and consumer clients such as deposit account, debit card, and mortgage banking services. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.
Reclassification
Certain amounts within the noninterest income and noninterest expense section of the Company's consolidated statements of income have been reclassified to conform with current year presentation to provide additional information to the reader.
NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE
On October 1, 2022, the Company acquired Peoples-Sidney Financial Corporation (PPSF), the bank holding company for Peoples Federal Savings and Loan Association, a community bank with three full-service offices in Sidney, Anna and Jackson Center, Ohio, in addition to a separate drive-thru location in Sidney, Ohio. PPSF shareholders had the opportunity to elect to receive either 0.6597 shares of Farmers & Merchants Bancorp, Inc. (FMAO) stock or $24.00 per share in cash for each PPSF share owned, subject to a requirement under the Merger Agreement that the minimum number of PPSF shares exchanged for FMAO shares in the merger was no less than 758,566. Fractional shares of FMAO common stock were not issued in respect of fractional interests arising from the merger but were paid in cash pursuant to the merger agreement. PPSF had 1,167,025 shares outstanding on October 1, 2022. The share price of FMAO stock on October 1, 2022 was $26.87. Total consideration for the acquisition was approximately $23.2 million of which $9.8 million was in cash and $13.4 million in stock. As a result of the acquisition, the Company increased its deposit base in Sidney and the greater Shelby County and reduced transaction costs. The Company has reduced costs through economies of scale.
Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $23.2 million, $6.0 million has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $5.9 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Peoples Federal Savings and Loan Association. Of that total amount, none of the purchase price was deductible for tax purposes.
Changes in accretable yield, or income expected to be collected, are as follows:
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
Three Months Ended March 31, 2025
Three Months Ended March 31, 2024
Beginning Balance
335
566
Additions
Accretion
(58
Reclassification from nonaccretable difference
Disposals
Ending Balance
277
508
On October 1, 2021, the Company acquired Perpetual Federal Savings Bank, (PFSB), a community bank with one full-service office in Urbana, Ohio. Shareholders of PFSB elected to receive either 1.7766 shares of FMAO stock or $41.20 per share in cash for each PFSB share owned, subject to adjustment based upon 1,833,999 shares of FMAO to be issued in the merger. PFSB had 2,470,032 shares outstanding on October 1, 2021. The share price of Farmers & Merchants Bancorp, Inc. (FMAO) stock on October 1, 2021 was $22.40. Total consideration for the acquisition was approximately $100.3 million consisting of $59.2 million in cash and $41.1 million in stock.
Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $100.3 million, $668 thousand has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $25.2 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Perpetual Federal Savings Bank. Of that total amount, none of the purchase price was deductible for tax purposes.
1,453
2,795
(336
(335
1,117
2,460
On April 30, 2021, the Company acquired Ossian Financial Services, Inc., (OFSI), the bank holding company for Ossian State Bank, a community bank based in Ossian, Indiana. Ossian State Bank operated two full-service offices in the northeast Indiana communities of Ossian and Bluffton. Shareholders of OFSI received $67.71 in cash for each share. OFSI had 295,388 shares outstanding on April 30, 2021. Total consideration for the acquisition was approximately $20.0 million in cash.
Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $20.0 million, $980.2 thousand has been allocated to core deposit intangible included in other assets and will be amortized over seven years on a straight line basis. Goodwill of $7.9 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Ossian State Bank and is deductible for tax purposes over 15 years.
13
294
(40
(44
250
On January 1, 2019, the Company acquired Limberlost Bancshares, Inc. (“Limberlost”), the bank holding company for Bank of Geneva, a community bank based in Geneva, Indiana. Bank of Geneva operated six full-service offices in the northeast Indiana communities of Geneva, Berne, Decatur, Monroe, Portland and Monroeville. Shareholders of Limberlost received 1,830 shares of FMAO common stock and $8,465.00 in cash for each share. Limberlost had 1,000 shares outstanding on January 1, 2019. The share price of FMAO stock on January 1, 2019 was $38.49. Total consideration for the acquisition was approximately $78.9 million consisting of $8.5 million in cash and $70.4 million in stock.
Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $78.9 million, $3.9 million has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $43.3 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Bank of Geneva. Of that total amount, none of the purchase price was deductible for tax purposes.
363
(109
254
As mentioned previously, the acquisition of Bank of Geneva resulted in the recognition of $3.9 million in core deposit intangible assets, the acquisition of Ossian State Bank resulted in the recognition of $980.2 thousand in core deposit intangible assets, the acquisition of Perpetual Federal Savings Bank resulted in the recognition of $668.0 thousand in core deposit intangible assets and the acquisition of Peoples Federal Savings and Loan resulted in the recognition of $6.0 million in core deposit intangible assets which are all being amortized over its remaining economic useful life of 7 years on a straight line basis. Core deposit intangible is included in other assets on the condensed consolidated balance sheets.
The amortization expense of the core deposit intangible for the three months ended March 31, 2024 was $414 thousand. Of the approximately $1.7 million to be expensed in 2025, $414 thousand has been expensed for the three months ended March 31, 2025. Annual amortization of core deposit intangible assets is as follows:
Geneva
Ossian
Perpetual
Peoples
2025
560
140
95
861
1,656
2026
1,096
2027
2028
47
73
981
2029
646
467
358
4,090
5,475
On November 16, 2020, FM Investment Services, a division of the Bank, purchased the assets and clients of Adams County Financial Resources (ACFR), a full-service registered investment advisory firm located in Geneva, Indiana. As of November 30, 2020, ACFR had approximately $83 million of assets under management and over 450 clients.
Total consideration for the purchase was $825 thousand which consisted of 40,049 shares of stock. Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $825 thousand, $800 thousand has been allocated to customer list intangible, included in other assets, to be amortized over 6.5 years on a straight line basis.
The amortization expense of the customer list intangible for the three months ended March 31, 2024 was $31 thousand. Of the $123 thousand to be expensed in 2025, $31 thousand has been expensed for the three months ended March 31, 2025. Annual amortization expense of customer list intangible is as follows:
Adams County Financial Resources
123
15
NOTE 3 SECURITIES
Mortgage-backed securities, as shown in the following tables, are all government sponsored enterprises. The amortized cost and fair value of securities, with gross unrealized gains and losses at March 31, 2025 and December 31, 2024, are as follows:
Amortized
Gross Unrealized
Fair
Cost
Gains
Losses
Value
Available-for-Sale:
U.S. Treasury
111,090
(4,235
106,883
U.S. Government agencies
145,369
23
(7,687
137,705
Mortgage-backed securities
140,934
(10,242
130,878
State and local governments
66,639
32
(3,569
63,102
Total available-for-sale securities
464,032
269
(25,733
111,397
17
(5,415
105,999
144,660
(9,494
135,166
133,268
(12,654
120,631
69,159
(4,427
64,760
458,484
62
(31,990
Investment securities will at times depreciate to an unrealized loss position. The Company utilizes the following criteria to assess whether the unrealized loss requires an allowance for credit losses on investment securities. No one item by itself will necessarily signal that an allowance for credit losses on investment securities should be established.
If the unrealized loss is determined to be the result of credit quality factors, the present value of the cash flows expected to be collected is compared to the amortized cost basis. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Adjustments to the allowance are recorded in the Company's consolidated statement of income as a component of the provision for credit losses. The Company did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality.
16
Information pertaining to securities with gross unrealized losses at March 31, 2025 and December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:
Less Than Twelve Months
Twelve Months & Over
(179
35,601
(4,056
62,680
98,281
131,113
(147
31,890
(10,095
66,396
98,286
(99
6,316
(3,470
53,201
59,517
(425
73,807
(25,308
313,390
387,197
31,533
(4,948
62,151
93,684
131,335
(668
51,236
(11,986
66,877
118,113
(224
8,631
(4,203
53,091
61,722
(1,359
91,400
(30,631
313,454
404,854
Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.
There were no gross realized gains or losses for the three months ended March 31, 2025 and March 31, 2024.
Net realized gains (losses) on sales and related tax expense (benefit) is a reclassification out of accumulated other comprehensive income (loss). The net realized gains (losses) are included in net gain (loss) on sale of available-for-sale securities and the related tax expense (benefit) is included in income taxes in the condensed consolidated statements of income and comprehensive income.
The amortized cost and fair value of debt securities at March 31, 2025, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Fair Value
One year or less
61,107
60,144
After one year through five years
244,691
231,222
After five years through ten years
16,791
15,829
After ten years
509
495
323,098
307,690
Investments with a carrying value of $242.1 million and $221.9 million at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public deposits and securities sold under repurchase agreements. Investments with a carrying value of $29.8 million and $29.9 million were pledged to the Federal Reserve's Discount Window to provide additional borrowing capacity at March 31, 2025 and December 31, 2024, respectively.
Other securities include Federal Home Loan Bank of Cincinnati and Indianapolis stock in the amount of $14.1 million as of March 31, 2025 and $14.4 million as of December 31, 2024.
18
NOTE 4 LOANS
Loan balances as of March 31, 2025 and December 31, 2024 are summarized below:
Loans:
Consumer Real Estate
523,383
520,114
Agricultural Real Estate
215,898
216,401
Agricultural
153,607
152,080
Commercial Real Estate
1,325,698
1,310,811
Commercial and Industrial
278,254
275,152
Consumer
60,115
63,009
24,985
24,978
2,581,940
2,562,545
Less: Net deferred loan fees and costs
(1,748
(1,750
2,580,192
2,560,795
Less: Allowance for credit losses
(26,352
(25,826
Plus: Basis adjustment related to fair value hedges
1,712
1,074
Loans - Net
Other loans primarily fund public improvements in the Bank’s service area.
The break out of fixed rate loans and variable rate loans by portfolio segment is as follows as of March 31, 2025 and December 31, 2024:
Fixed
Variable
291,720
231,663
305,062
215,052
113,451
102,447
118,808
97,593
50,487
103,120
54,099
97,981
890,046
435,652
934,197
376,614
123,414
154,840
148,542
126,610
60,084
62,977
15,427
9,558
15,270
9,708
Variable rate loans that have reached ceiling or floor limits are reported as fixed rate loans until such time as their rates adjust away from those limits.
As of March 31, 2025 and December 31, 2024 one to four family residential mortgage loans amounting to $188.1 million and $190.1 million, respectively, and HELOC loans amounting to $12.0 million and $11.9 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank "FHLB". The Bank has also pledged eligible commercial real estate loans of $333.2 million and $369.5 million as of March 31, 2025 and December 31, 2024, respectively, to the FHLB. During the second quarter of 2024, the Bank began pledging eligible multi-family real estate loans to the FHLB which amounted to $49.0 million and $47.7 million as of March 31, 2025 and December 31, 2024, respectively.
19
The following table represents the contractual aging at amortized cost in past due loans by portfolio segment as of March 31, 2025 and December 31, 2024:
30-59 Days Past Due
60-89 Days Past Due
Greater Than 90 Days
Total Past Due
Current
Total Financing Receivables
2,530
46
1,293
3,869
519,835
523,704
79
125
204
215,452
215,656
1,436
1,515
152,406
153,921
1,322,762
1,323,262
49
77
277,866
277,943
178
33
217
60,504
60,721
4,272
52
2,058
6,382
2,573,810
2,533
547
3,639
516,753
520,392
651
215,486
216,137
44
152,258
152,381
141
360
1,307,906
1,308,461
122
57
274,635
274,819
365
446
63,181
63,627
3,769
712
5,598
2,555,197
20
The following tables present the amortized cost of nonaccrual loans by portfolio segment as of March 31, 2025 and as of December 31, 2024:
Nonaccrual
Loans Past
With No
Due Over
Allowance
89 Days
for Credit Loss
Still Accruing
2,561
3,289
463
90
552
Commercial & Industrial
3,764
4,492
1,637
2,369
130
118
2,392
3,124
The Company recognized interest income of $20 thousand for the three months ended March 31, 2025 on nonaccrual loans. The Company recognized interest income of $24 thousand and $93 thousand on nonaccrual loans for the three and twelve months ending December 31, 2024.
Loans are placed on nonaccrual status in the event that the loan is in past due status for more than 90 days or payment in full of principal and interest is not expected.
Following are the characteristics and underwriting criteria for each portfolio segment of loan the Bank offers:
Consumer Real Estate: Purchase, refinance, or equity financing of one to four family owner occupied dwelling. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and other factors.
Agricultural Real Estate: Purchase of farm real estate or for permanent improvements to the farm real estate. Cash flow from the farm operation is the repayment source and is therefore subject to the financial success of the farm operation.
Agricultural: Loans for the production and housing of crops, fruits, vegetables, and livestock or to fund the purchase or re-finance of capital assets such as machinery and equipment and livestock. The production of crops and livestock is especially vulnerable to commodity prices and weather. The vulnerability to commodity prices is offset by the farmer’s ability to hedge their position by the use of the future contracts. The risk related to weather is often mitigated by requiring crop insurance.
Commercial Real Estate: Construction, purchase, and refinance of business purpose real estate. Risks include potential construction delays and overruns, vacancies, collateral value subject to market value fluctuations, interest rate, market demands, borrower’s ability to repay in orderly fashion, and others. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer’s ability to repay in a changing rate environment before granting loan approval.
21
Commercial and Industrial: Loans to proprietorships, partnerships, or corporations to provide temporary working capital and seasonal loans as well as long term loans for capital asset acquisition. Risks include adequacy of cash flow, reasonableness of projections, financial leverage, economic trends, management ability and estimated capital expenditures during the fiscal year. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer's ability to repay in a changing rate environment before granting loan approval.
Consumer: Funding for individual and family purposes. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and other factors.
Other: Primarily funds public improvements in the Bank’s service area. Repayment ability is based on the continuance of the taxation revenue as the source of repayment.
The Bank uses a nine tier risk rating system to grade its loans. The grade of a loan may change during the life of the loan.
The risk ratings are described as follows.
Loans may be rated 3 when there is no recent information on which to base a current risk evaluation and the following conditions apply:
At inception, the loan was properly underwritten and did not possess an unwarranted level of credit risk;
22
The following table represents the risk category of loans at amortized cost, by portfolio segment and year of origination, based on the most recent analysis performed as of March 31, 2025 and December 31, 2024:
Revolving
Loans
Term Loans Amortized Cost Basis by Origination Year
Term
Converted
Grand
2024
2023
2022
2021
Prior
Cost Basis
to Term
Risk Rating
Pass (1-4)
15,212
38,267
59,741
77,759
88,204
175,384
454,567
64,194
305
519,066
Special Mention (5)
36
135
117
288
307
Substandard (6)
143
233
523
1,280
1,903
4,082
234
4,331
Doubtful (7)
Total Consumer Real Estate
38,410
59,974
78,318
89,619
177,404
458,937
64,447
320
Gross charge-offs YTD
6,366
22,431
26,912
33,661
22,633
97,422
209,425
88
209,513
5,669
371
91
6,131
Total Agricultural Real Estate
28,100
34,032
97,525
215,568
9,944
12,389
9,423
11,856
4,985
6,327
54,924
94,013
148,937
373
379
3,116
3,495
1,471
1,489
Total Agricultural
9,441
12,229
4,991
55,321
98,600
24
52,969
145,421
204,446
404,021
214,795
249,291
1,270,943
1,356
12,514
313
1,944
16,127
34,079
1,347
714
36,192
Total Commercial Real Estate
54,325
145,473
238,525
417,882
215,108
251,949
9,415
28,287
46,818
35,844
13,786
10,925
145,075
127,302
78
272,455
182
386
695
480
1,175
38
327
37
430
3,883
4,313
Total Commercial & Industrial
28,325
47,272
14,005
11,339
146,200
131,665
25
600
15,666
8,719
Total Other
2020
40,257
64,316
79,503
89,800
74,996
106,007
454,879
61,097
237
516,213
551
119
707
726
239
529
786
1,040
3,202
236
3,453
40,400
64,555
80,069
91,137
75,461
107,166
458,788
61,352
252
23,817
28,088
34,469
22,983
23,639
76,964
209,960
92
210,052
5,696
6,072
29,513
34,840
76,982
216,045
14,915
10,500
14,381
5,616
3,204
3,911
52,527
98,283
150,810
30
51
50
1,470
1,520
10,534
5,624
3,233
52,598
99,783
26
128,608
200,192
413,106
218,309
110,435
188,239
1,258,889
12,590
1,352
753
14,695
34,299
578
34,877
234,491
425,696
111,787
189,570
31,933
54,581
39,665
15,047
13,480
1,294
156,000
113,446
222
269,668
137
188
416
767
459
1,226
39
348
444
3,481
3,925
31,972
55,066
39,694
15,235
13,506
1,738
157,211
117,386
101
106
5,068
4,081
27
For consumer, the Company also evaluates credit quality based on the aging status of the loan, as was previously stated, and by payment performance. Consumer loans are placed on nonperforming status in the event that the loan is in past due status for more than 90 days or payment in full of principal and interest is not expected. The following tables present the amortized cost based on payment performance and assigned risk grading as of March 31, 2025 and December 31, 2024 by year of origination.
Payment Performance
Performing
5,760
11,803
12,036
23,711
4,923
2,184
60,417
60,651
Nonperforming
Total Consumer
11,826
12,038
23,741
4,935
2,187
60,487
43
162
310
13,437
13,521
27,264
5,917
2,310
582
63,031
477
63,508
35
13,477
27,304
5,952
2,314
63,150
201
346
The following tables present collateral-dependent loans grouped by collateral as of March 31, 2025 and December 31, 2024:
Collateral
Dependent Loans
3,123
41
4,113
2,384
2,988
Modification programs focus on payment pattern changes and/or modified maturity dates with most receiving a combination of the two concessions. The modifications normally do not result in the contractual forgiveness of principal. During the three months ended March 31, 2025, there were no new loan modifications to borrowers experiencing financial difficulty.
During the three months ended March 31, 2024, no new loans were considered a modification to a borrower experiencing financial difficulty. One modified loan previous to 2024 paid off during the first quarter of 2024.
For the three months ended March 31, 2025 and 2024, there were no modifications to borrowers experiencing financial difficulty that subsequently defaulted after modification.
The Bank periodically evaluates collateral asset values for collateral dependent loans to determine fair value and to measure any anticipated shortfall. Maximum time of re-evaluation was every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations were obtained. Until such time that updated appraisals were received, the Bank may have discounted the collateral value used.
The Bank used the following guidelines as stated in policy to determine when to realize a charge-off, whether a partial or full loan balance. A charge-off in whole or in part was realized when unsecured consumer loans and overdraft lines of credit reached 90 days delinquency. At 90 days delinquent, secured consumer loans were charged down to the value of the collateral, if repossession of the collateral was assured and/or in the process of repossession. Consumer mortgage loan deficiencies were charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. A broker’s price opinion or appraisal was completed on all home loans in litigation and any deficiency was charged off before reaching 150 days delinquent. Commercial and agricultural credits were charged down/allocated at 120 days delinquency, unless an established and approved work-out plan was in place or litigation of the credit was likely to result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt was charged off. Additional charge-off was realized as further unsecured positions were recognized.
As of March 31, 2025, the Company had no foreclosed residential real estate property obtained by physical possession and $1.9 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in
process according to local jurisdictions. This compares to the Company having no foreclosed residential real estate property obtained by physical possession and $1.3 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceeding were in process according to local jurisdictions as of December 31, 2024. As of March 31, 2024, the Company had no foreclosed residential real estate property obtained by physical possession and $270 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.
The Company accounts for the allowance for credit losses in accordance with Accounting Standards Update ("ASU") No. 2016-13 - "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and uses the current expected credit losses accounting standard. As a result, the Company recorded a one-time adjustment from equity into the allowance for credit losses on loans and unfunded commitments in the amount of $4.5 million, or $3.4 million, net of tax.
The allowance for credit losses (ACL) has a direct impact on the provision expense. An increase in the ACL is funded through recoveries and provision expense.
The Company segregates its allowance into two reserves: The ACL and the Allowance for Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total Current Expected Credit Losses (CECL).
The allowance does not include an accretable yield of $1.5 million and $1.9 million as of March 31, 2025 and December 31, 2024, respectively, related to the acquisitions of Bank of Geneva in 2019 and Ossian State Bank and Perpetual Federal Savings Bank in 2021 and Peoples Federal Savings and Loan Bank in 2022 as previously discussed in Note 2.
The AULC is reported within other liabilities while the ACL portion associated with loans is netted within the loans, net asset line on the condensed consolidated balance sheets.
The following tables present the activity within the ACL for each portfolio segment and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs for the three months ended March 31, 2025 and March 31, 2024 in addition to the activity within the ACL for each portfolio segment and ending balances as of and for the year ended December 31, 2024:
ConsumerReal Estate
AgriculturalReal Estate
CommercialReal Estate
Commercialand Industrial
ALLOWANCE FOR CREDIT LOSSES
Beginning balance
3,543
895
285
16,560
2,969
1,012
562
25,826
139
(124
344
215
219
Charge-offs
(25
(310
Recoveries
3,683
771
306
16,907
3,165
952
568
26,352
3,581
312
336
17,400
1,766
1,302
25,024
(290
859
(1,450
517
(123
157
(10
(101
(81
(192
64
3,285
1,171
377
15,953
2,248
1,162
484
24,680
Year Ended December 31, 2024
(31
583
(52
(834
1,176
(133
235
944
(13
(15
(106
(346
(480
133
189
The following tables present the activity in the AULC for the three months ended March 31, 2025 and March 31, 2024 in addition to the activity in the AULC and ending balances as of and for the year ended December 31, 2024:
UnfundedLoanCommitment& Letters ofCredit
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
1,541
1,281
2,212
1,946
Recovery of credit losses-off balance sheet credit exposures
(671
34
NOTE 5 SERVICING
Loans serviced for others are not included in the accompanying Company's consolidated balance sheets. The unpaid principal balances of 1-4 family real estate loans serviced for others were $362.6, $363.6 and $364.3 million at March 31, 2025 and 2024 and at December 31, 2024, respectively. Unpaid principal balances of agricultural real estate loans serviced for others were $145.3, $132.9 and $141.9 million at March 31, 2025 and 2024 and at December 31, 2024, respectively.
The balance of capitalized servicing rights included in assets at March 31, 2025 and 2024 and at December 31, 2024 for 1-4 family real estate loans, was $3.5, $3.4 and $3.5 million, respectively. Agricultural real estate loan servicing rights, established in 2023, were $2.3, $2.1 and $2.2 million at March 31, 2025 and 2024 and at December 31, 2024, respectively. The capitalized addition of servicing rights is included in loan servicing income on the Company's consolidated statement of income.
The fair value of the capitalized servicing rights for 1-4 family real estate loans as of March 31, 2025 and 2024 was $5.0 million and $5.5 million, respectively, and at December 31, 2024 was $4.8 million. Capitalized servicing rights for agricultural real estate loans had a fair value of $2.6 million and $2.1 million as of March 31, 2025 and 2024, respectively, and was $2.7 million at December 31, 2024. The valuations were completed by stratifying the loans into like groups based on loan type and term. Impairment was measured by estimating the fair value of each stratum, taking into consideration an estimated level of prepayment based upon current market conditions. An average constant prepayment rate for 1-4 family real estate loans of 7.8% and 5.4% were utilized at March 31, 2025 and 2024, respectively, and 8.1% at December 31, 2024. Agricultural real estate loans utilize an average constant prepayment rate based on the Bank's last twelve months of data. The average constant prepayment rate was 0.259% and 0.596% for fixed rate agricultural real estate loans at March 31, 2025 and 2024, respectively, compared to 0.184% at December 31, 2024. At March 31, 2025, two 1-4 family real estate strata, which included 80 of the total 3,656 loans, were slightly below the carrying value using a discount yield of 5.77% which resulted in the need to establish a $2 thousand valuation allowance. At March 31, 2025, the carrying value of eleven agricultural real estate strata, which included 34 of the total 636 loans, using an approximate discount rate of 8.54% were lower than fair value requiring a $46 thousand valuation allowance to be established.
5,753
5,655
Capitalized Additions
276
75
Amortization
(176
(168
Ending Balance, March 31,
5,853
5,562
Valuation Allowance
(48
(7
Servicing Rights net, March 31,
5,555
NOTE 6 EARNINGS PER SHARE
Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e. unvested restricted stock), not subject to performance based measures. Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Application of the two-class method for participating securities results in a more dilutive basic earnings per share as the participating securities are allocated the same amount of income as if they are outstanding for purposes of basic earnings per share. There is no additional potential dilution in calculating diluted earnings per share, therefore basic and diluted earnings per share are the same amounts. Other than the restricted stock plan, the Company has no other employee stock-based compensation plans.
The Compensation Committee of the Company has determined that it is appropriate to award shares of the common stock of the Company to Outside Directors and Employees that are officers of the Company or the Bank who also serve as Directors of the Company and the Bank as a portion of their retainer for services rendered as Directors of the Company and the Bank. The Committee believes that it is appropriate to award the Directors shares equal to a specific dollar amount, rounded to the nearest whole share on an annual basis commencing in June of 2020 and thereafter on the first Thursday of June. Directors receive a prorated dollar value of shares for a partial year of service. The value for the shares is to be based upon the prior day
closing price. On June 6, 2024, twelve directors each received $15,007 which equated to 716 shares and one director received $5,911 which equated to 282 shares. On December 5, 2024, one new Director received 54 prorated shares worth approximately $1,730. The use of stock for Directors’ retainer, does not have an effect on diluted earnings per share as it is immediately vested.
Any stock awards to senior management are made in March with other officers receiving any awards in August. On March 1, 2025, senior management received stock awards of 19,767 shares worth $508,012. On March 1, 2024, senior management received stock awards of 23,369 shares worth $472,054 while other officers received stock awards of 36,800 shares worth $979,616 during third quarter 2024.
Earnings per share
Less: distributed earnings allocated to participating securities
(39
(35
Less: undistributed earnings allocated to participating securities
(26
Net earnings available to common shareholders
6,869
5,298
Weighted average common shares outstanding including participating securities
13,706,003
13,671,166
Less: average unvested restricted shares
(164,156
(156,506
Weighted average common shares outstanding
13,541,847
13,514,660
Basic and diluted earnings per share
NOTE 7 DERIVATIVE FINANCIAL INSTRUMENTS
The Bank uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Bank enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position.
The Bank entered into three pay-fixed receive variable interest rate swap transactions, with a combined notional value of $100 million, designated and qualifying as accounting hedges during the last quarter of 2023. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, less any ineffectiveness, in the Company's consolidated statement of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. The fair value of interest rate swaps with a positive fair value are reported in other assets in the Company's consolidated balance sheets while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the Company's consolidated balance sheets.
The following table presents amounts that were recorded on the Company's consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of March 31, 2025 and December 31, 2024.
Line Item in the Consolidated Balance Sheets in which the Hedged Item is Included
Carrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
243,278
249,127
1,075
The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Bank's asset/liability management activities at March 31, 2025 and December 31, 2024, identified by the underlying interest rate-sensitive instruments.
Weighted Average
Notional Value (In
Remaining Maturity
Fair Value (In
Weighted Average Rate
Instruments Associated With
Thousands)
(In Years)
Receive
Pay
100,000
2.3
(1,605
USD-SOFR-OIS
4.47
%
Total swap portfolio at March 31, 2025
2.6
(976
Total swap portfolio at December 31, 2024
These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Bank pledged $2.3 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at both March 31, 2025 and December 31, 2024. Collateral posted and received is dependent on the market valuation of the underlying hedges.
The following table presents the notional amount and fair value of interest rate swaps utilized by the Bank at March 31, 2025 and December 31, 2024.
Notional Amount
Asset Derivatives
Derivatives designated as hedging instruments
Interest rate swaps associated with loans
Total contracts
Liability Derivatives
The following table presents the effects of the Bank's interest rate swap agreements on the Company’s consolidated statement of income during the three month period ended March 31, 2025 and March 31, 2024.
Line Item in the Consolidated Statements of Income
(24
(14
211
197
NOTE 8 QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS
The Company invests in certain qualified affordable housing projects. The Company has elected to account for its investment in qualified affordable housing projects using the proportional amortization method described in FASB ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Low-Income housing Tax Credit Projects (A Consensus of the FASB Emerging Issues Task Force)", which was updated in March 2023 and released as FASB ASU 2023-02. Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense.
At March 31, 2025 and December 31, 2024, the balance of the Company's investments in qualified affordable housing projects was $3.5 million and $3.6 million, respectively. This balance is reflected in the other assets line on the condensed consolidated balance sheets. The unfunded commitments related to the investments in qualified housing projects totaled $574 and $880 thousand at March 31, 2025 and December 31, 2024, respectively. These balances are reflected in the accrued expense and other liabilities line on the condensed consolidated balance sheets.
The funded balance in qualified affordable housing projects was $3.4 million and $3.1 million at March 31, 2025 and December 31, 2024, respectively, out of a total of $4.0 million committed.
The Company did not incur any impairment losses related to its investments in qualified affordable housing projects in 2025 or 2024.
The following tables present the Company's investments in qualified affordable housing projects as of March 31, 2025 and December 31, 2024 along with the related expenses and tax credits recognized as of March 31, 2025 and March 31, 2024.
Low-income-housing tax credit investments
4,000
Unfunded commitments
(574
(880
Net funded low-income-housing tax credit investments
3,426
3,120
Amortization expense
112
110
Tax credits recognized
108
NOTE 9 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, are valued using the quoted price and are classified as Level 1.
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 three 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 following summarizes financial assets measured at fair value on a recurring basis as of March 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
Quoted Prices inActive Marketsfor IdenticalAssets (Level 1)
SignificantObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Assets - (Securities Available-for-Sale)
30,703
107,002
152
130,726
61,642
1,460
Total Securities Available-for-Sale
137,738
299,370
Interest rate swap liabilities
20,035
115,131
63,133
1,627
126,034
298,895
Interest rate swaps liabilities
The following tables represent the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of the three month periods ended March 31, 2025 and March 31, 2024.
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
State and Local Governments
Tax-Exempt
Taxable
Balance at January 1, 2025
353
1,274
Change in Fair Value
Payments, Maturities & Calls
(170
Balance at March 31, 2025
1,276
Balance at January 1, 2024
1,188
1,272
(2
(665
Balance at March 31, 2024
521
1,795
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.
The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At March 31, 2025 and December 31, 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 March 31, 2025 and December 31, 2024, fair value of collateral dependent loans categorized as Level 3 was $4.1 million and $3.0 million, respectively. The specific allocation for collateral dependent loans was $159 thousand as of March 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 2025 and 2024, impairment was recognized on loan servicing rights based upon the independent third party's quarterly valuation. 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. Impairment was $48 thousand ($2 thousand on 1-4 family real estate loans and $46 thousand on agricultural real estate loans) at March 31, 2025 compared to $97 thousand ($2 thousand on 1-4 family real estate loans and $95 thousand on agricultural real estate loans) at December 31, 2024.
The following table presents assets measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024:
Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2025
Balance atMarch 31, 2025
Quoted Pricesin ActiveMarkets for IdenticalAssets (Level 1)
SignificantObservable Inputs(Level 2)
SignificantUnobservable Inputs(Level 3)
Collateral dependent loans
(6
Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2024
Balance atDecember 31, 2024
(4
42
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:
Range
Fair Value at
(Weighted
Valuation Technique
Unobservable Inputs
Average)
State and local government
Discounted Cash Flow
Credit strength of underlying project or entity / discount rate
3.42-4.26% (4.15%)
Collateral basedmeasurements
Discount to reflect current marketconditions and ultimate collectability
20.00-30.00% (26.64%)
Constant prepayment rate and probability of default / discount rate
9.80-550.0% (114.89%)
-3.61-4.52% (4.33%)
20.00-30.00% (20.78%)
9.36-618.70% (107.90%)
The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of March 31, 2025 and December 31, 2024 are reflected below. The aggregate fair values in the table below do not represent the total fair value of the Bank’s assets and liabilities. The table excludes the following: available-for-sale securities, premises and equipment, derivatives (which are included in other assets or other liabilities), goodwill, loan servicing rights, bank owned life insurance, other assets, dividends payable, accrued expenses and other liabilities.
Carrying
Amount
Level 1
Level 2
Level 3
Financial Assets:
Cash and cash equivalents
2,000
Other securities
Loans, net
2,512,106
Interest receivable
13,002
Financial Liabilities:
Non-interest bearing deposits
Interest bearing deposits
1,571,516
1,571,919
Time deposits
624,340
Total Deposits
2,698,577
2,196,259
Federal funds purchased and securities sold under agreement to repurchase
Federal Home Loan Bank advances
245,352
32,693
Interest payable
6,142
2,472
2,485,297
12,657
1,522,280
1,521,097
644,849
2,682,850
2,165,946
245,373
31,983
6,618
NOTE 10 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company had no federal funds purchased at March 31, 2025 or at December 31, 2024. Securities sold under agreement to repurchase were as follows at March 31, 2025 and December 31, 2024.
Remaining Contractual Maturity of the Agreements
Overnight & Continuous
Up to 30 days
30-90 days
Greater Than90 days
Repurchase agreements
US Treasury & agency securities
45
NOTE 11 SUBORDINATED NOTES
On July 30, 2021, the Company completed a private placement of $35 million aggregate principal amount of its 3.25% fixed-to-floating rate subordinated notes due July 30, 2031 (the “Notes”) to various accredited investors (the “Offering”). The price for the Notes was 100% of the principal amount of the Notes. The Notes qualify as Tier 2 capital for regulatory purposes in proportionate amounts until July 30, 2026. Beginning July 31, 2026, the Note amount that qualifies as Tier 2 capital is reduced in proportionate amounts until July 30, 2031.
Interest on the Notes accrues at a rate equal to (i) 3.25% per annum from the original issue date to, but excluding, the five-year anniversary, payable semi-annually in arrears, and (ii) a floating rate per annum equal to a benchmark rate, which is expected to be the Three-Month Term SOFR (as defined in the Notes), plus a spread of 263 basis points from and including the five-year anniversary until maturity, payable quarterly in arrears. Beginning on or after the fifth anniversary of the issue date through maturity, the Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption will be at a redemption price equal to 100% of the principal amount of Notes being redeemed, plus accrued and unpaid interest.
Principal
Unamortized Note Issuance Costs
Subordinated Notes
35,000
(154
(182
NOTE 12 - SEGMENT REPORTING
The Company has one reportable operating segment, commercial banking. While our chief operating decision makers (CODM) monitor revenue streams of various products and services, the identifiable segments’ operations are managed, and financial performance is evaluated on a Company wide basis. The commercial banking segment provides a broad array of financial products and services including commercial, agricultural, and residential mortgage as well as consumer lending activities, commercial and consumer banking services, wealth advisory services and insurance to individual and business clients through most of its banking center locations in Ohio, Indiana, and Michigan.
The accounting policies of the commercial banking segment are the same as those described in management's discussion and analysis of the financial condition and results of operations of the Company. The CODM assess performance for the commercial banking segment and decide how to allocate resources based on net income which is also reported on the Consolidated Statements of Income as net income. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets.
The CODM use net income to evaluate income generated from segment assets (return on average total assets) in deciding whether to reinvest profits into the commercial banking segment or to pay dividends or fund acquisitions. Net income is also used by the CODM to monitor budget versus actual results. Net income as well as other common company-wide financial performance and credit quality metrics such as return on average assets, return on average equity, earnings per common share, net interest margin, and nonaccrual loans to total loans, among others, are used for competitive analysis by benchmarking to the Company’s competitors as well as used in assessing the performance of the segment and for establishing management’s compensation. Loans, investments and deposits provide revenue in the banking operation. Interest expense, provisions for credit losses, salaries, wages and associated employee benefits, and data processing are the significant expenses in the banking operation.
The Company’s CODM are the President and senior management team of the Company.
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
In October 2023, the FASB issued ASU 2023-06 "Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative." The amendments in this Update are the result of the FASB’s decision to incorporate into the Accounting Standards Codification certain disclosure requirements, referred by the SEC, that require incremental information to US GAAP. Topics in the ASU that have applicability to the Company are as follows:
* Statement of Cash Flows - requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.
* Debt - requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings.
* Derivatives and Hedging - adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.
The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Accounting Standards Codification and will not become effective for any entity. Management is reviewing the provisions of ASU 2023-06, and does not expect the adoption of the ASU to have a material effect on the Company’s financial statements.
In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures." The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this Update primarily require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker; require that a public entity disclose the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources; require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this Update and all existing segment disclosures in Topic 280. The amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in this Update retrospectively to all prior periods presented in the financial statements. Management adopted this Update effective December 31, 2024, without material effect on the Company’s financial position or results of operations.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures." The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). The amendments also require disclosure of the amount of income taxes paid (net of refunds received) disaggregated by federal (national) and state jurisdictions. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis and retrospective application is permitted. Management is evaluating the Update and does not expect adoption of the Update to have a material effect on the Company’s financial position or results of operations.
In November 2024, the FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period (1) the Company disclose the amounts of (a) employee compensation, (c) depreciation, and (d) intangible asset amortization included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed. (2) Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. (3) Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. (4) Disclose the total amount of selling expenses and, in annual reporting periods, the Company’s definition of selling expenses. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this Update should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this Update or (2) retrospectively to any or all prior periods presented in the financial statements. Management is currently evaluating the Update and does not expect adoption of the Update to have a material effect on the Company’s financial position or results of operations.
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The largest improvement in profitability of the first quarter 2025 as compared to both last quarter and the same quarter last year is in the Company’s net interest income generated from the highest net interest margin since 4th quarter 2022. Net interest income for first quarter 2025 is up $3.8 million over the same quarter last year and $1.1 million over last quarter. This represents a solid base from which to continue improvement for the remainder of 2025 as we expect loan repricing and continued growth in low-cost core deposits to increase the margin going forward. The improvement compared to last quarter was driven by a 25-basis point reduction in the cost of funding. The reduction was larger by another 5 basis points, or a 30-basis point reduction in the cost of funding comparing to the first quarter 2024. The difference in the net interest margin of 3.03% for first quarter 2025 as compared to first quarter 2024’s 2.60% is also attributed to a 19-basis point improvement in the asset yield.
There were two primary reasons behind the decrease in the cost of funds for the quarter, the first being the lower repricing of higher cost certificate of deposits (CDs), combined with a balance sheet shift or reduction in CD balances. The second primary reason was a reduction in interest expense due to rate changes in the savings bucket which includes interest bearing checking, money market accounts and savings accounts. The Company experienced a full quarter of the advantage of interest rate cuts implemented due to the Federal Reserve dropping rates over the last four months of 2024.
Higher credit cost in the first quarter 2025 had the opposite impact on profitability and was due to higher net charge-offs from consumer loans coupled with provision related expense from loan growth during the quarter. Provision for credit losses was $811 thousand for the quarter compared to $944 thousand for all of 2024. First quarter 2024 was in a recovery position for the quarter of $289 thousand while fourth quarter 2024 had a provision of $346 thousand.
F&M Commercial Banking Division saw loan demand grow in late 2024 and continue into first quarter 2025. Lending rates and terms remained consistent from fourth quarter 2024 into first quarter 2025. Commercial clients’ primary concerns so far in 2025 remain inflation and any impact on potential tariffs to their business. Credit quality of the commercial portfolio remains strong and first quarter collateral values and auction values are still holding consistent with previous quarters. Past dues and delinquencies remained low for the F&M portfolio, but the team continues to monitor the portfolio closely for the impact from inflationary pressures, input costs and margin compression on the portfolio. Borrowers have plenty availability on lines of credit overall.
As we review the results of our farm and agribusiness clients from 2024, the performance of our customer base was steady. Yields were average with declined commodity prices making net income less than prior years. Marketing and crop insurance coverage was and will continue to be important. Most of our customer base's financial position was sound as we enter a period where they anticipate they may have declining net income. Our anticipation is 2025 will be similar to 2024. We have communicated regularly with our clients potentially affected by the bird flu outbreak and have developed options for individual clients. To date, this portion of our portfolio continues to perform as agreed. Our agribusiness clientele continue to perform well, but declined farm income will potentially affect certain sectors. Global political pressures continue to be monitored. The performance of our agricultural portfolio continues to be monitored but continues to perform well.
Home loan activity has improved slightly in all areas, including with respect to both purchases and refinances, and with respect to loans both held in-house by the Bank and also those sold into the secondary market. The biggest product remains home equity lines as existing borrowers do not want to refinance the lower fixed mortgage rates from previous years. A 300+ basis point difference remains in current fixed rates compared to the lows of the early 2020s. The Bank participated in the “Welcome Home” program offered through the Federal Home Loan Bank of Cincinnati ("FHLB"). This program assists with grants for down payments. The funds are open to all members of FHLB and capped by overall funds available. The funds were depleted in a matter of hours so the Bank is pleased to have received approval for some of our customers. Inventory in our market areas has improved in the midrange values.
Consumer loans increased towards the end of the first quarter, primarily with respect to direct and indirect automobile loans. Consumer interest in used cars increased along with prices recently over concerns related to the potential impact of tariffs. Our activity is and has been more in the used car market than in brand new.
Overall, asset quality metrics are still favorable. However, while it remains too early to tell the overall impact of pending tariffs, we’re expecting past dues and non-accruals to increase throughout the year. Our credit department continues to monitor all areas and complete stress testing to better prepare our responsiveness to market events.
Noninterest income went over the $4 million mark for the quarter without any single line item increasing significantly, all under $150 thousand. Treasury services and interchange revenue from increased debit card usage are primarily credited for the improvement.
Noninterest expense was higher in first quarter 2025 by $919 thousand as compared to same quarter 2024 and almost $2.7 million higher than fourth quarter 2024. Looking at the difference between the first quarter comparisons, increased employee benefits, specifically group medical insurance was up $192 thousand in 2025 along with payroll taxes increasing by $64 thousand. The largest increase was in consulting services, which increased by $559 thousand. Much of the expense was related to the use of a consultant to negotiate our core processor services. While the base contract negotiation is complete, the consultant will continue to be used as we explore additional ancillary products to the core banking system. The benefits of using the consultant have far outweighed the cost and will continue to be realized after our consultant services have ended. In comparing first quarter 2025 to fourth quarter 2024, almost $1.5 million of the increase is attributable to salary, benefits and occupancy expenses. Another $900 thousand in the difference is due to data processing and consulting expenses. Fourth quarter 2024 included a much higher usage of flex credits that were provided in the renegotiation of which some may be used on a wider range of services than others that are product specific. Smaller levels of flex credit will be realized going forward along with lower consulting fee levels throughout 2025.
The Company is encouraged by the higher-than-expected improvement in the net interest margin in the first quarter of 2025. Overall net income, which was $1.6 million higher than first quarter 2024, sets the stage for a more profitable 2025. As with every year, challenges will present opportunities and the Bank has additional projects in the works to improve revenue while keeping an eye on costs. The Company remains well-capitalized with sound liquidity levels and strong asset quality; the future appears bright.
NATURE OF ACTIVITIES
Farmers & Merchants Bancorp, Inc. (the “Company”) is a financial holding company incorporated under the laws of Ohio in 1985. Our subsidiary is The Farmers & Merchants State Bank (the “Bank”), a local independent community bank that has been primarily serving Northwest Ohio, Northeast Indiana and Southeast Michigan since 1897. The Bank includes F&M Insurance Agency, LLC, a subsidiary offering insurance products, which was formed in November of 2023. We report our financial condition and net income on a consolidated basis and we have only one segment.
Our executive offices are located at 307 North Defiance Street, Archbold, Ohio 43502, and our telephone number is (419) 446-2501. The Bank operates thirty-seven full-service banking offices throughout Northwest Ohio, Northeast Indiana and Southeast Michigan along with a drive-up facility in Archbold. The Bank also operates four Loan Production Offices (LPOs), two in Ohio with one in Indiana and one in Michigan.
The Farmers & Merchants State Bank engages in general commercial banking and savings business including commercial, agricultural and residential mortgage as well as consumer lending activities. The largest segment of the lending business relates to commercial, both real estate and non-real estate. The type of commercial business ranges from small business to multi-million dollar companies. The loans are a reflection of business located within the Banks’ market area of Ohio, Indiana and Michigan. Because the Bank's offices are primarily located in Northwest Ohio, Northeast Indiana and Southeast Michigan, a substantial amount of the loan portfolio is comprised of loans made to customers in the farming industry for such items as farmland, farm equipment and operating loans for seed, fertilizer, and feed. Other types of lending activities include loans for home improvements, and loans for the purchase of autos, trucks, recreational vehicles, motorcycles, and other consumer goods.
The Bank also provides checking account services, as well as savings and time deposit services such as certificates of deposits. In addition, Automated Teller Machines (ATMs) or Interactive Teller Machines (ITMs) are provided at most branch locations along with other independent locations in the market area. ITMs operate as an ATM with the addition of remote teller access to assist the user. The Bank has custodial services for Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs). The Bank provides on-line banking access for consumer and business customers. For consumers, this includes bill-pay, on-line statement opportunities and mobile banking. For business customers, it provides the option of electronic transaction origination such as wire and Automated Clearing House (ACH) file transmittal. In addition, the Bank offers remote deposit capture or electronic deposit processing. Mobile banking has been widely accepted and used by consumers. Upgrades to our digital products and services continue to occur in both retail and business lines. The Bank continues to offer new suites of products as customer preferences change and the Bank adapts and adopts new technologies. The Bank continues to offer products that also meet the needs of our more traditional customers.
The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory guidance. Within this sphere of safety and soundness, the Bank's practice has been to not promote innovative, unproven credit products which may not be in the best interest of the Bank or its customers. The Bank does offer a hybrid mortgage loan. Hybrid loans are loans that start out as a fixed rate mortgage but after a set number of years automatically adjust to an adjustable rate mortgage. The Bank offers a three year, a five year and a seven year fixed rate mortgage after which the interest rate will adjust annually. In order to offer longer term fixed rate mortgages, the Bank does participate in the Freddie Mac, Farmer Mac and Small Business Lending programs. The Bank also normally retains the
servicing rights on these partially or 100% sold loans. In order for the customer to participate in these programs they must meet the requirements established by those agencies. In addition, the Bank does sell some of its longer term fixed rate agricultural mortgages into the secondary market with the aid of brokers. With the acquisition of Perpetual Federal Savings Bank in the fourth quarter of 2021 and the addition of Peoples Federal Savings in the fourth quarter of 2022, the Bank saw an increase in fixed rate, long-term mortgage loans to our portfolio from that banking service area. The Bank began offering a low income home buyer mortgage program, currently Hometown Advantage Mortgage Program, in November of 2023.
The Bank does not have a program to fund sub-prime loans. Sub-prime loans are characterized as a lending program or strategy that targets borrowers who pose a significantly higher risk of default than traditional retail banking customers.
All loan requests are reviewed as to credit worthiness and are subject to the Bank's underwriting guidelines as to secured versus unsecured credit. Secured loans are in turn subject to loan to value (LTV) requirements based on collateral types as set forth in the Bank's Loan Policy. In addition, credit scores of those seeking consumer credit are reviewed and if they do not meet the Bank's Loan Policy guidelines, an additional officer approval is required.
Consumer Loans:
Commercial/Agriculture:
Accounts Receivable:
Inventory:
Equipment:
Real Estate:
FM Investment Services, the brokerage department of the Bank, opened for business in April 1999. Securities are offered through Raymond James Financial Services, Inc. In November of 2020, FM Investment Services purchased the assets and clients of Adams County Financial Resources (ACFR) which is discussed in further detail in Note 2 to the Company’s financial statements.
In December of 2014, the Company became a financial holding company within the meaning of the Bank Holding Company Act of 1956 as amended (the “Act”), in order to provide the flexibility to take advantage of the expanded powers available to a financial holding company under the Act. Our holding company is regulated and examined by the Federal Reserve. Our subsidiary bank is in turn regulated and examined by the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation. The activities of our bank subsidiary are also subject to other federal and state laws and regulations.
The Bank formed an insurance agency, F&M Insurance Agency, LLC, in November 2023 to offer insurance products to our customers. The insurance agency is organized in Ohio and regulated by the State of Ohio, Division of Insurance.
The Bank’s primary market includes communities located in the Ohio counties of Butler, Champaign, Defiance, Fulton, Hancock, Henry, Lucas, Shelby, Williams, Wood and in the Indiana counties of Adams, Allen, DeKalb, Jay, Steuben and Wells. The Michigan footprint includes Oakland County. In our banking activities, we compete directly with other commercial banks, credit unions, farm credit services, and savings and loan institutions in each of our operating localities. In a number of
our locations, we compete against entities which are much larger than us. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.
At March 31, 2025, we had 482 full time equivalent employees. The employees are not represented by a collective bargaining unit. We provide our employees with a comprehensive benefit program, some of which is contributory. We consider our employee relations to be good.
RECENT REGULATORY DEVELOPMENTS
The Company and the Bank remain attentive to the current regulatory environment in light of the regulatory agencies’ risk-based approach to examinations and the change in presidential administration. Regulatory changes and the complexity of new and amended rules have resulted in challenges and uncertainties which could pose an increased risk of noncompliance. Various significant mortgage rules require monitoring by means of testing, validation of results, additional training, and further research or consultation to ensure ongoing compliance.
Under the Truth in Lending Act (TILA) Ability to Repay requirements, the Bank focuses on Qualified Mortgage (QM) status for mortgage loans originated as they provide certain presumptions of compliance under the Ability to Repay rules adopted under the Dodd-Frank Act. In satisfying QM requirements, any mortgage lender regardless of their size can make loans which are entitled to the QM presumption of compliance. New final rules, effective October 2022, amended the Ability to Repay/Qualified Mortgage Rules. The General QM Final Rule amended the definition of the QM category to offset the impact of the sunsetting of the temporary Government Sponsored Enterprise (GSE) QMs. The General QM loan definition amended and removed the 43% debt-to-income limit, eliminated Appendix Q underwriting standards and any requirement to use them as a qualification for General QM status, and instead implemented price-based thresholds. For General QM status, applicable to first-lien mortgage loans offered by the Bank, a loan must still observe existing product features, underwriting requirements, and limits on points and fees. Since the Bank, on occasion, does make Non-Qualified Mortgages, approvals and originations of both Non-QM loans and Higher Priced Mortgage Loans are periodically reported to the Bank’s Loan Committee.
On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued final rules which amended Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) as made by Section 1071 of the Dodd-Frank Act. Covered financial institutions were required to collect and report data on covered credit applications involving small businesses, including those businesses owned by women or minorities. Small businesses were defined as those businesses (including agricultural businesses) which had gross annual revenue of $5 million of less during its most recent fiscal year. Data collection involved demographic information collected from a loan applicant regarding that applicant’s status as a minority-owned business, a women-owned business, and an LGBTQI+-owned business, as well as the applicant’s principal owners’ ethnicity, race, and sex. Applicants could refuse to provide demographic information. Implementation of these final rules would involve significant changes to processes and procedures along with new software configurations to accommodate and capture required data points regarding applications and final action taken. Data would be reported to the CFPB which would then make aggregated information publicly available. These new final rules had a phased implementation period with the largest lenders being required to collect and report data first. A Lender, such as the Bank, that originated at least 500 covered small business loans annually, data collection would have originally commenced on April 1, 2025.
A lawsuit filed in April 2023 by the Texas Bankers Association and Rio Bank based in McAllen, Texas in the U.S. District Court for the Southern District of Texas challenged the CFPB's final rule implementing Section 1071 of the Dodd-Frank Act. Shortly thereafter, the American Bankers Association joined the lawsuit as a plaintiff. The argument was the final rule far exceeded the statutory scope of Section 1071, failed to take into consideration relevant industry comments, and did not conduct appropriate cost-benefit analysis. Additionally, the constitutionality of the CFPB was challenged based on its funding structure, and was also based upon another pending lawsuit which awaited a hearing by the U.S. Supreme Court regarding CFPB's funding. On July 31, 2023, an injunction was granted by a federal judge in the Southern District of Texas banning the CFPB from requiring Rio Bank, and members of both the Texas Bankers Association and the American Bankers Association from complying with the final rules implementing Section 1071 of the Dodd-Frank Act until the Supreme Court of the United States rules on the CFPB's funding. On August 4, 2023, a motion was filed by the Independent Community Bankers of America, the Independent Bankers Association of Texas, and Texas First Bank in the U.S. District Court for the Southern District of Texas requesting expansion of the injunction previously granted. In late October 2023, the federal judge granted the expansion of the injunctive relief to provide a nationwide injunction to all community banks and covered financial institutions thus ensuring relief was not limited by trade association membership. The U.S. Supreme Court issued its long-awaited decision on the challenge to the CFPB’s funding mechanism on May 16, 2024. The Supreme Court ruled that the CFPB’s funding does not violate the U.S. Constitution’s Appropriations Clause. Subsequently, the CFPB issued an interim final rule on June 25, 2024, to make date related adjustments on a day for day basis based on recent court orders involving ongoing litigation. This extended compliance dates for beginning data collection by 290 days. As of February 7, 2025, an order issued by the New Orleans First
Circuit Court of Appeals granted a stay pending appeal and deadlines for compliance were extended further. Recently, the Bank remains attentive to the ongoing arguments, appeals, and related cases in the litigation involving the Section 1071 final rule, as well as the CFPB’s actions on further rulemaking to replace or change the current rule.
A final rule to amend the Community Reinvestment Act (CRA) was jointly released by the Federal Reserve, the FDIC, and Office of the Comptroller of the Currency on October 24, 2023. These amendments were intended to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. The final rule was effective on April 1, 2024, with certain amendments effective April 1, 2024, through January 1, 2031, and other amendments in the final rule were delayed indefinitely. The final CRA rules were published in the Federal Register on February 1, 2024. On February 5, 2024, the American Bankers Association, the U.S. Chamber of Commerce, the Independent Community Bankers of America, along with four state associations jointly sued the Federal Reserve, FDIC, and Office of Comptroller of the Currency for exceeding their statutory authority. The lawsuit filed in the U.S. District Court for the Northern District of Texas requested the regulatory agencies vacate the rule and sought a preliminary injunction pausing the new rules while the court decided the merits of the case. On March 21, 2024, the joint regulatory agencies issued an interim final rule and a technical corrections final rule related to the CRA final rule both effective on April 1, 2024. The Agencies also requested comments on the interim final rule for a period of 45 days after publication in the Federal Register. The interim final rule extended two provisions of the CRA final rule from April 1, 2024, to January 1, 2026. Then on March 29, 2024, the district court judge granted a temporary injunction to pause the implementation of CRA final rule while the case moves forward. The injunction extended implementation dates on a day for day basis for each day the injunction remains in place. A joint press release on March 28, 2025, announced the joint agencies intent to rescind the 2023 Community Reinvestment Act Final Rule and reinstate the CRA framework that existed prior to the October 2023 final rule. As a large bank examined for its CRA performance, the Bank remains attentive to the CRA framework in place prior to the October 2023 final rule.
With regard to all regulatory matters, the Company and the Bank remain committed in making good faith efforts to comply with technical requirements of the laws, rules, regulations, and guidance from both federal and state agencies which govern its activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and the Company follows general practices within the financial services industry in which it operates. At times the application of these principles requires management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.
These assumptions, estimates and judgments are based on information available as of the date of the financial statements. As this information changes, the financial statements could reflect different assumptions, estimates and judgments. Certain policies inherently have a greater reliance on assumptions, estimates and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Examples of critical assumptions, estimates and judgments are when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not required to be recorded at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability must be recorded contingent upon a future event. These policies, along with the disclosures presented in the notes to the condensed consolidated financial statements and in the management's discussion and analysis of the financial condition and results of operations, provide information on how significant assets and liabilities are valued and how those values are determined for the financial statements. Based on the valuation techniques used and the sensitivity of financial statement amounts to assumptions, estimates, and judgments underlying those amounts, management has identified the Allowance for Credit Losses (ACL) as the accounting area that requires the most subjective or complex judgments, and as such could be the most subject to revision as new information becomes available.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs. Accrued interest receivable totaled $10.9 million and $10.7 million at March 31, 2025 and December 31, 2024, respectively, and was reported in Other Assets on the condensed consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipation of repayments.
Interest income on mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Mortgage loans are charged off at 180 days past due and commercial loans are charged off to the extent principal or interest is deemed uncollectible. Consumer loans continue to accrue interest until they are charged off no later than 120 days past due unless the loan is in the process of collection. Past-due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The ACL represents management’s estimate of expected credit losses inherent in the Bank’s loan portfolio and unfunded loan commitments at the report date. The ACL methodology is regularly reviewed for its appropriateness and is approved annually by the Board of Directors. This written methodology is consistent with Generally Accepted Accounting Principles which provides for a consistently applied analysis.
The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL reflects the Company’s estimated credit losses over the life of the loan. Management assesses changes in prepayment assumptions, interest rates, collateral values, portfolio composition, trends in non-performing loans, and other economic factors. In addition to an extensive internal loan monitoring process, the Company also aims to have an annual external, independent loan review of approximately 35% of its commercial and agricultural loan portfolio. Management in turn assesses the results from the reviews to make changes in internal risk ratings of loans and the related ACL.
The Bank’s methodology provides an estimate of the expected credit losses either by calculating a reserve per credit or by applying our methodology to groupings based on similar risk characteristics. The loan portfolio was grouped based on loans of similar type, including acquired loans. The loan groupings for the CECL calculation consist of Commercial Real Estate, Commercial & Industrial, Agricultural Real Estate, Agricultural, Consumer Real Estate and Consumer. All groups use the average charge-off method for calculating the ACL. This incorporates a historical loss period from March 2000, since Call Report data became more granular regarding loan groupings, and includes several economic cycles. As a percentage, the reserves are the highest against construction and development loans, while farmland loans have the lowest overall reserve due to having such low loss rates.
The Company is utilizing peer data from a peer group of 316 banks in the region of Ohio, Michigan and Indiana with asset sizes less than $5 billion as of March 31, 2025. The reserves are calculated at the loan level and based on the note characteristics, essentially balances times loss rate + qualitative factors + forward look, with the forward looking forecast eliminated after 12 months. In order to provide a reasonable and supportable forward looking forecast, a regression analysis of the Bank’s historical loss rates against the Federal Open Market Committee (FOMC) quarterly economic projections for National Unemployment is completed. Annual projections are broken down using a straight-line approach for quarterly changes.
In addition to this quantitative analysis, management also utilizes qualitative analysis each quarter as a component of the ACL. The qualitative factors include nine categories: ability of staff, changes in collateral values, changes in loan concentration levels, economic conditions, external factors such as regulatory, level and trends in non-accrual or adversely classified loans, loan review results, nature and volume of the portfolio and loan terms, and changes in lending policies and procedures. The methodology allows for additional qualitative factors as other risks emerge. Items within these categories are ranked as baseline, low, medium, or high levels of risk, and the related risk level per categories dictates the level of qualitative factor that is used depending on the standard deviation level from historical loss.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation; reserves for expected credit losses for collateral-dependent loans are based on the expected shortfall
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of the loan based on the discounted collateral value. This specific reserve portion of the ACL was $159 thousand at March 31, 2025 and $52 thousand at December 31, 2024. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. At 90 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification to a borrower experiencing financial difficulty will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The loan categories of off-balance sheet exposures are the same as the loan categories for the ACL. The funding assumptions are updated each quarter based on expected utilization percentages.
For more information regarding the actual composition and classification of loans involved in the establishment of the allowance for credit loss, please see Note 4 provided with the notes to consolidated financial statements.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For 2025, the Company plans to have modest loan growth and continue to focus on earnings improvement. Paydowns and payoffs will be used to fund originations to existing customers and to build relationships in our newer markets. Loan balances as of March 31, 2025, were $19.4 million or 0.08% higher than December 31, 2024 balances and there remains $97.8 million of funds committed to complete construction projects of business customers as of March 31, 2025.
The Company continues to focus on growth in the areas of core deposits and the expansion of contingency funding. Growing deposits has been a focus especially in our newer markets throughout 2024 and continues into 2025. Core deposits provide additional opportunities for noninterest income. The Bank offers the Insured Cash Sweep (ICS) product and CDARS, a certificate of deposit registry, accessed through the IntraFi network of financial institutions which helps to reduce the amount of pledged securities needed. The Bank’s uninsured deposit ratio remains low at 12.1%. As of March 31, 2025, total uninsured deposits of the Bank were $327.0 million of $2.7 billion total deposits. If the amount of coverage is adjusted for what is insured by FDIC alone, the percentage is 21.5% or $579.3 million of uninsured deposits as of March 31, 2025. The underlying difference between these two percentages is the protection required for public funds for which the Bank pledges securities. A State insurance fund exists for public funds in Indiana. The state of Michigan also does not require the pledging of collateral for public funds though some entities do request it.
Deposits have increased $13.5 million as of March 31, 2025 since December 31, 2024, while cash and cash equivalents have decreased $3.3 million over the same time period. The nearly $173.0 million of cash holdings represents 5.1% of total assets and 6.4% of total deposits as of March 31, 2025. The Bank is comfortable with operating at this level as 5% is the guideline the Bank has established. Since March 31, 2024, deposits have increased $78.9 million, or 3.0%, while cash and cash equivalents have decreased $14.7 million or 7.9%. Management has continued to hold biweekly meetings to discuss liquidity in order to be more responsive to opportunities and threats as they arise.
During the first quarter 2025, borrowings from the FHLB decreased $585 thousand through normal paydowns. The Bank has utilized four sources for brokered CDs in 2024 for a total of $26.9 million. This was done to establish relationships to test the access of such funds and decrease the cost of funds going forward. To assure a proper net interest margin over the 3 and 4-year time period of these CDs, the Bank internally looked at loan originations in the first quarter with similar or slightly longer fixed interest rate periods. The Bank also tested all correspondent borrowing lines during the first quarter of 2025 to assure availability should the need arise. The availability for overnight borrowing on unsecured Federal Funds lines is $163.0 million. Combining the available line of credit at the holding company level, the Company has $178 million overnight borrowing availability.
In comparing to the same prior year period, the March 31, 2025 (at amortized cost) loan balances of $2.6 billion accounted for $39.8 million or 1.6% increase when compared to 2024. The year over year improvement was made up of an increase in commercial and industrial related loans of 4.1%. Individual growth was comprised of 8.7% in non-real estate commercial loans, 1.6% in commercial real estate loans and 20.3% in agricultural loans as we saw a slightly heightened use in lines of credit. Consumer real estate loans decreased by 0.3% while consumer loans decreased by 19.6%. Agricultural related loans increased 4.1% year over year. Individual growth was comprised of 20.3% in non-real estate agricultural loans partially offset by a decline of 5.1% in agricultural real estate loans. Other loans decreased by 6.7%. The Company's strong team of lenders remain focused on providing customers valuable localized services and thereby increasing our market share. The acquisition of Peoples Federal Savings and Loan Association in the fourth quarter of 2022 brought $101.8 million of loans to the portfolio. See Note 2 to the consolidated financial statements.
The chart below shows the breakdown by portfolio segment as of March 31, for the last three years, at amortized cost.
March 31, 2023
525,243
502,968
227,150
227,599
127,913
131,677
1,301,981
1,223,163
255,797
241,541
75,538
90,388
26,776
29,316
Total Loans, amortized cost
2,540,398
2,446,652
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The Bank maintains a well-balanced, diverse and high performing commercial real estate loan portfolio. Gross commercial real estate loans, excluding deferred loan fees and costs, represented 51.34% of the Company's total gross loan portfolio as of March 31, 2025. The below charts break out the commercial real estate (CRE) portfolio segment by category, location and loan grade.
CRE Category
DollarBalance
Percent of CRE Portfolio
Percent of Total Loan Portfolio
Industrial
281,484
21.23
10.90
Retail
217,903
16.44
8.44
Multi-family
213,281
16.09
8.26
Hotels
157,139
11.85
6.08
Office
139,069
10.49
5.39
Gas Stations
70,983
5.35
2.75
Food Service
52,827
3.98
2.04
Senior Living
31,400
2.37
1.22
Development
29,907
2.26
1.16
Auto Dealers
27,294
2.06
1.06
104,411
7.88
4.04
Total CRE
100.00
51.34
CRE Category(*)
Owner occupied
552,097
41.64
Non-owner occupied
530,413
40.01
Land & Development
* Categories assume construction loans converted to either owner or non-owner occupied.
Location
Southeast Michigan
447,553
33.76
Northwest Ohio
331,504
25.01
Fort Wayne, Indiana
160,860
12.13
Columbus, Ohio
145,829
11.00
Greater Indianapolis, Indiana
74,823
5.64
Dayton/Cincinnati, Ohio
52,991
4.00
112,138
8.46
CRE Grades
December 31, 2023
0.59
0.53
0.55
45.42
38.99
36.33
50.03
56.69
58.00
1.12
5.07
2.74
2.67
0.05
56
The following is a contractual maturity schedule by portfolio segment at amortized cost excluding fair value adjustments related to acquisitions as of March 31, 2025.
After One
After Five
Within
Year Within
Years Within
After
One Year
Five Years
Fifteen Years
15,735
24,687
161,421
323,582
6,148
8,326
65,586
135,897
86,046
53,127
10,330
4,427
100,724
439,035
582,445
201,120
109,669
103,464
64,548
2,378
47,631
10,792
227
609
24,149
Management feels confident that liquidity needs can be met through additional maturities from the security portfolio, increased deposit generating efforts and additional borrowings. For short term needs, the Bank has the unsecured borrowing capacity through its correspondent banks mentioned above along with access to $163.7 million through a Cash Management Advance with the FHLB as of March 31, 2025. The Bank's secured borrowing capacity limits at the FHLB would have allowed draws based on current collateral pledging of $197.7 million on March 31, 2025.
While the security portfolio has been utilized to fund loan growth in previous periods, additional sources have been cultivated during 2024 and 2025. The security portfolio increased in the first three months of 2025 from year end 2024 due to purchases of $13.8 million offset by maturities and paydowns of $8.2 million, net amortization of $0.1 million and a $6.5 million decrease in unrealized losses. The amount of pledged investment securities increased by $20.2 million as compared to year end and increased $13.9 million as compared to March 31, 2024. As of March 31, 2025 pledged investment securities totaled $271.9 million. The Company does plan to do additional purchases of securities the remainder of the year for the purposes of increasing our investment holdings in Community Reinvestment Act (CRA) qualifying securities, liquidity and contingency planning and as a means of balance sheet gap management.
As mentioned previously, an additional $197.7 million is also available to the Bank from the FHLB based on current amounts of pledged collateral. The Bank has pledged eligible 1-4 family, home equity, commercial real estate, multifamily real estate portfolios and specific securities. Multifamily real estate was added to our assets pledged to the FHLB in second quarter 2024 and additional commercial real estate holdings were designated as pledges to increase the availability in first quarter 2024. The CRE holdings may be adjusted quarterly to replace paydowns or increase availability of funds. Based on total asset capacity, the Bank would have nearly $1.1 billion available to borrow.
With the exception of FHLB stocks, carried at cost, which is shown as other securities, all of the Company’s security portfolio is categorized as “available-for-sale” and as such is recorded at fair value.
Overall total assets increased only 0.7% or $24.1 million since year end 2024. The largest areas of growth occurred in the loan portfolio of $19.4 million and in the security portfolio of $12.0 million which was discussed above.
Total deposits accounted for the largest growth within liabilities of $13.5 million or 0.5%. The mix of deposits saw increases in interest bearing checking, savings and money market deposits offset by decreases in time deposit accounts and noninterest bearing accounts since December 31, 2024. The Bank is adjusting its checking product offerings to decrease the number of overall types and provide better service to our customers.
Shareholders’ equity increased by $9.4 million as of the first quarter of 2025 compared to year end 2024. Earnings exceeded dividend declarations during the three months ended March 31, 2025. Accumulated other comprehensive loss decreased in unrealized loss position by $5.1 million from December 2024 to an unrealized loss of $20.1 million on March 31, 2025. Dividends declared remained unchanged from the prior quarter at $0.22125 per share and were 0.6% over first quarter 2024’s $0.22 per share. Compared to March 31, 2024, shareholders’ equity increased 8.5% or $26.9 million with $10.5 million attributed to an improvement in accumulated other comprehensive loss. Net income was higher for the quarter ended March
2025 compared to March 2024 by $1.6 million; however, $1.4 million lower than fourth quarter 2024. We are encouraged that net interest income has continued to improve quarter over quarter since third quarter 2023.
Basel III regulatory capital requirements include a capital conservation buffer of 2.5%. As of March 31, 2025, the Company and the Bank are both positioned well above the current requirement.
While the Holding Company generally has sufficient liquidity to maintain its dividend policy without relying on the upstreaming of dividends from the Bank, the Bank declared a $3.5 million dividend during the first quarter of 2025.
The Bank continues to be well-capitalized at March 31, 2025 in accordance with Federal regulatory capital requirements as the capital ratios below show:
Tier I Leverage Ratio
9.10
Risk Based Capital Tier I
11.37
Total Risk Based Capital
12.40
Stockholders' Equity/Total Assets
10.86
Capital Conservation Buffer
4.40
The implementation of ASU 2016-13 (CECL) resulted in an entry which reduced retained earnings $3.4 million on January 1, 2023. This adjustment is permitted to be spread over three years when calculating regulatory capital, which for 2023 was over $2.5 million. This adjustment decreased to $1.7 million for 2024 and $843 thousand for 2025.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Comparison of Results of Interest Earnings and Expenses for three month periods ended March 31, 2025 and 2024
When comparing first quarter 2025 to first quarter 2024, average loan balances only grew $1.4 million which represented a 0.1% increase in a one-year time period. Interest income on loans increased $1.9 million or 5.3% as compared to the quarter ended March 31, 2024. The Company's loan portfolio is 40.2% variable rate with 23.2% of total loans subject to repricing within the next three months and 33.8% of total loans subject to repricing within the next twelve months.
The available-for-sale securities portfolio increased in average balances by $70.8 million when comparing to the same quarter in 2024 while the income associated with the security portfolio increased $1.0 million over first quarter 2024. The increased balances were the result of increasing our holdings for liquidity and contingency planning purposes and to improve our investments in CRA qualifying securities. Federal funds sold and interest bearing deposits decreased in average balances by $4.6 million as compared to the same quarter in 2024 with decreased income of $569 thousand for the current quarter. The decreased balances are the result of funding loan growth, purchases of available-for-sale securities and repayment of other borrowed money.
The overall total average balance of the Bank’s earning assets increased by $67.6 million and interest income for the quarter comparisons was higher for first quarter 2025 by 6.1% or $2.3 million as compared to first quarter 2024. Rate changes between periods have contributed to approximately 89.1% of the growth.
Annualized yield, for the quarter ended March 31, 2025, was 5.19% as compared to 5.00% for the quarter ended March 31, 2024. The following charts demonstrate rate increases accounted for 99.0% of the increased loan interest income while increased loan balances accounted for the remaining 1.0%. The yields on tax-exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts to follow. The tax-exempt interest income was $115 and $157 thousand for the first quarter 2025 and 2024 which resulted in a federal tax savings of $24 and $33 thousand, respectively.
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Quarter to Date Ended March 31, 2025
Annualized Yield/Rate
Interest Earning Assets:
Average Balance
Interest/Dividends
2,578,531
5.75
5.46
Taxable investment securities
458,519
2,739
2.39
1.75
Tax-exempt investment securities
18,310
2.16
Fed funds sold & other
105,770
4.21
6.09
Total Interest Earning Assets
3,161,130
5.19
5.00
Change in Interest Income Quarter to Date March 31, 2025 Compared to March 31, 2024
Total Change
Change Due to Volume
Change Due to Rate
1,872
1,853
1,053
322
731
(569
(70
(499
2,348
257
2,091
Contributing to the increased net interest income for the quarter was a decrease in interest expense of just under $1.5 million or 7.8% compared to first quarter 2024. Since 2024, average interest bearing deposit balances have increased $77.1 million or 3.7% while the Company recognized $1.3 million less in interest expense for the most recent quarter. During 2024, the Federal Reserve decreased the federal funds rate by 50 basis points in September and 25 basis points in November and December. Deposit rates have been adjusted numerous times with all the rate changes. The following charts demonstrate increased average interest bearing deposit balances accounted for 34.4% of additional interest bearing deposit expense while rate decreases accounted for decreased interest bearing deposit expense of 134.4%.
Interest expense on FHLB borrowings and other borrowings decreased $139 thousand in the first quarter 2025 over the same time frame in 2024 due to the repayment of FHLB advances. During the current quarter, FHLB borrowings of $585 thousand were paid down. Interest expense on fed funds purchased and securities sold under agreement to repurchase decreased $13 thousand compared to first quarter 2024 due to the decrease of $978 thousand in average balances. Cost of funds decreased even with growth in interest bearing deposit balances offset by decreased borrowings and decreased noninterest bearing deposits balances of $13.9 million compared to first quarter 2024. The Bank continues to focus on capturing the full customer relationship; however, it has sometimes resulted in more expensive deposits being brought in. The average cost of funds decreased to 2.76% in first quarter 2025 compared to 3.06% in first quarter 2024. Refer to Note 11 for additional information on subordinated notes.
Interest Bearing Liabilities:
Interest
NOW accounts and savings deposits
1,543,665
8,564
2.22
2.61
627,498
5,424
3.46
3.61
Other borrowed money
245,734
4.15
4.09
Fed funds purchased & securities
sold under agreement to repurchase
27,480
3.94
3.99
34,828
3.26
3.27
Total Interest Bearing Liabilities
2,479,205
2.76
3.06
59
Change in Interest Expense Quarter to Date March 31, 2025 Compared to March 31, 2024
(843
653
(1,496
(448
(208
(240
(139
(3
(1
(1,443
(1,700
As the following chart indicates, the improvement in yields on interest earning assets of 19 basis points combined with the decreased cost of funds of 30 basis points equated to a 49 basis point improvement in net interest spread when comparing to the same period a year ago. Competition for deposits remains intense with most competitors offering special rates for specific terms.
Interest/Dividend income/yield
4.41
Interest Expense/cost
1.85
Net Interest Spread
2.43
1.94
2.56
Net Interest Margin
3.03
2.60
3.01
Net Interest Income
Net interest income increased approximately $3.8 million for the first quarter 2025 over the same time frame in 2024 due to the increase in interest income of $2.3 million combined with the interest expense decrease of approximately $1.5 million as previously mentioned. As the new loans added in 2024 and 2025 generate more income, management expects the benefits of the Company’s strategy of repositioning the balance sheet to increase interest income in the long run. Loans as a percentage of earning assets decreased to 81.6% in first quarter 2025 compared to 83.3% in first quarter 2024. Loans to total assets decreased to 77.5% in first quarter 2025 compared to 79.2% for the same period 2024. The percentage of earning assets to total assets decreased slightly to 95.0% in 2025 compared to 95.1% in 2024. In terms of net interest margin, the Bank recognizes competition for deposits will continue; however, there is a greater opportunity for gradual improvement with loans repricing upwards in the next year and a likely continuing decrease in cost of funds.
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Comparison of Noninterest Results of Operations for three month periods ended March 31, 2025 and 2024
Provision Expense
The Allowance for Credit Losses (ACL) has a direct impact on the provision expense. The increase in the ACL is funded through recoveries and provision expense.
Total provision for credit losses increased $1.1 million for the three months ended March 31, 2025 as compared to the same period in 2024. Management continues to monitor asset quality, making adjustments to the provision as necessary. The impact of higher interest rates and inflation are taken into consideration when reviewing qualitative factors. Loan charge-offs were $143 thousand higher during the three months ended March 31, 2025 than the same period in 2024. Recoveries were $87 thousand lower during the three months ended March 31, 2025 as compared to same period in 2024. Combined net charge-offs were $230 thousand higher in the three months ended March 31, 2025 than the same time period 2024.
Loans past due 30 or more days decreased $12.5 million at March 31, 2025 as compared to March 31, 2024. The largest changes were attributed to the combined decrease of past due balances of $14.6 million in the agricultural and agricultural real estate portfolio segments. The consumer real estate portfolio segment past due balances increased $2.5 million for the same time period.
The following table breaks down the activity within the ACL for each portfolio segment and shows the contribution provided by both recoveries and the provision, along with the reduction of the allowance caused by charge-offs. The time period covered is for the three months ended March 31, 2025, 2024, and 2023.
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Three Months Ended March 31, 2023
Loans, amortized cost
Daily average of outstanding loans
2,577,288
2,575,096
2,397,061
Nonaccrual loans
19,391
7,713
Nonperforming loans*
Allowance for Credit Losses - January 1,
20,313
Loans Charged off:
Agriculture Real Estate
81
192
Loan Recoveries:
Net Charge Offs (Recoveries):
(9
279
Provision for (recovery of) Credit Losses
817
Allowance for Credit Losses - March 31,
24,634
Allowance for Unfunded Loan Commitments & Letters of Credit - March 31,
2,228
Total Allowance for Credit Losses - March 31,
27,633
26,626
26,862
Ratio of Net Charge-offs to Average Outstanding Loans
0.01
0.00
Ratio of Nonaccrual Loans to Loans
0.17
0.76
0.32
Ratio of the Allowance for Credit Losses to Loans
1.02
0.97
1.01
Ratio of the Allowance for Credit Losses to Nonaccrual Loans
586.64
127.28
319.38
Ratio of the Allowance for Credit Losses to Nonperforming Loans*
*Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual.
The balance of loans, amortized cost at March 31, 2025 and March 31, 2024 within this chart does not include a fair value basis adjustment for derivatives of $1.7 million and $969 thousand, respectively, or a daily average outstanding balance of $1.2 million and $2.0 million, respectively.
Loans classified as nonaccrual were lower as of March 31, 2025 at $4.5 million as compared to $19.4 million as of March 31, 2024. The agricultural real estate portfolio segment accounted for 79.2% or $11.8 million of the decrease as compared to March 31, 2024. The agricultural portfolio segment decreased $4.3 million compared to March 31, 2024. The commercial and industrial portfolio segment decreased $473 thousand while the consumer real estate portfolio segment increased $1.7 million compared to March 31, 2024.
The agricultural portfolio segment along with the consumer portfolio segment accounted for the largest component of recoveries while the consumer portfolio segment accounted for the largest component of charge-offs for the three months ended March 31, 2025 versus the commercial and industrial portfolio segment and consumer portfolio segment which accounted for the largest components of recoveries and the largest component of charge-offs for the three months ended March 31, 2024.
The following table presents the balances for allowance for credit losses per portfolio segment in terms of dollars, as a percentage of ACL and as a percentage of loans at March 31, 2025 and March 31, 2024.
Balance at End of Period Applicable To:
Amount (In Thousands)
% of ACL
% of Loan Category
13.98
20.30
13.31
20.68
2.93
8.36
4.74
8.94
5.97
1.53
5.04
64.15
51.28
64.64
51.25
12.01
10.77
9.11
10.07
2.35
4.71
2.97
1.96
1.05
Allowance for Credit Losses
Off Balance Sheet Commitments
Total Allowance for Credit Losses
Noninterest income was up $216 thousand, or 5.5%, for the three months ended March 31, 2025 over the same time frame in 2024. Other service fees increased by $67 thousand as compared to the three months ended March 31, 2024. Customer service fees decreased by $217 thousand compared to the same period in 2024. Mortgage release fees, which are included in customer service fees, decreased $148 thousand over the same time period in 2024. Servicing rights income for 1-4 family real estate and agricultural real estate loans increased $223 thousand as compared to the same period in 2024 due to an increase in real estate loans sold as discussed below. Bank owned life insurance cash surrender value increased $28 thousand.
The Company has seen improvement in mortgage production volume partially due to the improvement of midrange value housing inventory in many of our markets. The gain on the sale of these loans was $177 thousand higher for the three months ended March 31, 2025 over the same period in 2024. Total originations of loans held for sale for the three months ended March 31, 2025 were $13.0 million with proceeds from sale at $13.9 million for 2025 compared to 2024’s activity of $8.5 million in originations and $6.8 million in sales. The mortgages sold were both 1-4 family real estate and agricultural real estate loans originated for sale.
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The impact of loan servicing rights, both to income and expense, is shown in the following table which reconciles the value of loan servicing rights. The capitalization runs through noninterest income while the amortization thereof is included in noninterest expense. For the three months ended March 31, 2025 and 2024, loan servicing rights caused a net $100 thousand in income and $93 thousand in expense, respectively. Capitalized additions of agricultural real estate loan servicing rights were $170 thousand for the three months ended March 31, 2025. There were no capitalized additions during the comparable period in 2024. Amortization of agricultural real estate loan servicing rights were $65 thousand and $60 thousand for the same time periods, respectively. For 1-4 family real estate loans of 15 years and less, the market value of the loan servicing rights was 1.277% in the first quarter 2025 versus 1.177% in first quarter 2024. For 1-4 family real estate loans over 15 years, the value was 1.520% versus 1.354% for the same periods respectively. At March 31, 2025, the carrying value of certain strata were slightly below the market value thus requiring the establishment of a $2 thousand valuation allowance for 1-4 family real estate and a $46 thousand valuation allowance for agricultural real estate servicing rights.
For the three months ended March 31, 2025, noninterest expenses were $919 thousand or 5.2% higher than for the same period in 2024. Salaries and wages, including normal merit increases, restricted stock expense and incentive payouts, increased $32 thousand in total. Salaries and deferred costs decreased $128 thousand from last year. Restricted stock expense decreased $81 thousand. An increase to our incentive accrual to match potential payout accounted for $242 thousand. The increase was due to the investment in people for our strategic growth initiative and staffing of new offices. Benefits increased over 2024 with the increased medical expense of $192 thousand and taxes of $114 thousand offset with reductions in pension of $88 thousand. The additional cost of the offices is also evident in the increased expenses in net occupancy with additional lease expense of $172 thousand and building depreciation of $59 thousand. Furniture and equipment decreased $75 thousand.
Consulting fees increased $560 thousand over the same period in 2024. Data processing expenses and ATM expense increased a combined $75 thousand. General and administrative expense increased $151 thousand. The other items on this line of significance include an increase in charitable giving and postage and printing expenses of $93 thousand combined and debit card losses of $19 thousand.
Income tax expense was $389 thousand higher for the three months ended March 31, 2025 compared to the same period in 2024 based mainly on higher earnings. Amortization of qualified affordable housing projects caused income tax expense to increase $112 thousand and $110 thousand for the three months ended March 31, 2025 and 2024, respectively, as presented in Note 8. Effective tax rates were 20.64% and 20.94% for 2025 and 2024, respectively. Excluding the additional $112 and $110 thousand of income tax expense, the effective tax rates would have been 19.36% and 19.31% for the three months ended March 31, 2025 and 2024, respectively.
Overall, net income in the three months ended March 31, 2025 was up $1.6 million or 29.7% to $7.0 million as compared to last year's $5.4 million. The biggest contributor to the improvement was net interest income. Net interest income was up $3.8 million or 18.8% as the increased interest income exceeded the increased interest expense. Provision for credit losses for loans and unfunded commitments increased $1.1 million compared to 2024. Noninterest income increased $216 thousand and noninterest expense increased $919 thousand as described above. The Company remains strong, stable, and well capitalized and has the capacity to continue to cover the increased costs of expansion. The Company is optimistic for continued improvement in profitability due to the opportunity for continued expansion in the net interest margin.
FORWARD LOOKING STATEMENTS
Statements contained in this portion of the Company's report may be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "intend," "believe," "expect," "anticipate," "should," "planned," "estimated," and "potential." Such forward-looking statements are based on current expectations, but actual results may differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Other factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank's market area, changes in relevant accounting principles and guidelines and other factors over which management has no control. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results differ from those projected in the forward-looking statements.
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ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and equity prices. The primary market risk to which we are subject is interest rate risk. Much of our interest rate risk arises from the instruments, positions and transactions entered for purposes other than trading such as loans, available for sale securities, interest bearing deposits, short-term borrowings and long-term borrowings. Interest rate risk occurs when interest bearing assets and liabilities reprice at different times as market interest rates change. For example, if fixed rate assets are funded with variable rate debt, the spread between asset and liability rates will decline or turn negative if rates increase.
Interest rate risk is managed within an overall asset/liability framework. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net income to potential changes in interest rates. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is effectively managed. If our asset/liability management strategies are unsuccessful, our profitability may be adversely affected. The Company employs a sensitivity analysis utilizing interest rate shocks to help in this analysis.
At March 31, 2025, the shocks presented assume an immediate change of rate in the percentages and directions shown:
Interest Rate Shockon Net Interest Margin
Interest Rate Shockon Net Interest Income
Net Interest
% Change to
Rate
Cumulative
Margin (Ratio)
Flat Rate
Direction
Changes by
Total ($000)
3.26%
-3.63%
Rising
3.00%
96,037
-7.53%
3.31%
-2.09%
2.00%
98,683
-4.99%
3.45%
1.98%
1.00%
104,065
0.20%
3.38%
0.00%
Flat
103,860
-3.57%
Falling
-1.00%
102,005
-1.79%
3.04%
-10.22%
-2.00%
97,194
-6.42%
2.85%
-15.84%
-3.00%
93,646
-9.84%
The Bank’s balance sheet is slightly asset-sensitive after coming through 100 bps of Fed rate cuts from September through December 2024. The net interest margin represents the forecasted twelve-month margin. The Company also reviews shocks with a 4.00% fluctuation and over a 24-month time frame. The goal of the Company is to gather more core deposits, such as checking and savings accounts. Checking accounts are preferable for the lower cost of funds whereas savings and money market accounts are beneficial due to the variability of the interest in both rate and immediate option to reprice. CD pricing is more favorable for the Bank in shorter terms now that the yield curve has normalized somewhat for longer term rates.
The Bank was aggressive in dropping its non-maturity deposit rates in the last 4 months of 2024 while the Fed was cutting their rate. We will have some continued opportunity to be aggressive with future Fed rate cuts, particularly with our higher deposit rates. While net interest income drops in a falling interest rate environment, there are potential revenues and other factors that can insulate the Bank’s overall income, such as prepayment penalty fees, mortgage fees, and rate floors. The Bank’s monthly cost of funds dropped from 2.89% in December 2024 to 2.81% in March 2025. Older loans and investments will continue to reprice higher, in aggregate, in the next twelve months based on current rates. The Bank continues to review and adjust its assumptions concerning decay rates, deposit betas, key rate ties, and loan prepayment speeds. Rates are modified as index rates change. Directional changes shown above are within the Bank's risk tolerance. The effect of the rate shocks may be mitigated to the extent that not all lines of business are directly tied to an external index and actual balance sheet composition may differ from prediction.
Overall, the Company must continue its trajectory of improved pricing discipline for its new loans and deposits.
ITEM 4 CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company's management including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no changes in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 1A RISK FACTORS
Except as indicated below, there have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Inflation Risk
Periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention. Additionally, inflation may lead to a decrease in our customers’ purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could also be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for new credit extensions.
Quantitative Modeling Risk
We rely on quantitative modeling to measure risks and to estimate certain financial values. Quantitative models may be used to help manage certain aspects of our business and to assist with certain business decisions, including estimating expected lifetime credit losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning purposes. All models have certain limitations. For instance, these methodologies inherently rely on assumptions, historical analyses, and correlations which may not capture or fully incorporate all relevant conditions and circumstances. As a consequence, such limitations may result in losses, particularly in times of market distress. Additionally, as businesses and markets continue to rapidly evolve, our measurements may not accurately reflect this evolution. Even if the underlying assumptions and historical correlations used in our models are adequate, our models may be deficient due to errors in computer code, inaccurate data, misuse of data, or the use of a model for a purpose outside the scope of the model’s design.
Reliance on such models presents the risk that our resulting business decisions will be adversely affected due to incorrect, missing, or misleading information. If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions. Strategies that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable. Also, information that we provide to the public or regulators based on poorly designed models could be inaccurate or misleading.
Trade Policy Risk
The ongoing trade policies and tariff initiatives being pursued by the U.S. government under the administration of President Trump could present potential risks unique to the markets within which we operate. Many of our commercial borrowers operate in agriculture, food processing, and manufacturing; industries that are particularly sensitive to changes in trade policy. The imposition of tariffs on imported goods, the added potential for retaliatory tariffs by foreign governments, or other similar restrictions on international trade could increase costs for domestic manufacturers and consumers alike, as well as reduce demand abroad for U.S. exports, and disrupt supply chains. Any prolonged trade tensions could negatively impact the broader economic environment in the Midwest where the Bank operates, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services. If these factors lead to financial strain on our borrowers, we may experience increased credit risk, higher loan delinquencies, and a potential decline in loan demand.
As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes. While we actively monitor these developments and work closely with our agricultural customers, there is no assurance
that we can fully mitigate the risks posed by tariff initiatives or other trade-related disruptions. These factors could materially affect our business, financial condition, and results of operations.
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ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Treasury stock repurchased the quarter ended March 31, 2025.
Period
(a) Total Number ofShares Purchased
(b) Average PricePaid per Share
(c) Total Numberof Shares Purchased as Partof Publicly Announced Planor Programs (1)
(d) MaximumNumberof Shares that may yet bepurchased under the Plans orPrograms (1)
1/1/2025 to 1/31/2025
(2)
26.54
—
650,000
2/1/2025 to 2/28/2025
3/1/2025 to 3/31/2025
792
24.15
24.61
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable
ITEM 5 OTHER INFORMATION
During the most recently completed fiscal quarter, no director or officer of the Company adopted or terminated:
ITEM 6 EXHIBITS
3.1(a)
Amended Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on October 25, 2017).
3.1(b)
Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1(b) to Registrant’s Annual Report on Form 10-K filed with the Commission on February 27, 2024).
3.2
Amended and Restated Code of Regulations of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q filed with the Commission on July 26, 2017).
4.1
Description of Registrant’s Common Stock (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K filed with the Commission on February 26, 2020).
31.1
Rule 13-a-14(a) Certification - CEO
31.2
Rule 13-a-14(a) Certification - CFO
32.1
Section 1350 Certification - CEO
32.2
Section 1350 Certification - CFO
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, has been formatted in Inline XBRL.
(1) Pursuant to Rule 406T of Regulation S-T, the interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements 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, Inc.,
Date:
May 5, 2025
By:
/s/ Lars B. Eller
Lars B. Eller
President and Chief Executive Officer
/s/ Barbara J. Britenriker
Barbara J. Britenriker
Executive Vice-President and
Chief Financial Officer