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FARMERS & MERCHANTS BANCORP INC

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Business Summary

Farmers & Merchants Bancorp, Inc. operates as a financial holding company whose primary subsidiary, The Farmers & Merchants State Bank, is a local independent community bank serving Northwest Ohio, Northeast Indiana, and Southeast Michigan since 1897 . The Bank engages in general commercial banking and savings business, including commercial, agricultural, residential mortgage, and consumer lending activities . The Bank's primary market includes communities in Ohio counties of Butler, Champaign, Defiance, Fulton, Hancock, Henry, Lucas, Shelby, Williams, Wood and in Indiana counties of Adams, Allen, DeKalb, Jay, Steuben, Wells, with a Michigan footprint in Oakland County . The commercial banking business in this market is highly competitive, with approximately 5 other depository institutions currently doing business in the Bank's primary market . Based on deposit data as of June 30, 2025 from the FDIC and using zip codes in its markets, the Bank ranked 4th with a 5.14% market share in markets served .

The Bank competes directly with other commercial banks, credit unions, farm credit services, and savings and loan institutions in each of its operating localities, including much larger entities such as Huntington National Bank, Fifth Third Bank, PNC, Wells Fargo Bank, NA, KeyBank NA, and JPMorgan Chase Bank, NA . The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided . The Bank's competitive advantages include its long-standing presence in the community since 1897 , its focus on safe and sound underwriting practices, and its strategy of not promoting innovative, unproven credit products . The Bank also benefits from a diversified loan portfolio and a focus on core deposit gathering to fund loans .

The Company generates revenue primarily through net interest income, which is the difference between interest income earned on interest-earning assets such as loans and securities, and interest expense paid on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits and other borrowings . Noninterest income is derived from service charges on deposit accounts, interchange revenue from debit card transactions, loan servicing income, gains on sale of loans, cash surrender value of bank owned life insurance, and investment services through FM Investment Services . The Bank provides checking account services, savings and time deposit services such as certificates of deposits, online banking for consumer and business customers including bill-pay and mobile banking, remote deposit capture, and custodial services for Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs) . The Bank also operates three Loan Production Offices (LPOs), two in Ohio and one in Indiana .

The Bank's loan portfolio is diversified across several segments. Consumer Real Estate loans were $526,439 thousand as of December 31, 2025, which includes home equity lines of credit that grew $21.7 million or 34% over 2024 . Agricultural Real Estate loans were $217,034 thousand and Agricultural loans were $218,050 thousand , with the Agricultural portfolio increasing 44% or $66.2 million in 2025 compared to 2024 . Commercial Real Estate loans were $1,355,571 thousand , representing 49.96% of the Company's total gross loan portfolio as of December 31, 2025 . Commercial and Industrial loans were $314,405 thousand , growing $37.2 million or 12% for the year . Consumer loans were $58,838 thousand and Other loans were $23,133 thousand . The Bank also offers a hybrid mortgage loan that starts as a fixed rate and adjusts to an adjustable rate mortgage after a set number of years, and participates in Freddie Mac, Farm Service Agency (FSA) guaranteed secondary Agricultural market, and Small Business Lending programs . The Bank offers a low income home buyer mortgage program, the Hometown Advantage Mortgage Program, since November 2023 .

The Bank's investment portfolio, categorized as available for sale, totaled $422,072 thousand as of December 31, 2025, consisting of U.S. Treasury securities of $89,853 thousand , U.S. Government agencies of $131,961 thousand , mortgage-backed securities of $143,382 thousand , and state and local government securities of $56,876 thousand . The investment portfolio is primarily used to provide overall liquidity, required collateral for pledging to Ohio public depositors, and may be pledged for additional borrowings . The Bank also holds stock in the Federal Home Loan Bank of Cincinnati and Indianapolis at a cost of $13.0 million . FM Investment Services, the brokerage department of the Bank, has served customers since April 1999 and purchased the assets and clients of Adams County Financial Resources (ACFR) in November 2020, with securities offered through Raymond James Financial Services, Inc. . The Bank formed an insurance agency, F&M Insurance Agency, LLC, in November 2023 to offer insurance products to customers .

During 2025, the Company awarded 60,673 shares to 131 employees and 6,707 shares were forfeited under its long term incentive plan . At year-end 2025, the Company held 816,351 shares in Treasury stock and 164,667 in unearned stock awards . The Bank opened an additional office in the 3rd quarter of 2025 in Troy, Michigan, bringing the total to 2 located in Michigan, which manage over $514 million in loans and $64.6 million in deposits . The Company's Board of Directors authorized the repurchase of up to 650,000 common shares between January 28, 2025 and December 31, 2025 . On January 27, 2026, the Company announced the authorization for the repurchase of up to 650,000 shares of its outstanding common stock commencing January 27, 2026 and ending December 31, 2026 . The Bank also purchased an additional $18.0 million of bank owned life insurance in October 2025 and surrendered approximately $6.8 million of policies .

For the fiscal year ended December 31, 2025, net interest income grew 21.4% or almost $18.4 million over 2024 , with net interest margin improving from 2.72% to 3.28%, a 56-basis point increase , and net interest spread increasing 60 basis points to 2.65% . Net income was $33,309 thousand for 2025, compared to $25,938 thousand for 2024, an increase of $7.4 million or 28.4% . Earnings per common share were $2.43 for 2025 versus $1.90 for 2024. Return on average equity was 9.43% and return on average assets was 0.99% for 2025. Total assets were $3,434,382 thousand as of December 31, 2025, compared to $3,364,723 thousand as of December 31, 2024. Stockholders' equity increased 10.6% or $35.7 million to $370,862 thousand .

Business Outlook

The Company's previous 3-year strategic plan has closed, and the next 3-year plan is being finalized, with a framework laid from which to build continued improvement . Management's focus for 2026 includes strong core deposit growth, moderate loan growth, and controlling costs . The Company expects the improvement in noninterest income to continue through 2026 with additional surrenders of bank owned life insurance policies over the next 2 years .

The primary growth vector is the expansion of the Bank's geographic footprint and customer base. The Bank opened an additional office in the 3rd quarter of 2025 in Troy, Michigan, bringing the total to 2 located in Michigan, which manage over $514 million in loans and $64.6 million in deposits . The Bank continues to see the benefit of originating higher yielding loans and having longer duration loans amortize down, with much more floating-rate loans today than at this time last year and the concentration of longer-term, fixed-rate loans decreasing . The Bank also continues to offer new suites of products as customer preferences change and adapts and adopts new technologies, with upgrades to digital products and services continuing to occur in both retail and business lines .

The Company's strategy for improving profitability includes disciplined loan growth, payoffs of expensive borrowings, and using excess liquidity to accomplish improvements . The net interest margin improved from 2.72% to 3.28%, a 56-basis point increase , and net interest spread increased 60 basis points to 2.65% . The asset yield improved from 5.17% for 2024 to 5.45% for 2025 , while the cost of interest-bearing liabilities decreased by 32 basis points from 3.12% to 2.80% . The Company expects to continue focusing on increasing core deposits, including savings deposits, and controlling the cost of funds .

The Bank continues to invest in its infrastructure and technology, which along with higher incentive expense due to improved performance, contributed to the increase in noninterest expense of $8.1 million for 2025 as compared to 2024 . The Bank also leased out a portion of excess office space in Hicksville to medical providers and will continue to look for other opportunities to turn excess space at offices into revenue opportunities . At December 31, 2025, the Company had 474 full time equivalent employees .

The Company declared dividends per share of $0.90000 for 2025, totaling $12.2 million , which was 2.0% higher than 2024 declared dividends of $0.8825 per share . The Company currently expects to continue to maintain the payment of its quarterly dividend consistent with its past practices . The Company's Board of Directors authorized the repurchase of up to 650,000 common shares between January 28, 2025 and December 31, 2025 , and on January 27, 2026, announced authorization for the repurchase of up to 650,000 shares of its outstanding common stock commencing January 27, 2026 and ending December 31, 2026 .

The Company faces headwinds from the agricultural sector, which represents a significant portion of the local economy. The primary crops in the market areas are corn, wheat and soybeans, and the primary livestock is hogs and beef calves . Grain farmers were affected by the late season drought in 2025, but overall yields were better than anticipated, though margins continue to be tight for grain farmers as commodity prices have remained lower due to ample supply . The decline in net farm income has had the greatest impact on those in equipment sales, resulting in higher Agricultural equipment dealer line utilization . Additionally, in January 2025, there was a documented regional increase in incidents of a highly contagious avian influenza known as H5N1 bird flu, which occurred in the Indiana counties of Jay, Allen and Adams, and the Ohio counties of Mercer and Van Wert, and the Bank currently has loan customers in these counties who operate in the poultry industry .

The Company faces headwinds from the competitive environment, with approximately 5 other depository institutions currently doing business in the Bank's primary market , and competition from much larger entities including Huntington National Bank, Fifth Third Bank, PNC, Wells Fargo Bank, NA, KeyBank NA, and JPMorgan Chase Bank, NA . The Company also faces risks from technological change, as national competitors have more resources to invest in technological changes and associated required resources . The rapid development and implementation of advanced technologies, including artificial intelligence and quantum computing, present both opportunities and risks, and if the Company is unable to effectively implement or keep pace with advancements, it may experience a competitive disadvantage .

Risk Factors

The Company's loan portfolio has a large concentration of real estate loans, which constituted a significant portion of the portfolio, with commercial real estate loans representing 49.96% of total gross loans as of December 31, 2025 . Real estate lending involves higher loan principal amounts and repayment is generally dependent on sufficient income from the properties securing the loans, and adverse developments affecting real estate values in the Bank's primary markets in Northwest Ohio, Northeast Indiana, and Southern Michigan could increase credit risk . The Company also faces significant credit risk from its agricultural loan portfolio, which increased 44% or $66.2 million in 2025 , and is concentrated in corn, wheat, and soybeans crops and hogs and beef calves livestock . Payments on agricultural loans are dependent on profitable farm operations, which can be affected by adverse weather conditions, disease, declines in market prices, and government regulations . The Company faces uninsured deposit risk, as uninsured deposits based on FDIC coverage as a percentage of total deposits was 20.6% as of December 31, 2025 , and total uninsured deposits (including public deposits with protection over FDIC) was 12.8% . The Company is susceptible to changes in interest rates, as the Federal Reserve decreased rates three times during 2025 by 25 basis points each time , and the net interest spread has been negatively impacted by the rapid rise of interest rates from March 2020 to July 2023 . The Company also faces risks from climate change and agricultural sector risk, as the Company operates in a region heavily reliant on the agricultural sector, and extreme weather events such as heavy rainfall, flooding, tornadoes, and droughts have been increasingly affecting the region .

Management Priorities

Management's message emphasizes a focus on improving profitability through control of loan growth, improvement in core deposit gathering to fund loans, cost control, balance sheet management, and overall revenue enhancement . The Company successfully reduced dependency on high-cost deposits and expanded contingent liability funding options . Management highlights the largest contributor to better profitability was the increase in the net interest margin from 2.72% to 3.28%, a 56-basis point increase, and net interest spread increasing 60 basis points . The strategic priorities for the period ahead include strong core deposit growth, moderate loan growth, and controlling costs . Management notes that the Company's previous 3-year strategic plan has closed, and the next 3-year plan is being finalized, with a framework laid from which to build continued improvement .

View Source Annual Report on SEC.gov ↗

References

  1. [1] Item 1, Business — General
  2. [2] Item 1, Business — Nature of Activities
  3. [3] Item 1, Business — Nature of Activities
  4. [4] Item 1, Business — Nature of Activities
  5. [5] Item 1, Business — Nature of Activities
  6. [6] Item 1, Business — Nature of Activities
  7. [7] Item 1, Business — Nature of Activities
  8. [8] Item 1, Business — General
  9. [9] Item 1, Business — Nature of Activities
  10. [10] Item 7, MD&A — 2025 in Review
  11. [11] Item 7, MD&A — Net Interest Income
  12. [12] Item 7, MD&A — Noninterest Income
  13. [13] Item 1, Business — Nature of Activities
  14. [14] Item 1, Business — Nature of Activities
  15. [15] Item 7, MD&A — Loan Portfolio
  16. [16] Item 7, MD&A — 2025 in Review
  17. [17] Item 7, MD&A — Loan Portfolio
  18. [18] Item 7, MD&A — Loan Portfolio
  19. [19] Item 7, MD&A — 2025 in Review
  20. [20] Item 7, MD&A — Loan Portfolio
  21. [21] Item 7, MD&A — Loan Portfolio
  22. [22] Item 7, MD&A — Loan Portfolio
  23. [23] Item 7, MD&A — 2025 in Review
  24. [24] Item 7, MD&A — Loan Portfolio
  25. [25] Item 7, MD&A — Loan Portfolio
  26. [26] Item 1, Business — Nature of Activities
  27. [27] Item 1, Business — Nature of Activities
  28. [28] Item 7, MD&A — Securities
  29. [29] Item 7, MD&A — Securities
  30. [30] Item 7, MD&A — Securities
  31. [31] Item 7, MD&A — Securities
  32. [32] Item 7, MD&A — Securities
  33. [33] Item 7, MD&A — Securities
  34. [34] Item 7, MD&A — Securities
  35. [35] Item 1, Business — Nature of Activities
  36. [36] Item 1, Business — General
  37. [37] Item 5, Market for Registrant's Common Equity
  38. [38] Item 5, Market for Registrant's Common Equity
  39. [39] Item 7, MD&A — 2025 in Review
  40. [40] Item 5, Market for Registrant's Common Equity — Issuer Purchases of Equity Securities
  41. [41] Item 5, Market for Registrant's Common Equity — Issuer Purchases of Equity Securities
  42. [42] Item 7, MD&A — 2025 in Review
  43. [43] Item 7, MD&A — Net Interest Income
  44. [44] Item 7, MD&A — Net Interest Income
  45. [45] Item 7, MD&A — Net Interest Income
  46. [46] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  47. [47] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  48. [48] Item 7, MD&A — 2025 in Review
  49. [49] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  50. [50] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  51. [51] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  52. [52] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  53. [53] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  54. [54] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  55. [55] Item 7, MD&A — 2025 in Review
  56. [56] Item 7, MD&A — 2025 in Review
  57. [57] Item 7, MD&A — 2025 in Review
  58. [58] Item 7, MD&A — 2025 in Review
  59. [59] Item 7, MD&A — 2025 in Review
  60. [60] Item 7, MD&A — 2025 in Review
  61. [61] Item 1, Business — Nature of Activities
  62. [62] Item 7, MD&A — Net Interest Income
  63. [63] Item 7, MD&A — Net Interest Income
  64. [64] Item 7, MD&A — Net Interest Income
  65. [65] Item 7, MD&A — Net Interest Income
  66. [66] Item 7, MD&A — Net Interest Income
  67. [67] Item 7, MD&A — 2025 in Review
  68. [68] Item 7, MD&A — 2025 in Review
  69. [69] Item 7, MD&A — 2025 in Review
  70. [70] Item 1, Business — General
  71. [71] Item 5, Market for Registrant's Common Equity
  72. [72] Item 5, Market for Registrant's Common Equity
  73. [73] Item 5, Market for Registrant's Common Equity
  74. [74] Item 5, Market for Registrant's Common Equity
  75. [75] Item 5, Market for Registrant's Common Equity — Issuer Purchases of Equity Securities
  76. [76] Item 5, Market for Registrant's Common Equity — Issuer Purchases of Equity Securities
  77. [77] Item 1a, Risk Factors — Climate Change and Agricultural Sector Risk
  78. [78] Item 7, MD&A — 2025 in Review
  79. [79] Item 7, MD&A — 2025 in Review
  80. [80] Item 1a, Risk Factors — Pandemic, Public-Health, and Agricultural Disease Risks
  81. [81] Item 1, Business — Nature of Activities
  82. [82] Item 1, Business — Nature of Activities
  83. [83] Item 1a, Risk Factors — Technological Change
  84. [84] Item 1a, Risk Factors — Potential Impact of Artificial Intelligence and Quantum Computing
  85. [85] Item 7, MD&A — Loan Portfolio
  86. [86] Item 1a, Risk Factors — Our Loan Portfolio has a Large Concentration of Real Estate Loans
  87. [87] Item 7, MD&A — 2025 in Review
  88. [88] Item 1a, Risk Factors — Climate Change and Agricultural Sector Risk
  89. [89] Item 1a, Risk Factors — Our Loan Portfolio has a Large Concentration of Real Estate Loans
  90. [90] Item 1a, Risk Factors — Uninsured Deposit Risk
  91. [91] Item 1a, Risk Factors — Uninsured Deposit Risk
  92. [92] Item 7, MD&A — Net Interest Income
  93. [93] Item 1a, Risk Factors — Interest Rate Risk
  94. [94] Item 1a, Risk Factors — Climate Change and Agricultural Sector Risk
  95. [95] Item 7, MD&A — 2025 in Review
  96. [96] Item 7, MD&A — 2025 in Review
  97. [97] Item 7, MD&A — 2025 in Review
  98. [98] Item 7, MD&A — 2025 in Review
  99. [99] Item 7, MD&A — 2025 in Review
  100. [100] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  101. [101] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  102. [102] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  103. [103] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  104. [104] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  105. [105] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  106. [106] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  107. [107] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  108. [108] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  109. [109] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  110. [110] Item 7, MD&A — Noninterest Income
  111. [111] Item 7, MD&A — Noninterest Income
  112. [112] Item 7, MD&A — Noninterest Expense
  113. [113] Item 7, MD&A — Noninterest Expense
  114. [114] Item 7, MD&A — Income Taxes
  115. [115] Item 7, MD&A — Income Taxes
  116. [116] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  117. [117] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  118. [118] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  119. [119] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  120. [120] Item 7, MD&A — Net Interest Income
  121. [121] Item 7, MD&A — Net Interest Income
  122. [122] Item 7, MD&A — Net Interest Income
  123. [123] Item 7, MD&A — Net Interest Income
  124. [124] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  125. [125] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  126. [126] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  127. [127] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  128. [128] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  129. [129] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  130. [130] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  131. [131] Item 7, MD&A — Summary of Selected Consolidated Financial Data
  132. [132] Item 5, Market for Registrant's Common Equity
  133. [133] Item 5, Market for Registrant's Common Equity
  134. [134] Item 5, Market for Registrant's Common Equity
  135. [135] Item 5, Market for Registrant's Common Equity
  136. [136] Item 5, Market for Registrant's Common Equity
  137. [137] Item 5, Market for Registrant's Common Equity
  138. [138] Item 7, MD&A — Allowance for Credit Losses
  139. [139] Item 7, MD&A — Allowance for Credit Losses
  140. [140] Item 7, MD&A — Allowance for Credit Losses
  141. [141] Item 7, MD&A — Allowance for Credit Losses
  142. [142] Item 7, MD&A — Income Taxes
  143. [143] Item 7, MD&A — Income Taxes

Analysis on 6/21/2026