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What changed in FARMERS & MERCHANTS BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FARMERS & MERCHANTS BANCORP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+405 added−373 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-27)

Top changes in FARMERS & MERCHANTS BANCORP INC's 2024 10-K

405 paragraphs added · 373 removed · 266 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

48 edited+20 added−14 removed78 unchanged
Biggest changeThe 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.
Biggest changeIn 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).
Amended General QM loan definition 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. The Bank's Loan Policy was revised accordingly.
Amended the General QM loan definition 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. The Bank's Loan Policy was revised accordingly.
Other types of lending activities include loans for home improvements and loans for such items as autos, trucks, recreational vehicles and motorcycles. With the expansion into newer market areas, the most recent increases in loan activity have been in commercial real estate, providing operating lines of credit and machinery purchases.
Other types of lending activities include loans for home improvements and loans for such items as autos, trucks, recreational vehicles and motorcycles. With the expansion into newer market areas, the most recent increases in loan activity have been in commercial and industrial, providing operating lines of credit and machinery purchases, and commercial real estate.
Reportable data points were significantly expanded to 52 fields which included applicant age, credit score, automated underwriting system information, 9 property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, interest rate, loan originator identifier, as well as other data fields.
Reportable data points were significantly expanded to 52 fields which included applicant age, credit score, automated underwriting system information, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, interest rate, loan originator identifier, as well as other data fields.
Guidance issued collectively by the FDIC, FRB, the Bureau, NCUA, and OCC in August 2014 clearly indicated certain consumer credit practices were not permissible and remained subject to Section 5 of the Federal Trade Commission Act, as well as Sections 1031 and 1036 of the Dodd-Frank Act.
Guidance issued collectively by the FDIC, FRB, the Bureau, NCUA, and OCC in 10 August 2014 clearly indicated certain consumer credit practices were not permissible and remained subject to Section 5 of the Federal Trade Commission Act, as well as Sections 1031 and 1036 of the Dodd-Frank Act.
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 Company also formed a Captive insurance company in December 2014 and dissolved it in 4 December 2023..
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 Company also formed a Captive insurance company in December 2014 and dissolved it in December 2023.
Consumer Loans: • Maximum loan to value (LTV) for cars, SUVs, and trucks is 110%. • Loans above 100% are generally the result of sales tax. • Boats, campers, motorcycles, RV's and Motor Coaches range from 80%-90% based on age of vehicle. • 1st or 2nd mortgages on 1-4 family homes maximum LTV range from 80%-85%. • Raw land LTV maximum ranges from 65%-75% depending on whether or not the property has been improved.
Consumer Loans: • Maximum loan to value (LTV) for cars, SUVs, and trucks is 110% depending on whether direct or indirect. • Loans above 100% are generally the result of sales tax. • Boats, campers, motorcycles, RV's and Motor Coaches range from 80%-90% based on age of vehicle. • 1st or 2nd mortgages on 1-4 family homes maximum LTV range from 80%-85%. • Raw land LTV maximum ranges from 65%-75% depending on whether or not the property has been improved.
The Company files reports with the Securities and Exchange Commission (SEC). Because the Company makes its filings with the SEC electronically, you may 10 access such reports at the SEC’s website (www.sec.gov).
The Company files reports with the Securities and Exchange Commission (SEC). Because the Company makes its filings with the SEC electronically, you may access such reports at the SEC’s website (www.sec.gov).
The types of transactions reportable have expanded to include most consumer purpose transactions that are dwelling-secured loans or open-end lines of credit.
The types of transactions reportable expanded to include most consumer purpose transactions that are dwelling-secured loans or open-end lines of credit.
Final rules issued by the Bureau or jointly with other 8 regulatory agencies implemented requirements under the Dodd-Frank Act regarding mortgage-related matters such as ability-to-repay, qualified mortgage standards, mortgage servicing, mortgage loan originator compensation, escrow requirements for higher-priced mortgage loans, and providing appraisals.
Final rules issued by the Bureau or jointly with other regulatory agencies implemented requirements under the Dodd-Frank Act regarding mortgage-related matters such as ability-to-repay, qualified mortgage standards, mortgage servicing, mortgage loan originator compensation, escrow requirements for 9 higher-priced mortgage loans, and providing appraisals.
Our primary subsidiary, The Farmers & Merchants State Bank (Bank) is a local independent community bank that has been primarily serving Northwest Ohio and Northeast Indiana since 1897. Our other subsidiary, Farmers & Merchants Risk Management (Captive) was a captive insurance company formed in December 2014 and located in Nevada. The Captive was dissolved in December 2023.
Our primary subsidiary, The Farmers & Merchants State Bank (Bank) is a local independent community bank that has been primarily serving Northwest Ohio, Northeast Indiana and Southeast Michigan since 1897. Our other subsidiary, Farmers & Merchants Risk Management (Captive) was a captive insurance company formed in December 2014 and located in Nevada. The Captive was dissolved in December 2023.
Because the majority of the Bank's offices are located in Northwest Ohio, Northeast Indiana and Southern Michigan, a substantial amount of the loan portfolio is comprised of loans made to customers in the farming industry for such things as farm land, farm equipment, livestock and operating loans for seed, fertilizer, and feed.
Because the majority of the Bank's offices are 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 things as farm land, farm equipment, livestock and operating loans for seed, fertilizer, and feed.
The required capital levels along with the Bank’s capital position at December 31, 2023 and 2022 are summarized in the table included in Note 16 to the consolidated financial statements. Beginning in 2015, the Company and Bank were required to measure capital adequacy using Basel III accounting.
The required capital levels along with the Bank’s capital position at December 31, 2024 and 2023 are summarized in the table included in Note 16 to the consolidated financial statements. Beginning in 2015, the Company and Bank were required to measure capital adequacy using Basel III accounting.
Ethnicity categories were expanded to include certain subcategories along with a means to capture information on how an applicant’s or borrower’s ethnicity, race, and sex were collected by the institution. A thorough review and validation of data fields to be reported for each application was conducted throughout the year.
Ethnicity categories were expanded to include certain subcategories along with a means to capture information on how an applicant’s or borrower’s ethnicity, race, and sex were collected by the institution. A thorough review and validation of data fields to be reported for each reportable application is conducted throughout the year.
In order to offer longer term fixed rate mortgages, the Bank does participate in the Freddie Mac, FSA guaranteed secondary Ag market, and Small Business Lending programs. The Bank also normally retains the servicing rights on these partially or 100% sold loans.
In order to offer longer term fixed rate mortgages, the Bank does participate in the Freddie Mac, Farm Service Agency (FSA) guaranteed secondary Ag market, and Small Business Lending programs. The Bank also normally retains the servicing rights on these partially or 100% sold loans.
New final rules, effective October 2022, amending the Ability to Repay/Qualified Mortgage Rules were implemented. 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.
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.
At December 31, 2023, we had 456 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.
At December 31, 2024, we had 473 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.
For a discussion of the general development of the Company’s business throughout 2023, please see the portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations captioned “2023 in Review.” Nature of Activities The Farmers & Merchants State Bank engages in general commercial banking business.
For a discussion of the general development of the Company’s business throughout 2024, please see the portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations captioned “2024 in Review.” Nature of Activities The Farmers & Merchants State Bank engages in general commercial banking business.
Based on deposit data as of June 30, 2023 from the FDIC and using zip codes in our markets, the Bank ranked 3rd with a 13.30% market share in markets served. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.
Based on deposit data as of June 30, 2024 from the FDIC and using zip codes in our markets, the Bank ranked 3rd with a 9.78% market share in markets served. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.
As of December 31, 2023, the Bank was well capitalized pursuant to these prompt corrective action guidelines.
As of December 31, 2024, the Bank was well capitalized pursuant to these prompt corrective action guidelines.
Real Estate: • Maximum LTVs range from 70%-80% depending on type. • Maximum LTV on non-traditional borrower loans up to 85%. • Maximum LTV on F&M First Time Homebuyer loans up to 100% FM Investment Services, the brokerage department of the Bank, has served the Bank’s customers, providing investment services, since April of 1999.
Real Estate: • Maximum LTVs range from 70%-80% depending on type. • Maximum LTV on non-traditional borrower loans up to 85%. FM Investment Services, the brokerage department of the Bank, has served the Bank’s customers, providing investment services, since April of 1999.
The commercial banking business in this market is highly competitive, with approximately 48 other depository institutions currently doing business in the Bank’s primary market. 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.
The Michigan footprint includes 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. 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 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.
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. The Bank does not have a program to fund sub-prime loans.
In December of 2014, the Company became a financial holding company within the meaning of the Bank Holding Company Act of 1956 as amended, in order to provide the flexibility to take advantage of the expanded powers available to a financial holding company under the Act.
In December of 2014, the Company became a financial holding company within the meaning of the Bank Holding Company Act of 1956 as amended, 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.
The Bank is also subject to federal regulation relating to such matters as required reserves, limitation as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement of their own securities, limitations upon the payment of dividends and other aspects of banking operations.
As a large bank examined for CRA, the Bank remains attentive to the outcome of the preliminary injunction and the significant impact of the amendments made by the final CRA rule. 11 The Bank is also subject to federal regulation relating to such matters as required reserves, limitation as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement of their own securities, limitations upon the payment of dividends and other aspects of banking operations.
The Bank is an Ohio chartered commercial bank. It is subject to regulation and examination by both the Ohio Division of Financial Institutions (ODFI) and the Federal Deposit Insurance Corporation (FDIC). 5 The Captive was an insurance company incorporated in Nevada, regulated by the State of Nevada, Division of Insurance and was dissolved in December 2023.
The Bank is an Ohio chartered commercial bank. It is subject to regulation and examination by both the Ohio Division of Financial Institutions (ODFI) and the Federal Deposit Insurance Corporation (FDIC).
In some instances, regulators still need to issue proposals, provide guidance, and publish final rules for various provisions. Thus, issuance of guidance and final rules must be monitored in order to be effectively implemented.
Additionally, parents can freeze the credit information of their children under age 16 for free. In some instances, regulators still need to issue proposals, provide guidance, and publish final rules for various provisions. Thus, issuance of guidance and final rules must be monitored in order to be effectively implemented.
Pursuant to the GLB Act, bank holding companies may elect to become a "financial holding company," provided that all of the depository institution subsidiaries of the bank holding company are “well capitalized” and “well managed” under applicable regulatory standards.
The Glass-Steagall Act, which had generally prevented banks from affiliation with securities and insurance firms, was repealed. Pursuant to the GLB Act, bank holding companies may elect to become a "financial holding company," provided that all of the depository institution subsidiaries of the bank holding company are “well capitalized” and “well managed” under applicable regulatory standards.
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.
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.
We report our financial condition and net income on a consolidated basis and we report 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 includes F&M Insurance Agency, LLC, a subsidiary offering insurance products, which was formed in November 2023. We report our financial condition and net income on a consolidated basis and we report only one segment. Our executive offices are located at 307 North Defiance Street, Archbold, Ohio 43502, and our telephone number is (419) 446-2501.
A key requirement from the Dodd-Frank Act resulted in the FDIC’s adoption of new rules in February 2011 regarding Assessments, Dividends, Assessment Base, and Large Bank Pricing.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) revised the statutory authorities governing the FDIC’s management of the DIF. A key requirement from the Dodd-Frank Act resulted in the FDIC’s adoption of 8 new rules in February 2011 regarding Assessments, Dividends, Assessment Base, and Large Bank Pricing.
In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the 6 case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a "controlling influence" over that bank holding company.
In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a "controlling influence" over that bank holding company. 7 Liability for Banking Subsidiaries Under the current Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each subsidiary bank.
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.
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 seven year and a ten year fixed rate mortgage and a seven year jumbo fixed rate mortgage after which the interest rate will adjust annually for all.
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.
The Bank formed an insurance agency, F&M Insurance Agency, LLC, in November 2023 to offer insurance products to our customers. 5 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 Company is required to file with the Federal Reserve Board on a quarterly basis information pursuant to the Act. The Federal Reserve Board may conduct examinations or inspections of the Company and its subsidiaries. On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted into law.
The Federal Reserve Board may conduct examinations or inspections of the Company and its subsidiaries. On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted into law. The GLB Act made sweeping changes with respect to the permissible financial services which various types of financial institutions may provide.
Enactment of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) on May 24, 2018, resulted in a regulatory reform law deemed to be relief from certain burdensome provisions of the Dodd-Frank Act. The EGRRCPA included provisions with various effective dates, including some that were effective immediately.
Year-end submission of HMDA data utilizes the web-based tool developed by the Bureau. Enactment of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) on May 24, 2018, resulted in a regulatory reform law deemed to be relief from certain burdensome provisions of the Dodd-Frank Act.
The Insurance agency is a limited liability company organized in Ohio and regulated by the State of Ohio, Division of Insurance. Holding Company Activities As a financial holding company incorporated and doing business within the State of Ohio, the Company is subject to regulation and supervision under the Bank Holding Act of 1956, as amended (the "Act").
Holding Company Activities As a financial holding company incorporated and doing business within the State of Ohio, the Company is subject to regulation and supervision under the Bank Holding Act of 1956, as amended (the "Act"). The Company is required to file with the Federal Reserve Board on a quarterly basis information pursuant to the Act.
The DIF is primarily funded through quarterly assessments on insured depository institutions, but it also earns interest income on its securities.
The DIF is primarily funded through quarterly assessments on insured depository institutions, but it also earns interest income on its securities. Decreases in the DIF result from loss provisions associated with the resolution of failed banks and FDIC operating expenses.
The Protecting Tenants in Foreclosure Act was restored and permanently extended as of June 23, 2018. Effective September 21, 2018, consumers could freeze their credit information and place one-year fraud alerts for free. Additionally, parents can freeze the credit information of their children under age 16 for free.
Though effective immediately, conforming regulations were required for certain provisions such as Reciprocal Deposits, Examination Cycles, and High Volatility Commercial Real Estate (HVCRE). The Protecting Tenants in Foreclosure Act was restored and permanently extended as of June 23, 2018. Effective September 21, 2018, consumers could freeze their credit information and place one-year fraud alerts for free.
Awareness of UDAP standards, and the Bureau’s unfair, deceptive or abusive acts or practices (UDAAP) in relation to the offering and marketing of Bank products and services remains important. A final rule with amendments to the Community Reinvestment Act (CRA) was jointly released by the OCC, FRB, and FDIC on October 24, 2023.
Awareness of UDAP standards, and the Bureau’s unfair, deceptive or abusive acts or practices (UDAAP) in relation to the offering and marketing of Bank products and services remains important.
In addition, a mandated appraisal notice under the Equal Credit Opportunity Act and the servicing application disclosure under RESPA were also combined into the new integrated disclosures. Process and procedural adjustments were necessary to appropriately implement the new requirements.
In addition, a mandated appraisal notice under the Equal Credit Opportunity Act and the servicing application disclosure under RESPA were also combined into the new integrated disclosures. Amendments to the TRID rules with a mandatory compliance in October 2018 were intended to provide further clarity to certain provisions.
The Captive was located in Nevada and regulated by the State of Nevada Division of Insurance. The Bank formed an insurance agency in November 2023 to offer insurance products to our customers.
The Captive was located in Nevada and regulated by the State of Nevada Division of Insurance.
Amendments to the TRID rules effective in October 2017 with a mandatory compliance in October 2018 were intended to provide further clarity to certain provisions. Remaining attentive to the complexities of the TRID rules ensure practices and procedures remain compliant and not subject the Bank to unnecessary liability.
Remaining attentive to the complexities of the TRID rules ensure practices and procedures remain compliant and do not subject the Bank to unnecessary liability.
Revised Regulation C rules which implement the Home Mortgage Disclosure Act (HMDA) published by the Bureau become effective on January 1, 2018 for reportable loan applications. Dodd-Frank Act provisions added new data points for HMDA and authorized the Bureau to require additional information.
As a reporter under Regulation C which implements the Home Mortgage Disclosure Act (HMDA), the Bank remains attentive to the accuracy and integrity of the data reported. Dodd-Frank Act provisions added new data points for HMDA and authorized the Bureau to require additional information.
Matters impacted included access to mortgage credit; access to credit; protections for veterans, consumers, and homeowners; rules for holding companies; capital access; and protections for student borrowers. Though effective immediately, conforming regulations were required for certain provisions such as Reciprocal Deposits, Examination Cycles, and High Volatility Commercial Real Estate (HVCRE).
The EGRRCPA included provisions with various effective dates, including some that were effective immediately. Matters impacted included access to mortgage credit; access to credit; protections for veterans, consumers, and homeowners; rules for holding companies; capital access; and protections for student borrowers.
These amendments are intended to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. The final rule is 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 rule, published in the Federal Register on February 1, 2024, were effective on April 1, 2024, with certain amendments effective April 1, 2024, through January 1, 2031, and other amendments delayed indefinitely. On February 5, 2024, the American Bankers Association, the U.S.
In addition, the Bank offers remote deposit capture or electronic deposit processing. Upgrades to our digital products and services continue to occur in both retail and business lines. 3 The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory guidance.
The Bank continues to offer products that also meet the needs of our more traditional customers. 4 The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory guidance.
Consumer real estate also increased substantially with the acquisition of Perpetual Federal Savings Bank on October 1, 2021 and Peoples Federal Savings and Loan Association on October 1, 2022. The Bank also operates four Loan Production Offices (LPOs), two in Ohio and one in Indiana and Michigan.
The Bank also operates five Loan Production Offices (LPOs), two in Ohio, one in Indiana and two in Michigan. The Bank also provides checking account services, as well as savings and time deposit services such as certificates of deposits.
Removed
The Bank offers a three year, a five year, a seven year and a ten year fixed rate mortgage and a ten year jumbo fixed rate mortgage after which the interest rate will adjust annually for all.
Added
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.
Removed
With the acquisitions in the 4 th quarters of 2022 and 2021, the Bank saw an increase in fixed rate, long-term mortgage loans to our portfolio from that banking service area. The Bank does not have a program to fund sub-prime loans.
Added
The Captive was an insurance company incorporated in Nevada, regulated by the State of Nevada, Division of Insurance and was dissolved in December 2023. 6 F&M Insurance Agency, LLC is a limited liability company organized in Ohio and regulated by the State of Ohio, Division of Insurance.
Removed
The GLB Act made sweeping changes with respect to the permissible financial services which various types of financial institutions may provide. The Glass-Steagall Act, which had generally prevented banks from affiliation with securities and insurance firms, was repealed.
Added
On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued final rules which amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) as made by Section 1071 of the Dodd-Frank Act.
Removed
Liability for Banking Subsidiaries Under the current Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each subsidiary bank.
Added
Covered financial institutions are required to collect and report data on covered credit applications involving small businesses, including those businesses owned by women or minorities. Small businesses are defined as those businesses (including agricultural businesses) which had gross annual revenue of $5 million of less during its most recent fiscal year.
Removed
Decreases in the DIF result from loss provisions associated with the resolution of failed banks and FDIC operating expenses. 7 The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) revised the statutory authorities governing the FDIC’s management of the DIF.
Added
Data collection involves 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 can refuse to provide demographic information.
Removed
Implementation to achieve TRID compliance involved extensive collaboration with the Mortgage Loan Origination software vendor, as well as outreach and coordination efforts with real estate agents, attorneys, and closing agents to cultivate preparedness for the new integrated mortgage loan disclosure forms.
Added
Implementation of these final rules will involve significant changes to processes and procedures in conjunction 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.
Removed
The Department of Defense (DOD) rules amending its regulation that implements the Military Lending Act (MLA) became effective in October 2016. The MLA enacted as part of the John Warner National Defense Act of 2007, significantly expanded the scope of the Act to cover all consumer credit except residential mortgages and purchase money loans.
Added
These new final rules had a phased implementation period with the largest lenders being required to collect and report data first. As a Lender, such as the Bank, that originates at least 500 small business loans annually, data collection would originally begin on April 1, 2025.
Removed
Compliance requirements for credit cards became effective in October 2017.
Added
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.
Removed
Coverage applies to consumer credit defined as “credit offered or extended for personal, family, or household purpose and that is subject to a finance charge or payable by written agreement in more than four installments.” A covered borrower is a consumer who at the time of becoming obligated on a consumer credit transaction or establishing an account for consumer credit, is a covered member or dependent (including a spouse) of a covered member.
Added
The argument is 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 which is based upon another pending lawsuit which is awaiting a hearing by the U.S.
Removed
A covered member is a member of the armed forces serving on active duty or active guard or reserve duty. Providing a loan to a MLA-covered borrower that exceeds the 36% Military Annual Percentage Rate is prohibited. Any covered loans made without providing proper disclosures or in violation of the MLA is void.
Added
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.
Removed
Creditors who knowingly or willfully violate the rules could be subject to a fine, imprisonment up to one year or both. Reliance on and collaboration with Loan Origination System vendors for assistance with calculations and required disclosures along with an efficient and effective process for identifying covered borrowers remains the best defense to prevent violations.
Added
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.
Removed
Under the TILA Ability to Repay requirements, the Bank meets the criteria to qualify as a small creditor based on the number of first-lien mortgage loans transactions and due to its asset size; however it is not a creditor that operates predominantly in rural or underserved areas.
Added
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.
Removed
Year-end submission of HMDA data utilizes the web-based tool developed by the Bureau. With the expiration of the temporary threshold, the Bank commenced HMDA data collection on certain open-end lines of credit secured by a dwelling with final action taken as of January 1, 2022 or thereafter.
Added
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.
Removed
As a large bank examined for CRA, the Bank is most attentive to the significant impact these amendments have. Review of the various amendments and the specific requirements, timing to meet timing requirements and overall impact is ongoing. The final rule has not yet been published in the Federal Register as of year end.
Added
As a lender that originates at least 500 small business loans annually, the date to commence data collection and the subsequent filing deadline are currently uncertain. The Bank remains attentive to the ongoing arguments, appeals, and related cases in the litigation involving the Section 1071 final rule.
Added
A final rule with amendments to the Community Reinvestment Act (CRA) was jointly released by the OCC, FRB, and FDIC on October 24, 2023. These amendments are intended to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
Added
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.
Added
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.
Added
On March 21, 2024, the Federal Reserve, FDIC, and Office of Comptroller of the Currency issued an interim final rule and a technical corrections final rule related to the CRA final rule both effective on April 1, 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe extent to which our business and results of operations may continue to be adversely affected by this macroeconomic uncertainty will depend on numerous evolving factors and future developments, including the continued spread and severity of the virus and new variants; the availability, distribution, use and effectiveness of treatments and vaccines; the extent and duration of lingering effects on the economy, inflation, consumer confidence and consumer and business spending; and the impact on consumers and businesses as forbearance and government support programs end, including the end of the moratorium on student loan repayments. 16 Several military conflicts are currently taking place across the world (such as the ongoing Russia-Ukraine and Israel-Hamas wars), and geopolitical tensions may result in additional conflicts or escalate existing conflicts.
Biggest changeThe extent to which our business and results of operations may continue to be adversely affected by this macroeconomic uncertainty will depend on numerous evolving factors and future developments; the extent and duration of lingering effects on the economy, inflation, consumer confidence and consumer and business spending.
Global Economic and Geopolitical Instability and Inflationary Risks Geopolitical conditions, terrorist attacks, military conflicts, natural disasters, severe weather, widespread health emergencies or pandemics, information or cybersecurity incidents (including intrusion into or degradation or unavailability of systems or technology by cyberattacks), operational incidents and other catastrophic events can have a material adverse effect on our business.
Global Economic and Geopolitical Instability and Inflationary Risks Geopolitical conditions, terrorist attacks, military conflicts, natural disasters, severe weather, widespread health emergencies or pandemics, information security or cybersecurity incidents (including intrusion into or degradation or unavailability of systems or technology by cyberattacks), operational incidents and other catastrophic events can have a material adverse effect on our business.
The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter.
The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the 18 balance sheet and periodically thereafter.
These individuals are rewarded based on overall ROA of the Bank along with individual pre-established 13 goals. Non-executive officers, therefore, have incentive pay at risk for individual performance. The individualized goals are recommended by each individual’s supervisor and are approved by an incentive committee of the Bank.
These individuals are rewarded based on overall ROA of the Bank along with individual pre-established goals. Non-executive officers, therefore, have incentive pay at risk for individual performance. The individualized goals are recommended by each individual’s supervisor and are approved by an incentive committee of the Bank.
As a result, commercial construction 11 loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest.
As a result, commercial construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest.
Crop insurance can be structured to be triggered by different factors and claim payment may also be customized, such as based on harvest yields, income generation. Farmers may also use hedging techniques to lock in crop prices, input costs for future production.
Crop insurance can be structured to be triggered by different factors and claim payment may also be customized, such as based on harvest yields or income generation. Farmers may also use hedging techniques to lock in crop prices and input costs for future production.
Our allowance for credit losses is based on our historical loss experience and forward-looking data as well as an evaluation of the risks associated with our loan portfolio, including the size and composition of the loan portfolio, current economic conditions 15 and concentrations within the portfolio.
Our allowance for credit losses is based on our historical loss experience and forward-looking data as well as an evaluation of the risks associated with our loan portfolio, including the size and composition of the loan portfolio, current economic conditions and concentrations within the portfolio.
These laws may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds. In addition, the Company’s earnings are affected by the monetary policies of the Board of Governors of the Federal Reserve.
These laws may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds. In addition, the Company’s earnings are affected by the 13 monetary policies of the Board of Governors of the Federal Reserve.
Dividends are subject to determination and declaration by our Board of Directors, which takes into account many factors. The declaration of dividends by us on our common stock is subject to the discretion of our Board and to applicable state and federal regulatory limitations.
Dividends are subject to determination and declaration by our Board, which takes into account many factors. The declaration of dividends by us on our common stock is subject to the discretion of our Board and to applicable state and federal regulatory limitations.
Limited Trading Market The Company has its shares of stock listed and traded on the NASDAQ Capital Market. The Company’s trading symbol is “FMAO.” ITEM 1b. UNRESOLVE D STAFF COMMENTS None.
Limited Trading Market The Company has its shares of stock listed and traded on the NASDAQ Capital Market. The Company’s trading symbol is “FMAO.” ITEM 1b. UNRESOLVE D STAFF COMMENTS None. 19
Our net interest spread will depend on many factors that are partly or entirely outside our control, including competition, federal economic, monetary and fiscal policies, and economic conditions generally.
Our net interest spread will depend on many factors that are partly or 14 entirely outside our control, including competition, federal economic, monetary and fiscal policies, and economic conditions generally.
Management attempts to reduce the Bank’s credit exposure by carefully monitoring the concentration of its loans within specific industries and through the loan approval process. However, there can be no assurance that such monitoring and procedures will totally mitigate the risks.
Management attempts to reduce the Bank’s credit exposure by carefully monitoring the concentration of its loans within specific industries, geographies, loan types and through the loan approval process. However, there can be no assurance that such monitoring and procedures will totally mitigate the risks.
On average, three to four goals were given to each non-executive officer in 2023. Non-executive officers are paid cash incentives based on the year-end ROA of the Bank and receive it within the first quarter of the following year.
On average, three to four goals were given to each non-executive officer in 2024. Non-executive officers are paid cash incentives based on the year-end ROA of the Bank and receive it within the first quarter of the following year.
Likewise, agricultural operating loans involve a greater degree of risk than lending on residential properties, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment or assets such as livestock or crops. The primary livestock in our market areas is hogs.
Likewise, agricultural operating loans involve a greater degree of risk than lending on residential properties, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment or assets such as livestock or crops. The primary livestock in our market areas is hogs and beef calves.
With the formation of the Captive, the ROA goal had been exclusive of the effect of the additional insurance expense at the Bank level, as well as other expenses as agreed upon by the Compensation Committee.
In prior years, with the formation of the Captive, the ROA goal had been exclusive of the effect of the additional insurance expense at the Bank level, as well as other expenses as agreed upon by the Compensation Committee.
The majority of lower based employees receive incentive pay in December of the same year based on the year-to-date base compensation through the last pay received in November. Higher pay range employees, often officers ("non-executive officers"), other than executive officers receive incentive pay based on additional criterion.
The majority of lower based employees receive incentive pay in December of the same year based on the year-to-date base compensation through the last pay received in November. 15 Higher pay range employees, other than executive officers, may receive incentive pay based on additional criterion.
We maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, but should such an event occur that is not prevented or detected by our internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on our business, financial condition or results of operations.
We maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, but should such an event occur that is not prevented or detected by our internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on our business, financial condition or results of operations. 17 Our operations are dependent on our ability to process financial transactions in a secure manner.
The Captive upstreamed dividends to the Company when reserve levels were adequately provided for and did not exceed the net income of the prior twelve months. With the dissolving of the Captive, no such upstream of dividends will occur in 2024. Please see Note 17 in the notes to consolidated financial statements for additional information on dividend payout restrictions.
In prior years, the Captive upstreamed dividends to the Company when reserve levels were adequately provided for and did not exceed the net income of the prior twelve months. Please see Note 17 in the notes to consolidated financial statements for additional information on dividend payout restrictions.
The Compensation Committee determines the target performance levels on which the percentage of pay will be based. The Committee takes into account the five and ten year trend of ROA along with budget forecasted for the next year and the Bank’s past year performance. The Committee also considers the predicted banking environment under which the Bank will be operating.
The Committee takes into account the five and ten year trend of ROA along with budget forecasted for the next year and the Bank’s past year performance. The Committee also considers the predicted banking environment under which the Bank will be operating.
Interest Rate Risk Changes in interest rates affect our operating performance and financial condition in diverse ways. Our profitability depends in substantial part on our “net interest spread,” which is the difference between the rates we receive on loans and investments and the rates we pay for deposits and other sources of funds.
Our profitability depends in substantial part on our “net interest spread,” which is the difference between the rates we receive on loans and investments and the rates we pay for deposits and other sources of funds.
The Bank manages interest rate risk within an overall asset/liability framework. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net interest income to potential changes in interest rates. The Bank also analyzes the interest rate, risk utilizing the net interest margin.
The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net interest income to potential changes in interest rates. The Bank also utilizes the net interest margin to analyze the interest rate risk.
If we are required to increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. The new CECL standard became effective for us for fiscal years beginning after January 1, 2023 and for interim periods during 2023.
If we are required to increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. The new CECL standard became effective for us on January 1, 2023. Please see Note 1 in the notes to consolidated financial statements for additional information.
The Bank splits the incentive based on pay ranges and position with each having a percentage of base pay used for the incentive. The employees are paid a cash incentive based on the projected overall performance of the Bank in terms of Return of Average Assets (“ROA”) and the achievement of pre-established team and/or individual goals.
The employees are paid a cash incentive based on the projected overall performance of the Bank in terms of Return of Average Assets (“ROA”) and the achievement of pre-established team and/or individual goals. The Compensation Committee determines the target performance levels on which the percentage of pay will be based.
Our loan portfolio has a large concentration of real estate loans Real estate loans, which constitute a large portion of our loan portfolio, include home equity, agricultural, commercial, construction and residential loans, and such loans are concentrated in the Bank’s primary markets in Northwest Ohio, Northeast Indiana and Southern Michigan and complimented with additional exposure in new areas from our LPOs.
If this information is inaccurate, we may be subject to regulatory action, reputational harm or other adverse effects with respect to the operation of our business, our financial condition and our results of operation. 12 Our loan portfolio has a large concentration of real estate loans Real estate loans, which constitute a large portion of our loan portfolio, include home equity, agricultural, commercial, construction and residential loans, and such loans are concentrated in the Bank’s primary markets in Northwest Ohio, Northeast Indiana and Southern Michigan and complimented with additional exposure in new areas from our LPOs.
Our future depends on our ability to analyze technological changes to determine the best course of action for our business, customers and shareholders. Operational Risks We are subject to certain operational risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters.
Operational Risks We are subject to certain operational risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters.
Political and social conditions, including actions upending geopolitical stability (such as from tensions involving China and the U.S.), fiscal and monetary policies (including developments related to the U.S. federal debt ceiling, budgetary issues and government shutdowns), trade wars and tariffs, labor shortages, regional or domestic hostilities, economic sanctions and the prospect or occurrence of more widespread conflicts could also negatively affect our business, operations and partners, consumer and business spending, including consumer spending patterns and business investment, and demand for credit.
In addition, fiscal and monetary policies, trade wars and tariffs, labor shortages, regional or domestic hostilities, economic sanctions and the prospect or occurrence of more widespread conflicts could also negatively affect our business, operations and partners, consumer and business spending, including consumer spending patterns and business investment, and demand for credit.
A second incentive program of the Bank is based on cash compensation of which almost all employees participate (excluding commission based employees and other employees paid for specific higher paid positions, such as peak time). A discussion of executive officer pay is incorporated within the proxy and as such, this discussion will pertain to all other employees.
This is viewed as a retention aid as the awards may be forfeited should an officer leave employment during the vesting period. A second incentive program of the Bank is based on cash compensation of which almost all employees participate (excluding commission based employees and other employees paid for specific higher paid positions, such as peak time).
The remediation costs and any other financial liabilities associated with the property could have a material adverse effect on our financial condition and results of operations. 14 Technological Change Our industry is susceptible to significant technological changes in the future as there continue to be a high level of new technology driven products and services introduced.
As a result, our financial condition and results of operations could be materially adversely affected by the consequences of climate change on the agricultural sector and the broader regional economy. Technological Change Our industry is susceptible to significant technological changes in the future as there continue to be a high level of new technology driven products and services introduced.
Under the long-term incentive compensation plan, restricted stock awards may be granted to officers. The amount of shares to be granted each year is determined by the Board Compensation Committee and may vary each year in its amount of shares and the number of recipients.
The amount of shares to be granted each year is determined by the Board Compensation Committee and may vary each year in its amount of shares and the number of recipients. The Compensation Committee determines the number of shares to be awarded overall and to the Chief Executive Officer (“CEO”) specifically.
Although U.S. and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic, including labor shortages, disruptions of global supply chains, and inflationary pressures, continue to impact the macroeconomic environment and could adversely affect our business.
Pandemic Risk Although U.S. and global economies may have lingering effects from the COVID-19 pandemic, certain adverse consequences of the pandemic, such as inflationary pressures, continue to impact the macroeconomic environment and could adversely affect our business.
Please see Note 1 in the notes to consolidated financial statements for additional information. Attraction of Deposits and other Short-term Funding In managing our liquidity, our primary source of short-term funding is customer deposits.
Attraction of Deposits and other Short-term Funding In managing our liquidity, our primary source of short-term funding is customer deposits.
The pandemic and resulting containment measures adversely impacted a significant portion of our operations. The global macroeconomic outlook continues to remain uncertain due to a variety of factors, including the emergence of new variants, impacts to the labor market, supply chain disruptions and inflation.
The global macroeconomic outlook continues to remain uncertain due to a variety of other factors as well, including lasting impacts to the labor market and ongoing supply chain disruptions.
In our experience, it can take a significant period of time to identify and hire personnel with the combination of skills and attributes required in carrying out our strategy. If we lose the services of our key personnel or are unable to attract additional qualified personnel, our business, financial condition, results of operations and cash flows could be adversely affected.
Competition for qualified employees is intense. In our experience, it can take a significant period of time to identify and hire personnel with the combination of skills and attributes required in carrying out our strategy.
A key component of employee retention is providing a fair compensation base combined with the opportunity for additional compensation for above average performance. In this regard, the Company and the Bank use two incentive programs. The Company uses a stock award program to recognize and incentivize officers of the Bank.
In this regard, the Company and the Bank use two incentive programs. The Company uses a stock award program to recognize and incentivize officers of the Bank. Under the long-term incentive compensation plan, restricted stock awards may be granted to officers.
For more information on this subject, see the section under Part I, Item 1 of this Form 10-K captioned “Supervision and Regulation.” Changes in U.S. Trade Policies From 2018 through 2023, the U.S. government implemented tariffs on certain products from countries or entities such as Mexico, Canada, China and the European Union.
For more information on this subject, see the section under Part I, Item 1 of this Form 10-K captioned “Supervision and Regulation.” Changes in U.S. trade policies, such as the implementation of tariffs, and other factors beyond the Company’s control may adversely impact our business, financial condition and results of operations The ongoing trade policies and potential 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, particularly with respect to the threatened imposition of additional tariffs on certain products imported from countries such as Mexico, Canada, China and the European Union.
Attraction and Retention of Key Personnel Our success depends upon the continued service of our senior management team and upon our ability to attract and retain qualified financial services personnel. Competition for qualified employees is intense.
While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Attraction and Retention of Key Personnel Our success depends upon the continued service of our senior management team and upon our ability to attract and retain qualified financial services personnel.
Since the plan’s inception in 2005, all granted stock awards have utilized a three year cliff vesting feature. This is viewed as a retention aid as the awards may be forfeited should an officer leave employment during the vesting period.
The CEO then makes recommendations to the committee as to the recipients of the remaining shares. The full Board of Directors approves the action of the Committee. Since the plan’s inception in 2005, all granted stock awards have utilized a three year cliff vesting feature.
Removed
If this information is inaccurate, we may be subject to regulatory action, reputational harm or other adverse effects with respect to the operation of our business, our financial condition and our results of operation.
Added
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 manufacturers, reduce demand for U.S. agricultural exports, and disrupt supply chains.
Removed
These countries have issued or continue to threaten retaliatory tariffs against products from the United States, including agricultural products. The United States and these countries may impose additional tariffs and retaliatory tariffs in the future.
Added
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.
Removed
Tariffs, retaliatory tariffs or other trade restrictions on products and materials that our customers import or export, including agricultural products such as soybeans, could cause the prices of our customers’ products to increase which could reduce demand for such products, or reduce our customer margins, and adversely impact their revenues, financial results and ability to service debt.
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Additionally, any prolonged trade tensions or the implementation of tariffs could negatively impact the broader economic environment in the Midwest, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services. As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes.
Removed
This could adversely affect our financial condition and results of operations. In addition, to 12 the extent changes in the political environment have a negative impact on us or on the markets in which we operate, our business, results of operations and financial condition could be materially and adversely impacted in the future.
Added
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 potential tariff initiatives or other trade-related disruptions. These factors could materially affect our business, financial condition, and results of operations.
Removed
In January 2020, passage of the United States-Mexico-Canada (USMCA) trade agreement helped to alleviate some of these risks. The USMCA updates trading rules to better reflect 21st century technology, regulates labor and environmental standards in Mexico, tightens the rules the auto industry must follow to trade vehicles duty free across the three countries and provides tariff-free trade in North America.
Added
Liquidity Risk Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities.
Removed
The Compensation Committee determines the number of shares to be awarded overall and to the Chief Executive Officer (“CEO”) specifically. The CEO then makes recommendations to the committee as to the recipients of the remaining shares. The full Board of Directors approves the action of the Committee.
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The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds.
Removed
Our operations are dependent on our ability to process financial transactions in a secure manner.
Added
The bank failures in 2023 exemplify the potentially catastrophic results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors.
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This conflict has led to economic uncertainty and market disruptions, including the imposition of financial and economic sanctions and export controls designed to constrain Russia.
Added
We continually strive to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition, and results of operations.
Removed
The conflict in Israel and surrounding areas has also created economic uncertainty and regional instability, including due to the risk of escalation into a wider regional conflict, and resulted in the imposition of sanctions targeting Hamas-affiliated individuals and entities.
Added
Uninsured Deposit Risk Uninsured deposits based on FDIC coverage as a percentage of total deposits was 21.3% as of December 31, 2024, and as of the same date, total uninsured deposits (includes public deposits with protection over FDIC) was 10.4%.
Removed
The broader consequences of these conflicts remain uncertain, but may include further sanctions, regional instability and geopolitical shifts, increased prevalence and sophistication of cyberattacks, potential retaliatory action, heightened regulatory scrutiny related to sanctions compliance, increased inflation, further increases or fluctuations in commodity and energy prices, decreases in global economic activity, further disruptions to the global supply chain and other adverse effects on macroeconomic conditions.
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The use of the financial network products, such as the Certificate of Deposit Account Registry (CDARS) and an Insured Cash Sweep which makes FDIC coverage available to larger depositors, contributes to the low uninsured percentage. Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits.
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According to statements made by the FDIC staff and the leadership of the federal banking agencies, customers with larger uninsured deposit account balances often are small- and mid-sized businesses that rely upon deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor the financial condition and performance of their depository institutions.
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As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits.
Added
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.
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Moreover, our ability to attract core deposit funding during a time of actual or perceived distress or instability in the marketplace may also be severely limited, and interest rates paid for non-deposit borrowings generally exceed the interest rates paid on deposits. Interest Rate Risk Changes in interest rates affect our operating performance and financial condition in diverse ways.
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Beginning in September of 2024, the Federal Reserve began decreasing the Federal Funds rate which totaled 100 basis points throughout the remainder of the year. The Bank manages interest rate risk within an overall asset/liability management framework.
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Interest Rate Risk with Respect to the Value of Our Securities Portfolio As a result of inflationary pressures and the resulting rapid increases in interest rates over the prior two fiscal years, the trading value of previously issued government and other fixed income securities has declined significantly.
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These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the available-for-sale portion of U.S. banks’ securities portfolios.
Added
While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability.
Added
If we lose the services of our key personnel or are unable to attract additional qualified personnel, our business, financial condition, results of operations and cash flows could be adversely affected. A key component of employee retention is providing a fair compensation base combined with the opportunity for additional compensation for above average performance.
Added
A discussion of executive officer pay is incorporated within the proxy and as such, this discussion will pertain to all other employees. The Bank splits the incentive based on pay ranges and position with each having a percentage of base pay used for the incentive.
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The remediation costs and any other financial liabilities associated with the property could have a material adverse effect on our financial condition and results of operations. 16 Climate Change and Agricultural Sector Risk The Company operates in a region of the United States that is heavily reliant on the agricultural sector, which represents a significant portion of the local economy.
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The Company’s operations and loan portfolio are concentrated in northwest Ohio and northeast Indiana, regions that have been increasingly affected by extreme weather events such as heavy rainfall, flooding, tornadoes, and droughts.
Added
As climate change continues to impact weather patterns and environmental conditions in our geographic region, the agricultural sector faces increased risks associated with increased volatility in crop yields, more frequent and severe extreme weather events (such as droughts, floods, and storms), and changing agricultural growing seasons.
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Such climate-related factors may result in greater financial strain on the agricultural businesses and farming communities that form a substantial part of our customer base. This, in turn, could lead to higher default rates on loans, lower demand for agricultural credit, and decreased collateral values for agricultural loans.
Added
Additionally, disruptions to regional supply chains, rising insurance costs, and the potential for reduced investment in the area may exacerbate the overall economic instability in our market.
Added
While we have implemented practices to mitigate against these risks, including monitoring agricultural sector exposure and diversifying our loan portfolio, the long-term financial stability of the regional economy remains vulnerable to the potential impacts of climate change.
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Our future depends on our ability to analyze technological changes to determine the best course of action for our business, customers and shareholders. Potential Impact of Artificial Intelligence and Quantum Computing on Our Operations and Competitiveness The rapid development and implementation of advanced technologies, including artificial intelligence ("AI") and quantum computing, present both opportunities and risks to our business.
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AI technologies are being increasingly adopted across the financial services industry to enhance operational efficiencies, optimize decision-making, and improve customer experience. Similarly, quantum computing, though still in early stages, has the potential to revolutionize areas such as data encryption, portfolio optimization, and risk modeling.
Added
However, the pace at which competitors and other financial institutions adopt these technologies may create challenges for our ability to remain competitive. For instance, if we are unable to effectively implement or keep pace with advancements in AI and quantum computing, we may experience a competitive disadvantage, which could result in decreased market share, reduced profitability, and strained customer relationships.
Added
Furthermore, the integration of these technologies into banking operations may require significant investments in infrastructure, talent acquisition, and cybersecurity measures, which could have a material adverse effect on our financial performance and operations.
Added
In addition to competitive risks, there is also the potential for AI and quantum computing to be misused, including by malicious actors seeking to exploit these technologies for fraudulent activities. As a result, our systems could be targeted for exploitation by such actors, leading to risks such as unauthorized transactions, identity theft, and other forms of financial fraud.
Added
Similarly, quantum computing, when it matures, could potentially undermine the security of current encryption methods, exposing us and our customers to heightened cybersecurity risks. While we are actively monitoring and investing in security measures to address these emerging threats, there is no guarantee that we will be able to prevent all potential risks associated with the misuse of these technologies.
Added
As a result, the risks associated with the rapid evolution of AI and quantum computing may have an adverse effect on our ability to compete effectively, as well as expose us to new forms of fraud and cybersecurity threats, which could materially affect our business, financial condition, and results of operations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Bank currently maintains retail banking offices at the following locations: Office Location Archbold, Ohio 307 N Defiance Street Wauseon, Ohio 1130 N Shoop Avenue Stryker, Ohio 300 S Defiance Street West Unity, Ohio 200 W Jackson Street Bryan, Ohio 1000 S Main Street Delta, Ohio 101 Main Street Montpelier, Ohio 1150 E Main Street Napoleon, Ohio 2255 Scott Street Swanton, Ohio 7 Turtle Creek Circle Perrysburg, Ohio 7001 Lighthouse Way Butler, Indiana 200 S Broadway Auburn, Indiana* 406 Smaltz Way Angola, Indiana* 2310 N Wayne Street Hicksville, Ohio 100 N Main Street Waterville, Ohio 8720 Waterville-Swanton Road Custar, Ohio 22973 Defiance Pike Sylvania, Ohio 5830 Monroe Street Fort Wayne, Indiana 12106 Lima Road Bowling Green, Ohio* 1072 N Main Street Findlay, Ohio 1660 Tiffin Avenue Geneva, Indiana 215 East Line Street Monroe, Indiana 150 W Washington Street Berne, Indiana 718 US Highway 27 N Portland, Indiana 1451 N Meridian Street Decatur, Indiana 1061 S 13 th Street Fort Wayne, Indiana 7370 Illinois Road Ossian, Indiana 102 N Jefferson Bluffton, Indiana* 111 E Oak Forest Drive Urbana, Ohio 120 N Main Street Sidney, Ohio 101 E Court Street Anna, Ohio 403 S Pike Street Jackson Center, Ohio 115 E Pike Street Toledo, Ohio* 120 N Summit Street Birmingham, Michigan* 220 Park Street, Suite 104 Fort Wayne, Indiana* 128 W Wayne Street Oxford, Ohio* 335 S College Avenue All offices except the Butler, Indiana location have onsite ATM services.
Biggest changeThe Bank currently maintains retail banking offices at the following locations: Office Location Date Opened Archbold, Ohio 307 N Defiance Street 04/1897 Wauseon, Ohio 1130 N Shoop Avenue 11/1973 Stryker, Ohio 300 S Defiance Street 03/1981 West Unity, Ohio 200 W Jackson Street 10/1981 Delta, Ohio 101 Main Street 06/1985 Bryan, Ohio 1000 S Main Street 06/1992 Napoleon, Ohio 2255 Scott Street 02/1995 Montpelier, Ohio 1150 E Main Street 06/1998 Swanton, Ohio 7 Turtle Creek Circle 11/1999 Defiance, Ohio 1175 Hotel Drive 07/2001 Perrysburg, Ohio 7001 Lighthouse Way 11/2007 Butler, Indiana 200 S Broadway 12/2007 Auburn, Indiana* 406 Smaltz Way 12/2007 Angola, Indiana* 2310 N Wayne Street 08/2008 Hicksville, Ohio 100 N Main Street 07/2010 Waterville, Ohio 8720 Waterville-Swanton Road 05/2013 Custar, Ohio 22973 Defiance Pike 12/2013 Sylvania, Ohio 5830 Monroe Street 08/2014 Fort Wayne, Indiana 12106 Lima Road 04/2016 Bowling Green, Ohio* 1072 N Main Street 10/2016 Findlay, Ohio 1660 Tiffin Avenue 01/2018 Geneva, Indiana 215 E Line Street 01/2019 Monroe, Indiana 150 W Washington Street 01/2019 Berne, Indiana 718 US Highway 27 N 01/2019 Portland, Indiana 1451 N Meridian Street 01/2019 Decatur, Indiana 1118 S 13th Street 01/2019 Fort Wayne, Indiana 7370 Illinois Road 04/2021 Ossian, Indiana 102 N Jefferson Street 04/2021 Bluffton, Indiana* 111 E Oak Forest Drive 04/2021 Urbana, Ohio 120 N Main Street 10/2021 Sidney, Ohio 101 E Court Street 10/2022 Anna, Ohio 403 S Pike Street 10/2022 Jackson Center, Ohio 115 E Pike Street 10/2022 Oxford, Ohio* 335 S College Avenue 04/2023 Toledo, Ohio* 120 N Summit Street 06/2023 Birmingham, Michigan* 220 Park Street, Suite 104 10/2023 Fort Wayne, Indiana* 128 W Wayne Street 10/2023 All offices except the Butler, Indiana location have onsite ATM services.
Management has appointed the Chief Information Officer the responsibility for overall management of the Company’s “front line” IT risk. 17 Material Impact of Cyber Risk As discussed more thoroughly below, the Company devotes significant resources to implement, maintain, monitor and regularly upgrade our systems and networks with measures such as intrusion detection and prevention and firewalls to safeguard critical business applications.
Management has appointed the Chief Information Officer the responsibility for overall management of the Company’s “front line” IT risk. 20 Material Impact of Cyber Risk As discussed more thoroughly below, the Company devotes significant resources to implement, maintain, monitor and regularly upgrade our systems and networks with measures such as intrusion detection and prevention and firewalls to safeguard critical business applications.
The Bank also owns real estate across from the main facilities to provide for parking. 18 The Bank occupies an Operations Center at 620 S. Clyde’s Way in Archbold, Ohio to accommodate our growth over the years which includes drive-up services. The Bank owns a parking lot in downtown Montpelier which is provided for community use.
The Bank also owns real estate across from the main facilities to provide for parking. 21 The Bank occupies an Operations Center at 620 S. Clyde’s Way in Archbold, Ohio to accommodate our growth over the years which includes drive-up services. The Bank owns a parking lot in downtown Montpelier which is provided for community use.
The results of this assessment are reviewed with the Information Systems (IS) Steering Committee and the Risk Committee and reported at least annually to the Board ERM Committee. I TEM 2. PROPERTIES Our principal office is located in Archbold, Ohio. The Bank operates from its principal office located at 307 North Defiance Street, Archbold, Ohio.
The results of this assessment are reviewed with the IS Steering Committee and the Risk Committee and reported at least annually to the Board ERM Committee. I TEM 2. PROPERTIES Our principal office is located in Archbold, Ohio. The Bank operates from its principal office located at 307 North Defiance Street, Archbold, Ohio.
The final results of the IT Audit are reviewed with the Board Audit Committee. The status of unresolved audit issues along with their priority ratings is reported to both Management and the Board Audit Committee at each meeting.
The final results of the IT Audit are reviewed with the Board Audit Committee. The status of unresolved audit issues along with their priority ratings is reported to both Management's IS Steering Committee and the Board Audit Committee at each meeting.
The Bank’s LPOs are at the following locations: LPO Location Muncie, Indiana 1208 W White River Boulevard Bryan, Ohio 206 W High Street West Bloomfield, Michigan 7031 Orchard Lake Road Perrysburg, Ohio 5203 Levis Commons Boulevard The Insurance agency operates from our principal office at 307 North Defiance Street; Archbold, OH 43502. 19
The Bank’s LPOs at the following locations are all leased: LPO Location Muncie, Indiana 1208 W White River Boulevard Bryan, Ohio 206 W High Street West Bloomfield, Michigan 7031 Orchard Lake Road Perrysburg, Ohio 5203 Levis Commons Boulevard Troy, Michigan 3001 West Big Beaver Road F&M Insurance Agency, LLC operates from our principal office at 307 North Defiance Street; Archbold, OH 43502. 22

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine proceedings incidental to the business of the Company or its subsidiaries, to which we are a party or of which any of our properties are the subject. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 20 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine proceedings incidental to the business of the Company or its subsidiaries, to which we are a party or of which any of our properties are the subject. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 23 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company continues to have a strong capital base. 2023 2022 Tier I Leverage Ratio 7.86 % 8.39 % Risk Based Capital Tier I 9.75 % 10.29 % Total Risk Based Capital 11.51 % 12.39 % Stockholders' Equity/Total Assets 9.64 % 9.89 % 21 ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs Remaining Share Repurchases Authorization 10/1/2023 to - - - 650,000 10/31/2023 11/1/2023 to 255 (2) 18.40 - 650,000 11/30/2023 12/1/2023 to 636 (2) 23.43 - 650,000 12/31/2023 Total 891 21.99 - 650,000 (1) From time to time, the Company purchases shares in the market pursuant to a stock repurchase program publicly announced on January 24, 2023.
Biggest changeISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs Remaining Share Repurchases Authorization (1) 10/1/2024 to - - - 638,500 10/31/2024 11/1/2024 to - - - 638,500 11/30/2024 12/1/2024 to - - - 638,500 12/31/2024 Total - - - 638,500 (1) From time to time, the Company purchases shares in the market pursuant to a stock repurchase program publicly announced on January 16, 2024.
On January 16, 2024, the Company announced the authorization by its Board of Directors for the Company’s repurchase, either on the open market, or in privately negotiated transactions, of up to 650,000 shares of its outstanding common stock commencing January 16, 2024 and ending December 31, 2024. ITEM 6. R ESERVED
On January 28, 2025, the Company announced the authorization by its Board of Directors for the Company’s repurchase, either on the open market, or in privately negotiated transactions, of up to 650,000 shares of its outstanding common stock commencing January 28, 2025 and ending December 31, 2025. ITEM 6. R ESERVED
During 2023, the Company awarded 64,225 shares to 113 employees and 6,350 shares were forfeited under its long term incentive plan. At year-end 2023, the Company held 899,784 shares in Treasury stock and 151,350 in unearned stock awards. Dividends declared during 2022 were $0.8125 per share totaling $10.6 million, 14.4% higher than 2021 declared dividends of $0.71 per share.
During 2023, the Company awarded 64,225 shares to 113 employees and 6,350 shares were forfeited under its long term incentive plan. At year-end 2023, the Company held 899,784 shares in Treasury stock and 151,350 in unearned stock awards.
Per share dividends declared for the years ended 2023 and 2022 are as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total 2023 $ 0.2100 $ 0.2100 $ 0.2100 $ 0.2200 $ 0.8500 2022 $ 0.1900 $ 0.2025 $ 0.2100 $ 0.2100 $ 0.8125 Dividends declared during 2023 were $0.85 per share totaling $11.5 million, 4.6% higher than 2022 declared dividends of $0.8125 per share.
Per share dividends declared for the years ended 2024 and 2023 are as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total 2024 $ 0.22000 $ 0.22000 $ 0.22125 $ 0.22125 $ 0.88250 2023 $ 0.21000 $ 0.21000 $ 0.21000 $ 0.22000 $ 0.85000 Dividends declared during 2024 were $0.8825 per share totaling $11.9 million, 3.8% higher than 2023 declared dividends of $0.85 per share.
On that date, the Board of Directors authorized the repurchase of up to 650,000 common shares between January 24, 2023 and December 31, 2023. (2) Shares which were repurchased for taxes on vested stock awards are outside of this program.
On that date, the Board of Directors authorized the repurchase of up to 650,000 common shares between January 16, 2024 and December 31, 2024.
As of December 31, 2023, there were 1,903 record holders of our common stock of which 52.65% of the outstanding shares are being held in brokerage accounts or “street name” and only considered as one record holder. Dividends are declared and paid quarterly.
As of December 31, 2024, there were 1,900 record holders of our common stock of which 54.81% of the outstanding shares are being held in brokerage accounts or “street name” and only considered as one record holder. Below is a line-graph presentation comparing the cumulative total shareholder returns for the Company, an index for NASDAQ Stock Market (U.S.
During 2022, the Company awarded 56,496 shares to 109 employees and 8,000 shares were forfeited under its long term incentive plan. At year-end 2022, the Company held 956,003 shares in Treasury stock and 128,952 in unearned stock awards. The Company currently expects to continue to maintain the payment of its quarterly dividend consistent with its past practices.
During 2024, the Company awarded 60,169 shares to 111 employees and 5,811 shares were forfeited under its long term incentive plan. At year-end 2024, the Company held 864,889 shares in Treasury stock and 158,183 in unearned stock awards. Dividends declared during 2023 were $0.85 per share totaling $11.5 million, 4.6% higher than 2022 declared dividends of $0.8125 per share.
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Companies) comprised of all domestic common shares traded on the NASDAQ National Market System and the NASDAQ Bank Index for the five-year period ended December 31, 2024. The chart compares the value of $100 invested in the Company and each of the indices and assumes investment on December 31, 2019 with all dividends reinvested.
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The Board of Directors recognizes that the market price of stock is influenced by many factors, only one of which is performance.
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The stock price performance shown on the graph is not necessarily indicative of future performance. 2020 2021 2022 2023 2024 FMAO 78.47 113.43 97.39 92.31 110.66 NASDAQ - COMPOSITE 144.74 176.54 120.00 171.95 221.29 NASDAQ - BANK INDEX 91.88 129.99 109.84 105.86 124.99 Dividends are declared and paid quarterly.
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The Company currently expects to continue to maintain the payment of its quarterly dividend consistent with its past practices. 24 The Company continues to have a strong capital base. 2024 2023 Tier I Leverage Ratio 8.12 % 7.86 % Risk Based Capital Tier I 10.44 % 9.75 % Total Risk Based Capital 12.80 % 11.51 % Stockholders' Equity/Total Assets 9.96 % 9.64 % There was no treasury stock repurchased for the quarter ended December 31,2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOn a broader basis, the Bank restricts total aggregate funding in comparison to Bank capital to any one business or agricultural sector by an approved sector percentage to capital limitation. 38 The following table shows the Bank’s gross loan portfolio, excluding loans held for sale, by category of loan as of December 31 of each year: (In Thousands) Loans: 2023 2022 2021 2020 2019 Consumer Real Estate $ 521,895 $ 494,423 $ 395,873 $ 175,588 $ 165,349 Agricultural Real Estate 223,791 220,819 198,343 189,159 199,105 Agricultural 132,560 128,733 118,368 94,358 111,820 Commercial Real Estate 1,337,766 1,152,603 848,477 588,825 551,309 Commercial and Industrial 254,935 242,360 208,270 189,246 135,631 Consumer 79,591 89,147 57,737 52,540 49,237 Other 30,136 29,818 32,089 15,757 8,314 $ 2,580,674 $ 2,357,903 $ 1,859,157 $ 1,305,473 $ 1,220,765 The following table shows the maturity of loans excluding fair value adjustments as of December 31, 2023: (In Thousands) After One After Five Within Year Within Years Within After One Year Five Years Fifteen Years Fifteen Years Consumer Real Estate $ 12,307 $ 33,817 $ 157,139 $ 322,639 Agricultural Real Estate 546 6,149 63,073 154,648 Agricultural 62,926 47,053 19,184 3,430 Commercial Real Estate 109,232 382,123 619,438 227,126 Commercial and Industrial 97,823 103,806 52,981 828 Consumer 2,036 58,115 19,561 94 Other 2,855 1,452 16,251 9,584 $ 287,725 $ 632,515 $ 947,627 $ 718,349 The following table presents the total of loans excluding fair value adjustments due after one year which has either 1) predetermined interest rates (fixed) or 2) floating or adjustable interest rates (variable): (In Thousands) Fixed Variable Rate Rate Total Consumer Real Estate $ 487,984 $ 25,611 $ 513,595 Agricultural Real Estate 175,817 48,053 223,870 Agricultural 67,446 2,221 69,667 Commercial Real Estate 1,016,254 212,433 1,228,687 Commercial and Industrial 145,756 11,859 157,615 Consumer 77,770 - 77,770 Other 17,703 9,584 27,287 $ 1,988,730 $ 309,761 $ 2,298,491 39 The following tables present the Company's amortized cost of nonaccrual loans by class of loans as of December 31, 2023 and the recorded investment of nonaccrual, past due 90 days or more and still accruing loans, and accruing troubled debt restructurings as of December 31, 2022 through 2019: (In Thousands) December 31, 2023 Nonaccrual Loans Past With No Due Over Allowance 89 Days for Credit Loss Nonaccrual Still Accruing Consumer Real Estate $ 1,006 $ 1,190 $ - Agricultural Real Estate 15,949 15,949 - Agricultural 4,671 4,671 - Commercial Real Estate 254 254 - Commercial & Industrial 198 198 - Consumer 91 91 - Total $ 22,169 $ 22,353 $ - (In Thousands) 2022 2021 2020 2019 Nonaccrual loans $ 4,689 $ 8,076 $ 9,404 $ 3,400 Accruing loans past due 90 days or more - - - - Modified loans for borrowers experiencing financial difficulty, not included above 1,184 1,076 941 980 Total $ 5,873 $ 9,152 $ 10,345 $ 4,380 Although loans may be classified as non-performing, some pay on a regular basis, and many continue to pay interest irregularly or at less than original contractual rates.
Biggest changeOn a broader basis, the Bank restricts total aggregate funding in comparison to Bank capital to any one business or agricultural sector by an approved sector percentage to capital limitation. 41 The following table shows the Bank’s gross loan portfolio, excluding loans held for sale, by category of loan as of December 31 of each year: (In Thousands) Loans: 2024 2023 2022 2021 2020 Consumer Real Estate $ 520,114 $ 521,895 $ 494,423 $ 395,873 $ 175,588 Agricultural Real Estate 216,401 223,791 220,819 198,343 189,159 Agricultural 152,080 132,560 128,733 118,368 94,358 Commercial Real Estate 1,310,811 1,337,766 1,152,603 848,477 588,825 Commercial and Industrial 275,152 254,935 242,360 208,270 189,246 Consumer 63,009 79,591 89,147 57,737 52,540 Other 24,978 30,136 29,818 32,089 15,757 $ 2,562,545 $ 2,580,674 $ 2,357,903 $ 1,859,157 $ 1,305,473 The Bank maintains a well-balanced, diverse and high performing commercial real estate loan portfolio.
All commercial and agricultural relationships with term 35 debt only and aggregate loan exposure greater than $1,000,000 are also reviewed by the Bank’s Credit Department. These reviews are conducted to identify early signs of deterioration. To establish the specific reserve allocation for real estate, a discount to the market value is established to account for liquidation expenses.
All commercial and agricultural relationships with term debt only and aggregate loan exposure greater than $1,000,000 are also reviewed by the Bank’s Credit Department. These reviews are conducted to identify early signs of deterioration. To establish the specific reserve allocation for real estate, a discount to the market value is established to account for liquidation expenses.
ASU 2016-13 requires an expected credit losses approach, referred to as the Current Expected Credit Losses (CECL) approach to evaluating the allowance for credit losses. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards.
ASU 2016-13 requires an expected credit losses approach, referred to as the Current Expected Credit Losses (CECL) approach to evaluating the allowance for credit losses. Results for 45 reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards.
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 external, independent loan review of approximately 35% of its commercial and agricultural loan portfolio.
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.
If management concludes that an adjustment is warranted but lacks the specific information needed to reasonably quantify the adjustment, management will order a new appraisal on the subject property even though one may not be required under the Bank’s general policies for updating appraisal.
If management concludes that an adjustment is warranted but lacks the specific information needed to reasonably quantify the adjustment, management will order a new appraisal on the subject property even though one may not be required under the Bank’s general policies for updating appraisals.
The discounting percentage used for real estate mirrors the discounting of real estate as provided for in the Bank’s Loan Policy. However, unique or unusual circumstances may be present which will affect the real estate value and, when appropriately identified, can adjust the discounting percentage at the discretion of management.
The discounting percentage used for real estate mirrors the discounting of real estate as provided for in the Bank’s 38 Loan Policy. However, unique or unusual circumstances may be present which will affect the real estate value and, when appropriately identified, can adjust the discounting percentage at the discretion of management.
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 probable credit losses either by calculating a reserve per credit or by applying our methodology to groupings based on similar risk characteristics.
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 Bank uses Promontory’s ICS product which utilizes a nation-wide bank network to provide FDIC insurance coverage to the Bank’s depositors to protect balances over $250 thousand. The Bank is using the product to replace pledging securities for the Bank’s Ohio public customers and commercial sweep customers; thereby increasing liquidity.
The Bank uses Intrafi’s ICS product which utilizes a nation-wide bank network to provide FDIC insurance coverage to the Bank’s depositors to protect balances over $250 thousand. The Bank is using the product to replace pledging securities for the Bank’s Ohio public customers and commercial sweep customers; thereby increasing liquidity.
During the first quarter of 2023, securities were swapped at a loss of $891 thousand with securities with a higher annual yield. The loss was recouped by the higher yield during the first eight months of 2023. The Bank did not sell any securities in 2022.
During the first quarter of 2023, securities were swapped at a loss of $891 thousand with securities with a higher annual yield. The loss was recouped by the higher yield during the first eight months of 2023. The Bank did not sell any securities in 2024 or 2022.
However, on a quarterly basis as part of its normal operations, the Bank’s senior management and the Credit Analyst Department will meet to review all commercial credits either deemed to be impaired or on the Bank’s watch list. An external review by an independent firm of 35% of our larger credits is also completed annually.
However, on a quarterly basis as part of its normal operations, the Bank’s senior management and the Credit Analyst Department will meet to review all commercial credits either deemed to be collateral dependent or on the Bank’s watch list. An external review by an independent firm of 35% of our larger credits is also completed annually.
The amount of the potential problem loans was considered in management’s determination of the allowance for credit losses at December 31, 2023, 2022 and 2021. In extending credit to families, businesses and governments, banks accept a measure of risk against which an allowance for possible credit losses is established by way of expense charges to earnings.
The amount of the potential problem loans was considered in management’s determination of the allowance for credit losses at December 31, 2024, 2023 and 2022. 44 In extending credit to families, businesses and governments, banks accept a measure of risk against which an allowance for possible credit losses is established by way of expense charges to earnings.
The Company’s subsidiary is restricted by regulations from making dividend distributions in excess of certain prescribed amounts. Upon prior regulatory approval, the Bank may be allowed to pay above the prescribed amounts. 46
The Company’s subsidiary is restricted by regulations from making dividend distributions in excess of certain prescribed amounts. Upon prior regulatory approval, the Bank may be allowed to pay above the prescribed amounts. 48
The allowance for credit losses (ACL) represents management’s estimate of probable 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.
The total allowance for credit losses (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.
To determine observable market value, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon.
To determine observable market value, collateral asset values securing a collateral dependent loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon.
Average outstanding loan balances include non-performing loans, real estate loans held for sale and carrying value adjustments of $2.7 million related to interest rate swaps for 2023. Average outstanding security balances are computed based on carrying values including unrealized gains and losses on available-for-sale securities.
Average outstanding loan balances include non-performing loans, real estate loans held for sale and carrying value adjustments related to interest rate swaps of $1.1 and $2.7 million for 2024 and 2023, respectively. Average outstanding security balances are computed based on carrying values 30 including unrealized gains and losses on available-for-sale securities.
Material Changes in Financial Condition The shifts in the balance sheet during 2021 through 2023 have positioned the Company for continued improvement in profitability. On the asset side, interest income increased primarily from loan growth with funding for the increase provided by growth in core deposits, other time deposits and growth in other borrowings.
Material Changes in Financial Condition The shifts in the balance sheet during 2022 through 2024 have positioned the Company for continued improvement in profitability. On the asset side, interest income increased primarily from loan growth with funding for the increase provided by growth in core deposits, other time deposits and growth in other borrowings.
The credit mark not included in the allowance for credit losses associated with the Perpetual Federal Savings Bank acquisition for 2023, 2022 and 2021 was $2.8 million, $4.4 million and $5.5 million, respectively. 2023 and 2022 also include a $566 thousand and $798 thousand credit mark associated with the Peoples Federal Savings and Loan Bank acquisition.
The credit mark not included in the allowance for credit losses associated with the Perpetual Federal Savings Bank acquisition for 2024, 2023 and 2022 was $1.5 million, $2.8 million and $4.4 million, respectively. 2024, 2023 and 2022 also include a $335 thousand, $566 thousand and $798 thousand credit mark associated with the Peoples Federal Savings and Loan Bank acquisition.
On January 16, 2024, the Company announced the authorization of 650,000 shares for the Company’s repurchase, either in the open market, or in privately negotiated transactions, of its outstanding common stock commencing January 16, 2024, and ending December 31, 2024, by our Board of Directors.
On January 28, 2025, the Company announced the authorization of 650,000 shares for the Company’s repurchase, either in the open market, or in privately negotiated transactions, of its outstanding common stock commencing January 28, 2025, and ending December 31, 2025, by our Board of Directors.
Adding on the required capital conservation buffer of 2.5% to the previous regulatory ratios and the Bank remains well above the requirements. The Bank’s capital conservation buffer is 3.73%. For further discussion and analysis of regulatory capital requirements, refer to Note 16 of the Consolidated Audited Financial Statements.
Adding on the required capital conservation buffer of 2.5% to the previous regulatory ratios and the Bank remains well above the requirements. The Bank’s capital conservation buffer is 4.40%. For further discussion and analysis of regulatory capital requirements, refer to Note 16 of the Consolidated Audited Financial Statements.
The Bank may also require an updated appraisal of a watch list loan which the Bank monitors under its loan policy. On a quarterly basis, Bank management reviews properties supporting asset dependent loans to consider market events that may indicate a change in value has occurred.
Updated appraisals are required on all collateral dependent loans. The Bank may also require an updated appraisal of a watch list loan which the Bank monitors under its loan policy. On a quarterly basis, Bank management reviews properties supporting asset dependent loans to consider market events that may indicate a change in value has occurred.
The following tables present net interest income, interest spread and net interest margin for the three years 2021 through 2023, comparing average outstanding balances of earning assets and interest bearing liabilities with the associated interest income and expense. The tables show the corresponding average rates of interest earned and paid.
The following tables present net interest income, interest spread and net interest margin for the three years 2022 through 2024, comparing average outstanding balances of earning assets and interest bearing liabilities with the associated interest income and expense. The tables show the corresponding average rates of interest earned and paid.
Refer to Note 10 of the Company’s consolidated financial statements for further discussion regarding subordinated notes. Total interest expense totaled $58.4, $14.4 and $7.3 million for 2023, 2022 and 2021, respectively.
Refer to Note 10 of the Company’s consolidated financial statements for further discussion regarding subordinated notes. Total interest expense totaled $77.7, $58.4 and $14.4 million for 2024, 2023 and 2022, respectively.
At year-end 2023, the Company held 151,350 shares in unearned stock awards, an increase from the year-end 2022 number of shares held in unearned stock awards of 128,952. For a summary of activity as it relates to the Company’s restricted stock awards, please refer to Note 12: Employee Benefit Plans in the consolidated financial statements.
At year-end 2024, the Company held 158,183 shares in unearned stock awards, an increase from the year-end 2023 number of shares held in unearned stock awards of 151,350. For a summary of activity as it relates to the Company’s restricted stock awards, please refer to Note 12: Employee Benefit Plans in the consolidated financial statements.
The Bank had nonaccrual loan balances of $22.4 million at December 31, 2023 compared to balances of $4.7 million and $8.1 million as of year-end 2022 and 2021. All of the balances of nonaccrual loans for the past three years were collaterally secured.
The Bank had nonaccrual loan balances of $3.1 million at December 31, 2024 compared to balances of $22.4 million and $4.7 million as of year-end 2023 and 2022, respectively. All of the balances of nonaccrual loans for the past three years were collaterally secured.
Tax-equivalent adjustments, using a twenty-one percent rate, have been made in yields on obligations of state and political subdivisions. Stocks of domestic corporations have not been included. Maturities of mortgage-backed securities are based on the stated maturity date of the security. Due to prepayments, actual maturities may be different.
Tax-equivalent adjustments, using a twenty-one percent rate, have been made in yields on obligations of state and political subdivisions. Stocks of domestic corporations have not been included. Maturities of mortgage-backed securities are based on the average life at the prepayment speed rather than the stated maturity date of the security. Due to prepayments, actual maturities may be different.
The Bank’s leverage ratio of 8.66% is also in excess of regulatory guidelines. Under Basel III, the common equity tier I capital to risk weighted assets ratio is also well above the required 4.5% and 6.5% well capitalized levels with the Bank at 10.77%.
The Bank’s leverage ratio of 8.81% is also in excess of regulatory guidelines. Under Basel III, the common equity tier I capital to risk weighted assets ratio is also well above the required 4.5% and 6.5% well capitalized levels with the Bank at 11.40%.
In response to these fluctuations and the offset by loan growth during 2021 through 2023, the Bank’s ACL to outstanding loan coverage percentage changed to 0.97% as of December 31, 2023, 0.86% as of December 31, 2022 and 0.87% as of December 31, 2021.
In response to these fluctuations and the offset by loan growth during 2022 through 2024, the Bank’s ACL to outstanding loan coverage percentage changed to 1.01% as of December 31, 2024, 0.97% as of December 31, 2023 and 0.86% as of December 31, 2022.
Borrowed fund balances increased in 2023 and 2022 by $145.8 million and $44.9 million, respectively, as a means to fund the phenomenal loan growth which resulted in an additional interest expense of $6.7 million and $1.4 million, respectively. During 2021, the Company issued subordinated notes and incurred $1.1 million of interest expense in both 2023 and 2022.
Borrowed fund balances increased in 2024 and 2023 by $41.9 million and $145.8 million, respectively, as a means to fund the loan growth which resulted in an additional interest expense of $2.1 million and $6.7 million, respectively. During 2021, the Company issued subordinated notes and incurred $1.1 million of interest expense in both 2024 and 2023.
The increased expense was approximately 87.2% attributable to the rising interest rate environment in 2023 as compared to 2022 and 43.2% attributable to the rising interest rate environment in 2022 as compared to 2021. This concludes the discussion by the independent components of the ratios.
The increased expense was approximately 76.2% attributable to the higher interest rate environment in 2024 as compared to 2023 and 87.2% attributable to the rising interest rate environment in 2023 as compared to 2022. This concludes the discussion by the independent components of the ratios.
Now the discussion moves on to the percentages and the change in the net interest margin and spread. Overall, we have seen a decrease in the net interest margin and spread comparing 2021 to 2023.
Now the discussion moves on to the percentages and the change in the net interest margin and spread. Overall, we have seen a decrease in the net interest margin and spread comparing 2022 to 2024.
As of December 31, 2023, 3,749 1-4 family real estate loans and 593 agricultural loans are being serviced with corresponding balances of $367.8 million and $135.8 million, respectively. 2022 had 3,861 loans serviced with corresponding balances of $375.6 million. As of December 2021, 3,961 loans were being serviced with balances of $380.8 million.
At December 31, 2023, 3,749 1-4 family real estate loans and 593 agricultural loans were being serviced with corresponding balances of $367.8 million and $135.8 million, respectively. 2022 had 3,861 loans serviced with corresponding balances of $375.6 million.
Interest expense (which includes deposit, federal funds purchased, securities sold under agreement to repurchase, borrowed funds and subordinated notes) increased from all interest bearing funding sources in 2023 over the time period of 2022 and 2022 over the time period of 2021.
Interest expense (which includes deposit, federal funds purchased, securities sold under agreement to repurchase, borrowed funds and subordinated notes) increased from all interest bearing funding sources with the exception of federal funds purchased and securities sold under agreement to repurchase in 2024 over 2023 and all funding sources in 2023 over 2022.
The Company continues to have a strong capital base and maintains regulatory capital ratios that are above the defined regulatory capital ratios. On December 31, 2023, the Bank had total risk-based capital ratios of 11.73%. Core capital to risk-based asset ratio of 10.77% for the Bank, is more than regulatory guidelines.
The Company continues to have a strong capital base and maintains regulatory capital ratios that are above the defined regulatory capital ratios. On December 31, 2024, the Bank had total risk-based capital ratio of 12.40%. Core capital to risk-based asset ratio of 11.40% for the Bank, is more than regulatory guidelines.
In terms of interest expense, 2023’s increase as compared to 2022 was approximately 87.2% due to the increase in rates. 2022’s increase was approximately 43.2% due to the increase in rates as compared to 2021. The impact of the change in the portfolio mix was a factor in the liabilities as it was in the assets.
In terms of interest expense, 2024’s increase as compared to 2023 was approximately 76.2% due to the increase in rates. 2023’s increase was approximately 87.2% due to the increase in rates as compared to 2022. The impact of the change in the portfolio mix was a factor in the liabilities as it was in the assets.
The strategy for increasing core deposits, in order to mitigate the higher cost of funds and to continue the opportunity for fee dollars from services provided, is a top focus for 2024. Total assets of the Company increased overall as did the earning assets in both average and year-end during 2023 and 2022. This matched the increase in interest dollars.
The strategy for increasing core deposits, in order to mitigate the higher cost of funds and to continue the opportunity for fee dollars from services provided, continues to be a top focus for 2025. Total assets of the Company increased overall as did the earning assets in both average and year-end during 2024 and 2023.
The income from one to four mortgage servicing rights was $415 thousand, $537 thousand and $1.4 million for 2023, 2022 and 2021 respectively. Agriculture mortgage servicing rights were $2.3 million in 2023. The last item in the noninterest income section is the net gain or loss of sale of investments.
The income from one to four mortgage servicing rights was $502 thousand, $415 thousand and $537 thousand for 2024, 2023 and 2022 respectively. Agriculture mortgage servicing rights income was $324 thousand and $2.3 million in 2024 and 2023, respectively. The last item in the noninterest income section is the net gain or loss on sale of investments.
The cost of funds beginning in 2022 has been impacted by the increase of both interest bearing liabilities, the pressure on rates from competition for funds and a rising rate environment. In 2023, the rate pressure from competition was extremely high with many depositors rate shopping. Going forward, there is a heightened focus on controlling the cost of funds.
The cost of funds beginning in 2022 has been impacted by the increase of both interest bearing liabilities, the pressure on rates from competition for funds and a rising rate environment. In 2023 and 2024, the rate pressure from competition was extremely high with many depositors rate shopping.
Average earning assets increased in balances for all years during 2021 through 2023 with loan growth the primary factor for the increase. 36 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Summary of Consolidated Statement of Income (In Thousands, except share data) 2023 2022 2021 2020 2019 Summary of Income: Interest income $ 139,808 $ 101,149 $ 76,840 $ 70,169 $ 68,306 Interest expense 58,411 14,362 7,342 10,393 14,759 Net Interest Income 81,397 86,787 69,498 59,776 53,547 Provision for Credit Losses - Loans* 1,698 4,600 3,444 6,981 1,138 Provision for Credit Losses - Off Balance Sheet Credit Exposures* 46 0 0 0 0 Net Interest Income After Provision for Credit Losses* 79,653 82,187 66,054 52,795 52,409 Noninterest income (expense), net (51,299 ) (41,712 ) (36,557 ) (27,589 ) (29,647 ) Net income before income taxes 28,354 40,475 29,497 25,206 22,762 Income taxes 5,567 7,960 6,002 5,111 4,360 Net income $ 22,787 $ 32,515 $ 23,495 $ 20,095 $ 18,402 Per Share of Common Stock: Earnings per common share outstanding** Net income $ 1.67 $ 2.46 $ 2.01 $ 1.80 $ 1.66 Dividends $ 0.8500 $ 0.8125 $ 0.7100 $ 0.6600 $ 0.6100 Weighted average number of shares outstanding, including participating securities 13,641,336 13,206,713 11,664,852 11,146,270 11,113,810 *ASU 2016-13 was adopted during the first quarter of 2023; therefore, 2019 through 2022 provision amounts reflect the incurred loss method. **Based on weighted average number of shares outstanding.
Average earning assets increased in balances for all years during 2022 through 2024 with loan growth the primary factor for the increase. 39 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA Summary of Consolidated Statements of Income (In Thousands, except share data) 2024 2023 2022 2021 2020 Summary of Income: Interest income $ 163,572 $ 139,808 $ 101,149 $ 76,840 $ 70,169 Interest expense 77,660 58,411 14,362 7,342 10,393 Net Interest Income 85,912 81,397 86,787 69,498 59,776 Provision for Credit Losses - Loans* 944 1,698 4,600 3,444 6,981 Provision for (Recovery of) Credit Losses - Off Balance Sheet Credit Exposures* (671 ) 46 - - - Net Interest Income After Provision for Credit Losses* 85,639 79,653 82,187 66,054 52,795 Noninterest income (expense), net (53,066 ) (51,299 ) (41,712 ) (36,557 ) (27,589 ) Net Income Before Income Taxes 32,573 28,354 40,475 29,497 25,206 Income Taxes 6,635 5,567 7,960 6,002 5,111 Net Income $ 25,938 $ 22,787 $ 32,515 $ 23,495 $ 20,095 Per Share of Common Stock: Earnings per common share outstanding** Net Income $ 1.90 $ 1.67 $ 2.46 $ 2.01 $ 1.80 Dividends $ 0.8825 $ 0.8500 $ 0.8125 $ 0.7100 $ 0.6600 Weighted average number of shares outstanding, including participating securities 13,684,961 13,641,336 13,206,713 11,664,852 11,146,270 *ASU 2016-13 was adopted during the first quarter of 2023; therefore, 2020 through 2022 provision amounts reflect the incurred loss method. **Based on weighted average number of shares outstanding.
Summary of Consolidated Balance Sheet (In Thousands) 2023 2022 2021 2020 2019 Total assets $ 3,283,229 $ 3,015,351 $ 2,638,300 $ 1,909,544 $ 1,607,330 Loans, net 2,556,167 2,336,074 1,841,177 1,289,318 1,211,771 Total deposits 2,607,463 2,468,864 2,193,462 1,596,162 1,288,347 Stockholders' equity 316,543 298,140 297,167 249,160 230,258 Key Ratios Return on average equity 7.46 % 11.30 % 9.09 % 8.38 % 8.26 % Return on average assets 0.71 % 1.17 % 1.05 % 1.14 % 1.23 % Loans to deposits 97.93 % 94.62 % 83.94 % 80.78 % 94.06 % Capital to assets 9.64 % 9.89 % 11.26 % 13.05 % 14.33 % Dividend payout 50.37 % 32.74 % 35.08 % 36.36 % 36.59 % Securities The investment portfolio is primarily used to provide overall liquidity for the Bank.
Summary of Consolidated Balance Sheets (In Thousands) 2024 2023 2022 2021 2020 Total assets $ 3,364,723 $ 3,283,229 $ 3,015,351 $ 2,638,300 $ 1,909,544 Loans, net 2,536,043 2,556,167 2,336,074 1,841,177 1,289,318 Total deposits 2,686,765 2,607,463 2,468,864 2,193,462 1,596,162 Stockholders' equity 335,211 316,543 298,140 297,167 249,160 Key Ratios Return on average equity 7.98 % 7.46 % 11.30 % 9.09 % 8.38 % Return on average assets 0.78 % 0.71 % 1.17 % 1.05 % 1.14 % Loans to deposits 94.39 % 97.93 % 94.62 % 83.94 % 80.78 % Capital to assets 9.96 % 9.64 % 9.89 % 11.26 % 13.05 % Dividend payout 46.05 % 50.37 % 32.74 % 35.08 % 36.36 % Securities The investment portfolio is primarily used to provide overall liquidity for the Bank.
Three main components flow into salaries and wages: base salary, deferred costs, and incentives comprised of the expense of restricted stock awards and performance incentives. 2023 saw an increase due to the investment in people for our strategic growth initiative and staffing of new offices. 2022 increased with the acquisition of Peoples Federal Savings and Loan offices. 2021 increased with the addition of one new office and the acquisition of Ossian State Bank and Perpetual Federal Savings Bank offices.
Three main components flow into salaries and wages: base salary, deferred costs, and incentives comprised of the expense of restricted stock awards and performance incentives. 2024 saw an increase due to our continued investment in people and staffing needs. 2023 saw an increase due to the investment in people for our strategic growth initiative and staffing of new offices. 2022 increased with the acquisition of Peoples Federal Savings and Loan offices.
The impact of servicing rights to both noninterest income and expense is shown in the following table: (In Thousands) 2023 2022 2021 Beginning of Year $ 3,549 $ 3,571 $ 3,320 Capitalized Additions 2,710 537 1,417 Amortization (604 ) (559 ) (1,166 ) Ending Balance, December 31 5,655 3,549 3,571 Valuation Allowance (7 ) - (414 ) Servicing Rights net, December 31 $ 5,648 $ 3,549 $ 3,157 Furniture and equipment steadily increase as we continue to add facilities and invest in technology.
The impact of servicing rights to both noninterest income and expense is shown in the following table: (In Thousands) 2024 2023 2022 Beginning of Year $ 5,655 $ 3,549 $ 3,571 Capitalized Additions 826 2,710 537 Amortization (728 ) (604 ) (559 ) Ending Balance, December 31 5,753 5,655 3,549 Valuation Allowance (97 ) (7 ) - Servicing Rights net, December 31 $ 5,656 $ 5,648 $ 3,549 Furniture and equipment steadily increase as we continue to add facilities and invest in technology.
Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and service. Contractual Obligations Contractual obligations of the Company totaled $1.0 billion as of December 31, 2023. Time deposits, contractual agreements for certificates of deposits held by its customers, were $663.0 million.
Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and service. 47 Contractual Obligations Contractual obligations of the Company totaled $968.1 million as of December 31, 2024. Time deposits, contractual agreements for certificates of deposits held by its customers, were $647.6 million.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
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 December 31, 2022, the Bank had $60.0 million of these loans and at December 31, 2021, the Bank had $55.4 million of these loans. These loans are subject to constant management attention and are reviewed at least monthly.
At December 31, 2023, the Bank had $102.8 million of these loans and at December 31, 2022, the Bank had $60.0 million of these loans. These loans are subject to constant management attention and are reviewed at least monthly.
Of these loan types, the Bank sells 100% of the residential loans and 90% of the agricultural loans. 84.3% of the gains were attributed to the residential loans in 2023, 37.6% in 2022 and 47.4% in 2021. In conjunction with 31 these sales, the Bank maintains servicing rights.
Of these loan types, the Bank sells 100% of the residential loans and 90% of the agricultural loans. 45.9% of the gains were attributed to the residential loans in 2024. 84.3% of the gains were attributed to the residential 34 loans in 2023 and 37.6% in 2022. In conjunction with these sales, the Bank maintains servicing rights.
At the 2023 annual meeting, our shareholders approved the Company’s ability to establish a new class of flexible preferred stock and to issue 100,000 shares of such preferred stock at the Board of Director’s discretion. No preferred stock was issued during the remainder of 2023.
At the 2023 annual meeting, our shareholders approved the Company’s ability to establish a new class of flexible preferred stock and to issue 100,000 shares of such preferred stock at the Board of Director’s discretion. No preferred stock has been issued since approval in 2023.
Overnight federal funds on which rates change daily and loans that are tied to the market rate differ considerably from long-term investment securities and fixed rate loans. Similarly, time deposits over $100,000 and money market certificates are much more interest rate sensitive than passbook savings accounts.
Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans that are tied to the market rate differ considerably from long-term investment securities and fixed rate loans. Similarly, time deposits over $100,000 and money market accounts are much more interest rate sensitive than passbook savings accounts.
Loan volume accounted for $35.1 million or 90.7% of the increased interest income with an increased asset yield of 64 basis points. The asset yield on fed funds sold and interest bearing deposits increased 361 basis points year over year.
Loan volume accounted for $35.1 million or 90.7% of the increased interest income with an increased asset yield of 64 basis points. The asset yield on federal funds sold and interest bearing deposits increased 179 basis points compared to the prior year.
The average cost of funds for 2023 was 2.53%, 179 basis points higher than 2022’s 0.74%. The yield on tax-exempt investment securities shown in the following charts were computed on a tax equivalent basis. The yield on loans has also been tax adjusted for the portion of tax-exempt IDB loans included in the total.
The average cost of funds for 2024 was 3.12%, 59 basis points higher than 2023’s 2.53%. The yield on tax-exempt investment securities shown in the following charts were computed on a tax equivalent basis. The yield on loans has also been tax adjusted for the portion of tax-exempt IDB loans included in the total.
The expense for the restricted stock awards increased in 2023 due to more shares being granted to a slightly larger number of employees. 13,897 additional shares were awarded in 2023 with lower market values. The expense for 2023 increased by $381.8 thousand over 2022.
Restricted stock awards expense increased in 2023 due to more shares being granted to a slightly larger number of employees. 7,729 additional shares were awarded in 2023 with lower market values. The expense for 2023 increased by $382 thousand over 2022 with $28 thousand due to the acceleration of stock awards.
The ratio of this segment of loans to the total loan portfolio is not considered unusual for a bank engaged in and servicing rural communities. 40 As of December 31, 2023, the Bank had $357.3 thousand of its loans that were considered modified for borrowers experiencing financial difficulty, of which $254.8 thousand are included in nonaccrual loans.
The ratio of this segment of loans to the total loan portfolio is not considered unusual for a bank engaged in and servicing rural communities. As of December 31, 2024, the Bank had $65 thousand of its loans that were considered modified for borrowers experiencing financial difficulty, none of which was included in nonaccrual loans.
As of December 31, 2023, the Bank had loans outstanding to individuals and firms engaged in the various fields of agriculture in the amount of $132.6 million with an additional $223.8 million in agricultural real estate loans which compared to $128.7 and $220.9 million respectively as of December 31, 2022.
As of December 31, 2024, the Bank had loans outstanding to individuals and firms engaged in the various fields of agriculture in the amount of $152.1 million with an additional $216.4 million in agricultural real estate loans which compared to $132.6 and $223.8 million respectively as of December 31, 2023.
Normal yearly increases to the employees would be included in all years. Base pay was up $4.7 million for 2023 over the previous year and 2022 was up $2.7 million over 2021. The full time equivalent number of employees at each year-end increased to 456 for 2023, to 431 for 2022 compared to 2021’s 385.
Normal yearly increases to the employees were included in all years. Base pay was up $1.4 million for 2024 over the previous year and 2023 was up $4.7 million over 2022. The full time equivalent number of employees at each year-end increased to 473 for 2024, 456 for 2023 and to 431 for 2022.
This is required in order to obtain Federal Home Loan Bank loans. Loan Portfolio The Bank’s various loan portfolios are subject to varying levels of credit risk. Management mitigates these risks through portfolio diversification and through standardization of lending policies and procedures.
This is required in order to obtain Federal Home Loan Bank loans, with the Indianapolis relationship having stock and borrowings which originated from our acquisitions. Loan Portfolio The Bank’s various loan portfolios are subject to varying levels of credit risk. Management mitigates these risks through portfolio diversification and through standardization of lending policies and procedures.
The goal is, as always, to improve the net interest margin and spread and thereby improve profitability. The net interest margin for 2022 was 3.32% compared to 2021 which was 3.31%. The 0.01% increase for 2022 was related to the increased interest income which was greater than the increased interest expense.
The goal is, as always, to improve the net interest margin and spread and thereby improve profitability. The net interest margin for 2023 was 2.72% compared to 2022 which was 3.32%. The 0.60% decrease for 2023 was related to the increased interest expense which was greater than the increased interest income.
Average interest bearing liabilities increased $366.4 million over 2022 with an additional $44.0 million of interest expense while average interest bearing liabilities increased $414.2 million over 2021 with an additional $7.0 25 million of interest expense. Overall, the funding goal the last three years has been to grow core deposits.
Average interest bearing liabilities increased $183.3 million over 2023 with approximately $19.3 million additional interest expense while average interest bearing liabilities increased $366.4 million over 2022 with an additional $44.0 million of interest expense. Overall, the funding goal the last three years has been to grow core deposits.
Incentive pay as it relates to performance was down $1.7 million in 2023 over 2022 and up $464.1 thousand in 2022 over 2021. The Return on Assets multiple used to award incentive pay decreased in 2023 to 0.36 compared to 1.196 in 2022 and 1.165 in 2021. In 2022 and 2021, acquisition costs were eliminated from the calculation.
Incentive pay as it relates to performance was up $2.2 million in 2024 over 2023 and down $1.7 million in 2023 over 2022. The Return on Assets multiple used to award incentive pay increased in 2024 to 1.043 compared to 0.36 in 2023 and 1.196 in 2022. In 2022, acquisition costs were excluded from the calculation.
As of December 31, 2023, the Bank had $102.8 million of loans which it considers to be “potential problem loans” in that the borrowers are experiencing financial difficulties which are not reflected in the table above. Commercial real estate, agricultural real estate, commercial and agricultural loans comprised $69.2 million, $18.7 million, $8.7 million and $6.2 million respectively.
As of December 31, 2024, the Bank had $63.0 million of loans which it considers to be “potential problem loans” in that the borrowers are experiencing financial difficulties which are not reflected in the table above. Commercial real estate, agricultural real estate, commercial and agricultural loans comprised $49.8 million, $6.1 million, $5.0 million and $1.5 million respectively.
For 2023, interest expense continued to increase and was 306.7% higher than 2022 and was 87.2% impacted by changes in interest rates. Competition for deposits was extremely high and rate shopping between financial institutions was apparent.
For 2024, interest expense continued to increase and was 33.0% higher than 2023 and was 76.2% impacted by changes in interest rates. Competition for deposits continued to be extremely high and rate shopping between financial institutions was apparent.
A special emphasis was placed on deposit growth in the 2 nd and 3 rd quarters of 2023 and the team responded when a deposit campaign was launched to 44 raise an additional $100 million in deposits.
A special emphasis was placed on deposit growth in the 2 nd and 3 rd quarters of 2023 and the team responded when a deposit campaign was launched to raise an additional $100 million in deposits. As the competition for deposits has increased, the Company has increased emphasis on its liquidity position.
The Company held 899,784 shares in Treasury stock as of December 31, 2023, compared to 956,003 shares in Treasury stock as of the same date in 2022.
The Company held 864,889 shares in Treasury stock as of December 31, 2024, compared to 899,784 shares in Treasury stock as of the same date in 2023.
Government agencies 128,222 139,767 156,886 Mortgage-backed securities 82,132 86,927 117,927 State and local governments 67,854 69,417 65,941 $ 358,478 $ 390,789 $ 429,931 The following table sets forth the maturities of investment securities as of December 31, 2023 and the weighted average yields of such securities calculated on the basis of cost and effective yields weighted for the scheduled maturity of each security.
Government agencies 135,166 128,222 139,767 Mortgage-backed securities 120,631 82,132 86,927 State and local governments 64,760 67,854 69,417 $ 426,556 $ 358,478 $ 390,789 The following table sets forth the maturities of investment securities as of December 31, 2024 and the weighted average yields of such securities calculated on the basis of cost and effective yields weighted for the scheduled maturity of each security.
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 Change in real GDP and National Unemployment is completed. Annual projections are broken down using a straight-line approach for quarterly changes.
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.
In 2023, there were four additional 25 basis point increases in February, March, May and July to the current prime rate of 8.50%.
In 2023, there were four additional 25 basis point increases in February, March, May and July to end the year at 8.50%.
Total asset yield increased 80 basis points while total cost of funds increased 179 basis points, creating the 99 basis point difference in spread. Overall yield improves when the balances of the highest yielding asset, which is loans, increases. Loans as a percentage of earning assets was 83.2% while loans to total assets was 78.0% for 2023.
Total asset yield increased 50 basis points while total cost of funds increased 59 basis points, creating the 9 basis point difference in spread. Overall yield improves when the balances of the highest yielding asset, which is loans, increases. Loans as a percentage of earning assets was 80.8% while loans to total assets was 76.8% for 2024.
Overall, total interest income was $38.7 million higher for 2023 than 2022 on an additional $378.9 million in total average earning assets and was $24.3 million higher for 2022 than 2021 on an additional $511.4 million in total average earning assets.
Overall, total interest income was $23.8 million higher for 2024 than 2023 on an additional $168.8 million in total average earning assets and was $38.7 million higher for 2023 than 2022 on an additional $378.9 million in total average earning assets.
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, Construction & Land Development, Multi-family real estate, Commercial & Industrial, Farmland, Agriculture, Single Family real estate, Home Equity Lines of Credit, and Consumer. All groups use the average charge-off method for calculating the ACL.
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.
Net interest spread was 3.13% for 2022 compared to 2021’s 3.18%, creating a 5 basis point difference in the spread. Loans as a percentage of earning assets was 79.2% while loans to total assets was 74.7% for 2022. The Company will always prefer to see improvement in real dollars over percentages.
Net interest spread was 2.14% for 2023 compared to 2022’s 3.13%, creating a 99 basis point difference in the spread. Loans as a percentage of earning assets was 83.2% while loans to total assets was 78.0% for 2023. The Company will always prefer to see improvement in real dollars over percentages.
The allowance for credit losses represents management's estimate of credit losses inherent in the Bank's loan portfolio at the report date. The estimate is a composite of a variety of factors including experience, collateral value, and the general economy. The collection and ultimate recovery of the book value of the collateral, in most cases, is beyond our control.
The total allowance for credit losses represents management's estimate of credit losses inherent in the Bank's loan portfolio and unfunded loan commitments at the report date. The estimate is a composite of a variety of factors including experience, collateral value, and the general economy.
As the pricing on many services is based on number of accounts which the Bank fully expects to increase with the growth from the newer offices and overall Bank growth, data processing costs are expected to increase. ATM expense increased $394.1 thousand over 2022 while 2022 increased $371.2 thousand from 2021.
As the pricing on many services is based on number of accounts which the Bank fully expects to increase with the growth from the newer offices and overall Bank growth, data processing costs are expected to increase.
The best picture of the bottom line impact is achieved by netting the income with the expense each year. Prior to 2023, servicing rights only included 1-4 family real estate loans. The establishment of agricultural real estate servicing rights, incorporated in the table below for 2023, included capitalized additions of $2.3 million and corresponding amortization of $123 thousand.
Prior to 2023, servicing rights only included 1-4 family real estate loans. The establishment of agricultural real estate servicing rights, incorporated in the table below for 2023, included capitalized additions of $2.3 million and corresponding amortization of $123 thousand.
The large revenue gain in loan interest was aided by the increased earnings in securities of $1.1 million. Average balances of fed funds sold and interest bearing deposits decreased in average balances by $91.7 million as the funds were used for loan growth. The overall asset yield in 2022 increased by 26 basis points over 2021.
The large revenue gain in loan interest was aided by the increased earnings from federal funds sold and interest bearing deposits of $3.0 million with decreased average balances of $10.3 million as the funds were used for loan growth. The overall asset yield in 2023 increased by 80 basis points over 2022.
Net gain on sales of loans was $699 thousand, $1.4 million and $3.9 million respectively in 2023, 2022 and 2021. The net gain on sale of loans is derived from sales of real estate loans into the secondary market.
Noninterest income from net gain on sales of loans was the highest in 2022 of the three year periods shown. Net gain on sales of loans was $859 thousand, $699 thousand and $1.4 million, respectively in 2024, 2023 and 2022. The net gain on sale of loans is derived from sales of real estate loans into the secondary market.
At year-end December 31, 2022, these loans totaled $60.0 million and were approximately $4.6 million higher than December 31, 2021. Grade 5 increased $2.6 million in 2022 as compared to 2021 and Grade 6 increased $2.0 million in the same comparison. At year-end December 31, 2021 these loans totaled $55.4 million and were $1.0 million lower than December 31, 2020.
Grade 5 increased $54.9 million in 2023 as compared to 2022 and Grade 6 decreased $10.4 million in the same comparison. Grade 7 increased $257 thousand over 2022. At year-end December 31, 2022 these loans totaled $60.0 million and were approximately $4.6 million higher than December 31, 2021.
It becomes increasingly challenging as the asset yield gets closer to the prime lending rate, or the break-even point, of operations. In a rising rate environment, the challenge is to hold the cost steady while allowing time for the asset portfolio to rise. Floors and ceilings on variable products also impact the level of increase in either scenario.
In a rising rate environment, the challenge is to hold the cost steady while allowing time for the asset portfolio to rise. Floors and ceilings on variable products also impact the level of increase in either scenario.
The ACL increased $5.7 million during 2023 which included an increase to the allowance for credit losses of $3.6 million and unfunded loan commitments of $904 thousand with the adoption of CECL. The ACL increased $4.3 million and $3.0 million during 2022 and 2021, respectively.
The ACL increased $131 thousand during 2024 which included an increase to the allowance for credit losses of $802 thousand and a decrease to unfunded loan commitments of $671 thousand. The ACL increased $5.7 million and $4.3 million during 2023 and 2022, respectively.
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.
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.
The tax-exempt interest income was $590, $614 and $551 thousand for 2023, 2022 and 2021, respectively which resulted in a federal income tax savings of $124, $129 and $116 thousand, respectively. 27 2023 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,491,502 $ 129,344 5.19 % Taxable investment securities 394,424 6,204 1.57 % Tax-exempt investment securities 24,686 366 1.88 % Federal funds sold & other 85,018 3,894 4.58 % Total Interest Earning Assets 2,995,630 $ 139,808 4.67 % Non-Interest Earning Assets: Cash and cash equivalents 40,021 Other assets 157,705 Total Assets $ 3,193,356 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,376,318 $ 27,424 1.99 % Other time deposits 640,390 19,499 3.04 % Other borrowed money 220,175 8,876 4.03 % Federal funds purchased and securities sold under agreement to repurchase 35,421 1,474 4.16 % Subordinated notes 34,640 1,138 3.29 % Total Interest Bearing Liabilities 2,306,944 $ 58,411 2.53 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 493,820 Other 87,111 Total Liabilities 2,887,875 Shareholders' Equity 305,481 Total Liabilities and Shareholders' Equity $ 3,193,356 Interest/Dividend income/yield $ 139,808 4.67 % Interest Expense/cost 58,411 2.53 % Net Interest Spread $ 81,397 2.14 % Net Interest Margin 2.72 % 28 2022 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,073,737 $ 94,264 4.55 % Taxable investment securities 424,229 5,621 1.32 % Tax-exempt investment securities 23,472 337 1.82 % Federal funds sold & other 95,301 927 0.97 % Total Interest Earning Assets 2,616,739 $ 101,149 3.87 % Non-Interest Earning Assets: Cash and cash equivalents 35,696 Other assets 122,665 Total Assets $ 2,775,100 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,335,271 $ 6,378 0.48 % Other time deposits 451,013 3,505 0.78 % Other borrowed money 74,379 2,160 2.90 % Federal funds purchased and securities sold under agreement to repurchase 45,314 1,197 2.64 % Subordinated notes 34,524 1,122 3.25 % Total Interest Bearing Liabilities 1,940,501 $ 14,362 0.74 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 480,389 Other 66,342 Total Liabilities 2,487,232 Shareholders' Equity 287,868 Total Liabilities and Shareholders' Equity $ 2,775,100 Interest/Dividend income/yield $ 101,149 3.87 % Interest Expense/cost 14,362 0.74 % Net Interest Spread $ 86,787 3.13 % Net Interest Margin 3.32 % 29 2021 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 1,522,088 $ 71,645 4.71 % Taxable investment securities 377,887 4,514 1.19 % Tax-exempt investment securities 18,365 326 2.25 % Federal funds sold & interest bearing deposits 187,003 355 0.19 % Total Interest Earning Assets 2,105,343 $ 76,840 3.66 % Non-Interest Earning Assets: Cash and cash equivalents 31,829 Other assets 92,820 Total Assets $ 2,229,992 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,145,636 $ 2,467 0.22 % Other time deposits 306,600 2,951 0.96 % Other borrowed money 29,479 785 2.66 % Federal funds purchased and securities sold under agreement to repurchase 29,831 649 2.18 % Subordinated notes 14,777 490 3.32 % Total Interest Bearing Liabilities 1,526,323 $ 7,342 0.48 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 400,801 Other 44,343 Total Liabilities 1,971,467 Shareholders' Equity 258,525 Total Liabilities and Shareholders' Equity $ 2,229,992 Interest/Dividend income/yield $ 76,840 3.66 % Interest Expense/cost 7,342 0.48 % Net Interest Spread $ 69,498 3.18 % Net Interest Margin 3.31 % The following tables show changes in interest income, interest expense and net interest resulting from changes in volume and rate variances for major categories of earnings assets and interest bearing liabilities. 2023 vs 2022 (In Thousands) Net Change Due to Change Due to Change Volume Rate Interest Earning Assets: Loans $ 35,080 $ 19,005 $ 16,075 Taxable investment securities 583 (395 ) 978 Tax-exempt investment securities 29 22 7 Federal funds sold & other 2,967 (100 ) 3,067 Total Interest Earning Assets $ 38,659 $ 18,532 $ 20,127 Interest Bearing Liabilities: Savings deposits $ 21,046 $ 196 $ 20,850 Other time deposits 15,994 1,472 14,522 Other borrowed money 6,716 4,234 2,482 Federal funds purchased and securities sold under agreement to repurchase 277 (261 ) 538 Subordinated notes 16 4 12 Total Interest Bearing Liabilities $ 44,049 $ 5,645 $ 38,404 30 2022 vs 2021 (In Thousands) Net Change Due to Change Due to Change Volume Rate Interest Earning Assets: Loans $ 22,619 $ 25,988 $ (3,369 ) Taxable investment securities 1,107 554 553 Tax-exempt investment securities 11 115 (104 ) Federal funds sold & interest bearing deposits 572 (174 ) 746 Total Interest Earning Assets $ 24,309 $ 26,483 $ (2,174 ) Interest Bearing Liabilities: Savings deposits $ 3,911 $ 408 $ 3,503 Other time deposits 554 1,390 (836 ) Other borrowed money 1,375 1,196 179 Federal funds purchased and securities sold under agreement to repurchase 548 337 211 Subordinated notes 632 655 (23 ) Total Interest Bearing Liabilities $ 7,020 $ 3,986 $ 3,034 Non-Interest Income The discussion now focuses on the noninterest income and expense generated by the Company for the years ended 2021 through 2023.
The tax-exempt interest income was $503, $590 and $614 thousand for 2024, 2023 and 2022, respectively which resulted in a federal income tax savings of $106, $124 and $129 thousand, respectively. 2024 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,557,213 $ 145,329 5.68 % Taxable investment securities 410,764 8,129 1.98 % Tax-exempt investment securities 20,154 328 2.06 % Federal funds sold & other 176,307 9,786 5.55 % Total Interest Earning Assets 3,164,438 $ 163,572 5.17 % Non-Interest Earning Assets: Cash and cash equivalents 47,223 Other assets 117,241 Total Assets $ 3,328,902 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,502,365 $ 39,750 2.65 % Other time deposits 663,320 24,713 3.73 % Other borrowed money 262,094 10,948 4.18 % Federal funds purchased and securities sold under agreement to repurchase 27,750 1,111 4.00 % Subordinated notes 34,755 1,138 3.27 % Total Interest Bearing Liabilities 2,490,284 $ 77,660 3.12 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 479,059 Other 34,529 Total Liabilities 3,003,872 Shareholders' Equity 325,030 Total Liabilities and Shareholders' Equity $ 3,328,902 Interest/Dividend income/yield $ 163,572 5.17 % Interest Expense/cost 77,660 3.12 % Net Interest Spread $ 85,912 2.05 % Net Interest Margin 2.72 % 31 2023 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,491,502 $ 129,344 5.19 % Taxable investment securities 394,424 6,204 1.57 % Tax-exempt investment securities 24,686 366 1.88 % Federal funds sold & other 85,018 3,894 4.58 % Total Interest Earning Assets 2,995,630 $ 139,808 4.67 % Non-Interest Earning Assets: Cash and cash equivalents 40,021 Other assets 157,705 Total Assets $ 3,193,356 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,376,318 $ 27,424 1.99 % Other time deposits 640,390 19,499 3.04 % Other borrowed money 220,175 8,876 4.03 % Federal funds purchased and securities sold under agreement to repurchase 35,421 1,474 4.16 % Subordinated notes 34,640 1,138 3.29 % Total Interest Bearing Liabilities 2,306,944 $ 58,411 2.53 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 493,820 Other 87,111 Total Liabilities 2,887,875 Shareholders' Equity 305,481 Total Liabilities and Shareholders' Equity $ 3,193,356 Interest/Dividend income/yield $ 139,808 4.67 % Interest Expense/cost 58,411 2.53 % Net Interest Spread $ 81,397 2.14 % Net Interest Margin 2.72 % 32 2022 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,073,737 $ 94,264 4.55 % Taxable investment securities 424,229 5,621 1.32 % Tax-exempt investment securities 23,472 337 1.82 % Federal funds sold & interest bearing deposits 95,301 927 0.97 % Total Interest Earning Assets 2,616,739 $ 101,149 3.87 % Non-Interest Earning Assets: Cash and cash equivalents 35,696 Other assets 122,665 Total Assets $ 2,775,100 LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Savings deposits $ 1,335,271 $ 6,378 0.48 % Other time deposits 451,013 3,505 0.78 % Other borrowed money 74,379 2,160 2.90 % Federal funds purchased and securities sold under agreement to repurchase 45,314 1,197 2.64 % Subordinated notes 34,524 1,122 3.25 % Total Interest Bearing Liabilities 1,940,501 $ 14,362 0.74 % Non-Interest Bearing Liabilities: Non-interest bearing demand deposits 480,389 Other 66,342 Total Liabilities 2,487,232 Shareholders' Equity 287,868 Total Liabilities and Shareholders' Equity $ 2,775,100 Interest/Dividend income/yield $ 101,149 3.87 % Interest Expense/cost 14,362 0.74 % Net Interest Spread $ 86,787 3.13 % Net Interest Margin 3.32 % The following tables show changes in interest income, interest expense and net interest resulting from changes in volume and rate variances for major categories of earnings assets and interest bearing liabilities. 2024 vs 2023 (In Thousands) Net Change Due to Change Due to Change Volume Rate Interest Earning Assets: Loans $ 15,985 $ 3,413 $ 12,572 Taxable investment securities 1,925 257 1,668 Tax-exempt investment securities (38 ) (85 ) 47 Federal funds sold & other 5,892 4,181 1,711 Total Interest Earning Assets $ 23,764 $ 7,766 $ 15,998 Interest Bearing Liabilities: Savings deposits $ 12,326 $ 2,512 $ 9,814 Other time deposits 5,214 698 4,516 Other borrowed money 2,072 1,690 382 Federal funds purchased and securities sold under agreement to repurchase (363 ) (319 ) (44 ) Subordinated notes - 4 (4 ) Total Interest Bearing Liabilities $ 19,249 $ 4,585 $ 14,664 33 2023 vs 2022 (In Thousands) Net Change Due to Change Due to Change Volume Rate Interest Earning Assets: Loans $ 35,080 $ 19,005 $ 16,075 Taxable investment securities 583 (395 ) 978 Tax-exempt investment securities 29 22 7 Federal funds sold & interest bearing deposits 2,967 (100 ) 3,067 Total Interest Earning Assets $ 38,659 $ 18,532 $ 20,127 Interest Bearing Liabilities: Savings deposits $ 21,046 $ 196 $ 20,850 Other time deposits 15,994 1,472 14,522 Other borrowed money 6,716 4,234 2,482 Federal funds purchased and securities sold under agreement to repurchase 277 (261 ) 538 Subordinated notes 16 4 12 Total Interest Bearing Liabilities $ 44,049 $ 5,645 $ 38,404 Non-Interest Income The discussion now focuses on the noninterest income and expense generated by the Company for the years ended 2022 through 2024.
The effect of tax-exempt interest from holding tax-exempt securities and Industrial Development Bonds (IDBs) was $149, $137 and $119 thousand for 2023, 2022 and 2021, respectively less the TEFRA adjustments of $20, $5 and $3 thousand respectively.
The effect of tax-exempt interest from holding tax-exempt securities and Industrial Development Bonds (IDBs) was $127, $149 and $137 thousand for 2024, 2023 and 2022, respectively less the TEFRA adjustments of $21, $20 and $5 thousand respectively. During 2024, the effect of investments reported under the proportional amortization method was $422 thousand.
In addition, for 2023, 2022 and 2021, our allowance for credit losses does not include a $363 thousand, $785 thousand and $1.2 million credit mark associated with the Limberlost acquisition. For 2023, 2022 and 2021, our allowance for credit losses also does not include a $294 thousand, $480 thousand or $966 thousand credit mark associated with the Ossian acquisition.
For 2024, 2023 and 2022, our allowance for credit losses also does not include a $107 thousand, $294 thousand or $480 thousand credit mark associated with the Ossian acquisition.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+8 added−4 removed3 unchanged
Biggest changeThe 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 our prediction. 47
Biggest changeRates 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.
Much of our interest rate risk arises from the instruments, positions and transactions entered into 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 re-price at different times as market interest rates change.
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.
Removed
The Bank’s balance sheet is liability sensitive which has resulted in a steep decline of net interest margin as rates rose over 2023. The level of long-term assets represents elevated risk and will continue to be an interest income anchor as those assets are at much lower rates when compared to current market rates.
Added
The shocks presented below assume instantaneous rates shocks on a static balance sheet as of December 31, 2024.
Removed
The Bank has utilized an interest rate hedge as protection against rising rates and is receiving some benefit, see Note 18 for disclosure. Additionally, the deposit growth was funded by a substantial portion of CDs in 2023, many of which were shorter term CD specials.
Added
At December 31, 2024, the shocks presented below assume an immediate change of rate in the percentages and directions shown: Interest Rate Shock on Interest Rate Shock on Net Interest Margin Net Interest Income Net Interest % Change Rate Rate Cumulative % Change Margin (Ratio) to Flat Rate Direction changes by Total ($000) to Flat Rate 2.97% -6.67% Rising 3.00% 94,232 -6.80% 3.05% -4.35% Rising 2.00% 96,622 -4.44% 3.20% 0.51% Rising 1.00% 101,614 0.50% 3.19% 0.00% Flat 0.00% 101,107 0.00% 3.05% -4.40% Falling -1.00% 96,612 -4.40% 2.96% -7.12% Falling -2.00% 93,835 -7.18% 2.83% -11.13% Falling -3.00% 89,748 -11.23% The Bank’s balance sheet is slightly asset-sensitive after coming through 100 bps of Fed rate cuts from September through December 2024.
Removed
As these CD specials come due in 2024, the Bank’s cost of funds may rise as the replacement rates for theses CDs currently are higher than their maturing rates in a flat rate environment. In a falling rate environment, this should provide a benefit based on the duration of the portfolio.
Added
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.
Removed
Management continues to review and is using external assistance to monitor and adjust our assumptions concerning decay rates, key rate ties on deposit accounts and prepayment speeds on loans for 2024. Both directional changes are within the Bank's risk tolerance.
Added
Checking accounts are preferable for the lower cost of funds and the opportunity to garner noninterest revenue from services provided. Savings and money market accounts are beneficial due to the variability of the interest in both rate and immediate option to reprice.
Added
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.
Added
We will have less of an opportunity to be as aggressive with future Fed rate cuts, and the falling rate shocks above illustrate this reality. 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.
Added
The Bank’s monthly cost of funds dropped from 3.16% in September to 2.89% in December 2024. 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.
Added
Overall, the Company must continue its trajectory of improved pricing discipline for its new loans and deposits. 49

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