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What changed in FARMERS & MERCHANTS BANCORP INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of FARMERS & MERCHANTS BANCORP INC's 2024 and 2025 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 2025 report.

+440 added−426 removedSource: 10-K (2026-02-27) vs 10-K (2025-02-26)

Top changes in FARMERS & MERCHANTS BANCORP INC's 2025 10-K

440 paragraphs added · 426 removed · 266 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

64 edited+23 added−27 removed55 unchanged
Biggest changeFinal rules, mostly effective in October 2015, were issued by the Board of Governors of the Federal Reserve System (FRB), the Farm Credit Administration, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) to implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).
Biggest changeFlood Insurance Regulations - Final rules, mostly effective in October 2015, were issued by joint agencies to implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act). These provisions amended regulations which apply to loans secured by properties located in special flood hazard areas.
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.
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, located in Nevada and dissolved in December 2023.
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.
Home Mortgage Disclosure Act - 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.
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.
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 have only one segment. Our executive offices are located at 307 North Defiance Street, Archbold, Ohio 43502, and our telephone number is (419) 446-2501.
The Company cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of the Company or its subsidiaries. Available Information The Company maintains an Internet web site at the following internet address: www.fm.bank.
The Company cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of the Company or its subsidiaries. 11 Available Information The Company maintains an Internet web site at the following internet address: www.fm.bank.
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.
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 new rules in February 2011 regarding Assessments, Dividends, Assessment Base, and Large Bank Pricing.
The USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U. S.
Enactment of the USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U. S.
Inventory: • Agriculture: o Livestock and grain up to 80% LTV, crops (insured) up to 75% and Warehouse Receipts up to 87%. • Commercial: o Maximum LTV of 50% on raw and finished goods. • Floor plan: o New/used vehicles to 100% of wholesale. o New/Used recreational vehicles and manufactured homes to 80% of wholesale.
Inventory: • Agriculture: o Livestock and grain up to 80% LTV, crops (insured) up to 75% and Warehouse Receipts up to 87%. 4 • Commercial: o Maximum LTV of 50% on raw and finished goods. • Floor plan: o New/used vehicles to 100% of wholesale. o New/Used recreational vehicles and manufactured homes to 80% of wholesale.
Prior Federal Reserve Board approval is required before the Company may acquire the beneficial ownership or control of more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association.
Prior Federal Reserve Board approval is required before the Company may acquire the beneficial ownership or control of more than 5% of the voting shares, or substantially all of the assets, 6 of a bank holding company, bank or savings association.
Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. Implementation of the rules is overseen by the Federal Reserve, the FDIC and the OCC.
Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, 7 to strengthen the regulation, supervision and risk management of the banking sector. Implementation of the rules is overseen by the Federal Reserve, the FDIC and the OCC.
For General QM status, applicable to first-lien mortgage loans offered by the Bank, a loan must still observe existing product features, underwriting requirements and limits on points and fees. Since the Bank, on occasion, does make Non-Qualified Mortgages, approvals and originations of both Non-QM loans and Higher Priced Mortgage Loans are periodically reported to the Bank’s Loan Committee.
For General QM status, applicable to first-lien mortgage loans offered by the Bank, a loan must still observe existing product features, underwriting requirements and limits on points and fees. On occasion, the Bank does make Non-Qualified Mortgages with approvals and originations of both Non-QM loans and Higher Priced Mortgage Loans which are periodically reported to the Bank’s Loan Committee.
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.
The Bank also operates three Loan Production Offices (LPOs), two in Ohio and one in Indiana. The Bank also provides checking account services, as well as savings and time deposit services such as certificates of deposits.
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.
At December 31, 2025, we had 474 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.
In accordance with the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the “GLB Act”), federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
Gramm-Leach-Bliley Financial Modernization Act of 1999 (the GLB Act”) - In accordance with privacy provisions of the GLB Act, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
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.
The required capital levels along with the Bank’s capital position at December 31, 2025 and 2024 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 the Basel III capital framework ("Basel III").
As of December 31, 2024, the Bank was well capitalized pursuant to these prompt corrective action guidelines.
As of December 31, 2025, the Bank was well capitalized pursuant to these prompt corrective action guidelines.
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.
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.
A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing.
Anti-Money Laundering and Anti-Terrorism Legislation - A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing.
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.
The Federal Reserve Board may conduct examinations or inspections of the Company and its subsidiaries. Enacted in November 1999, the Gramm-Leach-Bliley Act (the "GLB Act"), the GLB Act made sweeping changes with respect to the permissible financial services which various types of financial institutions may provide.
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.
Based on deposit data as of June 30, 2025 from the FDIC and using zip codes in our markets, the Bank ranked 4th with a 5.14% 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.
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.
Because the Bank's offices are primarily located in 3 Northwest Ohio, Northeast Indiana and Southeast Michigan, a substantial amount of the loan portfolio is comprised of loans made to customers in the agricultural industry for such items as farmland, farm equipment, livestock and operating loans for seed, fertilizer, and feed.
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.
Upgrades to our digital products and services continue to occur in both retail and business lines. The Bank continues to offer new suites of products as customer preferences change and the Bank adapts and adopts new technologies. The Bank continues to offer products that also meet the needs of our more traditional customers.
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.
Interagency guidance issued collectively by the regulatory agencies 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.
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.
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. Subsequent amendments to the TRID rules added further clarity to certain provisions.
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.
Equal Credit Opportunity Act (ECOA) / Section 1071 - Small Business Lending Data Collection - On March 30, 2023, the 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.
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.
Our holding company is regulated and examined by the Federal Reserve. Our subsidiary Bank is in turn regulated and examined by the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation. The activities of our Bank subsidiary are also subject to other federal and state laws and regulations.
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.
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. In November of 2020, FM Investment Services purchased the assets and clients of Adams County Financial Resources (ACFR).
Future Legislation Changes to the laws and regulations, both at the federal and state levels, can affect the operating environment of the Company and its subsidiaries in substantial and unpredictable ways.
Violations of various laws and regulations may result in fines, penalties, and/or reimbursement to customers. Future Legislation Changes to the laws and regulations, both at the federal and state levels, can affect the operating environment of the Company and its subsidiaries in substantial and unpredictable ways.
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.
For a discussion of the general development of the Company’s business throughout 2025, please see the portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations captioned “2025 in Review.” Nature of Activities The Farmers & Merchants State Bank engages in general commercial banking and savings business including commercial, agricultural and residential mortgage as well as consumer lending activities.
These provisions amended regulations which apply to loans secured by properties located in special flood hazard areas. Final rules for acceptance of private flood insurance policies became effective on July 1, 2019. Fines and penalties continue to be assessed by regulators for non-compliance with flood insurance requirements. A continued focus on adherence to the flood rules and requirements is necessary.
Final rules for acceptance of private flood insurance policies became effective on July 1, 2019. Fines and penalties continue to be assessed by regulators for non-compliance with flood insurance requirements. A continued focus on adherence to the flood rules and requirements is necessary.
Significant mortgage rules mandated by the Dodd-Frank Act provisions were enacted in response to the breakdown in the mortgage lending markets and to provide for consumer protections.
Significant mortgage-related rules - Mandated by the Dodd-Frank Act provisions and implemented by the CFPB or jointly with other regulatory agencies, final rules were enacted in response to the breakdown in the mortgage lending markets and to provide for consumer protections.
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.
The Bank also normally retains the servicing rights on these partially or 100% sold loans. In order for the customer to participate in these programs they must meet the requirements established by those agencies. In addition, the Bank does sell some of its longer term fixed rate agricultural mortgages into the secondary market with the aid of brokers.
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.
Other Federal Regulations - The Bank is also subject to federal regulation relating to matters such 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.
Depositor Preference Statute In the "liquidation or other resolution" of an institution by any receiver, U.S. federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over general unsecured claims against that institution, including federal funds and letters of credit.
The Dodd-Frank Act permanently raised the standard maximum deposit insurance coverage amount to $250,000 and applies per depositor, per insured depository institution for each account ownership category. 8 Depositor Preference Statute In the "liquidation or other resolution" of an institution by any receiver, U.S. federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over general unsecured claims against that institution, including federal funds and letters of credit.
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).
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). F&M Insurance Agency, LLC is a limited liability company organized in Ohio and regulated by the State of Ohio, Division of Insurance.
Unfair or deceptive acts or practices (UDAP) standards originally developed years ago by the Federal Trade Commission focused on unacceptable practices that may not specifically be addressed elsewhere in banking or consumer finance law. Banking regulatory agencies have increasingly used this authority over the years to address acts or practices that are deemed harmful, deceptive, or misleading to consumers.
Unacceptable Acts or Practices resulting in Consumer Harm - Unfair or deceptive acts or practices (UDAP) standards originally developed years ago by the Federal Trade Commission focused on unacceptable practices that may not specifically be addressed elsewhere in banking or consumer finance law.
Secured loans are in turn subject to loan to value (LTV) requirements based on collateral types as set forth in the Bank's Loan Policy. In addition, credit scores of those seeking consumer credit are reviewed and if they do not meet the Bank's Loan Policy guidelines an additional officer approval is required.
In addition, credit scores of those seeking consumer credit are reviewed and if they do not meet the Bank's Loan Policy guidelines an additional officer approval is required.
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.
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; 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.
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.
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.
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.
Securities are offered through Raymond James Financial Services, Inc. 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.
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 does offer a hybrid mortgage loan. Hybrid loans are loans that start out as a fixed rate mortgage but after a set number of years automatically adjust to an adjustable rate mortgage.
Within this sphere of safety and soundness, the Bank's practice has been to not promote innovative, unproven credit products which may not be in the best interest of the Bank or its customers. The Bank does offer a hybrid mortgage loan.
The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory guidance. Within this sphere of safety and soundness, the Bank's practice has been to not promote innovative, unproven credit products which may not be in the best interest of the Bank or its customers.
The Bank 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 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.
Its policies influence, to some degree, the volume of bank loans and deposits, and interest rates charged and paid thereon, and thus have an effect on the earnings of the Company's subsidiary Bank. Additional Regulation Provisions of the Dodd-Frank Act have resulted in additional rulemaking by the federal regulatory agencies and new rules yet to be issued.
Its policies influence, to some degree, the volume of bank loans and deposits, and interest rates charged and paid thereon, and thus have an effect on the earnings of the Company's subsidiary Bank.
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.
Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) - Enactment of 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.
These mortgage rules addressed problems consumers faced in the three major steps in buying a home – shopping for a mortgage, closing on a mortgage, and paying off a mortgage. Final rules and amendments to the integrated mortgage disclosure rules under the Real Estate Settlement Act (RESPA) and Truth in Lending Act (TILA) became effective in October 2015.
Final rules and amendments to the integrated mortgage disclosure rules under the Real Estate Settlement Act (RESPA) and Truth in Lending Act (TILA) became effective in October 2015.
To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Company and its subsidiaries.
To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions.
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.
The Company also formed a Captive insurance company in December 2014 and dissolved it in December 2023. The Captive was located in Nevada and regulated by the State of Nevada Division of Insurance. The Bank formed an insurance agency, F&M Insurance Agency, LLC, in November 2023 to offer insurance products to our customers.
The Bank focuses on Qualified Mortgage (QM) status for mortgage loans originated as they provide certain presumptions of compliance under the Ability to Repay rules adopted under the Dodd-Frank Act. In satisfying QM requirements, any mortgage lender regardless of their size can make loans which are entitled to the QM presumption of compliance.
In satisfying QM requirements, any mortgage lender regardless of their size can make loans which are entitled to the QM presumption of compliance. New final rules, effective October 2022, amended the Ability to Repay/Qualified Mortgage Rules.
In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
Transfer to the Bureau of all consumer financial protection functions for designated laws by the other federal agencies was completed in July 2011. The Bureau was given responsibility for mortgage reform and enforcement, as well as broad new powers over consumer financial activities, including consumer financial products and services and how they are provided.
The CFBP was given responsibility for mortgage reform and enforcement, as well as broad new powers over consumer financial activities, including consumer financial products and services and how they are provided as well as authority to prohibit "unfair, deceptive or abusive" acts and practices.
The Dodd-Frank Act created an independent regulatory body, the Bureau of Consumer Financial Protection (“Bureau”), with authority and responsibility to set rules and regulations for most consumer protection laws applicable to all banks – large and small – which added another regulator to scrutinize and police financial activities.
Additional Regulation Consumer Financial Protection Bureau - The Dodd-Frank Act created an independent regulatory body, the Consumer Financial Protection Bureau (CFPB). The CFPB was granted authority and responsibility to set rules and regulations for a broad range of consumer protection laws applicable to providers of consumer financial products and services, including banks.
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.
The Bank offers a seven and ten year fixed rate mortgage and a seven year jumbo fixed rate mortgage after which the interest rate will adjust annually for all. In order to offer longer term fixed rate mortgages, the Bank does participate in the Freddie Mac, Farm Service Agency (FSA) guaranteed secondary Agricultural market, and Small Business Lending programs.
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.
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 authority of the Federal Trade Commission (FTC) for credit practice rules was repealed as a result of the Dodd-Frank Act.
Banking regulatory agencies have increasingly used this authority over the years to address acts or practices that are deemed harmful, deceptive, or misleading to consumers. The authority of the Federal Trade Commission (FTC) for credit practice rules was repealed as a result of the Dodd-Frank Act.
Sub-prime loans are characterized as a lending program or strategy that targets borrowers who pose a significantly higher risk of default than traditional retail banking customers. All loan requests are reviewed as to credit worthiness and are subject to the Bank's underwriting guidelines as to secured versus unsecured credit.
The Bank began offering a low income home buyer mortgage program, currently Hometown Advantage Mortgage Program, in November of 2023. The Bank does not have a program to fund sub-prime loans. Sub-prime loans are characterized as a lending program or strategy that targets borrowers who pose a significantly higher risk of default than traditional retail banking customers.
Remaining attentive to the complexities of the TRID rules ensure practices and procedures remain compliant and do 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. Qualified Mortgage Loan standards - The Bank focuses on Qualified Mortgage (QM) status for mortgage loans originated as they provide certain presumptions of compliance under the Ability to Repay rules adopted under the Dodd-Frank Act.
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.
The Bank’s most recent performance evaluation dated July 7, 2025 assigned a CRA rating of “Satisfactory”. A final rule with amendments to the Community Reinvestment Act (CRA) was jointly issued by the OCC, FRB, and FDIC on October 24, 2023. These amendments were intended to strengthen and modernize CRA regulations.
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.
Final rules regarding mortgage and mortgage-related products addressed 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. These mortgage rules addressed problems consumers faced in the three major steps in buying a home – shopping for a mortgage, closing on a mortgage, and paying off a mortgage.
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.
Agencies continue to have supervisory authority and enforcement authority for practices previously addressed in the former credit practices rules. Understanding and awareness of impermissible consumer credit practices in conjunction with the CFPB's prohibitions regarding "unfair, deceptive or abusive" acts and practices relating to the offering and marketing of Bank products and services remains important.
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.
The Protecting Tenants in Foreclosure Act was restored and permanently extended. Effective in September 2018, consumers could freeze their credit information and place one-year fraud alerts for free. Additionally, parents could freeze the 10 credit information of their children under age 16 for free. The guidance and final rules issued must be monitored to ensure effectively managed.
The types of transactions reportable 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. Collection and disclosure of significant data points reflect applicant and borrower characteristics to identify potential discriminatory lending patterns. The information collected and disclosed is subject to review and evaluation by Federal banking regulators, community-oriented organizations, and the general public.
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.
A thorough review and validation of data fields to be reported for each reportable application is conducted throughout the year. Year-end submission of HMDA data utilizes the web-based tool developed by the CFPB.
Safety and Soundness Standards The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
Any change in applicable law or regulation may have a material effect on the business and prospects of the Company and its subsidiaries. 5 Safety and Soundness Standards The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
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Our activities include commercial, agricultural and residential mortgage as well as consumer lending activities.
Added
The Bank currently participates in three State of Ohio programs: Ag-Link, Grow Now and Ohio Homebuyers Plus. What all three of these programs have in common, is the ability to provide the Bank an avenue to offer a product that saves both the Bank and the consumer savings over other traditional products.
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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.
Added
With the acquisition of Perpetual Federal Savings Bank in the fourth quarter of 2021 and the addition of Peoples Federal Savings in the fourth quarter of 2022, the Bank saw an increase in fixed rate, long-term mortgage loans to our portfolio from that banking service area.
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In November of 2020, FM Investment Services purchased the assets and clients of Adams County Financial Resources (ACFR) which is discussed in further detail in Note 2 to the Company’s financial statements. Securities are offered through Raymond James Financial Services, Inc.
Added
All loan requests are reviewed as to credit worthiness and are subject to the Bank's underwriting guidelines as to secured versus unsecured credit. Secured loans are in turn subject to loan to value (LTV) requirements based on collateral types as set forth in the Bank's Loan Policy.
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The Captive was located in Nevada and regulated by the State of Nevada Division of Insurance.
Added
Liquidity and Interest Rate Risk Oversight In addition to the safety and soundness standards described above, following the 2023 banking sector stress events, federal and state banking regulators have increased supervisory focus on liquidity risk management and contingency funding planning, including the composition and stability of deposit funding (including uninsured and other rate-sensitive deposits), access to contingent sources of liquidity (including Federal Home Loan Bank advances and the Federal Reserve’s discount window), and governance and controls around liquidity stress testing and liquidity risk limits.
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The Dodd-Frank Act permanently raised the standard maximum deposit insurance coverage amount to $250,000 and applies per depositor, per insured depository institution for each account ownership category.
Added
Regulators have also emphasized oversight of interest rate risk management practices and the potential earnings and capital effects of changes in market interest rates, including as they relate to the valuation and duration of securities portfolios and related risk management practices.
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Implementing the new and expanded regulations involved extreme diligence to ensure compliance with the complexities of the rules, as well as extensive new disclosure and reporting requirements.
Added
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.
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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.
Added
In addition, U.S. federal banking agencies have proposed and continue to evaluate revisions to regulatory capital requirements, including proposals intended to implement elements of the “Basel III endgame” reforms for certain banking organizations.
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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.
Added
While the applicability and ultimate impact of any such revisions on the Company and the Bank will depend on final rulemaking, supervisory expectations, and the Company’s and the Bank’s size, activities, and risk profile, changes to the capital framework could, if adopted and applicable, affect required capital levels, capital planning, and certain aspects of the Company’s and the Bank’s operations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf 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.
Biggest changeA key component of employee retention is providing a fair compensation base combined with the opportunity for additional compensation for above average performance. Compensation and incentive arrangements may not be sufficient to retain key personnel in a highly competitive labor market, and increased compensation costs or turnover could adversely affect our business, financial condition, and results of operations.
The success of the farm may be affected by many factors outside the control of the borrower, including adverse weather conditions that prevent the planting of a crop or limit crop yields (such as hail, drought and floods), loss of livestock due to disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, subsidies and environmental regulations).
The success of the farm may be affected by many factors outside the control of the borrower, including adverse weather conditions that prevent the planting of a crop or limit crop yields (such as hail, drought and floods), loss of livestock due to 12 disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, subsidies and environmental regulations).
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.
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 14 unfavorable terms, thereby negatively impacting its profitability.
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.
While we actively monitor these developments and work closely with our agricultural customers, there is no assurance that we can fully mitigate the risks posed by tariff initiatives or other trade-related disruptions. These factors could materially affect our business, financial condition, and results of operations.
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.
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.
Accordingly, adverse circumstances affecting these crops could have an adverse effect on our agricultural real estate loan portfolio. Commercial loans make up a significant portion of our loan portfolio Our commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.
Accordingly, adverse circumstances affecting these crops could have an adverse effect on our agricultural real estate loan portfolio segment. Commercial Loans Make Up a Significant Portion of our Loan Portfolio Our commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.
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.
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 19 affect our business, operations and partners, consumer and business spending, including consumer spending patterns and business investment, and demand for credit.
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.
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.
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.
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.
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.
Global Economic and Geopolitical Instability Trade Policy, 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.
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.
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.
Credit Risk The risk of nonpayment of loans is inherent in commercial banking. Such nonpayment could have an adverse effect on the Company’s earnings and our overall financial condition as well as the value of our common stock.
ITEM 1a. RI SK FACTORS Credit Risk The risk of nonpayment of loans is inherent in commercial banking. Such nonpayment could have an adverse effect on the Company’s earnings and our overall financial condition as well as the value of our common stock.
The Bank currently has loan customers in these counties who operate in the poultry industry and whose operations may be highly vulnerable to any significant outbreak of the virus, which could materially affect their ability to operate and therefore repay their loans. The Bank continues to actively monitor this highly fluid situation.
The Bank currently has loan customers in these counties who operate in the poultry industry and whose operations may be highly vulnerable to any significant outbreak of the virus, which could materially affect their ability to operate and therefore repay their loans.
ITEM 1a. RI SK FACTORS Significant Competition from an Array of Financial Service Providers Our ability to achieve strong financial performance and a satisfactory return on investment to shareholders will depend in part on our ability to expand our available financial services.
Significant Competition from an Array of Financial Service Providers Our ability to achieve strong financial performance and a satisfactory return on investment to shareholders will depend in part on our ability to expand our available financial services.
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.
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. Please see Note 1 in the notes to consolidated financial statements for additional information.
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaced the "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the Current Expected Credit Loss model, or “CECL.” Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
The Company accounts for the allowance for credit losses in accordance with ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which utilizes an "expected loss" model referred to as the Current Expected Credit Loss model, or “CECL.” Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
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%.
Uninsured Deposit Risk Uninsured deposits based on FDIC coverage as a percentage of total deposits was 20.6% as of December 31, 2025, and as of the same date, total uninsured deposits (includes public deposits with protection over FDIC) was 12.8%.
Any successful cyber attack may also subject the Company to regulatory investigations, litigation or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cyber security incident, all or any of which could adversely affect the Company’s business, financial condition or results of operations and damage its reputation.
Any successful cyber attack may also subject the Company to regulatory investigations, litigation or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cybersecurity incident, all or any of which could adversely affect the Company’s business, financial condition or results of operations and damage its reputation. 18 Risk of Increased Losses from Fraud Criminals are committing fraud at an increasing rate and are using more sophisticated techniques.
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.
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.
Such fraudulent activity has taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials.
In some cases, these individuals are part of larger criminal rings, which allow them to be more effective. Such fraudulent activity has taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials.
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.
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.
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.
Beginning in September of 2024, the Federal Reserve began decreasing the Federal Funds rate which totaled 100 basis points throughout the remainder of 2024 and 75 basis points in 2025. These rate decreases have increased our interest spread to 2.65% in 2025 from 2.05% in 2024. The Bank manages interest rate risk within an overall asset/liability management framework.
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.
If these factors lead to financial strain on our borrowers, we may experience increased credit risk, higher loan delinquencies, and a potential decline in loan demand. As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes.
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 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.
Anti-Takeover Provisions Provisions of our Articles of Incorporation and Ohio law could have the effect of discouraging takeover attempts which certain stockholders might deem to be in their interest.
Accordingly, we cannot make assurances of our ability to raise additional capital if needed, or if the terms will be acceptable to us. Anti-Takeover Provisions Provisions of our Articles of Incorporation and Ohio law could have the effect of discouraging takeover attempts which certain stockholders might deem to be in their interest.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we cannot make assurances of our ability to raise additional capital if needed, or if the terms will be acceptable to us.
Any capital we obtain may result in the dilution of the interests of existing holders of our stock. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance.
Maintaining Compliance with Regulatory Capital Requirements Under regulatory capital adequacy guidelines, we must meet guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items. Failure to meet minimum capital requirements could have a material effect on our financial condition and could subject us to a variety of enforcement actions, as well as certain restrictions on our business.
Failure to meet minimum capital requirements could have a material effect on our financial condition and could subject us to a variety of enforcement actions, as well as certain restrictions on our business.
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.
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.
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.
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.
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.
The imposition of tariffs on imported goods, the added potential for retaliatory tariffs by foreign governments, or other similar restrictions on international trade could increase costs for domestic manufacturers and consumers alike, as well as reduce demand abroad for U.S. exports, and disrupt supply chains.
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 Bank declared additional dividends the fourth quarter to provide this liquidity to the Company. 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.
We may incur substantial expenses to comply with environmental laws which may materially reduce the property's value or limit our ability to dispose of the property.
We may incur substantial expenses to comply with environmental laws which may materially reduce the property's value or limit our ability to dispose of the property. 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.
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.
Higher loss emergence would increase our allowance for credit losses under CECL, potentially leading to earnings volatility, elevated provision levels and slower loan growth. 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.
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.
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. The Company may receive dividends from the Bank which is subject to restrictions and limitations in the amount and timing of the dividends it may pay to the Company.
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.
Any prolonged trade tensions could negatively impact the broader economic environment in the Midwest where the Bank operates, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services.
The cash incentive plan along with its targets and goals are subject to modification at the Compensation Committee and Board’s discretion throughout each year. Dividend Payout Restrictions We currently pay a quarterly dividend on our common shares. However, there is no assurance that we will be able to pay dividends in the future.
Dividend Payout Restrictions We currently pay a quarterly dividend on our common shares. However, there is no assurance that we will be able to pay dividends in the future. Dividends are subject to determination and declaration by our Board, which takes into account many factors.
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.
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.
Technological advancement aids the Company in providing customer service and increases efficiency. Our national competitors have more resources to invest in technological changes and associated required resources. As a result, they may be able to offer products and services that are more technologically advanced and that may put us at a competitive disadvantage.
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. Technological advancement aids the Company in providing customer service and increases efficiency. Our national competitors have more resources to invest in technological changes and associated 16 required resources.
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
The Company’s trading symbol is “FMAO.” ITEM 1b. UNRESOLVE D STAFF COMMENTS None.
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.
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. Inflation Risk Periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention.
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.
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. AI technologies are being increasingly adopted across the financial services industry to enhance operational efficiencies, optimize decision-making, and improve customer experience.
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.
Similarly, quantum computing, though still in early stages, has the potential to revolutionize areas such as data encryption, portfolio optimization, and risk modeling. However, the pace at which competitors and other financial institutions adopt these technologies may create challenges for our ability to remain competitive.
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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.
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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.
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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.
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For more information on this subject, see the section under Part I, Item 1 of this Form 10-K captioned “Supervision and Regulation.” Liquidity Risk Liquidity measures the ability to meet current and future cash flow needs as they become due.
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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.
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Quantitative Modeling Risk We rely on quantitative modeling to measure risks and to estimate certain financial values.
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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.
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Quantitative models may be used to help manage certain aspects of our business and to assist with certain business decisions, including estimating expected lifetime credit losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning purposes.
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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).
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All models have certain limitations. For instance, these methodologies inherently rely on assumptions, 13 historical analyses, and correlations which may not capture or fully incorporate all relevant conditions and circumstances. As a consequence, such limitations may result in losses, particularly in times of market distress.
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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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Additionally, as businesses and markets continue to rapidly evolve, our measurements may not accurately reflect this evolution.
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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.
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Even if the underlying assumptions and historical correlations used in our models are adequate, our models may be deficient due to errors in computer code, inaccurate data, misuse of data, or the use of a model for a purpose outside the scope of the model’s design.
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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.
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Reliance on such models presents the risk that our resulting business decisions will be adversely affected due to incorrect, missing, or misleading information. If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions.
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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.
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Strategies that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable. Also, information that we provide to the public or regulators based on poorly designed models could be inaccurate or misleading.
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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.
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Additionally, inflation may lead to a decrease in our customers’ purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could also be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for new credit extensions.
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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.
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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.
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The goals are designed to improve the performance of the Bank while also limiting the risk of a short-term performance focus. For example, a lending officer may be given two goals of which one is to grow loans within specific targets and another is tied to a specific level of past dues and charge-offs.
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Please see Note 17 in the notes to consolidated financial statements for additional information on dividend payout restrictions. Maintaining Compliance with Regulatory Capital Requirements Under regulatory capital adequacy guidelines, we must meet guidelines that involve quantitative measures of assets, liabilities and certain off balance sheet items.
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The second goal limits the ability to be rewarded for growth at all costs along with the specific target levels within the growth goal itself. Non-executive officers in a support department may be given goals which create efficiencies, ensure compliance with procedures, or generate new fee or product opportunities.
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Failure to meet the guidelines could also limit our access to liquidity sources. Compliance Obligations of Bank Holding Companies and Insured Depositories We and our bank subsidiary operate within an extensive and evolving framework of federal and state laws, regulations, and supervisory expectations that govern nearly all aspects of our operations.
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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.
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As a bank holding company, we are subject to the Bank Holding Company Act and related regulations, while our bank is overseen by federal and state regulators through examination and enforcement authority.
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Should the ROA be forecasted to be positive but below the base target set by the Board, the covered non-executive officers are paid an incentive under the same basis and timing as lower based employees disclosed above.
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We are also subject to numerous requirements under consumer protection, privacy, anti-money laundering, sanctions, community reinvestment, and securities laws, as well as payment system and third-party risk management standards. These obligations restrict permissible activities, affect capital, liquidity, and growth strategies, and impose significant compliance and operational costs.
Removed
The percentages of base pay on which the incentive is calculated graduates higher as does the responsibility level of the employee and their ability to impact the financial performance of the Bank. These percentages are recommended by management to the Compensation Committee and Board for approval.
Added
Examinations may result in Matters Requiring Attention or enforcement actions, and deficiencies in our risk, compliance, or governance programs could lead to penalties, remediation orders, restrictions on dividends or expansion, and reputational harm.
Removed
The Company may receive dividends from the Bank which is subject to restrictions and limitations in the amount and timing of the dividends it may pay to the Company. The Bank declared additional dividends the fourth quarter to provide this liquidity to the Company.
Added
The regulatory landscape continues to evolve through new legislation, rulemaking, and supervisory guidance in areas such as consumer protection, AML and sanctions, fintech partnerships, model risk, payments modernization, data privacy, and fair 15 access.
Removed
Failure to meet the guidelines could also limit our access to liquidity sources. Access to New Capital We may at some point need to raise additional capital to maintain our “well-capitalized” status. Any capital we obtain may result in the dilution of the interests of existing holders of our stock.
Added
Future changes—or differing federal and state requirements—could increase compliance costs, limit product or service offerings, or otherwise adversely affect our business, financial condition, and results of operations. Access to New Capital We may at some point need to raise additional capital to maintain our “well-capitalized” status.
Removed
We are constantly at risk of increased losses from fraud Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases, these individuals are part of larger criminal rings, which allow them to be more effective.
Added
As a result, they may be able to offer products and services that are more technologically advanced and that may put us at a competitive disadvantage. Our future depends on our ability to analyze technological changes to determine the best course of action for our business, customers and shareholders.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

15 edited+6 added−1 removed18 unchanged
Biggest changeWhen entering a third-party relationship, the risks associated with that activity are not passed to the third-party but remain our responsibility. At the direction of the Board and pursuant to its ultimate oversight, management is charged with the development and maintenance of a comprehensive vendor management program.
Biggest changeAlthough there are benefits in entering into third-party relationships with vendors and others, there are risks associated with such activities. When entering a third-party relationship, the risks associated with that activity are not passed to the third-party but remain our responsibility.
The Board ERM Committee reviews and approves any necessary changes to risk exposure limits after careful consideration of any changes in market conditions or corporate strategy and adopts guidelines, through the input of the Management Risk Committee’s analysis and discussion, regarding the maximum loss exposure the Bank is able and willing to assume.
The Board ERM Committee reviews and approves any necessary changes to risk exposure limits after careful consideration of any 20 changes in market conditions or corporate strategy and adopts guidelines, through the input of the Management Risk Committee’s analysis and discussion, regarding the maximum loss exposure the Bank is able and willing to assume.
Replacing a third-party service provider could also take a long period of time and result in increased expenses. Internal and External Risk Evaluations An annual Information Technology Audit, which is facilitated by the Internal Audit Department, is conducted via a co-sourcing agreement with a third-party auditor.
Replacing a third-party service provider could also take a long period of time and result in increased expenses. Internal and External Risk Evaluations An annual Information Technology Audit, which is facilitated by the Audit Committee, is conducted via a co-sourcing agreement with a third-party auditor.
The 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.
These nine office locations are leased. 22 The 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 Troy, Michigan* 3001 West Big Beaver Road 10/2025 All offices except the Butler, Indiana location have onsite ATM services.
The Bank owns real estate at two locations, 207 Ditto Street and 209 Ditto Street in Archbold, Ohio upon which the bank built a commercial building to be used for storage, and a parking lot for company vehicles and employee parking.
The Bank owns real estate at two locations, 207 Ditto Street and 209 Ditto Street in Archbold, Ohio upon which the bank built a commercial building to be used for storage, and a parking lot for company vehicles and employee parking. The Bank also owns real estate across from the main facilities to provide for parking.
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
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 Perrysburg, Ohio 5203 Levis Commons Boulevard F&M Insurance Agency, LLC operates from our principal office at 307 North Defiance Street; Archbold, OH 43502.
The additional cost to the Company of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting, and legal fees, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on cyber security.
The additional cost to the Company of our cybersecurity monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting, and legal fees, in addition to the incremental cost of personnel dedicated to cybersecurity.
The IS Steering Committee meets on a monthly basis. Formal meeting minutes serve to document decisions and recommendations by the IS Steering Committee and are reported to both the Management Risk Committee and the Board ERM Committee.
The IS Steering Committee meets on a monthly basis. Formal meeting minutes serve to document decisions and recommendations by the IS Steering Committee and are reported to both the Management Risk Committee and the Board ERM Committee. Management has appointed the Chief Information Officer the responsibility for overall management of the Company’s “front line” IT risk.
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 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 owns all of its office locations, with the exception of the asterisked offices below.
In addition, we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, but such insurance coverage may not always be sufficient to cover all losses.
In addition, we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, but such insurance coverage may not always be sufficient to cover all losses. To date, cybersecurity incidents have not materially affected the Company’s business strategy, results of operations, or financial condition.
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.
Material Impact of Cyber Risk As discussed more thoroughly below, the Company devotes significant resources to implement, maintain, monitor and regularly upgrade its systems and networks with measures such as intrusion detection and prevention, access controls, data encryption, and firewalls to safeguard critical business applications and customer information.
While focusing on information and operational risks, outsourced relationships are reviewed through structured assessments and addressed from an end-to-end perspective.
The vendor management program is used to identify, measure, monitor, and control the risks associated with outsourcing arrangements. While focusing on information and operational risks, outsourced relationships are reviewed through structured assessments and addressed from an end-to-end perspective.
With the assistance of third-party service providers, we continue to implement security technology and establish procedures to maintain network security. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
The Company may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
In that respect, Company management has appointed the IS Steering Committee, chaired by the Chief Information Officer, to oversee the Company’s vendor management program. The vendor management program is used to identify, measure, monitor, and control the risks associated with outsourcing arrangements.
At the direction of the Board and pursuant to its ultimate oversight, management is charged with the development and maintenance of a comprehensive vendor management program. In that respect, Company management has appointed the IS Steering Committee, chaired by the Chief Information Officer, to oversee the Company’s vendor management program.
IT Risk and Vendor Management We rely on third-party service providers to leverage subject matter expertise and industry best practice, provide enhanced products and services, and reduce costs. Although there are benefits in entering into third-party relationships with vendors and others, there are risks associated with such activities.
However, future cybersecurity threats or incidents could materially adversely affect the Company’s business strategy, results of operations, or financial condition. 21 IT Risk and Vendor Management We rely on third-party service providers to leverage subject matter expertise and industry best practice, provide enhanced products and services, and reduce costs.
Removed
The Bank owns all of its office locations, with the exception of the asterisked offices below. These eight office locations are leased.
Added
In addition, the Board of Directors has established a Cybersecurity Committee comprised of two outside members of the Board and select members of management to assist the Board in fulfilling its oversight responsibilities with respect to the Company’s information technology use and protection.
Added
Specifically, the Cybersecurity Committee oversees the effectiveness of the Company’s cybersecurity risk management program, including practices for identifying, assessing, and mitigating cybersecurity risks, monitoring the threat environment, vulnerability assessments, third-party cybersecurity risks, and the Company’s controls to prevent, detect, and respond to cybersecurity incidents.
Added
The Cybersecurity Committee also oversees cyber resiliency matters, including incident response planning, business continuity, and disaster recovery capabilities, and reviews investments in cybersecurity infrastructure and program needs. The Cybersecurity Committee meets at least quarterly and reports directly to the Board of Directors.
Added
The Company’s Chief Information Officer, Chief Risk Officer, and other members of management responsible for cybersecurity risk management have experience in information security, technology operations, and risk management developed through prior work experience, professional training, and industry certifications. Despite these efforts, the Company’s cybersecurity measures may not be effective in preventing or detecting all cybersecurity incidents or breaches.
Added
With the assistance of third-party service providers, the Company continues to implement security technology and establish procedures to maintain network security.
Added
As cyber threats continue to evolve, the Company may be subject to risks relevant to financial institutions, including unauthorized access to or disclosure of information, ransomware or other malware incidents, phishing and social engineering schemes, disruptions to online or payment systems, and vulnerabilities involving third-party service providers, any of which could result in financial loss, regulatory scrutiny, reputational harm, operational disruption, or remediation costs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+0 added−1 removed1 unchanged
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.
Biggest changeThe 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. 2025 2024 Tier I Leverage Ratio 8.81 % 8.12 % Risk Based Capital Tier I 10.68 % 10.44 % Total Risk Based Capital 12.97 % 12.80 % Stockholders' Equity/Total Assets 10.80 % 9.96 % 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 (1) 10/1/2025 to - - - 650,000 10/31/2025 11/1/2025 to - - - 650,000 11/30/2025 12/1/2025 to 63 (2) 26.74 - 650,000 12/31/2025 Total 63 26.74 - 650,000 (1) From time to time, the Company purchases shares in the market pursuant to a stock repurchase program publicly announced on January 28, 2025.
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
On January 27, 2026, 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 27, 2026 and ending December 31, 2026. ITEM 6. R ESERVED
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.
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, 2025. The chart compares the value of $100 invested in the Company and each of the indices and assumes investment on December 31, 2020 with all dividends reinvested.
ITEM 5. MARKET FOR REGISTRANT'S COMMON E QUITY AND RELATED STOCKHOLDER MATTERS The Company’s common stock is listed on the NASDAQ Stock Market LLC under the trading symbol “FMAO.” The Company utilizes Computershare as its transfer agent.
ITEM 5. MARKET FOR REGISTRANT'S COMMON E QUITY AND RELATED STOCKHOLDER MATTERS The Company’s common stock is listed on the NASDAQ Stock Market LLC under the trading symbol “FMAO.” The Company utilizes Broadridge Corporate Issuer Solutions, LLC as its transfer agent.
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.
As of December 31, 2025, there were 1,909 record holders of our common stock of which 64.29% 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.
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.
Per share dividends declared for the years ended 2025 and 2024 are as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total 2025 $ 0.22125 $ 0.22125 $ 0.22750 $ 0.23000 $ 0.90000 2024 $ 0.22000 $ 0.22000 $ 0.22125 $ 0.22125 $ 0.88250 Dividends declared during 2025 were $0.90 per share totaling $12.2 million, 2.0% higher than 2024 declared dividends of $0.8825 per share.
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.
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.
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.
On that date, the Board of Directors authorized the repurchase of up to 650,000 common shares between January 28, 2025 and December 31, 2025. (2) Shares which are returned to account for tax payable on vested stock awards are outside of the Company's stock repurchase program.
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.
During 2025, the Company awarded 60,673 shares to 131 employees and 6,707 shares were forfeited under its long term incentive plan. At year-end 2025, the Company held 816,351 shares in Treasury stock and 164,667 in unearned stock awards. 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.
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.
The stock price performance shown on the graph is not necessarily indicative of future performance. 2021 2022 2023 2024 2025 FMAO 145.83 124.79 118.14 142.20 125.54 NASDAQ - COMPOSITE 122.15 82.78 118.95 153.30 184.87 NASDAQ - BANK INDEX 142.65 120.10 115.65 137.06 145.62 Dividends are declared and paid quarterly.
Removed
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

130 edited+110 added−105 removed41 unchanged
Biggest changeThe 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.
Biggest changeThe tax-exempt interest income was $697, $503, and $590 thousand for 2025, 2024 and 2023, respectively which resulted in a federal income tax savings of $121, $106, and $124 thousand, respectively. 2025 (In Thousands) Average Interest/ Balance Dividends Yield/Rate ASSETS Interest Earning Assets: Loans $ 2,632,363 $ 158,614 6.03 % Taxable investment securities 450,636 11,202 2.49 % Tax-exempt investment securities 16,473 296 2.27 % Federal funds sold and other 84,017 3,432 4.08 % Total Interest Earning Assets 3,183,489 $ 173,544 5.45 % Noninterest Earning Assets: Cash and cash equivalents 47,096 Other assets 133,462 Total Assets $ 3,364,047 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Liabilities: NOW accounts and savings deposits $ 1,579,552 $ 37,314 2.36 % Time deposits 618,230 20,865 3.37 % Borrowed funds 212,720 8,893 4.18 % Federal funds purchased and securities sold under agreement to repurchase 26,263 1,042 3.97 % Subordinated notes 34,871 1,138 3.26 % Total Interest-Bearing Liabilities 2,471,636 $ 69,252 2.80 % Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits 501,423 Other 37,688 Total Liabilities 3,010,747 Shareholders' Equity 353,300 Total Liabilities and Shareholders' Equity $ 3,364,047 Interest/Dividend income/yield $ 173,544 5.45 % Interest Expense/cost 69,252 2.80 % Net Interest Spread $ 104,292 2.65 % Net Interest Margin 3.28 % 31 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 and other 176,307 9,786 5.55 % Total Interest Earning Assets 3,164,438 $ 163,572 5.17 % Noninterest Earning Assets: Cash and cash equivalents 47,223 Other assets 117,241 Total Assets $ 3,328,902 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Liabilities: NOW accounts and savings deposits $ 1,502,365 $ 39,750 2.65 % Time deposits 663,320 24,713 3.73 % Borrowed funds 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 % Noninterest-Bearing Liabilities: Noninterest-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 % 32 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 and other 85,018 3,894 4.58 % Total Interest Earning Assets 2,995,630 $ 139,808 4.67 % Noninterest Earning Assets: Cash and cash equivalents 40,021 Other assets 157,705 Total Assets $ 3,193,356 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Liabilities: NOW accounts and savings deposits $ 1,376,318 $ 27,424 1.99 % Time deposits 640,390 19,499 3.04 % Borrowed funds 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 % Noninterest-Bearing Liabilities: Noninterest-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 % 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. 2025 vs 2024 (In Thousands) Net Change Due to Change Due to Change Volume Rate Interest Earning Assets: Loans $ 13,285 $ 4,272 $ 9,013 Taxable investment securities 3,073 789 2,284 Tax-exempt investment securities (32 ) (76 ) 44 Federal funds sold and other (6,354 ) (5,123 ) (1,231 ) Total Interest Earning Assets $ 9,972 $ (138 ) $ 10,110 Interest-Bearing Liabilities: NOW accounts and savings deposits $ (2,436 ) $ 2,042 $ (4,478 ) Time deposits (3,848 ) (1,680 ) (2,168 ) Borrowed funds (2,055 ) (2,062 ) 7 Federal funds purchased and securities sold under agreement to repurchase (69 ) (60 ) (9 ) Subordinated notes - 4 (4 ) Total Interest-Bearing Liabilities $ (8,408 ) $ (1,756 ) $ (6,652 ) 33 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 and other 5,892 4,181 1,711 Total Interest Earning Assets $ 23,764 $ 7,766 $ 15,998 Interest-Bearing Liabilities: NOW accounts and savings deposits $ 12,326 $ 2,512 $ 9,814 Time deposits 5,214 698 4,516 Borrowed funds 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 Noninterest Income The discussion now focuses on the noninterest income and expense generated by the Company for the years ended 2023 through 2025.
Actual charge-off of loan balances is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors, including, but not limited to, general economic conditions, financial condition of the borrower, and collateral. For regulatory capital calculations, the capital decrease of $3.4 million is amortized over a 3 year period.
Actual charge-off of loan balances is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors, including, but not limited to, general economic conditions, financial condition of the borrower, and collateral. For regulatory capital calculations, the capital decrease of $3.4 million was amortized over a 3 year period.
In each of these situations, any information available to management regarding market conditions impacting a specific property or other relevant factors are considered, and lenders familiar with a particular commercial real estate loan and the underlying collateral may be present to provide their opinion on such factors.
In each of these situations, any information available to management regarding market conditions impacting a specific property or other relevant factors are considered, and lenders familiar with a particular 45 commercial real estate loan and the underlying collateral may be present to provide their opinion on such factors.
The increased interest expense in 2024 for savings deposits and time deposits accounted for 91.1% of the total interest expense increase. Overall, cost of funds increased 59 basis points or 29 23.3% over 2023 with only 23.8% due to volume increases. The remaining 76.2% was related to changes in interest rates.
The increased interest expense in 2024 for savings deposits and time deposits accounted for 91.1% of the total interest expense increase. Overall, cost of funds increased 59 basis points or 23.3% over 2023 with only 23.8% due to volume increases. The remaining 76.2% was related to changes in interest rates.
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.
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.
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 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.
Income is recorded when the real estate loan is first sold with servicing retained and is therefore recognized immediately. The amortization, 35 however, is calculated over the life of the loan and accelerated as loans are paid off early.
Income is recorded when the real estate loan is first sold with servicing retained and is therefore recognized immediately. The amortization, however, is calculated over the life of the loan and accelerated as loans are paid off early.
The majority of the Bank’s loans are made in the market by lenders who live and work in the market. Thus, their evaluation of the independent valuation is also valuable and serves as a double check.
The majority of the Bank’s loans are made by lenders who live and work in the market area. Thus, their evaluation of the independent valuation is also valuable and serves as a double check.
Certain policies inherently have a greater reliance on assumptions, estimates and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Certain policies inherently have a greater reliance on assumptions, estimates and judgments and as such have a greater possibility of producing results that could be materially different than 25 originally reported.
Watch List loans secured in whole or in part by real estate require updated appraisals every two years. All loans are subject to loan to values as found in the Bank’s loan policies irrespective of their grade. The Bank’s watch list is reviewed on a quarterly basis by management and any questions as to value are addressed at that time.
Watch List loans secured in whole or in part by real estate require updated appraisals every two years. All loans are subject to loan-to-value limitations as found in the Bank’s loan policies irrespective of their grade. The Bank’s watch list is reviewed on a quarterly basis by management and any questions as to value are addressed at that time.
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.
Average outstanding loan balances include non-performing loans, real estate loans held for sale and carrying value adjustments related to interest rate swaps of $1.7, $1.1, and $2.7 million for 2025, 2024 and 2023, respectively. Average outstanding security balances are computed based on carrying values including unrealized gains and losses on available-for-sale securities.
The expense for the restricted stock awards increased in 2024 even though 4,056 fewer shares were granted. This was due to higher market value rates and $108 thousand for the acceleration of stock awards for executive retirements. Restricted stock award expense increased in total $79 thousand in 2024 over 2023.
Restricted stock award expense increased in 2024 even though 4,056 fewer shares were granted. This was due to higher market value rates and $108 thousand for the acceleration of stock awards for executive retirements. Restricted stock award expense increased in total $34 thousand in 2025 over 2024 and $79 thousand in 2024 over 2023.
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.
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, 2025 and 2024, the Bank had $51 and $65 thousand, respectively, of its loans that were considered modified for borrowers experiencing financial difficulty, none of which was included in nonaccrual loans.
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 amount of the potential problem loans was considered in management’s determination of the allowance for credit losses at December 31, 2025, 2024 and 2023. 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.
Total interest collections, whether on an accrued or cash basis, amounted to $1.2 million for 2024, $431 thousand for 2023 and $458 thousand for 2022. Loans are placed on nonaccrual status in the event that the loan is in past due status for more than 90 days or payment in full of principal and interest is not expected.
Total interest collections, whether on an accrued or cash basis, amounted to $152 thousand for 2025, $1.2 million for 2024 and $431 thousand for 2023. 44 Loans are placed on nonaccrual status in the event that the loan is in past due status for more than 90 days or payment in full of principal and interest is not expected.
Interest income that would have been recorded under the original terms of these loans would have aggregated $794 thousand as of December 31, 2024, $1.2 million as of December 31, 2023 and $554 thousand as of December 31, 2022.
Interest income that would have been recorded under the original terms of these loans would have aggregated $1.2 million as of December 31, 2025, $794 thousand as of December 31, 2024 and $1.2 million as of December 31, 2023.
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.
The Bank had nonaccrual loan balances of $11.3 million at December 31, 2025 compared to balances of $3.1 million and $22.4 million as of year-end 2024 and 2023, respectively. All of the balances of nonaccrual loans for the past three years were collaterally secured.
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 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 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.
The following tables present net interest income, interest spread and net interest margin for the three years 2023 through 2025, 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.
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.
In response to these fluctuations and the offset by loan growth during 2023 through 2025, the Bank’s ACL to outstanding loan coverage percentage changed to 1.02% as of December 31, 2025, 1.01% as of December 31, 2024 and 0.97% as of December 31, 2023.
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.
The credit mark not included in the allowance for credit losses associated with the Perpetual Federal Savings Bank acquisition for 2025, 2024 and 2023 was $112 thousand, $1.5 million and $2.8 million, respectively. 2025, 2024 and 2023 also include a $104 thousand, $335 thousand and $566 thousand credit mark associated with the Peoples Federal Savings and Loan acquisition.
Average balances of federal funds sold and interest bearing deposits with other institutions increased $91.3 million and increased interest rates generated an additional $5.9 million in interest income over 2023. The overall asset yield for 2024 increased 50 basis points as compared to 2023.
Average balances of federal funds sold and interest-bearing deposits with other institutions increased $91.3 million and increased interest rates generated an additional $5.9 million in interest income over 2023. The overall asset yield for 2024 increased 50 basis points as compared to 2023. Interest expense for 2025 was lower by $8.4 million than 2024.
As of December 31, 2024, the Company’s loan portfolio was 36.0% variable with 31.4% of total loans subject to repricing within the next twelve months.
As of December 31, 2024, the Company’s loan portfolio was 36.0% variable with 31.4% of total loans subject to repricing within the next twelve months. The Company’s loan portfolio on December 31, 2023, was 31.6% variable with 24.9% of total loans repricing within the next twelve months.
All of the Bank’s security portfolio is categorized as available for sale and as such is recorded at fair value. 40 The Company has increased its security portfolio in 2024 for purposes of liquidity, Community Reinvestment Act (CRA), and contingency planning as a means of balance sheet gap management.
All of the Bank’s security portfolio is categorized as available for sale and as such is recorded at fair value. All mortgage-backed securities are government sponsored enterprises. 40 The Company increased its security portfolio in 2024 for purposes of liquidity, Community Reinvestment Act (CRA), and contingency planning as a means of balance sheet gap management.
The Company’s goal is to increase core deposits which includes savings deposits which increased $126.0 million while non-interest bearing demand deposits decreased $14.8 million in average balances, respectively as compared to 2023. In 2024, time deposits increased $41.9 million in average balances year over year.
The Company’s goal was to increase core deposits, including savings deposits, which increased $126.0 million while noninterest-bearing demand deposits decreased $14.8 million in average balances, respectively as compared to 2023. In 2024, time deposits increased $41.9 million in average balances year over year.
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.
Average earning assets increased in balances for all years during 2023 through 2025 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) 2025 2024 2023 2022 2021 Summary of Income: Interest income $ 173,544 $ 163,572 $ 139,808 $ 101,149 $ 76,840 Interest expense 69,252 77,660 58,411 14,362 7,342 Net Interest Income 104,292 85,912 81,397 86,787 69,498 Provision for Credit Losses - Loans* 2,596 944 1,698 4,600 3,444 Provision for (Recovery of) Credit Losses - Off Balance Sheet Credit Exposures* (506 ) (671 ) 46 - - Net Interest Income After Provision for Credit Losses* 102,202 85,639 79,653 82,187 66,054 Noninterest income (expense), net (59,677 ) (53,066 ) (51,299 ) (41,712 ) (36,557 ) Net Income Before Income Taxes 42,525 32,573 28,354 40,475 29,497 Income Taxes 9,216 6,635 5,567 7,960 6,002 Net Income $ 33,309 $ 25,938 $ 22,787 $ 32,515 $ 23,495 Per Share of Common Stock: Earnings per common share outstanding** Net Income $ 2.43 $ 1.90 $ 1.67 $ 2.46 $ 2.01 Dividends $ 0.9000 $ 0.8825 $ 0.8500 $ 0.8125 $ 0.7100 Weighted average number of shares outstanding, including participating securities 13,727,541 13,684,961 13,641,336 13,206,713 11,664,852 *ASU 2016-13 was adopted during the first quarter of 2023; therefore, 2021 and 2022 provision amounts reflect the incurred loss method. **Based on weighted average number of shares outstanding.
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.
Summary of Consolidated Balance Sheets (In Thousands) 2025 2024 2023 2022 2021 Total assets $ 3,434,382 $ 3,364,723 $ 3,283,229 $ 3,015,351 $ 2,638,300 Loans, net 2,685,990 2,536,043 2,556,167 2,336,074 1,841,177 Total deposits 2,730,735 2,686,765 2,607,463 2,468,864 2,193,462 Stockholders' equity 370,862 335,211 316,543 298,140 297,167 Key Ratios Return on average equity 9.43 % 7.98 % 7.46 % 11.30 % 9.09 % Return on average assets 0.99 % 0.78 % 0.71 % 1.17 % 1.05 % Loans to deposits 98.36 % 94.39 % 97.93 % 94.62 % 83.94 % Capital to assets 10.80 % 9.96 % 9.64 % 9.89 % 11.26 % Dividend payout 36.67 % 46.05 % 50.37 % 32.74 % 35.08 % Securities The investment portfolio is primarily used to provide overall liquidity for the Bank.
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.
As of December 31, 2025, the Bank had loans outstanding to individuals and firms engaged in the various fields of agriculture in the amount of $218.1 million with an additional $217.0 million in agricultural real estate loans which compared to $152.1 and $216.4 million, respectively, as of December 31, 2024.
The largest factor behind the increase in both years was the expense of employee salaries and wages. During 2024, an additional $3.3 million was spent over 2023 which correlates to a 12.1% increase. When making the same analysis for 2023 as compared to 2022, 2023’s costs increased $4.2 million or 18.6%.
One of the largest factors behind the increase in both years was the expense of employee salaries and wages. During 2025, an additional $1.4 million was spent over 2024 which correlates to a 4.7% increase. When making the same analysis for 2024 as compared to 2023, 2024’s costs increased $3.3 million or 12.1%.
In addition, for 2023 and 2022, our allowance for credit losses does not include a $363 thousand and $785 thousand credit mark associated with the Limberlost acquisition. No credit mark for Limberlost remained at December 31, 2024.
In addition, for 2023, our allowance for credit losses does not include a $363 thousand credit mark associated with the Bank of Geneva acquisition. No credit mark for Bank of Geneva remained at December 31, 2024.
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.
Overall, total interest income was $23.8 million higher for 2024 than 2023 on an additional $168.8 million in total average earning assets.
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.
No loans were classified as doubtful. 37 At year-end December 31, 2023, these loans totaled $104.9 million and were $44.9 million higher than December 31, 2022. 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.
Security balances as of December 31 are summarized below: (In Thousands) 2024 2023 2022 U.S. Treasury $ 105,999 $ 80,270 $ 94,678 U.S.
Security balances as of December 31 are summarized below: (In Thousands) 2025 2024 2023 U.S. Treasury $ 89,853 $ 105,999 $ 80,270 U.S.
The bonus was recognized over 60 months with $319 thousand included in 2024 and $351 thousand included in 2023 and 2022’s $5.4 million, $5.3 million and $5.0 million, respectively. While this revenue stream continues to improve with more depositors using electronic methods for purchasing, the expense attributable to card fraud has offset a portion of the revenue gain.
The bonus was recognized over 60 months with $319 thousand included in 2024's $5.4 million and $351 thousand included in 2023’s $5.3 million. While more depositors are using electronic methods for purchasing, the expense attributable to card fraud has offset a portion of the revenue gain.
For 2023, the Mastercard growth credit was $196 thousand and $188 thousand for 2022. In December of 2019, the Bank became a principal with MasterCard and received a $1.75 million signing bonus. The signing bonus was based on achieving $1.1 billion in signature transactions over five years.
Included in interchange revenue is a Mastercard growth credit of $240 thousand, $213 thousand and $196 thousand for 2025, 2024 and 2023, respectively. In December of 2019, the Bank became a principal with Mastercard and received a $1.75 million signing bonus. The signing bonus was based on achieving $1.1 billion in signature transactions over five years.
Net interest income is the difference between interest income earned on interest earning assets, such as loans and securities, and interest expense paid on interest bearing liabilities used to fund those assets, such as interest bearing deposits and other borrowings.
Net interest income is the difference between interest income earned on interest earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits and other borrowings. Net interest income is affected by changes in both interest rates and the amount and composition of earning assets and liabilities.
The effects of which can be seen in the improvement of $4.5 million to net interest income as compared to 2023. Total interest income increased $23.8 million which was offset by increased interest expense of approximately $19.3 million.
In 2024, the focus was on increasing profitability while also repositioning the balance sheet. The effects of which can be seen in the improvement of $4.5 million to net interest income as compared to 2023. Total interest income increased $23.8 million which was offset by increased interest expense of approximately $19.3 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.
Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and service. 50 Contractual Obligations Contractual obligations of the Company totaled $909.5 million as of December 31, 2025. Time deposits, contractual agreements for certificates of deposits held by its customers, were $597.8 million.
Employee benefits expense increased in 2024 as compared to 2023. The 401-K retirement plan accounted for the largest portion of the increase, which was an increase of $601 thousand over 2023. The contribution portion relating to the discretionary profit-sharing percentage was 4.5% in 2024 compared to 1.7% in 2023. Overall, employee benefits increased $1.0 million or 13.6% from 2023.
The contribution portion relating to the discretionary profit-sharing percentage was 4.40% in 2025. Employee benefits expense increased in 2024 as compared to 2023. The 401(k) retirement plan accounted for the largest portion of the increase, which was an increase of $601 thousand over 2023.
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.
Government agencies 131,961 135,166 128,222 Mortgage-backed securities 143,382 120,631 82,132 State and local governments 56,876 64,760 67,854 $ 422,072 $ 426,556 $ 358,478 The following table sets forth the maturities of investment securities as of December 31, 2025 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.
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.
Interest expense (which includes deposits, federal funds purchased, securities sold under agreement to repurchase, borrowed funds and subordinated notes) all decreased in 2025 as compared to 2024, while for 2024 as compared to 2023, they all increased from all interest-bearing funding sources with the exception of federal funds purchased and securities sold under agreement to repurchase.
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.
At December 31, 2024, 3,677 1-4 family real estate loans and 619 agricultural loans were being serviced with corresponding balances of $364.3 million and $141.9 million, respectively. 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.
Of course, the value (or income) of the servicing right when the loans are sold also impacts the net position. As of December 31, 2024, 3,677 1-4 family real estate loans and 619 agricultural loans are being serviced with corresponding balances of $364.3 million and $141.9 million, respectively.
The value (or income) of the servicing right when the loans are sold also impacts the net position. As of December 31, 2025, 3,597 1-4 family real estate loans and 658 agricultural loans were being serviced with corresponding balances of $362.6 million and $153.4 million, respectively.
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.
For 2024 and 2023, our allowance for credit losses also does not include a $107 thousand or a $294 thousand credit mark associated with the Ossian State Bank acquisition. No credit mark for Ossian State Bank remained at December 31, 2025.
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.
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. Included in ATM expense are the debit card fees incurred which offset the debit card income as discussed in the noninterest income section.
On 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.
The following table shows the Bank’s gross loan portfolio by segment, excluding loans held for sale, by category of loan as of December 31 of each year: (In Thousands) Loans: 2025 2024 2023 2022 2021 Consumer Real Estate $ 526,439 $ 520,114 $ 521,895 $ 494,423 $ 395,873 Agricultural Real Estate 217,034 216,401 223,791 220,819 198,343 Agricultural 218,050 152,080 132,560 128,733 118,368 Commercial Real Estate 1,355,571 1,310,811 1,337,766 1,152,603 848,477 Commercial and Industrial 314,405 275,152 254,935 242,360 208,270 Consumer 58,838 63,009 79,591 89,147 57,737 Other 23,133 24,978 30,136 29,818 32,089 $ 2,713,470 $ 2,562,545 $ 2,580,674 $ 2,357,903 $ 1,859,157 The Bank maintains a well-balanced, diverse and high performing commercial real estate loan portfolio.
As presented in the table on the next page, charge-offs decreased to $480 thousand for 2024. 72.1% of the charge-offs stemmed from the consumer portfolio. Charge-offs were $990 thousand for 2023 and $827 thousand for 2022. Recoveries were $338 thousand in 2024 compared to $439 and $298 for 2023 and 2022, respectively.
As discussed previously and presented in the table on the next page, charge-offs increased to $1.0 million for 2025. 73.7% of the charge-offs stemmed from the consumer portfolio segment. Charge-offs were $480 thousand for 2024 and $990 thousand for 2023. Recoveries were $294 thousand in 2025 compared to $338 and $439 thousand for 2024 and 2023, respectively.
The increased interest expense of 2024 resulted in interest margin remaining flat while interest spread decreased 9 basis points compared to 2023 due to the cost of funds increasing more than the increase in asset yield.
The increased interest expense of 2024 resulted in the net interest margin remaining flat while interest spread decreased 9 basis points compared to 2023 due to the cost of funds increasing more than the increase in asset yield. For 2024, average loan balances increased $65.7 million over the prior year with increased interest income of $16.0 million.
Net occupancy expense increased for 2023 $1.3 million over 2022. A correlating expense to the Company's refinancing activity as it relates to loans sold to the secondary market, is the amortization of servicing rights. The amortization is the expense that offsets the income recognized when the loan is first made.
A correlating expense to the Company's refinancing activity as it relates to loans sold to the secondary market, is the amortization of servicing rights for 1-4 family real estate loans and agricultural real estate loans. The amortization is the expense that offsets the income recognized when the loan is first sold.
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 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 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.
The effect of tax-exempt interest from holding tax-exempt securities and Industrial Development Bonds (IDBs) was $146, $127 and $149 thousand for 2025, 2024 and 2023, respectively less the TEFRA adjustments of $25, $21 and $20 thousand respectively.
As of December 31, 2023, the Bank had $357 thousand of its loans that were considered modified for borrowers experiencing financial difficulty, of which $255 thousand was included in nonaccrual loans. This compares to $3.6 million of loans classified as troubled debt restructurings, of which $2.5 million are included in nonaccrual loans for 2022.
As of December 31, 2023, the Bank had $357 thousand of its loans that were considered modified for borrowers experiencing financial difficulty, of which $255 thousand was included in nonaccrual loans.
Two strategies have been employed through the years, one of allowing expensive time deposits to run off until needed for funding and secondly to offer new non-interest bearing deposit products. Both of these strategies were designed to assist in controlling interest expense in a rising rate environment.
Overall, the funding goal the last three years has been to grow core deposits. Two strategies have been employed through the years, one of allowing expensive time deposits to run off until needed for funding and secondly to offer new noninterest-bearing deposit products. Both strategies were designed to assist in controlling interest expense while also providing funding for loan growth.
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.
As of December 31, 2025, the Bank had $164.3 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, agriculture, commercial and agricultural real estate loans totaled $113.0 million, $21.0 million, $18.2 million and $7.9 million respectively.
(In Thousands) December 31, 2024 Nonaccrual Loans Past With No Due Over Allowance 89 Days for Credit Loss Nonaccrual Still Accruing Consumer Real Estate $ 1,637 $ 2,369 $ - Agricultural Real Estate 130 130 - Agricultural 90 90 - Commercial Real Estate 360 360 - Commercial & Industrial 57 57 - Consumer 118 118 - Total $ 2,392 $ 3,124 $ - (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 $ - 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.
The following tables present the Company's amortized cost of nonaccrual loans by portfolio segment as of December 31, 2025 and 2024: (In Thousands) December 31, 2025 Nonaccrual Loans Past With No Due Over Allowance 89 Days for Credit Loss Nonaccrual Still Accruing Consumer Real Estate $ 3,339 $ 4,050 $ - Agricultural Real Estate 5,347 5,347 - Agricultural 1,441 1,441 - Commercial Real Estate 141 141 - Commercial & Industrial - 134 - Consumer 143 143 - Total $ 10,411 $ 11,256 $ - (In Thousands) December 31, 2024 Nonaccrual Loans Past With No Due Over Allowance 89 Days for Credit Loss Nonaccrual Still Accruing Consumer Real Estate $ 1,637 $ 2,369 $ - Agricultural Real Estate 130 130 - Agricultural 90 90 - Commercial Real Estate 360 360 - Commercial & Industrial 57 57 - Consumer 118 118 - Total $ 2,392 $ 3,124 $ - 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reclassification Certain amounts within the noninterest income and noninterest expense section of the Company's consolidated statements of income have been reclassified to conform with current year presentation to provide additional information to the reader.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reclassification Certain 2024 and 2023 amounts within the loans disclosure (Note 4) and the loan section of Management's Discussion and Analysis have been reclassified to conform with current year presentation to provide additional information to the reader. The reclassifications had no effect on income.
Government agencies - 0.00 % - 0.00 % Mortgage-backed securities 66,322 2.75 % 21,626 5.53 % State and local governments 4,148 3.05 % 497 3.19 % Taxable state and local governments 11,663 2.89 % - 0.00 % As of December 31, 2024, the Bank also holds stock in the Federal Home Loan Bank of Cincinnati and Indianapolis at a cost of $14.4 million.
Government agencies - 0.00 % - 0.00 % Mortgage-backed securities 61,399 2.75 % 29,724 5.19 % State and local governments 4,106 3.14 % - 0.00 % Taxable state and local governments 4,108 3.55 % - 0.00 % As of December 31, 2025, the Bank also holds stock in the Federal Home Loan Bank of Cincinnati and Indianapolis at a cost of $13.0 million.
After adding the allowance for unfunded loan commitments, the ACL ended 2024 at $27.4 million. 46 The following table presents a reconciliation of the allowance for credit losses for the years ended December 31, 2024, 2023 and 2022: (In Thousands) 2024 2023 2022 Loans $ 2,560,795 $ 2,578,472 $ 2,356,387 Daily average of outstanding loans $ 2,555,701 $ 2,491,502 $ 2,073,737 Nonaccrual loans $ 3,124 $ 22,353 $ 4,689 Nonperforming loans $ 3,124 $ 22,353 $ 4,689 Allowance for Credit Losses - Jan 1 $ 25,024 $ 20,313 $ 16,242 Adjust for accounting change (ASU 2016-13) - 3,564 - Loans Charged off: Consumer Real Estate 13 - - Agricultural Real Estate - - - Agricultural - - - Commercial Real Estate 15 - - Commercial and Industrial 106 565 418 Consumer 346 425 409 480 990 827 Loan Recoveries: Consumer Real Estate 6 35 20 Agricultural Real Estate - 105 - Agricultural 1 10 7 Commercial Real Estate 9 8 9 Commercial and Industrial 133 84 93 Consumer 189 197 169 338 439 298 Net Charge-offs (Recoveries): Consumer Real Estate 7 (35 ) (20 ) Agricultural Real Estate - (105 ) - Agricultural (1 ) (10 ) (7 ) Commercial Real Estate 6 (8 ) (9 ) Commercial and Industrial (27 ) 481 325 Consumer 157 228 240 142 551 529 Provision for credit losses 944 1,698 4,600 Acquisition provision for credit losses - - - Allowance for Credit Losses - Dec 31 25,826 25,024 20,313 Allowance for Unfunded Loan Commitments & Letters of Credit - Dec 31 1,541 2,212 1,262 Total Allowance for Credit Losses - Dec 31 $ 27,367 $ 27,236 $ 21,575 Ratio of Net Charge-offs to Average Outstanding Loans 0.01 % 0.02 % 0.03 % Ratio of Nonaccrual Loans to Loans 0.12 % 0.87 % 0.20 % Ratio of the Allowance for Credit Losses to Loans 1.01 % 0.97 % 0.86 % Ratio of the Allowance for Credit Losses to Nonaccrual Loans 1079.68 % 111.95 % 273.67 % Ratio of the Allowance for Credit Losses to Nonperforming Loans 1079.68 % 111.95 % 273.67 % *Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual.
After adding the allowance for unfunded loan commitments, the ACL ended 2025 at $28.7 million. 46 The following table breaks down the activity within the ACL for each portfolio segment and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs for the years ended December 31, 2025, 2024 and 2023: (In Thousands) 2025 2024 2023 Loans, amortized cost $ 2,711,959 $ 2,560,795 $ 2,578,472 Daily average of outstanding loans $ 2,630,673 $ 2,555,701 $ 2,491,502 Nonaccrual loans $ 11,256 $ 3,124 $ 22,353 Nonperforming loans* $ 11,256 $ 3,124 $ 22,353 Allowance for Credit Losses - Jan 1 $ 25,826 $ 25,024 $ 20,313 Adjust for accounting change (ASU 2016-13) - - 3,564 Loans Charged off: Consumer Real Estate 20 13 - Agricultural Real Estate - - - Agricultural - - - Commercial Real Estate - 15 - Commercial and Industrial 250 106 565 Consumer 758 346 425 1,028 480 990 Loan Recoveries: Consumer Real Estate 5 6 35 Agricultural Real Estate - - 105 Agricultural 10 1 10 Commercial Real Estate 24 9 8 Commercial and Industrial 34 133 84 Consumer 221 189 197 294 338 439 Net Charge-offs (Recoveries): Consumer Real Estate 15 7 (35 ) Agricultural Real Estate - - (105 ) Agricultural (10 ) (1 ) (10 ) Commercial Real Estate (24 ) 6 (8 ) Commercial and Industrial 216 (27 ) 481 Consumer 537 157 228 734 142 551 Provision for credit losses 2,596 944 1,698 Allowance for Credit Losses - Dec 31 27,688 25,826 25,024 Allowance for Unfunded Loan Commitments & Letters of Credit - Dec 31 1,035 1,541 2,212 Total Allowance for Credit Losses - Dec 31 $ 28,723 $ 27,367 $ 27,236 Ratio of Net Charge-offs to Average Outstanding Loans 0.03 % 0.01 % 0.02 % Ratio of Nonaccrual Loans to Loans 0.42 % 0.12 % 0.87 % Ratio of the Allowance for Credit Losses to Loans 1.02 % 1.01 % 0.97 % Ratio of the Allowance for Credit Losses to Nonaccrual Loans 245.98 % 826.70 % 111.95 % Ratio of the Allowance for Credit Losses to Nonperforming Loans 245.98 % 826.70 % 111.95 % *Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual.
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.
This is required in order to obtain Federal Home Loan Bank loans, with the Indianapolis relationship having stock and a letter of credit which originated from the Bank of Geneva acquisition. Loan Portfolio The Bank’s various loan portfolio segments are subject to varying levels of credit risk.
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.
During 2024, the ACL increased $131 thousand 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 during 2023. The loans past due 30+ days to total loans percentages were 0.29%, 0.22% and 0.44% for December 31, 2025, 2024 and 2023, respectively.
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.
The decreased expense for 2025 as compared to 2024 was 79.1% due to change in rates being paid in a falling rate environment. The increased expense was approximately 76.2% attributable to the higher interest rate environment in 2024 as compared to 2023. This concludes the discussion by the independent components of the ratios.
Going forward, there is a heightened focus on controlling the cost of funds. Loan growth contributed to an increase in interest income in 2022 through 2024.
In 2023 and 2024, 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. Loan growth contributed to an increase in interest income in 2023 through 2025.
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.
As of December 31, 2024, the Bank had $63.0 million of these loans. 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. At December 31, 2023, the Bank had $102.8 million of these loans. These loans are subject to constant management attention and are reviewed at least monthly.
For 2024, noninterest income was $15.6 million, a decrease of $284 thousand or 1.8% from 2023. Noninterest income increased $109 thousand, or 0.7% in total for 2023 as compared to 2022 which ended at $15.8 million. Other service charges and fees increased $130 thousand during 2024 as compared to 2023.
For 2025, noninterest income was $17.1 million, an increase of $1.5 million or 9.7% from 2024. Noninterest income decreased $284 thousand or 1.8% in total for 2024 as compared to 2023 which ended at $15.9 million. Other service charges increased $517 thousand as compared to 2024.
Maturities (Amounts in Thousands) After One Year Within One Year Within Five Years Amount Yield Amount Yield U.S. Treasury $ 25,987 2.55 % $ 80,012 2.01 % U.S.
Maturities (Amounts in Thousands) After One Year Within One Year Within Five Years Amount Yield Amount Yield U.S. Treasury $ 7,296 0.70 % $ 80,533 2.24 % U.S.
Data processing costs were lower in 2024 as compared to 2023 by $1.7 million as a result of using credits from the 67 month amended agreement commencing on January 1, 2024. Data processing costs were lower in 2023 as compared to 2022 by $808 thousand.
Data processing costs and ATM expense were lower in 2024 as compared to 2023 by $1.7 million and $941 thousand, respectively, as a result of using credits from the 67 month amended agreement commencing on January 1, 2024. Some of the flex credits may be used on a wide range of services while others are product specific.
Commercial real estate loans, excluding deferred loan fees and other costs, represented 51.15% of the Company's total gross loan portfolio as of December 31, 2024. The below charts break out the commercial real estate portfolio by category, location and loan grade.
Commercial real estate loans, excluding deferred loan fees and other costs, represented 49.96% of the Company's total gross loan portfolio as of December 31, 2025.
Consumer net charge-offs were $157, $228 and $240 thousand in 2024, 2023 and 2022, respectively. Net charge-offs in the commercial and industrial portfolio were $481 and $325 thousand in 2023 and 2022, respectively with 2024 being a net recovery of $27 thousand.
Consumer net charge-offs were $537, $157 and $228 thousand in 2025, 2024 and 2023, respectively. Net charge-offs in the commercial and industrial portfolio segment were $216 and $481 thousand in 2025 and 2023, respectively with 2024 being a net recovery of $27 thousand. Watch list loan balances are comprised of loans graded 5-8.
Management continues to monitor asset quality, making adjustments to the provision as necessary. Total net charge-offs were $142, $551 and $529 thousand for 2024, 2023 and 2022, respectively. The consumer portfolio had the largest charge-off activity during 2024 at $346 thousand which was down from $425 and $409 thousand in 2023 and 2022, respectively.
Total net charge-offs were $734, $142 and $551 thousand for 2025, 2024 and 2023, respectively. The consumer portfolio segment had the largest charge-off activity during 2025 at $758 thousand which was up from $346 and $425 thousand in 2024 and 2023, respectively.
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.
The last item in the noninterest income section is the net gain or loss on sale of investments. 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.
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.
Now the discussion moves on to the percentages and the change in the net interest margin and spread. For 2025, we saw a reversal of the trend of a declining net interest margin and spread comparing 2023 to 2024.
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%.
Under Basel III, the common equity tier 1 capital to risk weighted assets ratio is well above the required 4.5% and 6.5% well capitalized levels with the Bank at 11.51%. Adding on the required conservation buffer of 2.5% to the previous regulatory ratios and the Bank remains well above the requirements.
Net interest income is affected by changes in both interest rates and the amount and composition of earning assets and liabilities. The change in net interest income is most often measured by two statistics – interest spread and net interest margin.
The change in net interest income is most often measured by two statistics – interest spread and net interest margin. The difference between the yields earned on earning assets and the rates paid for interest-bearing liabilities represents the interest spread.
Because noninterest bearing sources of funds such as demand deposits and stockholders’ equity also support earning assets, the net interest margin exceeds the net interest spread. In 2024, the focus was on increasing profitability while also repositioning the balance sheet.
The net interest margin is the difference of funds (interest expense) between the yield on earning assets and the cost as a percentage of earning assets. Because noninterest-bearing sources of funds such as demand deposits and stockholders’ equity also support earning assets, the net interest margin exceeds the net interest spread.
The floors provide yield protection in a lower rate environment while the rising rates will not benefit the asset yield until the spread plus prime is higher than the floor. The challenge is to increase the spread during renewals and on new loans. After the rate hikes in 2022 and 2023, the majority of loans have increased over the floors.
Floors and ceilings on variable products also impact the level of increase in either scenario. The floors provide yield protection in a lower rate environment while the rising rates will not benefit the asset yield until the spread plus prime is higher than the floor.
This revenue was able to partially offset increased building repair and maintenance expenses of $39 thousand and lease expense of $439 thousand and increased building depreciation expense of $328 thousand. Building rent as generated by FM Investments was higher by $94 thousand in 2023 which offset increased building repair and maintenance expenses of $113 thousand.
Building rent as generated by FM Investments was higher by $195 thousand in 2024 which offset increased lease expense of $439 thousand, building depreciation expense of $328 thousand and building repair and maintenance expenses of $39 thousand. 35 Furniture and equipment steadily increase as we continue to add facilities and invest in technology.
Grade 5 decreased $62.9 million in 2024 as compared to 2023 and Grade 6 increased $24.9 million in the same comparison. There were no Grade 7 loans at December 31, 2024, a decrease of $257 thousand from 2023. At year-end December 31, 2023, these loans totaled $104.9 million and were $44.9 million higher than December 31, 2022.
At year-end December 31, 2025, these loans totaled $169.4 million and were $102.9 million higher than December 31, 2024. Grade 5 increased $52.9 million in 2025 as compared to 2024, Grade 6 and Grade 7 increased $49.9 million and $134 thousand, respectively, in the same comparison.
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.
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 cost of funds beginning in 2023 has been impacted by the increase of both interest-bearing liabilities, the pressure on rates from competition for funds and a rising rate environment.
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.
Three main components flow into salaries and wages: base salary, deferred costs, and incentives comprised of restricted stock award expense and performance incentives. 2025 and 2024 saw an increase due to our continued investment in people and staffing needs. Normal yearly increases to the employees were included in all years.
For more information regarding the estimate and calculation used to establish the ACL, please see Note 1 to the consolidated financial statements provided herewith. 26 2024 in Review The strategic plan for 2024 was to slow our loan growth and focus on improving our profitability while realigning our balance sheet.
For more information regarding the estimate and calculation used to establish the ACL, please see Note 1 to the consolidated financial statements provided herewith. 26 2025 in Review The focus for 2025 was to improve profitability through the control of loan growth and improvement in the customer gathering of core deposits to fund loans.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−2 removed6 unchanged
Biggest changeAt 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.
Biggest changeAt December 31, 2025, 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 3.06% -11.63% Rising 3.00% 98,692 -11.78% 3.18% -8.23% Rising 2.00% 102,534 -8.34% 3.39% -2.14% Rising 1.00% 109,433 -2.18% 3.46% 0.00% Flat 0.00% 111,866 0.00% 3.48% 0.49% Falling -1.00% 112,429 0.50% 3.35% -3.21% Falling -2.00% 108,246 -3.24% 3.30% -4.64% Falling -3.00% 106,639 -4.67% The Bank’s balance sheet is slightly asset-sensitive after coming through 175 basis points of Fed rate cuts from September 2024 through December 2025.
The shocks presented below assume instantaneous rates shocks on a static balance sheet as of December 31, 2024.
The shocks presented below assume instantaneous rates shocks on a static balance sheet as of December 31, 2025.
Overall, the Company must continue its trajectory of improved pricing discipline for its new loans and deposits. 49
Overall, the Company must continue its trajectory of improved pricing discipline for its new loans and deposits. 52
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.
The Bank’s monthly cost of funds dropped from 2.89% at December 31, 2024 to 2.58% at December 31, 2025. Older loans and investments will continue to reprice higher, in aggregate, in the next twelve months based on current rates. The Bank continues to review and adjust its assumptions concerning decay rates, deposit betas, key rate ties, and loan prepayment speeds.
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.
The net interest margin represents the forecasted twelve-month margin. The Company also reviews shocks with a 5.00% fluctuation and over a 24-month time frame, as well as alternate yield curve scenarios. The goal of the Company is to gather more core deposits, such as checking and savings accounts.
Removed
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
Many of the CD renewals in 2025 went into shorter terms which are beneficial to the Bank in a falling rate environment. The Bank was aggressive in dropping its non-maturity deposit rates while the Fed was cutting their rate over the past 15 months. We will have less of an opportunity to be as aggressive with future Fed rate cuts.
Removed
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.

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