FMAO's Net Income Soars 35% on Strong Interest Income, Lower Expenses

TL;DR

**FMAO is crushing it with surging profits and lower costs, but keep an eye on those rising loan loss provisions – a potential red flag for future credit quality.**

AI Summary

FARMERS & MERCHANTS BANCORP INC (FMAO) reported a significant increase in net income for both the three and nine months ended September 30, 2025. Net income for the three months rose to $8.854 million, a 35.88% increase from $6.516 million in the prior year. For the nine months, net income climbed to $23.516 million, up 33.94% from $17.557 million in the same period of 2024. Total interest income increased by 6.16% to $44.484 million for the three months and by 5.96% to $128.978 million for the nine months, driven primarily by a rise in loan interest income. Interest expense decreased by 13.34% to $17.583 million for the three months and by 10.55% to $52.457 million for the nine months, largely due to lower deposit interest expense. The provision for credit losses on loans increased substantially to $2.029 million for the nine months ended September 30, 2025, compared to $598 thousand in the prior year, indicating a more cautious outlook on loan quality. Total assets grew slightly to $3.390 billion as of September 30, 2025, from $3.364 billion at December 31, 2024, while total deposits increased to $2.751 billion from $2.686 billion over the same period.

Why It Matters

FMAO's robust net income growth, driven by increased interest income and reduced interest expenses, signals strong operational efficiency and profitability in a competitive banking landscape. For investors, this indicates a healthy return on equity and potential for continued dividend growth, with dividends declared increasing to $0.22750 per share for the quarter. Employees benefit from a stable and growing company, while customers may see continued investment in services. The significant increase in the provision for credit losses, however, suggests management is proactively addressing potential loan quality issues, which could impact future earnings if economic conditions deteriorate. This performance positions FMAO favorably against regional competitors by demonstrating effective balance sheet management.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant increase in the provision for credit losses on loans, which jumped from $598 thousand for the nine months ended September 30, 2024, to $2.029 million for the same period in 2025. This 239% increase suggests a heightened concern regarding potential loan defaults or a deterioration in the credit quality of the loan portfolio, despite overall strong financial performance.

Analyst Insight

Investors should consider FMAO's strong net income growth and efficient interest expense management as positive indicators. However, they should closely monitor future filings for trends in the provision for credit losses and non-performing assets, as the substantial increase in loan loss provisions suggests potential future credit quality challenges. A deeper dive into the loan portfolio composition and specific risk factors would be prudent.

Financial Highlights

debt To Equity

N/A

revenue

$128.978M

operating Margin

N/A

total Assets

$3.390B

total Debt

N/A

net Income

$23.516M

eps

$0.64

gross Margin

N/A

cash Position

$117.030M

revenue Growth

5.96%

Revenue Breakdown

Key Numbers

• $8.854M — Net Income (Q3 2025) (Increased 35.88% from $6.516M in Q3 2024)
• $23.516M — Net Income (YTD Q3 2025) (Increased 33.94% from $17.557M in YTD Q3 2024)
• $44.484M — Total Interest Income (Q3 2025) (Increased 6.16% from $41.901M in Q3 2024)
• $17.583M — Total Interest Expense (Q3 2025) (Decreased 13.34% from $20.312M in Q3 2024)
• $2.029M — Provision for Credit Losses - Loans (YTD Q3 2025) (Increased 239% from $598K in YTD Q3 2024)
• $2.751B — Total Deposits (Sept 30, 2025) (Increased from $2.686B at Dec 31, 2024)
• $2.632B — Loans, net (Sept 30, 2025) (Increased from $2.536B at Dec 31, 2024)
• $0.64 — Basic Earnings Per Share (Q3 2025) (Increased from $0.48 in Q3 2024)
• $0.22750 — Dividends Declared Per Share (Q3 2025) (Increased from $0.22125 in Q3 2024)
• $117.030M — Cash and Cash Equivalents (Sept 30, 2025) (Decreased from $176.351M at Dec 31, 2024)

Key Players & Entities

• FARMERS & MERCHANTS BANCORP INC (company) — Registrant
• FMAO (company) — Trading Symbol
• NASDAQ Capital Market (regulator) — Exchange for Common Stock
• Peoples-Sidney Financial Corporation (company) — Acquired company
• Peoples Federal Savings and Loan Association (company) — Acquired bank
• $8.854 million (dollar_amount) — Net income for three months ended September 30, 2025
• $6.516 million (dollar_amount) — Net income for three months ended September 30, 2024
• $23.516 million (dollar_amount) — Net income for nine months ended September 30, 2025
• $17.557 million (dollar_amount) — Net income for nine months ended September 30, 2024
• $2.029 million (dollar_amount) — Provision for credit losses - loans for nine months ended September 30, 2025

FAQ

Risk Factors

• Interest Rate Sensitivity [medium — financial]: The company's profitability is sensitive to changes in interest rates. Fluctuations in interest rates can impact net interest income by affecting the yield on earning assets and the cost of funding. For the nine months ended September 30, 2025, interest income increased by 5.96% to $128.978 million, while interest expense decreased by 10.55% to $52.457 million, indicating a favorable, but potentially volatile, interest rate environment.
• Credit Risk and Loan Portfolio Quality [high — financial]: The substantial increase in the provision for credit losses on loans to $2.029 million for the nine months ended September 30, 2025, from $598 thousand in the prior year, signals increased concern regarding the quality of the loan portfolio. This rise suggests potential economic headwinds or specific industry risks affecting borrowers.
• Cybersecurity and Data Breaches [high — operational]: As a financial institution, FMAO is a target for cyberattacks. A successful breach could lead to significant financial losses, reputational damage, and regulatory penalties. The company's reliance on technology for operations necessitates robust cybersecurity measures.
• Regulatory Compliance and Changes [medium — regulatory]: The banking industry is heavily regulated. Changes in regulations, or failure to comply with existing ones, can result in fines, sanctions, and operational restrictions. The company must continually adapt to evolving regulatory landscapes.
• Economic Downturn and Recession Risk [medium — market]: A general economic slowdown or recession could negatively impact FMAO through increased loan defaults, reduced demand for banking services, and lower investment returns. The increased provision for credit losses may be an early indicator of such concerns.
• Competition in the Banking Sector [medium — operational]: FMAO operates in a competitive market with other community banks, regional banks, and larger national institutions, as well as fintech companies. Intense competition can pressure margins and limit market share growth.
• Liquidity Risk [medium — financial]: While total deposits increased to $2.751 billion, a sudden and significant withdrawal of deposits could strain the company's liquidity. Maintaining adequate liquid assets is crucial, especially given the decrease in cash and cash equivalents from $176.351 million to $117.030 million.

Industry Context

FARMERS & MERCHANTS BANCORP INC operates within the highly competitive U.S. banking industry, characterized by a mix of community banks, regional players, and large national institutions. Trends include increasing digitalization, evolving customer expectations for seamless digital experiences, and a dynamic interest rate environment. Consolidation through mergers and acquisitions remains a theme as institutions seek scale and efficiency. Regulatory scrutiny continues to be a significant factor influencing operations and profitability.

Regulatory Implications

As a financial institution, FMAO is subject to stringent regulations from bodies like the Federal Reserve and state banking authorities. Compliance with capital requirements, lending standards, and consumer protection laws is paramount. Any shifts in monetary policy or new regulatory mandates could impact FMAO's lending capacity, cost of funds, and overall profitability.

What Investors Should Do

1. Monitor the trend in the provision for credit losses.
2. Analyze the drivers of net interest income growth.
3. Assess the impact of the declining cash position.
4. Evaluate the effectiveness of past acquisitions.

Key Dates

• 2025-09-30: End of Q3 2025 reporting period — FMAO reported significant increases in net income and interest income, alongside a notable rise in the provision for credit losses.
• 2024-09-30: End of Q3 2024 reporting period — Provided the comparative period for FMAO's Q3 2025 financial results, showing lower net income and interest income, and a much smaller provision for credit losses.
• 2024-12-31: End of Fiscal Year 2024 — The balance sheet as of this date serves as the comparative point for the current period's asset and liability figures.

Glossary

Provision for credit losses

An expense set aside by a financial institution to cover potential losses from loans that may not be repaid. It reflects management's estimate of uncollectible loans. (A significant increase in this provision indicates a more conservative outlook on loan portfolio health and potential future defaults.)

Net interest income

The difference between the interest income generated by a bank's interest-earning assets (like loans and securities) and the interest paid out on its interest-bearing liabilities (like deposits and borrowings). (This is a primary driver of profitability for banks. FMAO saw an increase in net interest income due to higher interest income and lower interest expense.)

Accretable yield

The amount of future interest income on acquired loans that is expected to be collected but is not reflected in the purchase price of the loans. It is recognized as interest income over the life of the loans. (Changes in accretable yield reflect adjustments to the expected future income from acquired loan portfolios, impacting reported interest income.)

Goodwill

An intangible asset that arises when a company acquires another company for a price greater than the fair value of its net identifiable assets. It represents factors like brand reputation, customer loyalty, and synergies. (FMAO has goodwill on its balance sheet, primarily from past acquisitions, indicating the premium paid over the fair value of acquired net assets.)

Accumulated other comprehensive loss

A component of equity that includes unrealized gains and losses on certain investments and foreign currency translations that are not included in net income. (A decrease in this loss (moving towards zero or a gain) can indicate an improvement in the value of certain investments held by the company.)

Year-Over-Year Comparison

Compared to the prior year's nine-month period, FARMERS & MERCHANTS BANCORP INC (FMAO) has demonstrated robust growth in net income, rising 33.94% to $23.516 million. This was supported by a 5.96% increase in total interest income, primarily from loans, and a significant 10.55% decrease in total interest expense, largely due to lower deposit costs. However, a notable shift is the substantial increase in the provision for credit losses, up 239% to $2.029 million, signaling a more cautious stance on loan portfolio quality. Total assets and deposits saw modest growth, while the cash position declined.

Filing Documents

• fmao-20250930.htm (10-Q) — 7929KB
• fmao-ex31_1.htm (EX-31.1) — 14KB
• fmao-ex31_2.htm (EX-31.2) — 16KB
• fmao-ex32_1.htm (EX-32.1) — 9KB
• fmao-ex32_2.htm (EX-32.2) — 10KB
• 0001193125-25-260124.txt ( ) — 33037KB
• fmao-20250930.xsd (EX-101.SCH) — 2025KB
• fmao-20250930_htm.xml (XML) — 10289KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 3 Condensed Consolidated Balance Sheets - September 30, 2025 and December 31, 2024 3 Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2025 and September 30, 2024 4 Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2025 and September 30, 2024 6 Condensed Consolidated Statements of Changes to Stockholders' Equity - Three and Nine Months Ended September 30, 2025 and September 30, 2024 7 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2025 and September 30, 2024 9 Notes to Condensed Consolidated Financial Statements 11 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 49 Item 3. Qualitative and Quantitative Disclosures About Market Risk 75 Item 4.

Controls and Procedures

Controls and Procedures 76 PART II. OTHER INFORMATION 76 Item 1.

Legal Proceedings

Legal Proceedings 76 Item 1A.

Risk Factors

Risk Factors 76 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 79 Item 3. Defaults Upon Senior Securities 79 Item 4. Mine Safety Disclosures 79 Item 5. Other Information 79 Item 6. Exhibits 80

Signatures

Signatures 81 101.INS Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (1) 101.SCH Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. (1) (1) Pursuant to Rule 406T of Regulation S-T, the interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. 2 PART 1 - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1 FINANCIAL STATEMENTS FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDA TED BALANCE SHEETS (In Thousands) September 30, 2025 December 31, 2024 (Unaudited) Assets Cash and due from banks $ 116,448 $ 174,855 Federal funds sold 582 1,496 Total cash and cash equivalents 117,030 176,351 Interest-bearing time deposits 1,498 2,482 Securities - available-for-sale 422,773 426,556 Other securities, at cost 11,509 14,400 Loans held for sale 3,003 2,996 Loans, net of allowance for credit losses of $ 27,475 and $ 25,826 2,632,668 2,536,043 Premises and equipment 32,321 33,828 Goodwill 86,358 86,358 Loan servicing rights 5,537 5,656 Bank owned life insurance 35,602 34,872 Other assets 42,453 45,181 Total Assets $ 3,390,752 $ 3,364,723 Liabilities and Stockholders' Equity Liabilities Deposits Noninterest-bearing $ 500,742 $ 516,904 Interest-bearing NOW accounts 920,099 850,462 Savings 713,391 671,818 Time 617,679 647,581 Total deposits 2,751,911 2,686,765 Securities sold under agreements to repurchase 22,718 27,218 Federal Home Loan Bank (FHLB) advances 187,913 246,056 Subordinated notes, net of unamortized issuance costs 34,904 34,818 Dividend payable 3,091 2,996 Accrued expenses and other liabilities 28,435 31,659 Total liabilities 3,028,972 3,029,512 Commitments and Contingencies Stockholders' Equity Common stock - No par value authorized 40,000,000 shares 9/30/25 and 20,000,000 shares 12/31/24; issued 14,564,425 shares 9/30/25 and 12/31/24; outstanding 13,749,827 shares 9/30/25 and 13,699,536 shares 12/31/24 135,170 135,565 Treasury stock - 814,598 shares 9/30/25 and 864,889 shares 12/31/24 ( 10,584 ) ( 10,985 ) Retained earnings 251,181 235,854 Accumulated other comprehensive loss ( 13,987 ) ( 25,223 ) Total stockholders' equity

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS NOTE 1 BASIS OF PRESENTAT ION AND OTHER The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X; accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2025 are not necessarily indicative of the results that are expected for the year ended December 31, 2025. The condensed consolidated balance sheet of the Company as of December 31, 2024, has been derived from the audited consolidated balance sheet of the Company as of that date. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Farmers & Merchants Bancorp, Inc. (the "Company")'s Annual Report on Form 10-K for the year ended December 31, 2024. The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The Company's principal source of revenue is interest income from loans and investment securities. The Company also earns noninterest income from various banking and financial services offered primarily through Farmers & Merchants State Bank (the "Bank"). Interest income is primarily recognized on an accrual basis according to nondiscretionary formulas written in contracts, such as loan agreements or investment security contracts. The Company also earns noninterest income from various banking and financial services provi

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued) Changes in accretable yield, or income expected to be collected, are as follows: (In Thousands) (In Thousands) Three Months Ended September 30, 2025 Three Months Ended September 30, 2024 Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024 Beginning Balance $ 219 $ 450 $ 335 $ 566 Additions - - - - Accretion ( 57 ) ( 58 ) ( 173 ) ( 174 ) Reclassification from nonaccretable difference - - - - Disposals - - - - Ending Balance $ 162 $ 392 $ 162 $ 392 On October 1, 2021, the Company acquired Perpetual Federal Savings Bank, (PFSB), a community bank with one full-service office in Urbana, Ohio. Shareholders of PFSB elected to receive either 1.7766 shares of FMAO stock or $ 41.20 per share in cash for each PFSB share owned, subject to adjustment based upon 1,833,999 shares of FMAO to be issued in the merger. PFSB had 2,470,032 shares outstanding on October 1, 2021. The share price of Farmers & Merchants Bancorp, Inc. (FMAO) stock on October 1, 2021 was $ 22.40 . Total consideration for the acquisition was approximately $ 100.3 million consisting of $ 59.2 million in cash and $ 41.1 million in stock. Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $ 100.3 million, $ 668 thousand has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $ 25.2 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Perpetual Federal Savings Bank. Of that total amount, none of the purchase price was deductible for tax purposes.

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued) Goodwill of $ 7.9 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Ossian State Bank and is deductible for tax purposes over 15 years. Changes in accretable yield, or income expected to be collected, are as follows: (In Thousands) (In Thousands) Three Months Ended September 30, 2025 Three Months Ended September 30, 2024 Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024 Beginning Balance $ 27 $ 206 $ 107 $ 294 Additions 2 - 2 - Accretion ( 29 ) ( 44 ) ( 108 ) ( 132 ) Reclassification from nonaccretable difference - - - - Disposals - - ( 1 ) - Ending Balance $ - $ 162 $ - $ 162 On January 1, 2019, the Company acquired Limberlost Bancshares, Inc. ("Limberlost"), the bank holding company for Bank of Geneva, a community bank based in Geneva, Indiana. Bank of Geneva operated six full-service offices in the northeast Indiana communities of Geneva, Berne, Decatur, Monroe, Portland and Monroeville. Shareholders of Limberlost received 1,830 shares of FMAO common stock and $ 8,465.00 in cash for each share. Limberlost had 1,000 shares outstanding on January 1, 2019. The share price of FMAO stock on January 1, 2019 was $ 38.49 . Total consideration for the acquisition was approximately $ 78.9 million consisting of $ 8.5 million in cash and $ 70.4 million in stock. Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $ 78.9 million, $ 3.9 million has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $ 4

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