Farmers & Merchants Bancorp, Inc.

What they do

The Company is a financial holding company incorporated in Ohio in 1985 with one reportable segment. Its main subsidiary, The Farmers & Merchants State Bank, engages in general commercial banking and savings business, including commercial, agricultural and residential mortgage and consumer lending, plus checking, savings, time deposit, ATM/ITM and online and mobile banking services. A substantial portion of the loan portfolio consists of loans to agricultural customers for farmland, farm equipment, livestock and operating needs. The Bank also includes F&M Insurance Agency, LLC, formed in November 2023, and operates three loan production offices, two in Ohio and one in Indiana.

Revenue drivers

• Net interest income (loans and deposits) — Earned on a $2.70 billion net loan portfolio at June 30, 2026, funded largely by $2.87 billion of deposits; net interest margin was 3.48% in the second quarter of 2026 versus 3.22% a year earlier, and net interest income rose $18.4 million for full-year 2025 over 2024.
• Commercial and commercial real estate lending — The commercial and commercial real estate portfolios combined grew $84.0 million year over year in 2025, with commercial and industrial outstandings up $37.2 million, or 12%, for the year; commercial banking loan growth was flat in the first half of 2026 as payoffs and amortization offset production.
• Agricultural lending — Agricultural loans for farmland, equipment, livestock and operating lines are a core part of the portfolio; agricultural real estate is also a source of gain on sale, with the Bank selling 90% of certain agricultural real estate loans, retaining 10% and receiving servicing income.
• Noninterest income (gain on sale of loans and BOLI) — Gain on sale of loans comes from three real estate portfolios: 1-4 family, agricultural and small business, with second-quarter 2026 fixed home loan originations for sale of $16.8 million and sold loans of $15.4 million; a restructuring of the bank-owned life insurance portfolio also contributed to higher noninterest income in 2026.

Recent performance

Second-quarter 2026 net income was a quarterly record $11.8 million, or $0.86 per basic and diluted share, up 53.0% from $7.7 million, or $0.56 per share, a year earlier. First-half 2026 net income was $21.4 million, or $1.55 per share, up 45.79% from $14.7 million, or $1.07 per share, in the first half of 2025. Return on average assets was 1.34% versus 0.92%, and the efficiency ratio improved to 56.08% from 64.93%. Total loans, net were $2.70 billion at June 30, 2026, up 3.0% year over year, and total deposits were $2.87 billion, up 5.9% or $159.1 million. Nonperforming loans were $7.4 million, or 0.27% of total loans, at June 30, 2026, down from $11.1 million, or 0.42%, at March 31, 2026.

Strategy

Management's stated focus for 2025 was improving profitability through controlling loan growth, gathering core deposits, cost control and balance sheet management, and it says it enters 2026 with continued focus on strong core deposit growth, moderate loan growth and controlling costs. The Bank reduced reliance on high-cost deposits and expanded contingent liability funding options, using deposit growth to pay off FHLB borrowings and continue paydown of amortized borrowings. It sells longer-term fixed rate mortgages and certain agricultural real estate loans into the secondary market while retaining servicing, and it participates in Freddie Mac, Farm Service Agency and Small Business Lending programs plus the Ohio Ag-Link, Grow Now and Ohio Homebuyers Plus programs. In March 2026 the Bank discontinued its Indirect Lending Department and directed that business to direct consumer lending. Management says it continues investing in people, technology and markets.

Risks

• Agricultural credit concentration — A substantial amount of the loan portfolio consists of agricultural loans in Northwest Ohio, Northeast Indiana and Southeast Michigan, and agricultural real estate past due loans included one $3.8 million loan at June 2026.
• Asset quality normalization — Nonaccrual loan balances were down 33.31% from the prior quarter but remained 97.14% higher than the second quarter of 2025, with agricultural real estate nonaccruals elevated by one loan in the work-out process.
• Margin and interest rate sensitivity — Improved profitability has depended on net interest margin expansion, and the Bank faces competitive pressure on lending rates and terms as well as repricing of assets and liabilities.
• Macroeconomic and policy uncertainty — Management cites the Iran conflict's impact on the economy, oil, inflation and potential tariffs as the largest concerns to commercial business in the F&M footprint in 2026, alongside tight projected grain farmer margins.

Outlook

Management expects the net interest margin to continue improving given the percentage of favorable repricing in the loan portfolio over the next 18 months. It says upcoming projects will increase consulting fees in the second half of 2026 and expects continued focus on core deposit growth, moderate loan growth and cost control. CEO Lars B. Eller stated the Company believes it is well positioned to deliver sustained profitable growth and long-term value for shareholders.