FARMERS & MERCHANTS BANCORP INC

Previous wording

Net interest income continues to be a significant contributor to profitability in the third quarter of 2025 as compared to the same quarter last year. Net interest income for the first nine months of 2025 is up $13.4 million over the same period last year. We have seen improved margin, driven by asset yield improvement, and anticipate even more opportunities for improvement as loans continue to reprice. Year to date net interest margin has improved for six consecutive quarters. Year to date net interest margin has increased 54 basis points over year to date last year. Third quarter 2025 net interest margin has improved by 18 basis points over second quarter 2025 and 56 basis points over fourth quarter 2024. The improvement compared to last quarter was driven by a 17 basis point increase in the yield on interest earning assets while the cost of funding remained unchanged. The repricing of existing loans and favorable yields on new production are contributing to the increase in yield on interest earning assets.

Current wording

Comparing the quarter ended March 31, 2026 to March 31, 2025, net interest income increased $3.5 million which consisted of an improvement in interest income of $2.3 million and a reduction of interest expense of $1.2 million. We have seen improved margin, driven by asset yield improvement, and anticipate even more opportunities for improvement as loans continue to reprice. The repricing of existing loans and favorable yields on new production are contributing to the increase in yield on interest earning assets.

Previous wording

F&M Commercial Banking Division saw loan demand grow in late 2024, continue into first quarter 2025 and remain steady in the second and third quarters of 2025. Lending rates and terms remained consistent from fourth quarter 2024 throughout the second and third quarters of 2025. The economy, inflation and the impact from potential tariffs remain the largest concerns to commercial businesses within the Company's footprint. Credit quality of the commercial portfolio has remained good and third quarter collateral values and auction values are still holding consistent with previous quarters. Past dues and delinquencies remained low for the F&M portfolio, but the team continues to monitor the portfolio closely for the impact from inflationary pressures and agricultural yields as we enter the harvest season.

Current wording

F&M Commercial Banking Division realized a small decrease in overall outstandings in the first quarter of 2026. The overall driver of this decrease was some large expected payoffs that occurred in the first quarter. Loan volume in this quarter was consistent with 2025; however, the payoffs and normal amortization outweighed the overall production. Lending rates and overall terms remained consistent with the previous quarter. The Iran war impact on the economy, oil and overall inflation are the largest concerns to commercial business in the F&M footprint in 2026. The commercial team continues to monitor the portfolio and borrowing bases closely for the impact from credit and inflationary pressures. Credit quality and past due pressures exist but remained good in first quarter 2026. Collateral values and auction values are still holding consistent with previous quarters. The agricultural portfolio, which includes grain elevators, saw increased usage in 2025 and we continue to monitor those trends in 2026.

Previous wording

Noninterest income was $4.4 million for the quarter, which was up $397 thousand from third quarter 2024 and up $422 thousand from last quarter. Net gain on sale of loans and other service charges and fees saw the largest increases over second quarter 2025.

Current wording

Noninterest income was $5.0 million for the quarter, which was up $838 thousand from first quarter 2025 and up $319 thousand from last quarter. Net gain on sale of loans, other service charges and fees and the increase in cash surrender values of bank owned life insurance saw the largest increases over first quarter 2025. The increase in BOLI revenue was due to additional investment dollars as well as higher earnings while the Bank is repositioning our holdings.

Previous wording

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. The largest segment of the lending business relates to commercial, both real estate and non-real estate. The type of commercial business ranges from small business to multi-million dollar companies. The loans are a reflection of business located within the Banks’ market area of Ohio, Indiana and Michigan. Because the Bank's offices are primarily 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 agricultural industry for such items as farmland, farm equipment and operating loans for seed, fertilizer, and feed. Other types of lending activities include loans for home improvements, and loans for the purchase of autos, trucks, recreational vehicles, motorcycles, and other consumer goods.

Current wording

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. The largest segment of the lending business relates to commercial, both real estate and non-real estate. The type of commercial business ranges from small business to multi-million dollar companies. The loans are a reflection of business located within the Banks’ market area of Ohio, Indiana and Michigan. Because the Bank's offices are primarily 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 agricultural industry for such items as farmland, farm equipment and operating loans for seed, fertilizer, and feed. Other types of lending activities include loans for home improvements, and loans for the purchase of autos, trucks, and other consumer goods.

Previous wording

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 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. 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, Farmer Mac and Small Business Lending programs. 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. 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. 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. The Bank began offering a low income home buyer mortgage program, currently Hometown Advantage Mortgage Program, in November of 2023.

Current wording

The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory laws and 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 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. 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 secondary mortgage market, Farm Service Agency (FSA) guaranteed secondary agricultural market and Small Business Lending programs. 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. The Bank currently participates in four State of Ohio programs: Ag-Link, Grow Now, Ohio Homebuyers Plus and Buckeye Business Advantage. What all four 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. 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. In November 2023, the Bank began offering a home buyer mortgage program, Hometown Advantage Mortgage Program, which is available to low- and moderate-income home buyers as well as on properties located in low- and moderate-income census tracts. In the first quarter 2026, the Bank rolled out a CD/Savings secured loan product for credit building or credit repair to be secured by a time deposit or savings account with a minimum $1,000 loan amount, no origination costs, and no minimum credit score or debt-to-income requirements. This loan product is also intended to assist low- and moderate-income individuals with strengthening their credit.

Previous wording

Maximum loan to value (LTV) for cars, SUVs, and trucks is 110% depending on whether direct or indirect.

Current wording

Maximum loan to value (LTV) for cars, SUVs, and trucks is 110%.

Previous wording

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. In our banking activities, we compete directly with other commercial banks, credit unions, farm credit services, and savings and loan institutions in each of our operating localities. In a number of our locations, we compete against entities which are much larger than us. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.

Current wording

Wells. The Michigan footprint includes Oakland County. In our banking activities, we compete directly with other commercial banks, credit unions, farm credit services, and savings and loan institutions in each of our operating localities. In a number of our locations, we compete against entities which are much larger than us. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.

Previous wording

At September 30, 2025, we had 476 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.

Current wording

At March 31, 2026, 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.

Previous wording

The Company and the Bank continue to monitor federal regulatory developments that may impact operations, compliance, and strategic initiatives. Changes in laws, rules, and guidance present operational and compliance challenges and require ongoing evaluation of policies, procedures, and systems.

Current wording

The Company and the Bank continue to monitor federal regulatory developments that may impact operations, capital, and strategic initiatives. Changes in laws, rules, and guidance present operational and compliance challenges and require ongoing evaluation of policies, procedures, and systems.

Previous wording

Truth in Lending Act – Ability to Repay / Qualified Mortgage. The Bank monitors mortgage loans to ensure they meet Qualified Mortgage (QM) requirements, which provide a presumption of compliance under TILA’s Ability to Repay rules. The final General QM Rule, effective October 2022, eliminated the 43% debt-to-income limit, removed Appendix Q underwriting standards, and established price-based thresholds for QM status. Loans must still meet underwriting standards, product features, and points-and-fees limits. The Bank occasionally originates Non-QM and Higher Priced Mortgage Loans, which are reviewed periodically by the Loan Committee.

Current wording

Truth in Lending Act – Ability to Repay / Qualified Mortgage. The Bank monitors consumer mortgage loans to ensure they meet Qualified Mortgage (QM) requirements, which provide a presumption of compliance under TILA’s Ability to Repay rules. The final General QM Rule, effective October 2022, eliminated the 43% debt-to-income limit, removed Appendix Q underwriting standards, and established price-based thresholds for QM status. Loans must still meet underwriting standards, product features, and points-and-fees limits. The Bank occasionally originates Non-QM and Higher Priced Mortgage Loans, which are reviewed periodically by the Loan Committee.

Previous wording

ECOA / Section 1071 – Small Business Lending Data Collection. The CFPB’s Section 1071 rule requires covered institutions to collect and report demographic data on small business credit applications. Court injunctions have stayed mandatory compliance for community banks, including the Bank. The Bank continues to monitor developments and prepare for future rulemaking.

Current wording

Equal Credit Opportunity Act (ECOA) / Section 1071 – Small Business Lending Data Collection. The CFPB’s Section 1071 rule requires covered institutions to collect and report demographic data on small business credit applications. Court injunctions have stayed mandatory compliance for community banks, including the Bank. The Bank continues to monitor developments and prepare for future rulemaking.

Previous wording

GENIUS Act – Payment Stablecoins. Enacted in July 2025, the GENIUS Act establishes standards for payment stablecoins issued by banks, including reserve requirements, reporting, audits, and supervisory oversight. The Bank is evaluating potential strategic and compliance implications under this framework as part of its digital asset initiatives.

Current wording

GENIUS Act – Payment Stablecoins. Enacted in July 2025, the GENIUS Act establishes standards for payment stablecoins issued by banks, including reserve requirements, reporting, audits, and supervisory oversight. The Bank is evaluating potential strategic and compliance implications under this framework as part of its digital asset initiatives. Regulatory agencies have until 2027 to finalize implementing rules.

Previous wording

Executive Order on Fair Banking. An Executive Order issued in August 2025 prohibits denial of financial services based on constitutionally or statutorily protected beliefs, affiliations, or political views, and prohibits politicized or unlawful “debanking.” Banking decisions must be based on individualized, objective, and risk-based analysis. The Bank continues to review and adjust policies and practices to ensure compliance.

Current wording

Executive Order on Fair Banking. An Executive Order issued in August 2025 prohibits denial of financial services based on constitutionally or statutorily protected beliefs, affiliations, or political views, and prohibits politicized or unlawful “debanking.” Banking decisions must be based on individualized, objective, and risk-based analysis. The Bank continues to review and evaluate policies and practices to ensure it does not inadvertently deny financial services based on beliefs, affiliations, or political views.

Previous wording

Ongoing Commitment. The Company and the Bank continue to make good faith efforts to comply with applicable laws, rules, regulations, and guidance from federal agencies and remain attentive to developments that could affect operations, capital, or strategic initiatives.

Current wording

Ongoing Commitment. The Company and the Bank continue to make good faith efforts to comply with applicable laws, rules, regulations, and guidance from federal agencies and remain attentive to developments that could affect operations, capital, or strategic initiatives. 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.

Previous wording

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs. Accrued interest receivable totaled $13.6 million and $10.7 million at September 30, 2025 and December 31, 2024, respectively, and was reported in Other Assets on the condensed consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipation of repayments.

Current wording

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs. Accrued interest receivable totaled $11.9 million and $11.7 million at March 31, 2026 and December 31, 2025, respectively, and was reported in Other Assets on the condensed consolidated balance sheets and is excluded from the estimate of credit losses.

Previous wording

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation; reserves for expected credit losses for collateral-dependent loans are based on the expected shortfall of the loan based on the discounted collateral value. This specific reserve portion of the ACL was $389 thousand at September 30, 2025 and $52 thousand at December 31, 2024. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. At 90 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency.

Current wording

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation; reserves for expected credit losses for collateral-dependent loans are based on the expected shortfall of the loan based on the discounted collateral value. This specific reserve portion of the ACL was $497 thousand at March 31, 2026 and $145 thousand at December 31, 2025.

Previous wording

In comparing to the same prior year period, the September 30, 2025 (at amortized cost) loan balances of $2.7 billion accounted for $123.0 million or a 4.9% increase when compared to same period 2024. The year over year improvement was made up of an increase in commercial and industrial related loans of 5.7%. Individual growth was comprised of 13.6% in non-real estate commercial loans and 4.1% in commercial real estate loans. Agricultural related loans increased 12.3% year over year. Individual growth was comprised of 30.6% in non-real estate agricultural loans as we saw an increased use in lines of credit and 0.9% in agricultural real estate loans. Consumer real estate loans decreased by 0.3% while consumer loans decreased by 10.2%. Other loans decreased by 7.1%. The Company's strong team of lenders remain focused on providing customers valuable localized services and thereby increasing our market share.

Current wording

In comparing to the same prior year period, the March 31, 2026 (at amortized cost) loan balances of $2.7 billion accounted for $100.7 million or a 3.9% increase when compared to same period 2025. Commercial and industrial loans increased 11.1% while commercial real estate loans saw a decrease of 0.8% as compared to 2025. Agricultural related loans increased 20.3% year over year. Individual growth was comprised of 48.8% in non-real estate agricultural loans while agricultural real estate loans remained relatively unchanged. Consumer real estate loans increased by 2.3% while consumer loans decreased by 7.4%. Other loans decreased by 9.7%. The Company's strong team of lenders remain focused on providing customers valuable localized services and thereby increasing our market share.

Previous wording

The Bank maintains a well-balanced, diverse and high performing commercial real estate loan portfolio. Gross commercial real estate loans, excluding deferred loan fees and costs, represented 50.95% of the Company's total gross loan portfolio as of September 30, 2025. The tables below present the commercial real estate (CRE) portfolio segment by category, location and loan grade.

Current wording

The Bank maintains a well-balanced, diverse and high performing commercial real estate loan portfolio. Gross commercial real estate loans, excluding deferred loan fees and costs, represented 49.05% of the Company's total gross loan portfolio as of March 31, 2026. The tables below present the commercial real estate (CRE) portfolio segment by category, location and loan grade.

Previous wording

While the security portfolio has been utilized to fund loan growth in previous periods, additional sources have been cultivated during 2024 and 2025. The security portfolio decreased in the first nine months of 2025 from year end 2024 due to purchases of $32.8 million offset by sales of $1.4 million, maturities and paydowns of $49.4 million, net amortization of $0.1 million and a $14.2 million decrease in unrealized losses. The amount of pledged investment securities increased by $15.3 million as compared to year end and increased $20.0 million as compared to September 30, 2024. As of September 30, 2025, pledged investment securities totaled $267.1 million. The Company plans to make additional purchases of securities the remainder of the year for the purposes of increasing our investment holdings in Community Reinvestment Act (CRA) qualifying securities, liquidity and contingency planning and as a means of balance sheet gap management.

Current wording

Management feels confident that liquidity needs can be met through additional maturities from the security portfolio, increased deposit generating efforts and additional borrowings. While the security portfolio has been utilized to fund loan growth in previous periods, additional sources have been cultivated. The security portfolio increased in the first three months of 2026 from year end 2025 due to purchases of $34.9 million partially offset by sales of $5.4 million, maturities and paydowns of $19.6 million, net accretion of $78 thousand and a $2.1 million increase in unrealized losses. During the current quarter, sales of odd lot mortgage-backed securities were executed and replaced with purchases of higher yielding securities. The amount of pledged investment securities increased by $7.3 million as compared to year end and increased $1.9 million as compared to March 31, 2025. As of March 31, 2026, pledged investment securities totaled $273.8 million. The Company plans to make additional purchases of securities the remainder of the year for the purposes of increasing our investment holdings in Community Reinvestment Act (CRA) qualifying securities, liquidity and contingency planning and as a means of balance sheet gap management.

Previous wording

As mentioned previously, an additional $162.6 million is also available to the Bank from the FHLB based on current amounts of pledged collateral. The Bank has pledged eligible 1-4 family, home equity, commercial real estate, multifamily real estate portfolios and specific securities. The CRE holdings may be adjusted quarterly to replace paydowns or increase availability of funds. Based on total asset capacity, the Bank would have more than $1.1 billion available to borrow.

Current wording

As mentioned previously, an additional $114.0 million is also available to the Bank from the FHLB based on current amounts of pledged collateral. The Bank has pledged eligible 1-4 family, home equity, commercial real estate, multifamily real estate portfolios and specific securities. The CRE holdings may be adjusted quarterly to replace paydowns or increase availability of funds. Based on total asset capacity, the Bank would have more than $1.1 billion available to borrow.

Previous wording

Overall total assets increased 0.8% or $26.0 million since year end 2024. The largest areas of growth occurred in the loan portfolio of $96.6 million offset by decreases in cash and cash equivalents of $59.3 million and the security portfolio of $3.8 million, all of which were discussed above.

Current wording

Overall total assets increased 1.5% or $51.2 million since year end 2025. The largest areas of growth occurred in the cash and due from banks of $75.6 million offset by decreases in the loan portfolio of $31.9 million. Although the loan portfolio did decrease, the Bank continues to pursue loan growth with total new money funded in the quarter ended March 31, 2026 of $177.8 million.

Previous wording

Total liabilities only decreased $540 thousand since year end 2024. The largest decrease was in the FHLB borrowings of $58.1 million of which $56.5 million was due to advances maturing in second quarter 2025. Offsetting the decreased borrowings was total deposits growth of $65.1 million or 2.4%. The mix of deposits saw increases in interest-bearing checking, savings and money market deposits offset by decreases in time deposit accounts and noninterest-bearing accounts since December 31, 2024. The Bank has adjusted its checking product offerings to decrease the number of overall types and provide better service to our customers.

Current wording

Total liabilities increased $46.1 million since year end 2025. The largest increase was in the total deposits of $78.9 million. The mix of deposits saw increases in interest-bearing NOW accounts, savings and money market deposit accounts and time deposit accounts offset by decreases in noninterest-bearing accounts since December 31, 2025.

Previous wording

Shareholders’ equity increased by $26.6 million as of September 30, 2025 compared to year end 2024. Earnings exceeded dividend declarations during the nine months ended September 30, 2025. Accumulated other comprehensive loss decreased in unrealized loss position by $11.2 million from December 2024 to an unrealized loss of $14.0 million on September 30, 2025. Dividends declared increased to $0.2275 per share from the prior quarter’s $0.22125 per share and were 2.8% over third quarter 2024’s $0.22125 per share. Compared to September 30, 2024, shareholders’ equity increased 7.9% or $26.4 million with $5.4 million attributed to an improvement in accumulated other comprehensive loss. Net income was higher for the quarter ended September 2025 compared to September 2024 by $2.3 million and $1.1 million higher than second quarter 2025. We are encouraged that net interest income has continued to improve quarter over quarter since third quarter 2023.

Current wording

Shareholders’ equity increased by $5.1 million as of March 31, 2026 compared to year end 2025. Earnings exceeded dividend declarations during the three months ended March 31, 2026. Accumulated other comprehensive loss increased in unrealized loss position by $1.6 million from December 2025 to an unrealized loss of $13.6 million on March 31, 2026. Dividends declared remained at $0.23 per share and were 4.0% over first quarter 2025’s $0.22125 per share. Compared to March 31, 2025, shareholders’ equity increased 9.1% or $31.3 million with $6.6 million attributed to an improvement in accumulated other comprehensive loss. Net income was higher for the quarter ended March 2026 compared to March 2025 by $2.6 million.

Previous wording

While the Holding Company generally has sufficient liquidity to maintain its dividend policy without relying on the upstreaming of dividends from the Bank, the Bank declared a $3.35 million dividend during the third quarter of 2025.

Current wording

While the Holding Company generally has sufficient liquidity to maintain its dividend policy without relying on the upstreaming of dividends from the Bank, the Bank declared a $6.0 million dividend during the first quarter of 2026. The excess of the upstreamed funds are being considered for potential sub-debt paydowns or the repurchase of shares.

Previous wording

When comparing third quarter 2025 to third quarter 2024, average loan balances grew $97.5 million which represented a 3.8% increase. Interest income on loans increased $4.1 million or 11.2% as compared to the quarter ended September 30, 2024. Loan interest income for third quarter 2025 included $227 thousand of fee income related to interest rate swap transactions compared to $7 thousand for third quarter 2024. The associated impact to both loan yield and total asset yield for third quarter 2025 was 3 basis points, whereas there was no impact to loan yield or total asset yield for third quarter 2024. Loan interest for third quarter 2025 also includes a one-time fee collected of $195 thousand in addition to $191 thousand from the recovery of one acquired relationship that had been fully charged off prior to acquisition. The Company's loan portfolio is 44.1% variable rate with 28.3% of total loans subject to repricing within the next three months.

Current wording

When comparing first quarter 2026 to first quarter 2025, average loan balances grew $121.1 million, which represented a 4.7% increase. Interest income on loans increased $2.8 million or 7.4% as compared to the quarter ended March 31, 2025. The Company's loan portfolio is 47.3% variable rate with 31.9% of total loans subject to repricing within the next three months and 41.7% of total loans subject to repricing within the next twelve months.

Previous wording

The available-for-sale securities portfolio increased in average balances by $25.6 million or 5.9% when comparing to the same quarter in 2024 with the income associated with the security portfolio increasing $711 thousand over third quarter 2024. The increased balances were the result of increasing our holdings for liquidity and contingency planning purposes and to improve our investments in CRA qualifying securities. Federal funds sold and interest-bearing deposits decreased in average balances by $141.1 million as compared to the same quarter in 2024 with decreased income of approximately $2.3 million for the current quarter. The decreased balances are the result of funding loan growth, purchases of available-for-sale securities and repayment of other borrowed money.

Current wording

The available-for-sale securities portfolio decreased in average balances by $24.8 million or 5.2% when comparing to the same quarter in 2025 with the income associated with the security portfolio increasing $82 thousand over first quarter 2025. During the current quarter, maturities and paydowns of securities were $19.6 million, sales were $5.4 million, purchases were $34.9 million and unrealized loss increased $1.6 million. The security sales generated a realized loss of $347 thousand which is projected to be recouped from security purchases with a higher yield over 30.55 months. Federal funds sold and interest-bearing deposits decreased in average balances by $39.1 million as compared to the same quarter in 2025 with decreased income of approximately $541 thousand for the current quarter. The decreased balances are primarily the result of funding loans, purchases of available-for-sale securities and repayment of other borrowed money.

Previous wording

The overall total average balance of the Bank’s earning assets decreased by $18.1 million and interest income for the quarter comparisons was higher for third quarter 2025 by 6.2% or $2.6 million as compared to third quarter 2024. Rate changes between periods have contributed to approximately 119.1% of the growth.

Current wording

The overall total average balance of the Bank’s earning assets increased by $57.3 million and interest income for the quarter comparisons was higher for first quarter 2026 by 5.6% or $2.3 million as compared to first quarter 2025. Rate changes between periods have contributed to approximately 48.4% of the growth.

Previous wording

Annualized yield, for the quarter ended September 30, 2025, was 5.62% as compared to 5.27% for the quarter ended September 30, 2024. The following charts demonstrate loan rate increases accounted for 66.0% of the increased loan interest income while increased loan balances accounted for the remaining 34.0%. The yields on tax-exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts to follow. The tax-exempt interest income was $112 and $114 thousand for third quarter 2025 and 2024, respectively, which resulted in a federal tax savings of $24 thousand for both third quarter 2025 and 2024.

Current wording

Annualized yield, for the quarter ended March 31, 2026, was 5.38% as compared to 5.19% for the quarter ended March 31, 2025. The following charts demonstrate loan rate increases accounted for 36.8% of the increased loan interest income while increased loan balances accounted for the remaining 63.2%. The yields on tax-exempt securities and the portion of the tax-exempt IDB and agricultural loans included in loans have been tax adjusted based on a 21% tax rate in the charts that follow. The tax-exempt interest income was $382 and $135 thousand for first quarter 2026 and 2025, respectively, which resulted in a federal tax savings of $80 and $28 thousand, respectively, less the TEFRA adjustments of $7 and $4 thousand, respectively.

Previous wording

Contributing to the increased net interest income for the quarter was a decrease in interest expense of $2.7 million or 13.4% compared to third quarter 2024. Since September 30, 2024, average interest-bearing deposit balances have increased $24.2 million or 1.1% while the Company recognized $1.9 million less in interest expense for the most recent quarter. In September 2025, the Federal Reserve made its first rate change to the federal funds rate for 2025 with a reduction of 25 basis points. During 2024, the Federal Reserve decreased the federal funds rate by 50 basis points in September and 25 basis points in November and December. Deposit rates have been adjusted numerous times with all the rate changes. The following charts demonstrate increased average interest-bearing deposit balances accounted for 1.5% of additional interest-bearing deposit expense while rate decreases accounted for decreased interest-bearing deposit expense of 101.5%. Noninterest-bearing deposits balances increased $18.6 million compared to third quarter 2024. The Bank continues to focus on capturing the full customer relationship; however, it has sometimes resulted in more expensive deposits being brought in.

Current wording

Contributing to the increased net interest income for the quarter was a decrease in interest expense of $1.2 million or 7.2% compared to first quarter 2025. Since March 31, 2025, average interest-bearing deposit balances have increased $56.3 million or 2.6% while the Company recognized $739 thousand less in interest expense for the most recent quarter. In September 2025, the Federal Reserve made its first rate change to the federal funds rate for 2025 with a reduction of 25 basis points followed by reductions of 25 basis points in both October and December. Deposit rates continue to be reviewed and adjusted with the rate changes. The following charts demonstrate increased average interest-bearing deposit balances accounted for 31.8% of additional interest-bearing deposit expense while rate decreases accounted for decreased interest-bearing deposit expense of 131.8%. Noninterest-bearing deposits balances increased $20.6 million compared to first quarter 2025. The Bank continues to focus on capturing the full customer relationship; however, it has sometimes resulted in more expensive deposits being brought in.

Previous wording

Interest expense on borrowed funds decreased $838 thousand in the third quarter 2025 over the same time frame in 2024 due to the repayment of FHLB advances. During the current quarter, FHLB borrowings of $536 thousand were repaid compared to repayment of $3.0 million in third quarter 2024. Interest expense on federal funds purchased and securities sold under agreement to repurchase decreased $4 thousand compared to third quarter 2024 due to the decrease of $207 thousand in average balances. Cost of funds decreased even with growth in interest-bearing deposit balances offset by decreased borrowings compared to third quarter 2024. The average cost of funds decreased to 2.83% in third quarter 2025 compared to 3.21% in third quarter 2024. Refer to Note 11 for additional information on subordinated notes.

Current wording

Interest expense on borrowed funds decreased $374 thousand in the first quarter 2026 over the same time frame in 2025 due to the repayment of FHLB advances. During the current quarter, FHLB borrowings of $40.6 million were repaid and proceeds from new borrowings were $32.2 million compared to repayment of borrowings of $585 thousand in first quarter 2025. Interest expense on federal funds purchased and securities sold under agreement to repurchase decreased $126 thousand compared to first quarter 2025 due to the decrease of $10.2 million in average balances. Cost of funds decreased even with growth in interest-bearing deposit balances offset by decreased borrowings and securities sold under agreement to repurchase compared to first quarter 2025. The average cost of funds decreased to 2.54% in first quarter 2026 compared to 2.76% in first quarter 2025. Refer to Note 11 for additional information on subordinated notes.

Previous wording

As the following chart indicates, the improvement in yields on interest earning assets of 35 basis points combined with the decreased cost of funds of 38 basis points equated to a 73 basis point improvement in net interest spread when comparing to the same period a year ago. Competition for deposits remains intense with most competitors offering special rates for specific terms.

Current wording

As the following chart indicates, the improvement in yields on interest earning assets of 19 basis points combined with the decreased cost of funds of 22 basis points equated to a 41 basis point improvement in net interest spread when comparing to the same period a year ago. Competition for deposits remains intense with most competitors offering special rates for specific terms.

Previous wording

Net interest income increased $5.3 million for the third quarter 2025 over the same time frame in 2024 due to the increase in interest income of $2.6 million combined with the interest expense decrease of $2.7 million as previously mentioned. As the new loans added in 2024 and 2025 generate more income, management expects the benefits of the Company’s strategy of repositioning the balance sheet to increase interest income in the long run. The Company has more opportunity for improved asset yield with loans repricing. Additionally, funding costs should continue to come down as well. Loans as a percentage of earning assets increased to 83.7% in third quarter 2025 compared to 80.1% in third quarter 2024. Loans to total assets increased to 79.1% in third quarter 2025 compared to 76.1% for the same period 2024. The percentage of earning assets to total assets decreased slightly to 94.6% for the three months ended September 30, 2025 compared to 95.0% for the three months ended September 30, 2024. In terms of net interest margin, the Bank recognizes competition for deposits will continue; however, there is a greater opportunity for gradual improvement with loans repricing upwards in the next year and a likely continuing decrease in cost of funds.

Current wording

Net interest income increased $3.5 million for the first quarter 2026 over the same time frame in 2025 due to the increase in interest income of $2.3 million combined with the interest expense decrease of $1.2 million as previously mentioned. As the new loans added in 2025 and 2026 generate more income, management expects the benefits of the Company’s strategy of repositioning the balance sheet to increase interest income in the long run. The Company has more opportunity for improved asset yield with loans repricing. Additionally, funding costs should continue to come down as well. Loans as a percentage of earning assets increased to 83.9% in first quarter 2026 compared to 81.6% in first quarter 2025. Loans to total assets increased to 79.1% in first quarter 2026 compared to 77.5% for the same period 2025. The percentage of earning assets to total assets decreased slightly to 94.6% for the three months ended March 31, 2026 compared to 95.0% for the three months ended March 31, 2025. In terms of net interest margin, the Bank recognizes competition for deposits will continue; however, there is a greater opportunity for gradual improvement with loans repricing upwards in the next year and a likely continuing decrease in cost of funds.

Previous wording

Total provision for credit losses increased $275 thousand for the three months ended September 30, 2025 as compared to the same period in 2024. Management continues to monitor asset quality, making adjustments to the provision as necessary. The impact of higher interest rates and inflation are taken into consideration when reviewing qualitative factors. Loan charge-offs were $3 thousand lower during the three months ended September 30, 2025 than the same period in 2024 with all loan charge-offs for the current quarter in the consumer portfolio and commercial portfolio segments. Recoveries were $6 thousand higher during the three months ended September 30, 2025 as compared to same period in 2024 with 78.7% of total current quarter recoveries in the consumer portfolio segment. Combined net charge-offs were $9 thousand lower in the three months ended September 30, 2025 than the same time period 2024. All of the time periods in 2024 and 2025 had net charge-offs to total loans ratios lower than 0.1% attesting to the strong asset quality of the Bank's loan portfolio.

Current wording

Total provision for credit losses decreased $243 thousand for the three months ended March 31, 2026 as compared to the same period in 2025. Management continues to monitor asset quality, making adjustments to the provision as necessary. The impact of higher interest rates and inflation are taken into consideration when reviewing qualitative factors. Loan charge-offs were $101 thousand lower during the three months ended March 31, 2026 than the same period in 2025 with all loan charge-offs for the current quarter in the consumer portfolio and consumer real estate portfolio segments. Of the total consumer charge-offs, $124 and $127 thousand were for automobiles and trucks for the three months ended March 31, 2026 and 2025, respectively. Recoveries were $24 thousand higher during the three months ended March 31, 2026 as compared to same period in 2025 with 90.5% of total current quarter recoveries in the consumer portfolio segment. Of the total consumer recoveries, $40 and $3 thousand were for automobiles and trucks for the three months ended March 31, 2026 and 2025, respectively. Combined net charge-offs were $125 thousand lower in the three months ended March 31, 2026 than the same time period 2025. All of the time periods in 2025 and 2026 had net charge-offs to total loans ratios lower than 0.1% attesting to the strong asset quality of the Bank's loan portfolio.

Previous wording

Loans past due 30 or more days increased $1.0 million at September 30, 2025 as compared to September 30, 2024. The largest changes were attributed to the agricultural real estate portfolio segment past due balances which increased $712 thousand for the same time period. The commercial portfolio segment also increased $209 thousand over September 30, 2024.

Current wording

Loans past due 30 or more days increased $9.7 million at March 31, 2026 as compared to March 31, 2025. The largest changes were attributed to the agricultural real estate portfolio segment past due balances which increased $6.5 million for the same time period, of which $4.9 million is attributed to one loan. The agricultural portfolio segment also increased $3.3 million over March 31, 2025, with $2.2 million attributed to one loan.

Previous wording

The balance of loans, amortized cost at September 30, 2025 and September 30, 2024 within this chart does not include a fair value basis adjustment for derivatives of $1.9 million and $3.0 million, respectively, or a daily average outstanding balance of $1.8 million and $1.6 million, respectively. Refer to Note 7 for additional information related to derivative financial instruments.

Current wording

The balance of loans, amortized cost at March 31, 2026, March 31, 2025 and March 31, 2024 within this chart does not include a fair value basis adjustment for derivatives of $1.1 million, $1.7 million and $969 thousand, respectively, or a daily average outstanding balance of $1.6 million, $1.2 million or $2.0 million, respectively. Refer to Note 7 for additional information related to derivative financial instruments.

Previous wording

Loans classified as nonaccrual were higher as of September 30, 2025 at $5.2 million as compared to $2.9 million as of September 30, 2024. The consumer real estate portfolio segment increased $1.9 million, or 86.8%, as compared to September 30, 2024. The agricultural real estate portfolio segment increased $334 thousand, or 267.2%, as compared to September 30, 2024 while the agricultural portfolio segment decreased $46 thousand compared to September 30, 2024. The commercial real estate portfolio segment decreased 61.1% or $220 thousand compared to September 30, 2024. Nonaccrual loans in the commercial and industrial portfolio segment increased $294 thousand compared to September 30, 2024.

Current wording

Loans classified as nonaccrual were higher as of March 31, 2026 at $11.1 million as compared to $4.5 million as of March 31, 2025. The agricultural real estate and agricultural portfolio segments increased $5.1 million and $1.4 million, respectively, as compared to March 31, 2025. Of the combined agricultural related increase, $6.3 million is for one relationship with a specific allocation of $358 thousand as of March 31, 2026. The commercial real estate portfolio segment decreased $455 thousand compared to March 31, 2025 while the consumer real estate portfolio segment increased $410 thousand compared to March 31, 2025. Nonaccrual loans in the commercial and industrial portfolio segment increased $102 thousand compared to March 31, 2025.

Previous wording

The commercial and industrial portfolio segment along with the consumer portfolio segment accounted for the largest components of recoveries for both the three months ended September 30, 2025 and for the three months ended September 30, 2024. The consumer portfolio segment accounted for the majority of charge-offs for the three months ended September 30, 2025 and for the three months ended September 30, 2024.

Current wording

The consumer portfolio segment accounted for the largest components of charge-offs and recoveries for both the three months ended March 31, 2026 and for the three months ended March 31, 2025. Management has factored in the continuing impact of high interest rates and inflationary pressures on borrowers' ability to make payments.

Previous wording

Noninterest income was up $397 thousand, or 10.0%, for the three months ended September 30, 2025 over the same time frame in 2024. Customer service fees increased by $70 thousand as compared to the three months ended September 30, 2024. Mortgage release fees and credit card fees, which are included in customer service fees, increased $25 and $50 thousand, respectively, over the same time period in 2024. Merchant services fees also decreased $17 thousand. Other service fees increased by $194 thousand compared to the same period in 2024, which includes overdraft and returned check fees of $90 thousand and combined service charges on DDA, savings accounts, ATM and miscellaneous of $87 thousand. Servicing rights income for 1-4 family real estate and agricultural real estate loans decreased $46 thousand as compared to the same period in 2024. The line items of interchange income and the increase in the cash surrender value of bank owned life insurance decreased $42 thousand and $18 thousand, respectively, from the same three months ended September 30, 2024. Net gain on sale of loans increased $229 thousand as compared to the same period, as discussed below.

Current wording

Noninterest income was up $838 thousand, or 20.1%, for the three months ended March 31, 2026 over the same time frame in 2025. Customer service fees increased by $102 thousand as compared to the three months ended March 31, 2025 which was due primarily to increases of miscellaneous customer service fees of $47 thousand and mortgage release fees of $38 thousand. Other service fees increased by $159 thousand compared to the same period in 2025, which includes overdraft and returned check fees of $78 thousand and combined service charges on DDA, savings accounts, ATM and miscellaneous of $76 thousand. Servicing rights income for 1-4 family real estate loans increased $77 thousand while those associated with agricultural real estate loans decreased $33 thousand as compared to the same period in 2025. Interchange income increased $92 thousand, which included an additional $58 thousand received for support fees from Mastercard, and the cash surrender value of bank owned life insurance increased $411 thousand from the same three months ended March 31, 2025. The increase in BOLI revenue was due to more investment dollars and higher earnings while the Bank is repositioning our holdings. Net gain on sale of loans increased $291 thousand as compared to the same period, as discussed below.

Previous wording

The Company has seen strong and steady mortgage production volume partially due to the improvement of housing inventory in many of our markets. The volume of total originations of loans held for sale increased and the gain on the sale of these loans was $229 thousand higher for the three months ended September 30, 2025 over the same period in 2024. Total originations of loans held for sale for the three months ended September 30, 2025 were $14.8 million with proceeds from sale at $18.6 million for 2025 compared to 2024’s activity of $13.2 million in originations and $13.3 million in sales. The mortgages sold were both 1-4 family real estate and agricultural real estate loans originated for sale.

Current wording

The volume of total originations of loans held for sale increased and the gain on the sale of these loans was $291 thousand higher for the three months ended March 31, 2026 over the same period in 2025. Total originations of loans held for sale for the three months ended March 31, 2026 were $23.8 million with proceeds from sale at $22.8 million for 2026 compared to 2025’s activity of $13.0 million in originations and $13.9 million in sales. The mortgages sold were both 1-4 family real estate and agricultural real estate loans originated for sale.

Previous wording

The impact of loan servicing rights, both to income and expense, is shown in the following table which reconciles the value of loan servicing rights. The capitalization runs through noninterest income while the amortization thereof is included in noninterest expense. For the three months ended September 30, 2025 and 2024, loan servicing rights caused a net $99 thousand and $182 thousand in income, respectively. Impairment of $372 thousand and $42 thousand was recognized during the three months ended September 30, 2025 and 2024, respectively. Capitalized additions of agricultural real estate loan servicing rights were $141 thousand for the three months ended September 30, 2025 compared to $216 thousand in capitalized additions for the three months ended September 30, 2024. Amortization of agricultural real estate loan servicing rights were $75 thousand and $67 thousand for the three months ended September 30, 2025 and 2024, respectively. Impairment of agricultural real estate loan servicing rights was $369 thousand for the three months ended September 30, 2025 compared to $42 thousand for the three months ended September 30, 2024. For 1-4 family real estate loans of 15 years and less, the market value of the loan servicing rights was 1.454% in the third quarter 2025 versus 1.034% in third quarter 2024. For 1-4 family real estate loans over 15 years, the value was 1.421% versus 1.266% for the same periods respectively. At September 30, 2025, the carrying value of certain strata were slightly below the market value thus requiring the establishment of a $5 thousand valuation allowance for 1-4 family real estate and an $454 thousand valuation allowance for agricultural real estate servicing rights.

Current wording

The impact of loan servicing rights, both to income and expense, is shown in the following table which reconciles the value of loan servicing rights. The capitalization runs through noninterest income while the amortization thereof is included in noninterest expense. For the three months ended March 31, 2026 and 2025, loan servicing rights caused a net $101 thousand and $100 thousand in income, respectively. Impairment of $304 thousand and a reversal of $49 thousand was recognized during the three months ended March 31, 2026 and 2025, respectively. Capitalized additions of agricultural real estate loan servicing rights were $136 thousand for the three months ended March 31, 2026 compared to $170 thousand in capitalized additions for the three months ended March 31, 2025. Amortization of agricultural real estate loan servicing rights were $76 thousand and $65 thousand for the three months ended March 31, 2026 and 2025, respectively. Impairment of agricultural real estate loan servicing rights was $1.2 million at March 31, 2026 compared to $46 thousand at March 31, 2025. For 1-4 family real estate loans of 15 years and less, the market value of the loan servicing rights was 1.430% in the first quarter 2026 versus 1.277% in third quarter 2025. For 1-4 family real estate loans over 15 years, the value was 1.727% versus 1.520% for the same periods respectively. At March 31, 2026 and 2025, the carrying value of certain strata were slightly below the market value thus requiring the establishment of a $5 and $2 thousand valuation allowance, respectively, for 1-4 family real estate servicing rights.