Farmers & Merchants Bancorp FMAO Form 10-Q filing Q1 FY2026

2

PART 1 - FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Condensed Consolidated Unaudited Financial Statements.

Note: The December 31, 2025, Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of that date.

3

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(continued)

4

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (Continued)

See Notes to Condensed Consolidated Unaudited Financial Statements

5

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

See Notes to Condensed Consolidated Unaudited Financial Statements

6

Farmers & Merchants Bancorp, Inc. and Subsidiaries

CONDENSED Consolidated StatementS of Changes TO Stockholders’ Equity

For the THREE Months Ended March 31, 2026

(IN THOUSANDS, Except Per Share Data)

(Unaudited)

See Notes to Condensed Consolidated Unaudited Financial Statements

7

Farmers & Merchants Bancorp, Inc. and Subsidiaries

CONDENSED Consolidated StatementS of Changes TO Stockholders’ Equity

For the THREE months Ended March 31, 2025

(IN THOUSANDS, Except Per Share Data)

(Unaudited)

See Notes to Condensed Consolidated Unaudited Financial Statements

8

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(continued)

9

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (Continued)

See Notes to Condensed Consolidated Unaudited Financial Statements

10

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 BASIS OF PRESENTATION 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 three months ended March 31, 2026 are not necessarily indicative of the results that are expected for the year ended December 31, 2026. The condensed consolidated balance sheet of the Company as of December 31, 2025, 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, 2025.

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 provided to business and consumer clients such as deposit account, debit card, and mortgage banking services. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE

Changes in accretable yield, or income expected to be collected, for the acquisition of Peoples Federal Savings and Loan completed in 2022, are as follows:

Changes in accretable yield, or income expected to be collected, for the acquisition of Perpetual Federal Savings Bank completed in 2021, are as follows:

Changes in accretable yield, or income expected to be collected, for the acquisition of Ossian State Bank completed in 2021, are as follows:

The acquisition of Ossian State Bank resulted in the recognition of $980 thousand in core deposit intangible assets, the acquisition of Perpetual Federal Savings Bank resulted in the recognition of $668 thousand in core deposit intangible assets and the acquisition of Peoples Federal Savings and Loan resulted in the recognition of $6.0 million in core deposit intangible

11

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

assets which are all being amortized over its remaining economic useful life of 7 years on a straight line basis. Core deposit intangible is included in other assets on the condensed consolidated balance sheets.

The amortization expense of the core deposit intangible for the three months ended March 31, 2025 was $414 thousand of which $140 thousand was related to the acquisition of Bank of Geneva on January 1, 2019. Of the approximately $1.1 million to be expensed in 2026, $274 thousand has been expensed for the three months ended March 31, 2026. Annual amortization of core deposit intangible assets is as follows:

The purchase of Adams County Financial Resources in 2020 resulted in the allocation of $800 thousand to customer list intangible, included in other assets, to be amortized over 6.5 years on a straight-line basis.

The amortization expense of the customer list intangible for the three months ended March 31, 2025 was $31 thousand. Of the $123 thousand to be expensed in 2026, $31 thousand has been expensed for the three months ended March 31, 2026. Annual amortization expense of customer list intangible is as follows:

12

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 3 SECURITIES

Mortgage-backed securities, as shown in the following tables, are all government sponsored enterprises. The amortized cost and fair value of securities, with gross unrealized gains and losses at March 31, 2026 and December 31, 2025, are as follows:

Information pertaining to securities with gross unrealized losses at March 31, 2026 and December 31, 2025, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

13

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by rate changes, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

Proceeds from sales of securities totaled approximately $5.4 million during the three months ended March 31, 2026, resulting in gross losses of $347 thousand. There were no sales of securities during the three months ended March 31, 2025. Below are the gross realized gains or losses for the three months ended March 31, 2026 and March 31, 2025.

Net realized loss on sales and related tax benefit is reclassified out of accumulated other comprehensive loss. The net realized loss is included in net loss on sale of available-for-sale securities and the related tax benefit is included in income taxes in the condensed consolidated statements of income and comprehensive income.

The amortized cost and fair value of debt securities at March 31, 2026, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investments with a carrying value of $246.5 million and $238.2 million at March 31, 2026 and December 31, 2025, respectively, were pledged to secure public deposits and securities sold under repurchase agreements. Investments with a carrying value of $27.3 million and $28.3 million were pledged to the Federal Reserve's Discount Window to provide additional borrowing capacity at March 31, 2026 and December 31, 2025, respectively.

Other securities include Federal Home Loan Bank of Cincinnati and Indianapolis stock in the amount of $12.7 million as of March 31, 2026 and $13.0 million as of December 31, 2025.

14

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS

The Company had $5.6 million in loans held for sale at March 31, 2026 as compared to $3.9 million in loans held for sale at December 31, 2025.

Loan balances as of March 31, 2026 and December 31, 2025 are summarized below:

Presented below are fixed rate loans and variable rate loans by portfolio segment as of March 31, 2026 and December 31, 2025:

Variable rate loans that have reached ceiling or floor limits are reported as fixed rate loans until such time as their rates adjust away from those limits.

Following are the characteristics and underwriting criteria for each major type of loan the Bank offers:

Consumer Real Estate: Purchase, refinance, or equity financing of one to four family owner occupied dwelling. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and other factors.

Agricultural Real Estate: Purchase of farm real estate or for permanent improvements to the farm real estate. Cash flow from the farm operation is the repayment source and is therefore subject to the financial success of the farm operation.

Agricultural: Loans for the production and housing of crops, fruits, vegetables, and livestock or to fund the purchase or refinance of capital assets such as machinery and equipment and livestock. The production of crops and livestock is especially vulnerable to commodity prices and weather.

Commercial Real Estate: Construction, purchase, and refinance of business purpose real estate. Risks include potential construction delays and overruns, vacancies, collateral value subject to market value fluctuations, interest rate, market demands, borrower’s ability to repay in orderly fashion, and other factors.

15

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

Commercial and Industrial: Loans to proprietorships, partnerships, or corporations to provide temporary working capital and seasonal loans as well as long term loans for capital asset acquisition. Risks include adequacy of cash flow, reasonableness of projections, financial leverage, economic trends, management ability and estimated capital expenditures during the fiscal year.

Consumer: Funding for individual and family purposes. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment and other factors.

Other: Primarily funds public improvements in the Bank’s service area. Repayment ability is based on the continuance of the taxation revenue as the source of repayment.

As of March 31, 2026 and December 31, 2025 one to four family residential mortgage loans amounting to $170.8 million and $175.8 million, respectively, and HELOC loans amounting to $16.0 million and $15.8 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank "FHLB". The Bank has also pledged eligible commercial real estate loans of $231.6 million and $231.8 million as of March 31, 2026 and December 31, 2025, respectively, to the FHLB in addition to eligible multi-family real estate loans which amounted to $24.0 million and $29.1 million as of March 31, 2026 and December 31, 2025, respectively.

16

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present the contractual aging at amortized cost in past due loans by portfolio segment of loans as of March 31, 2026 and December 31, 2025:

17

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present the amortized cost of nonaccrual loans by portfolio segment as of March 31, 2026 and as of December 31, 2025:

Interest income on nonaccrual loans, recognized on a cash basis, was $27 thousand for the three months ended March 31, 2026 and $146 thousand for the twelve months ended December 31, 2025.

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.

The Bank uses a nine tier risk rating system to grade its loans. The grade of a loan may change during the life of the loan.

The risk ratings are described as follows.

Zero (0) Unclassified. Any loan which has not been assigned a classification.

One (1) Excellent. Credit to premier customers having the highest credit rating based on an extremely strong financial condition, which compares favorably with industry standards (upper quartile of RMA ratios). Financial statements indicate a sound earnings and financial ratio trend for several years with satisfactory profit margins and excellent liquidity exhibited. Prime credits may also be borrowers with loans fully secured by highly liquid collateral such as traded stocks, bonds, certificates of deposit, savings account, etc. No credit or collateral exceptions exist, and the loan adheres to The Bank's loan policy in every respect. Financing alternatives would be readily available and would qualify for unsecured credit. This rate is summarized by high liquidity, minimum risk, strong ratios, and low handling costs.

Two (2) Good. Desirable loans of somewhat less stature than rate 1, but with strong financial statements. Loan supported by financial statements containing strong balance sheets and a history of profitability. Probability of serious financial deterioration is unlikely. Possessing a sound repayment source (and a secondary source), which

18

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

would allow repayment in a reasonable period of time. Individual loans backed by liquid personal assets, established history and unquestionable character.

Three (3) Satisfactory. Satisfactory loans of average or slightly above average risk – having some deficiency or vulnerability to changing economic conditions, but still fully collectible. Projects should normally demonstrate acceptable debt service coverage. There may be some weakness but with offsetting features of other support readily available. Loans that are meeting the terms of repayment.

Loans may be rated 3 when there is no recent information on which to base a current risk evaluation and the following conditions apply:

At inception, the loan was properly underwritten and did not possess an unwarranted level of credit risk;

At inception, the loan was secured with collateral possessing a loan-to-value adequate to protect The Bank from loss;

The loan exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance;

During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the business is in an industry which is known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk rating is warranted.

Four (4) Satisfactory / Monitored. A “4” (Satisfactory/Monitored) risk rating may be established for a loan considered satisfactory but which is of average credit risk due to financial weakness or uncertainty. The loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in Satisfactory/Monitored classification is considered acceptable and within normal underwriting guidelines, so long as the loan is given management supervision.

Five (5) Special Mention. Loans that possess some credit deficiency or potential weakness which deserve close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk in the future. The key distinctions of a 5 (Special Mention) classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered “potential” versus “defined” impairments to the primary source of loan repayment and collateral.

Six (6) Substandard. One or more of the following characteristics may be exhibited in loans classified substandard:

Loans which possess a defined credit weakness and the likelihood that a loan will be paid from the primary source are uncertain. Financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss.

Loans are inadequately protected by the current net worth and paying capacity of the borrower.

The primary source of repayment is weakened, and The Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees.

Loans are characterized by the distinct possibility that The Bank will sustain some loss if deficiencies are not corrected.

Unusual courses of action are needed to maintain a high probability of repayment.

The borrower is not generating enough cash flow to repay loan principal; however, continues to make interest payments.

The lender is forced into a subordinate position or unsecured collateral position due to flaws in documentation.

Loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms.

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan

There is significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions.

19

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

Seven (7) Doubtful. One or more of the following characteristics may be exhibited in loans classified Doubtful:

Loans have all of the weaknesses of those classified as Substandard. Additionally, however, these weaknesses make collection or liquidation in full based on existing conditions improbable.

The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

The possibility of loss is high, but, because of certain important pending factors which may strengthen the loan, loss classification is deferred until its exact status is known. A Doubtful classification is established deferring the realization of the loss.

Eight (8) Loss. Loans are considered uncollectable and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

20

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following table represents the risk category of loans at amortized cost, by portfolio segment and year of origination, based on the most recent analysis performed as of March 31, 2026 and December 31, 2025:

21

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

22

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

23

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

24

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

For consumer loans, the Company evaluates credit quality based on the aging status of the loan, as was previously stated, and by payment performance. Consumer loans are placed on nonperforming 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. The following tables present the amortized cost based on payment performance as of March 31, 2026 and December 31, 2025 by year of origination.

25

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present collateral-dependent loans grouped by portfolio segment as of March 31, 2026 and December 31, 2025:

The Bank periodically evaluates collateral asset values for collateral dependent loans to determine fair value and to measure any anticipated shortfall. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained. Until such time that updated appraisals are received, the Bank may discount the collateral value used.

The specific reserve portion of the ACL for collateral dependent loans was $497 thousand and $145 thousand at March 31, 2026 and December 31, 2025, respectively

The Company periodically modifies a loan for a borrower experiencing financial difficulty in an effort to enhance the borrowers' performance on the note. Modification programs focused on payment pattern changes and/or modified maturity dates with most receiving a combination of the two concessions. The modifications normally do not result in the contractual forgiveness of principal. During the three months ended March 31, 2026 and 2025, there were no new loan modifications to borrowers experiencing financial difficulty.

For the three months ended March 31, 2026 and 2025, there were no modifications to borrowers experiencing financial difficulty that subsequently defaulted after modification.

As of March 31, 2026, the Company had $319 thousand foreclosed residential real estate property obtained by physical possession and $1.2 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. This compares to the Company having no foreclosed residential real estate property obtained by physical possession and $1.4 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceeding were in process according to local jurisdictions as of December 31, 2025. As of March 31, 2025, the Company had no foreclosed residential real estate property obtained by physical possession and $1.9 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.

26

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The allowance for credit losses (ACL) has a direct impact on the provision expense. An increase in the ACL is funded through recoveries and provision expense.

The Company segregates its allowance into two reserves: The ACL and the Allowance for Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total ACL as determined using the Current Expected Credit Losses (CECL) methodology.

The allowance does not include an accretable yield of $46 thousand and $216 thousand as of March 31, 2026 and December 31, 2025, respectively, related to the acquisitions of Ossian State Bank and Perpetual Federal Savings Bank in 2021 and Peoples Federal Savings and Loan Bank in 2022 as previously discussed in Note 2.

The AULC is reported within other liabilities while the ACL portion associated with loans is netted within the loans, net asset line on the condensed consolidated balance sheets.

27

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present 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 three months ended March 31, 2026 and March 31, 2025 in addition to the activity within the ACL for each portfolio segment and ending balances as of and for the year ended December 31, 2025:

28

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

29

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present the activity in the AULC for the three months ended March 31, 2026 and March 31, 2025 in addition to the activity in the AULC and ending balances as of and for the year ended December 31, 2025:

30

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

31

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 5 SERVICING

Loans serviced for others are not included in the accompanying Company's consolidated balance sheets. The unpaid principal balances of 1-4 family real estate loans serviced for others were $361.7 million at March 31, 2026 and $362.6 million at both March 31, 2025 and at December 31, 2025, respectively. Unpaid principal balances of agricultural real estate loans serviced for others were $159.2, $145.3 and $153.4 million at March 31, 2026 and 2025 and at December 31, 2025, respectively.

The balance of capitalized servicing rights included in assets at March 31, 2026 and 2025 and at December 31, 2025 for 1-4 family real estate loans, was $3.7, $3.5 and $3.6 million, respectively. Agricultural real estate loan servicing rights were $2.5, $2.3 and $2.4 million at March 31, 2026 and 2025 and at December 31, 2025, respectively. The capitalized addition of servicing rights is included in loan servicing income on the Company's consolidated statement of income.

The fair value of the capitalized servicing rights for 1-4 family real estate loans as of March 31, 2026 and 2025 was $4.5 million and $5.0 million, respectively, and at December 31, 2025 was $4.5 million. Capitalized servicing rights for agricultural real estate loans had a fair value of $1.3 million and $2.6 million as of March 31, 2026 and 2025, respectively, and was $1.5 million at December 31, 2025. The valuations were completed by stratifying the loans into like groups based on loan type and term. Impairment was measured by estimating the fair value of each stratum, taking into consideration an estimated level of prepayment based upon current market conditions. An average constant prepayment rate for 1-4 family real estate loans of 10.8% and 7.8% were utilized at March 31, 2026 and 2025, respectively, and 9.8% at December 31, 2025. Agricultural real estate loans utilize an average constant prepayment rate based on the Bank's last twelve months of data. The average constant prepayment rate was 1.357% and 0.259% for fixed rate agricultural real estate loans at March 31, 2026 and 2025, respectively, compared to 1.054% at December 31, 2025. At March 31, 2026, two 1-4 family real estate strata, which included 70 of the total 3,575 loans, were slightly below the carrying value using a discount yield of 5.61% which resulted in the need to establish a $5 thousand valuation allowance. At March 31, 2026, the carrying value of all fourteen agricultural real estate strata, which included 659 loans, using an approximate discount rate of 7.97% were lower than the fair value requiring an impairment expense of $304 thousand, bringing the valuation allowance to $1.2 million. At March 31, 2025, two 1-4 family real estate strata, which included 80 of the total 3,656 loans, were slightly below the carrying value using a discount yield of 5.77% which resulted in the need to establish a $2 thousand valuation allowance. At March 31, 2025, the carrying value of eleven agricultural real estate strata, which included 34 of the total 636 loans, using an approximate discount rate of 8.54% were lower than the fair value requiring a $46 thousand valuation allowance to be established.

The following table presents the activity in the mortgage servicing rights for the three months ended March 31, 2026 and 2025.

NOTE 6 EARNINGS PER SHARE

The Compensation Committee of the Company has determined that it is appropriate to award shares of the common stock of the Company to Directors, whether outside or also an officer of the Company or the Bank, as a portion of their retainer for services rendered. The Committee believes that it is appropriate to award the Directors shares equal to a specific dollar amount, rounded to the nearest whole share on an annual basis commencing in June of 2020 and thereafter on the first Thursday of June. Directors receive a prorated dollar value of shares for a partial year of service. The value for the shares is to be based upon the prior day closing price. On June 5, 2025, ten directors each received $17,496 which equated to 762 shares and one director received $6,704 which equated to 292 shares. On July 29, 2025, one new Director received 288 prorated shares worth approximately $7,436. The use of stock for Directors’ retainer, does not have an effect on diluted earnings per share as it is immediately vested.

Any stock awards to senior management are made in March with other officers receiving any awards in August. On March 2, 2026, senior management received stock awards of 23,479 shares worth $607,167. On March 1, 2025, senior management

32

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

received stock awards of 19,767 shares worth $508,012 while other officers received stock awards of 39,525 shares worth slightly more than $1.0 million in August of 2025.

The table below presents basic and diluted earnings per share for the three months ended March 31, 2026 and 2025.

33

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 7 DERIVATIVE FINANCIAL INSTRUMENTS

The Bank entered into three pay-fixed receive variable interest rate swap transactions, with a combined notional value of $100 million, designated and qualifying as accounting hedges during the last quarter of 2023.

The following table presents amounts that were recorded on the Company's consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of March 31, 2026 and December 31, 2025.

The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Bank's asset/liability management activities at March 31, 2026 and December 31, 2025, identified by the underlying interest rate-sensitive instruments.

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Bank pledged $2.3 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at both March 31, 2026 and December 31, 2025. Collateral posted and received is dependent on the market valuation of the underlying hedges.

The following table presents the notional amount and fair value of interest rate swaps utilized by the Bank at March 31, 2026 and December 31, 2025.

34

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following table presents the effects of the Bank's interest rate swap agreements on the Company’s consolidated statement of income during the three months ended March 31, 2026 and March 31, 2025.

NOTE 8 QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company invests in certain qualified affordable housing projects. The Company has elected to account for its investment in qualified affordable housing projects using the proportional amortization method. Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense.

At March 31, 2026 and December 31, 2025, the balance of the Company's investments in qualified affordable housing projects was $2.6 million and $3.1 million, respectively. This balance is reflected in the other assets line on the condensed consolidated balance sheets. The unfunded commitments related to the investments in qualified housing projects totaled $397 and $418 thousand at March 31, 2026 and December 31, 2025, respectively. These balances are reflected in the accrued expense and other liabilities line on the condensed consolidated balance sheets.

The Company did not incur any impairment losses related to its investments in qualified affordable housing projects in 2026 or 2025.

The following tables present the Company's investments in qualified affordable housing projects as of March 31, 2026 and December 31, 2025 along with the related expenses and tax credits recognized for the three months ended March 31, 2026 and March 31, 2025.

35

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 9 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, bank premises and equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.

Fair Value Measurements:

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.

Available-for-sale securities, when quoted prices are available in an active market, are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Interest rate swaps classified as Level 2 are valued using the prices obtained from an independent pricing service and not adjusted. The fair value of interest rate swaps with a positive fair value are reported as assets while interest rate swaps with a negative fair value are reported as liabilities.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds four local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.

36

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025, segregated by level within the fair value hierarchy utilized to measure fair value:

The following tables represent the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of the three months ended March 31, 2026 and March 31, 2025.

37

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

38

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

Most of the Company's available-for-sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.

There were no securities that transferred in or out of Level 3 during the three months ended March 31, 2026 or the twelve months ended December 31, 2025.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At March 31, 2026, such assets consist of collateral dependent loans, loan servicing rights and residential other real estate owned while at December 31, 2025, such assets consist of collateral dependent loans and loan servicing rights. Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that have expected credit losses. The Company may also estimate the fair value of certain nonperforming loans using a discounted cash flow method of future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)

At March 31, 2026 and December 31, 2025, fair value of collateral dependent loans categorized as Level 3 was $5.7 million and $860 thousand, respectively. The specific allocation for collateral dependent loans was $497 thousand as of March 31, 2026 and $145 thousand as of December 31, 2025. The specific allocations are accounted for in the allowance for credit losses (see Note 4).

During 2026 and 2025, impairment was recognized on loan servicing rights based upon the independent third party's quarterly valuation. A valuation allowance was established by strata to quantify the likely impairment of the value of the loan servicing rights to the Company. If the carrying amount of an individual strata exceeds the fair value, impairment was recorded on that strata so the servicing asset was carried at fair value. Impairment was $1.2 million and $883 thousand at March 31, 2026 and December 31, 2025, respectively. In both time periods, only $5 thousand is related to 1-4 family real estate loans with the remainder related to agricultural real estate loans.

The following table presents assets measured at fair value on a nonrecurring basis at March 31, 2026 and December 31, 2025:

39

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

40

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments not carried at fair value as of March 31, 2026 and December 31, 2025 are reflected below.

41

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 10 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company had no federal funds purchased at March 31, 2026 and $15 million at December 31, 2025. Securities sold under agreement to repurchase, which were comprised of U.S. Treasuries and government agency securities, were as follows at March 31, 2026 and December 31, 2025.

42

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 11 SUBORDINATED NOTES

The Company has $35 million aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due July 30, 2031 (the “Notes”). The Notes qualify as Tier 2 capital for regulatory purposes in proportionate amounts until July 30, 2026. Beginning July 31, 2026, the Note amount that qualifies as Tier 2 capital is reduced in proportionate amounts until July 30, 2031.

Interest on the Notes accrues at a rate equal to (i) 3.25% per annum from the original issue date of July 2021 to, but excluding, the five-year anniversary, payable semi-annually in arrears, and (ii) a floating rate per annum equal to a benchmark rate, which is expected to be the Three-Month Term SOFR (as defined in the Notes), plus a spread of 263 basis points from and including the five-year anniversary until maturity, payable quarterly in arrears. Beginning on or after the fifth anniversary of the issue date through maturity, the Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption will be at a redemption price equal to 100% of the principal amount of Notes being redeemed, plus accrued and unpaid interest.

NOTE 12 - SEGMENT REPORTING

The Company has one reportable operating segment, commercial banking. While our chief operating decision makers (CODM) monitor revenue streams of various products and services, the identifiable segments’ operations are managed, and financial performance is evaluated on a Company wide basis. The commercial banking segment provides a broad array of financial products and services including commercial, agricultural, and residential mortgage as well as consumer lending activities, commercial and consumer banking services, wealth advisory services and insurance to individual and business clients through most of its banking center locations in Ohio, Indiana, and Michigan.

The accounting policies of the commercial banking segment are the same as those described in management's discussion and analysis of the financial condition and results of operations of the Company. The CODM assess performance for the commercial banking segment and decide how to allocate resources based on net income which is also reported on the Consolidated Statements of Income as net income. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets.

The CODM use net income to evaluate income generated from segment assets (return on average total assets) in deciding whether to reinvest profits into the commercial banking segment or to pay dividends or fund acquisitions. Net income is also used by the CODM to monitor budget versus actual results. Net income as well as other common company-wide financial performance and credit quality metrics such as return on average assets, return on average equity, earnings per common share, net interest margin, operating efficiency and nonaccrual loans to total loans, among others, are used for competitive analysis by benchmarking to the Company’s competitors as well as used in assessing the performance of the segment and for establishing management’s compensation. Loans, investments and deposits provide revenue in the banking operation. Interest expense, provisions for credit losses, salaries, wages and associated employee benefits, and data processing are the significant expenses in the banking operation.

The Company’s CODM are the President and senior management team of the Company.

43

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS

In October 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-06 "Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative." The amendments in this Update are the result of the FASB’s decision to incorporate into the Accounting Standards Codification certain disclosure requirements, referred by the SEC, that require incremental information to US GAAP. Topics in the ASU that have applicability to the Company are as follows:

• Statement of Cash Flows - requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.

• Debt - requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings.

• Derivatives and Hedging - adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Accounting Standards Codification and will not become effective for any entity. Management is reviewing the provisions of ASU 2023-06, and does not expect the adoption of the ASU to have a material effect on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period (1) the Company disclose the amounts of (a) employee compensation, (c) depreciation, and (d) intangible asset amortization included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed. (2) Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. (3) Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. (4) Disclose the total amount of selling expenses and, in annual reporting periods, the Company’s definition of selling expenses. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this Update should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this Update or (2) retrospectively to any or all prior periods presented in the financial statements. Management is currently evaluating the Update and does not expect adoption of the Update to have a material effect on the Company’s financial position or results of operations.

In November 2025, the FASB issued ASU 2025-08 Financial Instruments—Credit Losses (Topic 326) — Purchased Loans. The amendments in this Update expand the population of acquired financial assets subject to the gross-up approach in Topic 326. In accordance with the amendments in this Update, loans (excluding credit cards) acquired without credit deterioration and deemed “seasoned” are purchased seasoned loans and accounted for using the gross-up approach at acquisition. All non- PCD (purchased financial asset with credit deterioration) loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-PCD loans (excluding credit cards) are seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance.

In November 2025, the FASB issued ASU 2025-09 Derivatives and Hedging (Topic 815) — Hedge Accounting Improvements. The amendments in this Update are intended to more closely align hedge accounting with the economics of an entity’s risk management activities. The amendments included in five issues addressed in this Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions. The issues addressed in the ASU include:

(1) expanding the hedged risks permitted to be aggregated in a group of individual forecasted transactions in a cash flow hedge by changing the requirement to designate a group of individual forecasted transactions from having a shared risk exposure to having a similar risk exposure;

44

ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

(2) providing a model to facilitate the application of cash flow hedge accounting to forecasted interest payments on variable-rate debt instruments with contractual terms that permit the borrower to change the interest rate index and interest rate tenor (that is, reset frequency) upon which interest is accrued (commonly referred to as “choose-your-rate” debt instruments);

(3) expanding hedge accounting for forecasted purchases and sales of nonfinancial assets;

(4) updating the hedge accounting guidance to accommodate differences in the loan and swap markets that developed after the cessation of the London Interbank Offered Rate. Specifically, the amendments in this Update eliminate the requirement to apply the net written option test to a compound derivative comprising a swap and a written option designated as the hedging instrument in a cash flow hedge or a fair value hedge of interest rate risk; and

(5) eliminating the recognition and presentation mismatch related to a dual hedge strategy (that is, a hedge for which a foreign currency-denominated debt instrument is both designated as the hedging instrument in a net investment hedge and designated as the hedged item in a fair value hedge of interest rate risk).

For public business entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of this Update. Entities should apply the amendments in this Update on a prospective basis for all hedging relationships. An entity may elect to adopt the amendments in this Update for hedging relationships that exist as of the date of adoption. Upon adoption of the amendments in this Update, entities are permitted to modify certain critical terms of certain existing hedging relationships without de-designating the hedge. Management is currently evaluating the Update and does not expect adoption of the Update to have a material effect on the Company’s financial position or results of operations.

In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270) -- Narrow-Scope Improvements. The amendments in this Update clarify interim disclosure requirements and the applicability of Topic 270. The amendments in this Update result in a comprehensive list of interim disclosures that are required by GAAP. In developing the list of disclosures required by other Topics, the FASB Board focused on identifying the interim disclosures that are currently required under GAAP. The objective of the amendments is to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in this Update also include a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments in this Update are effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this Update can be applied either (1) prospectively or (2) retrospectively to any or all prior periods presented in the financial statements. Management is currently evaluating the Update.

45

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

With the first quarter of 2026 complete, the Company has seen the beginning of its new three-year strategic plan unfold. The plan is to increase loans and deposits and, in turn, earnings and market presence. The Company is also working to improve operational efficiencies and scale while continuing to provide an atmosphere of workplace excellence for its employees. It is the Company’s vision to remain community vested while helping people realize their best lives.

Fourth quarter 2025 included $180 thousand of additional loan fees related to interest rate swap transactions, while the first quarter of 2026 included no additional loan fees. This was a factor of net interest income decreasing in the first quarter of 2026 by $327 thousand as compared to the fourth quarter of 2025. Decreased interest expense on deposits was partially offset by increased interest expense from borrowed funds as compared to fourth quarter 2025. Positively, total interest expense decreased for the quarter ended March 31, 2026 as compared to fourth quarter December 31, 2025.

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.

The largest contributor to better profitability was the increase in the net interest margin from 3.03% to 3.42%, a 39-basis point increase and net interest spread increasing 41 basis points in comparing March 31, 2026 to March 31, 2025. The loan portfolio decreased 1.2% from year end 2025. Total deposits increased 2.9% over year end. Compared to fourth quarter of 2025, net interest margin decreased 4 basis points and net interest spread decreased 2 basis points. The asset yield improved from 5.19% for quarter ended March 31, 2025 to 5.38% for the same period in 2026, a 19 basis point increase in a declining interest rate environment. The cost of interest-bearing liabilities decreased by 22 basis points for the first quarter, 2025 at 2.76% and 2026 at 2.54%, respectively.

The provision for credit losses related to loans decreased by $509 thousand from March 31, 2025. Please refer to Note 4 for further analysis of both our loan portfolio and the associated allowance for credit loss.

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.

The first quarter of the year provides the opportunity to review the financials for a large portion of our agricultural portfolio. With tighter margins we do see a trend of tighter cash flows and weaker working capital positions for some of our borrowers. Commodity prices have improved since harvest, providing an opportunity to price stored grain along with 2026 anticipated production. The war in Iran has resulted in higher fuel and fertilizer costs. Land values have remained stable, indicating financially able buyers. Line of credit utilization remains high for our grain elevators, which was a result of heavy farming selling in the fourth quarter of 2025 and the first quarter of 2026. Agriculture equipment dealers continue to feel the brunt of tighter farm margins through lower equipment sales. Credit quality continues to be monitored and has remained sound.

The Retail Lending Division saw an increase to our application activity in the first quarter of 2026 for the home loan team. This growth was attributed to the lowering of secondary markets fixed rates for a small period of time. With the war in Iran, the rates trended back up thus slowing the momentum a bit. We also saw a higher line of credit utilization with our HELOC balances as well as additional new customer growth since mortgage rates are still higher than what most borrowers have on their current mortgages. With communities still having lower inventory, we have seen more interest in construction loans. With F&M participating in the Federal Home Loan Bank’s Welcome Home grant program, we saw an increase in preapproval applications in anticipation of receiving this grant. The program opens April 6, 2026 so our results will show in the 2nd quarter. The Bank also made the decision to discontinue the Indirect Lending Department as of March 2026 but directing that business to our direct consumer lending department.

46

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.

Noninterest expense was higher in first quarter 2026 by $1.0 million as compared to same quarter 2025 and $748 thousand higher than fourth quarter 2025. Compared to first quarter 2025, salaries and benefits were up a combined $364 thousand in 2026. Data processing and ATM expense increased by a combined $522 thousand with a lower use of flex credits utilized in 2026 as compared to 2025. The net amortization of servicing rights also increased $396 thousand over 2025 with $304 thousand attributed to the recognition of impairment on agricultural real estate loan servicing rights.

Overall, net income, which was $2.6 million higher than first quarter 2025, lays the groundwork for a more profitable 2026. Our continued attention on maximizing revenues while limiting expenses will help drive our financial results. The Company remains well-capitalized with sound liquidity levels and strong asset quality.

NATURE OF ACTIVITIES

Farmers & Merchants Bancorp, Inc. (the “Company”) is a financial holding company incorporated under the laws of Ohio in 1985. Our subsidiary is The Farmers & Merchants State Bank (the “Bank”), a local independent community bank that has been primarily serving Northwest Ohio, Northeast Indiana and Southeast Michigan since 1897. The Bank includes F&M Insurance Agency, LLC, a subsidiary offering insurance products, which was formed in November of 2023. We report our financial condition and net income on a consolidated basis and we 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 Bank operates thirty-eight full-service banking offices throughout Northwest Ohio, Northeast Indiana and Southeast Michigan along with a drive-up facility in Archbold. The Bank also operates three Loan Production Offices (LPOs), two in Ohio and one in Indiana.

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.

The Bank also provides checking account services, as well as savings and time deposit services such as certificates of deposits. In addition, Automated Teller Machines (ATMs) or Interactive Teller Machines (ITMs) are provided at most branch locations along with other independent locations in the market area. ITMs operate as an ATM with the addition of remote teller access to assist the user. The Bank has custodial services for Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs). The Bank provides on-line banking access for consumer and business customers. For consumers, this includes bill-pay, on-line statement opportunities and mobile banking. For business customers, it provides the option of electronic transaction origination such as wire and Automated Clearing House (ACH) file transmittal. In addition, the Bank offers remote deposit capture or electronic deposit processing. Mobile banking has been widely accepted and used by consumers. 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.

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

47

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.

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.

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. 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.

Consumer Loans:

• Maximum loan to value (LTV) for cars, SUVs, and trucks is 110%.
• Loans above 100% are generally the result of sales tax.
• Boats, campers, motorcycles, RV's and Motor Coaches range from 80%-90% based on age of vehicle.
• 1st or 2nd mortgages on 1-4 family homes maximum range from 80-85%.
• Raw land LTV maximum ranges from 65%-75% depending on whether or not the property has been improved.

Commercial/Agriculture:

Accounts Receivable:

• Up to 80% LTV less retainages and greater than 90 days.

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.

Equipment:

• New, not to exceed (NTE) 80% of invoice, used NTE 50% of listed book or 75% of appraised value.
• Restaurant equipment up to 35% of market value.
• Heavy trucks, titled trailers NTE 75% LTV and aircraft up to 75% of appraised value.

Real Estate:

• Maximum LTVs range from 70%-80% depending on type.
• Maximum LTV on non-traditional loan up to 85%.

FM Investment Services, the brokerage department of the Bank, opened for business in April 1999. Securities are offered through Raymond James Financial Services, Inc. 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.

In December of 2014, the Company became a financial holding company within the meaning of the Bank Holding Company Act of 1956 as amended (the “Act”), 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. 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 Bank formed an insurance agency, F&M Insurance Agency, LLC, in November 2023 to offer insurance products to our customers. The insurance agency is organized in Ohio and regulated by the State of Ohio, Division of Insurance.

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

48

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.

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.

RECENT REGULATORY DEVELOPMENTS

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.

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.

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.

Community Reinvestment Act (CRA) Updates. The 2023 CRA rule, jointly issued by the Federal Reserve, FDIC, and OCC, is subject to ongoing litigation and its implementation is currently paused. The agencies have proposed rescinding the 2023 framework and reverting to pre-October 2023 standards. The Bank continues to operate under the prior framework and monitors regulatory updates.

Basel III Endgame. The Basel Committee initiated the final phase of Basel III reforms in July 2025, increasing capital requirements, revising standardized approaches, and limiting internal model usage. While these rules primarily affect global banks, the Bank continues to assess potential indirect implications for capital adequacy and regulatory compliance.

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.

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.

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.

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. At times the application of these principles requires management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.

These assumptions, estimates and judgments are based on information available as of the date of the financial statements. As this information changes, the financial statements could reflect different assumptions, estimates and judgments. Certain policies

49

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. Examples of critical assumptions, estimates and judgments are when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not required to be recorded at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability must be recorded contingent upon a future event. These policies, along with the disclosures presented in the notes to the condensed consolidated financial statements and in the management's discussion and analysis of the financial condition and results of operations, provide information on how significant assets and liabilities are valued and how those values are determined for the financial statements. Based on the valuation techniques used and the sensitivity of financial statement amounts to assumptions, estimates, and judgments underlying those amounts, management has identified the Allowance for Credit Losses (ACL) as the accounting area that requires the most subjective or complex judgments, and as such could be the most subject to revision as new information becomes available.

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.

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.

Refer to Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 for further information related to loans and the ACL.

For more information regarding the actual composition and classification of loans involved in the establishment of the allowance for credit loss, please see Note 4 provided with the notes to consolidated financial statements.

50

MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company continues to focus on deposit growth in both its legacy and newer markets. Core deposits may provide opportunities for additional noninterest income for the Company through the opportunity to cross-sell additional services such as treasury management services. Noninterest bearing deposits increased $18.0 million from March 31, 2025 to March 31, 2026. Interest bearing deposits also increased by $91.3 million over the same time period. This was comprised of an increase in NOW accounts of $35.8 million, an increase in savings accounts of $56.7 million and a decrease in time deposits of $1.1 million.

Deposits have increased $78.9 million as of March 31, 2026 since December 31, 2025. Cash and cash equivalents also increased $75.8 million over the same time period. Although cash balances were used to decrease the net balance of FHLB borrowings and federal funds purchased, cash balances were still higher. Paydowns and payoffs of loans contributed to this increase as did proceeds from surrenders of bank owned life insurance and the increase in deposits.

In addition to cash and cash equivalent balances, the Bank has access to $213 million in unsecured Federal Funds lines for overnight funds from our correspondent banking relationships, of which includes a $50 million line of credit that was added in the fourth quarter of 2025. The Company also has a $15 million line of credit. The Bank has also established four market sources for brokered CDs. Lastly, the Bank’s secured borrowing capacity limits at the FHLB would have allowed draws based on current collateral pledging of $114.0 million; however, any amount borrowed over $9.9 million may require additional stock purchases. Pledged collateral included eligible 1-4 family, home equity, and specific commercial and multi-family real estate loans.

At March 31, 2026, the investment portfolio of the Bank had $273.8 million of pledged securities with $151.2 million available to use as collateral for future pledged borrowings. Currently, securities may be pledged to offset public deposits, our repurchase agreement portfolio or at the Federal Discount Window.

The Company continues to hold bi-weekly, what is termed “sub-ALCO”, meetings along with continuing the use of a liquidity dashboard and cashflow projection. The liquidity dashboard and cashflow projection are actively managed documents which continue to be enhanced to provide the most accurate forecast of liquidity positions for the next five months. The cashflow projection includes loan pipeline expectations and runoffs, and maturities of both sources and uses of funds. The Company has the tools to monitor liquidity and continues to manage the risks to ensure adequate liquidity is maintained.

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.

51

The chart below shows the breakdown by portfolio segment as of March 31, for the last three years, at amortized cost.

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.

52

The following is a contractual maturity schedule by portfolio segment at amortized cost excluding fair value adjustments related to acquisitions as of March 31, 2026.

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.

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.

53

With the exception of FHLB stocks, carried at cost, which is shown as other securities, all of the Company’s security portfolio is categorized as “available-for-sale” and as such is recorded at fair value.

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.

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.

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.

Basel III regulatory capital requirements include a capital conservation buffer of 2.5%. As of March 31, 2026, the Company and the Bank are both positioned well above the current requirement.

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.

The Bank continues to be well-capitalized at March 31, 2026 in accordance with Federal regulatory capital requirements as the capital ratios below show:

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Comparison of Results of Interest Earnings and Expenses for three month periods ended March 31, 2026 and 2025

Interest Income

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.

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.

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.

54

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.

Change in Interest Income Quarter to Date March 31, 2026 Compared to March 31, 2025

Interest Expense

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.

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.

55

Change in Interest Expense Quarter to Date March 31, 2026 Compared to March 31, 2025

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.

Net Interest Income

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.

56

Comparison of Noninterest Results of Operations for three month periods ended March 31, 2026 and 2025

Provision Expense

The Allowance for Credit Losses (ACL) has a direct impact on the provision expense. The increase in the ACL is funded through recoveries and provision expense.

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.

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.

The following table presents the activity within the ACL for each portfolio segment and shows the contribution provided by both recoveries and the provision, along with the reduction of the allowance caused by charge-offs. The time period covered is for the three months ended March 31, 2026, 2025, and 2024.

57

*Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual.

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.

58

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.

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.

The following table presents the balances for allowance for credit losses per portfolio segment in terms of dollars, as a percentage of ACL and as a percentage of loans by category at March 31, 2026 and March 31, 2025.

Noninterest Income

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.

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.

The loss on available for sale securities was $347 thousand for the quarter ended March 31, 2026. Management estimates that this loss is expected to be recouped over the next 30.55 months. By sacrificing this short term loss for overall long term gain, the security portfolio will move in a stronger direction, faster. Also, decreasing the number of holdings will create additional operating efficiencies.

59

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.

Noninterest Expense

For the three months ended March 31, 2026, noninterest expenses were $1.0 million or 5.5% higher than for the same period in 2025. Salaries and wages, including normal merit increases, restricted stock expense and incentive payouts, increased $389 thousand in total. Of the total, base wages increased $294 thousand, offsetting deferred salary loans costs increased $17 thousand from last year, restricted stock expense decreased $21 thousand and incentive expense increased $133 thousand compared to 2025. Benefits decreased from 2025 by $25 thousand due to decreased medical expense of $65 thousand and increased combined taxes and workmen's compensation of $62 thousand along with decreased pension expense of $17 thousand. Furniture and equipment increased in total $288 thousand, which was primarily due to an increase in maintenance contracts.

Consulting fees decreased $491 thousand over the same period in 2025 attributable to non-recurring fees related to assistance with negotiations for the data processing contract. Data processing expenses and ATM expense increased a combined $522 thousand. First quarter 2026 included a smaller amount of flex credits utilized as compared to first quarter 2025. General and administrative expense increased $207 thousand. The items on this line of significance include an increase in charitable contributions of $65 thousand, an increase of miscellaneous expenses of $130 thousand which included $126 thousand for the Modified Endowment Contract (MEC) penalty owed on the gain on cash surrender of bank owned life insurance policies, an increase in postage of $35 thousand and increased CDARS/ICS fees of $22 thousand. NSF check losses and fraud decreased $65 thousand from 2025.

Income Taxes

Income tax expense was $949 thousand higher for the three months ended March 31, 2026 compared to the same period in 2025 based mainly on pretax higher earnings of $3.6 million in addition to a taxable $1.3 million gain on cash surrender value of bank owned life insurance policies. Amortization of qualified affordable housing projects caused income tax expense to increase $112 thousand for both the three months ended March 31, 2026 and 2025, as presented in Note 8. Effective tax rates were 22.35% and 20.64% for 2026 and 2025, respectively. Excluding the additional $112 thousand of income tax expense for both periods, the effective tax rates would have been 21.44% and 19.36% for the three months ended March 31, 2026 and 2025, respectively.

Net Income

60

Overall, net income in the three months ended March 31, 2026 was up $2.6 million or 37.8% to $9.6 million as compared to last year's $7.0 million. The biggest contributor to the improvement was net interest income. Net interest income was up $3.5 million or 14.8% due to both increased interest income and decreased interest expense. Provision for credit losses for loans and unfunded commitments decreased $243 thousand compared to 2025. Noninterest income increased $838 thousand and noninterest expense increased $1.0 million as described above. The Company remains strong, stable, and well capitalized and has the capacity to continue to cover the increased costs of expansion. The Company is optimistic for continued improvement in profitability due to the opportunity for continued expansion in the net interest margin.

61

62

63

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates and equity prices. The primary market risk to which we are subject is interest rate risk. Much of our interest rate risk arises from the instruments, positions and transactions entered for purposes other than trading such as loans, available for sale securities, interest-bearing deposits, short-term borrowings and long-term borrowings. Interest rate risk occurs when interest-bearing assets and liabilities reprice at different times as market interest rates change. For example, if fixed rate assets are funded with variable rate debt, the spread between asset and liability rates will decline or turn negative if rates increase.

Interest rate risk is managed within an overall asset/liability framework. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net income to potential changes in interest rates. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is effectively managed. If our asset/liability management strategies are unsuccessful, our profitability may be adversely affected. The Company employs a sensitivity analysis utilizing interest rate shocks to help in this analysis.

At March 31, 2026, the shocks presented assume an immediate change of rate in the percentages and directions shown:

The Bank’s balance sheet is slightly liability-sensitive with static balances and static rates. The net interest margin represents the forecasted twelve-month margin. The Company also reviews shocks up to 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. Checking accounts are preferable for the lower cost of funds and the opportunity to garner noninterest revenue from services provided. Savings and money market accounts are beneficial due to the variability of the interest in both rate and immediate option to reprice. Many of the CD renewals in late 2025 went into shorter terms as we were managing 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 18 months. We have a modest opportunity to be aggressive with future Fed rate cuts. The Bank’s monthly cost of funds held steady at 2.58% from December 31, 2025, to March 31, 2026. 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. Rates are modified as index rates change. Directional changes shown above are within the Bank's risk tolerance. The effect of the rate shocks may be mitigated to the extent that not all lines of business are directly tied to an external index and actual balance sheet composition may differ from prediction.

64

ITEM 4 CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company's management including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no changes in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None

ITEM 1A RISK FACTORS

Except as indicated below, there have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Risks Related to Regulation of Payment Stablecoins and Digital Assets

Recent federal legislation, including the GENIUS Act enacted in mid-2025, established new regulatory requirements for payment stablecoins issued by banking organizations and their subsidiaries. Compliance with these requirements involves maintaining adequate asset reserves, extensive reporting obligations, independent audits, and increased supervisory oversight. Our potential involvement in issuing or supporting payment stablecoins could expose us to regulatory compliance risks, increased operational costs, and evolving legal uncertainties. Additionally, rapid changes in digital asset regulation or adverse regulatory interpretations could adversely affect our business strategies and prospects in this emerging market, which could materially impact our financial condition and results of operations.

65

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Treasury stock repurchased the quarter ended March 31, 2026.

(1)

From time to time, the Company purchases shares in the market pursuant to a stock repurchase program publicly announced on January 27, 2026. On that date, the Board of Directors authorized the repurchase of 650,000 common shares between January 27, 2026 and December 31, 2026.

(2)

Shares which are returned to account for tax payable on vested stock awards are outside of the Company’s stock repurchase program.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 OTHER INFORMATION

During the most recently completed fiscal quarter, no director or officer of the Company adopted or terminated:

(1)

Any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of SEC Rule 10b5–1(c); or

(2)

Any “non–Rule 10b5–1 trading arrangement” as defined in paragraph (c) of Item 408 of SEC Regulation S-K.

66

ITEM 6 EXHIBITS

| | |

3.1(a) Amended Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on October 25, 2017). 3.1(b) Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1(b) to Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 4, 2025). 3.2 Amended and Restated Code of Regulations of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q filed with the Commission on July 26, 2017). 4.1 Description of Registrant’s Common Stock (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K filed with the Commission on February 26, 2020). 31.1 Rule 13a-14(a) Certification - CEO 31.2 Rule 13a-14(a) Certification - CFO 32.1 Section 1350 Certification - CEO 32.2 Section 1350 Certification - CFO 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. 101.SCH Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. (104) The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, has been formatted in Inline XBRL.

67

68