Farmers & Merchants Bancorp(FMAO) - 2024 Q4 - Annual Report

Market Position and Operations - The Bank ranked 3rd in its primary market with a 9.78% market share as of June 30, 2024[21] - The Bank operates five Loan Production Offices (LPOs) across Ohio, Indiana, and Michigan, with recent increases in loan activity in commercial and industrial sectors[13] - The Bank's primary market includes communities in Ohio and Indiana, competing with approximately five other depository institutions[21] Lending Practices and Policies - The Bank's loan-to-value (LTV) requirements for various types of loans include a maximum of 80% for livestock and grain, and 65%-75% for raw land depending on improvements[19] - The Bank does not fund sub-prime loans, focusing instead on creditworthy borrowers[16] - The Bank has established underwriting policies to ensure safe lending practices in accordance with regulatory guidance[15] - The Bank's Loan Policy was revised to comply with new General QM Final Rule effective October 2022, which amended the definition of Qualified Mortgages[56] Capital and Compliance - The Company is required to maintain minimum capital levels as per Federal Reserve Board guidelines, with specific capital positions summarized for December 31, 2024, and 2023[37] - As of December 31, 2024, the Bank was classified as well capitalized under the prompt corrective action guidelines[39] - The Company must ensure compliance with extensive new disclosure and reporting requirements resulting from the Dodd-Frank Act and other regulations[47] - The Company is subject to restrictions on dividend payments based on the retained earnings of its banking subsidiary, requiring regulatory approval for excess amounts[40] Regulatory Environment - The Dodd-Frank Act permanently raised the standard maximum deposit insurance coverage amount to $250,000 per depositor, per insured depository institution[44] - The Bank's deposits are insured up to regulatory limits set by the FDIC, with the Deposit Insurance Fund primarily funded through quarterly assessments[41] - The Dodd-Frank Act provisions expanded reportable data points for the Home Mortgage Disclosure Act to 52 fields, enhancing data accuracy and integrity[57] - The USA PATRIOT Act imposes significant compliance obligations on financial institutions to combat money laundering and terrorist financing[50] Consumer Protection and Data Reporting - The Consumer Financial Protection Bureau's final rules require the collection and reporting of demographic data on small business credit applications starting April 1, 2025[61] - A federal judge granted an injunction on July 31, 2023, preventing the CFPB from enforcing Section 1071 rules until the U.S. Supreme Court rules on its funding[62] - The Supreme Court ruled on May 16, 2024, that the CFPB's funding mechanism does not violate the U.S. Constitution, leading to an interim final rule issued on June 25, 2024, which extended compliance dates for data collection by 290 days[62] - The final rule with amendments to the Community Reinvestment Act (CRA) was released on October 24, 2023, with certain amendments effective from April 1, 2024, through January 1, 2031[63] Financial Performance and Strategy - The Bank's net interest margin was forecasted at 3.20% with a potential decrease of 4.35% if interest rates rise by 2.00%[299] - The Bank's monthly cost of funds decreased from 3.16% in September to 2.89% in December 2024[300] - The Bank's balance sheet is slightly asset-sensitive after experiencing 100 basis points of Fed rate cuts from September through December 2024[299] - The Company aims to gather more core deposits, such as checking and savings accounts, to lower the cost of funds and increase noninterest revenue[299] - Interest rate risk is primarily managed within an asset/liability framework to ensure that net interest spreads and net income are not excessively affected by rate changes[298] - The Company continues to review and adjust assumptions regarding decay rates, deposit betas, and loan prepayment speeds in response to changing rates[300] - The Company must maintain improved pricing discipline for new loans and deposits to enhance overall profitability[301] Product and Service Development - The Bank continues to upgrade its digital products and services to meet changing customer preferences[14] - The Bank formed F&M Insurance Agency, LLC in November 2023 to offer insurance products to customers[19] - The Bank participates in Freddie Mac and Farm Service Agency programs to offer longer-term fixed-rate mortgages[15]