On October 1, 2022, the Company acquired Peoples-Sidney Financial Corporation (PPSF), the bank holding company for Peoples Federal Savings and Loan Bank, a community bank with three full-service offices in Sidney, Anna and Jackson Center, Ohio in addition to a separate drive-thru location in Sidney, Ohio. PPSF shareholders had the opportunity to elect to receive either 0.6597 shares of FMAO stock or $24.00 per share in cash for each PPSF share owned, subject to a requirement under the Merger Agreement that the minimum number of PPSF shares exchanged for Farmers & Merchants Bancorp, Inc. (FMAO) shares in the merger was no less than 758,566. Fractional shares of FMAO common stock were not issued in respect of fractional interests arising from the merger but were paid in cash pursuant to the merger agreement. PPSF had 1,167,025 shares outstanding on October 1, 2022. The share price of FMAO stock on October 1, 2022 was $26.87. Total consideration for the acquisition was approximately $23.2 million consisting of which $9.8 million was in cash and $13.4 million in stock. As a result of the acquisition, the Company increased its deposit base in Sidney and the greater Shelby County and reduced transaction costs. The Company has reduced costs through economies of scale.

In 2022, the Company incurred additional third-party acquisition-related costs of $2.4 million. These expenses were comprised primarily of data processing costs of $1.1 million, consulting fees of $542.9 thousand, employee benefits of $126.5 thousand and other general and administrative expense of $501.0 thousand in the Company’s consolidated statement of income for the year ended December 31, 2022.

In 2023, the Company has incurred additional third-party acquisition-related costs of $200 thousand. These expenses are comprised of employee benefits of $137.2 thousand, data processing costs of $12.9 thousand, consulting fees of $5.2 thousand and other general and administrative expense of $44.7 thousand in the Company’s consolidated statement of income for the year ended December 31, 2023.

Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $23.2 million, $6.0 million has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $5.9 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Peoples Federal Savings and Loan Bank. Of that total amount, none of the purchase price is deductible for tax purposes. The following table summarizes the consideration paid for Peoples Federal Savings and Loan Bank and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.


Fair Value of Consideration Transferred
	(In Thousands)
Cash	$	9,806
Common Shares (500,426 shares)		13,446
Treasury stock repurchased (125 shares)		(3	)
Total	$	23,249

Recognized amounts of identifiable assets acquired and liabilities assumed

Assets
Cash and cash equivalents	$	18,881
Other securities, at cost		1,271
Loans, net		101,755
Premises and equipment		1,906
Goodwill		5,924
Other assets		12,081
Total Assets Purchased	$	141,818

Liabilities
Deposits
Noninterest bearing	$	7,139
Interest bearing		104,719
Total deposits		111,858
Federal Home Loan Bank (FHLB) advances		896
Accrued expenses and other liabilities		5,815
Total Liabilities Assumed	$	118,569

The fair value of the assets acquired included loans with a fair value of $101.8 million and a weighted average life of 44.4 months. The gross principal and contractual interest due under the contracts was $116.1 million of which none were expected to be uncollectible.

The fair value of building and land included in premises and equipment was written up $581 thousand with $597 thousand attributable to the buildings and is being amortized over the remaining life of each building. The combined average remaining life was 12.8 years.

The fair value for certificates of deposit incorporated a valuation amount of $662 thousand which was amortized over 1.1 years. The fair value of Federal Home Loan Bank (FHLB) advances included a valuation amount of $69 thousand which is being amortized over 5.2 years.

Changes in accretable yield, or income expected to be collected, are as follows:


	2023			2022
	(In Thousands)			(In Thousands)
Beginning Balance	$	798		$	-
Additions		6			856
Accretion		(232	)		(58	)
Reclassification from nonaccretable difference		-			-
Disposals		(6	)		-
Ending Balance	$	566		$	798

On October 1, 2021, the Company acquired Perpetual Federal Savings Bank, (PFSB), a community bank with one full-service office in Urbana, Ohio. Shareholders of PFSB elected to receive either 1.7766 shares of FMAO stock or $41.20 per share in cash for each PFSB share owned, subject to adjustment based upon 1,833,999 shares of FMAO to

be issued in the merger. PFSB had 2,470,032 shares outstanding on October 1, 2021. The share price of Farmers & Merchants Bancorp, Inc. (FMAO) stock on October 1, 2021 was $22.40. Total consideration for the acquisition was approximately $100.3 million consisting of $59.2 million in cash and $41.1 million in stock. As a result of the acquisition, the Company increased its deposit base and reduced transaction costs. The Company also reduced costs through economies of scale.

In 2021, the Company incurred additional third-party acquisition-related costs of $1.7 million. These expenses were comprised of employee benefits of $131.5 thousand, data processing costs of $444.9 thousand, consulting fees of $636.8 thousand and other general and administrative expense of $488.3 thousand in the Company’s consolidated statement of income for the year ended December 31, 2021.

In 2022, the Company incurred additional third-party acquisition-related costs of $148.5 thousand. These expenses were comprised of employee benefits of $90.8 thousand and other general and administrative expense of $57.7 thousand in the Company’s consolidated statement of income for the year ended December 31, 2022.

Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $100.3 million, $668 thousand has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $25.2 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Perpetual Federal Savings Bank. Of that total amount, none of the purchase price was deductible for tax purposes. The following table summarizes the consideration paid for Perpetual Federal Savings Bank and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.


Fair Value of Consideration Transferred
	(In Thousands)
Cash	$	59,234
Common Shares (1,833,845 shares)		41,078
Total	$	100,312

Recognized amounts of identifiable assets acquired and liabilities assumed

Assets
Cash and cash equivalents	$	44,975
Federal funds sold		1,672
Interest-bearing time deposits		6,250
Other securities, at cost		2,794
Loans, net		334,661
Premises and equipment		615
Goodwill		25,220
Other assets		3,975
Total Assets Purchased	$	420,162

Liabilities
Deposits
Noninterest bearing	$	2,018
Interest bearing		309,090
Total deposits		311,108
Federal Home Loan Bank (FHLB) advances		6,218
Accrued expenses and other liabilities		2,524
Total Liabilities Assumed	$	319,850

The fair value of the assets acquired included loans with a fair value of $334.7 million and a weighted average life of 52 months. The gross principal and contractual interest due under the contracts was $403.3 million, of which $5.6 million was expected to be uncollectible.

The fair value of building and land included in premises and equipment was written down by $4 thousand with $297 thousand attributable to the buildings and is being amortized over the useful life of 16.2 years.

The fair value for certificates of deposit incorporated a valuation amount of $3.9 million which was accreted over 1.6 years. The fair value of Federal Home Loan Bank (FHLB) advances included a valuation amount of $218 thousand which is being accreted over 2.6 years.

Changes in accretable yield, or income expected to be collected, are as follows:


	2023			2022
	(In Thousands)			(In Thousands)
Beginning Balance	$	4,236		$	5,262
Additions		39			294
Accretion		(1,480	)		(1,318	)
Reclassification from nonaccretable difference		-			-
Disposals		-			(2	)
Ending Balance	$	2,795		$	4,236

On April 30, 2021, the Company acquired Ossian Financial Services, Inc., (OSFI), the bank holding company for Ossian State Bank, a community bank based in Ossian, Indiana. Ossian State Bank operated two full-service offices in the northeast Indiana communities of Ossian and Bluffton. Shareholders of OSFI received $67.71 in cash for each share. OSFI had 295,388 shares outstanding on April 30, 2021. Total consideration for the acquisition was

approximately $20.0 million in cash. As a result of the acquisition, the Company has increased its deposit base and reduced transaction costs. The Company has also reduced costs through economies of scale.

In 2021, the Company incurred additional third-party acquisition-related costs of $2.2 million. These expenses were comprised of employee benefits of $694.1 thousand, data processing costs of $938.9 thousand, consulting fees of $255.2 thousand, ATM expense of $13.8 thousand and other general and administrative expense of $255.0 thousand in the Company’s consolidated statement of income for the year ended December 31, 2021.

In 2022, the Company incurred additional third-party acquisition-related costs of $31.6 thousand. These expenses were included in other general and administrative expense in the Company’s consolidated statement of income for the year ended December 31, 2022.

Under the acquisition method of accounting, the total purchase was allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $20.0 million, $980.2 thousand has been allocated to core deposit intangible included in other assets and is being amortized over seven years on a straight line basis. Goodwill of $7.9 million, which resulted from the acquisition, consists largely of the synergies and economies of scale expected from combining the operations of the Company and Ossian State Bank and is deductible for tax purposes over 15 years. The following table summarizes the consideration paid for Ossian State Bank and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.


Fair Value of Consideration Transferred
	(In Thousands)
Cash	$	20,001
Total	$	20,001

Recognized amounts of identifiable assets acquired and liabilities assumed

Assets
Cash and cash equivalents	$	20,229
Interest-bearing time deposits		20,226
Securities - available-for-sale		30,243
Other securities, at cost		281
Loans, net		52,403
Premises and equipment		494
Goodwill		7,874
Other assets		5,308
Total Assets Purchased	$	137,058

Liabilities
Deposits
Noninterest bearing	$	34,509
Interest bearing		81,535
Total deposits		116,044
Accrued expenses and other liabilities		1,013
Total Liabilities Assumed	$	117,057

The fair value of the assets acquired included loans with a fair value of $52.4 million and a weighted average life of 52 months. The gross principal and contractual interest due under the contracts was $63.7 million, of which $1.1 million was expected to be uncollectible.

The fair value of building and land included in premises and equipment was written down by $596 thousand with $244 thousand attributable to the buildings and is being accreted over the useful life of 39 years.

The fair value for certificates of deposit incorporates a valuation amount of $59 thousand which was accreted over 1.4 years.

Changes in accretable yield, or income expected to be collected, are as follows:


	2023			2022
	(In Thousands)			(In Thousands)
Beginning Balance	$	470		$	645
Additions		-			1
Accretion		(176	)		(176	)
Reclassification from nonaccretable difference		-			-
Disposals		-			-
Ending Balance	$	294		$	470

Changes in accretable yield, or income expected to be collected, for the acquisition of Bank of Geneva completed in 2019, are as follows:


	2023			2022
	(In Thousands)			(In Thousands)
Beginning Balance	$	785		$	1,198
Additions		11			13
Accretion		(433	)		(426	)
Reclassification from nonaccretable difference		-			-
Disposals		-			-
Ending Balance	$	363		$	785

The results of operations of Ossian State Bank, Perpetual Federal Savings Bank and Peoples Federal Savings and Loan Bank have been included in the Company’s consolidated financial statements since the acquisition dates of April 30, 2021, October 1, 2021 and October 1, 2022, respectively. The following schedule includes pro-forma results for the years ended December 31, 2023, 2022 and 2021 as if all three acquisitions had occurred as of the beginning of the comparable prior reporting periods.


	2023		2022		2021
Summary of Operations
Net Interest Income - Before Provision for Credit Losses and Unfunded*	$	81,397	$	90,754	$	84,749
Provision for Credit Losses and Unfunded*		1,682		4,513		3,445
Net Interest Income After Provision for Credit Losses and Unfunded*		79,715		86,241		81,304
Noninterest Income		16,040		14,100		18,931
Noninterest Expense		67,193		58,105		58,300
Income Before Income Taxes		28,562		42,236		41,935
Income Taxes		5,609		8,141		8,397
Net Income	$	22,953	$	34,095	$	33,538
Basic and Diluted Earnings Per Share	$	1.68	$	2.51	$	2.48

*ASU 2016-13 adopted during the first quarter of 2023; therefore, 2022 and 2021 provision amounts reflect the incurred loss method.

The pro-forma information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the branches acquired and the related income tax effects.

The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

The acquisition of Bank of Geneva resulted in the recognition of $3.9 million in core deposit intangible assets, the acquisition of Ossian State Bank resulted in the recognition of $980.2 thousand in core deposits assets, the acquisition of Perpetual Federal Savings Bank resulted in the recognition of $668 thousand in core deposits and the acquisition of Peoples Federal Savings and Loan resulted in the recognition of $6.0 million in core deposits which are all being amortized over the remaining economic useful life of 7 years on a straight line basis. Core deposit intangible is included in other assets on the Company's consolidated balance sheets.

The amortization expense for the years ended December 31, 2023, 2022 and 2021 was $1.7 million, $1.0 million and $677 thousand, respectively.

Future amortization expense of core deposit intangible assets is as follows:


	Geneva		Ossian		Perpetual		Peoples		Total
	(In thousands)
2024	$	560	$	140	$	95	$	861	$	1,656
2025		560		140		95		861		1,656
2026		-		140		95		861		1,096
2027		-		140		95		861		1,096
2028		-		47		73		861		981
Thereafter		-		-		-		646		646
Total	$	1,120	$	607	$	453	$	4,951	$	7,131

On November 16, 2020, FM Investment Services, a division of the Bank, purchased the assets and clients of Adams County Financial Resources (ACFR), a full-service registered investment advisory firm located in Geneva, Indiana. As of November 30, 2020, ACFR had approximately $83 million of assets under management and over 450 clients.

Total consideration for the purchase was $825 thousand which consisted of 40,049 shares of stock. Under the acquisition method of accounting, the total purchase is allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $825 thousand, $800 thousand has been allocated to customer list intangible, included in other assets, to be amortized over 6.5 years on a straight line basis.

The customer list intangible amortization expense for the years ended December 31, 2023, 2022 and 2021 was $123 thousand for each of the three years presented. Future amortization expense of customer list intangible is as follows:


	(In thousands)
2024	$	123
2025		123
2026		123
2027		48
2028		-
Thereafter		-
Total	$	417