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 will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

In 2021, the Company has incurred additional third-party acquisition-related costs of $1.7 million. These expenses are 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.

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

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 incorporates a valuation amount of $3.9 million which is being 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.

The Company acquired loans in the acquisition that had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date included information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which included estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the

acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The carrying amount of those loans is included in loans, net on the balance sheet at December 31, 2021. The amounts of loans at October 1, 2021 and December 31, 2021 are as follows:

	2021
	(In Thousands)
Balance - October 1, 2021
Consumer Real Estate	$	608
Agricultural Real Estate		118
Commercial Real Estate		234
Consumer		5
Carrying amount, net of fair value adjustment of $237	$	728

Balance - December 31, 2021
Consumer Real Estate	$	581
Agricultural Real Estate		114
Commercial Real Estate		5
Consumer		-
Carrying amount, net of fair value adjustment of $190	$	510

Loans acquired during 2021 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	(In Thousands)
Contractually required payments receivable at acquisition
Consumer Real Estate	$	962
Agricultural Real Estate		146
Commercial Real Estate		293
Consumer		6
Total required payments receivable	$	1,407

Cash flows expected to be collected at acquisition	$	728

Basis in acquired loans at acquisition	$	965

During the fourth quarter 2021, two commercial real estate and one consumer purchased credit impaired loans were paid off in full. The associated discount originally recognized at acquisition of $47.4 thousand was included in the loan interest income in the Company’s consolidated statement of income for the year ended December 31, 2021. The balance of the fair value adjustment for loans acquired and accounted for under this guidance (ASC 310-30) was $189.8 thousand at December 31, 2021 and $237.2 thousand at October 1, 2021.

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

	2021
	(In Thousands)
Beginning Balance	$	-
Additions		5,592
Accretion		(330	)
Reclassification from nonaccretable difference		-
Disposals		-
Ending Balance	$	5,262

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 will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

In 2020, the Company incurred $42.5 thousand of third-party acquisition-related costs. The expenses recognized in 2020 related to other general and administration expenses of $30.0 thousand and consulting fees of $12.5 thousand. These acquisition expenses were included in the Company’s 2020 consolidated statement of income.

In 2021, the Company has incurred additional third-party acquisition-related costs of $2.2 million. These expenses are 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.

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

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 is being accreted over 1.4 years.

The carrying amount of those loans is included in loans, net on the balance sheet at December 31, 2021. The amounts of loans at April 30, 2021 and December 31, 2021 are as follows:

	2021
	(In Thousands)
Balance - April 30, 2021
Consumer Real Estate	$	24
Agricultural Real Estate		981
Commercial Real Estate		315
Commercial and Industrial		314
Carrying amount, net of fair value adjustment of $325	$	1,309

Balance - December 31, 2021
Consumer Real Estate	$	22
Agricultural Real Estate		-
Commercial Real Estate		222
Commercial and Industrial		285
Carrying amount, net of fair value adjustment of $321	$	208

Loans acquired during 2021 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	(In Thousands)
Contractually required payments receivable at acquisition
Consumer Real Estate	$	28
Agricultural Real Estate		1,142
Commercial Real Estate		527
Commercial and Industrial		360
Total required payments receivable	$	2,057

Cash flows expected to be collected at acquisition	$	1,309

Basis in acquired loans at acquisition	$	1,634

During the third quarter 2021, two agricultural real purchased credit impaired loans were paid off in full. The associated discount originally recognized at acquisition of $4.2 thousand was included in the loan interest income in the Company’s consolidated statement of income for the year ended December 31, 2021. The balance of the fair value adjustment for loans acquired and accounted for under this guidance (ASC 310-30) was $320.6 thousand at December 31, 2021 and $324.8 thousand at April 30, 2021.

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

	2021
	(In Thousands)
Beginning Balance	$	-
Additions		762
Accretion		(117	)
Reclassification from nonaccretable difference		-
Disposals		-
Ending Balance	$	645

On January 1, 2019, the Company acquired Limberlost Bancshares, Inc. (“Limberlost”), the bank holding company for Bank of Geneva, a community bank based in Geneva, Indiana. Bank of Geneva operated six full-service offices in the northeast Indiana communities of Geneva, Berne, Decatur, Monroe, Portland and Monroeville. Shareholders of Limberlost received 1,830 shares of FMAO common stock and $8,465.00 in cash for each share. Limberlost had 1,000 shares outstanding on January 1, 2019. The share price of Farmers & Merchants Bancorp, Inc. (FMAO) stock on January 1, 2019 was $38.49. Total consideration for the acquisition was approximately $78.9 million consisting of $8.5 million in cash and $70.4 million in stock. As a result of the acquisition, the Company has had an opportunity to increase its deposit base and reduce transaction costs. The Company has also reduced costs through economies of scale.

In 2018, the Company incurred $742.1 thousand of third-party acquisition-related costs. The largest portion of the expenses recognized in 2018 related to consulting fees of $340 thousand, other general and administration expenses of $331.5 thousand and data processing expenses of $58.6 thousand. These three categories of expense accounted for 98.4% of the total acquisition expenses impacting the 2018 financial statements of the Company.

In 2019, the Company has incurred additional third-party acquisition-related costs of $1.28 million. These expenses are comprised of data processing of $867.6 thousand, employee benefits of $163.0 thousand, ATM expense of $31.4 thousand, consulting fees of $19.3 thousand and other general and administrative expense of $199.8 thousand in the Company’s consolidated statement of income for the year ended December 31, 2019.

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 $78.9 million, $3.9 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 $43.3 million resulting from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Bank of Geneva. Of that total amount, none of the purchase price is deductible for tax purposes. The following table summarizes the consideration paid for Bank of Geneva and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

Fair Value of Consideration Transferred
	(In Thousands)
Cash	$	8,465
Common Shares (1,830,000 shares)		70,437
Total	$	78,902

Recognized amounts of identifiable assets acquired and liabilities assumed

Assets
Cash and cash equivalents	$	6,376
Securities - available-for-sale		17,494
Other securities, at cost		2,347
Loans, net		257,183
Premises and equipment		2,538
Goodwill		43,266
Other assets		7,176
Total Assets Purchased	$	336,380

Liabilities
Deposits
Noninterest bearing	$	37,822
Interest bearing		168,312
Total deposits		206,134
Federal Home Loan Bank (FHLB) advances		48,196
Accrued expenses and other liabilities		3,148
Total Liabilities Assumed	$	257,478

The fair value of the assets acquired included loans with a fair value of $257.2 million. The gross principal and contractual interest due under the contracts were $359.2 million, of which $4.7 million was expected to be uncollectible. The loans had a weighted average life of 70 months.

The fair value of building and land included in premises and equipment was written down by $1.2 million and is being amortized based on the remaining life of each building. The combined average remaining life was 16.75 years.

The fair value for certificates of deposit incorporated a valuation amount of $0.5 million which was amortized over 1.5 years. The fair value of Federal Home Loan Bank (FHLB) advances included a valuation amount of $1.3 million which is being amortized over 2.3 years.

The carrying amount of those loans is included in loans, net on the balance sheet at December 31, 2020. The amounts of loans at January 1, 2019, December 31, 2019 and December 31, 2020 are as follows:

	2019
	(In Thousands)
Balance - January 1, 2019
Commercial	$	4,094
Consumer RE		231
Consumer		71
Carrying amount, net of fair value adjustment of $2,118	$	2,278

Balance - December 31, 2019
Commercial	$	106
Consumer RE		-
Consumer		-
Carrying amount, net of fair value adjustment of $62	$	44

	2020
	(In Thousands)
Balance - December 31, 2020
Commercial	$	-
Consumer RE		-
Consumer		-
Carrying amount, net of fair value adjustment of $0	$	-

Loans acquired during 2019 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	(In Thousands)
Contractually required payments receivable at acquisition
Commercial	$	4,215
Consumer RE		261
Consumer		94
Total required payments receivable	$	4,570

Cash flows expected to be collected at acquisition	$	2,788

Basis in acquired loans at acquisition	$	4,396

During the second quarter 2019, two commercial purchased credit-impaired loans were paid off in full after the customer was able to secure financing at another financial institution. The associated discount originally recognized at acquisition of $1.985 million was included in loan interest income in the Company’s consolidated statement of income for the year ended December 31, 2019. The balance of the fair value adjustment for loans acquired and accounted for under this guidance (ASC 310-30) was $0 at December 31, 2020, $62 thousand at December 31, 2019, and $2.118 million on January 1, 2019.

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

	2021			2020
	(In Thousands)			(In Thousands)
Beginning Balance	$	1,653		$	2,021
Additions		17			3
Accretion		(431	)		(427	)
Reclassification from nonaccretable difference		-			62
Disposals		(41	)		(6	)
Ending Balance	$	1,198		$	1,653

The results of operations of Bank of Geneva, Ossian State Bank and Perpetual Federal Savings Bank have been included in the Company’s consolidated financial statements since the acquisition dates of January 1, 2019, April 30, 2021 and October 1, 2021, respectively. The following schedule includes pro-forma results for the years ended December 31, 2021, 2020 and 2019 as if all three acquisitions had occurred as of the beginning of the comparable prior reporting periods.

	2021		2020		2019
Summary of Operations
Net Interest Income - Before Provision for Loan Losses	$	78,064	$	74,378	$	70,313
Provision for Loan Losses		3,445		6,893		1,400
Net Interest Income After Provision for Loan Losses		74,619		67,485		68,913
Noninterest Income		18,548		17,282		12,350
Noninterest Expense		54,540		51,890		48,686
Income Before Income Taxes		38,627		32,877		32,577
Income Taxes		7,712		6,475		6,696
Net Income	$	30,915	$	26,402	$	25,881
Basic and Diluted Earnings Per Share	$	2.65	$	2.28	$	2.24

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.

As mentioned previously, 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 and the acquisition of Perpetual Federal Savings Bank resulted in the recognition of $668 thousand in core deposits 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 consolidated balance sheets.

The amortization expense for the years ended December 31, 2021, 2020 and 2019 was $677, $720, and $727 thousand, respectively. Included in the 2020 and 2019 amortization expense was $160 and $167 thousand, respectively, related to the purchase of the Custar office on December 13, 2013.

	Geneva		Ossian		Perpetual		Total
	(In thousands)
2022	$	560	$	140	$	95	$	795
2023		560		140		95		795
2024		560		140		95		795
2025		560		140		95		795
2026		-		140		95		235
Thereafter		-		187		169		356
Total	$	2,240	$	887	$	644	$	3,771

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.

ACFR was founded in 1994 by R. Lee Flueckiger and provides clients and their families with financial confidence through personalized investment planning and services. 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 following table summarizes the consideration paid for ACFR and the amounts of the assets acquired:

Fair Value of Consideration Transferred
	(In Thousands)
Common Shares (40,049 shares)	$	825
Total	$	825

Recognized amounts of identifiable assets acquired and liabilities assumed

Assets
Premises and equipment	$	25
Customer list intangible		800
Total Assets Purchased	$	825

The customer list intangible amortization expense for the years ended December 31, 2021 and 2020 was $123 and $16 thousand, respectively. Future amortization expense of customer list intangible is as follows:

	(In thousands)
2022	$	123
2023		123
2024		123
2025		123
2026		123
Thereafter		47
Total	$	662