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1 SECURTIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 OR Transition Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the transition period from to -------- -------- Commision File Number 0-14492 ----------------------------- FARMERS & MERCHANTS BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) OHIO 34-1469491 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 307-11 North Defiance Street, Archbold, Ohio 43502 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (419) 446-2501 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares of each of the issuers classes of common stock, as of the latest practicable date: Common Stock, No Par Value 1,300,000 ------------------------------------ ------------------------------------- Class Outstanding as of May 1, 1998
2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q FARMERS & MERCHANTS BANCORP, INC. INDEX Form 10-Q Items Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- March 31, 1998, December 31, 1997 and March 31, 1997 1 Condensed Consolidated Statements of Net Earnings- Three Months Ended March 31, 1998 and March 31, 1997 2 Condensed Consolidated Statements of Cash Flows- Three Months Ended March 31, 1998 and March 31, 1997 3 Notes to Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on form 8K 6 Signatures 7
3 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) March 31, 1998 December 31, 1997 March 31, 1997 ASSETS: Cash and due from banks $ 14,502 $ 16,213 $ 13,956 Interest bearing deposits with banks 100 100 145 Federal funds sold 2,495 6,485 1,320 Investment Securities: U.S. Treasury 22,541 22,372 24,558 U.S. Government 30,103 31,313 33,459 State & political obligations 26,241 25,618 23,613 All others 14,749 20,584 21,555 Loans and leases 407,606 390,806 370,312 Bank premises and equipment-net 7,772 7,665 7,460 Accrued interest and other assets 7,314 7,117 6,878 TOTAL ASSETS $533,423 $528,273 $503,256 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 40,400 $ 51,163 $ 37,774 Time and savings 424,243 410,135 405,740 Federal funds purchased and securities sold under agreement to repurchase 2,566 2,598 2,860 Other borrowed money 11,108 11,292 8,826 Accrued interest and other liabilities 4,561 4,241 3,740 Total Liabilities 482,878 479,429 458,940 SHAREHOLDERS' EQUITY: Common stock, no par value - authorized 1,500,000 shares; issued 1,300,000 shares 12,677 12,677 12,677 Undivided profits 36,897 35,164 31,427 Accumulated other comprehensive income 971 1,003 212 Total Shareholders' Equity 50,545 48,844 44,316 LIABILITIES AND SHAREHOLDERS' EQUITY $533,423 $528,273 $503,256 See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 1997 Balance Sheet has been derived from the audited financial statements of that date. 1
4 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) INTEREST INCOME: Loans and leases $ 8,909 $ 8,400 Investment Securities: U.S. Treasury securities 340 388 Securities of U.S. Government agencies 482 541 Obligations of states and political subdivisions 338 301 Other 373 388 Federal funds 59 68 Deposits in banks 1 0 Total Interest Income 10,502 10,086 INTEREST EXPENSE: Deposits 5,218 5,025 Borrowed funds 219 376 Total Interest Expense 5,437 5,401 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 5,065 4,685 PROVISION FOR LOAN LOSSES 139 213 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,926 4,472 OTHER INCOME: Service charges 297 295 Other 734 465 Net securities gains (losses) 0 (7) 1,031 753 OTHER EXPENSES: Salaries and wages 1,274 1,239 Pension and other employee benefits 297 254 Occupancy expense (net) 121 311 Other operating expenses 1,269 966 2,961 2,770 INCOME BEFORE FEDERAL INCOME TAX 2,996 2,455 FEDERAL INCOME TAXES 875 723 NET INCOME 2,121 1,732 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities (32) (479) COMPREHENSIVE INCOME $ 2,089 $ 1,253 NET INCOME PER SHARE (Based upon weighted average nmber of shares outstanding of 1,300,000 $ 1.63 $ 1.33 DIVIDENDS DECLARED $ 0.30 $ 0.25 See Notes to Condensed Consolidated Unaudited Financial Statements.
5 2 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,121 $ 1,735 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 171 163 Premium amortization 116 120 Discount amortization (35) (47) Provision for loan losses 139 213 Provision for deferred income taxes (8) 5 (Gain) loss on sale of fixed assets 8 - (Gain) loss on sale of investment securities - 7 Changes in Operating Assets and Liabilities: Accrued interest receivable and other assets (189) 312 Accrued interest payable and other liabilities 320 5 Net Cash Provided by Operating Activities 2,643 2,513 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (286) (47) Proceeds from sale of fixed assets - - Proceeds from maturities of investment securities: 41,558 35,488 Proceeds from sale of investment securities: - 1,979 Purchase of investment securities- (35,155) (35,773) Net increase in loans and leases (16,939) (5,252) Net Cash Used by Investing Activities (10,822) (3,605) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 3,344 5,137 Net change in short-term borrowings (32) (3,903) Increase in long-term borrowings - - Payments on long-term borrowings (184) (172) Payments of dividends (650) (520) Net Cash Provided by Financing Activities 2,478 542 Net change in cash and cash equivalents (5,701) (550) Cash and cash equivalents - Beginning of year 22,798 15,971 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 17,097 $ 15,421 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 14,502 $ 13,956 Interest bearing deposits 100 145 Federal funds sold 2,495 1,320 $ 17,097 $ 15,421 See Notes to Condensed Consolidated Unaudited Financial Statements.
6 3 FARMERS & MERCHANTS BANCORP, INC. Notes to Condensed Consolidated Unaudited Financial Statements NOTE 1 BASIS OF PRESENTATION 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 10Q 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, 1998 are not necessarily indicative of the results that are expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997.
7 4 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Farmers & Merchants Bancorp, Inc. was incorporated on February 25, 1985, under the laws of the State of Ohio. Farmers & Merchants Bancorp, Inc., and its subsidiaries The Farmers & Merchants State Bank and Farmers & Merchants Life Insurance Company are engaged in commercial banking and life and disability insurance, respectively. The executive offices of Farmers & Merchants Bancorp, Inc. are located at 307-11 North Defiance Street, Archbold, Ohio 43502. LIQUIDITY AND CAPITAL RESOURCES Liquidity for the three months ended March 31, 1998 comes primarily from net income from operations of $2.1 million and increases in deposits of $3.3 million. This compares with net income of $1.7 million and deposit increases of $5.1 million for the same period for 1997. Total deposits as of March 31, 1998 were $464 million compared to $461 million as of December 31, 1997. A concerted marketing effort continues to be made in order to attract more core deposits to help maintain an acceptable net interest margin. The principal uses of these funds were for granting loans. Loans as of March 31, 1998 were $407.6 million compared to $390.8 million as of December 31, 1997, a $16.8 million or 4.3% increase after reclassification of $7.8 million of commercial paper from the loan category to other investments. December 31, 1997 and March 31, 1997 loans and investments have been restated to reflect this change in classification. Capital expenditures amounted to $286 thousand for the first three months of 1998. The following is a summary of five capital ratios as they are calculated from the March 31, 1998 financial statements: Primary Ratio 10.46% Total Capital Ratio 12.52% Risk Based Capital Tier 1 14.26% Risk Based Capital Tier 2 19.07% Stockholders' Equity/Total Assets 9.46%
8 5 PART II ITEM 6 EXHIBIT AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this report: Exhibit No. Description 27 Financial Data Schedule (B) Reports on Form 8-K No reports on Form 8-K were filed by the registrant during the quarter ended March 31, 1998.
9 6 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, theeunto duly authorized. Farmers & Merchants Bancorp, Inc., Date: May 12, 1998 By: /s/ Joe E. Crossgrove Joe E. Crossgrove President and Cashier Date: May 12, 1998 By: /s/ Randal H. Schroeder Randal H. Schroeder Asst. Vice-President and Chief Operating Officer
10 7 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 27 Financial Data Schedule
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 14,502 100 2,495 0 93,634 0 0 407,606 5,938 533,423 464,643 2,566 4,561 11,108 0 0 12,677 37,868 533,423 8,909 1,533 60 10,502 5,218 219 5,065 139 0 2,961 2,996 2,121 0 0 2,121 1.63 1.63 2.33 5,530 5,404 0 10,934 5,850 354 303 5,938 5,938 0 0