UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 8-K

 

CURRENT REPORT Pursuant

to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) April 24, 2020

 

Farmers & Merchants Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Registrant's Telephone Number, including Area Code (419) 446-2501

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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ITEM 2.02.Results of Operation and Financial Condition

On April 24, 2020, Farmers & Merchants Bancorp, Inc. issued a press release announcing its earnings for the quarter ended March 31, 2020.  A copy of the press release is attached hereto as Exhibit 99 and is incorporated by reference herein.

ITEM 9.01.Financial Statements and Exhibits

 

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto authorized.

 

 

Exhibit 99

 

 

Farmers & Merchants Bancorp, Inc. Reports Record

2020 First Quarter Financial Results

F&M is Committed and Well Positioned to Support Communities Throughout COVID-19 Crisis

 

ARCHBOLD, OHIO, April 24, 2020, Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2020 first quarter ended March 31, 2020.

 

2020 First Quarter Financial Highlights Include (on a year-over-year basis unless noted):

 

“For over 120 years, F&M has supported its local communities and we are committed to helping our retail, commercial, and agricultural customers through the unprecedented challenges created by the COVID-19 crisis,” stated Lars B. Eller, President and Chief Executive Officer. “While it is too early to understand the economic repercussions of the crisis, F&M’s strong financial and capital position provides us with the flexibility to navigate this period of uncertainty. In addition, our consistent loan and deposit growth over the past five years, demonstrates the strong relationships we have developed throughout our Ohio, Indiana, and Michigan communities. Our team members have rallied behind our customers and communities and I am grateful for all their efforts, hard work, and dedication. We are diligently working to protect our employees and customers, while quickly providing essential financial services, advice and resources to our customers. As a result, the majority of our workforce is either working from home or operating in staggered shifts, while our customers have embraced alternatives to lobby banking including drive-thru, online, digital, and mobile banking. Despite the adjustments we have made to our operations, I am proud to announce F&M has not furloughed any associates and has not reduced pay or salaries to any of our associates.”  

 

“As the crisis has evolved, we have strengthened our relationships by increasing the amount of financial relief, assistance, and advice we are providing customers. Since the onset of the COVID-19 crisis, we have started offering several financial relief programs to our customers including forbearance agreements for home loans, a ‘Skip-a-pay’ program for consumer installment loans, waiving late payment fees, offering interest only payment alternatives for commercial and ag customers, and temporarily reducing account fees by eliminating certain requirements on deposit accounts. In addition, as a community bank, we have the agility to respond to evolving market conditions, while offering quick financial support and decisions to our customers. Through our efforts, almost 500 loans to small business customers have been approved by the Small Business Administration for total consideration of nearly $70

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million as a result of the Paycheck Protection Program. The success of this program has helped F&M provide the necessary financial resources to many of our small business customers who employ over 8,000 people.”

 

Income Statement

Net income for the 2020 first quarter ended March 31, 2020, was $4.1 million, compared to $3.2 million for the same period last year. Earnings per basic and diluted share for the 2020 first quarter was $0.37, compared to $0.29 for the same period last year. The 2019 first quarter earnings included $0.09 per basic and diluted share of one-time acquisition related expenses associated with the Limberlost acquisition.

 

Mr. Eller continued, “As the Federal Reserve reduced rates during the end of 2019, we adjusted our cost of interest-bearing liabilities. As a result, our net interest margin remained relatively stable and was 3.75% at March 31, 2020, compared to 3.87% for the same period last year and 3.60% at December 31, 2019. Late in the 2020 first quarter, the Federal Reserve announced emergency rate cuts of 50 and 100 basis points in response to the COVID-19 crisis. This resulted in a cost of funds for the month of March of 1.10%, which represents the lowest cost of funds we have had in over a year. We are also proactively controlling noninterest expenses and I am pleased with the continued improvements we have made to our efficiency ratio, despite enhancing our compensation structure during the quarter which resulted in approximately 30% of our associates receiving an increase in their annual salaries.”  

 

“We expect Federal Reserve rate cuts will put pressure on our net interest margin in the coming quarters. Helping offset some of the impact to net interest margin are fees we will receive associated with originating loans through the Paycheck Protection Program. In addition, lower rates have created a surge in the demand for home loans. In fact, at the end of the quarter our pipeline of home loans is three times higher than our previous record. F&M only keeps a portion of the home loans we originate, which helps reduce portfolio risk and generates noninterest income as we resell residential mortgages in the secondary market. Noninterest income during the first quarter increased 15.8% to $3.1 million, compared to the same period last year. We expect second quarter noninterest income to increase significantly as we benefit from fees associated with the high volume of Paycheck Protection Program loans and residential mortgages.”  

 

Deposits

At March 31, 2020, total deposits were $1.349 billion, an increase of 13.6% from March 31, 2019. The significant organic deposit growth we have been experiencing is a result of continued strength in expanding relationships with new and existing customers. In addition, we have recently experienced changing customer preferences to more stable and secure saving instruments as deposits have increased since the COVID-19 crisis began.

 

Loan Portfolio and Asset Quality

Total loans, net at March 31, 2020, increased 13.6% or by $149.2 million to $1.247 billion, compared to $1.098 billion at March 31, 2019, and up from $1.219 billion at December 31, 2019. The year-over-year improvement resulted primarily from the contribution of strong organic loan growth.

 

Mr. Eller continued, “Throughout our history, we have focused on measured growth, while maintaining a strong financial position and managing the risk of our loan portfolio. During the 2008 – 2009 financial crisis, F&M achieved strong profitability, was well-capitalized, did not participate in TARP, and continued to pay its quarterly cash dividend. We believe the lessons we learned during the 2008 – 2009 financial crisis, combined with the experience of our strong leadership team, board of directors, financial position, and capital levels provide us with the resources and platform to navigate this challenging period.”

 

“The COVID-19 pandemic combined with the country’s response to the crisis is materially impacting the ability of individuals, businesses and other entities to meet their financial obligations. Fortunately, F&M has no exposure to the energy sector, while our exposure to industries most likely impacted by the pandemic is limited. In fact, loans in the restaurant, hospitality (hotel) and entertainment industries represent 8.67% of our loan portfolio at March 31, 2020. We have only processed a total of $3.4 million of payment deferrals to customers in the restaurant and entertainment industries, while no hotel customers have currently requested payment deferrals reflecting our conservative underwriting standards and the strong balance sheets of our customers. During the first quarter we proactively increased our allowance for loan losses and incurred a $1.4 million provision, which was in addition to a higher provision in the fourth quarter as we completed a comprehensive review of each loan from the Bank of Geneva merger and prudently increased our allowance for the significant loan growth we experienced last year. We are proactively monitoring our loan portfolio and we will make the necessary adjustments to help our customers during this difficult period, while ensuring F&M’s financial strength.”  

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Mr. Eller concluded: “F&M is vested in our communities and we are here to help as we all navigate the challenges associated with the COVID-19 crisis together. On behalf of the entire leadership team and board of directors, I would like to express our gratitude to our customers and employees. Thank you!”  

 

Stockholders’ Equity and Dividends

Total stockholders’ equity increased 9.0% to $236.5 million at March 31, 2020, from $216.9 million at March 31, 2019. At March 31, 2020, the company had a Tier 1 leverage ratio of 11.56%, compared to 13.07% at March 31, 2019.

 

Tangible stockholders’ equity increased to $180.9 million at March 31, 2020, compared to $167.1 million at March 31, 2019. On a per share basis, tangible stockholders’ equity at March 31, 2020, was $16.26 per share, compared to $15.05 per share at March 31, 2019.

 

For the 2020 first quarter, the company declared cash dividends of $0.16 per share, which is a 6.7% increase over the 2019 first quarter declared dividend payment. F&M is committed to returning capital to shareholders and has increased the annual cash dividend for over 20 consecutive years. For the 2020 first quarter, the dividend payout ratio was 43.07% compared to 42.77% for the same period last year.

 

About Farmers & Merchants State Bank:

Farmers & Merchants Bancorp, Inc. (“F&M”) (Nasdaq: FMAO), is the holding company for the Farmers & Merchants State Bank, a local independent community bank with $1.7 billion in assets that has been serving Northwest Ohio and Northeast Indiana since 1897. The Farmers & Merchants State Bank provides commercial banking, retail banking and other financial services through its 30 offices. Our locations are in Fulton, Defiance, Hancock, Henry, Lucas, Williams, and Wood counties in Northwest Ohio. In Northeast Indiana, we have offices located in Adams, Allen, DeKalb, Jay, and Steuben counties.

 

Safe harbor statement

Farmers & Merchants Bancorp, Inc. (“F&M”) wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. Statements by F&M, including management’s expectations and comments, may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended. Actual results could vary materially depending on risks and uncertainties inherent in general and local banking conditions, competitive factors specific to markets in which F&M and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions, capital market conditions, or the effects of the COVID-19 pandemic, and its impacts on our credit quality and business operations, as well as its impact on general economic and financial market conditions. F&M assumes no responsibility to update this information. For more details, please refer to F&M’s SEC filing, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q. Such filings can be viewed at the SEC’s website, www.sec.gov or through F&M’s website www.fm.bank.

 

Non-GAAP Financial Measures  

This press release includes disclosure of financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Farmers & Merchants Bancorp, Inc. believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Farmers & Merchants Bancorp, Inc.’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP.

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FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME

(Unaudited) (in thousands of dollars, except per share data)

 

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FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited) (in thousands of dollars, except share data)

 

 

 

 

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FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

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FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES

(in thousands of dollars, except percentages)