Farmers & Merchants Bancorp, Inc. Reports 2018 Third-Quarter and Year-to-Date Financial Results

October 18, 2018

ARCHBOLD, OHIO, Oct. 18, 2018 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2018 third quarter and year-to-date September 30, 2018.

2018 Third Quarter Financial Highlights Include (on a year-over-year basis unless noted):

62 consecutive quarters of profitability
Total loans increased 5.5% to $838,698,000
Net interest income after provision for loan losses increased 9.2% to $9,941,000
Net income increased 20.3% to $3,875,000
Earnings per basic and diluted share increased 20.0% to $0.42
Return on average assets was 1.40%, up from 1.20%
Return on average equity was 11.19%, up from 9.76%

“2018 is shaping up to be a historic year for F&M as we continue to execute our growth initiatives and achieve strong financial results, while investing in our future,” stated Paul S. Siebenmorgen, President and Chief Executive Officer. “Throughout the year, our organic growth initiatives have focused on expanding our reach in newer markets and I am pleased with the success we have achieved so far. F&M ended the quarter with record total loans, which increased 5.5% over the past 12 months. In addition, we continue to convert offices into our new layout and will have upgraded two F&M offices by the end of 2018. The investments in F&M’s physical locations, as well as in our digital and mobile banking platforms, are improving F&M’s customer experience and making it more efficient and convenient for our customers to interact with the Bank. Finally, I am excited with the August 2018 announcement of the Limberlost Bancshares merger, which quickly expands F&M’s footprint in Indiana. The merger brings together two well-performing banks that have a similar culture and focus on community banking values. We expect the merger to close at year end or in early first quarter 2019 and look forward to updating our shareholders, customers, communities, and associates on our progress.”

Income Statement
Net income for the 2018 third quarter ended September 30, 2018, was $3,875,000, or $0.42 per basic and diluted share compared to $3,222,000, or $0.35 per basic and diluted share for the same period last year. The 20.3% improvement in net income for the 2018 third quarter was primarily due to a 9.2% increase in net interest income after provision for loan losses, partially offset by a 10.5% increase in noninterest expense. Net income for the 2018 nine months was $11,756,000, or $1.27 per basic and diluted share compared to $9,284,000, or $1.01 per basic and diluted share for the nine months of 2017. As a result of the Tax Cuts and Job Act, the Bank’s tax rate was lowered which benefitted earnings.

Loan Portfolio and Asset Quality
Total loans at September 30, 2018, increased 5.5% to $838,698,000, compared to $795,205,000 at September 30, 2017, and up 1.9% from $823,024,000 at December 31, 2017. The year-over-year improvement resulted primarily from a 5.8% increase in commercial real estate loans, a 19.0% increase in agricultural loans, a 15.6% increase in consumer loans, and a 7.8% increase in agricultural real estate.

The company’s provision for loan losses for the 2018 third quarter was $47,000, compared to $99,000 for the 2017 third quarter. Year-to-date, the provision for loan losses was $219,000, compared to $197,000 for the same period last year.

F&M’s loan quality remains strong as the allowance for loan losses to nonperforming loans was 1,399.6% at September 30, 2018, compared to 397.4% at September 30, 2017. Net charge-offs for the third quarter ended September 30, 2018, were $81,000, or 0.01% of average loans, compared to $87,000 or 0.01% of average loans, at September 30, 2017. Year-to-date, net charge-offs were $332,000, or 0.04% of average loans outstanding, compared to $111,000, or 0.01% of average loans outstanding for the same period last year.

Stockholders’ Equity and Dividends
Tangible stockholders’ equity increased to $134,903,000 at September 30, 2018, compared to $129,667,000 at December 31, 2017, and $128,278,000 at September 30, 2017. On a per share basis, tangible stockholders’ equity at September 30, 2018, was $14.53, compared with $13.99 at December 31, 2017, and $13.84 at September 30, 2017. The increase in tangible stockholders’ equity is the result of growth in retained earnings due to increased profitability. At September 30, 2018, the company had a Tier 1 leverage ratio of 12.63%, compared to 12.02% at September 30, 2017.

For the 2018 third quarter, the company declared cash dividends of $0.14 per share, which represents a dividend payout ratio of 33.2% compared to 37.0% for the same period last year.

Mr. Siebenmorgen concluded, “Our pipeline of new loans remains strong and we continue to experience stable economic trends throughout our Western Ohio and Eastern Indiana communities. In addition, F&M’s asset quality is excellent as nonperforming loans fell to 0.06% of total loans and nonperforming assets have declined 48.8% over the past 12 months, compared to the 1.6% growth in total assets we have experienced over this period. 2018’s third quarter results demonstrate F&M is well positioned to achieve another strong year of growth and improved profitability.”

About Farmers & Merchants State Bank:
The Farmers & Merchants State Bank is a local independent community bank 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 25 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 DeKalb, Allen 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 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 or capital 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.

Company Contact:	Investor and Media Contact:
Marty Filogamo Senior Vice President – Marketing Manager Farmers & Merchants Bancorp, Inc. (419) 445-3501 ext. 15435 mfilogamo@fm.bank	Andrew M. Berger Managing Director SM Berger & Company, Inc. (216) 464-6400 andrew@smberger.com

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME (Unaudited)
(in thousands of dollars, except per share data)

	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Interest Income
Loans, including fees	$	10,725		$	9,547		$	31,348		$	27,367
Debt securities:
U.S. Treasury and government agencies		613			605			1,848			1,870
Municipalities		275			290			845			905
Dividends		56			49			164			135
Federal funds sold and other		84			44			221			103
Total interest income		11,753			10,535			34,426			30,380
Interest Expense
Deposits		1,611			1,161			4,319			3,289
Federal funds purchased and securities sold
under agreements to repurchase		134			135			376			366
Borrowed funds		20			37			60			110
Total interest expense		1,765			1,333			4,755			3,765
Net Interest Income - Before Provision for Loan Losses		9,988			9,202			29,671			26,615
Provision for Loan Losses		47			99			219			197
Net Interest Income After Provision
For Loan Losses		9,941			9,103			29,452			26,418
Noninterest Income
Customer service fees		1,392			1,320			4,323			4,131
Other service charges and fees		1,097			1,134			3,149			3,214
Net gain on sale of loans		184			181			617			600
Net gain on sale of available-for-sale securities		10			-			10			47
Total noninterest income		2,683			2,635			8,099			7,992
Noninterest Expense
Salaries and wages		3,391			3,236			9,926			9,374
Employee benefits		1,029			943			3,013			2,648
Net occupancy expense		478			434			1,306			1,221
Furniture and equipment		588			493			1,660			1,456
Data processing		364			300			1,000			919
Franchise taxes		243			226			710			676
ATM expense		327			256			972			853
Advertising		236			181			669			548
Net loss on sale of other assets owned		1			13			17			27
FDIC assessment		81			82			249			247
Mortgage servicing rights amortization		84			85			264			266
Other general and administrative		1,304			1,108			3,618			3,291
Total noninterest expense		8,126			7,357			23,404			21,526
Income Before Income Taxes		4,498			4,381			14,147			12,884
Income Taxes		623			1,159			2,391			3,600
Net Income		3,875			3,222			11,756			9,284
Other Comprehensive Income (Loss) (Net of Tax):
Net unrealized gain (loss) on available-for-sale securities		(617	)		(472	)		(3,432	)		1,984
Reclassification adjustment for gain on sale of available-for-sale securities		(10	)		-			(10	)		(47	)
Net unrealized gain (loss) on available-for-sale securities		(627	)		(472	)		(3,442	)		1,937
Tax expense (benefit)		(132	)		(160	)		(723	)		659
Other comprehensive income (loss)		(495	)		(312	)		(2,719	)		1,278
Comprehensive Income	$	3,380		$	2,910		$	9,037		$	10,562
Basic and Diluted Earnings Per Share	$	0.42		$	0.35		$	1.27		$	1.01
Dividends Declared	$	0.14		$	0.13		$	0.41		$	0.37

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

		(in thousands of dollars)
		September 30, 2018			December 31, 2017
		(Unaudited)
Assets
Cash and due from banks		$	28,782		$	33,480
Federal funds sold			939			987
	Total cash and cash equivalents		29,721			34,467

Interest-bearing time deposits			4,019			4,018
Securities - available-for-sale			183,075			196,398
Other securities, at cost			3,717			3,717
Loans held for sale			1,679			1,221
Loans, net			831,943			816,156
Premises and equipment			22,117			21,726
Goodwill			4,074			4,074
Mortgage servicing rights			2,373			2,299
Other real estate owned			717			674
Bank owned life insurance			14,799			14,523
Other assets			9,778			7,736

Total Assets		$	1,108,012		$	1,107,009
	Liabilities and Stockholders' Equity
Liabilities
Deposits
	Noninterest-bearing	$	197,088		$	199,114
	Interest-bearing
	NOW accounts		314,873			298,711
	Savings		230,306			233,949
	Time		186,592			187,566
	Total deposits		928,859			919,340

Federal Funds Purchased and
securities sold under agreements to repurchase			27,026			39,495
Federal Home Loan Bank (FHLB) advances			5,000			5,000
Dividend payable			1,287			1,193
Accrued expenses and other liabilities			6,493			7,844
	Total liabilities		968,665			972,872

Commitments and Contingencies

Stockholders' Equity
Common stock - No par value 20,000,000 shares authorized;
issued and outstanding 10,400,000 shares 9/30/18 and 12/31/17			10,589			11,546
Treasury stock - 1,114,739 shares 9/30/18, 1,134,120 shares 12/31/17			(12,409	)		(12,160	)
Retained earnings			146,072			136,577
Accumulated other comprehensive loss			(4,905	)		(1,826	)
	Total stockholders' equity		139,347			134,137

Total Liabilities and Stockholders' Equity		$	1,108,012		$	1,107,009

		For the Three Months Ended					For the Nine Months Ended
		September 30					September 30
Selected financial data		2018			2017		2018		2017
Return on average assets		1.40	%		1.20	%	1.41	%	1.16	%
Return on average equity		11.19	%		9.76	%	11.49	%	9.57	%
Yield on earning assets		4.52	%		4.24	%	4.41	%	4.12	%
Cost of interest bearing liabilities		0.92	%		0.72	%	0.83	%	0.68	%
Net interest spread		3.60	%		3.52	%	3.58	%	3.44	%
Net interest margin		3.85	%		3.71	%	3.80	%	3.61	%
Efficiency		63.86	%		61.41	%	61.66	%	61.49	%
Dividend payout ratio		33.21	%		37.03	%	32.02	%	36.51	%
Tangible book value per share ⁽¹⁾	$	14.53		$	13.84
Tier 1 capital to average assets		12.63	%		12.02	%

		September 30
Loans		2018			2017
(Dollar amounts in thousands)
Commercial real estate	$	417,217		$	394,481
Agricultural real estate		68,548			63,603
Consumer real estate		83,134			84,283
Commercial and industrial		119,536			124,078
Agricultural		103,624			87,095
Consumer		41,444			35,843
Industrial development bonds		6,005			6,555
Less: Net deferred loan fees and costs		(810	)		(733	)
Total loans,net	$	838,698		$	795,205

		September 30
Asset quality data		2018			2017
(Dollar amounts in thousands)
Nonaccrual loans	$	483		$	1,729
Troubled debt restructuring	$	205		$	679
90 day past due and accruing	$	-		$	-
Nonperforming loans	$	483		$	1,729
Other real estate owned	$	717		$	615
Non-performing assets	$	1,200		$	2,344

(Dollar amounts in thousands)
Allowance for loan and lease losses	$	6,755		$	6,870
Allowance for loan and lease losses/total loans		0.81	%		0.86	%
Net charge-offs:
Quarter-to-date	$	81		$	87
Year-to-date	$	332		$	111
Net charge-offs to average loans
Quarter-to-date		0.01	%		0.01	%
Year-to-date		0.04	%		0.01	%
Non-performing loans/total loans		0.06	%		0.22	%
Allowance for loan and lease losses/nonperforming loans		1399.58	%		397.35	%

⁽¹⁾ Tangible Equity = Stockholder Equity less goodwill and other intangibles (core deposit intangible)

Release Details

Farmers & Merchants Bancorp, Inc. Reports 2018 Third-Quarter and Year-to-Date Financial Results