Release Details

Farmers & Merchants Bancorp, Inc. Reports Record 2020 First Quarter Financial Results

April 24, 2020
F&M is Committed and Well Positioned to Support Communities Throughout COVID-19 Crisis

ARCHBOLD, Ohio, April 24, 2020 (GLOBE NEWSWIRE) -- 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):

  • Net interest income after provision for loan losses was stable at $12.6 million, despite a $1.4 million increase in the first quarter provision for loan losses
  • Noninterest income increased 15.8% to $3.1 million
  • Strong organic growth drove a 13.5% increase in net total loans and a 13.6% increase in total deposits
  • Net income increased 27.3% to $4.1 million, or $0.37 per basic and diluted share
  • Net charge-offs to average loans was 0.01%, compared to 0.02% for the same period last year
  • Return on average assets was 1.02%, compared to 0.97% for the same period last year (last year’s first quarter included one-time tax adjusted expenses related to the Bank of Geneva acquisition)
  • F&M remains well capitalized under regulatory guidelines with a tier 1 capital to average assets of 11.56% 

“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 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.” 

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.

 

 

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

  Three  Months Ended     
  March 31,
2020 
  December 31,
2019 
  September 30,
2019 
  June 30,
2019 
  March 31,
2019 
Interest Income                            
Loans, including fees $   15,883     $   15,608     $   15,202     $   16,723     $   14,680  
Debt securities:                            
U.S. Treasury and government agencies 1,146     840     972     816     713  
Municipalities 262     225     190     211     211  
Dividends 45     60     69     76     88  
Federal funds sold 6     97     120     162     37  
Other.   122       319       459       295       133  
Total interest income 17,464     17,149     17,012     18,283     15,862  
Interest Expense                            
Deposits 2,901     3,336     3,654     3,339     2,613  
Federal funds purchased and securities sold                            
under agreements to repurchase 244     207     201     141     185  
Borrowed funds   266       270       257       269       287  
Total interest expense   3,411       3,813       4,112       3,749       3,085  
Net Interest Income - Before Provision for Loan Losses 14,053     13,336     12,900     14,534     12,777  
Provision for Loan Losses    1,430       728       247       133       30  
Net Interest Income After Provision For Loan Losses 12,623     12,608     12,653     14,401     12,747  
Noninterest Income                            
Customer service fees 1,586     1,732     1,722     1,694     1,578  
Other service charges and fees 1,039     1,132     1,179     1,091     1,041  
Net gain on sale of loans 227     119     260     196     102  
Net gain (loss) on sale of available-for-sale securities   270       -       -       -       (26 )
Total noninterest income 3,122     2,983     3,161     2,981     2,695  
Noninterest Expense                            
Salaries and wages 4,223     4,029     4,158     3,830     4,312  
Employee benefits 1,677     1,410     1,331     1,223     1,594  
Net occupancy expense 564     406     630     614     667  
Furniture and equipment 758     596     720     763     696  
Data processing 442     396     482     376     1,299  
Franchise taxes 368     246     248     229     258  
ATM expense 414     434     416     418     447  
Advertising 303     340     587     382     260  
Net loss on sale of other assets owned 1     16     22     28     15  
FDIC assessment 72     (11 )   -     98     96  
Mortgage servicing rights amortization 132     158     149     105     75  
Consulting fees 139     264     196     95     113  
Other general and administrative   1,602       1,482       1,667       1,551       1,679  
Total noninterest expense   10,695       9,766       10,606       9,712       11,511  
Income Before Income Taxes 5,050     5,825     5,208     7,670     3,931  
Income Taxes   945       1,102       933       1,490       707  
Net Income   4,105       4,723       4,275       6,180       3,224  
Other Comprehensive Income (Loss) (Net of Tax):                            
Net unrealized gain (loss) on available-for-sale securities 4,998     (472 )   841     3,061     1,749  
Reclassification adjustment for (gain) loss on sale of available-for-sale securities   (270 )     -       -       -       26  
Net unrealized gain (loss) on available-for-sale securities 4,728     (472 )   841     3,061     1,775  
Tax expense (benefit)   993       (99 )     176       643       373  
Other comprehensive income (loss)   3,735       (373 )     665       2,418       1,402  
Comprehensive Income $   7,840     $   4,350     $   4,940     $   8,598     $   4,626  
Basic and Diluted Earnings Per Share $   0.37     $   0.43     $   0.38     $   0.56     $   0.29  
Dividends Declared $   0.16     $   0.16     $   0.15     $   0.15     $   0.15  
                                       

 

 

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands of dollars, except per share data)

    March 31,
2020 
  December 31,
2019 
  September 30,
2019 
  June 30,
2019 
  March 31,
2019 
    (Unaudited)           (Unaudited)     (Unaudited)     (Unaudited)  
Assets                              
Cash and due from banks   $   49,844     $   50,137     $   103,188     $   108,085     $   48,740  
Federal funds sold     40,993       1,159       11,404       15,193       33,109  
Total cash and cash equivalents   90,837     51,296     114,592     123,278     81,849  
                               
Interest-bearing time deposits   4,869     4,309     4,554     4,509     4,509  
Securities - available-for-sale   204,121     222,293     190,465     204,415     174,682  
Other securities, at cost   5,810     5,810     5,789     5,789     5,789  
Loans held for sale   2,153     4,248     606     1,909     859  
Loans, net   1,239,108     1,211,771     1,151,937     1,084,448     1,091,829  
Premises and equipment   26,120     26,351     25,990     26,013     25,205  
Goodwill   47,340     47,340     47,340     47,340     47,340  
Mortgage servicing rights   2,672     2,629     2,556     2,465     2,397  
Other real estate owned   185     214     351     329     510  
Bank owned life insurance   15,313     15,235     15,151     15,050     14,963  
Other assets     16,597       15,834       15,549       15,002       15,729  
                               
Total Assets   $   1,655,125     $   1,607,330     $   1,574,880     $   1,530,547     $   1,465,661  
Liabilities and Stockholders' Equity                              
Liabilities                              
Deposits                              
Noninterest-bearing   $   261,786     $   265,156     $   261,719     $   242,510     $   236,847  
Interest-bearing                              
NOW accounts   463,734     423,655     430,646     430,505     418,773  
Savings   341,256     322,973     310,667     293,179     272,875  
Time   281,931     276,563       274,996       276,153       258,929  
Total deposits   1,348,707     1,288,347     1,278,028     1,242,347     1,187,424  
                               
Federal Funds Purchased and                              
securities sold under agreements to repurchase   30,585     48,073     30,056     27,102     25,521  
Federal Home Loan Bank (FHLB) advances   24,788     24,806     24,669     24,532     24,682  
Dividend payable   1,768     1,768     1,657     1,654     1,654  
Accrued expenses and other liabilities     12,820       14,078       13,062       10,865       9,446  
Total liabilities     1,418,668       1,377,072       1,347,472       1,306,500       1,248,727  
                               
Commitments and Contingencies                              
                               
Stockholders' Equity                              
Common stock - No par value 20,000,000 shares authorized; issued                              
and outstanding 12,230,000 shares 3/31/20 and 12/31/19   81,844     81,535     81,264     81,955     81,760  
Treasury stock - 1,100,579 shares 3/31/20, 1,093,065 shares 12/31/19   (12,636 )   (12,456 )   (12,453 )   (12,707 )   (12,680 )
Retained earnings   162,416     160,081     157,126     153,993     149,466  
Accumulated other comprehensive income (loss)     4,833       1,098       1,471       806       (1,612 )
Total stockholders' equity     236,457       230,258       227,408       224,047       216,934  
                               
Total Liabilities and Stockholders' Equity   $   1,655,125     $   1,607,330     $   1,574,880     $   1,530,547     $   1,465,661  
                                         

 

 

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
SELECT FINANCIAL DATA

    For the Three Months Ended
Selected financial data   March 31,
2020 
  December 31,
2019 
  September 30,
2019 
  June 30,
2019 
  March 31,
2019 
Return on average assets     1.02%       1.18%       1.10%       1.63%       0.97%  
Return on average equity     7.06%       8.26%       7.54%       11.21%       5.99%  
Yield on earning assets     4.66%       4.63%       4.74%       5.25%       4.80%  
Cost of interest bearing liabilities     1.22%       1.40%       1.55%       1.45%       1.26%  
Net interest spread     3.44%       3.23%       3.19%       3.80%       3.54%  
Net interest margin     3.75%       3.60%       3.60%       4.18%       3.87%  
Efficiency     63.09%       63.67%       65.86%       56.00%       73.11%  
Dividend payout ratio     43.07%       43.34%       38.67%       26.78%       42.77%  
Tangible book value per share (1)   $ 16.26     $ 16.01     $ 15.68     $ 15.49     $ 15.05  
Tier 1 capital to average assets     11.56%       11.52%       11.45%       11.77%       13.07%  
                                         
                       
Loans   March 31,
2020 
  December 31,
2019 
  September 30,
2019 
  June 30,
2019 
  March 31,
2019 
(Dollar amounts in thousands)                                        
Commercial real estate   $ 570,217     $ 551,309     $ 502,137     $ 443,257     $ 440,993  
Agricultural real estate     194,383       199,105       200,791       193,768       191,752  
Consumer real estate     174,731       165,349       159,074       159,540       160,967  
Commercial and industrial     143,261       135,631       130,150       125,609       137,949  
Agricultural     109,584       111,820       110,270       113,755       112,898  
Consumer     49,022       49,237       49,552       48,952       47,647  
Other     8,336       8,314       8,167       7,341       7,392  
Less: Net deferred loan fees and costs     (1,893     (1,766     (1,445     (1,091     (1,133
Total loans,net   $ 1,247,641     $ 1,218,999     $ 1,158,696     $ 1,091,131     $ 1,098,465  
                                         
                                         
Asset quality data   March 31,
2020 
  December 31,
2019 
  September 30,
2019 
  June 30,
2019 
  March 31,
2019 
(Dollar amounts in thousands)                                        
Nonaccrual loans   $ 3,344     $ 3,400     $ 3,275     $ 1,328     $ 1,188  
Troubled debt restructuring   $ 1,934     $ 956     $ 1,051     $ 981     $ 173  
90 day past due and accruing   $ -     $ -     $ -     $ -     $ -  
Nonperforming loans   $ 3,344     $ 3,400     $ 3,275     $ 1,328     $ 1,188  
Other real estate owned   $ 185     $ 214     $ 351     $ 329     $ 510  
Nonperforming assets   $ 3,529     $ 3,614     $ 3,626     $ 1,657     $ 1,698  
                                         
(Dollar amounts in thousands)                                        
Allowance for loan and lease losses   $ 8,533     $ 7,228     $ 6,759     $ 6,964     $ 6,636  
Allowance for loan and lease losses/total loans     0.68%       0.59%       0.58%       0.64%       0.60%  
Net charge-offs:                                        
Quarter-to-date   $ 125     $ 295     $ 171     $ 86     $ 169  
Year-to-date   $ 125     $ 685     $ 426     $ 255     $ 169  
Net charge-offs to average loans                                        
Quarter-to-date     0.01%       0.03%       0.02%       0.01%       0.02%  
Year-to-date     0.01%       0.06%       0.04%       0.02%       0.02%  
Nonperforming loans/total loans     0.27%       0.28%       0.28%       0.12%       0.11%  
Allowance for loan and lease losses/nonperforming loans     256.66%       187.17%       173.25%       375.51%       558.92%  
                                         
(1)  Tangible Equity = Stockholder Equity less goodwill and other intangibles (core deposit intangible, mortgage servicing rights and unrealized gain/loss on securities) 
 

 

 

FARMERS & MERCHANTS BANCORP, INC.
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(in thousands of dollars, except percentages)

                         
    For the Three Months Ended   For the Three Months Ended
    March 31, 2020   March 31, 2019
Interest Earning Assets:   Average
Balance
  Interest/
Dividends
  Yield/
Rate
  Average
Balance
  Interest/
Dividends
  Yield/
Rate
Loans   $   1,236,848   $   15,883   5.14%   $   1,108,031   $   14,680   5.30%
Taxable Investment Securities   190,158   1,321   2.78%   151,885   842   2.22%
Tax-exempt Investment Securities   28,832   132   2.32%   34,513   170   2.49%
Fed Funds Sold & Other   46,393   128   1.10%   31,394   170   2.17%
Total Interest Earning Assets   1,502,231   $   17,464   4.66%   1,325,823   $   15,862   4.80%
                         
Nonearning Assets   114,326           4,540        
                         
Total Assets   $   1,616,557           $   1,330,363        
                         
Interest Bearing Liabilities:                        
Savings Deposits   $   773,130   $   1,485   0.77%   671,227   1,527   0.91%
Other Time Deposits   277,579   1,416   2.04%   243,342   1,086   1.79%
Other Borrowed Money   24,787   266   4.29%   29,392   287   3.91%
Fed Funds Purchased & Securities                        
Sold under Agreement to Repurch.   38,954   244   2.51%   33,794   185   2.19%
Total Interest Bearing Liabilities   $   1,114,450   $   3,411   1.22%   $   977,755   $   3,085   1.26%
                         
Noninterest bearing Liabilities   269,550           137,279        
                         
Stockholders Equity   $   232,557           $   215,329        
                         
Net Interest Income and interest rate spread       $   14,053   3.44%       $   12,777   3.54%
                         
Net Interest Margin           3.75%           3.87%
                         
Yields on Tax exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts 
                         

 

Company Contact: Investor and Media Contact:
Lars B. Eller
President and Chief Executive Officer
Farmers & Merchants Bancorp, Inc.
(419) 446-2501
leller@fm.bank
Andrew M. Berger
Managing Director
SM Berger & Company, Inc.
(216) 464-6400
andrew@smberger.com

Source: Farmers & Merchants Bancorp, Inc.