SEC Filing | Farmers & Merchants Bancorp, Inc.

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SECURITIES 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 June 30, 2002 OR Transition Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission 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.) 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 July 1, 2002

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- June 30, 2002, December 31, 2001 and June 30, 2001 1 Condensed Consolidated Statements of Income Six Months Ended June 30, 2002 and June 30, 2001 2 Condensed Consolidated Statements of Cash Flows- Six Months Ended June 30, 2002 and June 30, 2001 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

FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) June 30, 2002 December 31, 2001 June 30, 2001 ASSETS: Cash and due from banks $ 16,295 $ 17,842 $ 21,337 Interest bearing deposits with banks 3,507 146 100 Federal funds sold 1,610 - 20,535 Investment Securities: U.S. Treasury 4,430 5,038 7,784 U.S. Government 108,795 108,994 80,354 State & political obligations 52,100 50,819 35,173 All others 3,558 8,112 8,918 Loans and leases 476,077 468,243 460,490 Bank premises and equipment-net 12,649 12,332 11,530 Accrued interest and other assets 12,671 12,100 10,370 TOTAL ASSETS $ 691,692 $ 683,626 $ 656,591 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 40,573 $ 41,991 $ 36,052 Time and savings 535,145 524,166 509,652 Federal funds purchased and securities sold under agreement to repurchase 19,827 26,539 19,585 Other borrowed money 16,726 17,410 18,339 Accrued interest and other liabilities 5,191 3,170 3,871 Total Liabilities 617,462 613,276 587,499 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 58,634 56,092 54,588 Accumulated other comprehensive income 2,919 1,581 1,827 Total Shareholders' Equity 74,230 70,350 69,092 LIABILITIES AND SHAREHOLDERS' EQUITY $ 691,692 $ 683,626 $ 656,591 See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 2001 Balance Sheet has been derived from the audited financial statements of that date. 1

FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) Three Months Ended Six Months Ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 INTEREST INCOME: Loans and leases $ 8,558 $ 10,652 $ 17,644 $ 21,474 Investment Securities: U.S. Treasury securities 49 121 121 245 Securities of U.S. Government agencies 1,356 1,044 2,707 2,013 Obligations of states and political subdivisions 576 422 1,145 809 Other 84 178 189 398 Federal funds 27 203 41 363 Deposits in banks 12 66 17 95 Total Interest Income 10,662 12,686 21,864 25,397 INTEREST EXPENSE: Deposits 4,543 5,958 9,210 11,996 Borrowed funds 340 583 689 1,430 Total Interest Expense 4,883 6,541 9,899 13,426 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 5,779 6,145 11,965 11,971 PROVISION FOR LOAN LOSSES 393 486 1,049 670 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,386 5,659 10,916 11,301 OTHER INCOME: Service charges 499 471 936 909 Other 606 859 1,469 1,420 Net securities gains (losses) 13 153 63 204 1,118 1,483 2,468 2,533 OTHER EXPENSES: Salaries and wages 1,992 1,768 3,900 3,552 Pension and other employee benefits 467 407 923 871 Occupancy expense (net) 86 252 194 237 Other operating expenses 1,803 1,733 3,636 3,408 4,348 4,160 8,653 8,068 INCOME BEFORE FEDERAL INCOME TAX 2,156 2,982 4,731 5,766 FEDERAL INCOME TAXES 543 851 1,213 1,683 NET INCOME 1,613 2,131 3,518 4,083 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities 1,464 184 1,338 932 COMPREHENSIVE INCOME $ 3,077 $ 2,315 $ 4,856 $ 5,015 NET INCOME PER SHARE (Based upon weighted average nmber of shares outstanding of 1,300,000 $ 1.24 $ 1.64 $ 2.71 $ 3.14 DIVIDENDS DECLARED $ 0.40 $ 0.35 $ 0.75 $ 0.70 See Notes to Condensed Consolidated Unaudited Financial Statements. 2

FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) Six Months Ended June 30, 2002 June 30, 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,518 $ 4,083 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 730 568 Premium amortization 409 142 Discount amortization (58) (80) Provision for loan losses 1,049 670 Provision for deferred income taxes 10 (88) (Gain) loss on sale of fixed assets (10) 11 (Gain) loss on sale of investment securities (63) (204) Changes in Operating Assets and Liabilities: Accrued interest receivable and other assets (581) (774) Accrued interest payable and other liabilities 2,021 (149) Net Cash Provided by Operating Activities 7,025 4,179 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,037) (1,755) Proceeds from sale of fixed assets - - Proceeds from maturities of investment securities: 35,822 19,451 Proceeds from sale of investment securities: 7,135 2,105 Purchase of investment securities- (37,893) (36,300) Net increase in loans and leases (8,883) 19,485 Net Cash Used by Investing Activities (4,856) 2,986 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 9,561 29,241 Net change in short-term borrowings (6,712) 682 Increase in long-term borrowings - - Payments on long-term borrowings (684) (12,447) Payments of dividends (910) (910) Net Cash Provided by Financing Activities 1,255 16,566 Net change in cash and cash equivalents 3,424 23,731 Cash and cash equivalents - Beginning of year 17,988 18,241 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 21,412 $ 41,972 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 16,295 $ 21,337 Interest bearing deposits 3,507 100 Federal funds sold 1,610 20,535 $ 21,412 $ 41,972 See Notes to Condensed Consolidated Unaudited Financial Statements. 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 six months ended June 30, 2002 are not necessarily indicative of the results that are expected for the year ended December 31, 2002. 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, 2001. 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 six months ended June 30, 2002 comes primarily from net income from operations of $3.5 million. This compares with net income of $4.1 million for the same period in 2001. In addition, funds were purchased from correspondents, and the Federal Home Loan Bank when needed. During the year loan balances were increased by 8.9 million. These increases have occurred due to normal lending operations and the conscious decision to retain a certain number of fixed rate mortgages on the Bank's books to help bolster the net interest margin, without substantially affecting the Bank's interest rate risk. Deposits have maintained a steady growth to offset these loans and maintain a good liquidity position. The following is a summary of five capital ratios as they are calculated from the June 30, 2002 financial statements: Primary Ratio 11.52% Total Capital Ratio 13.91% Risk Based Capital Tier 1 15.85% Risk Based Capital Tier 2 20.73% Stockholders' Equity/Total Assets 10.73% MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates and equity prices. The primary market risk to which the Company is subject is interest rate risk. The majority of the Company's interest rate risk arises, from the instruments, positions and transactions entered into for the purposes other than trading such as loans, available for sale securities, interest bearing deposits, short term borrowings and long term borrowings. Interest rate risk occurs when interest bearing assets and liabilities reprice at different times as market interest rates change. For example, if fixed rate assets are funded with variable rate debt, the spread between asset and liability rates will decline or turn negative if rates increase. Interest rate risk is managed within an overall asset/liability framework for the Company. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net income to potential changes in interest rates. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs a sensitivity analysis in the form of a net interest income to help in the analysis. 0-90 days 90-365 days 1-5 Years Over 5 Years Total Interest Bearing Dep 3,507 3,507 Investment Securities 8,108 15,930 104,746 40,099 168,883 Loans 116,286 176,504 85,581 100,157 478,528 Total Rate Sensitive Assets 127,901 192,434 190,327 140,256 650,918 Deposits 127,052 213,654 235,012 0 575,718 Fed Funds Purchased & agreements to repur 19,827 19,827 Other Borrowings 5,000 624 11,102 16,726 Total Rate Sensitive Liabilities 146,879 218,654 235,636 11,102 612,271 Gap -18,978 -26,220 -45,309 129,154 38,647 5

PART II EXHIBIT AND REPORTS ON FORM 8-K ITEM 6 (A) The following documents are filed as part of this report: None (B) Reports on Form 8-K No reports on Form 8-K were filed by the registrant during the quarter ended June 30, 2002 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: August 10, 2002 By: /s/ Joe E. Crossgrove ---------------------------------- Joe E. Crossgrove President and Cashier Date: August 10, 2002 By: /s/ Randal H. Schroeder ---------------------------------- Randal H. Schroeder Vice-President and Sr. Operations Officer 7

EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT 99.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Farmers & Merchants Bancorp, Inc. on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission ("the Report"), I, Joe E. Crossgrove, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Farmers & Merchants Bancorp, Inc. as of the dates and for the periods expressed in the Report. Joe E. Grossgrove ------------------------- Joe E. Grossgrove, President And Chief Executive Officer Date: August 10, 2002 -----------------------

EXHIBIT 99.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Farmers & Merchants Bancorp, Inc. on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission ("the Report"), I, Barbara Britenriker, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 3. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 4. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Farmers & Merchants Bancorp, Inc. as of the dates and for the periods expressed in the Report. Barbara Britenriker ------------------------- Barbara Britenriker, Chief Financial Officer Date: August 10, 2002 -----------------------