Nine Months Ended
Sept 30, 2002 Sept 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,300 $ 5,971
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 1,095 916
Premium amortization 451 223
Discount amortization (61) (68)
Provision for loan losses 1,585 822
Provision for deferred income taxes (49) 14
(Gain) loss on sale of fixed assets (53) 6
(Gain) loss on sale of investment securities (64) (227)
Changes in Operating Assets and Liabilities:
Accrued interest receivable and other assets (295) (4,928)
Accrued interest payable and other liabilities 3,113 847
Net Cash Provided by Operating Activities 11,022 3,576
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,321) (2,313)
Proceeds from sale of fixed assets - -
Proceeds from maturities of investment securities: 45,998 28,759
Proceeds from sale of investment securities: 7,135 2,105
Purchase of investment securities- (41,506) (65,748)
Net increase in loans and leases (21,044) 20,182
Net Cash Used by Investing Activities (11,738) (17,015)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,787 39,227
Net change in short-term borrowings (2,441) 5,766
Increase in long-term borrowings - -
Payments on long-term borrowings (2,716) (13,075)
Payments of dividends (1,495) (1,365)
Net Cash Provided by Financing Activities 2,135 30,553
Net change in cash and cash equivalents 1,419 17,114
Cash and cash equivalents - Beginning of year 17,988 18,241
CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 19,407 $ 35,355
RECONCILIATION OF CASH AND CASH EQUIVALENTS:
Cash and cash due from banks $ 18,783 $ 10,643
Interest bearing deposits 624 12,557
Federal funds sold - 12,335
$ 19,407 $ 35,535
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 nine months ended
September 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 nine months ended September 30, 2002 comes
primarily from net income from operations of $5.3 million. This
compares with net income of $5.9 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 19.5 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 September 30, 2002 financial statements:
Primary Ratio 11.79%
Total Capital Ratio 14.16%
Risk Based Capital Tier 1 16.19%
Risk Based Capital Tier 2 21.05%
Stockholders' Equity/Total Assets 10.99%
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.
5
0-90 days 90-365 days 1-5 Years Over 5 Years Total
Interest Bearing Dep 624 624
Investment Securities 8,048 15,741 100,106 39,562 163,457
Loans 115,556 157,625 90,613 125,745 489,539
Total Rate
Sensitive Assets 124,228 173,366 190,719 165,307 653,620
Deposits 142,599 208,798 223,547 0 574,944
Fed Funds Purchased
& agreements to repur 24,098 24,098
Other Borrowings 5,000 414 9,280 14,694
Total Rate
Sensitive Liabilities 166,697 213,798 223,961 9,280 613,736
Gap -42,469 -40,432 -33,242 156,027 39,884
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 September 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, thereunto duly authorized.
Farmers & Merchants Bancorp, Inc.,
Date: November 1, 2002 By: /s/ Joe E. Crossgrove
-------------------------------
Joe E. Crossgrove
President and Cashier
Date: November 1, 2002 By: /s/ Randal H. Schroeder
--------------------------------
Randal H. Schroeder
Vice-President
and Sr. Operations Officer
As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of September 30, 2002. There have been no
significant changes in the Company's internal controls or in the other factors
that could significantly affect internal controls subsequent to September 30,
2002.
I, Joe E. Crossgrove, President/CEO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Farmers & Merchants
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11-1-02
----------------------
/s/ Joe E. Crossgrove
-----------------------
Joe E. Crossgrove
President/CEO
* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.
I, Barbara J. Britenriker, Sr. VP/CFO certify that:
1. I have reviewed this quarterly report on Form 10-Q of Farmers & Merchants
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 11-1-02
-------------------
/s/ Barbara J. Britenriker
--------------------------
Barbara J. Britenriker
Sr. VP/CFO
* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.
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.
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 September 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.
/s/ Joe E. Crossgrove
-------------------------
Joe E. Crossgrove, President
And Chief Executive Officer
Date: 11-1-02
-----------------------
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 September 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.
/s/ Barbara Britenriker
-------------------------
Barbara Britenriker,
Chief Financial Officer
Date: 11-1-02
---------------------
