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1 UNITED STATES 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 September 30, 1997 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 014492 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.) 307-11 North Defiance Street, Archbold, Ohio 43502 (Address of principal executive offices) (Zip Code) (419) 446-2501 Registrant's Telephone Number, including area code Not applicable (Former name, former address, and former fiscal year, if changed since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 November 1, 1997
2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q FARMERS & MERCHANTS BANCORP, INC. INDEX FORM 10-Q ITEMS PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- September 30, 1997, December 31, 1996 and September 30, 1996 1 Condensed Consolidated Statements of Income- Three Months and Year to Date Ended September 30, 1997 and September 30, 1996 2 Condensed Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1997 and September 30, 1996 3 Notes to Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition Results of Operations 5 PART II.OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K 6 SIGNATURES 7
3 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) Sep 30, 1997 Dec 31, 1996 Sep 30, 1996 ASSETS: Cash and due from banks $ 12,315 $ 15,871 $ 14,233 Interest bearing deposits in other banks 145 100 145 Investment Securities: U.S. Treasury 23,434 27,827 26,975 U.S. Government Agencies 30,440 32,896 32,254 State & political obligations 23,604 21,678 23,991 All others 12,849 19,320 17,247 Loans and leases 387,454 369,219 369,216 Bank premises and equipment 7,351 7,576 7,521 Accrued interest and other assets 7,705 6,962 7,306 TOTAL ASSETS $505,297 $501,449 $498,888 LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Deposits: Demand $ 36,958 $ 50,019 $ 38,210 Time and savings 403,943 388,358 393,758 Federal funds purchased and securities sold under agreement to repurchase 3,202 6,763 11,903 Other borrowed money 8,473 8,998 9,193 Accrued interest and other liabilities 4,859 3,930 3,948 TOTAL LIABILITIES 457,435 458,068 457,012 SHAREHOLDERS' EQUITY: Common stock, no par value - authorized 1,500,000 shares, issued 1,300,000 shares in 1997 and 1996 12,677 12,677 12,677 Undivided profits 35,185 30,704 29,199 TOTAL SHAREHOLDERS' EQUITY 47,862 43,381 41,876 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $505,297 $501,449 $498,888 See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 1996 Balance Sheet has been derived from the audited financial statements of that date. 1
4 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) Three Months Ended Nine Months Ended Sep 30, 1997 Sep 30, 1996 Sep 30, 1997 Sep 30, 1996 INTEREST INCOME: Loans and leases $ 8,860 $ 8,144 $ 25,717 $ 23,885 Investment Securities: U.S. Treasury 373 418 1,146 1,094 U.S. Government Agencies 486 537 1,548 1,569 States & Political Subdivisions 304 331 913 915 Other 255 272 959 579 Federal funds sold 8 2 112 303 TOTAL INTEREST INCOME 10,286 9,704 30,395 28,345 INTEREST EXPENSE: Deposits 5,034 5,058 15,139 14,887 Short-term borrowings 74 362 209 284 Other borrowed money 286 147 867 449 TOTAL INTEREST EXPENSE 5,394 5,567 16,215 15,620 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 4,892 4,137 14,180 12,725 PROVISION FOR LOAN LOSSES 374 377 836 790 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,518 3,760 13,344 11,935 OTHER INCOME: Service charges 294 285 863 818 Other 469 424 1,233 1,192 Securities gains (losses) 6 -- (4) -- TOTAL OTHER INCOME 769 709 2,092 2,010 OTHER EXPENSE: Salaries 1,065 1,241 3,165 3,639 Pension and employee benefits 279 273 823 738 Occupancy 332 332 966 949 Other operating 1,014 781 2,985 2,882 TOTAL OTHER EXPENSES 2,690 2,627 7,939 8,208 NET INCOME BEFORE INCOME TAX 2,597 1,842 7,497 5,737 PROVISION FOR INCOME TAX 750 492 2,182 1,653 NET INCOME $ 1,847 $ 1,350 $ 5,315 $ 4,084 NET INCOME PER SHARE (Based upon weighted average number of shares outstanding of 1,300,000 for 1997 and 1996 $ 1.42 $ 1.04 $ 4.09 $ 3.14 DIVIDENDS PER SHARE DECLARED $ 0.25 $ 0.25 $ 0.25 $ 0.25 See Notes to Condensed Consolidated Unaudited Financial Statements. 2
5 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (in thousands of dollars) Nine Months Ended Sep 30, 1997 Sep 30, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,315 $ 4,084 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation & amortization 498 549 Premium amortization 354 463 Discount accretion (123) (131) Provision for loan losses 836 790 Provision for deferred taxes 47 (209) (Gain) loss on sale of securities 4 -- Changes in Operating Assets & Liabilities: Accrued interest receivable and other assets (790) (389) Accrued interest payable and other payables 1,124 406 TOTAL CASH PROVIDED BY OPERATING ACTIVITIES 7,265 5,563 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (273) (872) Proceeds from sale of available for sale securities 7,045 -- Proceeds from maturities of available for sale securities 58,078 -- Purchase of available for sale securities (53,823) (16,939) Net change in loans and leases (19,071) (30,328) TOTAL CASH USED BY INVESTING ACTIVITIES (8,044) (48,139) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits 2,524 27,978 Net change in short-term borrowings (3,561) 4,984 Payment on long-term borrowings (525) (469) Payment of dividends (1,170) (1,300) TOTAL CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,732) 31,193 NET CHANGE IN CASH FLOWS (3,511) (11,383) CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 15,971 25,761 CASH AND CASH EQUIVALENTS END OF PERIOD $ 12,460 $ 14,378 RECONCILEMENT OF CASH AND CASH EQUIVALENTS Cash and due from banks $ 12,315 $ 14,233 Interest bearing deposits 145 145 TOTAL CASH AND CASH EQUIVALENTS $ 12,460 $ 14,378 See Notes to Condensed Consolidated Unaudited Financial Statements. 3
6 FARMERS & MERCHANTS BANCORP, INC. Notes to Condensed Consolidated Unaided 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, 1997 are not necessarily indicative of the results that are expected for the year ended December 31, 1997. 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, 1996. On June 28, 1996, the Board of Directors authorized a five-for-one stock split, thereby increasing the total number of shares authorized to 1,500,000 and the total number of shares issued and outstanding to 1,300,000. All references in the accompanying financial statements have been restated to reflect the stock split. 4
7 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 has continued to be enhanced by the generation of cash through operations, primarily by reduction in expenses, and the collection of interest income from productive assets. The rate of increase for capital expenditures has slowed with the completion of the renovation of the main office and the implementation of the new proof system. There will be reasonable increases in this area due to the major renovation of one of the branch offices. During the first nine months of 1997 the bank's loan portfolio has increased $18,235,000. This represents a 5% increase. This was the primary use of cash over the period. An increase of $2,524,000 in deposits was noted for the nine months ended September 30, 1997. This represents a 1% increase. A concerted effort is being implemented to attract more "core" deposits. The following is a list of five capital ratios as they are calculated from the September 30, 1997 financial statements: Primary Ratio 10.33% Total Capital Ratio 11.99% Risk Based Capital Tier 1 13.33% Risk Based Capital Tier 2 17.37% Stockholders' Equity/Total Assets 9.31% 5
8 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this Report: Exhibit No. Description 27 Financial Data Schedule (B) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 1997. 6
9 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 11, 1997 By: /s/ Joe E. Crossgrove Joe E. Crossgrove President and Cashier Date: November 11, 1997 By: /s/ Randal H. Schroeder Randal H. Schroeder Asst. Vice-President and Chief Operating Officer 7
10 EXHIBIT INDEX EXHIBIT 27 Financial Data Schedule
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 12,315 145 0 0 90,327 0 0 387,454 0 505,297 440,901 3,202 4,859 8,473 0 0 12,677 35,185 505,297 25,717 4,566 112 30,395 15,139 1,076 14,180 836 (4) 7,939 7,497 7,497 0 0 5,315 4.09 4.09 3.61 1,947 3,786 0 5,733 5,500 1,172 618 5,782 5,782 0 0