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1 SECURTIES 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, 1998 OR Transition Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commisison 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 August 1, 1998
2 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, 1998, December 31, 1997 and June 30, 1997 1 Condensed Consolidated Statements of Net Earnings- Six Months Ended June 30, 1998 and June 30, 1997 2 Condensed Consolidated Statements of Cash Flows- Six Months Ended June 30, 1998 and June 30, 1997 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
3 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) June 30, 1998 December 31, 1997 June 30, 1997 ASSETS: Cash and due from banks $ 13,699 $ 16,213 $ 14,126 Interest bearing deposits with banks 100 100 145 Federal funds sold 21,050 6,485 - Investment Securities: U.S. Treasury 20,590 22,372 24,771 U.S. Government 33,275 31,313 31,137 State & political obligations 28,771 25,618 23,376 All others 24,361 20,584 17,799 Loans and leases 385,111 390,806 380,169 Bank premises and equipment-net 8,152 7,665 7,428 Accrued interest and other assets 7,373 7,117 7,501 TOTAL ASSETS $ 542,482 $ 528,273 $ 506,452 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 47,692 $ 51,163 $ 39,585 Time and savings 424,521 410,135 401,341 Federal funds purchased and securities sold under agreement to repurchase 2,833 2,598 6,457 Other borrowed money 10,922 11,292 8,651 Accrued interest and other liabilities 4,230 4,241 4,491 Total Liabilities 490,198 479,429 460,525 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 38,559 35,164 32,790 Accumulated other comprehensive income 1,048 971 460 Total Shareholders' Equity 52,284 48,844 45,927 LIABILITIES AND SHAREHOLDERS' EQUITY $ 542,482 $ 528,273 $ 506,452 See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 1997 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 Six Months Ended June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 INTEREST INCOME: Loans and leases $ 8,932 $ 8,457 $ 17,842 $ 16,857 Investment Securities: U.S. Treasury securities 337 385 676 773 Securities of U.S. Government agencies 473 521 954 1,062 Obligations of states and political subdivisions 353 308 691 609 Other 316 316 689 704 Federal funds 143 36 202 104 Deposits in banks - - 2 - Total Interest Income 10,554 10,023 21,056 20,109 INTEREST EXPENSE: Deposits 5,223 5,081 10,441 10,105 Borrowed funds 238 340 456 716 Total Interest Expense 5,461 5,421 10,897 10,821 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 5,093 4,602 10,159 9,288 PROVISION FOR LOAN LOSSES 331 249 470 462 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,762 4,353 9,689 8,826 OTHER INCOME: Service charges 347 274 644 569 Other 755 299 1,490 764 Net securities gains (losses) - (3) 0 (10) 1,102 570 2,134 1,323 OTHER EXPENSES: Salaries and wages 1,227 861 2,501 2,100 Pension and other employee benefits 277 290 574 544 Occupancy expense (net) 125 323 246 634 Other operating expenses 1,312 1,005 2,581 1,971 2,941 2,479 5,902 5,249 INCOME BEFORE FEDERAL INCOME TAX 2,923 2,444 5,921 4,900 FEDERAL INCOME TAXES 871 709 1,746 1,432 NET INCOME 2,052 1,735 4,175 3,468 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities 77 248 45 (268) COMPREHENSIVE INCOME $ 2,129 1,983 $ 4,220 3,200 NET INCOME PER SHARE (Based upon weighted average number of shares outstanding of 1,300,000 $ 1.58 $ 1.33 $ 3.21 $ 2.67 DIVIDENDS DECLARED $ 0.30 $ 0.25 $ 0.60 $ 0.50 See Notes to Condensed Consolidated Unaudited Financial Statements. 2
5 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) June 30, 1998 June 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,175 $ 3,468 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 351 326 Premium amortization 149 238 Discount amortization (37) (87) Provision for loan losses 470 462 Provision for deferred income taxes 5 (27) (Gain) loss on sale of fixed assets 7 - (Gain) loss on sale of investment securities - 10 Changes in Operating Assets and Liabilities: Accrued interest receivable and other assets (261) (390) Accrued interest payable and other liabilities (11) 756 Net Cash Provided by Operating Activities 4,848 4,756 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (845) (178) Proceeds from sale of fixed assets - - Proceeds from maturities of investment securities: 7,111 51,934 Proceeds from sale of investment securities: - 3,972 Purchase of investment securities- (14,288) (51,823) Net increase in loans and leases 5,225 (11,412) Net Cash Used by Investing Activities (2,797) (7,507) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 10,915 2,549 Net change in short-term borrowings 235 (306) Increase in long-term borrowings - - Payments on long-term borrowings (370) (347) Payments of dividends (780) (845) Net Cash Provided by Financing Activities 10,000 1,051 Net change in cash and cash equivalents 12,051 (1,700) Cash and cash equivalents - Beginning of year 22,798 15,971 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 34,849 $ 14,271 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 13,699 $ 14,126 Interest bearing deposits 100 145 Federal funds sold 21,050 - $ 34,849 $ 14,271 See Notes to Condensed Consolidated Unaudited Financial Statements. 3
6 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 three months ended June 30, 1998 are not necessarily indicative of the results that are expected for the year ended December 31, 1998. 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, 1997. 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 for the three months ended June 30, 1998 comes primarily from net income from operations of $4.2 million and increases in deposits of $10.9 million. This compares with net income of $3.5 million and deposit increases of $2.5 million for the same period for 1997. Total deposits as of June 30, 1998 were $472 million compared to $461 million as of December 31, 1997. A concerted marketing effort continues to be made in order to attract more core deposits to help maintain an acceptable net interest margin. Capital expenditures amounted to $286 thousand for the first three months of 1998. The following is a summary of five capital ratios as they are calculated from the March 31, 1998 financial statements: Primary Ratio 10.63% Total Capital Ratio 12.62% Risk Based Capital Tier 1 14.08% Risk Based Capital Tier 2 18.63% Stockholders' Equity/Total Assets 9.64% 5
8 PART II ITEM 6 EXHIBIT 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 June 30, 1998. 6
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 13,699 100 21,050 0 106,997 0 0 385,111 5,997 542,482 472,213 2,833 4,230 10,922 0 0 12,677 39,607 542,482 17,842 3,010 204 21,056 10,441 456 10,159 470 0 5,902 5,921 4,175 0 0 4,175 3.21 3.21 2.33 5,530 5,404 0 10,934 5,850 354 303 6,269 6,269 0 0