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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 September 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 -------- -------- Commision 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 October 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- September 30, 1998, December 31, 1997 and September 30, 1997 1 Condensed Consolidated Statements of Net Earnings- Three Months and Nine Months Ended September 30, 1998 and September 30 2 Condensed Consolidated Statements of Cash Flows- Three Months and Nine Months Ended September 30, 1998 and September 30 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) Sept 30, 1998 December 31, 1997 Sept 30, 1997 ASSETS: Cash and due from banks $ 15,528 $ 16,213 $ 12,315 Interest bearing deposits with banks 100 100 145 Federal funds sold 9,935 6,485 - Investment Securities: U.S. Treasury 17,286 22,372 23,434 U.S. Government 40,486 31,313 30,440 State & political obligations 30,727 25,618 23,604 All others 24,617 20,584 12,849 Loans and leases 396,281 390,806 387,454 Bank premises and equipment-net 8,918 7,665 7,351 Accrued interest and other assets 7,287 7,117 7,705 TOTAL ASSETS $551,165 $528,273 $505,297 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 40,771 $ 51,163 $ 36,958 Time and savings 437,345 410,135 403,943 Federal funds purchased and securities sold under agreement to repurchase 3,443 2,598 3,202 Other borrowed money 10,432 11,292 8,473 Accrued interest and other liabilities 4,561 4,241 4,859 Total Liabilities 496,552 479,429 457,435 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 40,244 35,164 35,185 Accumulated other comprehensive income 1,690 1,002 0 Total Shareholders' Equity 54,611 48,844 47,862 LIABILITIES AND SHAREHOLDERS' EQUITY $551,163 $528,273 $505,297 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.
4 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) Three Months Ended Nine Months Ended Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997 INTEREST INCOME: Loans and leases $ 9,064 $ 8,860 $26,906 $23,885 Investment Securities: U.S. Treasury securities 281 373 957 1,094 Securities of U.S. Government agencies 585 486 1,539 1,569 Obligations of states and political subdivisions 407 304 1,097 915 Other 375 255 1,064 579 Federal funds 218 8 420 303 Deposits in banks 1 -- 3 -- Total Interest Income 10,931 10,286 31,986 28,345 INTEREST EXPENSE: Deposits 5,364 5,034 15,805 14,887 Borrowed funds 222 360 678 733 Total Interest Expense 5,586 5,394 16,483 15,620 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 5,345 4,892 15,503 12,725 PROVISION FOR LOAN LOSSES 222 374 692 790 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,123 4,518 14,811 11,935 OTHER INCOME: Service charges 337 294 980 818 Other 663 469 2,153 1,192 Net securities gains (losses) -- 6 0 -- 1,000 769 3,133 2,010 OTHER EXPENSES: Salaries and wages 1,444 1,065 3,946 3,639 Pension and other employee benefits 331 279 905 738 Occupancy expense (net) 134 332 379 949 Other operating expenses 1,339 1,014 3,920 2,882 3,248 2,690 9,150 8,208 INCOME BEFORE FEDERAL INCOME TAX 2,875 2,597 8,794 5,737 FEDERAL INCOME TAXES 800 750 2,546 1,653 NET INCOME 2,075 1,847 6,248 4,084 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities 642 1,048 610 -- COMPREHENSIVE INCOME $ 2,717 $ 2,895 $ 6,858 $ 4,084 NET INCOME PER SHARE (Based upon weighted average number of shares outstanding of 1,300,000 $ 1.60 $ 1.33 $ 4.81 $ 2.67 DIVIDENDS DECLARED $ 0.30 $ 0.25 $ 0.60 $ 0.50 See Notes to Condensed Consolidated Unaudited Financial Statements.
5 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) Nine Months Ended Sept 30, 1998 Sept 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,248 $ 3,468 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 536 326 Premium amortization 190 238 Discount amortization (38) (87) Provision for loan losses 692 462 Provision for deferred income taxes 20 (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 (190) (390) Accrued interest payable and other liabilities 320 756 Net Cash Provided by Operating Activities 7,785 4,756 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,796) (178) Proceeds from sale of fixed assets -- -- Proceeds from maturities of investment securities: 15,411 51,934 Proceeds from sale of investment securities: -- 3,972 Purchase of investment securities- (28,101) (51,823) Net increase in loans and leases (6,167) (11,412) Net Cash Used by Investing Activities (20,653) (7,507) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 16,818 2,549 Net change in short-term borrowings 845 (306) Increase in long-term borrowings -- -- Payments on long-term borrowings (860) (347) Payments of dividends (1,170) (845) Net Cash Provided by Financing Activities 15,633 1,051 Net change in cash and cash equivalents 2,765 (1,700) Cash and cash equivalents - Beginning of year 22,798 15,971 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 25,563 $ 14,271 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 15,528 $ 14,126 Interest bearing deposits 100 145 Federal funds sold 9,935 -- $ 25,563 $ 14,271 See Notes to Condensed Consolidated Unaudited Financial Statements. 2
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 March 31, 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. 3
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 nine months ended September 30, 1998 comes primarily from net income from operations of $6.2 million and increases in deposits of $16.8 million. This compares with net income of $4.1 million and deposit increases of $2.5 million for the same period for 1997. Total deposits as of September 30, 1998 were $478,056 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. The principal uses of these funds were for granting loans. Loans as of September 30, 1998 were $402.2 million compared to $390.8 million as of December 31, 1997, a $11.4 million or 2.9% increase after reclassification of $7.8 million of commercial paper from the loan category to other investments. December 31, 1997 and September 30, 1997 loans and investments have been restated to reflect this change in classification. Capital expenditures amounted to $1.8 million for the first nine months of 1998. The following is a summary of five capital ratios as they are calculated from the September 30, 1998 financial statements: Primary Ratio 10.87% Total Capital Ratio 12.74% Risk Based Capital Tier 1 14.22% Risk Based Capital Tier 2 18.48% Stockholders' Equity/Total Assets 9.91% 4
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 March 31, 1998. 5
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 9, 1998 By: /s/ Joe E. Crossgrove Joe E. Crossgrove President and Cashier Date: November 9, 1998 By: /s/ Randal H. Schroeder Randal H. Schroeder Asst. Vice-President and Chief Operating Officer 6
10 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 27 Financial Data Schedule 7
9 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 15,528 100 9,935 0 113,116 0 0 396,281 5,927 551,165 478,116 3,443 4,561 10,432 0 0 12,677 41,934 551,163 26,906 4,657 423 31,986 15,805 678 15,503 692 0 9,150 8,794 6,248 0 0 6,248 4.81 4.81 0 7,731 6,222 0 13,953 5,850 1,324 709 5,927 5,927 0 0