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1 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, 1999 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, 1999
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- March 31, 1999, December 31, 1998 and June 30, 1999 1 Condensed Consolidated Statements of Net Earnings- Six Months Ended June 30, 1999 and June 30, 1999 2 Condensed Consolidated Statements of Cash Flows- Six Months Ended June 30, 1999 and June 30, 1999 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, 1999 December 31, 1998 June 30, 1998 ASSETS: Cash and due from banks $ 14,101 $ 18,549 $ 13,699 Interest bearing deposits with banks 100 100 100 Federal funds sold 0 19,045 21,050 Investment Securities: U.S. Treasury 10,956 17,112 20,590 U.S. Government 52,751 49,567 33,275 State & political obligations 33,453 35,520 28,771 All others 16,229 21,712 24,361 Loans and leases 425,285 407,721 385,111 Bank premises and equipment-net 9,491 9,430 8,152 Accrued interest and other assets 8,647 7,113 7,373 TOTAL ASSETS $571,013 $585,869 $542,482 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 60,883 $ 52,631 $ 47,692 Time and savings 429,721 459,552 424,521 Federal funds purchased and securities sold under agreement to repurchase 8,968 2,916 2,833 Other borrowed money 10,846 11,240 10,922 Accrued interest and other liabilities 4,186 4,180 4,230 Total Liabilities 514,604 530,519 490,198 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 43,598 41,002 38,559 Accumulated other comprehensive income 134 1,671 1,048 Total Shareholders' Equity 56,409 55,350 52,284 LIABILITIES AND SHAREHOLDERS' EQUITY $571,013 $585,869 $542,482 See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 1998 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, 1999 June 30, 1998 June 30, 1999 June 30, 1998 INTEREST INCOME: Loans and leases $ 8,827 $ 8,932 $ 17,329 $ 17,842 Investment Securities: U.S. Treasury securities 198 337 443 676 Securities of U.S. Government agencies 821 473 1,624 954 Obligations of states and political subdivisions 418 353 844 691 Other 304 316 785 689 Federal funds 9 143 75 202 Deposits in banks 1 - 2 2 Total Interest Income 10,578 10,554 21,102 21,056 INTEREST EXPENSE: Deposits 4,852 5,223 10,024 10,441 Borrowed funds 243 238 469 456 Total Interest Expense 5,095 5,461 10,493 10,897 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 5,483 5,093 10,609 10,159 PROVISION FOR LOAN LOSSES 183 331 598 470 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,300 4,762 10,011 9,689 OTHER INCOME: Service charges 398 347 714 644 Other 378 755 893 1,490 Net securities gains (losses) - - 11 - 776 1,102 1,618 2,134 OTHER EXPENSES: Salaries and wages 1,503 1,227 2,966 2,501 Pension and other employee benefits 354 277 713 574 Occupancy expense (net) 155 125 263 246 Other operating expenses 1,586 1,312 3,128 2,581 3,598 2,941 7,070 5,902 INCOME BEFORE FEDERAL INCOME TAX 2,478 2,923 4,559 5,921 FEDERAL INCOME TAXES 627 871 1,172 1,746 NET INCOME 1,851 2,052 3,387 4,175 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities (723) 77 (1,538) 45 COMPREHENSIVE INCOME $ 1,128 $ 2,129 $ 1,849 $ 4,220 NET INCOME PER SHARE (Based upon weighted average number of shares outstanding of $ 1.42 $ 1.58 $ 2.61 $ 3.21 DIVIDENDS DECLARED $ 0.30 $ 0.30 $ 0.60 $ 0.60 See Notes to Condensed Consolidated Unaudited Financial Statements. 2
5 FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) Three Months Ended June 30, 1999 June 30, 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,387 $ 2,121 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 622 171 Premium amortization 210 116 Discount amortization (83) (35) Provision for loan losses 598 139 Provision for deferred income taxes (52) (8) (Gain) loss on sale of fixed assets 6 8 (Gain) loss on sale of investment securities (11) - Changes in Operating Assets and Liabilities: Accrued interest receivable and other assets (1,482) (189) Accrued interest payable and other liabilities 6 320 Net Cash Provided by Operating Activities 3,201 2,643 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (689) (286) Proceeds from sale of fixed assets - - Proceeds from maturities of investment securities: 25,521 41,558 Proceeds from sale of investment securities: 9,825 - Purchase of investment securities- (26,475) (35,155) Net increase in loans and leases (18,162) (16,939) Net Cash Used by Investing Activities (9,980) (10,822) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits (21,579) 3,344 Net change in short-term borrowings 6,052 (32) Increase in long-term borrowings - - Payments on long-term borrowings (394) (184) Payments of dividends (790) (650) Net Cash Provided by Financing Activities (16,711) 2,478 Net change in cash and cash equivalents (23,490) (5,701) Cash and cash equivalents - Beginning of year 37,694 22,798 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 14,204 $ 17,097 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 14,101 $ 14,502 Interest bearing deposits 100 100 Federal funds sold - 2,495 $ 14,201 $ 17,097 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 six months ended June 30, 1999 are not necessarily indicative of the results that are expected for the year ended December 31, 1999. 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, 1998. 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 six months ended June 30, 1999 comes primarily from net income from operations of $3.4 million. This compares with net income of $4.2 million for the same period in 1998. In addition the excess in Federal Funds sold was used to help fund the additional loan growth. The principal uses of these funds were for granting loans. Loans as of June 30, 1999 were $425.3 million compared to $407.7 million as of December 31, 1998, a $17.6 million or 4.3% increase after reclassification of $1.7 million of commercial paper from the loan category to other investments. December 31, 1998 and June 30, 1998 loans and investments have been restated to reflect this change in classification. Capital expenditures amounted to $689 million for the first six months of 1999. The following is a summary of five capital ratios as they are calculated from the June 30, 1999 financial statements: Primary Ratio 10.87% Total Capital Ratio 12.74% Risk Based Capital Tier 1 14.11% Risk Based Capital Tier 2 18.40% Stockholders' Equity/Total Assets 9.88% 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 March 31, 1998. 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: Aug 12, 1999 By: /s/ Joe E. Crossgrove Joe E. Crossgrove President and Cashier Date: Aug 12, 1999 By: /s/ Randal H. Schroeder Randal H. Schroeder Asst. Vice-President and Chief Operating Officer 7
10 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
9 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 14,101 100 0 0 113,389 0 0 425,285 6,324 571,013 490,604 8,968 4,186 10,846 0 0 12,677 43,732 571,013 17,329 3,696 77 21,102 10,024 469 10,609 598 11 7,070 4,559 3,387 0 0 3,387 2.61 2.61 0 7,731 6,222 0 13,953 5,850 1,324 709 5,833 5,833 0 0