Farmers & Merchants Bancorp, Inc. Reports Record 2018 Fourth-Quarter and Full-Year Financial Results

Wall Street Business News

ARCHBOLD, Ohio, Feb. 13, 2019 (GLOBE NEWSWIRE) — Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2018 fourth quarter and twelve months ended December 31, 2018.

2018 Fourth Quarter Financial Highlights Include (on a year-over-year basis unless noted):

  • 63 consecutive quarters of profitability
  • Net interest income after provision for loan losses increased 6.3% to $10,081,000
  • Net income was $3,193,000 and included $742,000 of one-time merger related expenses
  • Earnings per basic and diluted share were $0.34 and included $0.07 per basic and diluted share of one-time merger related expenses
  • Return on average assets, excluding one-time merger related expenses, was 1.39%, compared to 1.25% for the same period last year
  • Return on average equity, excluding one-time merger related expenses, was 10.92%, compared to 10.29% for the same period last year

2018 Full-Year Financial Highlights Include (on a year-over-year basis unless noted):

  • Net interest income after provision for loan losses increased 10.1% to $39,533,000
  • Net income increased 17.5% to a record $14,949,000 and included $742,000 of one-time merger related expenses
  • Earnings per basic and diluted share increased 16.7% to a record $1.61 and included $0.07 per basic and diluted share of one-time merger related expenses
  • Excluding one-time merger related expenses, earnings per basic and diluted share increased 21.7% 
  • Total deposits increased $9,450,000 to $928,790,000
  • Return on average assets, excluding one-time merger related expenses, was 1.40%, compared to 1.18% for the same period last year
  • Return on average equity, excluding one-time merger related expenses, was 11.34%, compared to 9.75% for the same period last year
  • Tangible book value per share increased 6.9% to $14.96

“For the fourth consecutive year, F&M has achieved record results including record assets and earnings, and we ended 2018 with strong operational and financial momentum,” stated Lars B. Eller, President and Chief Executive Officer. “This is an exciting time at the company as we focus on integrating the Limberlost Bancshares acquisition, continuing our geographic expansion, and investing in new ways to engage with and provide value for our customers.  During the fourth quarter, we incurred one-time merger related expenses of $742,000, or $0.07 per basic and diluted share.  Backing out these one-time expenses, earnings per basic and diluted share increased 10.8% during the fourth quarter and 21.7% for 2018.  We are successfully integrating the Limberlost acquisition and I am pleased to report our system conversion was completed in January 2019 with no material business or customer disruptions.  With the contribution of Limberlost, F&M now has total assets of approximately $1.5 billion, loans of approximately $1.1 billion, and deposits of approximately $1.1 billion. The combination of Limberlost and F&M creates a compelling opportunity for future growth, and we are excited by the opportunities we have in 2019 and beyond.” 

Income Statement
Net income for the 2018 fourth quarter ended December 31, 2018, was $3,193,000, or $0.34 per basic and diluted share, compared to $3,436,000, or $0.37 per basic and diluted share for the same period last year. The 2018 fourth quarter included $742,000 of one-time expenses related to the Limberlost acquisition that was announced on August 20, 2018 and closed on January 1, 2019. 

Net income for 2018 was $14,949,000, or $1.61 per basic and diluted share compared to $12,720,000, or $1.38 per basic and diluted share for the twelve months ended December 31, 2017.  The 17.5% improvement in net income for 2018 was primarily due to a 10.1% increase in net interest income after provision for loan losses and the benefits of the Tax Cut and Jobs Act, partially offset by a 12.1% increase in noninterest expense.  The increase in noninterest expenses was primarily due to $742,000 of one-time expenses related to the Limberlost acquisition.

Loan Portfolio and Asset Quality
Total loans at December 31, 2018, increased by $23,350,000 to $846,374,000, compared to $823,024,000 at December 31, 2017. The year-over-year improvement resulted primarily from a 2.3% increase in commercial real estate loans, a 14.1% increase in agricultural loans, an 11.1% increase in consumer loans, and a 7.1% increase in agricultural real estate.

The company’s provision for loan losses for the 2018 fourth quarter was $105,000, compared to $25,000 for the 2017 fourth quarter.  The provision for loan losses for 2018 was $324,000, compared to $222,000 in 2017. 

F&M’s loan quality remains strong as the allowance for loan losses to nonperforming loans was 1,249.6% at December 31, 2018, compared to 684.8% at December 31, 2017.  Net charge-offs for the year ended December 31, 2018 were $417,000, or 0.05% of average loans, compared to $138,000 or 0.02% of average loans, at December 31, 2017. 

Stockholders’ Equity and Dividends
Tangible stockholders’ equity increased to $138,885,000 as of December 31, 2018, compared to $129,667,000 at December 31, 2017.  On a per share basis, tangible stockholders’ equity at December 31, 2018 was $14.96 compared to $13.99 at December 31, 2017. The increase in tangible stockholders’ equity is the result of growth in retained earnings due to increased profitability.  At December 31, 2018, the company had a Tier 1 leverage ratio of 12.81%, compared to 12.02% at December 31, 2017. 

For 2018, the company declared cash dividends of $0.56 per share, which is a 12.0% increase over 2017’s declared dividend.  For 2018, the dividend payout ratio was 34.40% compared to 36.02% for the same period last year.

Mr. Eller continued, “F&M’s success is a direct result of the value we provide customers throughout Northwest Ohio, Northeast Indiana, and Southern Michigan. These markets support compelling growth opportunities for F&M as a result of stable economic trends and our strengthening market position.  During 2019, we plan on opening a new office in southwest Fort Wayne and we have recently relocated our Decatur office to a new freestanding location.  While we are focused on growth and expansion, we continue to proactively manage risk and ended 2018 with excellent asset quality.  Nonperforming loans declined to 0.06% of total loans, compared to 0.12% last year.” 

“I appreciate Paul Siebenmorgen’s support through the leadership transition and on behalf of everyone at F&M, I want to thank him for his 14 plus years of experience, dedication and service to F&M.  Since I joined the company in September 2018, I have had the privilege to engage with many of F&M’s customers, employees, and shareholders.  I am confident in the direction we are headed and believe 2019 will be a strong year for the bank,” concluded Mr. Eller. 

About Farmers & Merchants Bancorp, Inc.:
Farmers & Merchants Bancorp, Inc. (“F&M”) (NASDAQ: FMAO), is the holding company for the Farmers & Merchants State Bank, a local independent community bank that has been serving Northwest Ohio and Northeast Indiana since 1897. The Farmers & Merchants State Bank provides commercial banking, retail banking and other financial services through its 30 offices. Our locations are in Fulton, Defiance, Hancock, Henry, Lucas, Williams, and Wood counties in Northwest Ohio. In Northeast Indiana, we have offices located in Adams, Allen, DeKalb, Jay and Steuben counties.

Safe harbor statement
Farmers & Merchants Bancorp, Inc. (“F&M”) wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. Statements by F&M, including management’s expectations and comments, may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Act of 1934, as amended. Actual results could vary materially depending on risks and uncertainties inherent in general and local banking conditions, competitive factors specific to markets in which F&M and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions. F&M assumes no responsibility to update this information. For more details, please refer to F&M’s SEC filing, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q. Such filings can be viewed at the SEC’s website, www.sec.gov.

Company Contact: Investor and Media Contact:
Marty Filogamo
Senior Vice President – Marketing Manager
Farmers & Merchants Bancorp, Inc.
(419) 445-3501 ext. 15435
mfilogamo@fm.bank
Andrew M. Berger
Managing Director
SM Berger & Company, Inc.
(216) 464-6400
andrew@smberger.com

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME (Unaudited)
(in thousands of dollars, except per share data)
 
  Three  Months Ended    Twelve Months Ended 
  December
31, 2018
  September
30, 2018
  June
30, 2018
  March
31, 2018
  December
31, 2017
  December
31, 2018
  December
31, 2017
Interest Income                        
Loans, including fees $   10,955     $   10,725     $   10,521     $   10,102     $   9,828     $   42,303     $   37,195  
Debt securities:                        
U.S. Treasury and government agencies     630         613         612         623         610         2,478         2,480  
Municipalities      250         275         289         281         288         1,095         1,193  
Dividends     56         56         53         55         52         220         187  
Federal funds sold and other     112         84         62         75         90         333         193  
Total interest income     12,003         11,753         11,537         11,136         10,868         46,429         41,248  
Interest Expense                        
Deposits     1,670         1,611         1,389         1,319         1,194         5,989         4,483  
Federal funds purchased and securities sold                         
under agreements to repurchase     127         134         118         124         131         503         497  
Borrowed funds     20         20         20         20         37         80         147  
Total interest expense     1,817         1,765         1,527         1,463         1,362         6,572         5,127  
Net Interest Income – Before Provision for Loan Losses     10,186         9,988         10,010         9,673         9,506         39,857         36,121  
Provision for Loan Losses      105         47         132         40         25         324         222  
Net Interest Income After Provision For Loan Losses     10,081         9,941         9,878         9,633         9,481         39,533         35,899  
Noninterest Income                        
Customer service fees     1,612         1,392         1,465         1,466         1,478         5,935         5,609  
Other service charges and fees     1,032         1,097         1,040         1,012         1,054         4,181         4,268  
Net gain on sale of loans      140         184         301         132         211         757         811  
Net gain (loss) on sale of available-for-sale securities     (19 )       10         –         –         –         (9 )       47  
Total noninterest income      2,765         2,683         2,806         2,610         2,743         10,864         10,735  
Noninterest Expense                        
Salaries and wages     3,834         3,391         3,225         3,310         3,239         13,760         12,613  
Employee benefits     1,102         1,029         848         1,136         987         4,115         3,635  
Net occupancy expense     451         478         441         387         268         1,757         1,489  
Furniture and equipment     450         588         565         507         402         2,110         1,858  
Data processing     318         364         305         331         294         1,318         1,213  
Franchise taxes     244         243         228         239         226         954         902  
ATM expense     368         327         333         312         320         1,340         1,173  
Advertising     218         236         247         186         209         887         757  
Net loss on sale of other assets owned     27         1         (1 )       17         –         44         27  
FDIC assessment     77         81         81         87         83         326         330  
Mortgage servicing rights amortization      100         84         95         85         87         364         353  
Consulting fees     461         179         178         110         98         928         377  
Other general and administrative     1,167         1,125         1,093         933         992         4,318         4,004  
Total noninterest expense     8,817         8,126         7,638         7,640         7,205         32,221         28,731  
Income Before Income Taxes     4,029         4,498         5,046         4,603         5,019         18,176         17,903  
Income Taxes     836         623         932         836         1,583         3,227         5,183  
Net Income     3,193         3,875         4,114         3,767         3,436         14,949         12,720  
Other Comprehensive Income (Loss) (Net of Tax):                        
Net unrealized gain (loss) on available-for-sale securities     2,374         (617 )       (344 )       (2,471 )       (1,717 )       (1,058 )       267  
Reclassification adjustment for (gain) loss on sale of available-for-sale
  securities
    19         (10 )       –         –         –         9         (47 )
Net unrealized gain (loss) on available-for-sale securities     2,393         (627 )       (344 )       (2,471 )       (1,717 )       (1,049 )       220  
Tax expense (benefit)     503         (132 )       (72 )       (519 )       (585 )       (220 )       74  
Other comprehensive income (loss)     1,890         (495 )       (272 )       (1,952 )       (1,132 )       (829 )       146  
Comprehensive Income $   5,083     $   3,380     $   3,842     $   1,815     $   2,304     $   14,120     $   12,866  
Basic and Diluted Earnings Per Share $   0.34     $   0.42     $   0.44     $   0.41     $   0.37     $   1.61     $   1.38  
Dividends Declared $   0.15     $   0.14     $   0.14     $   0.13     $   0.13     $   0.56     $   0.50  
                                       

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
   
  (in thousands of dollars)
  December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018   December 31, 2017
  (Unaudited)                
Assets                  
Cash and due from banks $   37,492     $   28,782     $   31,838     $   39,349     $   33,480  
Federal funds sold     873         939         726         559         987  
Total cash and cash equivalents     38,365         29,721         32,564         39,908         34,467  
                   
Interest-bearing time deposits     4,019         4,019         4,019         4,019         4,018  
Securities – available-for-sale      168,447         183,075         187,036         192,859         196,398  
Other securities, at cost     3,679         3,717         3,717         3,717         3,679  
Loans held for sale     495         1,679         913         2,769         1,221  
Loans, net     839,599         831,943         824,226         827,937         816,156  
Premises and equipment     22,612         22,117         21,957         21,980         21,617  
Construction in progress     3         –         –         –         109  
Goodwill     4,074         4,074         4,074         4,074         4,074  
Mortgage servicing rights     2,385         2,373         2,356         2,313         2,299  
Other real estate owned      600         717         649         651         674  
Bank owned life insurance     14,884         14,799         14,692         14,604         14,523  
Other assets      17,001         9,778         9,129         8,911         7,774  
                   
Total Assets $   1,116,163     $   1,108,012     $   1,105,332     $   1,123,742     $   1,107,009  
Liabilities and Stockholders’ Equity                  
Liabilities                  
Deposits                   
Noninterest-bearing $   215,422     $   197,088     $   200,067     $   193,665     $   199,114  
Interest-bearing                  
    NOW accounts      298,254         314,873         311,185         327,433         298,711  
    Savings     227,701         230,306         238,167         245,895         233,949  
    Time     187,413         186,592         181,347         186,345         187,566  
            Total deposits     928,790         928,859         930,766         953,338         919,340  
                   
Federal Funds Purchased and                
  securities sold under agreements to repurchase     32,181         27,026         23,898         23,307         39,495  
Federal Home Loan Bank (FHLB) advances      –         5,000         5,000         5,000         5,000  
Dividend payable     1,379         1,287         1,284         1,193         1,193  
Accrued expenses and other liabilities     10,526         6,493         6,808         6,027         7,844  
            Total liabilities     972,876         968,665         967,756         988,865         972,872  
                   
Commitments and Contingencies                  
                   
Stockholders’ Equity                  
Common stock – No par value 20,000,000 shares authorized;            
  issued and outstanding 10,400,000 shares 12/31/18 and 12/31/17     10,823         10,589         11,842         11,690         11,546  
Treasury stock – 1,114,739 shares 12/31/18, 1,134,120 shares 12/31/17     (12,409 )       (12,409 )       (12,186 )       (12,158 )       (12,160 )
Retained earnings     147,887         146,072         142,330         139,483         136,577  
Accumulated other comprehensive loss     (3,014 )       (4,905 )       (4,410 )       (4,138 )       (1,826 )
            Total stockholders’ equity      143,287         139,347         137,576         134,877         134,137  
                   
Total Liabilities and Stockholders’ Equity $   1,116,163     $   1,108,012     $   1,105,332     $   1,123,742     $   1,107,009  

  For the Three Months Ended   For the Twelve Months Ended
Selected financial data   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018   December 31, 2017   December 31, 2018     December 31, 2017
Return on average assets     1.15 %     1.40 %     1.48 %     1.35 %     1.25 %   1.34 %     1.18 %
Return on average equity     9.04 %     11.19 %     12.08 %     11.20 %     10.29 %   10.86 %     9.75 %
Yield on earning assets     4.52 %     4.52 %     4.41 %     4.28 %     4.24 %   4.46 %     4.16 %
Cost of interest bearing liabilities     0.92 %     0.92 %     0.79 %     0.75 %     0.71 %   0.86 %     0.68 %
Net interest spread     3.60 %     3.60 %     3.62 %     3.53 %     3.53 %   3.60 %     3.48 %
Net interest margin     3.85 %     3.85 %     3.83 %     3.72 %     3.72 %   3.83 %     3.65 %
Efficiency     67.59 %     63.86 %     60.89 %     61.88 %     58.15 %   63.19 %     60.62 %
Dividend payout ratio     43.16 %     33.21 %     31.21 %     31.67 %     34.72 %   25.18 %     36.02 %
Tangible book value per share (1)   $   14.96     $   14.53     $   14.36     $   14.06     $   13.99            
Tier 1 capital to average assets     12.81 %     12.63 %     12.38 %     12.11 %     12.02 %          
                   
                 
Loans   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018   December 31, 2017          
(Dollar amounts in thousands)                                        
Commercial real estate   $   419,784      $    417,217      $    411,509      $    415,296      $    410,520            
Agricultural real estate       68,609         68,548         69,701         67,596         64,073            
Consumer real estate       80,766         83,134         82,853         84,501         83,620            
Commercial and industrial       121,793         119,536         116,351         123,439         126,275            
Agricultural       108,495         103,624         104,830         99,836         95,111            
Consumer       41,953         41,444         40,513         38,569         37,757            
Industrial development bonds       5,889         6,005         6,071         6,350         6,415            
  Less: Net deferred loan fees and costs       (915 )       (810 )       (813 )       (850 )       (747 )          
Total loans,net   $   846,374      $    838,698      $    831,015      $    834,737      $    823,024            
         
           
Asset quality data   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018   December 31, 2017        
(Dollar amounts in thousands)                                    
Nonaccrual loans   $   542     $   483     $   903     $   900      $    1,003          
Troubled debt restructuring   $   178     $   205     $   218     $   527      $    683          
90 day past due and accruing   $   –     $   –     $   –     $   –      $    –            
Nonperforming loans   $   542     $   483     $   903     $   900      $    1,003          
Other real estate owned   $   600     $   717     $   649     $   651      $    674          
Non-performing assets   $   1,142     $   1,200     $   1,552     $   1,551      $    1,677          
                                     
(Dollar amounts in thousands)                                    
Allowance for loan and lease losses   $ 6,755     $ 6,755     $ 7,104     $ 6,800     $   6,868        
Allowance for loan and lease losses/total loans   0.80 %     0.81 %     0.85 %     0.81 %     0.83 %        
Net charge-offs:                                
  Quarter-to-date   $ 84     $ 81     $ 143     $ 108     $   27          
  Year-to-date   $ 417     $ 332     $ 251     $ 108     $   138          
Net charge-offs to average loans                                  
  Quarter-to-date   0.01 %     0.01 %     0.02 %     0.01 %   0.00 %        
  Year-to-date   0.05 %     0.04 %     0.03 %     0.01 %     0.02 %        
Non-performing loans/total loans   0.06 %     0.06 %     0.11 %     0.11 %   0.12 %        
Allowance for loan and lease losses/nonperforming loans   1249.57 %     1399.58 %     751.49 %     755.19 %   684.83 %        
 
(1)  Tangible Equity = Stockholder Equity less goodwill and other intangibles (core deposit intangible)  

 

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