Farmers & Merchants Bancorp, Inc. Reports Strong 2016 Third-Quarter Financial Results


ARCHBOLD, Ohio, Oct. 19, 2016 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (OTCQX:FMAO) today reported financial results for the 2016 third quarter ended September 30, 2016.

2016 Third Quarter Financial Highlights Include (on a year-over-year basis unless noted):

  • 54 consecutive quarters of profitability
  • Total assets up 9.1% to $1,044,447,000
  • Total loans increased 16.3% to $738,682,000
  • Net interest income after provision for loan losses increased 12.6% to $8,183,000
  • Net income increased 15.1% to $3,015,000
  • Earnings per basic and diluted shares increased 14.0% to $0.65
  • Return on average assets increased 7 basis points to 1.17%
  • Return on average equity increased 71 basis points to 9.58%
  • July quarterly dividend increased 4.5% to $0.23 per share

“Our financial results continued to demonstrate strong improvements in the 2016 third quarter as a result of strong loan growth, higher net interest margin, controlled operating expenses, and increased fee based income,” stated Paul S. Siebenmorgen, President and Chief Executive Officer.  “The double-digit loan growth we achieved in the third quarter, was a result of higher commercial real estate and commercial and industrial loans, which increased 22.7% and 25.6%, respectively from the prior year period. Our loan to deposit ratio at the end of the 2016 third quarter was 88.1%, which has increased 540 basis points from 82.7% at September 30, 2015. I am encouraged by these strong growth trends, which reflect the team of experienced commercial lenders we have assembled over the past several years, and F&M’s focus on managing risk with quick underwriting decisions and superior customer service.  Our local markets continue to show stable economic trends and we are cautiously optimistic 2016 will be another good year for the bank.” 

Income Statement
Net income for the 2016 third quarter ended September 30, 2016 was $3,015,000, or $0.65 per basic and diluted share compared to $2,620,000, or $0.57 per basic and diluted share for the same period last year. The 15.1% improvement in net income for the 2016 third quarter was primarily due to a 12.6% increase in interest income after provision for loan losses and a 3.1% increase in noninterest income, partially offset by a 6.3% increase in noninterest expense. 

Loan Portfolio and Asset Quality
Total loans at September 30, 2016 increased 16.3% to a record $738,682,000, compared to $635,239,000 at September 30, 2015, and up 7.7% from $685,878,000 at December 31, 2015.  Year-over-year loan growth was strong across the company’s lending areas and included a 22.7% increase in commercial real estate loans, a 15.7% increase in consumer loans, a 9.3% increase in agricultural real estate loans, an 8.2% increase in agricultural, and a 25.6% increase in commercial and industrial loans, offset by a 1.1% reduction in consumer real estate loans, and an 11.4% decrease in industrial development bonds. 

The company’s provision for loan losses for the 2016 third quarter was $308,000, compared to $234,000 for the 2015 third quarter. Year-to-date, the provision for loan losses was $924,000, compared to $540,000 for the same period last year. The third quarter increase in provision expense was a result of the significant growth the company has experienced in its loan portfolio. 

F&M’s loan quality remains strong as the allowance for loan losses to nonperforming loans was 584.2% at September 30, 2016, compared to 266.7% at September 30, 2015.  Net charge-offs for the third quarter ended September 30, 2016 were $189,000, or 0.03% of average loans, compared to $5,000 or 0.00% of average loans, at September 30, 2015. Year-to-date, net charge-offs were $369,000, or 0.05% of average loans outstanding, compared to $280,000, or 0.05% of average loans outstanding for the same period last year. 

Stockholders’ Equity and Dividends
Tangible stockholders’ equity increased to $122,048,000 at September 30, 2016, compared to $114,960,000 at December 31, 2015, and $114,276,000 at September 30, 2015.  On a per share basis, tangible stockholders’ equity at September 30, 2016 was $26.41, compared with $24.92 at December 31, 2015, and $24.71 at September 30, 2015. The increase in tangible stockholders’ equity is the result of growth in retained earnings due to increased profitability. At September 30, 2016, the company had a Tier 1 leverage ratio of 11.74%, compared to 11.98% at September 30, 2015.  The 24 basis point year-over-year decline was a result of the company’s average assets increasing at a faster pace than the company’s Tier 1 capital. 

For the 2016 third quarter, the company declared and raised the cash dividend by 4.5% to $0.23 per share, which represented a dividend payout ratio of 34.9% compared to 38.5% for the same period last year.

Mr. Siebenmorgen concluded, “We continue to work hard on extending our leadership position in our existing core-markets, while developing new markets, such as Ft. Wayne, Indiana and Bowling Green, Ohio.  We look forward to opening our Bowling Green location this month, after several construction-related delays. Home to Bowling Green State University and its nearly 17,000 students and more than 2,000 faculty members, Bowling Green is an exciting market supported by compelling demographics and a strong economic anchor.  In addition, the majority of deposits in this market are located at large, super-regional financial institutions.  We are optimistic, F&M’s customer focus, and community banking orientation will be a welcomed addition to the Bowling Green market, and we have assembled an experienced team to roll out F&M’s full suite of financial products and services.  I am encouraged by the direction we are headed as we execute our growth strategies, and focus on creating value for our customers, employees, and shareholders.”

About Farmers & Merchants State Bank:
The Farmers & Merchants State Bank is 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 23 offices. Our locations are in Fulton, Defiance, Henry, Lucas, Williams, and Wood counties in Northwest Ohio. In Northeast Indiana we have offices located in DeKalb, Allen 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

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME
(Unaudited; in thousands of dollars, except per share data)
 
  Three  Months Ended Nine Months Ended
  September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015
Interest Income              
Loans, including fees $8,629 $7,341  $24,997 $21,598 
Debt securities:              
U.S. Treasury and government agencies  559  603   1,734  1,819 
Municipalities  344  456   1,093  1,361 
Dividends  36  37   111  111 
Federal funds sold  7  2   9  7 
Other  15  5   37  21 
Total interest income  9,590  8,444   27,981  24,917 
Interest Expense              
Deposits  947  841   2,686  2,446 
Federal funds purchased and securities sold             
under agreements to repurchase  115  94   346  218 
Borrowed funds  37  -   110  - 
Total interest expense  1,099  935   3,142  2,664 
Net Interest Income - Before Provision for Loan Losses 8,491  7,509   24,839  22,253 
Provision for Loan Losses   308  243   924  540 
Net Interest Income After Provision              
For Loan Losses  8,183  7,266   23,915  21,713 
Noninterest Income              
Customer service fees  1,711  1,388   4,497  4,171 
Other service charges and fees  941  1,084   2,850  2,963 
Net gain on sale of loans  216  183   619  531 
Net gain on sale of available for sale securities 47  172   503  418 
Total noninterest income  2,915  2,827   8,469  8,083 
Noninterest Expense      
Salaries and Wages  2,981  2,714   8,661  8,083 
Employee benefits  849  804   2,426  2,555 
Net occupancy expense  359  289   1,083  1,012 
Furniture and equipment  438  475   1,293  1,324 
Data processing  360  318   1,132  967 
Franchise taxes  219  186   658  560 
Net (gain) loss on sale of other assets owned (6) 32   39  43 
FDIC Assessment  126  126   368  364 
Mortgage servicing rights amortization 123  93   311  276 
Other general and administrative  1,473  1,475   4,594  4,274 
Total noninterest expenses  6,922  6,512   20,565  19,458 
Income Before Income Taxes  4,176  3,581   11,819  10,338 
Income Taxes  1,161  961   3,349  2,770 
Net Income  3,015  2,620   8,470  7,568 
Other Comprehensive Income (Net of Tax):              
Net unrealized gain on available for sale securities  58  1,210   2,652  1,116 
Reclassification adjustment for gain on sale of available for sale securities  (47) (172)  (503) (418)
Net unrealized gain on available for sale securities  11  1,038   2,149  698 
Tax expense  4  353   731  237 
Other comprehensive income  7  685   1,418  461 
       
Comprehensive Income $3,022 $3,305  $9,888 $8,029 
Earnings Per Share - Basic and Diluted$0.65 $0.57  $1.84 $1.64 
Dividends Declared  $0.23 $0.22  $0.68 $0.65 
               


FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
   (in thousands of dollars)
     
   September 30, 2016 December 31, 2015
   (Unaudited)  
Assets        
Cash and due from banks $30,896 $21,333 
Federal funds sold    602    685 
 Total cash and cash equivalents 31,498  22,018 
         
Interest-bearing time deposits  1,915  - 
Securities - available-for-sale  224,473  235,115 
Other securities, at cost  3,717  3,717 
Loans, net  732,070  679,821 
Premises and equipment  21,356  20,587 
Goodwill  4,074  4,074 
Mortgage servicing rights  2,143  2,056 
Other real estate owned  1,412  1,175 
Other assets    21,789    20,505 
         
Total Assets $  1,044,447 $  989,068 
 Liabilities and Stockholders' Equity      
Liabilities       
Deposits       
 Noninterest-bearing $176,180 $171,112 
 Interest-bearing       
 NOW accounts  209,264  190,890 
 Savings  240,615  225,052 
 Time    212,042    184,285 
         
 Total deposits  838,101  771,339 
         
Federal Funds purchased and       
securities sold under agreements to repurchase 59,487  78,815 
Federal Home Loan Bank (FHLB) advances 10,000  10,000 
Dividend payable  1,053  1,007 
Accrued expenses and other liabilities   8,863    7,810 
         
 Total liabilities    917,504    868,971 
         
Commitments and Contingencies       
         
Stockholders' Equity       
Common shares - no par value - 6,500,000 shares 12/31/15      
Common shares - no par value - 10,000,000 shares 9/30/16      
 authorized, 5,200,000 shares issued and outstanding 11,841  12,086 
Treasury Stock - 578,705 shares 2016, 587,466 shares 2015 (12,251) (12,389)
Retained earnings  125,723  120,188 
Accumulated other comprehensive income   1,630    212 
         
 Total stockholders' equity    126,943    120,097 
         
Total Liabilities and Stockholders' Equity$  1,044,447 $  989,068 
         


  For the Three Months Ended For the Nine Months Ended
  September 30 September 30
                   
Selected financial data 2016
  2015
 2016
  2015
Return on average assets  1.17%   1.10%  1.11%   1.06%
Return on average equity  9.58%   8.87%  9.13%   8.64%
Yield on earning assets  4.03%   3.96%  4.00%   3.92%
Cost of interest bearing liabilities  0.60%   0.57%  0.59%   0.54%
Net interest spread  3.42%   3.39%  3.41%   3.38%
Net interest margin  3.57%   3.53%  3.56%   3.52%
Efficiency  60.09%   62.73%  61.70%   63.69%
Dividend payout ratio  34.93%   38.51%  36.71%   39.36%
Tangible book value per share$ 26.41  $ 24.71      
Tier 1 capital to average assets  11.74%   11.98%     
           
  September 30    
Loans 2016
  2015
     
(Dollar amounts in thousands)          
Commercial real estate$ 370,315  $ 301,841      
Agricultural real estate  60,206    55,059      
Consumer real estate  87,222    88,222      
Commercial and industrial  105,961    84,371      
Agricultural  79,191    73,193      
Consumer  30,585    26,440      
Industrial development bonds  5,892    6,649      
Less: Net deferred loan fees and costs  (690)   (536)     
Total loans$ 738,682  $ 635,239      
           
  September 30    
Asset quality data 2016
  2015
     
(Dollar amounts in thousands)          
Nonaccrual loans$ 1,132  $ 2,294      
Troubled debt restructuring$ 704  $ 1,239      
90 day past due and accruing$ -  $ -      
Nonperforming loans$ 1,132  $ 2,294      
Other real estate owned$ 1,412  $ 1,133      
Non-performing assets$ 2,544  $ 3,427      
           
(Dollar amounts in thousands)          
Allowance for loan and lease losses$ 6,612  $ 6,165      
Allowance for loan and lease losses/total loans  0.90%   0.97%     
Net charge-offs:          
Quarter-to-date$ 189  $ 5      
Year-to-date$ 369  $ 280      
Net charge-offs to average loans          
Quarter-to-date  0.03%   0.00%     
Year-to-date  0.05%   0.05%     
Non-performing loans/total loans  0.15%   0.36%     
Allowance for loan and lease losses/nonperforming loans  584.18%   266.69%     
               

            

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