Farmers & Merchants Bancorp, Inc. Reports Record 2020 First Quarter Financial Results

F&M is Committed and Well Positioned to Support Communities Throughout COVID-19 Crisis

ARCHBOLD, Ohio, April 24, 2020 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2020 first quarter ended March 31, 2020.

2020 First Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• Net interest income after provision for loan losses was stable at $12.6 million, despite a $1.4 million increase in the first quarter provision for loan losses
• Noninterest income increased 15.8% to $3.1 million
• Strong organic growth drove a 13.5% increase in net total loans and a 13.6% increase in total deposits
• Net income increased 27.3% to $4.1 million, or $0.37 per basic and diluted share
• Net charge-offs to average loans was 0.01%, compared to 0.02% for the same period last year
• Return on average assets was 1.02%, compared to 0.97% for the same period last year (last year’s first quarter included one-time tax adjusted expenses related to the Bank of Geneva acquisition)
• F&M remains well capitalized under regulatory guidelines with a tier 1 capital to average assets of 11.56% 

“For over 120 years, F&M has supported its local communities and we are committed to helping our retail, commercial, and agricultural customers through the unprecedented challenges created by the COVID-19 crisis,” stated Lars B. Eller, President and Chief Executive Officer. “While it is too early to understand the economic repercussions of the crisis, F&M’s strong financial and capital position provides us with the flexibility to navigate this period of uncertainty. In addition, our consistent loan and deposit growth over the past five years, demonstrates the strong relationships we have developed throughout our Ohio, Indiana, and Michigan communities. Our team members have rallied behind our customers and communities and I am grateful for all their efforts, hard work, and dedication. We are diligently working to protect our employees and customers, while quickly providing essential financial services, advice and resources to our customers. As a result, the majority of our workforce is either working from home or operating in staggered shifts, while our customers have embraced alternatives to lobby banking including drive-thru, online, digital, and mobile banking. Despite the adjustments we have made to our operations, I am proud to announce F&M has not furloughed any associates and has not reduced pay or salaries to any of our associates.” 

“As the crisis has evolved, we have strengthened our relationships by increasing the amount of financial relief, assistance, and advice we are providing customers. Since the onset of the COVID-19 crisis, we have started offering several financial relief programs to our customers including forbearance agreements for home loans, a ‘Skip-a-pay’ program for consumer installment loans, waiving late payment fees, offering interest only payment alternatives for commercial and ag customers, and temporarily reducing account fees by eliminating certain requirements on deposit accounts. In addition, as a community bank, we have the agility to respond to evolving market conditions, while offering quick financial support and decisions to our customers. Through our efforts, almost 500 loans to small business customers have been approved by the Small Business Administration for total consideration of nearly $70 million as a result of the Paycheck Protection Program. The success of this program has helped F&M provide the necessary financial resources to many of our small business customers who employ over 8,000 people.”

Income Statement
Net income for the 2020 first quarter ended March 31, 2020, was $4.1 million, compared to $3.2 million for the same period last year. Earnings per basic and diluted share for the 2020 first quarter was $0.37, compared to $0.29 for the same period last year. The 2019 first quarter earnings included $0.09 per basic and diluted share of one-time acquisition related expenses associated with the Limberlost acquisition.

Mr. Eller continued, “As the Federal Reserve reduced rates during the end of 2019, we adjusted our cost of interest-bearing liabilities. As a result, our net interest margin remained relatively stable and was 3.75% at March 31, 2020, compared to 3.87% for the same period last year and 3.60% at December 31, 2019. Late in the 2020 first quarter, the Federal Reserve announced emergency rate cuts of 50 and 100 basis points in response to the COVID-19 crisis. This resulted in a cost of funds for the month of March of 1.10%, which represents the lowest cost of funds we have had in over a year. We are also proactively controlling noninterest expenses and I am pleased with the continued improvements we have made to our efficiency ratio, despite enhancing our compensation structure during the quarter which resulted in approximately 30% of our associates receiving an increase in their annual salaries.” 

“We expect Federal Reserve rate cuts will put pressure on our net interest margin in the coming quarters. Helping offset some of the impact to net interest margin are fees we will receive associated with originating loans through the Paycheck Protection Program. In addition, lower rates have created a surge in the demand for home loans. In fact, at the end of the quarter our pipeline of home loans is three times higher than our previous record. F&M only keeps a portion of the home loans we originate, which helps reduce portfolio risk and generates noninterest income as we resell residential mortgages in the secondary market. Noninterest income during the first quarter increased 15.8% to $3.1 million, compared to the same period last year. We expect second quarter noninterest income to increase significantly as we benefit from fees associated with the high volume of Paycheck Protection Program loans and residential mortgages.” 

Deposits
At March 31, 2020, total deposits were $1.349 billion, an increase of 13.6% from March 31, 2019. The significant organic deposit growth we have been experiencing is a result of continued strength in expanding relationships with new and existing customers. In addition, we have recently experienced changing customer preferences to more stable and secure saving instruments as deposits have increased since the COVID-19 crisis began.

Loan Portfolio and Asset Quality
Total loans, net at March 31, 2020, increased 13.6% or by $149.2 million to $1.247 billion, compared to $1.098 billion at March 31, 2019, and up from $1.219 billion at December 31, 2019. The year-over-year improvement resulted primarily from the contribution of strong organic loan growth.

Mr. Eller continued, “Throughout our history, we have focused on measured growth, while maintaining a strong financial position and managing the risk of our loan portfolio. During the 2008 – 2009 financial crisis, F&M achieved strong profitability, was well-capitalized, did not participate in TARP, and continued to pay its quarterly cash dividend. We believe the lessons we learned during the 2008 – 2009 financial crisis, combined with the experience of our strong leadership team, board of directors, financial position, and capital levels provide us with the resources and platform to navigate this challenging period.”

“The COVID-19 pandemic combined with the country’s response to the crisis is materially impacting the ability of individuals, businesses and other entities to meet their financial obligations. Fortunately, F&M has no exposure to the energy sector, while our exposure to industries most likely impacted by the pandemic is limited. In fact, loans in the restaurant, hospitality (hotel) and entertainment industries represent 8.67% of our loan portfolio at March 31, 2020. We have only processed a total of $3.4 million of payment deferrals to customers in the restaurant and entertainment industries, while no hotel customers have currently requested payment deferrals reflecting our conservative underwriting standards and the strong balance sheets of our customers. During the first quarter we proactively increased our allowance for loan losses and incurred a $1.4 million provision, which was in addition to a higher provision in the fourth quarter as we completed a comprehensive review of each loan from the Bank of Geneva merger and prudently increased our allowance for the significant loan growth we experienced last year. We are proactively monitoring our loan portfolio and we will make the necessary adjustments to help our customers during this difficult period, while ensuring F&M’s financial strength.” 

Mr. Eller concluded: “F&M is vested in our communities and we are here to help as we all navigate the challenges associated with the COVID-19 crisis together. On behalf of the entire leadership team and board of directors, I would like to express our gratitude to our customers and employees. Thank you!” 

Stockholders’ Equity and Dividends
Total stockholders’ equity increased 9.0% to $236.5 million at March 31, 2020, from $216.9 million at March 31, 2019. At March 31, 2020, the company had a Tier 1 leverage ratio of 11.56%, compared to 13.07% at March 31, 2019.

Tangible stockholders’ equity increased to $180.9 million at March 31, 2020, compared to $167.1 million at March 31, 2019. On a per share basis, tangible stockholders’ equity at March 31, 2020, was $16.26 per share, compared to $15.05 per share at March 31, 2019.

For the 2020 first quarter, the company declared cash dividends of $0.16 per share, which is a 6.7% increase over the 2019 first quarter declared dividend payment. F&M is committed to returning capital to shareholders and has increased the annual cash dividend for over 20 consecutive years. For the 2020 first quarter, the dividend payout ratio was 43.07% compared to 42.77% for the same period last year.

About Farmers & Merchants State Bank:
Farmers & Merchants Bancorp, Inc. (“F&M”) (Nasdaq: FMAO), is the holding company for the Farmers & Merchants State Bank, a local independent community bank with $1.7 billion in assets 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 Exchange 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, capital market conditions, or the effects of the COVID-19 pandemic, and its impacts on our credit quality and business operations, as well as its impact on general economic and financial 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 or through F&M’s website www.fm.bank.

Non-GAAP Financial Measures 
This press release includes disclosure of financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Farmers & Merchants Bancorp, Inc. believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Farmers & Merchants Bancorp, Inc.’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP.

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME
(Unaudited) (in thousands of dollars, except per share data)

	Three  Months Ended
	March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
Interest Income
Loans, including fees	$	15,883			$	15,608			$	15,202			$	16,723			$	14,680
Debt securities:
U.S. Treasury and government agencies	1,146				840				972				816				713
Municipalities	262				225				190				211				211
Dividends	45				60				69				76				88
Federal funds sold	6				97				120				162				37
Other.	122				319				459				295				133
Total interest income	17,464				17,149				17,012				18,283				15,862
Interest Expense
Deposits	2,901				3,336				3,654				3,339				2,613
Federal funds purchased and securities sold
under agreements to repurchase	244				207				201				141				185
Borrowed funds	266				270				257				269				287
Total interest expense	3,411				3,813				4,112				3,749				3,085
Net Interest Income - Before Provision for Loan Losses	14,053				13,336				12,900				14,534				12,777
Provision for Loan Losses	1,430				728				247				133				30
Net Interest Income After Provision For Loan Losses	12,623				12,608				12,653				14,401				12,747
Noninterest Income
Customer service fees	1,586				1,732				1,722				1,694				1,578
Other service charges and fees	1,039				1,132				1,179				1,091				1,041
Net gain on sale of loans	227				119				260				196				102
Net gain (loss) on sale of available-for-sale securities	270				-				-				-				(26		)
Total noninterest income	3,122				2,983				3,161				2,981				2,695
Noninterest Expense
Salaries and wages	4,223				4,029				4,158				3,830				4,312
Employee benefits	1,677				1,410				1,331				1,223				1,594
Net occupancy expense	564				406				630				614				667
Furniture and equipment	758				596				720				763				696
Data processing	442				396				482				376				1,299
Franchise taxes	368				246				248				229				258
ATM expense	414				434				416				418				447
Advertising	303				340				587				382				260
Net loss on sale of other assets owned	1				16				22				28				15
FDIC assessment	72				(11		)		-				98				96
Mortgage servicing rights amortization	132				158				149				105				75
Consulting fees	139				264				196				95				113
Other general and administrative	1,602				1,482				1,667				1,551				1,679
Total noninterest expense	10,695				9,766				10,606				9,712				11,511
Income Before Income Taxes	5,050				5,825				5,208				7,670				3,931
Income Taxes	945				1,102				933				1,490				707
Net Income	4,105				4,723				4,275				6,180				3,224
Other Comprehensive Income (Loss) (Net of Tax):
Net unrealized gain (loss) on available-for-sale securities	4,998				(472		)		841				3,061				1,749
Reclassification adjustment for (gain) loss on sale of available-for-sale securities	(270		)		-				-				-				26
Net unrealized gain (loss) on available-for-sale securities	4,728				(472		)		841				3,061				1,775
Tax expense (benefit)	993				(99		)		176				643				373
Other comprehensive income (loss)	3,735				(373		)		665				2,418				1,402
Comprehensive Income	$	7,840			$	4,350			$	4,940			$	8,598			$	4,626
Basic and Diluted Earnings Per Share	$	0.37			$	0.43			$	0.38			$	0.56			$	0.29
Dividends Declared	$	0.16			$	0.16			$	0.15			$	0.15			$	0.15

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands of dollars, except per share data)

		March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
		(Unaudited)								(Unaudited)				(Unaudited)				(Unaudited)
Assets
Cash and due from banks		$	49,844			$	50,137			$	103,188			$	108,085			$	48,740
Federal funds sold		40,993				1,159				11,404				15,193				33,109
Total cash and cash equivalents		90,837				51,296				114,592				123,278				81,849
Interest-bearing time deposits		4,869				4,309				4,554				4,509				4,509
Securities - available-for-sale		204,121				222,293				190,465				204,415				174,682
Other securities, at cost		5,810				5,810				5,789				5,789				5,789
Loans held for sale		2,153				4,248				606				1,909				859
Loans, net		1,239,108				1,211,771				1,151,937				1,084,448				1,091,829
Premises and equipment		26,120				26,351				25,990				26,013				25,205
Goodwill		47,340				47,340				47,340				47,340				47,340
Mortgage servicing rights		2,672				2,629				2,556				2,465				2,397
Other real estate owned		185				214				351				329				510
Bank owned life insurance		15,313				15,235				15,151				15,050				14,963
Other assets		16,597				15,834				15,549				15,002				15,729
Total Assets		$	1,655,125			$	1,607,330			$	1,574,880			$	1,530,547			$	1,465,661
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing		$	261,786			$	265,156			$	261,719			$	242,510			$	236,847
Interest-bearing
NOW accounts		463,734				423,655				430,646				430,505				418,773
Savings		341,256				322,973				310,667				293,179				272,875
Time		281,931				276,563				274,996				276,153				258,929
Total deposits		1,348,707				1,288,347				1,278,028				1,242,347				1,187,424
Federal Funds Purchased and
securities sold under agreements to repurchase		30,585				48,073				30,056				27,102				25,521
Federal Home Loan Bank (FHLB) advances		24,788				24,806				24,669				24,532				24,682
Dividend payable		1,768				1,768				1,657				1,654				1,654
Accrued expenses and other liabilities		12,820				14,078				13,062				10,865				9,446
Total liabilities		1,418,668				1,377,072				1,347,472				1,306,500				1,248,727
Commitments and Contingencies
Stockholders' Equity
Common stock - No par value 20,000,000 shares authorized; issued
and outstanding 12,230,000 shares 3/31/20 and 12/31/19		81,844				81,535				81,264				81,955				81,760
Treasury stock - 1,100,579 shares 3/31/20, 1,093,065 shares 12/31/19		(12,636		)		(12,456		)		(12,453		)		(12,707		)		(12,680		)
Retained earnings		162,416				160,081				157,126				153,993				149,466
Accumulated other comprehensive income (loss)		4,833				1,098				1,471				806				(1,612		)
Total stockholders' equity		236,457				230,258				227,408				224,047				216,934
Total Liabilities and Stockholders' Equity		$	1,655,125			$	1,607,330			$	1,574,880			$	1,530,547			$	1,465,661

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
SELECT FINANCIAL DATA

		For the Three Months Ended
Selected financial data		March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
Return on average assets			1.02%				1.18%				1.10%				1.63%				0.97%
Return on average equity			7.06%				8.26%				7.54%				11.21%				5.99%
Yield on earning assets			4.66%				4.63%				4.74%				5.25%				4.80%
Cost of interest bearing liabilities			1.22%				1.40%				1.55%				1.45%				1.26%
Net interest spread			3.44%				3.23%				3.19%				3.80%				3.54%
Net interest margin			3.75%				3.60%				3.60%				4.18%				3.87%
Efficiency			63.09%				63.67%				65.86%				56.00%				73.11%
Dividend payout ratio			43.07%				43.34%				38.67%				26.78%				42.77%
Tangible book value per share (1)		$	16.26			$	16.01			$	15.68			$	15.49			$	15.05
Tier 1 capital to average assets			11.56%				11.52%				11.45%				11.77%				13.07%
Loans		March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
(Dollar amounts in thousands)
Commercial real estate		$	570,217			$	551,309			$	502,137			$	443,257			$	440,993
Agricultural real estate			194,383				199,105				200,791				193,768				191,752
Consumer real estate			174,731				165,349				159,074				159,540				160,967
Commercial and industrial			143,261				135,631				130,150				125,609				137,949
Agricultural			109,584				111,820				110,270				113,755				112,898
Consumer			49,022				49,237				49,552				48,952				47,647
Other			8,336				8,314				8,167				7,341				7,392
Less: Net deferred loan fees and costs			(1,893	)			(1,766	)			(1,445	)			(1,091	)			(1,133	)
Total loans,net		$	1,247,641			$	1,218,999			$	1,158,696			$	1,091,131			$	1,098,465
Asset quality data		March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
(Dollar amounts in thousands)
Nonaccrual loans		$	3,344			$	3,400			$	3,275			$	1,328			$	1,188
Troubled debt restructuring		$	1,934			$	956			$	1,051			$	981			$	173
90 day past due and accruing		$	-			$	-			$	-			$	-			$	-
Nonperforming loans		$	3,344			$	3,400			$	3,275			$	1,328			$	1,188
Other real estate owned		$	185			$	214			$	351			$	329			$	510
Nonperforming assets		$	3,529			$	3,614			$	3,626			$	1,657			$	1,698
(Dollar amounts in thousands)
Allowance for loan and lease losses		$	8,533			$	7,228			$	6,759			$	6,964			$	6,636
Allowance for loan and lease losses/total loans			0.68%				0.59%				0.58%				0.64%				0.60%
Net charge-offs:
Quarter-to-date		$	125			$	295			$	171			$	86			$	169
Year-to-date		$	125			$	685			$	426			$	255			$	169
Net charge-offs to average loans
Quarter-to-date			0.01%				0.03%				0.02%				0.01%				0.02%
Year-to-date			0.01%				0.06%				0.04%				0.02%				0.02%
Nonperforming loans/total loans			0.27%				0.28%				0.28%				0.12%				0.11%
Allowance for loan and lease losses/nonperforming loans			256.66%				187.17%				173.25%				375.51%				558.92%
(1)  Tangible Equity = Stockholder Equity less goodwill and other intangibles (core deposit intangible, mortgage servicing rights and unrealized gain/loss on securities)

FARMERS & MERCHANTS BANCORP, INC.
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(in thousands of dollars, except percentages)

		For the Three Months Ended								For the Three Months Ended
		March 31, 2020								March 31, 2019
Interest Earning Assets:		Average Balance			Interest/ Dividends			Yield/ Rate		Average Balance			Interest/ Dividends			Yield/ Rate
Loans		$	1,236,848		$	15,883		5.14%		$	1,108,031		$	14,680		5.30%
Taxable Investment Securities		190,158			1,321			2.78%		151,885			842			2.22%
Tax-exempt Investment Securities		28,832			132			2.32%		34,513			170			2.49%
Fed Funds Sold & Other		46,393			128			1.10%		31,394			170			2.17%
Total Interest Earning Assets		1,502,231			$	17,464		4.66%		1,325,823			$	15,862		4.80%
Nonearning Assets		114,326								4,540
Total Assets		$	1,616,557							$	1,330,363
Interest Bearing Liabilities:
Savings Deposits		$	773,130		$	1,485		0.77%		671,227			1,527			0.91%
Other Time Deposits		277,579			1,416			2.04%		243,342			1,086			1.79%
Other Borrowed Money		24,787			266			4.29%		29,392			287			3.91%
Fed Funds Purchased & Securities
Sold under Agreement to Repurch.		38,954			244			2.51%		33,794			185			2.19%
Total Interest Bearing Liabilities		$	1,114,450		$	3,411		1.22%		$	977,755		$	3,085		1.26%
Noninterest bearing Liabilities		269,550								137,279
Stockholders Equity		$	232,557							$	215,329
Net Interest Income and interest rate spread					$	14,053		3.44%					$	12,777		3.54%
Net Interest Margin								3.75%								3.87%
Yields on Tax exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts

Company Contact:	Investor and Media Contact:
Lars B. Eller	Andrew M. Berger
President and Chief Executive Officer	Managing Director
Farmers & Merchants Bancorp, Inc.	SM Berger & Company, Inc.
[phone]	[phone]
[e-mail]	[e-mail]