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

February 13, 2019

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 [email protected]	Andrew M. Berger Managing Director SM Berger & Company, Inc. (216) 464-6400 [email protected]

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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