GlobeNewswire Inc | Apr 21, 2021 04:00PM EDT

April 21, 2021

ARCHBOLD, Ohio, April 21, 2021 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2021 first quarter ended March 31, 2021.

2021 First Quarter Financial Highlights Include (on a year-over-year basis unless noted):

-- Net income increased 19.6% to $4.9 million -- Earnings increased 18.9% to $0.44 per basic and diluted share -- Net interest income after provision for loan losses increased by 5.7% to $13.3 million, which included a $0.3 million increase in the first quarter provision for loan losses -- Noninterest income increased 59.9% to $5.0 million -- First quarter after-tax income benefited from $0.5 million of accelerated fees associated with the Paycheck Protection Program (PPP) -- Strong organic growth supported a 7.1% increase in net total loans and a 24.8% increase in total deposits -- Originated $43.5 million of new loans under the latest Paycheck Protection Program, helping F&M protect over 18,000 jobs throughout the program -- Return on average tangible equity increased to 10.10% from 9.13% for the first quarter last year -- Loans 30 days past due to total loans, excluding COVID related loans, was only 0.18% -- New full-service office in Fort Wayne, IN opened in 2021 second quarter

2021 is off to a strong start as our markets emerge from the COVID-19 crisis and we continue to focus on providing local services and leading financial products to our retail, commercial, and agriculture customers. As a result, we are gaining market share and benefitting from robust growth in loans, deposits, and noninterest income, which have helped us successfully offset higher provision for loan losses and operating expenses during the 2021 first quarter, stated Lars B. Eller, President and Chief Executive Officer. I am grateful to our team members who continue to work diligently and support the financial needs of our local customers and communities.

The acquisition of Ossian Financial Services is expected to close in the coming weeks, and we are well positioned to quickly integrate Ossian into F&Ms platform. Once completed, we expect the acquisition will add approximately $122 million in assets to F&M and will begin contributing to earnings in 2021. In addition, we expect to see the benefit to noninterest expense of our office realignment strategy over the next several quarters, and we will use a portion of the savings to reinvest in expanding our digital and online offerings.

Income StatementNet income for the 2021 first quarter ended March 31, 2021, was $4.9 million, compared to $4.1 million for the same period last year. Earnings per basic and diluted share for the 2021 first quarter was $0.44, compared to $0.37 for the same period last year.

Higher provision for loan losses and operating expenses were successfully offset by increased interest income, successful reductions in cost of funds, interest and fees earned from the Paycheck Protection Program, and a 59.9% or $1.9 million year-over-year increase in noninterest income. Increases in Customer Service Fees and Gain on sales of both 1-4 family mortgage loans and fixed rate agricultural loans were the biggest contributors in noninterest income. F&Ms provision for loan losses increased from $1.4 million for the three months ended March 31, 2020, to $1.7 million for the three months ended March 31, 2021, as the Company prudently increased its allowance of loan losses primarily associated with continued economic uncertainty caused by the COVID-19 crisis. In addition, noninterest expense increased by $1.7 million, due to higher operating expenses supporting a 20% larger Company in asset size and servicing a larger footprint. It also included a one-time expense of $0.3 million related to the Companys pension.

DepositsAt March 31, 2021, total deposits were $1.684 billion, an increase of 24.8% from March 31, 2020, and an increase of 5.5% from December 31, 2020. The significant organic deposit growth being experienced is a result of continued strength in expanding relationships with new and existing customers, and the benefits of PPP activity. In addition, we continue to see growing customer preferences to more stable and secure saving instruments as deposits have increased since the COVID-19 crisis began.

Loan Portfolio and Asset QualityTotal loans, net at March 31, 2021, increased 7.5% or by $94.0 million to $1.342 billion, compared to $1.248 billion at March 31, 2020, and up from $1.303 billion at December 31, 2020. The year-over-year improvement resulted primarily from the contribution of continued strong organic loan growth. In addition, during the 2021 first quarter, the Company processed $57.5 million of PPP loan forgiveness and principal payments received and originated $43.5 million of new PPP loans, resulting in a total of $12.777 million of PPP loans within F&Ms loan portfolio.

Mr. Eller continued, Since the start of the crisis, we strengthened our relationships by increasing the amount of financial relief, assistance, and advice we are providing customers. During the first quarter, we processed more than 1,200 new PPP loans, and throughout the PPP process, we have helped our small business customers protect more than 18,000 jobs within our markets.

Our local relationships continue to produce strong organic growth, and loans not including PPP loans, increased nearly 2.3% during the 2021 first quarter. We are experiencing organic loan growth across our Ohio, Indiana, and Michigan markets, due to our recently opened LPOs and our strong, experienced, and local lenders. Our agriculture portfolios are also demonstrating compelling growth and strong asset performance as farmers benefit from robust market dynamics.

Mr. Eller continued: At March 31, 2021 there were only five loans totaling $10.4 million of COVID-related payment modifications, all of which are interest-only modifications and secured by real estate. This compares to 190 loans representing a balance of $165 million in deferrals at the peak last year. Given the uncertainty surrounding the COVID-19 crisis, we continue to fund our allowance for loan and lease losses, which increased by 69.0% over the past 12 months. Our allowance for loan and lease losses to total loans, adjusted for our PPP balances, is now over 1.28% and includes the $1.5 million credit mark associated with the 2019 Bank of Geneva acquisition.

F&M continues to closely monitor its loan portfolio with a particular emphasis on higher risk sectors. Nonperforming loans were $8.1 million, or 0.61% of total loans at March 31, 2021, compared to $3.3 million, or 0.27% at March 31, 2020. The year-over-year increase in nonperforming loans is primarily due to the impacts of the COVID-19 crisis.

Mr. Eller concluded: 2021 is expected to be a transformative year for F&M. Throughout the year, we will focus on executing our strategic plan, completing and integrating the Ossian acquisition, integrating last years acquisition of Adams County Financial Resources, achieving the benefits from our office realignment program, and driving strong organic growth by supporting our local communities. I am proud of our continued strong performance and excited to update shareholders in the coming quarters on the progress we are making.

Stockholders Equity and DividendsTotal stockholders equity increased 4.4% to $246.8 million at March 31, 2021, from $236.5 million at March 31, 2020. At March 31, 2021, the Company had a Tier 1 leverage ratio of 10.39%, compared to 11.56% at March 31, 2020.

Tangible stockholders equity increased to $195.9 million at March 31, 2021, compared to $180.9 million at March 31, 2020. On a per share basis, tangible stockholders equity at March 31, 2021, was $17.50 per share, compared to $16.26 per share at March 31, 2020.

For the 2021 first quarter, the company declared cash dividends of $0.17 per share, which is a 6.3% increase over the 2020 first quarter declared dividend payment. F&M is committed to returning capital to shareholders and has increased the annual cash dividend for 26 consecutive years. For the 2021 first quarter, the dividend payout ratio was 38.48% compared to 43.07% for the same period last year.

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. 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 statementFarmers & 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 managements 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&Ms 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 SECs website, www.sec.gov or through F&Ms 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. A reconciliation of GAAP to non-GAAP financial measures is included within this press release.

Company Contact: Investor and Media Contact:Lars B. Eller Andrew M. BergerPresident and Chief Executive Officer Managing DirectorFarmers & Merchants Bancorp, Inc. SM Berger & Company, Inc.(419) 446-2501 (216) 464-6400leller@fm.bank andrew@smberger.com

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

Three Months Ended March 31, December 31, September June 30, March 31, 2021 2020 30, 2020 2020 2020Interest Income Loans, including $ 15,612 $ 17,061 $ 16,181 $ 16,192 $ 15,883 feesDebt securities: U.S. Treasury andgovernment 751 695 761 767 1,146 agenciesMunicipalities 308 295 279 243 262 Dividends 50 35 36 26 45 Federal funds sold 5 5 4 5 6 Other. 39 48 32 40 122 Total interest 16,765 18,139 17,293 17,273 17,464 incomeInterest Expense Deposits 1,340 1,619 1,864 2,254 2,901 Federal fundspurchased and securities soldunder agreements 166 170 174 187 244 to repurchaseBorrowed funds 222 226 231 257 266 Total interest 1,728 2,015 2,269 2,698 3,411 expenseNet Interest Income -Before Provision for 15,037 16,124 15,024 14,575 14,053 Loan LossesProvision for Loan 1,700 1,995 1,987 1,569 1,430 LossesNet Interest IncomeAfter Provision For 13,337 14,129 13,037 13,006 12,623 Loan LossesNoninterest Income Customer service 2,814 2,750 2,299 2,258 1,586 feesOther service 838 980 879 704 1,039 charges and feesNet gain on sale 1,046 1,894 1,537 364 227 of loansNet gain on saleof 293 - - - 270 available-for-salesecuritiesTotal noninterest 4,991 5,624 4,715 3,326 3,122 incomeNoninterest ExpenseSalaries and wages 4,390 5,068 5,102 4,095 4,223 Employee benefits 1,994 1,140 1,566 1,218 1,677 Net occupancy 577 585 558 564 564 expenseFurniture and 791 760 875 750 758 equipmentData processing 505 428 490 408 442 Franchise taxes 446 241 368 369 368 ATM expense 449 456 444 376 414 Advertising 235 353 411 265 303 Net (gain) loss onsale of other (25 ) 20 (7 ) (7 ) 1 assets ownedFDIC assessment 236 223 194 144 72 Mortgage servicingrights 505 247 296 356 132 amortizationConsulting fees 223 407 205 217 139 Other general and 2,033 1,358 1,553 1,612 1,575 administrativeTotal noninterest 12,359 11,286 12,055 10,367 10,668 expenseIncome Before 5,969 8,467 5,697 5,965 5,077 Income TaxesIncome Taxes 1,060 1,691 1,287 1,161 972 Net Income 4,909 6,776 4,410 4,804 4,105 OtherComprehensive Income (Loss) (Netof Tax):Net unrealized gain(loss) on (6,737 ) (207 ) 639 661 4,998 available-for-salesecuritiesReclassificationadjustment forrealized gain on sale (293 ) - - - (270 )of available-for-salesecuritiesNet unrealized gain(loss) on (7,030 ) (207 ) 639 661 4,728 available-for-salesecuritiesTax expense (1,476 ) (44 ) 134 139 993 (benefit)Othercomprehensive (5,554 ) (163 ) 505 522 3,735 income (loss)Comprehensive $ (645 ) $ 6,613 $ 4,915 $ 5,326 $ 7,840 Income (Loss)Basic and Diluted $ 0.44 $ 0.60 $ 0.40 $ 0.43 $ 0.37 Earnings Per ShareDividends Declared $ 0.17 $ 0.17 $ 0.17 $ 0.16 $ 0.16

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

March 31, 2021 December 31, September 30, June 30, 2020 March 31, 2020 2020 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Assets Cash and due from $ 118,139 $ 98,279 $ 46,395 $ 54,336 $ 49,844 banksFederal funds sold 57,361 77,427 41,358 31,105 40,993 Total cash and cash 175,500 175,706 87,753 85,441 90,837 equivalents Interest-bearing 4,405 4,653 4,657 4,636 4,869 time depositsSecurities - 352,974 307,812 259,041 236,292 204,121 available-for-saleOther securities, 5,939 5,939 5,827 5,810 5,810 at costLoans held for sale 7,511 8,391 7,621 11,445 2,153 Loans, net 1,327,254 1,288,667 1,351,979 1,334,790 1,239,108 Premises and 26,703 27,063 26,776 26,049 26,120 equipmentGoodwill 47,340 47,340 47,340 47,340 47,340 Mortgage servicing 3,444 3,320 3,027 2,740 2,672 rightsOther real estate 148 71 206 135 185 ownedBank owned life 25,347 25,208 15,501 15,399 15,313 insuranceOther assets 16,720 15,374 16,872 14,370 16,597 Total Assets $ 1,993,285 $ 1,909,544 $ 1,826,600 $ 1,784,447 $ 1,655,125 Liabilities andStockholders' EquityLiabilities Deposits Noninterest-bearing $ 384,558 $ 351,147 $ 330,845 $ 336,027 $ 261,786 Interest-bearing NOW accounts 605,533 542,317 534,792 504,846 463,734 Savings 451,043 455,145 392,059 374,871 341,256 Time 242,717 247,553 261,177 261,631 281,931 Total deposits 1,683,851 1,596,162 1,518,873 1,477,375 1,348,707 Federal Funds Purchased andsecurities soldunder agreements to 30,072 30,239 29,859 30,949 30,585 repurchaseFederal Home LoanBank (FHLB) 17,840 17,861 17,724 19,087 24,788 advancesDividend payable 1,889 1,889 1,882 1,768 1,768 Accrued expensesand other 12,805 14,233 14,841 14,971 12,820 liabilitiesTotal liabilities 1,746,457 1,660,384 1,583,179 1,544,150 1,418,668 Commitments and Contingencies Stockholders' EquityCommon stock - Nopar value 20,000,000 sharesauthorized; issuedand outstanding12,230,000 shares 3 82,030 81,804 81,577 82,134 81,844 /31/21 and 12/31/20Treasury stock -1,033,256 shares 3/31/ (11,962 ) (11,932 ) (12,397 ) (12,668 ) (12,636 )21, 1,032,456 shares12/31/20Retained earnings 176,617 173,591 168,381 165,476 162,416 Accumulated othercomprehensive 143 5,697 5,860 5,355 4,833 incomeTotal stockholders' 246,828 249,160 243,421 240,297 236,457 equity Total Liabilitiesand Stockholders' $ 1,993,285 $ 1,909,544 $ 1,826,600 $ 1,784,447 $ 1,655,125 Equity

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESSELECT FINANCIAL DATA For the Three Months EndedSelected financial March 31, 2021 December 31, September 30, June 30, 2020 March 31, 2020data 2020 2020Return on average 1.01% 1.43% 0.98% 1.10% 1.02% assetsReturn on average 7.87% 11.04% 7.28% 8.07% 7.06% equityYield on earning 3.71% 4.09% 4.04% 4.25% 4.66% assetsCost of interest 0.53% 0.64% 0.74% 0.91% 1.22% bearing liabilitiesNet interest spread 3.18% 3.45% 3.30% 3.34% 3.44% Net interest margin 3.33% 3.63% 3.51% 3.59% 3.75% Efficiency 62.57% 52.20% 62.11% 57.91% 63.09% Dividend payout ratio 38.48% 27.77% 42.66% 36.80% 43.07% Tangible book value $ 17.50 $ 17.19 $ 16.78 $ 16.33 $ 16.26 per share (1)Tier 1 capital to 10.39% 10.46% 10.65% 10.70% 11.56% average assetsAverage Shares 11,197,012 11,177,765 11,142,797 11,129,341 11,134,870 Outstanding Loans March 31, 2021 December 31, September 30, June 30, 2020 March 31, 2020 2020 2020(Dollar amounts in thousands)Commercial real $ 618,754 $ 588,825 $ 595,146 $ 589,382 $ 570,217 estateAgricultural real 179,945 189,159 192,883 194,606 194,383 estateConsumer real estate 175,675 175,588 175,963 174,069 174,731 Commercial and 202,958 189,246 238,175 223,842 143,261 industrialAgricultural 100,022 94,358 103,330 107,458 109,584 Consumer 54,445 52,540 53,320 50,108 49,022 Other 14,088 15,757 9,030 9,714 8,336 Less: Netdeferred loan fees (4,208 ) (2,483 ) (3,985 ) (4,456 ) (1,893 )and costsTotal loans,net $ 1,341,679 $ 1,302,990 $ 1,363,862 $ 1,344,723 $ 1,247,641 Asset quality data March 31, 2021 December 31, September 30, June 30, 2020 March 31, 2020 2020 2020(Dollar amounts in thousands)Nonaccrual loans $ 8,139 $ 9,404 $ 7,870 $ 8,473 $ 3,344 Troubled debt $ 5,774 $ 6,514 $ 7,028 $ 7,034 $ 1,934 restructuring90 day past due and $ - $ - $ - $ - $ - accruingNonperforming loans $ 8,139 $ 9,404 $ 7,870 $ 8,473 $ 3,344 Other real estate $ 148 $ 71 $ 206 $ 135 $ 185 ownedNonperforming assets $ 8,287 $ 9,475 $ 8,076 $ 8,608 $ 3,529 (Dollar amounts in thousands)Allowance for loan $ 14,425 $ 13,672 $ 11,883 $ 10,538 $ 8,533 and lease lossesAllowance for loanand lease losses/ 1.08% 1.05% 0.87% 0.78% 0.68% total loansNet charge-offs: Quarter-to-date $ 947 $ 205 $ 37 $ 169 $ 125 Year-to-date $ 947 $ 537 $ 331 $ 294 $ 125 Net charge-offs to average loansQuarter-to-date 0.07% 0.02% 0.00% 0.01% 0.01% Year-to-date 0.07% 0.04% 0.03% 0.02% 0.01% Nonperforming loans/ 0.61% 0.72% 0.58% 0.63% 0.27% total loansAllowance for loanand lease losses/ 177.24% 177.96% 151.01% 117.24% 256.66% nonperforming loans (1) Tangible Equity = Stockholder Equity less goodwill and other intangibles(core deposit intangible, mortgage servicing rights and unrealized gain/loss onsecurities)

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES 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, 2021 March 31, 2020 Interest Average Interest/ Annualized Average Interest/ AnnualizedEarning Balance Dividends Yield/Rate Balance Dividends Yield/Rate Assets:Loans $ 1,328,571 $ 15,612 4.70% $ 1,236,848 $ 15,883 5.14% TaxableInvestment 324,536 1,009 1.24% 190,158 1,321 2.78% SecuritiesTax-exemptInvestment 20,375 100 2.49% 28,832 132 2.32% SecuritiesFed Funds 136,663 44 0.13% 46,393 128 1.10% Sold & OtherTotalInterest 1,810,145 $ 16,765 3.71% 1,502,231 $ 17,464 4.66% EarningAssets Nonearning 126,579 114,326 Assets Total Assets $ 1,936,724 $ 1,616,557 InterestBearing Liabilities:Savings $ 1,014,392 $ 574 0.23% 773,130 1,485 0.77% DepositsOther Time 242,033 766 1.27% 277,579 1,416 2.04% DepositsOtherBorrowed 17,848 222 4.98% 24,787 266 4.29% MoneyFed FundsPurchased & SecuritiesSoldunder 30,210 166 2.20% 38,954 244 2.51% Agreement toRepurch.TotalInterest $ 1,304,483 $ 1,728 0.53% $ 1,114,450 $ 3,411 1.22% BearingLiabilities Noninterestbearing 382,640 269,550 Liabilities Stockholders $ 249,601 $ 232,557 Equity Net InterestIncome and $ 15,037 3.18% $ 14,053 3.44% interestrate spread Net Interest 3.33% 3.75% Margin Yields on Tax exempt securities and the portion of the tax-exemptIDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts

FARMERS & MERCHANTS BANCORP, INC.NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Non-GAAP Allowance for Loan Losses, excluding PPP Loans(in thousands of dollars, except percentages) For the Three Months Ended March 31, 2021 Allowance for Loan Losses $ 14,425 Credit Mark 1,500 Total Credit Mark & Allowance for Loan Losses 15,925 Loans $ 1,341,679 Adjustments PPP Loans (12,777 )Loans excluding PPP Loans $ 1,328,902 Allowance for Loan Losses 1.08 %Effect of Credit Mark 0.19 %Effect of PPP Loans 0.01 %Allowance for Loan Losses, excluding PPP Loans 1.28 %