Farmers & Merchants Bancorp, Inc. Reports Record 2021 First Quarter Financial Results

Rhea-AI Summary

Farmers & Merchants Bancorp, Inc. (FMAO) reported a strong first quarter for 2021, with net income rising 19.6% to $4.9 million and earnings per share climbing 18.9% to $0.44. Net interest income increased by 5.7% to $13.3 million, aided by a 24.8% surge in total deposits. The company originated $43.5 million in new loans under the Paycheck Protection Program, helping protect over 18,000 jobs. Total stockholders' equity grew by 4.4% to $246.8 million. The firm aims to complete its acquisition of Ossian Financial Services, which is expected to positively impact earnings in 2021.

Positive

• Net income increased 19.6% to $4.9 million.
• Earnings per share rose 18.9% to $0.44.
• Net interest income up 5.7% to $13.3 million.
• Noninterest income soared 59.9% to $5.0 million.
• Total deposits increased 24.8% to $1.684 billion.
• Loans increased 7.5% to $1.342 billion.
• Dividend per share increased 6.3% to $0.17.

Negative

• Provision for loan losses increased from $1.4 million to $1.7 million.
• Nonperforming loans rose to $8.1 million, or 0.61% of total loans.

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&M’s 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 Statement
Net 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&M’s 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 Company’s pension.

Deposits
At 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 Quality
Total 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&M’s 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 year’s 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 Dividends
Total 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 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. A reconciliation of GAAP to non-GAAP financial measures is included within this press release.

Company Contact:	Investor and Media Contact:
Lars B. Eller President and Chief Executive Officer Farmers & Merchants Bancorp, Inc. (419) 446-2501 leller@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
			March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Interest Income
Loans, including fees			$	15,612			$	17,061			$	16,181			$	16,192			$	15,883
Debt securities:
U.S. Treasury and government agencies				751				695				761				767				1,146
Municipalities				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 income				16,765				18,139				17,293				17,273				17,464
Interest Expense
Deposits				1,340				1,619				1,864				2,254				2,901
Federal funds purchased and securities sold
under agreements to repurchase				166				170				174				187				244
Borrowed funds				222				226				231				257				266
Total interest expense				1,728				2,015				2,269				2,698				3,411
Net Interest Income - Before Provision for Loan Losses				15,037				16,124				15,024				14,575				14,053
Provision for Loan Losses				1,700				1,995				1,987				1,569				1,430
Net Interest Income After Provision For Loan Losses				13,337				14,129				13,037				13,006				12,623
Noninterest Income
Customer service fees				2,814				2,750				2,299				2,258				1,586
Other service charges and fees				838				980				879				704				1,039
Net gain on sale of loans				1,046				1,894				1,537				364				227
Net gain on sale of available-for-sale securities				293				-				-				-				270
Total noninterest income				4,991				5,624				4,715				3,326				3,122
Noninterest Expense
Salaries 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 expense				577				585				558				564				564
Furniture and equipment				791				760				875				750				758
Data 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 on sale of other assets owned				(25	)			20				(7	)			(7	)			1
FDIC assessment				236				223				194				144				72
Mortgage servicing rights amortization				505				247				296				356				132
Consulting fees				223				407				205				217				139
Other general and administrative				2,033				1,358				1,553				1,612				1,575
Total noninterest expense				12,359				11,286				12,055				10,367				10,668
Income Before Income Taxes				5,969				8,467				5,697				5,965				5,077
Income Taxes				1,060				1,691				1,287				1,161				972
Net Income				4,909				6,776				4,410				4,804				4,105
Other Comprehensive Income (Loss) (Net of Tax):
Net unrealized gain (loss) on available-for-sale securities				(6,737	)			(207	)			639				661				4,998
Reclassification adjustment for realized gain on sale of available-for-sale securities				(293	)			-				-				-				(270	)
Net unrealized gain (loss) on available-for-sale securities				(7,030	)			(207	)			639				661				4,728
Tax expense (benefit)				(1,476	)			(44	)			134				139				993
Other comprehensive income (loss)				(5,554	)			(163	)			505				522				3,735
Comprehensive Income (Loss)			$	(645	)		$	6,613			$	4,915			$	5,326			$	7,840
Basic and Diluted Earnings Per Share			$	0.44			$	0.60			$	0.40			$	0.43			$	0.37
Dividends Declared			$	0.17			$	0.17			$	0.17			$	0.16			$	0.16

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands of dollars, except share data)
		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
		(Unaudited)								(Unaudited)				(Unaudited)				(Unaudited)
Assets
Cash and due from banks		$	118,139			$	98,279			$	46,395			$	54,336			$	49,844
Federal funds sold			57,361				77,427				41,358				31,105				40,993
Total cash and cash equivalents			175,500				175,706				87,753				85,441				90,837
Interest-bearing time deposits			4,405				4,653				4,657				4,636				4,869
Securities - available-for-sale			352,974				307,812				259,041				236,292				204,121
Other securities, at cost			5,939				5,939				5,827				5,810				5,810
Loans 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 equipment			26,703				27,063				26,776				26,049				26,120
Goodwill			47,340				47,340				47,340				47,340				47,340
Mortgage servicing rights			3,444				3,320				3,027				2,740				2,672
Other real estate owned			148				71				206				135				185
Bank owned life insurance			25,347				25,208				15,501				15,399				15,313
Other 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 and Stockholders' Equity
Liabilities
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 and
securities sold under agreements to repurchase			30,072				30,239				29,859				30,949				30,585
Federal Home Loan Bank (FHLB) advances			17,840				17,861				17,724				19,087				24,788
Dividend payable			1,889				1,889				1,882				1,768				1,768
Accrued expenses and other liabilities			12,805				14,233				14,841				14,971				12,820
Total liabilities			1,746,457				1,660,384				1,583,179				1,544,150				1,418,668
Commitments and Contingencies
Stockholders' Equity
Common stock - No par value 20,000,000 shares authorized; issued
and outstanding 12,230,000 shares 3/31/21 and 12/31/20			82,030				81,804				81,577				82,134				81,844
Treasury stock - 1,033,256 shares 3/31/21, 1,032,456 shares 12/31/20			(11,962	)			(11,932	)			(12,397	)			(12,668	)			(12,636	)
Retained earnings			176,617				173,591				168,381				165,476				162,416
Accumulated other comprehensive income			143				5,697				5,860				5,355				4,833
Total stockholders' equity			246,828				249,160				243,421				240,297				236,457
Total Liabilities and Stockholders' Equity		$	1,993,285			$	1,909,544			$	1,826,600			$	1,784,447			$	1,655,125

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
SELECT FINANCIAL DATA
			For the Three Months Ended
Selected financial data		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Return on average assets			1.01%				1.43%				0.98%				1.10%				1.02%
Return on average equity			7.87%				11.04%				7.28%				8.07%				7.06%
Yield on earning assets			3.71%				4.09%				4.04%				4.25%				4.66%
Cost of interest bearing liabilities			0.53%				0.64%				0.74%				0.91%				1.22%
Net 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 per share (1)		$	17.50			$	17.19			$	16.78			$	16.33			$	16.26
Tier 1 capital to average assets			10.39%				10.46%				10.65%				10.70%				11.56%
Average Shares Outstanding			11,197,012				11,177,765				11,142,797				11,129,341				11,134,870
Loans		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
(Dollar amounts in thousands)
Commercial real estate		$	618,754			$	588,825			$	595,146			$	589,382			$	570,217
Agricultural real estate			179,945				189,159				192,883				194,606				194,383
Consumer real estate			175,675				175,588				175,963				174,069				174,731
Commercial and industrial			202,958				189,246				238,175				223,842				143,261
Agricultural			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: Net deferred loan fees and costs			(4,208	)			(2,483	)			(3,985	)			(4,456	)			(1,893	)
Total 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, 2020				September 30, 2020				June 30, 2020				March 31, 2020
(Dollar amounts in thousands)
Nonaccrual loans		$	8,139			$	9,404			$	7,870			$	8,473			$	3,344
Troubled debt restructuring		$	5,774			$	6,514			$	7,028			$	7,034			$	1,934
90 day past due and accruing		$	-			$	-			$	-			$	-			$	-
Nonperforming loans		$	8,139			$	9,404			$	7,870			$	8,473			$	3,344
Other real estate owned		$	148			$	71			$	206			$	135			$	185
Nonperforming assets		$	8,287			$	9,475			$	8,076			$	8,608			$	3,529
(Dollar amounts in thousands)
Allowance for loan and lease losses		$	14,425			$	13,672			$	11,883			$	10,538			$	8,533
Allowance for loan and lease losses/total loans			1.08%				1.05%				0.87%				0.78%				0.68%
Net charge-offs:
Quarter-to-date		$	947			$	205			$	37			$	169			$	125
Year-to-date		$	947			$	537			$	331			$	294			$	125
Net charge-offs to average loans
Quarter-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/total loans			0.61%				0.72%				0.58%				0.63%				0.27%
Allowance for loan and lease losses/nonperforming loans			177.24%				177.96%				151.01%				117.24%				256.66%
(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. 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 Earning Assets:		Average Balance			Interest/Dividends			Annualized Yield/Rate			Average Balance			Interest/Dividends			Annualized Yield/Rate
Loans		$	1,328,571		$	15,612		4.70%			$	1,236,848		$	15,883		5.14%
Taxable Investment Securities			324,536			1,009		1.24%				190,158			1,321		2.78%
Tax-exempt Investment Securities			20,375			100		2.49%				28,832			132		2.32%
Fed Funds Sold & Other			136,663			44		0.13%				46,393			128		1.10%
Total Interest Earning Assets			1,810,145		$	16,765		3.71%				1,502,231		$	17,464		4.66%
Nonearning Assets			126,579									114,326
Total Assets		$	1,936,724								$	1,616,557
Interest Bearing Liabilities:
Savings Deposits		$	1,014,392		$	574		0.23%				773,130			1,485		0.77%
Other Time Deposits			242,033			766		1.27%				277,579			1,416		2.04%
Other Borrowed Money			17,848			222		4.98%				24,787			266		4.29%
Fed Funds Purchased & Securities
Sold under Agreement to Repurch.			30,210			166		2.20%				38,954			244		2.51%
Total Interest Bearing Liabilities		$	1,304,483		$	1,728		0.53%			$	1,114,450		$	3,411		1.22%
Noninterest bearing Liabilities			382,640									269,550
Stockholders Equity		$	249,601								$	232,557
Net Interest Income and interest rate spread					$	15,037		3.18%						$	14,053		3.44%
Net Interest Margin								3.33%									3.75%
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

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	%

FAQ

What were the financial results for FMAO in Q1 2021?

FMAO reported a net income increase of 19.6% to $4.9 million and earnings per share of $0.44 in Q1 2021.

How much did FMAO's total deposits grow by in Q1 2021?

Total deposits for FMAO increased by 24.8% to $1.684 billion in Q1 2021.

What impact will the acquisition of Ossian Financial Services have on FMAO?

The acquisition is expected to close soon and add approximately $122 million in assets, contributing to earnings in 2021.

How did FMAO's noninterest income perform in Q1 2021?

Noninterest income saw substantial growth, increasing 59.9% to $5.0 million in Q1 2021.

What was the dividend declared by FMAO in Q1 2021?

FMAO declared a cash dividend of $0.17 per share, a 6.3% increase compared to the previous year.