Farmers & Merchants Bancorp, Inc. Reports Record 2022 Full-Year Financial Results

Farmers & Merchants Bancorp, Inc.

ARCHBOLD, Ohio, Feb. 08, 2023 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2022 fourth quarter and twelve months ended December 31, 2022.

2022 Fourth Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• Net income was $7.2 million compared to $7.7 million for the same period last year

• Earnings were $0.53 per basic and diluted share, compared to $0.59 per basic and diluted share

• Adjusted net income, excluding one-time tax adjusted acquisition expenses, was $8.8 million, compared to $8.7 million

• Adjusted earnings, excluding one-time tax adjusted acquisition expenses, were $0.65 per basic and diluted share, compared to $0.66 per basic and diluted share

• Efficiency rate improved to 50.46% for the 2022 fourth quarter

• Strong asset quality continues as nonperforming loans declined 41.9% to $4.7 million, or 0.20% of total loans

• Net charge-offs to average loans were 0.02%

• Allowance for loan and lease losses, adjusted for credit marks from recent acquisitions, of 570.3% of nonperforming loans

2022 Full-Year Financial Highlights Include (on a year-over-year basis unless noted):

• Total loans increased 26.9% to a record $2.36 billion

• Organic loan growth of 21.4%, excluding PPP loans and loan balances at time of the Peoples-Sidney Financial Corporation acquisition

• Total assets increased 39.2% to a record $3.02 billion

• Deposits increased to 12.6% to $2.47 billion

• Net interest income after provision for loan losses increased 24.4% to $82.2 million

• Net income increased 38.4% to an annual record of $32.5 million

• Earnings increased 22.4% to an annual record of $2.46 per basic and diluted share

• Adjusted net income, excluding one-time tax adjusted acquisition expenses, increased 29.9% to $34.6 million

• Adjusted earnings, excluding one-time tax adjusted acquisition expenses, increased 14.9% to $2.62 per basic and diluted share

• Efficiency rate improved to 55.95% for the 2022 full year

• Adjusted return on average tangible equity, excluding one-time tax adjusted acquisition expenses, increased to 17.06% from 13.01% on a year-over-year basis

• Annual dividend payment increased 14.4% to $0.8125 per share, which included a $0.0125 special dividend in honor of the Company’s 125^th year anniversary

• Provided a record $642,000 of charitable donations to support organizations throughout Indiana and Ohio
  

Lars B. Eller, President and Chief Executive Officer, stated, “2022 was a historic year for F&M as we celebrated our 125^th year anniversary, achieved record financial results, completed the fifth acquisition in the past three years, and continued to invest in our community banking platform. We experienced strong organic loan growth across our Ohio, Indiana and Michigan markets during 2022 as loans increased organically by $397.0 million, or 21.4% on a year-over-year basis. Robust loan growth, combined with our recent acquisitions, excellent asset quality, and stable net interest margin, drove a 24.4% increase in annual net interest income after the provision for loan losses. These outstanding trends and our focus on prudently controlling operating expenses offset a $2.1 million decline in annual noninterest income and helped F&M achieve another year of record net income and earnings per share. I am proud of our record financial results for 2022, which enabled us to increase our annual cash dividend by 14.4%. This reflects the 28^th consecutive year F&M has increased its annual cash dividend and our long-standing commitment to create value for our shareholders.”

Mr. Eller continued, “I am also pleased to announce that F&M ended the year with total assets of over $3.0 billion for the first time in our history as we successfully achieved the goals of our previous multi-year strategic growth plan. In fact, since 2019 total assets have increased 87.6%, while GAAP net income has increased 76.7%. This performance is a direct result of the financial services we provide our Ohio, Indiana, and Michigan communities, the successful acquisitions we have completed and the hard work of our committed and experienced team members. During 2022, we continued to expand our team by promoting over 45 employees and hiring over 150 new employees. We also added capabilities by adding a new Regional Vice President to lead our Northern Indiana region and hiring F&M’s first ever Chief Risk Officer. Our 2022 financial and operating results reflect the success of our growth initiatives and the powerful franchise we are creating.”

Income Statement
Net income for the 2022 fourth quarter ended December 31, 2022, was $7.2 million, compared to $7.7 million for the same period last year. Net income per basic and diluted share for the 2022 fourth quarter was $0.53, compared to $0.59 for the same period last year. Net income for the 2022 twelve-month period ended December 31, 2022, was $32.5 million, compared to $23.5 million for the same period last year. Net income per basic and diluted share for the 2022 twelve months was $2.46, compared to $2.01 for the same period last year.

Adjusted net income for the 2022 fourth quarter was $8.8 million, or $0.65 per diluted share, compared to $8.7 million, or $0.66 per diluted share in the prior year quarter. Adjusted net income accounts for the impact of one-time acquisition expenses. Adjusted net income for the year ended December 31, 2022, was $34.6 million, or $2.62 per diluted share, compared to $26.6 million, or $2.28 per diluted share in the prior year.

Profitability for the 2022 fourth quarter and full year benefitted from F&M’s larger scale, strong asset quality, and prudent expense management. The Company’s efficiency ratio improved to 50.46% during the 2022 fourth quarter, and 55.95% for the 2022 twelve-month period. Strong profitability also drove higher annual returns, and ROAA, ROAE, and ROATCE all expanded on a year-over-year basis when adjusted for one-time, tax adjusted acquisition expenses.

Deposits
At December 31, 2022, total deposits were $2.47 billion, an increase of 12.6% from December 31, 2021. In addition, F&M continues to see growing customer preferences to more stable and secure saving instruments as deposits have increased since the COVID-19 crisis began. The Company’s cost of interest-bearing liabilities was 1.32% for the quarter ended December 31, 2022, compared to 0.51% for the quarter ended December 31, 2021. For the 2022 twelve-month period, F&M’s cost of interest-bearing liabilities was 0.74%, compared to 0.48% for the 2021 twelve-month period.

Loan Portfolio and Asset Quality
Total net loans, at December 31, 2022, increased 26.9% to $2.356 billion, compared to $1.857 billion at December 31, 2021. The year-over-year improvement resulted primarily from the contribution of continued organic loan growth and the completion of the Peoples acquisitions. Not including the Peoples acquisition and PPP loans, total net loans increased 21.4% organically, or by $397.0 million from the same period a year ago. Additionally, there were only $7,000 of PPP loans within F&M’s loan portfolio at December 31, 2022.

F&M continues to closely monitor its loan portfolio with a particular emphasis on higher risk sectors. Nonperforming loans were $4.7 million, or 0.20% of total loans at December 31, 2022, compared to $8.1 million, or 0.43% at December 31, 2021. Due to loan growth, F&M continues to prudently fund its allowance for loan and lease losses which has increased 25.1% on a year-over-year basis.

At December 31, 2022, the Company’s allowance for loan and lease losses to nonperforming loans was 273.67%, compared to 201.11% at December 31, 2021. As a result of F&M’s recent acquisitions, the Company has a total gross credit mark of $6.4 million, which further enhances F&M’s allowance at December 31, 2022. Including the total gross credit mark, F&M’s allowance for loan and lease losses to total loans was 1.13% at December 31, 2022.

Mr. Eller concluded, “We believe F&M remains well positioned for an increasingly challenging economic cycle as our asset quality is strong, and we continue to be well capitalized. This will allow us to continue to focus on serving our local communities, while investing in our infrastructure and pursuing long-term expansion opportunities under the new three-year strategic growth plan we finalized in the fourth quarter of 2022. As a result, we plan to make approximately $7 million of strategic investments during 2023 across our business. This includes new offices in Ohio, Indiana, and Michigan, and additions to our team, as well as investments in our IT infrastructure, loan operations, and credit and payments group. While we expect investments to temporarily impact the level of profitability we are accustomed to, these investments are necessary to support our long-term growth initiatives and maintain F&M’s high level of services as we drive sustainable growth and value creation. I look forward to updating shareholders on the progress we are making throughout 2023.”

Stockholders’ Equity and Dividends

Total stockholders’ equity increased to $298.1 million at December 31, 2022, from $297.2 million at December 31, 2021. At December 31, 2022, the Company had a Tier 1 leverage ratio of 8.39%, compared to 8.47% at December 31, 2021.

Based on a regulatory basis, tangible stockholders’ equity increased to $240.7 million at December 31, 2022, compared to $215.5 million at December 31, 2021. On a per share basis, tangible stockholders’ equity at December 31, 2022, was $17.69 per share, compared to $16.49 per share at December 31, 2021. A non-GAAP reconciliation is provided as a table in this press release.

For the twelve months ended December 31, 2022, the Company declared cash dividends of $0.8125 per share, which is a 14.4% increase over the 2021 twelve-month declared cash dividend payment of $0.71 per share. Dividends declared for the 2022 twelve months included a special one-time cash dividend of $0.0125 to honor F&M’s 125^th anniversary, and a 10.5% year-over-year increase for the 2022 fourth quarter dividend payment to $0.21 per share. F&M is committed to returning capital to shareholders and has increased the annual cash dividend for 28 consecutive years. For the twelve months ended December 31, 2022, the dividend payout ratio was 33.06% compared to 35.08% 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 Champaign, Fulton, Defiance, Hancock, Henry, Lucas, Shelby, Williams, and Wood counties in Western Ohio. In Northeast Indiana, we have offices located in Adams, Allen, DeKalb, Jay, Steuben and Wells counties, and we have a Loan Production Offices in West Bloomfield, Michigan; Muncie, Indiana; and Bryan and Oxford, Ohio.

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.

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, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Interest Income
Loans, including fees		$	27,302			$	24,119			$	22,388			$	20,455			$	21,008			$	94,264			$	71,645
Debt securities:
U.S. Treasury and government agencies			1,118				1,049				1,035				1,023				964				4,225				3,496
Municipalities			420				373				322				300				289				1,415				1,170
Dividends			126				93				57				42				49				318				174
Federal funds sold			2				-				9				10				10				21				31
Other.			524				213				100				69				103				906				324
Total interest income			29,492				25,847				23,911				21,899				22,423				101,149				76,840
Interest Expense
Deposits			4,978				2,166				1,379				1,360				1,581				9,883				5,418
Federal funds purchased and securities sold under agreements to repurchase			463				416				166				152				155				1,197				649
Borrowed funds			1,209				398				218				335				361				2,160				785
Subordinated notes			285				284				284				269				291				1,122				490
Total interest expense			6,935				3,264				2,047				2,116				2,388				14,362				7,342
Net Interest Income - Before Provision for Loan Losses			22,557				22,583				21,864				19,783				20,035				86,787				69,498
Provision for Loan Losses			755				1,637				1,628				580				444				4,600				3,444
Net Interest Income After Provision for Loan Losses			21,802				20,946				20,236				19,203				19,591				82,187				66,054
Noninterest Income
Customer service fees			2,862				2,300				2,148				2,648				2,417				9,958				9,671
Other service charges and fees			1,115				1,105				1,008				998				1,026				4,226				3,748
Net gain on sale of loans			165				327				164				697				1,074				1,353				3,897
Net gain on sale of available-for-sale securities			-				-				-				-				-				-				293
Total noninterest income			4,142				3,732				3,320				4,343				4,517				15,537				17,609
Noninterest Expense
Salaries and wages			6,353				5,479				5,366				5,502				5,761				22,700				20,184
Employee benefits			1,911				1,392				1,546				2,054				1,792				6,903				7,322
Net occupancy expense			753				693				522				598				532				2,566				2,184
Furniture and equipment			1,096				1,047				1,008				1,056				782				4,207				3,324
Data processing			1,917				781				654				604				1,020				3,956				3,501
Franchise taxes			(45	)			254				757				418				361				1,384				1,473
ATM expense			561				580				544				532				478				2,217				1,846
Advertising			531				578				300				237				431				1,646				1,436
Net (gain) loss on sale of other assets owned			12				-				(266	)			(5	)			13				(259	)			434
FDIC assessment			250				271				270				114				265				905				1,073
Mortgage servicing rights amortization			110				(50	)			59				26				266				145				1,580
Consulting fees			637				254				233				178				761				1,302				1,634
Other general and administrative			2,964				2,192				2,242				2,179				1,964				9,577				8,175
Total noninterest expense			17,050				13,471				13,235				13,493				14,426				57,249				54,166
Income Before Income Taxes			8,894				11,207				10,321				10,053				9,682				40,475				29,497
Income Taxes			1,706				2,253				2,050				1,951				1,999				7,960				6,002
Net Income			7,188				8,954				8,271				8,102				7,683				32,515				23,495
Other Comprehensive Income (Loss) (Net of Tax):
Net unrealized loss on available-for-sale securities			(628	)			(8,197	)			(14,602	)			(20,939	)			(5,170	)			(44,366	)			(10,948	)
Reclassification adjustment for realized gain on sale of available-for-sale securities			-				-				-				-				-				-				(293	)
Net unrealized loss on available-for-sale securities			(628	)			(8,197	)			(14,602	)			(20,939	)			(5,170	)			(44,366	)			(11,241	)
Tax benefit			(132	)			(1,721	)			(3,067	)			(4,397	)			(1,085	)			(9,317	)			(2,360	)
Other comprehensive loss			(496	)			(6,476	)			(11,535	)			(16,542	)			(4,085	)			(35,049	)			(8,881	)
Comprehensive Income (Loss)		$	6,692			$	2,478			$	(3,264	)		$	(8,440	)		$	3,598			$	(2,534	)		$	14,614
Basic Earnings Per Share		$	0.53			$	0.68			$	0.63			$	0.62			$	0.59			$	2.46			$	2.01
Diluted Earnings Per Share		$	0.53			$	0.68			$	0.63			$	0.62			$	0.59			$	2.46			$	2.01
Dividends Declared		$	0.2100			$	0.2100			$	0.2025			$	0.1900			$	0.1900			$	0.8125			$	0.7100

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands of dollars, except share data)
		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Assets
Cash and due from banks		$	83,085			$	69,680			$	69,955			$	94,118			$	135,485
Federal funds sold			1,324				990				1,484				45,404				45,338
Total cash and cash equivalents			84,409				70,670				71,439				139,522				180,823
Interest-bearing time deposits			4,442				5,187				6,684				8,677				10,913
Securities - available-for-sale			390,789				395,485				399,687				413,996				429,931
Other securities, at cost			9,799				8,227				8,735				8,568				8,162
Loans held for sale			827				2,182				4,230				6,060				7,714
Loans, net			2,336,074				2,122,626				2,016,394				1,945,449				1,841,177
Premises and equipment			28,381				26,484				26,492				26,653				26,913
Construction in progress			278				-				-				-				-
Goodwill			86,358				80,434				80,434				80,434				80,434
Mortgage servicing rights			3,549				3,583				3,426				3,336				3,157
Other real estate owned			-				-				-				-				159
Bank owned life insurance			33,073				28,051				27,874				27,715				27,558
Other assets			37,372				40,831				29,321				25,735				21,359
Total Assets		$	3,015,351			$	2,783,760			$	2,674,716			$	2,686,145			$	2,638,300
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing		$	532,794			$	506,928			$	503,395			$	497,249			$	473,689
Interest-bearing
NOW accounts			750,887				705,888				678,552				681,975				650,466
Savings			627,203				607,375				617,850				626,787				597,828
Time			557,980				462,845				424,249				447,586				471,479
Total deposits			2,468,864				2,283,036				2,224,046				2,253,597				2,193,462
Federal funds purchased and securities sold under agreements to repurchase			54,206				55,802				71,944				31,680				29,268
Federal Home Loan Bank (FHLB) advances			127,485				102,147				42,635				22,656				24,065
Other borrowings			10,000				10,000				-				40,000				40,000
Subordinated notes, net of unamortized issuance costs			34,586				34,557				34,528				34,499				34,471
Dividend payable			2,832				2,727				2,626				2,462				2,461
Accrued expenses and other liabilities			19,238				14,913				18,064				14,773				17,406
Total liabilities			2,717,211				2,503,182				2,393,843				2,399,667				2,341,133
Commitments and Contingencies
Stockholders' Equity
Common stock - No par value 20,000,000 shares authorized; issued and outstanding 14,564,425 shares 12/31/22 and 14,063,999 shares 12/31/21			135,497				121,811				123,145				122,886				122,674
Treasury stock - 956,003 shares 12/31/22, 997,766 shares 12/31/21			(11,573	)			(11,547	)			(11,822	)			(11,739	)			(11,724	)
Retained earnings			212,449				208,051				200,811				195,057				189,401
Accumulated other comprehensive loss			(38,233	)			(37,737	)			(31,261	)			(19,726	)			(3,184	)
Total stockholders' equity			298,140				280,578				280,873				286,478				297,167
Total Liabilities and Stockholders' Equity		$	3,015,351			$	2,783,760			$	2,674,716			$	2,686,145			$	2,638,300

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
SELECT FINANCIAL DATA
		For the Three Months Ended																				For the Twelve Months Ended
Selected financial data		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022			December 31, 2021
Return on average assets			0.96	%			1.31	%			1.23	%			1.21	%			1.17	%		1.17	%		1.05	%
Return on average equity			10.00	%			12.53	%			11.66	%			11.00	%			10.94	%		11.30	%		9.09	%
Yield on earning assets			4.18	%			4.00	%			3.79	%			3.47	%			3.59	%		3.87	%		3.66	%
Cost of interest bearing liabilities			1.32	%			0.68	%			0.44	%			0.45	%			0.51	%		0.74	%		0.48	%
Net interest spread			2.86	%			3.32	%			3.35	%			3.02	%			3.08	%		3.13	%		3.18	%
Net interest margin			3.20	%			3.49	%			3.47	%			3.14	%			3.21	%		3.32	%		3.31	%
Efficiency			50.46	%			51.19	%			50.17	%			55.44	%			58.76	%		55.95	%		62.39	%
Dividend payout ratio			39.39	%			30.45	%			30.02	%			30.64	%			32.03	%		33.06	%		35.08	%
Tangible book value per share (1)		$	17.69			$	17.86			$	17.43			$	16.96			$	16.49
Tier 1 capital to average assets			8.39	%			9.11	%			8.75	%			8.51	%			8.47	%
Average Shares Outstanding			13,606,876				13,083,145				13,065,975				13,066,272				13,046,299			13,206,713			11,664,852
Loans		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
(Dollar amounts in thousands)
Commercial real estate		$	1,152,603			$	1,063,661			$	979,176			$	910,839			$	848,477
Agricultural real estate			220,819				205,089				199,972				196,223				198,343
Consumer real estate			494,423				416,001				410,450				410,120				395,873
Commercial and industrial			242,360				229,388				232,975				216,918				208,270
Agricultural			128,733				128,615				127,143				140,709				118,368
Consumer			89,147				70,602				55,411				57,521				57,737
Other			29,818				30,662				31,243				31,573				32,089
Less: Net deferred loan fees and costs			(1,516	)			(1,402	)			(1,552	)			(1,683	)			(1,738	)
Total loans,net		$	2,356,387			$	2,142,616			$	2,034,818			$	1,962,220			$	1,857,419
Asset quality data		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
(Dollar amounts in thousands)
Nonaccrual loans		$	4,689			$...