SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 OR Transition Report Pursuant to Section 13 or 15(d) --- of the Securities Exchange Act of 1934 For the transition period from to -------- -------- Commission File Number 0-14492 ------------------------------ FARMERS & MERCHANTS BANCORP, INC. --------------------------------- (Exact name of registrant as specified in its charter) OHIO 34-1469491 ----- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 307-11 North Defiance Street, Archbold, Ohio 43502 - -------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) (419) 446-2501 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of outstanding shares of each of the issuers classes of common stock, as of the latest practicable date: Common Stock, No Par Value 1,300,000 - ------------------------------------ ------------------------------------- Class Outstanding as of April 1, 2002
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q FARMERS & MERCHANTS BANCORP, INC. INDEX <TABLE> <CAPTION> Form 10-Q Items Page --------------- <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- March 31, 2002, December 31, 2001 and March 31, 2001 1 Condensed Consolidated Statements of Net Earnings- Three Months Ended March 31, 2002 and March 31, 2001 2 Condensed Consolidated Statements of Cash Flows- Three Months Ended March 31, 2002 and March 31, 2001 3 Notes to Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on form 8K 6 Signatures 7 </TABLE>
FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) <TABLE> <CAPTION> March 31, 2002 December 31, 2001 March 31, 2001 <S> <C> <C> <C> ASSETS: Cash and due from banks $ 13,435 $ 17,842 $ 19,513 Interest bearing deposits with banks 571 146 100 Federal funds sold 2,375 - 19,985 Investment Securities: U.S. Treasury 5,391 5,038 7,794 U.S. Government 110,813 108,994 66,104 State & political obligations 51,366 50,819 32,323 All others 3,578 8,112 12,724 Loans and leases 464,898 468,243 472,930 Bank premises and equipment-net 12,400 12,332 10,602 Accrued interest and other assets 14,154 12,100 10,100 TOTAL ASSETS $ 678,981 $ 683,626 $ 652,175 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Demand $ 37,508 $ 41,991 $ 35,506 Time and savings 529,100 524,166 501,296 Federal funds purchased and securities sold under agreement to repurchase 19,737 26,539 22,714 Other borrowed money 17,071 17,410 20,565 Accrued interest and other liabilities 3,892 3,170 4,896 Total Liabilities 607,308 613,276 584,977 SHAREHOLDERS' EQUITY: Common stock, no par value - authorized 1,500,000 shares; issued 1,300,000 shares 12,677 12,677 12,677 Undivided profits 57,541 56,092 52,878 Accumulated other comprehensive income 1,455 1,581 1,643 Total Shareholders' Equity 71,673 70,350 67,198 LIABILITIES AND SHAREHOLDERS' EQUITY $ 678,981 $ 683,626 $ 652,175 </TABLE> See Notes to Condensed Consolidated Unaudited Financial Statements. Note: The December 31, 2001 Balance Sheet has been derived from the audited financial statements of that date. 1
FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME for Months ended March 31, 2002 and 2001 (Unaudited) (in thousands of dollars) <TABLE> <CAPTION> Three Months Ended March 31, 2002 March 31, 2001 <S> <C> <C> INTEREST INCOME: Loans and leases $ 9,086 $ 10,822 Investment Securities: U.S. Treasury securities 72 123 Securities of U.S. Government agencies 1,351 969 Obligations of states and political subdivisions 569 388 Other 104 220 Federal funds 13 160 Deposits in banks 5 29 Total Interest Income 11,200 12,711 INTEREST EXPENSE: Deposits 4,667 6,039 Borrowed funds 349 847 Total Interest Expense 5,016 6,886 NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 6,184 5,825 PROVISION FOR LOAN LOSSES 656 184 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,528 5,641 OTHER INCOME: Service charges 437 438 Other 863 562 Net securities gains (losses) 50 153 1,350 1,153 OTHER EXPENSES: Salaries and wages 1,908 1,783 Pension and other employee benefits 456 464 Occupancy expense (net) 108 122 Other operating expenses 1,833 1,675 4,305 4,044 INCOME BEFORE FEDERAL INCOME TAX 2,573 2,750 FEDERAL INCOME TAXES 670 832 NET INCOME 1,903 1,918 OTHER COMPREHENSIVE INCOME (NET OF TAX): Unrealized gains (losses) on securities (126) 748 COMPREHENSIVE INCOME $ 1,777 $ 2,666 NET INCOME PER SHARE (Based upon weighted average number of shares outstanding of 1,300,000 $ 1.46 $ 1.48 DIVIDENDS DECLARED $ 0.35 $ 0.35 </TABLE> See Notes to Condensed Consolidated Unaudited Financial Statements. 2
FARMERS & MERCHANTS BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) <TABLE> <CAPTION> Three Months Ended March 31, 2002 March 31, 2001 <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,903 $ 1,918 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 365 284 Premium amortization 33 (75) Discount amortization (3) (29) Provision for loan losses 656 184 Provision for deferred income taxes - (113) (Gain) loss on sale of fixed assets (4) (2) (Gain) loss on sale of investment securities (50) (153) Changes in Operating Assets and Liabilities: Accrued interest receivable and other assets (2,054) (479) Accrued interest payable and other liabilities 722 877 Net Cash Provided by Operating Activities 1,568 2,412 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (429) (530) Proceeds from sale of fixed assets - - Proceeds from maturities of investment securities: 12,557 7,805 Proceeds from sale of investment securities: 2,205 2,105 Purchase of investment securities- (13,484) (11,440) Net increase in loans and leases 2,689 7,531 Net Cash Used by Investing Activities 3,538 5,471 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 451 20,339 Net change in short-term borrowings (6,802) 3,811 Increase in long-term borrowings - - Payments on long-term borrowings (339) (10,221) Payments of dividends (455) (455) Net Cash Provided by Financing Activities (7,145) 13,474 Net change in cash and cash equivalents (2,039) 21,357 Cash and cash equivalents - Beginning of year 18,421 18,241 CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 16,382 $ 39,598 RECONCILIATION OF CASH AND CASH EQUIVALENTS: Cash and cash due from banks $ 13,435 $ 19,513 Interest bearing deposits 571 100 Federal funds sold 2,375 19,985 $ 16,381 $ 39,598 </TABLE> See Notes to Condensed Consolidated Unaudited Financial Statements. 3
FARMERS & MERCHANTS BANCORP, INC. Notes to Condensed Consolidated Unaudited Financial Statements NOTE 1 BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10Q and Rule 10-01 of Regulation S-X; accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that are expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Farmers & Merchants Bancorp, Inc. was incorporated on February 25, 1985, under the laws of the State of Ohio. Farmers & Merchants Bancorp, Inc., and its subsidiaries The Farmers & Merchants State Bank and Farmers & Merchants Life Insurance Company are engaged in commercial banking and life and disability insurance, respectively. The executive offices of Farmers & Merchants Bancorp, Inc. are located at 307-11 North Defiance Street, Archbold, Ohio 43502. LIQUIDITY AND CAPITAL RESOURCES Liquidity for the three months ended March 31, 2002 comes primarily from net income from operations of $1.9 million. This compares with net income of $1.9 million for the same period in 2001. In addition, funds were purchased from correspondents, and the Federal Home Loan Bank when needed. During the year loan balances were reduced by 3.3 million. This was primarily due to the payoff of several participation loans with another institution, and also the refinancing of variable rate mortgages that were on the banks books into fixed rate loans that were sold on the secondary market. This also added substantially to the banks liquidity position as is reflected by the amount of federal funds sold. Loan loss reserve was reduced during the quarter due to a large commercial charge off. The level of the reserve is still considered to be adequate to cover any additional loan losses. The following is a summary of five capital ratios as they are calculated from the March 31, 2002 financial statements. As of March 31, 2002 the most recent notification from FDIC indicate the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier I risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Bank's prompt corrective action category. Primary Ratio 11.33% Total Capital Ratio 13.82% Risk Based Capital Tier 1 15.65% Risk Based Capital Tier 2 20.66% Stockholders' Equity/Total Assets 10.56% MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates and equity prices. The primary market risk to which the Company is subject is interest rate risk. The majority of the Company's interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading such as loans, available for sales securities, interest bearing deposits, short term borrowings and long term borrowings. Interest rate risk occurs when interest bearing assets and liabilities reprice at different times as market interest rates change. For example, if fixed rate assets are funded with variable rate debt, the spread between asset and liability rates will decline or turn negative if rates increase. Interest rate risk is managed within an overall asset/liability framework for the Company. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net income to potential changes in interest rates. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs a sensitivity analysis in the form of a net interest income to help in the analysis. 5
PART II EXHIBIT AND REPORTS ON FORM 8-K ITEM 6 (B) Reports on Form 8-K No reports on Form 8-K were filed by the registrant during the quarter ended March 31, 2002 6
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Farmers & Merchants Bancorp, Inc., Date: May 10, 2002 By: /s/ Joe E. Crossgrove Joe E. Crossgrove President and Cashier Date: May 10, 2002 By: /s/ Randal H. Schroeder Randal H. Schroeder Asst. Vice-President and Senior Operations Officer 7