1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
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.
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 (Zip Code)
Executive offices)
Registrant's telephone number , including area code (419)446-2501
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
------------------- ------------------------
------------------- ------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common6 shares without par value
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 305 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. { }
As of March 1, 1998, Registrant had outstanding 1,300,000 shares of common stock
at a market value of $84,500,000.
2
FARMERS & MERCHANTS BANCORP, INC.
TABLE OF CONTENTS
PAGE
Form 10-K Items
Item 1. Business 1 - 15
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote
of Security Holders 17
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17 - 22
Item 8. Financial Statements and Supplementary Data 23 - 59
Item 9. Disagreements on Accounting and
Financial Disclosure 60
Item 10. Directors and Executive Officers
of the Registrant 60 - 63
Item 11. Management Remuneration and Transactions 64
Item 12. Security Ownership of Certain
Beneficial Owners and Management 64
Item 13. Certain Relationships and Related
Transactions 64
Item 14. Financial Schedules and Reports on Form 8-K 65
Schedule 1 - Schedule of Property and Equipment 66
Schedule 2 - Schedule of Accumulated Depreciation -
Property and Equipment 67
Signatures 68
Financial Data Schedule 70
Total Pages: 70
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3
PART I
ITEM 1. BUSINESS
HISTORY
The Farmers & Merchants State Bank is a community bank, as it has been
since 1897. When Archbold's population was less than 900, there were six local
businessmen foresighted enough in their thinking and views to realize the need
for a bank in the village of Archbold. J. O. Swisher and Jacob Ehrat (livestock
brokers) C. M. McLaughlin and A. J. Vernier (hardware merchants) and L. D.
Gotshall and I. W. Gotshall (lumber merchants), were founders of the then
Farmers & Merchants Bank, a private bank. The bank's first office was one room
located in the Vernier Hotel building, currently occupied by the Archbold Barber
Shop.
In 1907, the first new structure was built at the corner of Depot and
North Defiance Streets, which is now the Subway. The bank was heralded as one of
the most unusual and attractive banks in the area, featuring marble interior,
brass trimmed teller cages, tile floor, leaded windows, and high vaulted
ceiling. The vault featured a time controlled money safe. The building and
equipment were unique to the early 1900's and adequately served the banking
needs of the area for over 50 years with only minor interior alterations.
In August of 1913 the village of Archbold was hit by a disastrous fire
which destroyed all the business district on the east side of N. Defiance Street
from the bank at the corner of Depot Street to the Murbach medical building at
the corner of Holland Street. This was a tremendous loss for a dozen or more
businesses, causing many to liquidate. Young businessmen and enterprising
citizens promoted a waterworks system and passed a $16,000 bond issue to finance
the project. This seemed to be the turning point for the advancement of industry
and the community rallied from this eventful experience to an unusual growth.
In 1919 the founding directors elected to change from a private bank to
a state chartered bank and at this time changed its name from the Farmers &
Merchants Bank to The Farmers & Merchants State Bank, as required in the state
charter. This has been the only name change in the bank's 99 year history. The
bank's capital funds were $53,510 thousand and resources were $571,549 thousand.
The bank experienced growth, especially during the post-war years and
early 1950's. By 1958, the bank's resources had grown to 7 1/2 million dollars.
The directors and officers realized the need for a larger building to
accommodate the increase in business and services. In 1958, the bank moved to
its present N. Defiance Street location greatly improving service to its
customers and offering drive-up banking, electronic bookkeeping, convenient
parking, and a social room for the community to use. The new building featured
the latest in modern banking facilities and The Farmers & Merchants State Bank
was prepared to more efficiently serve the ever growing community.
With resources of over $23 million in 1969, The Farmers & Merchants
State Bank again realized the need for additional space and inaugurated a
building expansion, which nearly doubled the original structure built in 1958.
The new addition, opened early in 1970, provided for an additional drive-up
window, walk-up window, direct entrance from the bank parking lot to the lobby,
three spacious private offices, conference room, and a large community room with
a fully equipped kitchen to facilitate groups from 60 to 100.
In 1972, with total resources of over $34 million and to continue its
growth, The Farmers & Merchants State Bank established an office on N. Shoop
Avenue, Wauseon. The office was opened in November 1973 and provided greater
banking service to the Wauseon area. The Wauseon office provided complete
banking service and a community room with kitchen facilities to accommodate
15-80 people.
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4
In 1977-1978 additional office space was added to The Farmers &
Merchants State Bank in Archbold, and an automatic teller machine, "Teller 24",
was installed in the entrance lobby.
A second Wauseon office was established in the downtown area on the
corner of N. Fulton and Depot streets in August of 1978. It is a very convenient
location for shoppers and businesses. The Downtown office also provides 24 hour
banking with "Teller 24".
During April of 1980 a second office was opened in Archbold, located in
the Lugbill Addition near Woodland Oaks. The Woodland office is a convenient
branch offering full banking services to those Archbold residents in the
outlying area.
With resources of $83 million the decision was made to open full
service offices in Stryker and West Unity in 1981.
During that year, new computerized proof equipment was added to capture
the required data in today's complex and competitive banking environment. A new
division was added to the Operations Department in the creation of the Central
Information File Department. Plus, two new branches were opened, the Delta
office in June and the all new Bryan E. High office in December.
In 1985 the conversion of the former bank, The Farmers & Merchants
State Bank, into a holding company structure was performed to provide greater
flexibility for expanding the bank's business into activities closely related to
banking, as well as, placing the bank in a position to react in a timely and
effective manner to the many complex changes affecting the banking industry. On
April 22, 1985, a new Ohio chartered bank was formed and incorporated as the
FMSB Bank following the formation of a holding company, The Farmers & Merchants
Bancorp, Inc., which was incorporated as a bank holding company under the laws
of the State of Ohio on February 25, 1985. A triangular merger was then effected
whereby the former bank, The Farmers & Merchants State Bank, was merged with and
into the new bank, the FMSB Bank with each outstanding share of common stock of
the former bank being converted by operation of law upon consummation of the
merger into two shares of common stock of Farmers & Merchants Bancorp, Inc. Upon
the merger becoming effective July 31, 1985, 260,000 shares of Farmers &
Merchants Bancorp, Inc., no par value common stock were issued. The resulting
new bank in the merger is the FMSB Bank; however, its name was changed
concurrently with the merger to The Farmers & Merchants State Bank. Upon
consummation of the merger, the stockholders of Farmers & Merchants Bancorp,
Inc. received the same percentage of ownership in the holding company as their
percentage of ownership of the former bank. The former bank then ceased to
exist. All of the 260,000 issued and outstanding shares of stock of the new
bank, The Farmers & Merchants State Bank, were held by the bank holding company,
Farmers & Merchants Bancorp, Inc.
With the success The Farmers & Merchants State Bank was experiencing in
Stryker, West Unity and Bryan and the prospect of continued growth in Williams
County, it was decided to open another office in Bryan and one in Montpelier. In
May of 1992, the doors were opened at a second office in Bryan located on S.
Main Street; and in July of 1992 the bank was pleased to be able to offer their
financial services to the community of Montpelier. The Bryan S. Main Street
banking center has three drive-up lanes and a drive-up ATM. Also during 1992,
the West Unity Office was expanded and an additional drive-up lane was added at
the Delta Office.
Also during 1992, an accidental death and disability insurance company
was formed, Farmers & Merchants Life Insurance Company. The company was
organized under the laws of the State of Arizona with 100% of the 100,000 issued
and outstanding shares of common stock owned by Farmers & Merchants Bancorp,
Inc.
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5
The growth of The Farmers & Merchants State Bank continued to be very
favorable in 1993 with assets in excess of $370 million, but with the tremendous
growth that was occurring, the bank was feeling growing pains brought on by
cramped quarters. There were no longer community rooms in either the Main Office
or the Wauseon Shoop Office. All available space at the Main Office had been
used, by turning closets and storage space into offices and many of the offices
that were designed for one officer were housing two officers. The Marketing and
Personnel departments had been moved to the Wauseon Shoop Office basement, the
former community room. The time had come for the addition of more office space
at the Main Office. The former Christy Building, located on the north side of
the Main Office, was demolished during the fall of 1993 to clear the way for the
building expansion to begin.
Because of the ever-increasing flow of customers at the Wauseon N.
Shoop Office, a decision was made to install a drive-up ATM. That ATM was
installed in December, 1993. An ATM was also installed at Sauder Woodworking Co.
to better serve the Sauder employees, who work various shifts, making it
inconvenient for them to bank during regular banking hours.
1994 was a very special year for The Farmers & Merchants State Bank.
Earnings were very strong, asset quality remained outstanding, and the bank
expanded its presence within its market area. The goals for 1994 were exceeded,
with a new high in assets of $406 million. With a growing interest to expand the
bank's market area and branch into Henry County, an application was submitted
for a Napoleon office. Once the application was approved, the bank wasted no
time in getting the building constructed. The full service Napoleon Office, with
a drive-up ATM, was conveniently located on St. Rt. 108 on the north edge of
Napoleon making it easily accessible for the residents of Henry County.
During the time the Napoleon office was under construction, plans were
completed for expansion of the Wauseon N. Shoop Office. This was the first
expansion of this office since its opening in 1973, and with the basement being
used for offices, more office space was greatly needed. The new addition
consisted of four additional offices, a large secretarial/new accounts area,
restroom, and supply room.
In October, 1994, the newly constructed expansion of the Main Office
and the remodeling of the first floor of the original structure was completed.
The offices were ready for occupancy in time for the annual Christmas Club Open
House, November 4th and 5th. The remodeling of the offices located in the
basement of the Main Office began as soon as Open House was over.
The Napoleon Office opened for business during the second week of
February, 1995. On Sunday, February 12, 1995, an Open House was held at the Main
Office and the new Napoleon Office.
An ATM was placed at Northwest State Community College in March, 1995,
to better serve the customers from the Four County Area. In April, 1995, a
drive-up ATM was installed at the Archbold Woodland Office.
During the spring of 1996, the Delta Office began an extensive remodeling and
expansion project. The need was seen for more loan officer space and an ATM
machine. The project was completed in October of 1996. Two more ATM locations
were also secured during this year. An ATM was placed in the Community Hospital
of Williams County, Bryan, and another in the Fulton County Health Center,
Wauseon. The Farmers & Merchants State Bank now has twelve ATM's located
throughout Fulton, Williams, and Henry Counties.
In June of 1996, Farmers & Merchants Bancorp split its stock, 5 for 1. The goal
was to bring the price per share down so it would be more affordable and
possibly encourage trading.
The Farmers & Merchants State Bank again hit a new growth plateau. At year end
assets went over the $500 million mark.
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6
NATURE OF ACTIVITIES
The Farmers & Merchants State Bank through its equivalent of 199 full
time employees engages in general commercial banking and savings business. Its
activities include commercial and residential mortgage, consumer, and credit
card lending activities. Because of the geographical locations in which the
bank's branches are located, a substantial amount of the bank's loan portfolio
is composed of loans made to the farming industry for such things as farm land,
farm equipment, livestock and general operation loans for seed, fertilizer,
feed, etc. Other types of lending activities include loans for home
improvements, student loans, and loans for such items as autos, trucks,
recreational vehicles, mobile homes, motorcycles, etc. The bank also is engaged
in direct finance leasing and has invested in leveraged type leases, although
the activity in this area has substantially decreased in recent years.
The bank also provides checking account services, as well as, savings
and other time deposit services such as certificates of deposits. In addition,
ATM's (automated teller machines) (Money Access Corporation) are also provided
in its offices in Archbold, Wauseon, Bryan, Delta and Napoleon, Ohio. Two ATM's
are also located at Sauder Woodworking Co., Inc., a major employer in Archbold.
Additional locations are at Northwest State Community College, Fulton County
Hospital in Wauseon, and Williams County Hospital in Bryan.
During 1987 The Farmers & Merchants State Bank began offering discount
brokerage services to its customers. The offering of these services was a result
of management's ongoing commitment to offer a full range of financial services
to its customers.
Farmers & Merchants Life Insurance Company was established to provide
needed additional services to The Farmers & Merchants State Bank's customers
through the issuance of life and disability insurance policies. The lending
officers of The Farmers & Merchants State Bank are the selling agents of the
policies to the bank's customers. The insuring company will be USLIFE Credit
Insurance Company, an Illinois Corporation, while Farmers & Merchants Life
Insurance Co. will be the participating reinsurer. Farmers & Merchants Bancorp,
Inc.'s original investment in Farmers & Merchants Life Insurance Co. was
$100,000. This investment represented less than 5% of Farmers & Merchants
Bancorp, Inc.'s equity capital.
Farmers & Merchants Bancorp, Inc. is a bank holding company within the
meaning of the Bank Holding Company Act of 1956. The bank subsidiary, The
Farmers & Merchant State Bank, is in turn regulated and examined by the Ohio
Division of Banks, the Federal Deposit Insurance Corporation and the Federal
Reserve System. The activities of the bank subsidiary are also subject to other
federal and state laws and regulations, including usury and consumer credit
laws, state laws relating to fiduciaries, the Federal Truth-in-Lending Act and
Regulation Z as promulgated thereunder by the Board of Governors, the Truth in
Savings Act, the Bank Bribery Act, the Competitive Equality Banking Act of 1987,
the Expedited Funds Availability Act, the Community Reinvestment Act, the FDICIA
(Federal Deposit Insurance Corporation Insurance Act), FIRREA (Federal
Institutions Reform, Recovery, and Enforcement Act of 1989), and the Bank Merger
Act among others.
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7
The commercial banking business in the geographical area in which The
Farmers & Merchants State Bank operates is highly competitive. In its banking
activities, it competes directly with other commercial banks and savings and
loan institutions in each of its operating localities. The following is a
summary by geographical area of The Farmers & Merchants State Bank principal
competition:
Branch Location
- ------------------------- -------------------------------------------------
Archbold, Ohio First National Bank of Northwest Ohio
(2 offices)
Wauseon, Ohio National City Bank (Subsidiary of National City
Corporation)
First Federal Savings & Loan of Defiance
City Loan Bank
State Bank & Trust Company
First National Bank of Northwest Ohio
Stryker, Ohio First National Bank of Northwest Ohio
West Unity, Ohio National Bank of Montpelier
Delta, Ohio State Bank & Trust Company
First Federal Savings & Loan of Delta
Bryan, Ohio First National Bank of Northwest Ohio
(2 offices)
National City Bank (Subsidiary of National City
Corporation)
First Federal Savings & Loan of Defiance
(2 offices)
Community First Bank & Trust
Montpelier, Ohio First National Bank of Northwest Ohio
National Bank of Montpelier (2 offices)
First Federal Savings & Loan of Defiance
Napoleon, Ohio Henry County Bank (3 offices)
Beneficial Bank
First Federal Savings & Loan of Defiance, Ohio
First National Bank of Northwest Ohio (2 offices)
National City Bank (Subsidiary of National City
Corporation) (2 offices)
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SELECTED STATISTICAL AND FINANCIAL INFORMATION
The following statistical information concerning the operations of the
company is provided in accordance with Guide 3 of the Securities and Exchange
Commission relating to the operations of bank holding companies. It should be
read in conjunction with the financial statements, notes thereto and other
financial information appearing elsewhere herein.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, INTEREST RATES AND
INTEREST DIFFERENTIAL
The following table presents the distribution of assets and analysis of net
interest earnings (dollars in thousands):
ASSETS
1997
------------------------------------------------
Interest
Average and Yield/
Balance Dividend Rate
------- -------- ----
Interest earning Assets:
Loans (1) $ 384,498 $ 34,271 8.91%
Taxable investment securities 72,158 4,540 6.29
Tax-exempt investment securities 22,069 1,131 5.13
Interest bearing deposits with other banks 100 5 5.00
Federal funds sold and securities
purchased under agreement to resell 3,805 211 5.55
------------- -------------
Total Interest Earning Assets 482,630 $ 40,158 8.32%
============= ===========
Non-interest Earnings Assets:
Cash and due from banks 13,161
Other assets 14,371
-------------
$ 510,162
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 87,439 $ 4,618 5.28%
Other time deposits 270,751 15,659 5.78
Other borrowed money 9,414 596 6.34
Federal funds purchased and securities
sold under agreement to repurchase 4,443 266 5.99%
------------- -------------
Total Interest Bearing Liabilities 372,047 $ 21,139 5.68
============= ==========
Non-interest Bearing Obligations:
Non-interest bearing deposits 87,013
Other 4,554
-------------
Total Liabilities 463,614
Stockholders' Equity 46,548
-------------
Total Liabilities and Stockholders' Equity $ 510,162
=============
Interest and dividend income/yield $ 40,158 8.32%
Interest expense/rate 21,139 5.68
------------- ----------
Net Interest spread $ 19,019 2.64%
============= ==========
Net interest margin 3.94%
==========
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ASSETS
1996
------------------------------------------
Interest
Average and Yield/
Balance Dividend Rate
------- -------- ----
Interest earning Assets:
Loans (1) $ 358,261 $ 32,353 9.03%
Taxable investment securities 75,051 4,556 6.07
Tax-exempt investment securities 21,223 1,109 5.23
Interest bearing deposits with other banks 100 7 7.00
Federal funds sold and securities
purchased under agreement to resell 6,613 357 5.40
------------- -------------
Total Interest Earning Assets 461,248 $ 38,382 8.32%
============= ==========
Non-interest Earnings Assets:
Cash and due from banks 13,086
Other assets 15,895
-------------
$ 490,229
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 117,734 $ 4,525 3.84%
Other time deposits 258,446 15,418 5.97
Other borrowed money 9,411 594 6.31
Federal funds purchased and securities
sold under agreement to repurchase 6,522 368 5.64
------------- -------------
Total Interest Bearing Liabilities 392,113 $ 20,905 5.33%
============= ==========
Non-interest Bearing Obligations:
Non-interest bearing deposits 50,580
Other 5,700
-------------
Total Liabilities 448,393
Stockholders' Equity 41,836
-------------
Total Liabilities and Stockholders' Equity $ 490,229
=============
Interest and dividend income/yield $ 38,382 8.32%
Interest expense/rate 20,905 5.33
------------- ----------
Net Interest spread $ 17,477 2.99%
============= ==========
Net interest margin 3.79%
==========
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ASSETS
1995
-----------------------------------------
Interest
Average and Yield/
Balance Dividend Rate
------- -------- ----
Interest earning Assets:
Loans (1) $ 324,239 $ 29,561 9.12%
Taxable investment securities 55,383 3,153 5.69
Tax-exempt investment securities 16,689 1,041 6.24
Interest bearing deposits with other banks 526 3 .65
Federal funds sold and securities
purchased under agreement to resell 8,394 470 5.60
------------- -------------
Total Interest Earning Assets 405,231 $ 34,228 8.45%
============= ==========
Non-interest Earning Assets:
Cash and due from banks 11,565
Other assets 13,508
-------------
$ 430,304
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 81,891 $ 3,931 4.80%
Other time deposits 253,165 12,810 5.06
Other borrowed money 10,091 637 6.32
Federal funds purchased and securities
sold under agreement to repurchase 6,019 371 6.16
------------- -------------
Total Interest Bearing Liabilities 351,166 $ 17,749 5.05%
============= ==========
Non-interest Bearing Obligations:
Non-interest bearing deposits 38,112
Other 2,992
-------------
Total Liabilities 392,270
Stockholders' Equity 38,034
-------------
Total Liabilities and Stockholders' Equity $ 430,304
=============
Interest and dividend income/yield $ 34,228 8.45%
Interest expense/rate 17,749 5.05
------------- ----------
Net interest spread $ 16,479 3.40%
============= ==========
Net interest margin 4.07%
==========
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average outstanding loan amounts.
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11
The following table sets forth (in thousands of dollars) for
the periods indicated, a summary of the changes in interest earned and interest
paid resulting from changes in volume and changes in rates:
1997 - 1996
------------------------------------------------
Increase (Decrease)
Increase Attributable Changes in
(Decrease) ------------------------
in Interest Volume Rate
----------- ------ ----
Interest Earned On:
Loans $ 1,918 $ 2,339 $ (421)
Taxable investment securities (16) (182) 166
Tax-exempt investment securities 22 43 (21)
Interest bearing deposits with other banks (2) 0 (2)
Federal funds sold and securities purchased
under agreements to resell (146) (156) 10
------------- ------------- -------------
Total Interest Earnings Assets $ 1,776 $ 2,044 $ (268)
============= ============= =============
Interest Paid On:
Savings deposits $ 93 $ (1,600) $ 1,693
Other time deposits 241 712 (471)
Other borrowed 2 0 2
Federal funds purchased and securities
sold under agreements to repurchase (102) (124) 22
------------- ------------- -------------
Total Interest Bearing Liabilities $ 234 $ (1,012) $ 1,246
============= ============= =============
1996 - 1995
------------------------------------------------
Interest Earned On:
Loans $ 2,792 $ 3,072 $ (280)
Taxable investment securities 1,403 1,194 209
Tax-exempt investment securities 68 236 (168)
Interest bearing deposits with other banks 4 (30) 34
Federal funds sold and securities purchased
under agreements to resell (113) (96) (17)
------------- ------------- -------------
Total Interest Earnings Assets $ 4,154 $ 4,376 $ (222)
============= ============= =============
Interest Paid On:
Savings deposits $ 594 $ 1,378 $ (784)
Other time deposits 2,608 314 2,294
Other borrowed (43) (42) (1)
Federal funds purchased and securities
sold under agreements to repurchase (3) 28 (31)
------------- ------------- -------------
Total Interest Bearing Liabilities $ 3,156 $ 1,678 $ 1,478
============= ============= =============
The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
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12
INVESTMENT PORTFOLIO
The following table sets forth (dollars in thousands) the carrying
amount of investment securities at the dates indicated.
1997 1996 1995
------------- ------------- --------------
U. S. Treasury and other U. S. Government
agencies $ 44,695 $ 51,737 $ 45,556
State and political subdivisions 25,617 21,678 19,926
Mortgage-backed securities 8,991 8,986 8,438
Obligations of domestic corporations 10,327 17,065 8,689
Stocks of domestic corporations 2,420 2,255 2,106
------------- ------------- -------------
Total $ 92,050 $ 101,721 $ 84,715
============= ============= =============
The following table sets forth (dollars in thousands) the maturities of
investment securities at December 31, 1997 and the weighted average yields of
such securities calculated on the basis of the cost and effective yields
weighted for the scheduled maturity of each security. Tax-equivalent
adjustments, using a thirty-four percent rate, have been made in yields on
obligations of state and political subdivisions. Stocks of domestic corporations
have not been included.
Maturities
--------------------------------------------------------------
After One Year
Within One Year Within Five Years
-------------- -----------------
Amount Yield Amount Yield
------ ----- ------ -----
U. S. Treasury and other U. S.
Government agencies $ 11,748 5.74% $ 39,052 6.28%
State and political subdivisions 1,495 9.94 7,860 8.21
Taxable state and political
subdivisions 531 6.32 1,245 6.62
Obligations of domestic
corporations 2,034 5.93 8,249 6.44
Maturities
--------------------------------------------------------------
After Five Years
Within Ten Years After Ten Years
---------------- ---------------
Amount Yield Amount Yield
------ ----- ------ -----
U. S. Treasury and other U. S.
Government agencies $ 745 6.72% $ 1,788 6.37%
State and political subdivisions 5,404 8.61 7,530 9.77
Taxable state and political
subdivisions 0 .00 433 5.75
Obligations of domestic
corporations 0 .00 0 .00
At December 31, 1997 the company held no large block of any one
investment security. Except for U. S. Treasury and other U. S. Government
agencies, no one holding in debt securities exceeded $2.9 million dollars. The
bank did hold stock in the Federal Home Loan Bank of Cincinnati at a cost of
$2.4 million. This is required in order to obtain Federal Home Loan Bank loans.
- 10 -
13
LOAN PORTFOLIO
The following table shows (dollars in thousands) the company's loan
distribution at the end of each of the last five years:
1997 1996 1995
------------- ------------- ------------
Loans:
Commercial and industrial $ 65,633 $ 67,763 $ 58,987
Agricultural 44,939 41,195 41,328
Real estate - mortgage 205,626 195,043 173,302
Installment 75,767 63,199 61,021
Commercial paper 7,837 3,959 7,604
Industrial Development Bonds 4,511 3,670 3,336
------------- ------------- -------------
Total Loans $ 404,313 $ 374,829 $ 345,578
============= ============= =============
1994 1993
------------- -------------
Loans:
Commercial and industrial $ 65,848 $ 58,155
Agricultural 29,586 29,527
Real estate - mortgage 145,576 118,164
Installment 62,462 53,414
Commercial paper 2,019 5,270
Industrial Development Bonds 1,826 2,222
------------- -------------
Total Loans $ 307,317 $ 266,752
============= =============
The following table shows (dollars in thousands) the maturity of loans:
Maturities
-----------------------------------------------------------------
After One
Within Year Within After
One Year Five Years Five Years Total
------- ---------- ---------- -----
Commercial, industrial, and
agricultural (combined) $ 103,392 $ 3,990 $ 3,190 $ 110,572
Real estate - mortgage 117,668 62,064 25,894 205,626
Consumer 39,352 27,056 9,359 75,767
Commercial paper 7,837 0 0 7,837
Industrial Development Bonds 1,680 1,373 1,458 4,511
------------- ------------- ------------- -------------
Total $ 269,929 $ 94,483 $ 39,901 $ 404,313
============= ============= ============= =============
In regard to loans maturing after one year, information was not
available which would enable the categorization of such as to those loans having
fixed interest rates and those having variable interest rates.
- 11 -
14
NONACCRUAL PAST DUE AND RESTRUCTURED LOANS
The following table summarizes (dollars in thousands) the company's
nonaccrual and past due loans:
1997 1996 1995
------------- ------------- -------------
Nonaccrual loans $ 2,890 $ 3,489 $ 3,494
Accruing loans past due 90 days or more 1,396 1,899 2,698
------------- ------------- -------------
$ 4,286 $ 5,388 $ 6,192
============= ============= =============
1994 1993
------------- -------------
Nonaccrual loans $ 2,681 $ 3,264
Accruing loans past due 90 days or more 2,601 2,226
------------- -------------
$ 5,282 $ 5,490
============= =============
As of December 31, 1997, management, to the best of its knowledge, is
not aware of any significant loans, group of loans or segments of the loan
portfolio not included above, where there are serious doubts as to the ability
of the borrowers to comply with the present loan payment terms.
Interest income which would have been recorded under the original terms
of the nonaccrual loans was $324 thousand for the year 1997. Any collections of
interest on nonaccrual loans are included in interest income when collected.
This amounted to $402 thousand for 1997.
Loans are placed on nonaccrual status in the event one of the following
occurs: the total line of the customer is charged off to the extent of 50% or
more, the loan is in past due status for more than 180 days.
The $2.8 million of nonaccrual loans are secured at December 31, 1997.
POTENTIAL PROBLEM LOANS:
At December 31, 1997, the Bank has $4.3 million of loans which it
considers to be potential problem loans in that the borrowers are experiencing
financial difficulties. These loans are subject to constant management attention
and are reviewed more frequently than quarterly.
The amount of potential problem loans was considered in management's
review of the loan loss reserve required at December 31, 1997.
LOAN CONCENTRATION:
In extending credit to families, businesses and governments, banks
accept a measure of risk against which an allowance or reserve for possible loan
losses is established by way of expense charges to earnings. This expense, used
to enlarge a bank's allowance for loan losses, is determined by management based
on a detailed monthly review of the risk factors affecting the loan portfolio,
including general economic conditions, changes in the portfolio mix, past due
loan-loss experience and the financial condition of the bank's borrowers.
At December 31, 1997, the Bank had loans outstanding to individuals and
firms engaged in the various fields of agriculture in the amount of $44.9
million. The ratio of this segment of loans to the total loan portfolio is not
considered unusual for a bank engaged in and servicing rural communities.
- 12 -
15
SUMMARY OF LOAN LOSS EXPERIENCE
The following table reflects (in thousands) the bank's loan loss
experience for each of the five years ended December 31, 1997:
1997 1996 1995
------------- ------------- -------------
Loans $ 404,313 $ 374,829 $ 345,577
============= ============= =============
Daily average of loans outstanding $ 384,498 $ 358,261 $ 324,239
============= ============= =============
Allowance for loan losses --
beginning of year $ 5,500 $ 5,500 $ 5,500
Loans Charged Off:
Commercial 263 623 748
Installment 1,239 1,053 691
Real estate mortgage 29 35 40
------------- ------------- -------------
1,531 1,711 1,479
------------- ------------- -------------
Loan Recoveries:
Commercial 384 197 584
Installment 364 443 426
Real estate mortgage 22 3 84
------------- ------------- -------------
770 643 1,094
------------- ------------- -------------
Net loans charged off 761 1,068 385
Provision for loan loss 1,111 1,068 385
------------- ------------- -------------
Allowance for Loan Loss-- End of Year $ 5,850 $ 5,500 $ 5,500
============= ============= =============
Ratio of net charge-offs to average loans
outstanding .20% .30% .12%
============= ============= =============
- 13 -
16
1994 1993
------------- -------------
Loans $ 307,317 $ 266,752
============= =============
Daily average of loans outstanding $ 277,729 $ 244,774
============= =============
Allowance for loan losses --
beginning of year $ 5,000 $ 4,775
1994 1993
------------- -------------
Loans Charged Off:
Commercial 602 706
Installment 569 552
Real estate mortgage 0 38
------------- -------------
1,171 1,296
------------- -------------
Loan Recoveries:
Commercial 729 266
Installment 311 335
Real estate mortgage 67 12
------------- -------------
1,107 613
------------- -------------
Net loans charged off 64 683
Provision for loan loss 564 908
------------- -------------
Allowance for Loan Loss-- End of Year $ 5,500 $ 5,000
============= =============
Ratio of net charge-offs to average loans outstanding .20% .28%
============= =============
Allocation of the allowance for loan losses:
Percent of
Loans in
Amount Each Category
Balance at End of Period Applicable To: (in thousands) to Total Loans
Commercial and industrial $ 1,650 28.21%
Installment 1,131 19.33%
Real estate 3,069 52.46%
$ 5,850 100.00%
============= ========
The charge-off amounts are based upon periodic evaluations of the loan
portfolio by management. These evaluations consider several factors, including,
but not limited to, general economic conditions, loan portfolio composition,
prior loan experience and management's estimation of future potential losses.
- 14 -
17
DEPOSITS
The following table presents the average amount of (in thousands) and
the average rate paid on each deposit category that is in excess of ten percent
of average total deposits:
Demand NOW Savings Time
December 31, 1997: Deposits Accounts Accounts Accounts
- --------------------------- ------------- ------------- ------------- ---------
Average balance $ 51,116 $ 35,897 $ 87,439 $ 270,751
Average rate .00% 2.91% 1.65% 4.88%
December 31, 1996:
- ---------------------------
Average balance $ 50,580 $ 33,798 $ 117,734 $ 224,648
Average rate .00% 3.05% 1.41% 5.84%
December 31, 1995:
- ---------------------------
Average balance $ 38,112 $ 34,475 $ 81,891 $ 218,690
Average rate .00% 3.04% 2.13% 4.72%
The amount of outstanding time certificates of deposits and other time
deposits in amounts of $100,000 or more by maturity are as follows:
Over three Over Six Years
Under Less than Less Than Over Twelve
Three Months Six Months Twelve Months Months
------------ ---------- ------------- -------------
Time deposits $ 15,460 $ 9,877 $ 10,841 $ 21,585
============= ============= ============= =============
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of
the company for each of the last three years:
Years Ended December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
Return on average assets 1.33% 1.14% 1.23%
Return on average equity 14.56% 13.21% 13.93%
Dividend payout ratio 23.95% 27.23% 26.99%
Equity to assets ratio 9.25% 8.65% 8.54%
SHORT-TERM BORROWINGS
The company's average balance of short-term borrowings during the year
was less than 30% of end of year stockholders' equity for each year required to
be reported; therefore, no data is presented.
OTHER MATTERS
Information required by subsections of Item 1, to which no response has
been made, are inapplicable to the business of the company.
- 15 -
18
ITEM 2. PROPERTIES
The principal office of Farmers & Merchants Bancorp, Inc. is located in
facilities owned by The Farmers & Merchants State Bank at 307-11 North Defiance
Street, Archbold, Ohio 43502.
The Farmers & Merchants State Bank operates from and utilizes the
entire facilities at 307-11 North Defiance Street. In addition, the bank owns
the property from 200 to 208 Ditto Street, Archbold, Ohio, which it used for
Bank parking and a community mini-park area. The Bank owns real estate at two
locations, 207 Ditto Street and 209 Ditto Street in Archbold, Ohio upon which
the bank built a commercial building to be used for storage, and a parking lot
for company vehicles and employee parking.
In late 1993 construction began on a 15,237 square foot addition on an
adjacent lot it owned at 313 North Defiance Street. This addition was
substantially completed by the end of 1994 with final completion taking place in
the spring of 1995. Then in 1993 the Bank purchased real estate across from the
main facilities to provide for possible parking expansion.
In 1989 the Bank purchased additional real estate in Bryan,. Ohio, and
has established another branch operation in Bryan. The Bank, in 1988, purchased
real estate immediately adjacent to its branch bank premises in Delta, Ohio for
expansion of parking facilities. In 1990 the Bank purchased real estate in
Delta, Ohio for additional parking to serve its branch office. The Bank
constructed in 1994 a 1,540 square foot addition to the branch in Wauseon, Ohio.
The bank obtained permission to open a branch in Napoleon, Ohio. Facilities were
completed in the Fall of 1994.
In 1996, the Bank purchased additional land in West Unity to expand the
parking lot. The Bank also purchased a lot with a building on it that is being
used for storage adjacent to the South Defiance, Archbold office.
The Bank also owns real estate consisting of land and buildings housing
each of its full service branch bank operations. Construction has begun on new
facilities for the Montpelier operations and should be completed in 1998.
The following is a compendium of the various branch locations:
Branch Location
- --------------- --------------------------
Archbold, Ohio 1313 South Defiance Street
Wauseon, Ohio 1130 North Shoop Avenue
119 North Fulton Street
Stryker, Ohio 300 South Defiance Street
West Unity, Ohio 200 West Jackson Street
Bryan, Ohio 924 W. High Street
1000 South Main Street
Delta, Ohio 101 Main Street
Montpelier, Ohio 225 West Main Street
Napoleon, Ohio 2255 Scott Street
The majority of the above locations have drive-up service facilities.
- 16 -
19
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine proceedings incidental to the business of the Bank, to which the Bank is
a party or of which any of its properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders through solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's stock is not quoted on the National Association of
Securities Dealers Automated Quotations System (NASDAQ).
The company's stock is traded in the principal market area of Fulton,
Williams, and Henry Counties, Ohio. The company has no broker that sets a price
for the company's stock, therefore, the only source as to the high and low sale
price is from private sales. The high and low sale price known to company's
management is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
1997 High $45.00 $72.00 $72.00 $70.00
Low $40.00 $55.00 $72.00 $65.00
1996 High $35.00 $35.00 $40.00 $40.00
Low $32.00 $35.00 $40.00 $40.00
As of March 1, 1998, there were 1,305 record holders of common stock of
the company.
Dividends are paid quarterly. Per share dividends for years 1997 and
1996 are as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
----------- ----------- ----------- ----------- -----
1997 $.25 $.25 $.25 $.50 $1.25
1996 $.25 $.25 $.25 $.40 $1.15
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is presented on page 58 of the Annual Report to
shareholders for the year ended December 31, 1997 and are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this discussion is to focus on information concerning
the company's financial condition and results of operations which is not
otherwise apparent from the consolidated financial statements included in the
annual report. Reference should be made to those statements and the selected
financial data presented elsewhere in the report for an understanding of the
following discussion and analysis.
- 17 -
20
FINANCIAL CONDITION
The company's bank subsidiary continues to follow the strategy of
acquiring assets for investment purposes and retaining its own loan production,
attempting to achieve reasonable spreads through matching such assets with one
of a number of funding sources available.
The Farmers & Merchants State Bank functions as a financial
intermediary, and as such, its financial condition should be examined in terms
of trends in its sources and uses of funds. The following comparison of daily
average balances (in thousands) indicates how the bank has managed its sources
and uses of funds:
1997
--------------------------------------------
Increase (Decrease)
Average ----------------------------
Balance Amount Percentage
------- ------ ----------
Funding Uses:
Loans $ 384,498 $ 26,237 7.32%
Taxable investment securities 72,158 (2,893) (3.85%)
Tax-exempt investment securities 22,069 846 3.99%
Interest bearing deposits with other banks 100 0 .00%
Federal funds sold and securities purchased under
agreement to resell 3,805 (2,808) (42.46%)
------------- -------------
$ 482,630 $ 21,382 4.64%
============= ============= ==========
Funding Sources:
Deposits:
Non-interest bearing deposits $ 87,013 $ 36,433 72.03%
Savings deposits 87,439 (30,295) (25.73%)
Other time deposits 270,751 12,305 4.76%
Other borrowed money 9,414 3 .03%
Federal funds purchased and securities sold
under agreement to repurchase 4,443 (2,079) (31.88%)
------------- ------------- -----------
$ 459,060 $ 16,367 3.70%
============= ============= ==========
1996 1995
------------------------------------------------ ------------
Increase (Decrease)
-------------------
Average
Balance Amount Percentage Balance
------- ------ ---------- -------
Funding Uses:
Loans $ 358,261 $ 34,022 10.49% $ 324,239
Taxable investment securities 75,051 19,668 35.51 55,383
Tax-exempt investment securities 21,223 4,534 27.17 16,689
Interest bearing deposits with other banks 100 (426) (80.99) 526
Federal funds sold and securities purchased
under agreement to resell 6,613 (1,781) (21.22) 8,394
------------- ------------- -----------
$ 461,248 $ 56,017 13.82% $ 405,231
============= ============= ============= ===========
Funding Sources:
Deposits:
Non-interest bearing deposits $ 50,580 $ 12,468 32.71% $ 38,112
Savings deposits 117,734 35,843 43.77 81,891
Other time deposits 258,446 5,281 2.09 253,165
Other borrowed money 9,411 (680) (6.74) 10,091
Federal funds purchased and securities sold
under agreement to repurchase 6,522 503 8.36 6,019
------------- ------------- -----------
$ 442,693 $ 53,415 13.72% $ 389,278
============= ============= ============= ===========
- 18 -
21
Total assets for Farmers & Merchants Bancorp, Inc. have increased from
$464 million in 1995 to $501.4 million in 1996 and to $528.3 million in 1997, an
8.1% and 5.4% increase, respectively. The increase in assets of $26.9 million is
primarily the result of growth in the loan portfolio of $29.2 million and
federal funds sold of $6.5 million, while investments dropped $9.7 million.
The increase in the loan portfolio came primarily from two areas.
Mortgage loans increased $10.6 million to $205.6 million from the $195 million
level for 1996, while at the same time, consumer loans were increasing $12.6
million to $75.8 million from $63.2 million for 1996. These increases can again
be attributed to favorable interest rates, as well as, an aggressive but
controlled and managed loan policy.
While the loan portfolio has increased significantly, the net
charge-offs have remained fairly level. Net charge-offs were $385 thousand for
1995, $1.1 million for 1996 and $761 thousand for 1997. Because of the
tremendous growth in the loan portfolio, it was determined that the allowance
for possible loan losses should be increased by a modest $350 thousand to $5.85
million after remaining at $5.5 million for three years.
The increase in the loan portfolio and federal funds sold was in part
funded through a decrease in the investment portfolio. The U.S. Treasury
security portfolio decreased from $27.7 million for 1996 to $22.2 million for
1997, a decrease of $5.5 million. The other major investment portfolio that was
used was the domestic corporate obligation bond portfolio. Domestic corporate
obligations dropped $6.7 million from almost $17 million for 1996 to $10.3
million for 1997. These decreases were from maturities and sales, and not from
decreases in market values. In fact market values for the entire investment
portfolio had a net increase of $.5 million for 1997.
The other major funding source for the increase in the loan portfolio
came from an increase in deposits. Other than regular savings deposits which
showed a decrease of almost $7 million from 1996 levels of $95 million, all
other deposit categories demonstrated significant growth with overall deposits
increasing $22.9 million to $461.3 million from 1996 levels of $438.4 million,
over a 5% increase.
The Farmers & Merchants State Bank continues to use borrowed funds from
the Federal Home Loan Bank of Cincinnati to fund its fixed rate loan portfolio.
The loans reduce the Bank's exposure to interest rate risk as the Bank matches a
fixed rate liability with the loan made. The Bank also receives a better
servicing margin on these loans than were experienced with loans sold on the
secondary market. New borrowings for 1997 amounted to $3 million while
repayments amounted to $707 thousand, a net increase of almost $2.3 million.
CAPITAL RESOURCES
Total capital increased $5.5 million or 12.6% for 1997 compared to $3.8
million or 9.6% for 1996 and $5 million or 14.5% for 1995. These increases came
from profits and changes in market values of the securities portfolio. Profits
amounted to $6.7 million for 1997, $5.5 million for 1996 and $5.3 million for
1995, while net after tax effect changes in market values of the investment
portfolio contributed $311 thousand for 1997 and $1.1 million for 1995, but
negatively impacted capital for 1996 in the amount of $228 thousand.
As a result of the continued increasing profitable operations, the per
share dividends have been steadily increasing also. For 1997 dividends of $1.25
per share or $1.625 million were declared as compared to $1.15 or $1.495 million
for 1996 and $1.10 or $1,430 million for 1995. The per share amounts for 1996
and 1995 have been restated to reflect a 5 for 1 stock split in 1996. The amount
of dividends which can be paid are subject to regulatory restrictions.
- 19 -
22
Under regulatory risk-based guidelines, capital is measured against the
Bank's risk-adjusted assets. The Bank's Tier 1 capital (common stockholders'
equity less goodwill, if any) to risk-adjusted assets was approximately 9.6% at
December 31, 1997, well above the 4% minimum requirement. Total capital to
risk-adjusted assets approximately 13.4%, also well above the 8% minimum
requirement for this ratio. The leverage ratio was at 7.1% compared to the 4%
requirement. These same ratios as of December 31, 1996 were, 8.9%, 12.9% and
6.4%, respectively. According to regulatory guidelines, the Bank is considered
to be well capitalized.
The Farmers & Merchants State Bank declared a $10 million dividend to
Farmers & Merchants Bancorp, Inc. on December 31, 1996 with the approval of the
FDIC and the State of Ohio Division of Financial Institutions. Farmers &
Merchants Bancorp, Inc. then loaned to The Farmers & Merchants State Bank on
December 31, 1996, $10 million in exchange for an unsecured subordinated note
receivable. The note is due January 1, 2007. Interest at the rate of 6% is
payable annually on the first day of January of each year. The purpose of the
transaction was to reduce the Bank's liability for Ohio Franchise Tax.
ASSET/LIABILITY MANAGEMENT
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between interest earning
assets and interest bearing liabilities. It involves the management of the
balance sheet mix, maturities, repricing characteristics and pricing components
to provide an adequate and stable net interest margin with an acceptable level
of risk. Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income through
periods of changing interest rates.
Changes in net income, other than volume related, arise when interest
rates on assets reprice in a time frame or interest rate environment that is
different from that of the repricing period for liabilities. Changes in net
interest income also arise from changes in the mix of interest-earning assets
and interest-bearing liabilities.
Historically, The Farmers & Merchants State Bank has maintained
liquidity through cash flows generated in the normal course of business, loan
repayments, maturing earning assets, the acquisition of new deposits, and
borrowings. The Bank's asset and liability management program is designed to
maximize net interest income over the long term while taking into consideration
both credit and interest rate risk.
Interest rate sensitivity varies with different types of
interest-earning assets and interest bearing liabilities. Overnight federal
funds on which rates change daily and loans which are tied to the market rate
differ considerably from long-term investment securities and fixed rate loans.
Similarly, time deposits over $100,000 and money market certificates are much
more interest rate sensitive than passbook savings accounts. The shorter term
interest rate sensitivities are the key to measurement of the interest
sensitivity gap, or excess interest sensitive earnings assets over
interest-bearing liabilities.
The following table summarizes the repricing opportunities as of
December 31, 1997 for each major category of interest-earning assets (at
amortized cost) and interest-bearing liabilities:
(Dollars in Thousands)
0 - 90 90 - 365 1 - 5 Over 5
Days Days Years Years Total
---- ---- ----- ----- -----
Interest bearing deposits $ 0 $ 100 $ 0 $ 0 $ 100
Federal funds sold 6,485 0 0 0 6,485
Investments 4,567 15,320 56,235 15,928 92,050
Loans 155,033 117,350 93,421 38,689 404,493
---------- ----------- ---------- --------- -----------
Total Rate Sensitive Assets 166,085 132,770 149,656 54,617 503,128
Rate Sensitive Liabilities 76,093 133,675 202,965 11,292 424,025
---------- ----------- ---------- --------- -----------
Gap $ 89,992 $ (905) $ (53,309) $ 43,325 $ 79,103
========== =========== ========== ========= ===========
- 20 -
23
Management with the assistance of outside advisors is continually
looking for opportunities that can minimize market price risk or interest rate
risk, and thus improve the quality of the portfolio.
LIQUIDITY
Historically, the primary source of liquidity for the Company has been
core deposits. This is true for 1997 as well. Deposits increased $22.9 million
in 1997. This compares with $34.3 million for 1996 and $59.6 million for 1995.
The loan to deposit ratio increased slightly to 86.3% for 1997 compared
to 84.1% for 1996 and 1995.
Short term marketable debt securities has also provided the Company
with liquidity. Securities maturing in one year or less amounted to a market
value of $15.8 million 17.7% of total marketable debt securities compared to $20
million or 20.4% for 1996 and $20.9 million or 25.3% for 1995.
Still another source of liquidity are Federal Funds Sold. Federal Funds
Sold which are for very short durations of time increased $6.5 million.
RESULTS OF OPERATIONS
OVERVIEW
Net income for 1997 was $6.8 million, a $1.3 million or 23.6% increase
over 1996 net income of $5.5 million. Net income for 1995 was $5.3 million. Net
interest margin before the provision for loan losses increased 8.5% to $19
million over $17.5 million for 1996. Net interest margin for 1996 increased 6.1%
over the $16.5 million for 1995. The net interest margin percentage was 3.9% for
1997, 3.8% for 1996 and 4.1% for 1995.
INTEREST INCOME
Interest income and fees on loans and leases increased 5.9% or $1.9
million to $34.3 million. This compares to interest and fee income of $32.4
million for 1996 and $29.6 million for 1995. All of the increase in interest
income for 1997 can be attributed to an increase in lending activities.
Interest income on the investment portfolio for 1997 was $5.5 million
compared to $5.5 million for 1996 and $4.1 million for 1995.
INTEREST EXPENSE
Interest expense on deposits increased to $20.3 million for 1997, up a
very minimal $333 thousand from 1996 interest expense of $19.9 million.
- 21 -
24
ALLOWANCE FOR LOAN LOSSES
In extending credit to families, businesses and governments, banks
accept a measure of risk against which an allowance or reserve for loan losses
is established by way of expense charges to income. The Bank evaluates the
adequacy of the allowance for loan losses based on an analysis of specific
problem loans, as well as, on an aggregate basis. Factors considered by
management in determining the proper reserve include review of general economic
conditions, changes in the portfolio mix, past loan-loss experience, the
financial condition of the borrowers and reports of examinations furnished by
State and Federal banking authorities. Management reviews the calculation of the
allowance for loan losses on a quarterly basis, and feels that the allowance is
adequate.
The Bank has established the allowance for loan losses to reduce the
gross level of loans outstanding by an estimate of uncollectible loans. As loans
are deemed uncollectible, they are charged against the allowance. A provision
for loan losses is expensed against current income on a monthly basis. This
provision serves to replenish the allowance for loan losses to accommodate
charge-offs and growth in the loan portfolio, thereby maintaining the allowance
at an adequate level.
For 1997 provisions charged against income amounted to $1.1 million
compared to $1.1 million for 1996 and $385 thousand for 1995. The allowance was
established at $5.85 million at December 31, 1997, representing 1.4% of total
loans. This compares to $5.5 million or 1.5% for 1996 and $5.5 million or 1.6%
for 1995.
OTHER OPERATING INCOME
The operating income increased by $558 thousand over 1997 to $2.9
million, up from $2.4 million for 1996 and $2.1 million for 1995. Increases in
miscellaneous customer fees and mastercard fees account for the bulk of this
increase.
OTHER OPERATING EXPENSES
As was the case in 1996, despite increased loan and deposit activity,
management was able to hold operating expenses in check. Operating expenses of
$11 million for 1997 increased only slightly compared to $10.9 million for 1996
and $10.7 million for 1995.
OTHER ACCOUNTING ISSUES
Management is currently reviewing the Year 2000 situation in order to
address potential problems that may occur in time to take corrective action. The
service center which the Bank uses to process its transactions has established a
testing schedule and has assured the Bank that the software being used will be
updated to accept Year 2000 dates and transactions. The Bank's internal Year
2000 committee is working diligently to address Year 2000 problems that may
exist with the Bank's hardware. A Y2K budget has been compiled and approved by
the Board of Directors.
At this time, management believes that the transition into the next
century can be conducted smoothly and with minimum additional costs.
- 22 -
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
- 23 -
26
MESSAGE FROM MANAGEMENT:
We are pleased to report that for the year 1997, the FARMERS & MERCHANTS
BANCORP, INC., earnings were again very strong, asset quality remained
outstanding, and the Bank expanded its presence within its market area. Capital
accounts have increased to $48,844,000 with net income of $6,777,000 or $5.22
per share compared to $4.22 in 1996. This resulted with an impressive 14.56
percent Return on Average Equity and 1.33 percent Return on Average Assets and a
new high in assets of $528,273,000. The higher earnings and returns were a
direct result of excellent asset quality, continued loan growth, active capital
management, proper management of interest rate risk and control of overhead
expenses. The excellent results of the Farmers & Merchants Bancorp, Inc. in 1997
reflected favorably on the professionalism, dedication and enthusiasm of our
people. Thanks to their efforts and customary excellence, we successfully
achieved one of our most notable years.
Continuing its emphasis to keep pace with industry advances and developments,
the Bancorp made significant moves with technology and electronics during the
year. Designed to focus on customer satisfaction, operating efficiency and
expanded computer capabilities, major allocations of resources were invested in
reshaping systems to remain competitive as we move into the 21st century.
Whatever plans we make, however, one thing will remain unchanged, the unique way
we do business. We are able to form stronger ties with our customers on an
individual basis by permitting local decision-making opportunities at each of
our offices. Another tradition that will not change is our commitment to the
communities we serve. Each of our offices works to improve the way of life for
the people in their area.
Loan quality remains a high focus in the banking industry. Again, our
well-established system to monitor the loan portfolio and act accordingly
performed well in 1997. One of the major keys to our success and performance
this past year was the enhancement of the Bank's loan-to-deposit ratio without
sacrificing underwriting or pricing standards. A number of product and program
considerations have been identified to assist the Bank with this challenge. Loan
growth in 1998 is expected to remain strong, especially in the Real Estate
Mortgage area.
A major concern which will occupy much of our time for the coming year and 1999
is the Year 2000 (Y2K) issue. The Year 2000 poses some significant concerns
about the potentially serious problems that could result for anything that uses
or is run by a computer. Problems could exist not only on personal computers,
but also with time clocks, passenger elevators, home furnaces, VCRs and much
more. Our concern is not only for the computer systems we use daily, but also
for our customers and their businesses, as well as the vendors from whom we
order supplies. If these potential problems are not addressed, our day to day
operations could be disrupted and cause us all to spend needless dollars to
remedy the situation. It is important that we all look at our daily lives and
operations to determine what may be affected by the Year 2000 dilemma.
At the same time we are making internal changes, outside forces are creating an
atmosphere for success. Recent legislative developments and a loosening of
federal regulations are encouraging signs. When you combine all of these factors
and the healthy economy we are currently enjoying, the outlook for the Bancorp
and its shareholders is very promising. We cannot think of a better time to be
in this business.
We would like to express our appreciation for the constant input and support of
the Board of Directors, Advisory Boards, our loyal employees, the cooperation of
the communities we serve, and finally the continued confidence of our
shareholders.
Joe E. Crossgrove Charles E. Lugbill
President and Chief Executive Officer Chairman of the Board
24
27
DIRECTORS MAYNARD SAUDER MICHAEL D. CULLER
President Asst. Vice President
CHARLES E. LUGBILL Sauder Woodworking Co. Chief Agri Finance Officer
Chairman of the Board
The Farmers & Merchants State MERLE J. SHORT BARBARA J. BRITENRIKER
Bank Farmer Asst. Vice President
President Comptroller & Chief Financial Officer
EUGENE D. BERNATH Promow, Inc.
Farmer DIANN K. MEYER
STEVEN J. WYSE Asst. Vice President
JERRY L. BOYERS President Personnel Officer
President Granite Industries
Edifice Construction Management KENT E. ROTH
DIRECTOR EMERITUS Auditor
JOE E. CROSSGROVE Security Officer
President ELIAS H. FREY Bank Secrecy Officer
Chief Executive Officer KENNETH E. STAMM
The Farmers & Merchants State ROBERT H. STOTZER MARILYN K. JOHNSON
Bank ROBERT V. WHITMER Assistant Cashier
Compliance Officer and
ROBERT G. FREY CRA Officer
President ARCHBOLD MAIN OFFICE
E. H. Frey & Sons, Inc. JUDITH A. WARNCKE
CHARLES E. LUGBILL Asst. Cashier
LEE E. GRAFFICE Chairman of the Board Marketing Officer
President
Graffice Motor Sales JOE E. CROSSGROVE J. SCOTT MILLER
President Asst. Cashier
JACK C. JOHNSON Chief Executive Officer Agri Finance Officer
President
Hawk's Clothing, Inc. MAYNARD SAUDER DEBRA J. KAUFFMAN
Partner Vice President Asst. Cashier & Consumer
REJO Partnership Lending Officer
EUGENE D. BERNATH Asst. Corporate Secretary
DEAN E. MILLER Vice President
President RICHARD D. ERNEST
MBC Holdings, Inc. EDWARD A. LEININGER Assistant Cashier
Vice President Asset Recovery Officer
DALE L. NAFZIGER Commercial Loan Officer
Retired JANE C. BRUNER
REX D. RICE Assistant Cashier
HAROLD H. PLASSMAN Vice President Operations Supervisor
Attorney Chief Lending Officer
Plassman, Rupp, Hensal & Short JOYCE G. KINSMAN
GEORGE JELEN Assistant Cashier
JAMES L. PROVOST Asst. Vice President Loan Review Officer
Retired Mortgage Loan Officer
Dyer & Mc Dermott, Inc. SHAWN O. MCCUTCHEON
RANDAL H. SCHROEDER Secretarial Supervisor
JAMES C. SANEHOLTZ Asst. Vice President
President Chief Operations Officer
Saneholtz-McKarns, Inc.
25
28
PHYLLIS MUNDAY GLORIA GUNN PATTI L. ROSEBROCK
Bookkeeping Supervisor Asst. Vice President Asst. Cashier
Asst. Branch Manager Asst. Branch Manager
DIANNA J. WEBER
Teller Supervisor
WAUSEON DOWNTOWN
OFFICE STRYKER ADVISORY
ARCHBOLD WOODLAND BOARD
OFFICE CAROL J. ENGLAND
Asst. Vice President FRED W. GRISIER
DEBORAH L. STONER Branch Manager Owner
Asst. Vice President Corporate Secretary Grisier Funeral Home
Branch Manager
JEAN E. HORWATH RONALD R. ROBINSON
DIANE J. SWISHER Asst. Cashier Owner
Asst. Cashier Asst. Branch Manager R. Home Interiors
Asst. Branch Manager
RICHARD E. RAKER
WAUSEON ADVISORY BOARD Owner
ARCHBOLD ADVISORY BOARD Raker Oil Company
RICHARD L. ELROD
DEXTER L. BENECKE President STEVEN PLANSON
Vice President Mustang Corporation Farmer
Benecke Trucking, Inc.
Alex Products, Inc. WARREN A. KAHRS
President WEST UNITY OFFICE
BRUCE C. LAUBER Kahrs Tractor Sales, Inc.
President LEWIS D. HILKERT
Lauber Manufacturing Co. JOSEPH H. KOLB Vice President
Owner Branch Manager
JO ELLEN HORNISH Kolb & Son
President PATRICIA R. BURKHOLDER
Hornish Brothers, Inc. JULIAN GIOVARELLI Assistant Branch Manager
President
ANTHONY J. RUPP Gio Sales, Inc.
President WEST UNITY ADVISORY
Rupp Furniture Co. SANDRA K. BARBER BOARD
Fulton County Recorder
GENE SCHAFFNER Chairman, Ohio Lottery Commission ALVIN E. CAROTHERS
Farmer Farmer
DR. KENNETH H. KLING
GEORGE F. STOTZER Owner BEN G. WESTFALL
Partner Fulton County Vision Services President
Stotzer Do-It Center Westfall Realty, Inc.
STRYKER OFFICE WILLIAM W. HOLLINGSHEAD
WAUSEON SHOOP OFFICE Owner
RONALD D. SHORT Hollingshead Mortuary
ALLEN G. LANTZ Asst. Vice President
Vice President Branch Manager TED W. MANEVAL
Branch Manager Farmer
26
29
R. BURDELL COLON KEVIN L. GRAY GEORGE B. RINGS
President Assistant Cashier Pharmacist
Rup-Col., Inc. Assistant Branch Manager Rings Pharmacy
DELTA OFFICE BRYAN ADVISORY BOARD NAPOLEON OFFICE
CYNTHIA K. KNAUER W. PAUL TRODER STEPHEN E. JACKSON
Asst. Vice President President Asst. Vice President
Branch Manager Allied Moulded Products, Inc. Branch Manager
BARRY N. GRAY RUSTY BRUNICARDI DIANA J. DENNIE
Assistant Cashier President Assistant Cashier
Asst. Branch Manager Chief Executive Officer Assistant Branch Manager
Community Hospital of Williams
Co., Inc. NAPOLEON ADVISORY BOARD
DELTA ADVISORY BOARD
D. ROBERT SHAFFER BARBARA C. SCHIE
TERRY J. KAPER Farmer Office Manager
Attorney Fulton Anesthesia Associates,
Barber, Kaper, Stamm & Robinson DR. C. NICHOLAS WALZ Inc.
Partner
DONALD C. EICHER Williams County Family Medical DAVID M. DAMMAN
Retired Grocer Center Farm Drainage Contractor
Farmer
ROBERT E. GILDERS PAUL R. MANLEY
President Vice President Manufacturing JAMES T. VAN POPPEL
GB Manufacturing Ohio Art Co. President
Van Poppel Corp.
EUGENE BURKHOLDER
President MONTPELIER OFFICE DENNIS L. MEYER
Falor Farm Center Realtor
JOHN S. FEE Ed Rohrs Realty
AL KREUZ Asst. Vice President
Fulton County Commissioner Branch Manager
BRYAN EAST HIGH OFFICE MONTPELIER ADVISORY
BOARD
DAVID C. FRAZIER
Assistant Vice President GREGORY D. SHOUP
Branch Manager President
Peltcs Lumber Co., Inc.
CAROL L. CHURCH
Assistant Branch Manager RICHARD S. DYE
Vice President
Dyco Manufacturing
SOUTHTOWNE OFFICE
MICHAEL T. SMITH ROBERT D. MERCER
Assistant Cashier President
Branch Manager Bob Mercer Realty and
Auctions
27
30
FARMERS & MERCHANTS BANCORP, INC.
TABLE OF CONTENTS
December 31, 1997
PAGE
Independent Auditors' Report 29
Consolidated Balance Sheets 30
Consolidated Statements of Income 31
Consolidated Statements of Changes in
Shareholders' Equity 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34 - 54
Supplementary Information:
Independent Auditors' Report on
Supplementary Information 55
Five Year Summary of Consolidated
Operations 56
28
31
[KROUSE, KERN & CO., INC LETTERHEAD]
January 14, 1998
Board of Directors
Farmers & Merchants Bancorp, Inc.
Archbold, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheets of Farmers & Merchants Bancorp,
Inc., Archbold, Ohio, and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Farmers
& Merchants Bancorp, Inc. and subsidiaries, as of December 31, 1997 and 1996,
and the results of its consolidated operations and cash flows for the years
ended December 31, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles.
/S/ KROUSE, KERN & CO., INC.
KROUSE, KERN & CO., INC.
29
32
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS
(In thousands) 1997 1996
------------ ------------- -------------
Cash and due from banks......................................................... $ 16,213 $ 15,871
Interest bearing deposits with banks............................................ 100 100
Federal funds sold.............................................................. 6,485 0
Investment securities at market value........................................... 92,050 101,721
Loans, less allowance for loan losses of $5,850 for 1997 and $5,500
for 1996..................................................................... 398,151 368,900
Investment in leases............................................................ 492 319
Bank premises and equipment - net............................................... 7,665 7,576
Accrued interest and other assets............................................... 6,503 6,153
Deferred income tax charge...................................................... 614 809
------------- -------------
TOTAL ASSETS $ 528,273 $ 501,449
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand................................................................... $ 51,163 $ 50,019
NOW accounts............................................................. 48,264 37,795
Savings.................................................................. 87,923 94,768
Time.................................................................... 273,948 255,795
------------- -------------
Total Deposits 461,298 438,377
Federal funds purchased......................................................... 0 2,790
Securities sold under agreement to repurchase................................... 2,598 3,973
Other borrowings................................................................ 11,292 8,998
Dividend payable................................................................ 650 520
Accrued interest and other liabilities.......................................... 3,591 3,410
------------- -------------
Total Liabilities 479,429 458,068
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, no par value - authorized 1,500,000 shares; issued
1,300,000 shares......................................................... 12,677 12,677
Undivided profits.......................................................... 35,165 30,013
Net unrealized gain on securities available for sale (net of tax effect
$515 in 1997 and $357 in 1996)........................................... 1,002 691
------------- -------------
Total Shareholders' Equity 48,844 43,381
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 528,273 $ 501,449
============= =============
See Accompanying Notes to Consolidated
Financial Statements.
30
33
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995
(In thousands except for per share amounts)
INTEREST INCOME: 1997 1996 1995
------------- ------------- -------------
Interest and fees on loans............................... $ 34,229 $ 32,339 $ 29,554
Interest on Investment Securities:
U. S. Treasury securities............................ 1,507 1,493 1,040
Securities of U. S. Government agencies.............. 2,045 2,095 1,531
Obligations of states and political sub-divisions.... 1,234 1,220 1,124
Obligations of domestic corporations................. 719 707 362
Interest on federal funds................................ 211 357 470
Interest on deposits in banks............................ 5 7 3
Dividends................................................ 166 150 137
Lease finance revenues................................... 42 14 7
------------- ------------- -------------
Total Interest Income 40,158 38,382 34,228
------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits..................................... 20,276 19,943 16,741
Interest on borrowed funds............................... 863 962 1,008
------------- ------------- -------------
Total Interest Expense 21,139 20,905 17,749
------------- ------------- -------------
Net Interest Income 19,019 17,477 16,479
PROVISION FOR LOAN LOSSES........................................ 1,111 1,068 385
------------- ------------- -------------
Net Interest Income After Provision for
Loan Losses 17,908 16,409 16,094
------------- ------------- -------------
OTHER INCOME:
Service charges on deposit accounts...................... 1,152 1,097 1,012
Other service charges and fees........................... 1,787 1,275 1,034
Net securities gains..................................... (4) 5 72
------------- ------------- -------------
2,935 2,377 2,118
------------- ------------- -------------
OTHER EXPENSES:
Salaries and wages....................................... 4,404 4,849 4,529
Pension and other employee benefits...................... 1,206 1,172 989
Occupancy expense (net).................................. 481 498 453
Furniture and equipment expense.......................... 722 788 692
Other operating expenses................................. 4,218 3,684 4,049
------------- ------------- -------------
11,031 10,991 10,712
------------- ------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 9,812 7,795 7,500
FEDERAL INCOME TAXES............................................. 3,035 2,312 2,203
------------- ------------- -------------
NET INCOME $ 6,777 $ 5,483 $ 5,297
============= ============= =============
Net income per share:
Net income before securities gains.......................... $ 5.22 $ 4.21 $ 4.02
Net securities gains........................................ .00 .01 .05
------------- ------------- -------------
NET INCOME PER SHARE $ 5.22 $ 4.22 $ 4.07
============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,300,000 1,300,000 1,300,000
============= ============= =============
See Accompanying Notes to Consolidated Financial Statements.
31
34
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Net Unrealized
Gain (Loss) on
Common Undivided Available for
(In thousands) Stock Profits Sale Securities
------------ ------------- ------------- -----------------
BALANCE AT DECEMBER 31, 1994.................................. $ 12,677 $ 22,158 $ (249)
Net income for 1995...................................... 0 5,297 0
Unrealized gains on securities classified as Available
for Sale (net of tax effect of $599)................... 0 0 1,168
Cash dividends ($1.10 per share)......................... 0 (1,430) 0
------------- ------------- --------------
BALANCE AT DECEMBER 31, 1995 12,677 26,025 919
Net income for 1996...................................... 0 5,483 0
Unrealized gains on securities classified as Available
for Sale (net of tax effect of ($115))................. 0 0 (228)
Cash dividends ($1.15 per share)......................... 0 (1,495) 0
------------- ------------- --------------
BALANCE AT DECEMBER 31, 1996.................................. 12,677 30,013 691
Net income for 1997...................................... 0 6,777 0
Unrealized gains on securities classified as Available
for Sale (net of tax effect of $157)................... 0 0 311
Cash dividends ($1.25 per share)......................... 0 (1,625) 0
------------- ------------- --------------
BALANCE AT DECEMBER 31, 1997 $ 12,677 $ 35,165 $ 1,002
============= ============= ==============
See Accompanying Notes to Consolidated
Financial Statements.
32
35
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
------------- ------------- -------------
Net income................................................... $ 6,777 $ 5,483 $ 5,297
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization............................ 700 798 689
Premium amortization..................................... 470 582 737
Discount amortization.................................... (155) (196) (128)
Provision for loan losses................................ 1,111 1,068 385
Provision for deferred income taxes...................... 43 266 241
(Gain) loss on sale of fixed assets...................... 0 (1) 20
(Gain) loss on sale of investment securities............. 4 (5) (72)
Changes in Operating Assets and Liabilities:
Accrued interest receivable and other assets............. (350) (373) (1,299)
Accrued interest payable and other liabilities........... 181 162 836
----------- ------------ ------------
Net Cash Provided by Operating Activities 8,781 7,784 6,706
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (789) (1,176) (1,654)
Proceeds from sale of fixed assets........................... 0 1 4
Proceeds from maturities of investment securities:
Held to Maturity......................................... 0 0 20,450
Available for Sale....................................... 23,546 30,890 12,278
Proceeds from sale of investment securities:
Available for Sale....................................... 10,363 255 1,997
Purchase of investment securities:
Held to Maturity......................................... 0 0 (8,040)
Available for Sale....................................... (24,093) (48,874) (32,556)
Net increase in loans........................................ (30,362) (30,354) (38,477)
Net increase in leases....................................... (173) (257) (3)
----------- ------------ ------------
Net Cash Used by Investing Activities (21,508) (49,515) (46,001)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits..................................... 22,921 34,387 59,595
Net change in short term borrowings.......................... (4,165) (156) (7,479)
Increase in long-term borrowings............................. 3,000 0 400
Payments on long-term borrowings............................. (707) (665) (612)
Payments of dividends........................................ (1,495) (1,625) (1,300)
----------- ------------ ------------
Net Cash Provided by Financing Activities 19,554 31,941 50,604
----------- ------------ ------------
Net change in cash and cash equivalents 6,827 (9,790) 11,309
Cash and cash equivalents at beginning of the year................ 15,971 25,761 14,452
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 22,798 $ 15,971 $ 25,761
=========== ============ ============
RECONCILIATION OF CASH AND CASH EQUIVALENTS:
Cash and cash due from banks................................. $ 16,213 $ 15,871 $ 14,951
Interest bearing deposits.................................... 100 100 100
Federal funds sold........................................... 6,485 0 10,710
----------- ------------ ------------
$ 22,798 $ 15,971 $ 25,761
=========== ============ ============
See Accompanying Notes to Consolidated Financial Statements.
33
36
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
CONSOLIDATION POLICY:
The consolidated financial statements include the
accounts of Farmers & Merchants Bancorp, Inc. and its
wholly-owned subsidiaries, The Farmers & Merchants
State Bank, (the Bank), a commercial banking
institution, and The Farmers & Merchants Life
Insurance Company, a life and accident and health
insurance company.
NATURE OF ACTIVITIES:
The consolidated income of Farmers & Merchants
Bancorp, Inc. is principally from income of the bank
subsidiary, The Farmers & Merchants State Bank. The
subsidiary Bank grants agri-business, commercial,
consumer and residential loans to customers primarily
in northwest, Ohio.
ESTIMATES:
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
CASH EQUIVALENTS:
For purposes of the statement of cash flows, the
company considers all highly liquid debt instruments
purchased with a maturity of three months or less to
be cash equivalents. This includes cash on hand,
amounts due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for
one-day periods.
INVESTMENT SECURITIES:
Securities, when purchased, are designated as
Investment Securities Available for Sale and are
carried at market value. They remain in that category
until they are sold or mature. The specific
identification method is used in determining the cost
of securities sold.
Unrealized holding gains and losses, net of tax, on
securities classified as Available for Sale are
reported as a net amount as a separate component of
shareholders' equity until realized.
34
37
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
INVESTMENT SECURITIES: (Continued)
In accordance with a provision provided by the
Financial Accounting Standards Board, The Farmers &
Merchants State Bank elected to reclassify any
investment securities classified as Held to Maturity
to Available for Sale during 1995. The effect of this
reclassification was to increase the net unrealized
gain on securities Available for Sale by $562
thousand net of a tax effect of $289 thousand.
LOANS:
Loans are stated at the amount of unpaid principal,
reduced by unearned discounts and deferred loan fees
and costs, as well as, by the allowance for loan
losses. Interest is accrued on all loans not
discounted by applying the interest rate to the
amount outstanding. When it is not reasonable to
expect that interest will be realized, accrual of
income ceases and these loans are placed on a "cash
basis" for purposes of income recognition.
LOAN ORIGINATION FEES AND COSTS:
The Bank has adopted the Financial Accounting
Standards Board's Statement of Financial Accounting
Standard No. 91, which establishes financial
accounting and reporting guidelines for accounting
for nonrefundable fees and costs associated with
originating or acquiring loans. Statement No. 91
requires that nonrefundable loan fees, such as the
fees more commonly known as "points" or "origination
fees" but not necessarily limited thereto, be
deferred and recognized over the life of the loan as
an adjustment of yield. Likewise, certain direct loan
origination costs are to be deferred and recognized
as a reduction in the yield of the loan.
MORTGAGE SERVICING RIGHTS:
The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards
No. 122 "Accounting for Mortgage Servicing Rights an
Amendment of FASB Statement No. 65." FAS 122 states
that "a mortgage banking enterprise that purchases or
originates mortgage loans with a definitive plan to
sell or securitize those loans and retain the
mortgage servicing rights shall allocate the cost of
the mortgage loans based on the relative fair values
at the date of purchase or origination." The Bank
adopted FAS 122 effective January 1, 1996 and uses
the present value of expected future cash flows in
determining fair values.
35
38
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
IMPAIRED LOANS:
The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a
Loan." FAS 114 states that "a loan is impaired when,
based on current information and events, it is
probable that a creditor will be unable to collect
all amounts due according to the contractual terms of
the loan agreement." When it is determined by the
creditor that a loan is impaired, "the creditor shall
measure the impairment based on 1) the present value
of expected future cash flows discounted at the
loan's effective rate, 2) the loan's observable
market price, or 3) the fair value of the collateral
if the loan is collateral dependent." FAS 114 was
adopted by the Bank effective January 1, 1995.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is available for future
charge-offs. It is increased by provisions charged to
operations and decreased by charge-offs net of
recoveries. The provision is primarily the result of
management's continuous review and evaluation of
problem loans, supplemented by historical net
charge-off experience, economic conditions and the
size of the loan portfolio. The allowance is
maintained at a level which management believes to be
adequate to provide for potential losses. For tax
purposes, the Bank follows a policy of providing
additions to the allowance for possible loan losses
in accordance with maximum amounts under applicable
federal tax laws.
BANKING PREMISES AND EQUIPMENT:
Banking premises and equipment are stated at cost
less accumulated depreciation. Depreciation is based
on the estimated useful lives of the various
properties and is computed using accelerated methods.
Costs for maintenance and repairs are charged to
operations as incurred.
PREMIUM RESERVES AND BENEFIT LIABILITIES:
Liabilities for unreported claims are calculated from
runoff experience. Liabilities for future reserves
are based on the 1964 CDT at 3%.
Mortality reserves for life insurance contracts are
determined using the 1958 CET 3.5% net level reserve
method. Premium reserves for the accident and health
policies are determined by the mean Prorata and rule
of 78's.
36
39
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, "Disclosures about Fair Value
of Financial Instruments", requires disclosure of the
fair value information about financial instruments,
both assets and liabilities, whether or not
recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where
quoted market prices are not available, fair values
are based on estimates using present value or other
valuation techniques. Those techniques are
significantly affected by assumptions used, including
the discount rate and estimates of cash flows. In
that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets
and, in many cases, could not be realized in
immediate settlement of the instrument. FASB
Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the
underlying value of the Company.
FEDERAL INCOME TAX:
The provision for federal income taxes is based on
reported income and expense, adjusted for permanent
differences between reported income and taxable
income. The deferred portion of the provision relates
to those items of income and expense in the financial
statements that are recognized in different time
periods for income tax purposes.
EARNINGS PER SHARE:
Earnings per share are computed based on the weighted
average number of shares of common stock outstanding
during each year, after restatement for stock
dividends.
NOTE 2. CASH AND FEDERAL FUNDS SOLD
Banks are required to maintain reserve funds in vault cash
and/or on deposit with the Federal Reserve Bank. The aggregate
reserves required at December 31, 1997 were $3.7 million.
37
40
NOTE 3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments
in securities as of December 31, 1997 and 1996 are detailed
below. Fair market values are based on quoted market prices or
dealer quotes.
1997
------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
------------ ----------- ------------- ------------- -----------
Available for Sale:
U.S. Treasury $ 22,200 $ 195 $ 22 $ 22,373
U.S. Government
Agency 22,100 224 2 22,322
Mortgage-Backed 9,033 24 66 8,991
State and political
subdivisions 24,499 1,127 9 25,617
Obligation of
domestic
corporations 10,282 48 3 10,327
Stocks of domestic
corporations 20 0 0 20
Federal Home Loan Bank
stock (restricted) 2,400 0 0 2,400
----------- ------------- ------------- -----------
$ 90,534 $ 1,618 $ 102 $ 92,050
=========== ============= ============= ===========
1996
-----------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
------------ ----------- ------------- ------------- -----------
Available for Sale:
U.S. Treasury $ 27,743 $ 109 $ 25 $ 27,827
U.S. Government
Agency 23,825 193 108 23,910
Mortgage-Backed 9,023 31 68 8,986
State and political
subdivisions 20,865 827 14 21,678
Obligation of
domestic
corporations 16,961 126 22 17,065
Stocks of domestic
corporations 20 0 0 20
Federal Home Loan Bank
stock (restricted) 2,235 0 0 2,235
----------- ------------- ------------- -----------
$ 100,672 $ 1,286 $ 237 $ 101,721
=========== ============= ============= ===========
38
41
NOTE 3. INVESTMENT SECURITIES (Continued)
The Federal Home Loan Bank stock is held as collateral
security for all indebtedness of The Farmers & Merchants State
Bank to the Federal Home Loan Bank.
The gross realized gains and losses for the years ended
December 31, are presented below:
(In thousands)
------------
Gross Realized Gains: 1997 1996 1995
------------- ------------- -------------
Available for Sale:
State and political subdivisions 6 5 105
------------- ------------- -------------
6 5 105
------------- ------------- -------------
Gross Realized Losses:
Available for Sale:
U.S. Treasury and agency
securities 10 0 33
------------- ------------- -------------
Net Realized Gains (Loss) (4) $ 5 $ 72
============= ============= =============
Gross proceeds from sale of
Available for Sale securities $ 10,363 $ 255 $ 1,997
============= ============= =============
The amortized cost and estimated market value of debt
securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Investment Securities
Available for Sale
-----------------------------------
Market
(In thousands) Amortized Cost Value
------------ -------------- -----------
Within one year $ 15,806 $ 15,831
From one through five years 56,405 57,005
From five through ten years 6,149 6,351
After ten years 9,754 10,443
----------- -----------
Total $ 88,114 $ 89,630
=========== ===========
Investments with a carrying value of $61.6 million and $62.2
million at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and securities sold under
repurchase agreements.
39
42
NOTE 4. LOANS
Loans at December 31, 1997 and 1996 are summarized below:
(In thousands) 1997 1996
------------ ------------- -------------
Real estate $ 205,626 $ 195,043
Commercial and industrial 65,633 67,763
Agricultural (excluding real estate) 44,939 41,195
Consumer and other loans 75,767 63,199
Commercial paper 7,837 3,959 3,959
Industrial Development Bonds 4,511 3,670
------------- -------------
404,313 374,829
Less: Deferred loan fees and costs (312) (429)
------------- -------------
404,001 374,400
Less: Allowance for loan losses (5,850) (5,500)
------------- -------------
Loans - Net $ 398,151 $ 368,900
============= =============
$44.1 million in one to four family residential mortgage loans
have been pledged as security for loans the Bank has received
from the Federal Home Loan Bank.
Senior officers and directors and their affiliated companies
were indebted to the Bank in the aggregate of $6.1 and $12.4
million at December 31, 1997 and 1996, respectively. All such
loans were made on substantially the same terms and
conditions, including interest rates and collateral, as those
prevailing at the time for comparable loan transactions with
other persons. Loans made during 1997 were $16.4 million and
repayments were $22.7 million. In the opinion of management,
these loans do not involve more than normal risk of
collectibility or possess other unfavorable features.
The following schedule details past due and nonaccrual loans:
Past Due Past Due
30 to 89 Days 90 Days or More
(In thousands) Still Accruing Still Accruing Nonaccrual
------------ -------------- -------------- ----------
Real estate $ 2,653 $ 167 $ 444
Commercial and industrial 2,506 1,091 1,575
Agricultural (excluding real
estate) 750 0 816
Consumer and other loans 2,227 138 55
40
43
NOTE 5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for loan losses is as follows:
(In thousands) 1997 1996 1995
------------ ------------- ------------- -------------
Balance at beginning of year $ 5,500 $ 5,500 $ 5,500
Provision charged to operating
expenses 1,111 1,068 385
Loans charged-off (1,531) (1,711) (1,479)
Recoveries 770 643 1,094
------------- ------------- -------------
Balance at End of Year $ 5,850 $ 5,500 $ 5,500
============= ============= =============
At December 31, 1997 and 1996, the recorded investment in
loans considered impaired was $7.170 million and $3.489
million, respectively. Of the $7.170 million and $3.489
million for 1997 and 1996, respectively that were considered
impaired, $2.9 million and $1.5 million, respectively required
the establishment of an allocated reserve.
Average investment in impaired loans for 1997 was $3.190
million and $3.492 million for 1996. The Bank stops accruing
interest income when a loan is deemed to be impaired, and
recognizes interest income when the interest income is
actually received. Interest income recognized on impaired
loans during 1997 and 1996 was $402 thousand and $354
thousand, respectively.
The allowance for loan losses for federal income tax
purposes was $843 thousand for 1997, 1996 and 1995.
41
44
NOTE 6. BANKING PREMISES AND EQUIPMENT
The major categories of banking premises and equipment and
accumulated depreciation at December 31, 1997 and 1996 are
summarized below:
(In thousands) 1997 1996
------------ ------------- -------------
Land $ 1,472 $ 1,228
Buildings 7,398 7,138
Furnishings 4,605 4,332
------------- -------------
13,475 12,698
Less: Accumulated depreciation (5,810) (5,122)
------------- -------------
Banking Premises and Equipment - Net $ 7,665 $ 7,576
============= =============
Depreciation charged to operating expenses was $700, $798
and $689 thousand for 1997, 1996 and 1995, respectively.
NOTE 7. DEPOSITS
Time deposits at December 31, 1997 and 1996 were comprised of
the following:
(In thousands) 1997 1996
------------ ------------- -------------
Time deposits under $100,000 $ 216,185 $ 199,934
Time deposits of $100,000 or more 57,763 55,861
------------- -------------
$ 273,948 $ 255,795
============= =============
The aggregate amount of maturities for each of the five
following years for time deposits having a remaining term of
more than one year follows:
1998 $ 137,874
1999 115,754
2000 16,634
2001 1,710
2002 1,292
The aggregate amount of demand deposits reclassified as loan
balances as of December 31, 1997 and 1996 were $92 thousand
and $429 thousand, respectively.
Deposits to related parties as of December 31, 1997 amounted
to $5.8 million.
42
45
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 8. REPURCHASE AGREEMENTS
The maximum amount of repurchase agreements outstanding at the
end of any given month during 1997 was $4.949 million with an
average outstanding balance for 1997 of $2.990 million
determined on a daily average basis. Accrued interest payable
on repurchase agreements as of December 31, 1997 was $75
thousand. Securities underlying the agreements were under the
Bank's control.
NOTE 9. OTHER BORROWINGS
Other borrowings consisted of the following at December 31,
1997 and 1996:
(In thousands) 1997 1996
------------ ------------- -------------
Federal Home Loan Bank, various loans due in
monthly installments of $105 thousand plus
an annual payment of $300 thousand including
interest at varying rates from 5.40% to
6.75%. Notes are secured by a blanket lien
on 100% of the Bank's one to four family
residential mortgage loan portfolio. $ 11,292 $ 8,998
============= =============
The following is a schedule by years of future minimum
principal payments:
Year Ended Principal
December 31 Payments
----------- ---------
1998 $ 1,052
1999 1,101
2000 1,153
2001 1,208
2002 1,267
Thereafter 5,511
43
46
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 10. FEDERAL INCOME TAXES
Federal income tax costs for the years 1997, 1996 and 1995
were $3.035, $2.312 and $2.203 million, respectively. The
actual tax results for the three years differ from tax
computed at the maximum statutory rate as follows:
(In thousands) 1997 1996 1995
------------ ------------- ------------- -------------
Tax at maximum statutory rate $ 3,354 $ 2,650 $ 2,511
Tax effect of:
Tax exempt interest (384) (406) (354)
Costs attributable to tax exempt
interest 63 59 47
Other items, net 2 9 (1)
------------- ------------- -------------
Federal Income Tax Cost $ 3,035 $ 2,312 $ 2,203
============= ============= =============
The provision for federal income taxes is comprised of the
following components:
(In thousands) 1997 1996 1995
------------ ------------- ------------- -------------
Currently payable $ 3,003 $ 2,045 $ 1,967
------------- ------------- -------------
Other 0 0 (6)
------------- ------------- -------------
Deferred:
Stock dividend 56 51 46
Provision for loan losses (118) 0 70
Accreted discount on securities (6) 54 22
Real estate and installment loan
fees and costs 100 162 52
Retirement plan costs 0 0 52
------------- ------------- -------------
32 267 242
------------- ------------- -------------
Total Provisions $ 3,035 $ 2,312 $ 2,203
============= ============= =============
The timing differences between financial reporting and tax
reporting resulted in a deferred charge of $614 thousand and
$809 thousand as of December 31, 1997 and 1996, respectively.
The deferred charge for income tax costs is included in the
asset section of the balance sheets.
44
47
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. RETIREMENT INCOME PLAN
The Bank has established a 401(k) profit sharing plan which
allows eligible employees to save at a minimum one percent of
eligible compensation on a pre-tax basis, subject to certain
Internal Revenue Service limitations. The Bank will match 50%
of employee 401(k) contributions up to four percent of total
eligible compensation. In addition the Bank may make a
discretionary contribution from time to time as is deemed
advisable. A participant is 100% vested in the participant's
deferral contributions and employer matching contributions. A
seven year vesting schedule applies to employer discretionary
contributions.
In order to be eligible to participate, the employee must be
21 years of age, completed six months of service, work 1,000
hours in the plan year and be employed on the last day of the
year. Entry dates have been established at January 1 and July
1 of each year.
The plan calls for only lump-sum distributions upon either
termination of employment, retirement, death or disability.
Pension expense for the 401(k) profit sharing plan for both
the employer matching contribution and the discretionary
contribution was $315 thousand, $267 thousand and $202
thousand for 1997, 1996 and 1995, respectively.
During 1995 the Bank had a defined benefit retirement plan in
place. The plan was terminated in 1996 and all assets were
transferred to the 401(k) profit sharing plan. Pension expense
for 1995 under the defined benefit plan amounted to $38
thousand.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank's financial statements do not reflect various
commitments and contingent liabilities which arise in the
normal course of business and which involve elements of credit
risk, interest rate risk and liquidity risk. These commitments
and contingent liabilities are commitments to extend credit,
credit card arrangements and standby letters of credit. A
summary of the Bank's commitments and contingent liabilities
at December 31, 1997 is as follows:
Notational
(In thousands) Amount
------------ ------------
Commitments to extend credit $ 62,486
Credit card arrangements 9,619
Standby letters of credit 2,299
45
48
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Commitments to extend credit, credit card arrangements and
standby letters of credit all include exposure to some credit
loss in the event of nonperformance of the customer. The
Bank's credit policies and procedures for credit commitments
and financial guarantees are the same as those for extensions
of credit that are recorded in the financial statements.
Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they
generally do not present any significant liquidity risk to the
Bank.
Commitments as of December 31, 1997 to lend at fixed and
variable rates amounted to $9.6 million and $64.8 million,
respectively.
In the ordinary course of business, the company at times, is
subject to pending and threatened legal actions and
proceedings. It is the opinion of management that the outcome
of any such matters and proceedings would not have a material
effect on the financial position of the company.
NOTE 13. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments, and standby letters of
credit have been granted to customers in the Bank's market
area of northwest Ohio. All such customers are depositors of
the Bank. Also, investments in state and municipal securities
may involve governmental entities within the Bank's market
area. The concentrations of credit by type of loan are set
forth in Note 4. Standby letters of credit were granted
primarily to commercial borrowers.
As of December 31, 1997, the company had on deposit with
financial institutions $128 thousand in excess of FDIC
insurable limits.
NOTE 14. REGULATORY CAPITAL REQUIREMENTS
Federal regulatory agencies have adopted various capital
standards for financial institutions, including risk-based
capital standards. The primary objectives of the risk-based
capital framework are to provide a more consistent system for
comparing capital positions of financial institutions and to
take into account the different risks among financial
institutions' assets and off-balance sheet items.
Risk-based capital standards have been supplemented with
requirements for a minimum Tier 1 capital to assets ratio
(leverage ratio). In addition, regulatory agencies consider
the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.
46
49
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 14. REGULATORY CAPITAL REQUIREMENTS (Continued)
A comparison of the Bank's capital as of December 31, 1997
with the minimum requirement is presented below:
Minimum
(In thousands) Actual Requirements
------ ------------
Tier 1 Risk-based Capital 9.58% 4.00%
Total Risk-based Capital 13.44% 8.00%
Leverage Ratio 7.06% 4.00%
According to regulatory guidelines, the Bank is considered to
be "well capitalized".
The Bank is restricted as to the amount of dividends which can
be paid. Dividends declared by the Bank that exceed the net
income for the current year plus retained income for the
preceding two years must be approved by federal and state
regulatory agencies. Under this formula dividends of $2.3
million may be paid without prior regulatory approval.
Regardless of formal regulatory restrictions, the Bank may not
pay dividends that would result in its capital levels being
reduced below the minimum requirements shown above.
On December 31, 1996 the Bank declared and paid a $10 million
dividend to the Bank's parent company, Farmers & Merchants
Bancorp, Inc. with approval from the FDIC and the State of
Ohio Division of Financial Institutions. On December 31, 1996
Farmers & Merchants Bancorp, Inc. loaned to The Farmers &
Merchants State Bank $10 million in exchange for an unsecured
subordinated note receivable. The note is due January 1, 2007.
Interest at the rate of 6% is payable annually on the first
day of January each year. The Bank has the option of prepaying
all or any part of the note at any time without notice or
penalty, subject to the approval of the FDIC and the State of
Ohio Division of Financial Institutions.
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
(In thousands) 1997 1996 1995
------------ ------------- ------------- -------------
Interest (net of amount
capitalized) $ 21,136 $ 20,969 $ 17,166
Income taxes $ 2,652 $ 2,128 $ 2,359
47
50
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values and estimated fair values for on and
off-balance sheet financial instruments as of December 31,
1997 and 1996 are reflected below:
1997 1996
-------------------------- --------------------------
Book Fair Book Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
Financial Assets:
Cash $ 16,313 $ 16,313 $ 15,971 $ 15,971
Federal funds sold 6,485 6,485 0 0
Investment Securities:
Available for sale 92,050 92,050 101,721 101,721
Net loans 398,151 406,323 368,900 376,206
Financial Liabilities:
Deposits $ 461,298 $ 462,967 $ 438,377 $ 439,349
Short-term borrowing:
Federal funds
purchased 0 0 2,790 2,790
Securities sold
under agreement
to repurchase 2,598 2,598 3,973 3,973
Other borrowing 11,292 11,642 8,998 8,654
Off-Balance Sheet Financial Instruments:
Commitments to
extend credit $ 62,486 $ 62,486 $ 49,480 $ 49,480
Credit card
arrangements 9,619 9,619 7,726 7,726
Standby letters of
credit 2,299 2,299 2,245 2,245
The following assumptions and methods were used in estimating
the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS:
For cash on hand and in banks, as well as, federal
funds sold, the carrying amount is a reasonable
estimate of fair value.
48
51
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
INVESTMENT SECURITIES:
Fair value is based on quoted market prices or dealer
quotes. See Note 3, Investment Securities, for
additional information.
LOANS:
The estimated fair value of the Loan portfolio is
based on expected future cash flows discounted by an
appropriate rate derived in part from the Treasury
yield curve.
DEPOSITS:
The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount
payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposits is
estimated using anticipated future cash flows
discounted by an appropriate rate derived in part
from the Treasury yield curve.
BORROWINGS:
Short-term borrowings are carried at cost which
approximates fair value. Other long-term debt was
generally valued using a discounted cash flows
analysis with a discounted rate based on current
incremental borrowing rates for similar types of
arrangements, or if not available, based on an
approach similar to that used for loans and deposits.
Long-term borrowings include their related current
maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
The fair value of commitments is estimated using the
fees currently charged to enter into similar
agreements, taking into account remaining terms of
the agreements and the present creditworthiness of
the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between
current levels of interest rates and the committed
rates. The fair value of guarantees and letters of
credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them
or otherwise settle the obligations with the
counterparties at the reporting date.
49
52
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 17. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
(In thousands) 1997 1996
------------ ------------- -------------
ASSETS:
Cash $ 816 $ 254
Related party receivables:
Dividends 650 520
Note receivable 10,000 10,000
Income tax receivable 0 12
Investment in subsidiaries 38,207 33,115
------------- -------------
TOTAL ASSETS $ 49,673 $ 43,901
============= =============
LIABILITIES:
Accrued expenses $ 179 $ 0
Dividends payable 650 520
------------- -------------
Total Liabilities 829 520
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, no par value -
authorized 1,500,000 shares;
issued 1,300,000 shares 12,677 12,677
Undivided profits 35,165 30,013
Unrealized gain on securities
classified as Available for
Sale (net of tax effect of
$510 for 1997 and $357 for
1996) 1,002 691
------------- -------------
48,844 43,381
------------- -------------
LIABILITIES AND SHAREHOLDERS'
EQUITY $ 49,673 $ 43,901
============= =============
50
53
NOTE 17. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF INCOME
(In thousands) 1997 1996 1995
------------ -------------- ------------- --------------
INCOME:
Equity in net income of subsidiaries $ 6,406 $ 5,510 $ 5,117
Interest income 600 0 0
-------------- ------------- --------------
7,006 5,510 5,117
-------------- ------------- --------------
EXPENSES:
Miscellaneous 16 17 13
Professional fees 15 15 16
Supplies 6 8 4
Taxes 1 1 1
-------------- ------------- --------------
38 41 34
-------------- ------------- --------------
INCOME BEFORE INCOME TAXES 6,968 5,469 5,083
INCOME TAXES (BENEFITS) 191 (14) (12)
-------------- ------------- --------------
NET INCOME $ 6,777 $ 5,483 $ 5,095
============== ============= ==============
51
54
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 17. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Unrealized
Gain (Loss) on
Common Undivided Available for
(In thousands) Stock Profits Sale Securities
------------- ----------- ------------- ---------------
BALANCE at December 31, 1994 $ 12,677 $ 22,360 $ (248)
Net income for 1995 0 5,095 0
Unrealized losses on securities
classified as Available for Sale
(net of tax effect of $599) 0 0 1,167
Dividends ($1.10 per share) 0 (1,430) 0
----------- ------------ ------------
BALANCE at December 31, 1995 12,677 26,025 919
Net income for 1996 0 5,483 0
Unrealized losses on securities
classified as Available for Sale
(net of tax effect of ($115)) 0 0 (228)
Dividends ($1.15 per share) 0 (1,495) 0
----------- ------------ ------------
BALANCE at December 31, 1996 12,677 30,013 691
Net income for 1997 0 6,777 0
Unrealized losses on securities
classified as Available for Sale
(net of tax effect of $153) 0 0 311
Dividends ($1.25 per share) 0 (1,625) 0
----------- ---------- -------------
BALANCE AT DECEMBER 31, 1997 $ 12,677 $ 35,165 $ 1,002
=========== ============ ============
52
55
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 17. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF CASH FLOWS
(In thousands) 1997 1996 1995
------------ ---------------- --------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 6,777 $ 5,483 $ 5,095
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Equity in undistributed net
income of subsidiaries (4,910) 6,316 (3,819)
Changes in Operating Assets and
Liabilities:
Income tax receivable 190 10 (13)
---------------- --------------- ---------------
Net Cash Provided by Operating
Activities 2,057 11,809 1,263
---------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
(Loan) to repayment by
subsidiary 0 (10,000) 0
---------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of dividends (1,495) (1,625) (1,300)
---------------- --------------- ----------------
Net increase (decrease) in cash and
cash equivalents 562 184 (37)
Cash and cash equivalents - beginning
of year 254 70 107
---------------- --------------- ----------------
CASH AND CASH EQUIVALENTS --
END OF YEAR $ 816 $ 254 $ 70
================ =============== ================
53
56
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 18. STOCK SPLIT
On June 28, 1996, the Board of Directors authorized a
five-for-one stock split, thereby increasing the total number
of shares authorized to 1.5 million and the total number of
shares issued and outstanding to 1.3 million. All references
in the accompanying financial statements to the number of
common shares and per share amounts have been restated to
reflect the stock split.
54
57
[KROUSE, KERN & CO., INC. LETTERHEAD]
January 14, 1998
Board of Directors
Farmers & Merchants Bancorp, Inc.
Archbold, Ohio
INDEPENDENT AUDITORS' REPORT ON
SUPPLEMENTARY INFORMATION
Our report on our audits of the basic financial statements of Farmers &
Merchants Bancorp, Inc., Archbold, Ohio, and its wholly-owned subsidiaries, The
Farmers & Merchants State Bank and Farmers & Merchants Life Insurance Company
for the years ended December 31, 1997 and 1996, appears on page 1. The
examination was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The five year summary of operations is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ KROUSE, KERN & CO., INC.
KROUSE, KERN & CO., INC.
55
58
FARMERS & MERCHANTS BANCORP, INC.
Five Year Summary of Consolidated Operations
(In thousands except for per share 1997 1996 1995 1994 1993
--------------------------------- ------------- ------------ ------------- ----------- -----------
amounts)
-------
Summary of Income:
Interest income $ 40,158 $ 38,382 $ 34,228 $ 27,779 $ 26,650
Interest expense 21,139 20,905 17,749 12,561 12,424
------------- ------------ ------------- ----------- -----------
Net Interest Income 19,019 17,477 16,479 15,218 14,226
Provision for loan losses 1,111 1,068 385 564 908
------------- ------------ ------------- ----------- -----------
Net interest income after
provision for loan losses 17,908 16,409 16,094 14,654 13,318
Other income (expense) (8,096) (8,614) (8,594) (7,939) (7,617)
------------- ------------ ------------- ----------- -----------
Earnings before federal
income taxes 9,812 7,795 7,500 6,715 5,701
Income taxes 3,035 2,312 2,203 1,749 1,394
------------- ------------ ------------- ----------- -----------
Net income $ 6,777 $ 5,483 $ 5,297 $ 4,966 $ 4,307
============= ============ ============= =========== ===========
Per Share of Common Stock:
Earnings per common share
outstanding:
(Based on the weighted average
number of shares outstanding)
(All per share amounts have
been retroactively restated to
reflect 5 for 1 stock split in
1996)
Net income $ 5.22 $ 4.22 $ 4.07 $ 3.82 $ 3.31
Dividends 1.25 1.15 1.10 1.00 1.00
Weighted average number
of shares outstanding 1,300,000 1,300,000 1,300,000 1,300,000 1,300,000
Year-end assets $ 528,273 $ 501,449 $ 464,090 $ 406,186 $ 371,913
Average assets 510,163 482,770 430,304 387,440 362,244
Year-end equity capital 48,844 43,381 39,621 34,586 31,169
Average equity capital 46,548 41,501 38,034 32,838 30,025
See Independent Auditors' Report
on Supplementary Information.
56
59
FARMERS & MERCHANTS BANCORP, INC.
Trading Market for the Company's Stock
The Company's stock is not actively traded on any exchange. The range and sales
prices, based upon information that the company has been made aware, are listed
below:
Stock Prices
-------------------------------------------------
Quarter Low High
------- --- ----
1997-- by quarter 1st $ 40.00 $ 45.00
2nd 55.00 72.00
3rd 72.00 72.00
4th 65.00 70.00
1996-- by quarter (after retroactive 1st $ 32.00 $ 35.00
restatement for 5 for 1 stock 2nd 35.00 35.00
split in 1996) 3rd 40.00 40.00
4th 40.00 40.00
Dividends declared on a quarterly basis for the last two fiscal years:
Quarter 1997 1996
------- ---------- ---------
Dividends declared per share (after retroactive
restatement for 5 for 1 stock split in 1996)
By quarter 1st $ .25 $ .25
2nd .25 .25
3rd .25 .25
4th .50 .40
57
60
FARMERS & MERCHANTS BANCORP, INC.
SELECTED FINANCIAL DATA BY MANAGEMENT
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Farmers & Merchants Bancorp, Inc. reported consolidated earnings of $6.777
million for 1997 representing an increase of almost $1.3 million over the $5.5
million for 1996, a 23.6% increase. This increase was primarily the result of an
increase in interest income from loans.
Consolidated assets grew by $26.8 million in 1997 to a record $528 million from
consolidated assets of $501 million for 1996. This represents a 5.3% percent
increase. As was the case for 1996's increase, the increase for 1997 was due
almost entirely to an increase in lending activity. As a result of the continued
growth in the loan portfolio, management is of the opinion that a modest
increase in the loan loss reserve of $350 thousand to $5.85 million is
appropriate to cover potential loan losses.
The return on average assets and average shareholders' equity for 1997 was 1.33%
and 14.56%, respectively. These returns compare to 1.14% average return on
assets and 13.21% average return on shareholders' equity for 1996.
LIQUIDITY
Maintaining sufficient funds to meet depositor and borrower needs on a daily
basis are among management's top priorities. This is accomplished by investing
in assets such as U.S. Government, U.S. Agency, Municipal, and Corporate
investment securities and Commercial Paper which can be converted to cash in a
timely manner, as well as maintaining appropriate levels of cash. The average
aggregate balance of these assets was $100 million for 1997 representing 19.3%
of total average assets.
CAPITAL RESOURCES
Shareholders' equity was $48.8 million at December 31, 1997 compared to $43.4
million for 1996. The company continues to have a strong capital base and its
bank subsidiary The Farmers & Merchants State Bank continues to maintain
regulatory capital ratios that are significantly above the defined regulatory
capital ratios.
At December 31, 1997, The Farmers & Merchants State Bank had a total risk-based
capital ratio of 13.4% and a 9.6% core capital to risk-based asset ratio which
are well in excess of regulatory guidelines. The bank's leverage ratio of 7.1%
is also substantially in excess of regulatory guidelines. These ratios compare
to 12.9%, 8.9% and 6.5%, respectively for 1996.
As was reported last year, these ratios for 1996 were substantially lower than
in past years due to a $10 million dividend paid by The Farmers & Merchants
State Bank to Farmers & Merchants Bancorp, Inc. the parent company. This
dividend with the subsequent loan of $10 million to The Farmers & Merchants
State Bank by Farmers & Merchants Bancorp, Inc. was done to save state franchise
taxes.
The Company's subsidiaries are restricted by regulations from making dividend
distributions in excess of certain prescribed amounts.
58
61
FARMERS & MERCHANTS BANCORP, INC.
SELECTED FINANCIAL DATA BY MANAGEMENT
Key Ratios:
1997 1996 1995 1994 1993
------------ ------------- ------------ ------------- -----------
Return on average equity 14.56% 13.21% 13.93% 15.12% 14.34%
Return on average assets 1.33 1.14 1.23 1.28 1.19
Loan to deposit ratio 86.31 84.15 84.06 87.55 81.12
Capital to assets ratio 9.25 8.65 8.54 8.51 8.38
Other key selected highlights are as follows:
1997 1996 1995 1994 1993
------------ -------------- -------------- --------------- --------------
Loans $ 398,151 $ 368,900 $ 339,614 $ 301,522 $ 261,600
Total Assets 528,273 501,449 464,090 406,186 371,913
Shareholders' Equity 48,844 43,381 39,621 34,586 31,169
Interest income 40,158 38,382 34,228 27,779 26,650
Interest expense 21,139 20,905 17,749 12,561 12,424
Net Interest 19,019 17,477 16,479 15,218 14,226
Other expense (net) 8,096 8,614 8,594 7,940 7,617
Federal income tax 3,035 2,312 2,203 1,749 1,394
Net income 6,777 5,483 5,297 4,965 4,307
Net income per share 5.22 4.22 4.07 3.82 3.31
Dividends per share 1.25 1.15 1.10 1.00 1.00
59
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOUSRE
No disagreements exist on accounting and financial disclosures or
related matters.
No change of accountants has been made since 1982.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The information called for herein is presented below:
Year First
Principal Occupation or Became
Name Age Employment for Past Five Years Director
---- --- ------------------------------ --------
Charles Lugbill 70 Chairman of the Board of Farmers 1968
and Merchants Bancorp, Inc. and,
The Farmers & Merchants State
Bank
Eugene Bernath 64 Farmer 1978
Jerry L. Boyers 64 President, Edifice Construction 1976
Management
Joe E. Crossgrove 61 President, Chief Executive Officer 1992
The Farmers & Merchants State
Bank
Robert G. Frey 57 President, E. H. Frey & Sons, Inc. 1987
Lee E. Graffice 66 President, Graffice Motor Sales 1983
Jack C. Johnson 45 President, Hawk's Clothing, Inc. 1991
Partner, REJO Partnership
Dean E. Miller 53 President, MBC Holdings, Inc. 1986
Dale L. Nafziger 67 Retired 1969
Harold H. Plassman 68 Attorney, Plassman, Rupp, Hensel 1985
& Short
James L. Provost 69 Retired, Dyer & McDermott, Inc. 1995
James C. Saneholtz 51 President, Saneholtz-McKarns, Inc. 1995
Maynard Sauder 65 President, Sauder Woodworking Co. 1980
Merle J. Short 57 Farmer, President of Promow, Inc. 1987
Steven J. Wyse 53 President, Granite Industries, Inc. 1991
60
63
EXECUTIVE OFFICERS
------------------
Principal Occupation
Name Age for Past Five Years
---- --- -------------------
Charles Lugbill 70 Secretary/Treasurer Agri Trading
Chairman of the Board of Farmers
and Merchants Bancorp, Inc. and,
The Farmers & Merchants State
Bank
Joe E. Crossgrove 60 President, Chief Executive Officer
The Farmers & Merchants State
Bank (since 1991) Executive Vice
President and Treasurer of Farmers
& Merchants Bancorp, Inc.
Director and Vice President of
Farmers & Merchants Life Insurance
Co.
Rex D. Rice 38 Vice President
Chief Lending Officer
Edward Leininger 40 Vice President
Commercial Loan Officer
Allen G. Lantz 44 Vice President
Branch Manager
Lewis Hilkert 47 Vice President
Branch Manager
Carol England 57 Assistant Vice President
Corporate Secretary
Branch Manager
Ronald D. Short 45 Assistant Vice President
Branch Manager
Cynthia Knauer 51 Assistant Vice President
Branch Manager
Dave Frazier 39 Assistant Vice President
Branch Manager
John Fee 37 Assistant Vice President
Branch Manager
Steve Jackson 43 Assistant Vice President
Branch Manager
61
64
Deborah Stoner 41 Assistant Vice President
Branch Manager
Randal H. Schroeder 37 Assistant Vice President
Chief Operations Officer
George Jelen 46 Assistant Vice President
Mortgage Loan Officer
Barbara Britenriker 36 Assistant Vice President
Chief Financial Officer
Comptroller
Michael D. Culler 39 Assistant Vice President
Chief Agricultural Finance Officer
Diann K. Meyer 37 Assistant Vice President
Personnel Manager
Gloria Gunn 40 Assistant Vice President
Assistant Branch Manager
Richard Bruce 50 Assistant Vice President
Commercial Loan Officer
Kent Roth 33 Auditor
Bank Security Officer
Bank Secrecy Officer
Marilyn Johnson 41 Compliance Officer
Jean Horwath 46 Assistant Cashier
Assistant Branch Manager
Diane Swisher 40 Assistant Cashier
Assistant Branch Manager
Patti Rosebrock 40 Assistant Cashier
Assistant Branch Manager
Michael T. Smith 31 Assistant Cashier
Branch Manager
Debra Kauffman 37 Assistant Cashier
Assistant Corporate Secretary
Consumer Loan Officer
J. Scott Miller 41 Assistant Cashier
Assistant Agri-Finance Officer
Judy Warncke 49 Assistant Cashier
Marketing Officer
62
65
Diana Dennie 35 Assistant Cashier
Branch Manager
Jerry Borton 48 Assistant Cashier
Loan Officer
Joyce G. Kinsman 28 Assistant Cashier
Loan Review Officer
Richard D. Ernest 33 Assistant Cashier
Asset Recovery Officer
Jane Bruner 37 Assistant Cashier
Operations Supervisor
Barry Gray 37 Assistant Cashier
Assistant Branch Manager
Kevin Gray 25 Assistant Cashier
Assistant Branch Manager
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ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The information called for herein is presented in the proxy statement
to be furnished in connection with the solicitation of proxies on behalf of the
Board of Directors of the Registrant for use at its Annual Meeting to be held on
April 4, 1998 is incorporated herein by reference.
The directors of Farmers & Merchants Bancorp, Inc. are also the
directors of The Farmers & Merchants State Bank and Farmers & Merchants Life
Insurance Co.
The Board of Directors met twenty-six times during the 1997 calendar
year. All current directors of the Corporation attended at least seventy-five
percent of the meetings of the Board. Average attendance at Board meetings held
during the year was ninety percent.
Directors received, as directors' fees, $300 for each board meeting,
plus a bonus of $600 for 1997.
The Subsidiary Bank Board of Directors met semi-monthly during 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for herein is presented in the proxy statement to be
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of the Registrant for use at its Annual Meeting to be held
Saturday, April 4, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHER
There are no transactions to report.
CERTAIN BUSINESS RELATIONSHIPS
No family relationships exist between any executive officers of the
Bank.
LOANS TO RELATED PARTIES
This information is presented on page 16, Note 4 of the Annual Report
to shareholders, and is incorporated herein by reference.
CERTAIN BUSINESS RELATIONSHIPS
The company retained the law firm of Plassman, Rupp, Hensal and Short
in 1988. One of the principals, Harold Plassman, is a member of the Board of
Directors. During 1997 the company paid fees to Plassman, Rupp, Hensal and Short
for routine legal services. It is the company's intention to retain the law firm
in 1998.
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67
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Annual Report
-------------
(1) Financial Statements
Report of Independent Accountants Page 5
Consolidated Balance Sheets Page 6
Consolidated Statements of Income Page 7
Consolidated Statements of Changes in
Shareholders' Equity Page 8
Consolidated Statements of Cash Flows Page 9
Notes to Consolidated Financial Statements Pages 10 - 30
(2) Financial Statement Schedules
Independent Auditors' Report on Additional
Information Page 31
Five Year Summary of Operations Page 32
(3) Exhibits
(3.1) Articles of Incorporation have been submitted
with previous 10-K reports. (13.1) 1997 Annual Report
to Shareholders (contained herein) (23.1) Notice of
Annual Meeting and Proxy Statement
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601.
None required
(d) Schedules required by Regulation S-X
The Condensed Financial Information of the Registrant required
by this report are included in the Annual Report to
Shareholders, Note 17 pages 26 through 29 Other schedules
required to be filed as part of this report.
Form 10-K
Schedule of Property and Equipment Page 42
Schedule of Accumulated Depreciation - Property and Equipment Page 43
65
68
SCHEDULE OF PROPERTY AND EQUIPMENT
Exhibit 1
Year Ended December 30, 1997
-----------------------------------------------------------------
Beginning Ending
(in thousands) Balance Additions Retirements Balance
------------- -------------- ------------- --------------
Land........................................ $ 1,228 $ 244 $ 0 $ 1,472
Building.................................... 7,137 261 0 7,398
Banking house equipment..................... 4,333 284 11 4,606
------------- -------------- ------------- --------------
$ 12,698 $ 789 $ 11 $ 13,476
============= ============== ============= ==============
Year Ended December 30, 1996
-----------------------------------------------------------------
Beginning Ending
(in thousands) Balance Additions Retirements Balance
------------- -------------- ------------- --------------
Land........................................ $ 1,120 $ 108 $ 0 $ 1,228
Building.................................... 6,475 662 0 7,137
Banking house equipment..................... 4,074 414 155 4,333
------------- -------------- ------------- --------------
$ 11,669 $ 1,184 $ 155 $ 12,698
============= ============== ============= ==============
Year Ended December 30, 1995
-----------------------------------------------------------------
Beginning Ending
(in thousands) Balance Additions Retirements Balance
------------- -------------- ------------- --------------
Land........................................ $ 1,073 $ 47 $ 0 $ 1,120
Building.................................... 6,042 523 90 6,475
Banking house equipment..................... 3,033 1,084 43 4,074
------------- -------------- ------------- --------------
$ 10,148 $ 1,654 $ 133 $ 11,669
============= ============== ============= ==============
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SCHEDULE OF ACCUMULATED DEPRECIATION -- PROPERTY AND EQUIPMENT
Exhibit 2
Year Ended December 30, 1997
-----------------------------------------------------------------
Beginning Provision for Ending
(in thousands) Balance Depreciation Retirements Balance
------------- -------------- --------------- -----------
Building.................................... $ 2,022 $ 212 $ 0 $ 2,234
Banking house equipment..................... 3,100 488 11 3,577
------------- -------------- ------------- --------------
$ 5,122 $ 700 $ 11 $ 5,811
============= ============== ============= ==============
Year Ended December 30, 1996
-----------------------------------------------------------------
Beginning Provision for Ending
(in thousands) Balance Depreciation Retirements Balance
------------- -------------- --------------- -----------
Building.................................... $ 1,814 $ 208 $ 0 $ 2,022
Banking house equipment..................... 2,657 590 147 3,100
------------- -------------- ------------- --------------
$ 4,471 $ 798 $ 147 $ 5,122
============= ============== ============= ==============
Year Ended December 30, 1995
-----------------------------------------------------------------
Beginning Provision for Ending
(in thousands) Balance Depreciation Retirements Balance
------------- -------------- --------------- -----------
Building.................................... $ 1,683 $ 203 $ 72 $ 1,814
Banking house equipment..................... 2,208 486 37 2,657
------------- -------------- ------------- --------------
$ 3,891 $ 689 $ 109 $ 4,471
============= ============== ============= ==============
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70
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, hereunto duly authorized.
Farmers & Merchants Bancorp, Inc.
By: Joe E. Crossgrove Date: 3/6/98
------------------------------ ----------------
Joe E. Crossgrove
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Joe E. Crossgrove Date: 3/6/98 Barbara Britenriker Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Joe E. Crossgrove, Director Barbara Britenriker
Chief Executive Officer Chief Accounting Officer
Charles Lugbill Date: 3/6/98 Kent Roth Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Charles Lugbill Kent Roth, Auditor
Director and Chairman
Eugene D. Bernath Date: 3/6/98 Harold H. Plassman Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Eugene D. Bernath, Director Harold H. Plassman, Director
Jerry Boyers Date: 3/6/98 James Provost Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Jerry Boyers, Director James Provost, Director
Robert Frey Date: 3/6/98 James Saneholtz Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Robert Frey, Director James Saneholtz, Director
Lee Grafice Date: 3/6/98 Maynard Sauder Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Lee Grafice, Director Maynard Sauder, Director
Jack C. Johnson Date: 3/6/98 Merle J. Short Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Jack C. Johnson, Director Merle J. Short, Director
Dean Miller Date: 3/6/98 Steven J. Wyse Date: 3/6/98
- -------------------------------------- --------------- ------------------------------- ----------------
Dean Miller, Director Steven J. Wyse, Director
Dale L. Nafziger Date: 3/6/98
- -------------------------------------- ---------------
Dale L. Nafziger, Director
68
71
EXHIBIT INDEX
EXHIBIT NUMBER
27 FINANCIAL DATA SCHEDULE