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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, 2000
or
Transition Report Pursuant to Section 13 or 15(d)
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of the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 0-14492
FARMERS & MERCHANTS BANCORP, INC.
OHIO 34-1469491
- ------------------------------------ -------------------------------
(State or other jurisdiction of (IRS 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:
Common 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, 2001, Registrant had outstanding 1,300,000 shares of common stock
at a market value of $110,500,000.
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FARMERS & MERCHANTS BANCORP, INC.
TABLE OF CONTENTS
PAGE
Form 10-K Items
- ---------------
Item 1. Business 2 - 20
Item 2. Properties 20
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 - 20
Item 8. Financial Statements and Supplementary Data 22 - 65
Item 9. Disagreements on Accounting and
Financial Disclosure 66
Item 10. Directors and Executive Officers
of the Registrant 66 - 69
Item 11. Management Remuneration and Transactions 70
Item 12. Security Ownership of Certain
Beneficial Owners and Management 70
Item 13. Certain Relationships and Related
Transactions 70
Item 14. Financial Schedules and Reports on Form 8-K 71 - 73
Schedule 1 - Schedule of Property and Equipment 72
Schedule 2 - Schedule of Accumulated Depreciation -
Property and Equipment 73
Signatures 74
Total Pages: 74
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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.
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".
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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.
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.
3
5
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.
The Bank continued to expand ATM locations during 1997 by installing a drive-up
machine at our West Unity office. During the fourth quarter 1997 an ATM (cash
dispensing only) was installed at Wyse Commons at the Fairlawn Haven Complex in
Archbold. 1997 proved to be a very profitable year for the Bank and ended the
year with $528,273,000 in assets. An application was submitted and approved for
a new full service office to be located at the east end of the village of
Montpelier. Construction of that building began in October 1997 and was open for
business in June 1998.
With the opening of the Montpelier Eastside Office in June 1998, The Farmers &
Merchants State Bank had 12 office locations in 8 communities. There were four
new ATM's installed during 1998. Those ATM's are located at the Bryan East High
Office, Stryker Office, Montpelier Eastside Office, and Repp Oil in Fayette.
With the addition of these new ATM's the bank now has 18 ATM locations
throughout our market area. The existing Fulton County Health Center ATM was
relocated to Beck's Petro Country Store, Ridgeville Corners.
Construction of the Swanton Office began in June 1999. This office, which opened
in November 1999, is the bank's first office located in Lucas County. With the
addition of another drive-up ATM at the Swanton Office, the bank now has 19 ATM
locations. Assets at the end of the fourth quarter were $598,529 million.
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FM Investments, the brokerage department of The Farmers & Merchants State Bank,
opened for business in April 1999. The office for this department is located in
the Main Office, Archbold. Securities are offered through Raymond James
Financial Services, Inc.
In 2000, two new automated teller machines were added to off-site locations,
Sauder Village in Archbold, Ohio and the Delta Eagles in Delta, Ohio. In
December of 2000 construction of the new Defiance Banking Center began. Assets
at the end of the fourth quarter exceeded $635 million.
One thing that has never changed through the tremendous growth The Farmers &
Merchants State Bank experienced over the years is that it continues to be "Your
Community Bank". This image remains a goal of the Bank's strategic plan. The
Bank is proud to have played a large part in the growth of northwest Ohio. It is
The Farmers & Merchants State Bank's commitment to insure that community banking
continues to grow and prosper by providing quality customer service and
adequately fulfilling the financial needs of the individuals, farmers,
businesses, and industries in our market area.
NATURE OF ACTIVITIES
The Farmers & Merchants State Bank through its equivalent of 252 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.
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.
F&M Investments, the brokerage department of The Farmers & Merchants State Bank,
opened for business in April, 1999. Securities are offered through Raymond James
Financial Services, Inc.
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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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 Sky Financial (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
Sky Financial
Stryker, Ohio Sky Financial
West Unity, Ohio National Bank of Montpelier
Delta, Ohio State Bank & Trust Company
First Federal Savings & Loan of Delta
Bryan, Ohio Sky Financial (2 offices)
National City Bank (Subsidiary of National City
Corporation)
First Federal Savings & Loan of Defiance
(2 offices)
Community First Bank & Trust
National Bank of Montpelier
Montpelier, Ohio Sky Financial
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
Sky Financial (2 offices)
National City Bank (Subsidiary of National City
Corporation) (2 offices)
Swanton, Ohio National City Bank (Subsidiary of National City
Corporation)
Fifth Third Bank
First Federal Savings & Loan of Delta
Key Bank
6
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SELECTED STATISTICAL AND FINANCIAL INFORMATION
EARNINGS SUMMARY
Farmers & Merchants Bancorp, Inc. reported net income of $7.4 million for 2000
which is an increase of $600 thousand over the 1999 net income of $6.8 million,
and virtually the same as 1998 net income of $7.6 million. The increase in 2000
net income is primarily a result of increased loan activity and interest rate
increases. Earnings per share correspondingly increased for 2000 to $5.69 per
share compared to $5.23 per share and $5.89 per share for 1999 and 1998,
respectively.
INTEREST INCOME
The following table presents net interest income, interest spread and net
interest margin for the three years 1998 through 2000, comparing average
outstanding balances of earnings assets and interest bearing liabilities with
the associated interest income and expense and their corresponding average rates
of earned and paid. The tax exempt asset yields have been tax effected to
reflect a marginal corporate tax rate of 34%. Average outstanding loan balances
include nonperforming loans and mortgage loans held for sale. Average
outstanding security balances are computed based on carrying values including
unrealized gains and losses on available-for-sale securities.
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9
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND
INTEREST DIFFERENTIAL
2000
-----------------------------------------------------
Average Interest/
Balance Dividends Yield/Rate
------- --------- ----------
ASSETS
Interest Earning Assets:
Loans (1) $475,035 $42,661 8.98%
Taxable investment securities 78,995 4,782 6.05%
Tax-exempt investment securities 27,094 1,313 4.85%
Interest bearing deposits 100 4 4.00%
Federal funds sold 2,021 130 6.43%
-------- -------
Total Interest Earning Assets 583,245 $48,890 8.38%
======= ====
Non-Interest Earning Assets:
Cash and cash equivalents 16,020
Other assets 19,810
--------
Total Assets $619,075
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 97,922 $ 4,805 4.91%
Other time deposits 304,666 17,494 5.74%
Other borrowed money 28,637 1,942 6.78%
Federal funds purchased and securities
sold under agreement to repurchase 20,670 1,268 6.13%
-------- -------
Total Interest Bearing Liabilities 451,895 $25,509 5.64%
======= ====
Non-Interest Bearing Liabilities:
Non-interest bearing demand deposits 100,590
Other 5,102
--------
Total Liabilities 557,587
Stockholders' Equity 61,488
--------
Total Liabilities and
Shareholders' Equity $619,075
========
Interest/dividend income/yield $48,890 8.38%
Interest expense/yield 25,509 5.64%
------- ----
Net Interest Spread $23,381 2.74%
======= ====
Net Interest Margin 4.01%
====
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10
1999
-----------------------------------------------------
Average Interest/
Balance Dividends Yield/Rate
------- --------- ----------
ASSETS
Interest Earning Assets:
Loans (1) $428,087 $37,236 8.70%
Taxable investment securities 89,834 5,001 5.57%
Tax-exempt investment securities 30,106 1,434 4.76%
Interest bearing deposits 100 3 3.00%
Federal funds sold 2,019 105 5.20%
-------- -------
Total Interest Earning Assets 550,146 $43,779 7.96%
======= ====
Non-Interest Earning Assets:
Cash and cash equivalents 9,940
Other assets 25,103
--------
Total Assets $585,189
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 98,711 $ 4,199 4.25%
Other time deposits 295,376 15,577 5.27%
Other borrowed money 16,503 1,029 6.24%
Federal funds purchased and securities
sold under agreement to repurchase 6,129 345 5.63%
-------- -------
Total Interest Bearing Liabilities 416,719 $21,150 5.08%
======= ====
Non-Interest Bearing Liabilities:
Non-interest bearing demand deposits 110,064
Other 1,544
--------
Total Liabilities 528,327
Stockholders' Equity 56,862
--------
Total Assets & Shareholders' Equity $585,189
========
Interest/dividend income/yield $43,779 7.96%
Interest expense/yield 21,150 5.08%
------- ----
Net Interest Spread $22,629 2.88%
======= ====
Net Interest Margin 4.11%
====
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1998
----------------------------------------
Average Interest/
Balance Dividends Yield/Rate
------- --------- ----------
ASSETS
Interest Earning Assets:
Loans (1) $408,291 $ 36,335 8.90%
Taxable investment securities 75,880 4,641 6.12%
Tax-exempt investment securities 25,654 1,259 4.91%
Interest bearing deposits 100 5 5.00%
Federal funds sold 12,123 648 5.35%
-------- --------
Total Interest Earning Assets 522,048 $ 42,888 8.22%
======== =========
Non-Interest Earning Assets:
Cash and cash equivalents 14,745
Other assets 16,484
--------
Total Assets $553,277
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Savings deposits $ 89,643 $ 4,635 5.17%
Other time deposits 290,141 16,547 5.70%
Other borrowed money 11,051 698 6.32%
Federal funds purchased and securities
sold under agreement to repurchase 3,276 206 6.25%
-------- --------
Total Interest Bearing Liabilities 394,111 $ 22,086 5.60%
======== =========
Non-Interest Bearing Liabilities:
Non-interest bearing demand deposits 100,420
Other 5,807
--------
Total Liabilities 500,338
Stockholders' Equity 52,939
--------
Total Assets & Shareholders' Equity $553,277
========
Interest/dividend income/yield $ 42,888 8.22%
Interest expense/yield 22,086 5.61%
-------- ----------
Net Interest Spread $ 20,802 2.61%
======== ==========
Net Interest Margin 3.98%
==========
(1) For purposes of these computations, nonaccruing loans are included in
the daily average outstanding loan amounts.
10
12
The primary source of the Company's traditional banking revenue is net interest
income. Net interest income is the difference between interest income on
interest earning assets, such as loans and securities, and interest expense on
liabilities used to fund those assets such as interest bearing deposits and
other borrowings. Net interest income is affected by changes in both interest
rates and the amount and composition of earnings assets and liabilities. The
change in net interest income is most often measured as a result of two
statistics - interest spread and net interest margin. The difference between the
yields on earning assets and the rates paid for interest bearing liabilities
supporting those funds represents the interest spread. Because non-interest
bearing sources of funds such as demand deposits and stockholders' equity also
support earning assets, the net interest margin exceeds the interest spread.
The following tables show changes in interest income, interest expense and net
interest due resulting from changes in volume and rate variances for major
categories of earnings assets and interest bearing liabilities.
2000 vs 1999
----------------------------------
Net Due to Change in
Change Volume Rate
------ ------ ----
Interest Earned On:
Loans $ 5,425 $ 4,216 $ 1,209
Taxable investment securities (219) (656) 437
Tax-exempt investment securities (121) (146) 25
Interest bearing deposits 1 -- 1
Federal funds sold 25 -- 25
------- ------- -------
Total Interest Earning Assets $ 5,111 $ 3,414 $ 1,697
======= ======= =======
Interest Paid On:
Savings deposits $ 606 $ (39) $ 645
Other time deposits 1,917 533 1,384
Other borrowed money 913 823 90
Federal funds sold and security
repurchase agreements 923 892 31
------- ------- -------
$ 4,359 $ 2,209 $ 2,150
======= ======= =======
1999 vs 1998
----------------------------------
Net Due to Change in
Change Volume Rate
------ ------ ----
Interest Earned On:
Loans $ 901 $ 1,722 $ (821)
Taxable investment securities 360 777 (417)
Tax-exempt investment securities 175 212 (37)
Interest bearing deposits (2) -- (2)
Federal funds sold (543) (526) (17)
------- ------- -------
Total Interest Earning Assets $ 891 $ 2,185 $(1,294)
======= ======= =======
Interest Paid On:
Savings deposits $ (436) $ 386 $ (822)
Other time deposits (970) 276 (1,246)
Other borrowed money 331 340 (9)
Federal funds sold and security
repurchase agreements 139 160 (21)
------- ------- -------
$ (936) $ 1,162 $(2,098)
======= ======= =======
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Interest income from fees on loans and leases increased $5.4 million to $42.7
million for 2000 over 1999 interest income on fees and loans of $37.2 million.
This compares with an increase of $901 thousand for 1999 over 1998 interest
income of $36.3 million. The increase for 2000 was primarily due to an increase
in loan activity with some increase coming from an increase in interest rates.
Net interest margin was 4.01% for 2000, 4.11% for 1999 and 3.98% for 1998. While
the industry has experienced some fluctuations in interest rates over the past
year, The Farmers & Merchants State Bank has been able to maintain their
margins.
NONINTEREST INCOME
Noninterest income for 2000 experienced a small increase of $200 thousand over
1999 to $3.3 million for 2000 compared to $3.1 million for 1999 and $4 million
for 1998. The reduction in noninterest income from 1998 to 1999 was primarily in
four categories. Miscellaneous customer service charges were $299 thousand for
1999 compared to $452 thousand for 1998. Mastercard fees dropped $199 thousand
for 1999 to $293 thousand compared to $492 thousand for 1998. Mortgage servicing
rights income was $138 thousand for 1999 compared to $814 thousand for 1998.
Finally, the gain on sale of loans held-for-sale was $116 thousand for 1999,
while gain on sale of loans held-for-sale for 1998 was $477 thousand.
NONINTEREST EXPENSE
Noninterest expenses for 2000 of $14.7 million increased very modestly over 1999
expenses of $14.3 million with employee wages and benefits accounting for the
increase. Noninterest expense for 1998 amounted to $12.9 million. No one
specific noninterest expense category accounted for a significant portion of the
increase in noninterest expenses from 1998 to 1999. Increases were experienced
in all categories as can be seen from the income statement in the shareholders'
report.
FINANCIAL CONDITION
Average earning assets have demonstrated consistent growth over the last three
years. Average earnings assets for 2000 were $583 million compared to $550
million and $522 million for 1999 and 1998, respectively. This growth in average
earnings assets represent a 6 percent and 5.4 percent increase for 2000 and
1999, respectively. Most of this growth has come from increased loan activity.
Average interest bearing liabilities have also showed steady increases rising
$23 million from $394 million for 1998 to $417 million for 1999 and increasing
again $35 million to $452 million for 2000, representing a 5.7 percent increase
for 1999 and a 8.4 percent increase for 2000.
INVESTMENT SECURITIES
Security balances at December 31 are summarized below:
(In Thousands)
-------------------------------------------
2000 1999 1998
-------- -------- ---------
U.S. Treasury and Government agencies $ 61,115 $ 44,921 $ 55,686
Mortgage-backed securities 7,863 9,827 35,520
State and local governments 32,157 31,246 10,993
Corporate debt securities 9,196 9,627 19,115
Commercial paper 2,908 7,330 13,648
Equity securities 20 20 20
-------- -------- --------
$113,259 $102,971 $134,982
======== ======== ========
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The following table sets forth (dollars in thousands) the maturities of
investment securities at December 31, 2000 and the weighted average yields of
such securities calculated on the basis of 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 $ 2,895 6.41% $ 4,926 5.98%
U.S. Government agency 11,495 6.35% 39,716 6.28%
Mortgage-backed securities 410 4.46% 1,644 5.54%
State and local governments 2,593 5.01% 7,411 4.64%
Taxable state and local governments -- 0.00% 5,722 6.54%
Corporate debt securities 5,205 5.99% 4,046 5.63%
Commercial paper 2,908 6.47% -- 0.00%
Maturities
-----------------------------------------------------
After Five Years
Within Ten Years After Ten Years
----------------------- --------------------------
Amount Yield Amount Yield
------ ----- ------ -----
U.S. Treasury $ -- 0.00% $ -- 0.00%
U.S. Government agency 1,329 5.02% -- 0.00%
Mortgage-backed securities 4,055 5.62% 1,815 6.21%
State and local governments 10,163 4.63% 5,549 5.18%
Taxable state and local governments -- 0.00% -- 0.00%
Corporate debt securities -- 0.00% -- 0.00%
Commercial paper -- 0.00% -- 0.00%
At December 31, 2000 the Bank 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 $2.4 million. The Bank did hold stock in the
Federal Home Loan Bank of Cincinnati at a cost of $3 million. This is required
in order to obtain Federal Home Loan Bank Loans.
LOAN PORTFOLIO
The Bank's various loan portfolios are subject to varying levels of credit risk.
Management mitigates these risks through portfolio diversification and through
standardization of lending policies and procedures. The following table shows
the Bank's loan portfolio by category of loan:
(In Thousands)
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- -------- ---------
Loans:
Commercial/industrial $ 96,990 $100,996 $ 81,253 $ 65,633 $ 67,763
Agricultural 51,337 46,035 38,882 44,939 41,195
Real estate mortgage 261,289 237,056 200,675 205,626 195,043
Installment 69,081 71,662 68,385 75,767 63,199
IDB 8,647 7,015 4,587 4,511 3,670
-------- -------- -------- -------- --------
Total Loans $487,344 $462,764 $393,782 $396,476 $370,870
======== ======== ======== ======== ========
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The following table shows the maturity of loans:
Maturities (In Thousands)
------------------------------------------------------------
After One
Within Year Within After
One Year Five Years Five Years Total
------------ ------------ ------------- -----------
Commercial/industrial/agriculture $ 86,426 $ 32,624 $ 29,277 $ 148,327
Real estate mortgage 5,733 14,386 241,170 261,289
Installment 11,367 54,467 2,595 68,429
Industrial Development Bonds 2,255 1,102 5,290 8,647
The following table presents the total of loans due after one year which have 1)
predetermined interest rates and 2) floating or adjustable interest rates:
(In Thousands)
After One
Year
-------------
Commercial/industrial/agriculture
Fixed $ 36,890
Variable 25,011
Real estate mortgage
Fixed 64,150
Variable 191,406
Installment
Fixed 55,784
Variable 1,278
Industrial Development Bonds
Fixed 6,392
Variable -
The following table summarizes the Company's nonaccrual and past due loans as of
December 31:
(In Thousands)
----------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Nonaccrual loans $6,622 $6,504 $6,455 $2,890 $3,489
Accruing loans past due
90 days or more 2,577 2,264 1,988 1,396 1,899
------ ------ ------ ------ ------
Total $9,199 $8,768 $8,443 $4,286 $5,388
====== ====== ====== ====== ======
As of December 31, 2000, management, to the best of their 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.
Although loans may be classified as nonperforming, many continue to pay interest
irregularly or at less than original contractual rates. Interest income which
would have been recorded under the original terms of the nonaccrual loans was
$177 thousand for 2000 and $53 thousand for 1999. Any collections of interest on
nonaccrual loans are included in interest income when collected. This amounted
to $170 thousand for 2000 and $53 for 1999.
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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%, the loan is
in past due status for more than 180 days.
The $6.6 million of nonaccrual loans as of December 31, 2000 are secured.
At December 31, 2000 the Bank has $9.2 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 that quarterly.
The amount of the potential problem loans was considered in management's review
of the loan loss reserve required at December 31, 2000.
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, 2000, the Bank had loans outstanding to individuals and firms
engaged in the various fields of agriculture in the amount of $51 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.
The allowance for loan losses is evaluated based on an assessment of the losses
inherent in the loan portfolio. This assessment results in an allowance
consisting of two components, allocated and unallocated.
Management considers several different risk assessments in determining the
allowance for loan losses. The allocated component of the allowance for loan
losses reflects expected losses resulting from an analysis of individual loans,
developed through specific credit allocations for individual loans and
historical loss experience for each loan category. For those loans where the
internal credit rating is at or below a predetermined classification and
management can reasonably estimate the loss that will be sustained based upon
collateral, the borrowers operating activity and economic conditions in which
the borrower operates, a specific allocation is made. For those borrowers which
are not currently behind in their payment, but for which management believes
based on economic conditions and operating activities of the borrower, the
possibility exists for future collection problems, a reserve is established. The
amount of reserve allocated to each loan portfolio is based on past loss
experiences, the different levels of risk within each loan portfolio. The
historical loan loss portion is determined using a historical loss analysis by
loan category.
The unallocated portion of the reserve for loan losses is determined based on
management's assessment of general economic conditions as well as specific
economic factors in the Bank's marketing area. This assessment inherently
involves a higher degree of uncertainty. It represents estimated inherent but
undetected losses within the portfolio that are probable due to uncertainties in
economic conditions, delays in obtaining information, including unfavorable
information about a borrower's financial condition and other current risk
factors that may not have yet manifested themselves in the Bank's historical
loss factors used to determine the allocated component of the allowance.
Actual charge-off of loan balances are based upon periodic evaluations of the
loan portfolio by management. These evaluations consider several factors,
including, but not limited to, general economic conditions, financial condition
of the borrower, and collateral.
With the average size of a real estate loan at $156,000, and because the Bank
has not experienced significant losses in the real estate portfolio over the
past several years, and it is not anticipated there will be significant losses
in the future, the portion of the reserve allocated to the real estate portfolio
declined from the previous year.
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17
The following table presents a reconciliation of the allowance for loan
losses:
(In Thousands)
--------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Loans $487,344 $462,764 $393,782 $396,476 $370,870
======== ======== ======== ======== ========
Daily average of outstanding loans $475,035 $428,087 $408,291 $384,498 $358,261
======== ======== ======== ======== ========
Allowance for loan losses - January 1 $ 6,750 $ 5,850 $ 5,850 $ 5,500 $ 5,500
Loans Charged Off:
Commercial 257 185 472 263 623
Installment 1,883 1,085 1,260 1,239 1,053
Real estate mortgages 233 304 42 29 35
-------- -------- -------- -------- --------
2,373 1,574 1,774 1,531 1,711
-------- -------- -------- -------- --------
Loan Recoveries:
Commercial 358 493 540 384 197
Installment 923 331 339 364 443
Real estate mortgages 6 13 3 22 3
-------- -------- -------- -------- --------
1,287 837 882 770 643
-------- -------- -------- -------- --------
Net Charge Offs 1,086 737 892 761 1,068
-------- -------- -------- -------- --------
Privision for loan loss 1,496 1,637 892 1,111 1,068
-------- -------- -------- -------- --------
Allowance for loan losses - December 31 $ 7,160 $ 6,750 $ 5,850 $ 5,850 $ 5,500
======== ======== ======== ======== ========
Allocation of the allowance for loan losses among the various loan
categories is as follows:
% of Loans
in Each
Amount Category To
(000's) Total Loans
---------- -----------
Balance at End of Period Applicable To:
Commercial/industrial $ 4,549 30.99%
Installment 1,237 14.43%
Real estate 952 54.58%
Unallocated 422 0.00%
---------- ---------
$ 7,160 100.00%
========== =========
DEPOSITS
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 Six
Over Three Less Than Over
Under Less Than Twelve Twelve
Three Months Six Months Months Months
------------ ---------- --------- --------
Time deposits $ 29,786 $ 16,405 $ 8,040 $ 19,314
16
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The following table presents the average amount of and average rate paid on each
deposit category:
Demand NOW Savings Time
Deposits Accounts Accounts Accounts
-------- -------- -------- --------
December 31, 2000:
------------------
Average balance (In thousands) $ 41,211 $ 45,753 $ 97,922 $ 304,666
Average rate 0.00% 2.14% 3.44% 5.77%
December 31, 1999:
------------------
Average balance (In thousands) $ 43,655 $ 61,609 $ 101,506 $ 292,581
Average rate 0.00% 2.44% 2.65% 5.32%
December 31, 1998:
------------------
Average balance (In thousands) $ 38,906 $ 44,218 $ 108,981 $ 287,484
Average rate 0.00% 2.29% 3.32% 5.76%
SHORT-TERM BORROWINGS
The Company's average balance of short-term borrowings was less than 30% of end
of year stockholders' equity for each year reported.
RETURN ON ASSETS AND EQUITY
The Company has consistently maintained regulatory capital ratios at or above
the "well capitalized" levels. See Note 16 to the Consolidated Financial
Statements for more information.
Stockholders' equity ended at $65 million for 2000 compared to $57.9 million for
1999, a $7.1 million or 12.3% increase. Dividends for 2000 increased by $.10 per
share to $1.50 compared to $1.40 per share for 1999 and 1998 resulting in the
dividend payout ratios shown in the table below. Management and the Board of
Directors are continually reviewing this ratio. The amount of dividends which
can be paid are subject to regulatory restrictions.
The following table shows consolidated operating and capital ratios of the
Company for each of the last three years:
2000 1999 1998
---- ---- ----
Return on average assets 1.19% 1.16% 1.38%
Return on average equity 12.02% 11.95% 14.46%
Dividend payout ratio 26.38% 26.79% 23.77%
Equity to assets ratio 10.23% 9.67% 9.45%
FUNDING
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.
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19
The Farmers & Merchants State Bank functions as a financial intermediary, and as
a result, 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.
2000
-------------------------------------------
Net Change
Average ----------------------------
Balance Amount Percentage
--------- ---------- ----------
Funding Uses:
Loans $475,035 $ 46,948 10.97%
Taxable securities 78,995 (10,839) -12.07%
Tax exempt securities 27,094 (3,012) -10.00%
Interest bearing deposits 100 -- 0.00%
Federal funds sold 2,021 2 0.10%
-------- --------
$583,245 $ 33,099 6.02%
======== ========
Funding Sources:
Deposits:
Noninterest bearing demand $100,590 $ (9,474) -8.61%
Savings 97,922 (789) -0.80%
Other time 304,666 9,290 3.15%
Other borrowed money 28,637 12,134 73.53%
Federal funds purchased
agreements to repurchase 20,670 14,541 237.25%
-------- --------
$552,485 $ 25,702 4.88%
======== ========
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1999 1998
----------------------------------------- -------
Net Change
Average -------------------------- Average
Balance Amount Percentage Balance
---------- --------- ---------- -------
Funding Uses:
Loans $428,087 $ 19,796 4.85% $408,291
Taxable securities 89,834 13,954 18.39% 75,880
Tax exempt securities 30,106 4,452 17.35% 25,654
Interest bearing deposits 100 -- 0.00% 100
Federal funds sold 2,019 (10,104) -83.35% 12,123
-------- -------- --------
$550,146 $ 28,098 5.38% $522,048
======== ======== ========
Funding Sources:
Deposits:
Noninterest bearing demand $110,064 $ 9,644 9.60% $100,420
Savings 98,711 9,068 10.12% 89,643
Other time 295,376 5,235 1.80% 290,141
Other borrowed money 16,503 5,452 49.33% 11,051
Federal funds purchased and
agreements to repurchase 6,129 2,853 87.09% 3,276
-------- -------- --------
$526,783 $ 32,252 6.52% $494,531
======== ======== ========
LIQUIDITY
Historically, the primary source of liquidity has been core deposits which
include noninterest bearing demand deposits, NOW and money market accounts and
time deposits of individuals. Through marketing efforts and competitive interest
rates, new customers were attracted during 2000 and core deposits increased in
2000. Overall deposits increased $13 million to $516 million for 2000 compared
to deposits at the end of 1999 of $503 million, while deposits at the end of
1999 had demonstrated a decrease of $9 million from 1998 levels of $512 million.
The primary use of new funds is placing the funds back into the community
through loans for the acquisition of new homes, consumer products and for
business development. The use of new funds for loans is measured by the loan to
deposit ratio. The Company's loan to deposit ratio for 2000 was 93% compared to
92.13% for 1999 and 78.33% for 1998.
Short-term debt such as federal funds purchased and securities sold under
agreement to repurchase also provides the Company with liquidity. Short-term
debt was $18.9 million at the end of 2000 compared to $7.3 million at the end of
1999 and $2.9 million at the end of 1998, providing $11.6 million in additional
funds for the Company.
Other borrowings are also a source of funds. Other borrowings consist of loans
from the Federal Home Loan Bank of Cincinnati at fixed rates. These funds are
then used to provide housing mortgages back to the community in the form of
fixed rate loans. Borrowings from this source increased $5.7 million to $30.7
million for 2000 compared to $25 million for 1999 and $11.2 million for 1998.
19
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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,
2000 for each major category of interest-earning assets (at amortized cost) and
interest-bearing liabilities:
0-90 90-365 1-5 Over 5
Days Days Years Years Total
---------- ---------- --------- --------- --------
Interest bearing deposit $ -- $ 100 $ -- $ -- $ 100
Investment securities 5,314 19,311 64,248 24,366 113,239
Loans 131,003 215,578 90,388 50,375 487,344
--------- --------- --------- --------- ---------
Total Rate Sensitive Assets 136,317 234,989 154,636 74,741 600,683
--------- --------- --------- --------- ---------
Deposits 168,195 170,117 178,151 -- 516,463
Federal funds purchased and
agreements to repurchase 18,903 -- -- -- 18,903
Other borrowings 10,663 2,645 14,671 2,807 30,786
--------- --------- --------- --------- ---------
Total Rate Sensitive Liabilities 197,761 172,762 192,822 2,807 566,152
--------- --------- --------- --------- ---------
Gap $ (61,444) $ 62,227 $ (38,186) $ 71,934 $ 34,531
========= ========= ========= ========= =========
OTHER MATTERS
Information required by subsections of Item 1, to which no response has been
made, are inapplicable to the business of the Company.
20
22
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 uses 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 Spring of 1995. The Bank also owns real estate consisting of
land and buildings housing each of its full service branch operations, except
for the Montpelier, Ohio facilities which are leased. Construction has begun on
permanent facilities for the Montpelier operations and was completed in June of
1998.
The Bank has purchased a parcel of land at 1175 Hotel Drive in Defiance, Ohio
and has commenced building a full service banking center with plans to open
during the third quarter of 2001.
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
1150 East Main Street
Napoleon, Ohio 2255 Scott Street
Swanton, Ohio 7 Turtle Creek Circle
The majority of the above locations have drive-up service facilities.
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.
21
23
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
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 the company's
management is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2000 High $ 115.00 $ 115.00 $ 115.00 $ 120.00
Low $ 80.00 $ 80.00 $ 85.00 $ 85.00
1999 High $ 75.00 $ 100.00 $ 113.00 $ 105.00
Low $ 75.00 $ 75.00 $ 85.00 $ 75.00
As of March 1, 2001, there were 1,623 record holders of common stock of the
company.
Dividends are paid quarterly. Per share dividends for the years ended 2000 and
1999 are as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
----------- ----------- ----------- ----------- ---------
2000 $.35 $.35 $.35 $.45 $1.50
1999 $.30 $.30 $.30 $.50 $1.40
SELECTED FINANCIAL DATA
Selected financial data is presented on pages 60 and 61 of the Annual Report to
shareholders for the year ended December 31, 2000 and are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
22
24
MESSAGE FROM MANAGEMENT:
Once again, it is with great pride that we report a favorable performance for
the Farmers & Merchants Bancorp, Inc. during the most recent operating year that
ended December 31, 2000. Farmers & Merchants Bancorp, Inc.'s year was
highlighted by strong revenue growth with excellent asset quality, proper
management of interest rates, and control of overhead expenses. This resulted in
12.21 percent Return on Average Equity and 1.18 percent Return on Average
Assets. With a new high in assets of $635,160,000, capital accounts have
increased to $64,988,000 with net income of $7,391,000 or $5.69 per share. Our
continued success can be attributed, in part, to the strength of the economy in
our market area. The results of Farmers & Merchants Bancorp, Inc. in 2000 also
reflect favorably on the professionalism, dedication, and enthusiasm of our
people. Although resources do not show up on the balance sheet, they are
critical to continued success.
The outlook for 2001 at this point is fraught with many opposing variables.
There has been a slowing of the economy with energy prices putting pressure on
the cost of living and inflation. The Federal Reserve has switched their bias of
easing, with two interest rate decreases since the first of the year and a real
possibility of more to come. The Federal Reserve has room to do this given they
have increased rates 1.7% over the last two years. Lower interest rates will
benefit businesses by possible reducing operating costs. If the fixed rates on
mortgages continue to decline, another refinancing boom will help banks maintain
income levels as it did in 1998.
Additional factors that will affect the banking industry are the postal rate
increases along with consumer privacy regulations. Financial institutions spend
a great deal on postage. Developing alternative means of communicating with our
customers, such as the Internet, will be important to help contain costs. As
with the majority of regulations, additional paperwork and increased costs will
result because of the new privacy rules. As a bank, privacy is already an
integral part of our customer relations.
Most technology surveys show more banks establishing websites and offering
Internet banking this coming year. We have also seen Internet banks realizing
the need to establish brick and mortar. By the time you read this, banking on
the Internet at The Farmers & Merchants State Bank will be a realty; however, we
will also continue to expand through brick and mortar. We pride ourselves on our
customer service and the importance of maintaining a personal touch. Our newest
addition will be a branch in Defiance opening in 2001.
2001 will be a challenging year with the many forces playing against each other
in the economy. The one fact we are confident of is that The Farmers & Merchants
State Bank will continue to offer quality financial services to help our
customers maintain a quality life. We have a 103 year track record of solid
performance and don't see that changing. We view the current banking environment
as an opportunity to further solidify strong customer relationships.
We sincerely thank our customers, employees, members of our Boards, the
communities we serve, and you our shareholders for your contributions to our
2000 success and continued loyalty and support. As we move into 2001, all of us
at The Farmers & Merchants State Bank will be working hard to deliver another
year of consistent, quality growth for you. We look forward to reporting our
accomplishments.
Joe E. Crossgrove Eugene D. Bernath
President/CEO Chairman of the Board
23
25
CONTENTS
Audited Consolidated Financial Statements
FARMERS & MERCHANTS BANCORP, INC.
And wholly owned subsidiaries December 31, 2000
Message from Management 23
Table of Contents 24
Board of Directors, Advisory Boards and Officers 25 - 27
Independent Auditors' Report 28
Consolidated Balance Sheets 29
Consolidated Statements of Income 30
Consolidated Statements of Changes in Shareholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 33 - 53
Independent Auditors' Report on Supplementary Information 54
Five Year Summary 55
Trading Market for the Company's Stock 56
Selected Financial Data by Management 57
Independent Auditors' Report 58
Management Report 59
Charts of Selected Highlights 60 - 61
2000 Promotional Highlights 62 - 65
24
26
DIRECTORS MAYNARD SAUDER RANDAL H. SCHROEDER
Chairman Asst. Vice President
EUGENE D. BERNATH Sauder Woodworking Co. Chief Operations Officer
Chairman of the Board
The Farmers & Merchants MERLE J. SHORT MICHAEL D. CULLER
State Bank Farmer Asst. Vice President
President Chief Agri Finance Officer
DEXTER L. BENECKE Promow, Inc.
President DIANN K. MEYER
Viking Trucking, Inc. STEVEN J. WYSE Asst. Vice President
Vice President President Human Resource Officer
Alex Products, Inc. SteelinQ Systems, Inc.
KENT E. ROTH
JERRY L. BOYERS DIRECTOR EMERITUS Auditor
President Security Officer
Edifice Construction ELIAS H. FREY
Management LEE E. GRAFICE MARILYN K. JOHNSON
CHARLES E. LUGBILL Assistant Cashier
JOE E. CROSSGROVE JAMES L. PROVOST Compliance and CRA
President/Chief Executive KENNETH E. STAMM Officer
Officer ROBERT H. STOTZER
The Farmers & Merchants ROBERT V. WHITMER JUDITH A. WARNCKE
State Bank Asst. Cashier
Marketing Officer
ROBERT G. FREY ARCHBOLD MAIN
President OFFICE J. SCOTT MILLER
E. H. Frey & Sons, Inc. Asst. Cashier
EUGENE D. BERNATH Agri Finance Officer
JULIAN GIOVARELLI Chairman of the Board
President RUTH ANN DUNN
GIO Sales, Inc. JOE E. CROSSGROVE Asst. Cashier
President Loan Documentation
JACK C. JOHNSON Chief Executive Officer Administrator
President
Hawk's Clothing, Inc. MAYNARD SAUDER JANE C. BRUNER
Partner Vice President Asst. Cashier
REJO Partnership Operations Supervisor
HAROLD H. PLASSMAN
DEAN E. MILLER Vice President BRETT J. KAHRS
President Asst. Cashier
MBC Holdings, Inc. EDWARD A. LEININGER Senior Investment Executive
Executive Vice President
DALE L. NAFZIGER Commercial Loan Officer KELBY J. SCHMUCKER
Vice President Asst. Cashier
Homestead Ice Cream Co. REX D. RICE Credit Analyst
Executive Vice President
HAROLD H. PLASSMAN Chief Lending Officer LYDIA A. HUBER
Attorney Executive Administrative
Plassman, Rupp, Hensal & BARBARA J. BRITENRIKER Assistant
Short Vice President
Comptroller & Chief ARCHBOLD WOODLAND
ANTHONY J. RUPP Financial Officer OFFICE
President
Rupp Furniture Co. GEORGE JELEN DEBORAH L. SHINABERY
Asst. Vice President Asst. Vice President
JAMES C. SANEHOLTZ Secondary Market Officer Branch Manager
President Loan Underwriter
Saneholtz-McKarns, Inc.
25
27
DIANE J. SWISHER WAUSEON ADVISORY PATRICIA R. BURKHOLDER
Asst. Cashier BOARD Assistant Cashier
Asst. Branch Manager Assistant Branch Manager
RICHARD L. ELROD
ARCHBOLD ADVISORY President
BOARD Mustang Corporation WEST UNITY ADVISORY
BOARD
BRUCE C. LAUBER WARREN A. KAHRS
President President ALVIN E. CAROTHERS
Lauber Manufacturing Co. Kahrs Tractor Sales, Inc. Farmer
JO ELLEN HORNISH JOSEPH H. KOLB BEN G. WESTFALL
President Owner President
Hornish Brothers, Inc. Kolb & Son Westfall Realty, Inc.
GENE SCHAFFNER SANDRA K. BARBER TED W. MANEVAL
Farmer Fulton County Recorder Farmer
Chairman, Ohio Lottery
GEORGE F. STOTZER Commission R. BURDELL COLON
Partner President
Stotzer Do-It Center DR. KENNETH H. KLING Rup-Col., Inc.
Owner
LARRY M. WENDT Fulton County Vision Services CHARLES W. KLINGER
Farmer Pharmacist
Klinger Pharmacy
STRYKER OFFICE
WAUSEON SHOOP
OFFICE RONALD D. SHORT DELTA OFFICE
ALLEN G. LANTZ Asst. Vice President
Vice President Branch Manager CYNTHIA K. KNAUER
Branch Manager Asst. Vice President
PATTI L. ROSEBROCK Branch Manager
GLORIA GUNN Asst. Cashier
Asst. Vice President Asst. Branch Manager ARTHUR J. SHORT
Asst. Branch Manager Asst. Branch Manager
JERRY A. BORTON STRYKER ADVISORY DELTA ADVISORY
Assistant Cashier BOARD BOARD
Agri Finance Officer
FRED W. GRISIER TERRY J. KAPER
SUSAN DIERINGER Owner Attorney
Asst. Cashier Grisier Funeral Home Barber, Kaper, Stamm &
Loan Officer Robinson
RICHARD E. RAKER
Owner ROBERT E. GILDERS
WAUSEON DOWNTOWN Raker Oil Company Chairman
OFFICE GB Manufacturing
STEVEN PLANSON
CAROL J. ENGLAND Farmer EUGENE BURKHOLDER
Asst. Vice President President
Branch Manager WILLIAM J. BRENNER Falor Farm Center
Corporate Secretary Attorney
AL KREUZ
JEAN E. HORWATH Retired Fulton County
Asst. Cashier WEST UNITY OFFICE Commissioner
Asst. Branch Manager
LEWIS D. HILKERT DONALD G. GERDES
Vice President Human Resource Manager
Branch Manager Worthington Steel, Delta
26
28
BRYAN EAST HIGH MONTPELIER WEST NAPOLEON ADVISORY
OFFICE MAIN BOARD
OFFICE
DAVID C. FRAZER BARBARA C. SCHIE
Assistant Vice President LANCE D. NOFZIGER Office Manager
Branch Manager Asst. Cashier Fulton Anesthesia Associates,
Branch Manager Inc.
CAROL L. CHURCH
Assistant Cashier DAVID M. DAMMAN
Assistant Branch Manager MONTPELIER EASTSIDE Farm Drainage Contractor
OFFICE Farmer
SOUTHTOWNE OFFICE JOHN S. FEE JAMES J. VAN POPPEL
Asst. Vice President President
MICHAEL T. SMITH Branch Manager Van Poppel Limited
Assistant Cashier
Branch Manager GREGORY A. SIMS DENNIS L. MEYER
Asst. Branch Manager Realtor
RUTH M. FORD Reiser Realty
Asst. cashier
Asst. Branch Manager MONTPELIER ADVISORY
BOARD SWANTON OFFICE
RICHARD S. BRUCE
Assistant Vice President GREGORY D. SHOUP BARRY N. GRAY
Commercial Loan Officer President Asst. Cashier
Peltcs Lumber Co., Inc. Branch Manager
BRYAN ADVISORY RICHARD S. DYE DEBRA J. KAUFFMAN
BOARD Probation Department Asst. Cashier
Bryan Municipal Court Asst. Branch Manager
RUSTY BRUNICARDI
President ROBERT D. MERCER SWANTON ADVISORY
Chief Executive Officer President BOARD
Community Hospital of Bob Mercer Realty and
Williams Co., Inc. Auctions ANTHONY G. FRY
President
D. ROBERT SHAFFER GEORGE B. RINGS Select Stone
Farmer Pharmacist
Rings Pharmacy DANIEL P. MCQUADE
DR. C. NICHOLAS WALZ Attorney
Partner The McQuades Co., LPA
Williams County Family NAPOLEON OFFICE
Medical Center LISA J. MITCHELL
STEPHEN E. JACKSON Owner/Manager
PAUL R. MANLEY Asst. Vice President Swanton Health Care Center
Process Manager - Frame & Branch Manager
Panel NORMAN ZEITER
Sauder Woodworking Co. DIANA J. DENNIE President/Owner
Asst. Cashier Swanton Welding Co.
GARRY COURTNEY Asst. Branch Manager
President/CEO
C.F. Electronics MICHAEL F. SCHNITKEY
Asst. Cashier
Agri Finance Officer
GARY W. SPENCER
Asst. Vice President
Commercial Loan Officer
27
29
January 10, 2001
Board of Directors
Farmers & Merchants Bancorp, Inc.
Archbold, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheets of Farmers & Merchants Bancorp,
Inc. and subsidiaries, Archbold, Ohio, as of December 31, 2000 and 1999 and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years ended December 31, 2000, 1999 and 1998. 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. Those 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, 2000 and 1999,
and the results of its consolidated operations and cash flows for the years
ended December 31, 2000, 1999 and 1998 in conformity with generally accepted
accounting principles.
KROUSE, KERN & CO., INC.
Fort Wayne, Indiana
28
30
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Balance Sheets
December 31, 2000 and 1999
ASSETS
(In Thousands)
--------------------------
2000 1999
-------- --------
Cash and due from banks $ 17,951 $ 17,245
Interest bearing deposits with banks 100 100
Federal funds sold 370 -
Investment securities at market 113,259 102,971
Federal Home Loan Bank stock 2,973 2,764
Loans, less allowance for loan losses of $7,160
for 2000 and $6,750 for 1999 479,587 455,535
Loans held for resale 328 389
Finance lease receivable 730 693
Bank premises and equipment-net 10,354 10,176
Accrued interest and other assets 8,670 7,020
Deferred tax charge 838 1,636
--------- ---------
TOTAL ASSETS $ 635,160 $ 598,529
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 40,729 $ 54,051
NOW accounts 52,850 47,919
Savings 110,393 110,059
Time 312,491 291,137
--------- ---------
Total Deposits 516,463 503,166
Federal funds purchased - 3,090
Securities sold under agreement to repurchase 18,903 4,253
Other borrowings 30,786 25,039
Dividend payable 585 650
Accrued interest and other liabilities 3,435 4,442
--------- ---------
Total Liabilities 570,172 540,640
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value - authorized 1,500,000
shares; issued 1,300,000 shares 12,677 12,677
Undivided profits 51,416 45,975
Accumulated other comprehensive income 895 (763)
--------- ---------
Total Shareholders' Equity 64,988 57,889
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 635,160 $ 598,529
========= =========
See Accompanying Notes to Consolidated Financial Statements.
29
31
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Income
for the years ended December 31, 2000, 1999 and 1998
(In Thousands)(Except for Per Share Amounts)
--------------------------------------------
2000 1999 1998
------------- ------------ ------------
INTEREST INCOME:
Interest and fees on loans $ 42,661 $ 37,236 $ 36,335
Interest and Dividends on Investment Securities:
U.S. Treasury and government agency 3,829 3,754 3,427
State and local governments 1,513 1,645 1,473
Corporate debt securities 544 849 822
Dividends 209 187 178
Interest on federal funds sold 130 105 648
Interest on deposits in banks 4 3 5
---------- ---------- ----------
Total Interest Income 48,890 43,779 42,888
---------- ---------- ----------
INTEREST EXPENSE:
Deposits 22,299 19,776 21,182
Borrowed funds 3,210 1,374 903
---------- ---------- ----------
Total Interest Expense 25,509 21,150 22,085
---------- ---------- ----------
Net Interest Income 23,381 22,629 20,803
PROVISION FOR LOAN LOSSES 1,496 1,637 892
---------- ---------- ----------
NET INCOME AFTER PROVISION
FOR LOAN LOSS 21,885 20,992 19,911
---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts 1,745 1,524 1,320
Other service charges and fees 1,533 1,574 2,706
Net securities gains (losses) - 31 -
---------- ---------- ----------
Total Other Income 3,278 3,129 4,026
---------- ---------- ----------
OTHER EXPENSES:
Salaries and wages 6,542 5,885 5,438
Pension and other employee benefits 1,603 1,536 1,394
Occupancy expense (net) 432 542 510
Furniture and equipment 1,178 1,272 981
Data processing fees 758 766 743
Franchise taxes 772 629 604
Other operating expense 3,369 3,691 3,197
---------- ---------- ----------
Total Other Expenses 14,654 14,321 12,867
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 10,509 9,800 11,070
INCOME TAXES 3,118 3,007 3,413
---------- ---------- ----------
NET INCOME $ 7,391 $ 6,793 $ 7,657
========== ========== ==========
NET INCOME PER SHARE - BASIC $ 5.69 $ 5.23 $ 5.89
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,300,000 1,300,000 1,300,000
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
30
32
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998
(In Thousands)
-----------------------------------------
Accumulated
Other
Common Undivided Comprehensive
Stock Profits Income
----------- ----------- ------------
BALANCE AT DECEMBER 31, 1997 $ 12,677 $ 35,165 $ 1,002
Comprehensive income:
Net income for 1998 -- 7,657 --
Other comprehensive income net of tax:
Unrealized gain on Available-For-Sale
securities (net of tax effect of $345) -- -- 669
Cash dividends ($1.40 per share) -- (1,820) --
-------- -------- --------
BALANCE AT DECEMBER 31, 1998 12,677 41,002 1,671
Comprehensive income:
Net income for 1999 -- 6,793 --
Other comprehensive income net of tax:
Unrealized loss on Available-For-Sale
securities (net of tax effect of ($1,253)) -- -- (2,454)
Reclassification adjustment (net of tax) -- -- 20
Cash dividends ($1.40 per share) -- (1,820) --
-------- -------- --------
BALANCE AT DECEMBER 31, 1999 12,677 45,975 (763)
Comprehensive income:
Net income for 2000 7,391
Other comprehensive income net of tax:
Unrealized gain on Available-For-Sale
securities (net of tax effect of $853) 1,658
Cash dividends ($1.50 per share) (1,950) --
-------- -------- --------
BALANCE AT DECEMBER 31, 2000 $ 12,677 $ 51,416 $ 895
======== ======== ========
See Accompanying Notes to Consolidated Financial Statements.
31
33
FARMERS & MERCHANTS BANCORP, INC.
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998
(In Thousands)
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,391 $ 6,793 $ 7,657
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,096 1,243 943
Amortization of servicing rights 129 163 307
Amortization of securities premiums/discounts 222 413 392
Provision for loan losses 1,496 1,637 892
Provision for deferred income taxes (55) (172) 52
(Gain) loss on sale of other (80) (114) (447)
(Gain) loss on sale of securities -- (31) --
Originations of mortgage loans held for sale (21,553) (33,426) (107,368)
Proceeds from mortgage loans held for sale 21,727 33,542 107,845
Net change in other assets/liabilities (2,807) 633 (769)
------------ ------------ ------------
Net Cash Provided by Operating Activities 7,566 10,681 9,504
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of bank premises and equipment (1,276) (1,991) (2,740)
Proceeds from sale of bank premises and equipment 15 -- --
Maturity proceeds of available-for-sale securities 28,427 36,635 22,000
Sale proceeds of available-for-sale securities -- 17,114 --
Purchase of available-for-sale securities (36,660) (32,314) (53,228)
Net increase in loans and leases (25,585) (57,863) (9,970)
------------ ------------ ------------
Net Cash Used by Investing Activities (35,079) (38,419) (43,938)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 13,297 (9,017) 50,885
Net change in short-term borrowings 11,560 19,427 318
Proceeds from other borrowings 27,000 -- 1,000
Payments on other borrowings (21,253) (1,201) (1,053)
Payment of dividends (2,015) (1,820) (1,820)
------------ ------------ ------------
Net Cash Provided by Financing Activities 28,589 7,389 49,330
------------ ------------ ------------
Net Change in Cash and Cash Equivalents 1,076 (20,349) 14,896
CASH AND CASH EQUIVALENTS - January 1 17,345 37,694 22,798
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - December 31 $ 18,421 $ 17,345 $ 37,694
============ ============ ============
RECONCILIATION OF CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 17,951 $ 17,245 $ 18,549
Interest bearing deposits 100 100 100
Federal funds sold 370 -- 19,045
------------ ------------ ------------
$ 18,421 $ 17,345 $ 37,694
============ ============ ============
SUPPLEMENTARY CASH FLOWS DISCLOSURES:
Cash paid during the year for:
Interest (net of amount capitalized) $ 25,155 $ 21,357 $ 22,020
Income taxes 4,334 2,024 3,280
See Accompanying Notes to Consolidated Financial Statements.
32
34
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
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 agribusiness, commercial,
consumer and residential loans to customers primarily
in northwest Ohio.
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, accident and health
insurance company. All material inter-company
balances and transactions have been eliminated.
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.
The determination of the adequacy of the allowance
for loan losses is based on estimates that are
particularly susceptible to significant changes in
the economic environment and market conditions. In
connection with the determination of the estimated
losses on loans, management obtains independent
appraisals for significant collateral.
The Bank's loans are generally secured by specific
items of collateral including real property, consumer
assets, and business assets. Although the bank has a
diversified loan portfolio, a substantial portion of
its debtors' ability to honor their contracts is
dependent on local economic conditions in the
agricultural industry.
While management uses available information to
recognize losses on loans, further reductions in the
carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition
regulatory agencies, as an integral part of their
examination process, periodically review the
estimated losses on loans. Such agencies may require
the Bank to recognize additional losses based on
their judgments about information available to them
at the time of their examination. Because of these
factors, it is reasonably possible that the estimated
losses on loans may change materially in the near
term. However, the amount of the change that is
reasonably possible cannot be estimated.
33
35
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
CASH AND 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:
Debt securities are classified as held-to-maturity
when the Bank has the positive intent and ability to
hold the securities to maturity. Securities
held-to-maturity are carried at amortized cost. The
amortization of premiums and the accretion of
discounts are recognized in interest income using
methods approximating the interest method over the
period to maturity.
Debt securities not classified as held-to-maturity
are classified as available-for-sale. Securities
available-for-sale are carried at fair value with
unrealized gains and losses reported in other
comprehensive income. Realized gains and losses on
securities available for sale are included in other
income (expense) and, when applicable, are reported
as a reclassification adjustment, net of tax, in
other comprehensive income. Gains and losses on sales
of securities are determined on the
specific-identification method.
Declines in the fair value of individual
held-to-maturity and available-for-sale securities
below their cost that are other than temporary result
in write-downs of the individual securities to their
fair value. The related write-downs are included in
earnings as realized losses.
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 on commercial, installment, and real
estate loans is accrued on a daily basis based on the
principal outstanding.
Generally, a loan (including a loan considered
impaired under Statement 114, "Accounting by
Creditors for Impairment of a Loan") is classified as
nonaccrual and the accrual of interest income is
generally discontinued when a loan becomes 90 days
past due as to principal or interest and these loans
are placed on a "cash basis" for purposes of income
recognition. Management may elect to continue the
accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the
principal and accrued interest, and the loan is in
the process of collection.
Loans held for resale are valued at the lower of
aggregate cost or market, market determined by
current market quotations.
34
36
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
LOANS (Continued):
Loan origination and commitment fees and certain
direct loan origination costs are deferred and
amortized as a net adjustment to the related loan's
yield. The Bank is generally amortizing these costs
over the contractual life of such loans. Fees related
to standby letters of credit are recognized at the
beginning of the commitment period.
ALLOWANCE FOR LOAN LOSSES:
The allowance for possible loan losses is established
through a provision for loan losses charged against
income. Loans deemed to be uncollectible and changes
in the allowance relating to impaired loans are
charged against the allowance for loan losses, and
subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is maintained at a
level believed to be adequate by management to absorb
probable loan losses inherent in the loan portfolio
for on and off balance sheet credit exposure as of
the balance sheet dates. Management's evaluation of
the adequacy of the allowance is based on the Bank's
past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect
the borrowers ability to repay (including the timing
of future payments), the estimated value of any
underlying collateral, composition of the loan
portfolio, current economic conditions, and other
relevant factors. Allowances for impaired loans are
generally determined based on collateral values or
the present value of estimated future cash flows.
This evaluation is inherently subjective as it may
require material estimates including the amount and
timing of future cash flows expected to be received
on impaired loans that may be susceptible to
significant change.
SERVICING ASSETS AND LIABILITIES:
It is the Bank's policy to service loans it has sold
to FREDDIE MAC. When the Bank undertakes an
obligation to service financial assets, it recognizes
either a servicing asset or a servicing liability for
that servicing contract at its fair market value.
Servicing assets and liabilities are to be amortized
in proportion to and over the period of estimated net
servicing income. The amount of serving assets
recognized during 2000 was $111 thousand, while
servicing assets amortized during 2000 was $129
thousand. Capitalized mortgage servicing rights are
included in other assets and totaled $870 thousand
and $889 thousand at December 31, 2000 and 1999,
respectively. No valuation allowance is required.
35
37
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
FINANCE LEASES:
Finance leases are recorded at the sum of the minimum
lease payments less any executory costs and profit
thereon to be paid and any unguaranteed residual
value. If the residual is guaranteed, it is included
in the minimum lease payments. The difference between
the gross investment in the lease and the cost is
recorded as unearned income, which is amortized over
the lease term by the interest method. The unearned
interest is included in the balance sheet as a
deduction from the related gross investment, which
results in the net investment in the lease.
BANK PREMISES AND EQUIPMENT:
Bank 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. Gains and losses on dispositions are
included in current operations.
OTHER REAL ESTATE OWNED:
Real estate properties acquired through or in lieu of
loan foreclosure are initially recorded at the lower
of the Bank's carrying amount or fair value less
estimated selling cost at the date of foreclosure.
Any write-downs based on the asset's fair value at
the date of acquisition are charged to the allowance
for loan losses. After foreclosure, these assets are
carried at the lower of their new cost basis or fair
value less cost to sell. Costs of significant
property improvements are capitalized, whereas, costs
relating to holding the property are expensed. The
portion of interest costs relating to the development
of real estate are capitalized. Valuations are
periodically performed by management, and any
subsequent write-downs are recorded as a charge to
operations, if necessary, to reduce the carrying
value of a property to the lower of its cost or fair
value less cost to sell.
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 non-financial instruments from
its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not
represent the underlying value of the Company.
36
38
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
FEDERAL INCOME TAX:
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of
the allowance for loan losses and available-for-sale
securities. The deferred tax assets and liabilities
represent the future tax return consequences of those
differences, which will either be taxable or
deductible when the assets and liabilities are
recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates
applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted
through the provision for income taxes. The Bancorp
files consolidated income tax returns with its bank
subsidiary.
EARNINGS PER SHARE:
Basic earnings per share are computed based on the
weighted average number of shares of common stock
outstanding during each year.
NOTE 2. CASH AND CASH EQUIVALENTS
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, 2000 and 1999 were $4.8
million and $5.6 million, respectively.
NOTE 3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments
in securities as of December 31, are detailed below. Fair
market values are based on quoted market prices or dealer
quotes except for domestic corporations stocks that are
recorded at cost.
(In Thousands)
-----------------------------------------------------
2000
-----------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------- ----------
Available-for-Sale:
U.S. Treasury $ 7,821 $ 100 $ -- $ 7,921
U.S. Government agency 52,540 778 124 53,194
Mortgage-backed securities 7,924 5 66 7,863
State and local governments 31,438 771 52 32,157
Corporate debt securities 9,251 -- 55 9,196
Commercial paper 2,908 -- -- 2,908
Equity securities 20 -- -- 20
----------- ------------ ------------- ----------
$111,902 $ 1,654 $ 297 $113,259
=========== ============ ============= ==========
37
39
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 3. INVESTMENT SECURITIES (Continued)
(In Thousands)
--------------------------------------------------------
1999
--------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------- -----------
Available-for-Sale:
U.S. Treasury $ 6,823 $ 25 $ 6 $ 6,842
U.S. Government agency 38,840 2 763 38,079
Mortgage-backed securities 10,234 2 409 9,827
State and local governments 31,075 501 330 31,246
Corporate debt securities 9,802 -- 175 9,627
Commercial paper 7,330 -- -- 7,330
Equity securities 20 -- -- 20
----------- ------------ ------------- ----------
$104,124 $ 530 $ 1,683 $102,971
=========== ============ ============= ==========
The gross realized gains and losses for the years ended
December 31, are presented below:
(In Thousands)
-------------------------------------
2000 1999 1998
----------- ----------- ----------
Gross realized gains $ -- $ 38 $ --
----------- ----------- ----------
Gross realized losses -- 7 --
----------- ----------- ----------
Net Realized Gains(Losses) $ -- $ 31 $ --
=========== =========== ==========
The amortized cost and estimated market value of debt
securities at December 31, 2000, 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.
(In Thousands)
-------------------------
Amortized
Cost Fair Value
----------- -----------
One year or less $ 25,486 $ 25,513
After one year through five years 65,483 66,352
After five years through ten years 14,703 14,804
After ten years 6,210 6,570
----------- -----------
Total $111,882 $ 113,239
=========== ===========
38
40
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 3. INVESTMENT SECURITIES (Continued)
Investments with a carrying value of $95.4 million and $68.8
million at December 31, 2000 and 1999, respectively, were
pledged to secure public deposits and securities sold under
repurchase agreements.
NOTE 4. FEDERAL HOME LOAN BANK STOCK
The Federal Home Loan Bank stock is recorded at cost. The
stock is held as collateral security for all indebtedness of
the Bank to the Federal Home Loan Bank.
NOTE 5. LOANS
Loans at December 31, are summarized below:
(In Thousands)
----------------------------
Loans 2000 1999
------------ -----------
Real estate $ 261,289 $ 237,056
Commercial and industrial 96,990 100,996
Agricultural (excluding real estate) 51,337 46,035
Consumer and other loans 68,429 71,589
Overdrafts 652 73
Industrial Development Bonds 8,647 7,015
------------ -----------
487,344 462,764
Less: Deferred loan fees and costs (597) (479)
------------ -----------
486,747 462,285
Less: Allowance for loan losses (7,160) (6,750)
------------ -----------
Loans - Net $ 479,587 $ 455,535
============ ===========
(In Thousands)
---------------------------------------------
2000 1999 1998
------------ ----------- -----------
Allowance for Loan Losses
Balance at beginning of year $ 6,750 $ 5,850 $ 5,850
Provision for loan loss 1,496 1,637 892
Recoveries 1,287 837 882
Loans charged off (2,373) (1,574) (1,774)
------------ ----------- -----------
$ 7,160 $ 6,750 $ 5,850
============ =========== ===========
39
41
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 5. LOANS (Continued)
As of December 31, 2000 and 1999, the recorded investment in
impaired loans amounted to approximately $9.3 and $8.5
million, respectively. The average recorded investment in
impaired loans amounted to approximately $8.6 million, $6.5
million and $4.7 million for 2000, 1999 and 1998,
respectively. Of the loans that were considered impaired for
2000 and 1999, the recorded investment in impaired loans that
have a related allowance determined in accordance with SFAS
No. 114 and No. 118 was $6.5 million and $6.3 million,
respectively for which the related allowance for loan loss was
$3.4 million and $2.8 million, respectively.
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 was $177, $53 and $172 thousand
for 2000, 1999 and 1998, respectively.
As of December 31, 2000 there were $14 thousand in commitments
to lend additional funds to debtors whose loans are not
performing.
$147.1 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 $14.9 and $14.2
million at December 31, 2000 and 1999, 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 2000 were $24.8 million and
repayments were $24.1 million. In the opinion of management,
these loans do not involve more than normal risk of
collectibility or possess other unfavorable features.
Loans for which the Bank is providing collection services is
$163.5, $158.2 and $147.9 million for 2000, 1999 and 1998,
respectively. Servicing assets recognized during 2000 amounted
to $111 thousand and amortization of servicing assets amounted
to $129 thousand. The fair value of recognized servicing
assets was $1.4 million, fair value being determined by the
present value of expected future cash flows. No allowance for
impairment has been provided.
As of December 31, 2000 there were $4.9 million of undisbursed
loans in process.
NOTE 6. FINANCE LEASE RECEIVABLE
Finance leases as of December 31 are as follows:
(In Thousands)
------------------------
2000 1999
----------- -----------
Gross investment in leases $ 820 $ 792
Unearned income (90) (99)
----------- -----------
Finance Lease Receivable $ 730 $ 693
=========== ===========
40
42
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 6. FINANCE LEASE RECEIVABLE (Continued)
All amounts are considered collectible, and therefore, no
allowance has been provided.
NOTE 7. BANK PREMISES AND EQUIPMENT
The major categories of banking premises and equipment and
accumulated depreciation at December 31 are summarized below:
(In Thousands)
---------------------------
2000 1999
----------- -----------
Land $ 2,614 $ 1,983
Buildings 9,349 9,123
Furnishings 6,390 6,031
----------- -----------
18,353 17,137
Less: Accumulated depreciation (7,999) (6,961)
----------- -----------
Banking Premises and Equipment (Net) $ 10,354 $ 10,176
=========== ===========
NOTE 8. DEPOSITS
Time deposits at December 31 consist of the following:
(In Thousands)
-------------------------
2000 1999
---------- ----------
Time deposits under $100,000 $238,946 $223,372
Time deposits of $100,000 or more 73,545 67,765
---------- ----------
$312,491 $291,137
========== ==========
For each of the five years subsequent to December 31, 2000,
maturities for time deposits having a remaining term of more
than one year follows:
2001 $ 193,643
2002 45,799
2003 68,189
2004 2,719
2005 and thereafter 2,141
--------------
$ 312,491
==============
Deposits to related parties as of December 31, 2000 and 1999
amounted to $14.7 million and $11.6 million, respectively.
41
43
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 9. REPURCHASE AGREEMENTS
The Bank's policy requires qualifying securities as collateral
for the underlying repurchase agreements. As of December 31,
2000 and 1999 securities with a book value of $25.2 million
and $4.5 million, respectively, were underlying the repurchase
agreements and were under the Bank's control.
NOTE 10. OTHER BORROWINGS
Other borrowings consisted of the following at December 31:
(In Thousands)
--------------------
2000 1999
-------- --------
Federal Home Loan Bank, various
loans due in monthly installments
of $105 thousand plus annual
payments of $400 thousand includ-
ing interest at varying rates from
5.40% to 7.05%. Notes are
secured by a blanket lien on 100%
of the one to four family residential
mortgage loan portfolio $ 30,786 $ 25,039
========= =========
The following is a schedule by years of future minimum
principal payments as of December 31:
2001 $ 13,308
2002 6,367
2003 6,418
2004 1,153
2005 and thereafter 3,540
---------
$ 30,786
=========
42
44
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. FEDERAL INCOME TAXES
Deferred tax assets and liabilities at December 31 are
comprised of the following:
(In Thousands)
--------------------
2000 1999
-------- --------
Deferred Tax Assets:
Allowance for loan losses $ 2,142 $ 2,008
Net unrealized loss on available-
for-sale securities - 392
-------- --------
2,142 2,400
-------- --------
Deferred Tax Liabilities:
Accreted discounts on bonds 67 40
FHLB stock dividends 427 356
Mortgage servicing rights 297 302
Other 52 66
Net unrealized gain on available-
for-sale securities 461 -
-------- --------
1,304 764
-------- --------
Net Deferred Tax Asset $ 838 $ 1,636
======== ========
The components of income tax expense for the years ended
December 31 are as follows:
(In Thousands)
--------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal $ 3,173 $ 3,195 $ 3,361
Deferred:
Federal (55) (188) 52
-------- -------- --------
$ 3,118 $ 3,007 $ 3,413
======== ======== ========
43
45
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. FEDERAL INCOME TAXES (Continued)
(In Thousands)
--------------------------------------
2000 1999 1998
--------- --------- -----------
Income tax at statutory rates $ 3,485 $ 3,399 $ 3,771
Tax effect:
Tax exempt interest (447) (468) (428)
Costs attributable to tax
exempt interest 80 76 70
-------- -------- ---------
$ 3,118 $ 3,007 $ 3,413
======== ======== =========
NOTE 12. 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.
Contributions to the 401(k) profit sharing plan for both the
employer matching contribution and the discretionary
contribution were $410, $363, and $421 thousand for 2000, 1999
and 1998, respectively.
NOTE 13. RELATED PARTY TRANSACTIONS
The Bank has conducted transactions with its officers and
directors as set forth in Note 5.
NOTE 14. 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, 2000 and 1999 is as follows:
44
46
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
(In Thousands)
----------------------
2000 1999
--------- ----------
Commitments to extend credit $ 74,745 $ 83,344
Credit card arrangements 19,515 12,163
Standby letters of credit 898 1,531
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.
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 15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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 5. Standby letters of credit were granted
primarily to commercial borrowers.
NOTE 16. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Federal
Deposit Insurance Corporation (FDIC). Failure to meet the
minimum regulatory requirements can initiate certain
mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material
effect on the Bank and the consolidated financial statements.
Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines involving quantitative
measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and
classification under the prompt corrective action guidelines
are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios of: total risk-based capital and Tier I capital to
risk-weighted assets (as defined in the regulations), and Tier
I capital to adjusted total assets (as defined). Management
believes, as of December 31, 2000, that the Bank meets all the
capital adequacy requirements to which it is subject.
45
47
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. REGULATORY CAPITAL REQUIREMENTS (Continued)
As of December 31, 2000 the most recent notification from the
FDIC indicated the Bank was categorized as well capitalized
under the regulatory framework for prompt corrective action.
To remain categorized as well capitalized, the Bank will have
to maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification
that management believes have changed the Bank's prompt
corrective action category.
The Bank's actual and required capital amounts and ratios as
of December 31, 2000 and 1999 are as follows:
To Be Well Capitalized
Under the Prompt
For Capital Corrective Action
Actual Adequacy Purposes(a) Provisions(a)
------------------ -------------------- -------------------------
(000's) (000's) (000's)
Amount Ratio Amount Ratio Amount Ratio
--------- ------- ---------- -------- ------------ -----------
As of December 31, 2000
Total Risk-Based Capital
(to Risk Weighted Assets)
Consolidated $ 69,581 15.6% $ 35,680 8.0% $ - N/A
Farmers & Merchants
State Bank 69,199 14.6% 37,920 8.0% 47,400 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated 63,977 14.3% 17,900 4.0% N/A
Farmers & Merchants
State Bank 53,274 11.3% 18,860 4.0% 28,290 6.0%
Tier I Capital
(to Adjusted Total Assets)
Consolidated 63,977 10.2% 25,090 4.0% N/A
Farmers & Merchants
State Bank 53,274 8.5% 25,070 4.0% 31,340 5.0%
46
48
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. REGULATORY CAPITAL REQUIREMENTS (Continued)
To Be Well Capitalized
Under the Prompt
For Capital Corrective Action
Actual Adequacy Purposes(a) Provisions(a)
----------------- -------------------- ----------------------
(000's) (000's) (000's)
Amount Ratio Amount Ratio Amount Ratio
--------- -------- --------- --------- ---------- ----------
As of December 31, 1999
Total Risk-Based Capital
(to Risk Weighted Assets)
Consolidated $ 63,970 14.8% $ 34,580 8.0% $ - N/A
Farmers & Merchants
State Bank 63,554 13.9% 36,580 8.0% 45,720 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated 58,563 13.6% 17,220 4.0% N/A
Farmers & Merchants
State Bank 47,833 10.5% 18,220 4.0% 27,330 6.0%
Tier I Capital
(to Adjusted Total Assets)
Consolidated 58,563 9.9% 23,660 4.0% N/A
Farmers & Merchants
State Bank 47,833 8.1% 23,620 4.0% 29,530 5.0%
(a) The amount and ratios provided are minimums under the
regulations.
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 $16.6
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.
NOTE 17. FAIR VALUE INFORMATION AND INTEREST RATE RISK
Fair values of financial instruments are management's estimate
of the values at which the instruments could be exchanged in a
transaction between willing parties. These estimates are
subjective and may vary significantly from amounts that would
be realized in actual transactions. In addition, other
significant assets are not considered financial assets
including deferred tax assets, premises and equipment and
intangibles. Further, the tax ramifications related to the
realization of the unrealized gains and losses can have a
significant effect on the fair value estimates and have not
been considered in any of the estimates.
47
49
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 17. FAIR VALUE INFORMATION AND INTEREST RATE RISK (Continued)
The book values and estimated fair values for on and
off-balance sheet financial instruments as of December 31,
2000 and 1999 are reflected below:
(In Thousands)
----------------------------------------------------
2000 1999
----------------------- -------------------------
Book Fair Book Fair
Value Value Value Value
----------- ---------- ------------ -----------
Financial Assets:
Cash and cash equivalents $ 17,951 $ 17,951 $ 17,245 $ 17,245
Interest bearing deposits 100 100 100 100
Federal funds sold 370 370 -
Available-for-sale securities 113,259 113,259 102,971 102,971
Federal Home Loan Bank 2,973 2,973 2,764 2,764
Net loans 480,645 492,595 456,617 459,540
Interest receivable 5,077 5,077 5,077 5,077
Financial Liabilities:
Deposits $ 516,463 $ 518,648 $ 503,166 $ 502,220
Short-term borrowings:
Federal funds purchased - - 3,090 3,090
Repurchase agreement sold 18,903 18,903 4,253 4,253
Other borrowings 30,786 31,313 25,039 24,976
Interest payable 1,784 1,784 1,784 1,784
The following assumptions and methods were used in estimating
the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS:
The carrying amounts reported in the balance sheet
for cash and due from banks and federal funds sold
approximate their fair values.
INVESTMENT SECURITIES:
Fair values for securities are based on quoted market
prices, where available. If quoted prices are not
available, fair values are based on quoted market
prices of comparable instruments.
STOCK IN FEDERAL HOME LOAN BANK:
No ready market exists for the stock, and it has no
quoted market value. The stock is redeemable at par;
therefore, fair value equals cost.
48
50
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 17. FAIR VALUE INFORMATION AND INTEREST RATE RISK (Continued)
LOANS:
Most commercial and real estate mortgage loans are
made on a variable rate basis. For those
variable-rate loans that reprice frequently, and with
no significant change in credit risk, fair values are
based on carrying values. The fair values of the
fixed rate and all other loans are estimated using
discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms
to borrowers with similar credit quality.
DEPOSITS:
The fair values disclosed for deposits with no
defined maturities are equal to their carrying
amounts, which represent the amount payable on
demand. The carrying amounts for variable-rate,
fixed-term money market accounts and certificates of
deposit approximate their fair value at the reporting
date. Fair value for fixed-rate certificates of
deposit are estimated using a discounted cash flow
analysis that applies interest rates currently being
offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
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.
ACCRUED INTEREST RECEIVABLE AND PAYABLE:
The carrying amounts of accrued interest approximate
their fair values.
INTEREST RATE RISK:
The Company assumes interest rate risk (the risk that
general interest rate levels will change) as a result
of its normal operations. As a result, the fair
values of the Company's financial instruments will
change when interest rate levels change and that
change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of
assets and liabilities to the extent believed
necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are more likely
to prepay in a falling rate environment and less
likely to prepay in a rising rate environment.
Conversely, depositors who are receiving fixed rates
are more likely to withdraw funds before maturity in
a rising rate environment and less likely to do so in
a falling rate environment. Management monitors rates
and maturities of assets and liabilities and attempts
to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities
with terms that mitigate the Company's overall
interest rate risk.
49
51
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 18. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
(In Thousands)
-----------------------
2000 1999
--------- -----------
ASSETS:
Cash $ 706 $ 669
Related party receivables:
Dividends 300 350
Note receivable 10,000 10,000
Investment in subsidiaries 54,741 47,696
-------- --------
TOTAL ASSETS $ 65,747 $ 58,715
======== ========
LIABILITIES:
Accrued expenses $ 174 $ 176
Dividends payable 585 650
-------- --------
Total Liabilities 759 826
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value -
1,500,000 shares authorized; 1,300,000 shares issued 12,677 12,677
Undivided profits 51,416 45,975
Accumulated other comprehensive income 895 (763)
-------- --------
Total Shareholders' Equity 64,988 57,889
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 65,747 $ 58,715
======== ========
50
52
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 18. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF INCOME
(In Thousands)
---------------------------------
2000 1999 1998
---------- --------- ---------
INCOME:
Equity in net income of subsidiaries $ 7,055 $ 6,451 $ 7,313
Interest income 600 600 600
-------- -------- --------
Total Income 7,655 7,051 7,913
-------- -------- --------
EXPENSES:
Miscellaneous 23 14 19
Professional fees 17 18 16
Supplies 7 6 6
Taxes 43 44 39
-------- -------- --------
Total Expense 90 82 80
-------- -------- --------
INCOME BEFORE INCOME TAXES 7,565 6,969 7,833
INCOME TAXES 174 176 176
-------- -------- --------
NET INCOME $ 7,391 $ 6,793 $ 7,657
======== ======== ========
51
53
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 18. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
----------------------------------------
Accumulated
Other
Common Undivided Comprehensive
Stock Profits Income
------------ ------------ -------------
BALANCE AT DECEMBER 31, 1997 $ 12,677 $ 35,165 $ 1,002
Comprehensive income:
Net income for 1998 - 7,657 -
Other comprehensive income net of tax:
Unrealized gain on Available-For-Sale
securities (net of tax effect of $345) - - 669
Dividends ($1.40 per share) - (1,820) -
---------- ---------- ---------
BALANCE AT DECEMBER 31, 1998 12,677 41,002 1,671
Comprehensive income:
Net income for 1999 - 6,793 -
Other comprehensive income net of tax:
Unrealized loss on Available-For-Sale
securities (net of tax effect of ($1,253)) - - (2,454)
Reclassification adjustment (net of tax) 20
Dividends ($1.40 per share) - (1,820) -
---------- ---------- ---------
BALANCE AT DECEMBER 31, 1999 12,677 45,975 (763)
Comprehensive income:
Net income for 2000 - 7,391 -
Other comprehensive income net of tax:
Unrealized loss on Available-For-Sale
securities (net of tax effect of $853) - - 1,658
Dividends ($1.50 per share) - (1,950) -
---------- ---------- ---------
BALANCE AT DECEMBER 31, 2000 $ 12,677 $ 51,416 $ 895
========== ========== =========
52
54
FARMERS & MERCHANTS BANCORP, INC.
Notes to Consolidated Financial Statements (Continued)
NOTE 18. FARMERS & MERCHANTS BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (Continued)
STATEMENTS OF CASH FLOWS
(In Thousands)
---------------------------------------
2000 1999 1998
---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,391 $ 6,793 $ 7,657
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Equity in undistributed net income
of subsidiaries (7,055) (6,451) (7,313)
Changes in Operating Assets and
Liabilities:
Accrued expenses (2) (178) 175
---------- ---------- ---------
Net Cash Provided by
Operating Activities 334 164 519
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from wholly-owned subsidiaries 1,718 1,640 1,170
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (2,015) (1,820) (1,820)
---------- ---------- ---------
Net Change in Cash and
Cash Equivalents 37 (16) (131)
CASH AND CASH EQUIVALENTS -
beginning of year 669 685 816
---------- ---------- ---------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 706 $ 669 $ 685
========== ========== =========
53
55
January 10, 2001
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, 2000 and 1999, appears on page 6. 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.
KROUSE, KERN & CO., INC.
Fort Wayne, Indiana
54
56
FARMERS & MERCHANTS BANCORP, INC.
Five Year Summary of Consolidated Operations
(In Thousands Except for Per Share Amounts)
-----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
Summary of Income:
Interest income $ 48,890 $ 43,779 $ 42,888 $ 40,158 $ 38,382
Interest expense 25,509 21,150 22,085 21,139 20,905
------------- ------------- ------------- ------------- -------------
Net Interest Income 23,381 22,629 20,803 19,019 17,477
Provision for loan losses 1,496 1,637 892 1,111 1,068
------------- ------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 21,885 20,992 19,911 17,908 16,409
Other income (expense) (11,376) (11,192) (8,841) (8,096) (8,614)
------------- ------------- ------------- ------------- -------------
Net income before income taxes 10,509 9,800 11,070 9,812 7,795
Income taxes 3,118 3,007 3,413 3,035 2,312
------------- ------------- ------------- ------------- -------------
Net income $ 7,391 $ 6,793 $ 7,657 $ 6,777 $ 5,483
============= ============= ============= ============= =============
Per Share of Common Stock:
Earnings per common share
outstanding:
(Based on weighted
average number of
shares outstanding)
(All per share amounts
have been retroactively
restated to reflect a
5 for 1 stock split in
1996)
Net income $ 5.69 $ 5.23 $ 5.89 $ 5.22 $ 4.22
Dividends $ 1.50 $ 1.40 $ 1.40 $ 1.25 $ 1.15
Weighted average
number of shares
outstanding 1,300,000 1,300,000 1,300,000 1,300,000 1,300,000
Year-end assets $ 635,160 $ 598,529 $ 585,869 $ 528,273 $ 501,449
Average assets 619,075 585,189 553,277 510,163 482,770
Year-end equity capital 64,988 57,889 55,350 48,844 43,381
Average equity capital 61,488 56,862 52,940 46,548 41,501
See Independent Auditors' Report on Supplementary Information.
55
57
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
------- ---------- ----------
2000-- by quarter 1st $ 80.00 $ 115.00
2nd 80.00 115.00
3rd 85.00 115.00
4th 85.00 120.00
1999-- by quarter 1st $ 75.00 $ 75.00
2nd 75.00 100.00
3rd 85.00 113.00
4th 75.00 105.00
Dividends declared on a quarterly basis for the last two fiscal years:
Quarter 2000 1999
------- ---------- -----------
Dividends declared per share
1st $ .35 $ .30
2nd .35 .30
3rd .35 .30
4th .45 .50
56
58
SELECTED FINANCIAL DATA BY MANAGEMENT
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Farmers & Merchants Bancorp, Inc. has again continued its consistent pattern
of solid income and asset growth. Interest income increased in 2000 for the
Company from $43.8 million for 1999 to $48.9 million for 2000, an 11.6%
increase. The loan portfolio grew to $487.8 million for 2000 up from $463.4
million for 1999, a 5.3% increase, while at the same time net interest income
increased from $22.6 million for 1999 to $23.4 million for 2000 a 3.3% increase.
As a result of the above growth and management working hard to hold down
overhead expenses, net income for 2000 increased $600 over 1999 from $6.8
million for 1999 to $7.4 million for 2000 an 8.8% increase.
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 $103.2 million for 2000 representing 16.7%
of total average assets.
CAPITAL RESOURCES:
Shareholders' equity was $65 million at December 31, 2000 compared to $57.9
million for 1999. 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, 2000, The Farmers & Merchants State Bank had a total risk-based
capital ratio of 14.6% and a 11.3% core capital to risk-based asset ratio which
are well in excess of regulatory guidelines. The bank's leverage ratio of 8.5%
is also substantially in excess of regulatory guidelines. These ratios compare
to 13.9%, 10.5% and 8.1%, respectively for 1999.
The Company's subsidiaries are restricted by regulations from making dividend
distributions in excess of certain prescribed amounts.
57
59
January 10, 2001
To the Board of Directors
The Farmers & Merchants State Bank
Archbold, Ohio
INDEPENDENT AUDITORS' REPORT
We have examined management's assertion that The Farmers & Merchants State Bank
maintain a system of internal control over financial reporting which is designed
to provide reasonable assurance to the Bank's management and Board of Directors
regarding the preparation of reliable published financial statements as of
December 31, 2000, included in the accompanying management report.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of the internal control structure over financial
reporting, testing and evaluating the design and operating effectiveness of the
internal control structure, and such other procedures as we considered necessary
in the circumstances. We believe that our examination provides a reasonable
basis for our opinion.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over financial reporting to future
periods are subject to the risk that the internal control structure may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assertions that The Farmers & Merchants State Bank
maintained a system of internal control over financial reporting which is
designed to provided reasonable assurance to the Bank's management and Board of
Directors regarding the preparation of reliable published financial statements
as of December 31, 2000, is fairly stated, in all material respects, based upon
criteria established in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
KROUSE, KERN & CO., INC.
Fort Wayne, Indiana
58
60
MANAGEMENT REPORT
as of December 31, 2000
FINANCIAL STATEMENTS
Management of The Farmers & Merchants State Bank is responsible for the
preparation, integrity and fair presentation of its published financial
statements as of December 31, 2000, and for the year then ended. The financial
statements have been prepared in accordance with generally accepted accounting
principles and, as such, include amounts, some of which are based on judgments
and estimates of management.
INTERNAL CONTROLS
Management is responsible for establishing and maintaining an effective internal
control structure over financial reporting. The system contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control system may vary over time.
Management assessed its internal control structure over financial reporting as
of December 31, 2000. This assessment was based on criteria for effective
internal control over financial reporting described in "Internal Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management believes that The
Farmers & Merchants State Bank maintained an effective internal control
structure over financial reporting as of December 31, 2000.
DESIGNATED LAWS
Management is also responsible for compliance with the federal and state laws
and regulations relating to safety and soundness, including those designated
laws and regulations regarding dividend restrictions and loans to insiders.
Based on our assessment, management believes The Farmers & Merchants State Bank
complied in all material respects, with those designated laws and regulations
for the year ended December 31, 2000.
59
61
FARMERS & MERCHANTS BANCORP, INC.
SELECTED FINANCIAL DATA BY MANAGEMENT
Key Ratios: 2000 1999 1998 1997 1996
-------------- -------------- -------------- ------------- -------------
Return on average equity 12.02% 11.95% 14.46% 14.56% 13.21%
Return on average assets 1.19% 1.16% 1.38% 1.33% 1.14%
Loan to deposit ratio 93.00% 92.13% 78.33% 86.31% 84.15%
Capital to assets ratio 10.23% 9.67% 9.45% 9.25% 8.65%
GRAPH GRAPH
Return on Average Equity Return on Average Assets
GRAPH GRAPH
Loan to Deposit Ratio Capital to Assets Ratio
60
62
FARMERS & MERCHANTS BANCORP, INC.
SELECTED FINANCIAL DATA BY MANAGEMENT
(In Thousands Except for Per Share Amounts)
----------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------
Loans 479,587 462,865 401,192 397,295 368,900
Total Assets 635,160 598,529 585,869 528,273 501,449
Shareholders' Equity 64,988 57,889 55,350 48,844 43,381
Interest Income 48,890 43,779 42,888 40,158 38,382
Interest Expense 25,509 21,150 22,085 21,139 20,905
Net Interest 23,381 22,629 20,803 19,019 17,477
Other Expense 11,376 11,192 8,841 8,096 8,614
Federal Income Tax 3,118 3,007 3,413 3,035 2,312
Net Income 7,391 6,793 7,657 6,777 5,483
Net Income per Share 5.69 5.23 5.89 5.22 4.22
Dividends per Share 1.50 1.40 1.40 1.25 1.15
GRAPH GRAPH
Shareholders' Equity Loans Total Assets Interest Expense Interest Income
GRAPH GRAPH
Federal Income Tax Net Income Other Expense Dividends per Share Net Income Per Share
61
63
[2000 ANNUAL REPORT PHOTOS]
JAMES PROVOST HONORED BY FELLOW DIRECTORS
UPON RETIREMENT FROM THE BOARD
Joe Crossgrove, James Provost, and Eugene Bernath
Merle Short, Steven Wyse, Harold Plassman, F & M EMPLOYEES AND SPOUSES ASSIST
Lee Graffice, Dale Nafziger WITH WAUSEON CRUISE NIGHTS
Jack Johnson, Robert Frey, James Saneholtz,
Dean Miller, Maynard Sauder, Dexter Benecke, Jerry Boyers Duane England, Carol England, AVP/Branch Mgr.
Wauseon Downtown; Donald Colon, and Carol Colon,
Mortgage Secretary
PRESIDENT AND BRANCH MANAGERS
Deborah Shinabery, AVP/Woodland; Cynthia Knauer,
AVP/Delta; Carol England, AVP/Wauseon Downtown WAUSEON HEALTH & TRADE SHOW
Stephen Jackson, AVP/Napoleon;
Ronald Short, AVP/Stryker; Lance Nofziger; Brett Kahrs, AC/Senior Investment Exec.;
AC/Montpelier W. Main; Lewis Hilkert, VP/West Unity Gloria Gunn, AVP/Branch Asst. Mgr. Wauseon Shoop;
Barry Gray, AC/Swanton; John Fee, AVP/ and Allen Lantz, VP/Branch Mgr. Wauseon Shoop and guest
Montpelier Eastside; Joe Crossgrove, Pres./CEO; Michael Smith,
AC/Bryan SouthTowne; David Frazer, Bryan E. High;
Allen Lantz, VP/Wauseon Shoop
62
64
ARCHBOLD EVANGELICAL CHURCH PRAISE TEAM
ENTERTAINING GUESTS AT WOODLAND OFFICE
20TH ANNIVERSARY CELEBRATION
Edward Leininger, EVP/Commercial Loan Officer
Dave Yoder, Sam Short, Deb Short,
Woodland Office Teller, Linda Marihugh
Marv Burnett, Peter Cousino, and Bev Nelson
"FOOTBALL FEVER" REFERRAL
CONTEST WINNER
Brett Kahrs, AC/Senior Investment Officer and Ellie Shinhearl,
West Unity Office Secretarial Supervisor
DELTA STAFF CELEBRATES
15TH ANNIVERSARY OF DELTA OFFICE
Kelly Culler, Receptionist, Cynthia Knauer,
AVP/Mgr.; Beth Bay, Loan Secretary;
Ginger Spiess, Teller Supervisor
Joe McGee, Teller; Jacqueline Richards,
Teller; Sheila Tejkl, Teller; Arthur Short, AC/Asst. Mgr.;
Deanne Little, Teller; Becky Huddy, New Accts. Rep.;
Laura Donaldson, Teller
CUSTOMER APPRECIATION DAY 2000
Brenda Short, Stryker Office Secretary and Dolores Garcia
63
65
BRYAN CUB SCOUTS VISIT BRYAN E. HIGH OFFICE
David Frazer, AVP/Mgr. And Tiger Cubs of Pack 321
CHRISTMAS CLUB OPEN HOUSE
AT MONTPELIER W. MAIN OFFICE
Lance Nofziger, AC/Mgr.,
and Open House helper Velma Overmier
NAPOLEON OFFICE HOSTED
5TH ANNIVERSARY CELEBRATION
Stephen Jackson, AVP/Mgr. And Diana Dennie, AC/Asst. Mgr.
PAUL TRODER RETIRES FROM
BRYAN ADVISORY BOARD
Michael Smith, AC/Bryan SouthTowne Mgr.;
Joe Crossgrove, Pres./CEO; Paul Troder,
David Frazer, AVP/Bryan E. High Mgr.;
Richard Bruce, AVP/Commercial Loan Officer
64
66
F & M RECEIVED ARCHBOLD CHAMBER OF
COMMERCE MEMBER OF THE YEAR AWARD
Fred Witte, Chamber Co-Administrator;
Joe Crossgrove, Pres./CEO; Eugene Bernath, F & M Bancorp, Inc.
Chairman; Mari Yoder, Chamber Co-Administrator
MONTPELIER EASTSIDE MANAGER
VISITS WITH GUEST AT OPEN HOUSE
Roger Goebel and John Fee, AVP/Mgr.
F & M SUPPORTS FULTON CO. FAIR JR.
LIVESTOCK SALE
Allen Lantz and Cynthia Knauer representing F & M,
Joel Brown, Joe Radabaugh, Daryl Nofziger, and Shanna Roth
with her Grand Champion Beef Feeder
SWANTON EMPLOYEES EXPERIENCE
1ST OPEN HOUSE CELEBRATION
Heather Waldron Teller; Vicky Bratton,
Loan Secretary; Kathy Keeler, Teller; Hoilyn McKibben, Teller
Carrol Muston, New Accts. Rep; Debra Kauffman,
AC/Asst. Mgr.; Barry Gray, AC/Mgr.;
Judy Carpenter, Teller Supervisor; Joanne Pero, Teller
F & M DONATES TO WILLIAM CO. FAIR FOUNDATION
Art Follett, Williams Co. Fair Foundation president,
Lewis Hilkert, VP/Branch Mgr. West Unity
Ronald Short, AVP/Branch Mgr. Stryker;
Michael Smith, AC/Branch Mgr. Bryan SouthTowne;
David Frazer, AVP/Branch Mgr. Bryan E. High
65
67
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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
- --------------------------- --- ----------------------------------------- -----------
Eugene Bernath 67 Farmer 1978
Chairman of the Board,
Farmers & Merchants Bancorp, Inc.
The Farmers & Merchants State Bank
Dexter Benecke 58 President, Viking Trucking, Inc. 1999
Jerry L. Boyers 67 President, Edifice Construction 1976
Management
Joe E. Crossgrove 63 President, Chief Executive Officer 1992
The Farmers & Merchants State
Bank
Robert G. Frey 60 President, E.H. Frey & Sons, Inc. 1987
Julian Giovarelli 69 President, GIO Sales, Inc. 2000
Jack C. Johnson 48 President, Hawk's Clothing, Inc. 1991
Partner, REJO Partnership
Dean E. Miller 56 President, MBC Holdings, Inc. 1986
Dale L. Nafziger 70 Vice-President, Homestead Ice Cream Co. 1969
Anthony J. Rupp 51 President, Rupp Furniture Co. 2000
David P. Rupp Jr. 59 Attorney, Plassman, Rupp, Hensel 2001
& Short
James C. Saneholtz 54 President, Saneholtz-McKarns, Inc. 1995
Maynard Sauder 68 President, Sauder Woodworking Co. 1980
Merle J. Short 60 Farmer, President of Promow, Inc. 1987
Steven J. Wyse 56 President, SteelinQ Systems, Inc. 1991
66
68
EXECUTIVE OFFICERS
Principal Occupation
Name Age for Past Five Years
- --------------------------- --- -----------------------------------------
Eugene Bernath 67 Farmer
Chairman of the Board
Farmers & Merchants State Bank
Joe E. Crossgrove 63 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 41 Vice President
Chief Lending Officer
Edward Leininger 44 Vice President
Commercial Loan Officer
Allen G. Lantz 47 Vice President
Branch Manager
Lewis Hilkert 50 Vice President
Branch Manager
Carol England 60 Assistant Vice President
Corporate Secretary
Branch Manager
Ronald D. Short 48 Assistant Vice President
Branch Manager
Cynthia Knauer 54 Assistant Vice President
Branch Manager
Dave Frazier 42 Assistant Vice President
Branch Manager
John Fee 40 Assistant Vice President
Branch Manager
Steve Jackson 46 Assistant Vice President
Branch Manager
67
69
Deborah Shinabery 45 Assistant Vice President
Branch Manager
Randal H. Schroeder 40 Assistant Vice President
Chief Operations Officer
George Jelen 49 Assistant Vice President
Mortgage Loan Officer
Barbara Britenriker 39 Assistant Vice President
Chief Financial Officer
Comptroller
Michael D. Culler 42 Assistant Vice President
Chief Agricultural Finance Officer
Diann K. Meyer 40 Assistant Vice President
Human Resource Officer
Gloria Gunn 43 Assistant Vice President
Assistant Branch Manager
Richard Bruce 53 Assistant Vice President
Commercial Loan Officer
Kent Roth 36 Auditor
Bank Security Officer
Marilyn Johnson 44 Compliance Officer
Jean Horwath 49 Assistant Cashier
Assistant Branch Manager
Diane Swisher 43 Assistant Cashier
Assistant Branch Manager
Patti Rosebrock 43 Assistant Cashier
Assistant Branch Manager
Michael T. Smith 34 Assistant Cashier
Branch Manager
Debra Kauffman 40 Assistant Cashier
Assistant Branch Manager
Assistant Corporate Secretary
J. Scott Miller 44 Assistant Cashier
Assistant Agri-Finance Officer
Judith Warncke 53 Assistant Cashier
Marketing Officer
68
70
Diana Dennie 38 Assistant Cashier
Branch Manager
Jerry Borton 51 Assistant Cashier
Loan Officer
Jane Bruner 40 Assistant Cashier
Operations Supervisor
Patricia Burkholder 37 Assistant Cashier
Assistant Branch Manager
Barry Gray 40 Assistant Cashier
Assistant Branch Manager
Lesley Shirkey 31 Asset Recovery Officer
Brett Kahrs 36 Brokerage Officer
Carol Church 41 Assistant Cashier
Assistant Branch Manager
Ruth Ford 47 Assistant Branch Manager
Lance Nofziger 30 Branch Manager
Michael Schnitkey 32 Assistant Cashier
Agricultural Finance Officer
Gregory Sims 30 Assistant Branch Manager
Ruth Ann Dunn 46 Assistant Cashier
Administrative Agri Assistant
Sue Dieringer 42 Assistant Cashier
Consumer Loan Officer
Kelby Schmucker 33 Credit Analyst
69
71
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
7, 2001 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 are the same for both Farmers & Merchants Bancorp, Inc.
and its wholly-owned subsidiary, The Farmers & Merchants State Bank. The Board
of Directors met twenty-six times during the 2000 calendar year. All but two of
the current directors of the Corporation attended at least seventy-five percent
of the meetings of the Board. James Provost was in attendance at sixty-seven
percent of the meetings and Steve Wyse was in attendance at sixty-nine percent
of the meetings. Average attendance at Board meetings held during the year was
eighty-seven percent.
Directors received, as directors' fees, $300 for each board meeting, plus a
bonus of $600 for 2000.
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 7, 2001, 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 40, Note 5 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 was a member of the Board of Directors
during 2000. David P. Rupp Jr. who is a nominee for the Board of Directors for
2001 is also an attorney with Plassman, Rupp, Hensal and Short. During 2000 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 2001.
70
72
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 28
Consolidated Balance Sheets Page 29
Consolidated Statements of Income Page 30
Consolidated Statements of Changes in
Shareholders' Equity Page 31
Consolidated Statements of Cash Flows Page 32
Notes to Consolidated Financial Statements Pages 33 - 53
(2) Financial Statement Schedules
Independent Auditors' Report on Additional
Information Page 54
Five Year Summary of Operations Page 55
(3) Other Information
Trading Market for the Company's Stock Page 56
Selected Financial Data by Management Page 57
Independent Auditors' Report Page 58
Management Report Page 59
Selected Financial Data by Management Pages 38 - 39
2000 Annual Report Photos Pages 62 - 65
(4) Exhibits
(3.1) Articles of Incorporation have been
submitted with previous 10-K reports.
(13.1) 2000 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 18, pages 50 through 53.
(e) Signatures Page 74
(f) Other schedules required to be filed as part of this report.
Form 10-K
--------------
Schedule of Property and Equipment Page 72
Schedule of Accumulated Depreciation - Property and Equipment Page 73
71
73
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
SCHEDULE OF PROPERTY AND EQUIPMENT
(In Thousands)
Exhibit 1
Year Ended December 31, 2000
-----------------------------------------------
Beginning Ending
Balance Additions Retirements Balance
--------- ---------- ----------- --------
Land $ 1,983 $ 656 $ 25 $ 2,614
Building 9,123 251 25 9,349
Equipment 6,031 416 57 6,390
------- ------- ------- -------
$17,137 $ 1,323 $ 107 $18,353
======= ======= ======= =======
Year Ended December 31, 1999
-----------------------------------------------
Beginning Ending
Balance Additions Retirements Balance
--------- ---------- ----------- --------
Land $ 1,681 $ 302 $ - $ 1,983
Building 8,030 1,093 - 9,123
Equipment 5,867 621 457 6,031
------- ------- ------- -------
$15,578 $ 2,016 $ 457 $17,137
======= ======= ======= =======
Year Ended December 31, 1998
-----------------------------------------------
Beginning Ending
Balance Additions Retirements Balance
--------- ---------- ----------- --------
Land $ 1,472 $ 209 $ - $ 1,681
Building 7,398 676 44 8,030
Equipment 4,606 1,827 566 5,867
------- ------- ------- -------
$13,476 $ 2,712 $ 610 $15,578
======= ======= ======= =======
72
74
SCHEDULE OF ACCUMULATED DEPRECIATION - PROPERTY AND EQUIPMENT
Exhibit 2
Year Ended December 31, 2000
-----------------------------------------------
Beginning Ending
Balance Depreciation Retirements Balance
--------- ------------ ----------- -------
Land $ - $ - $ - $ -
Building 2,668 286 10 2,944
Equipment 4,293 810 48 5,055
------- ------- ------- -------
$6,961 $1,096 $ 58 $ 7,999
======= ======= ======= =======
Year Ended December 31, 1999
-----------------------------------------------
Beginning Ending
Balance Depreciation Retirements Balance
--------- ------------ ----------- -------
Land $ - $ - $ - $ -
Building 2,406 262 - 2,668
Equipment 3,742 981 430 4,293
------- ------- ------- -------
$6,148 $1,243 $ 430 $ 6,961
======= ======= ======= =======
Year Ended December 31, 1998
-----------------------------------------------
Beginning Ending
Balance Depreciation Retirements Balance
--------- ------------ ----------- -------
Land $ - $ - $ - $ -
Building 2,234 216 44 2,406
Equipment 3,577 727 562 3,742
------- ------- ------- -------
$5,811 $ 943 $ 606 $ 6,148
======= ======= ======= =======
73
75
FARMERS & MERCHANTS BANCORP, INC.
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: /s/ Joe E. Crossgrove Date: 3/14/01
---------------------------- ------------
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.
/s/ Joe E. Crossgrove Date: 3/14/01 /s/ Barbara Britenriker Date: 3/14/01
- ---------------------------------------- ---------------------------------
Joe E. Crossgrove, Director Barbara Britenriker
Chief Executive Officer Chief Accounting Officer
/s/ Eugene D. Bernath Date: 3/14/01 /s/ Kent Roth Date: 3/14/01
- ---------------------------------------- ---------------------------------
Eugene D. Bernath Kent Roth, Auditor
Director and Chairman
/s/ Dexter Benecke Date: 3/14/01 /s/ Anthony J. Rupp Date: 3/14/01
- ---------------------------------------- ---------------------------------
Dexter Benecke, Director Anthony J. Rupp, Director
/s/ Jerry Boyers Date: 3/14/01 /s/ David P. Rupp Jr. Date: 3/14/01
- ---------------------------------------- ---------------------------------
Jerry Boyers, Director David P. Rupp Jr., Director
/s/ Robert Frey Date: 3/14/01 /s/ James Saneholtz Date: 3/14/01
- ---------------------------------------- ---------------------------------
Robert Frey, Director James Saneholtz, Director
/s/ Julian Giovarelli Date: 3/14/01 /s/ Maynard Sauder Date: 3/14/01
- ---------------------------------------- ---------------------------------
Julian Giovarelli, Director Maynard Sauder, Director
/s/ Jack C. Johnson Date: 3/14/01 /s/ Merle J. Short Date: 3/14/01
- ---------------------------------------- ---------------------------------
Jack C. Johnson, Director Merle J. Short, Director
/s/ Dean Miller Date: 3/14/01 /s/ Steven J. Wyse Date: 3/14/01
- ---------------------------------------- ---------------------------------
Dean Miller, Director Steven J. Wyse, Director
/s/ Dale L. Nafziger Date: 3/14/01
- ----------------------------------------
Dale L. Nafziger, Director
74