2018 Third Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• 62 consecutive quarters of profitability
• Total loans increased 5.5% to $838,698,000
• Net interest income after provision for loan losses increased 9.2% to $9,941,000
• Net income increased 20.3% to $3,875,000
• Earnings per basic and diluted share increased 20.0% to $0.42
• Return on average assets was 1.40%, up from 1.20%
• Return on average equity was 11.19%, up from 9.76%

“2018 is shaping up to be a historic year for F&M as we continue to execute our growth initiatives and achieve strong financial results, while investing in our future,” stated Paul S. Siebenmorgen, President and Chief Executive Officer. “Throughout the year, our organic growth initiatives have focused on expanding our reach in newer markets and I am pleased with the success we have achieved so far.  F&M ended the quarter with record total loans, which increased 5.5% over the past 12 months.  In addition, we continue to convert offices into our new layout and will have upgraded two F&M offices by the end of 2018.  The investments in F&M’s physical locations, as well as in our digital and mobile banking platforms, are improving F&M’s customer experience and making it more efficient and convenient for our customers to interact with the Bank.  Finally, I am excited with the August 2018 announcement of the Limberlost Bancshares merger, which quickly expands F&M’s footprint in Indiana.  The merger brings together two well-performing banks that have a similar culture and focus on community banking values. We expect the merger to close at year end or in early first quarter 2019 and look forward to updating our shareholders, customers, communities, and associates on our progress.” 

Income Statement
Net income for the 2018 third quarter ended September 30, 2018, was $3,875,000, or $0.42 per basic and diluted share compared to $3,222,000, or $0.35 per basic and diluted share for the same period last year. The 20.3% improvement in net income for the 2018 third quarter was primarily due to a 9.2% increase in net interest income after provision for loan losses, partially offset by a 10.5% increase in noninterest expense.  Net income for the 2018 nine months was $11,756,000, or $1.27 per basic and diluted share compared to $9,284,000, or $1.01 per basic and diluted share for the nine months of 2017. As a result of the Tax Cuts and Job Act, the Bank’s tax rate was lowered which benefitted earnings.

Loan Portfolio and Asset Quality
Total loans at September 30, 2018, increased 5.5% to $838,698,000, compared to $795,205,000 at September 30, 2017, and up 1.9% from $823,024,000 at December 31, 2017.  The year-over-year improvement resulted primarily from a 5.8% increase in commercial real estate loans, a 19.0% increase in agricultural loans, a 15.6% increase in consumer loans, and a 7.8% increase in agricultural real estate.

The company’s provision for loan losses for the 2018 third quarter was $47,000, compared to $99,000 for the 2017 third quarter. Year-to-date, the provision for loan losses was $219,000, compared to $197,000 for the same period last year.

F&M’s loan quality remains strong as the allowance for loan losses to nonperforming loans was 1,399.6% at September 30, 2018, compared to 397.4% at September 30, 2017. Net charge-offs for the third quarter ended September 30, 2018, were $81,000, or 0.01% of average loans, compared to $87,000 or 0.01% of average loans, at September 30, 2017. Year-to-date, net charge-offs were $332,000, or 0.04% of average loans outstanding, compared to $111,000, or 0.01% of average loans outstanding for the same period last year. 

Stockholders’ Equity and Dividends
Tangible stockholders’ equity increased to $134,903,000 at September 30, 2018, compared to $129,667,000 at December 31, 2017, and $128,278,000 at September 30, 2017.  On a per share basis, tangible stockholders’ equity at September 30, 2018, was $14.53, compared with $13.99 at December 31, 2017, and $13.84 at September 30, 2017. The increase in tangible stockholders’ equity is the result of growth in retained earnings due to increased profitability. At September 30, 2018, the company had a Tier 1 leverage ratio of 12.63%, compared to 12.02% at September 30, 2017. 

For the 2018 third quarter, the company declared cash dividends of $0.14 per share, which represents a dividend payout ratio of 33.2% compared to 37.0% for the same period last year.

Mr. Siebenmorgen concluded, “Our pipeline of new loans remains strong and we continue to experience stable economic trends throughout our Western Ohio and Eastern Indiana communities.  In addition, F&M’s asset quality is excellent as nonperforming loans fell to 0.06% of total loans and nonperforming assets have declined 48.8% over the past 12 months, compared to the 1.6% growth in total assets we have experienced over this period.  2018’s third quarter results demonstrate F&M is well positioned to achieve another strong year of growth and improved profitability.” 

About Farmers & Merchants State Bank:
The Farmers & Merchants State Bank is a local independent community bank that has been serving Northwest Ohio and Northeast Indiana since 1897. The Farmers & Merchants State Bank provides commercial banking, retail banking and other financial services through its 25 offices. Our locations are in Fulton, Defiance, Hancock, Henry, Lucas, Williams, and Wood counties in Northwest Ohio. In Northeast Indiana, we have offices located in DeKalb, Allen and Steuben counties.

Safe harbor statement
Farmers & Merchants Bancorp, Inc. (“F&M”) wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. Statements by F&M, including management’s expectations and comments, may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Act of 1934, as amended. Actual results could vary materially depending on risks and uncertainties inherent in general and local banking conditions, competitive factors specific to markets in which F&M and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions. F&M assumes no responsibility to update this information. For more details, please refer to F&M’s SEC filing, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q. Such filings can be viewed at the SEC’s website, www.sec.gov.