Farmers & Merchants Bancorp (FMCB: OTCQX U.S. Premier) | Farmers & Merchants Bancorp Reports Record Earnings in 2016

OTC

Farmers Merchants Bancorp Reports Record Earnings in 2016

Feb 08, 2017

OTC Disclosure News Service

Farmers Merchants Bancorp (OTCQX:FMCB) today announced that the
Company earned record net income of $29.7 million for the year-ending
December 31, 2016, an increase of 8.5% over the prior year. This strong
performance resulted in basic earnings per common share of $37.44,
return on average assets of 1.12% and return on average equity of
11.17%. Total assets at year-end were $2.9 billion, up 11.7% over the
prior year.

For the 4th quarter of 2016, the Company earned record net
income of $7.7 million, an increase of 6.7% over the $7.2 million earned
in the 4th quarter of 2015. Basic earnings per common share
were $9.62 in the 4th quarter of 2016, compared to $9.12 in
the same quarter of 2015.

Kent Steinwert, Farmers Merchants Bancorp’s Chairman, President and
Chief Executive Officer, stated, “We continue to be pleased with the
Company’s significant organic growth in both loans and deposits, which
allowed us to report solid profit growth for 2016 and a strong return on
average assets and equity. In Management’s opinion, all of these metrics
continue to compare favorably to other banks in our geographic region.
Additionally, during 2016, our strategies of expanding into the San
Francisco East Bay Area and entering the equipment leasing business
produced positive results that contributed to the successful year. We
finalized our acquisition of Delta National Bancorp on November 18, 2016
and completed the systems integration on December 9, 2016. The
acquisition included approximately $103.7 million in deposits, with an
average cost of funds of only 4 basis points, $32.4 million in loans and
three new locations in the communities of Turlock, Manteca and
Riverbank. Merger-related costs were $910,000 and were fully expensed in
2016.”

Loans and Credit Quality

In 2016, total loans leases grew $181.2 million, or 9.1% compared to
the prior year. This growth was broadly distributed over much of the
Company’s portfolio segments, and was partially the result of: (1) the
Company’s intensive business development efforts directed toward
credit-qualified borrowers; (2) continued growth in the equipment
leasing business; (3) expansion of the Company’s service area into the
San Francisco East Bay Area; and (4) the acquisition of Delta National
Bancorp which added $32.4 million. The Company’s yield on loans and
leases averaged 4.47% in 2016, compared to 4.52% in 2015.

Asset quality remained strong, with non-accrual loans and leases of only
0.14% of total loans and leases, or $3.1 million, at December 31, 2016,
up from $2.2 million at December 31, 2015. ORE increased from $2.44
million at December 31, 2015 to $3.75 million at December 31, 2016 as a
result of $2.96 million of ORE acquired in the Delta National Bancorp
transaction offset by $1.65 million of dispositions. The Company’s Texas
Ratio was 2.09% at December 31, 2016, compared to 1.56% at December 31,
2015.

The provision for credit losses totaled $6.3 million in 2016 compared to
$750,000 in 2015. Net loan recoveries in 2016 exceeded loan losses by
$61,000. As of December 31, 2016, the allowance for credit losses was
$47.9 million or 2.19% of total loans and leases, up from $41.5 million,
or 2.07% at the end of 2015.

Deposits

During 2016, total deposits grew 13.4% to $2.6 billion, an increase of
$304 million. At December 31, 2016 low cost checking account balances
totaled $1.25 billion or 48.5% of total deposits, and these balances
grew 14.9% year-over-year, a rate that exceeded total deposit growth.
The Company’s cost of deposits averaged 0.16% in 2016, compared to 0.14%
in 2015.

Earnings

Net interest income increased 9.6% to $95.1 million in 2016. Despite a
continuing low market rate environment and fierce competitor pricing,
the Company was able to achieve a net interest margin of 3.89% in 2016,
up slightly from 3.87% in 2015. The Company’s ability to increase loans
and leases as a percentage of total earning assets helped in supporting
the net interest margin during 2016.

Non-interest income (exclusive of gain on deferred compensation
investments and bargain purchase gain) was $11.4 million in 2016,
compared to $13.2 million in 2015. This decrease was related primarily
to a non-recurring financing fee and a non-recurring gain on a branch
sale in 2015. Additionally, the Company chose to reposition certain
parts of its investment portfolio in 2016, resulting in losses on sale
of $284,000. The bargain purchase gain on the Delta acquisition in 2016
was $1.83 million.

Non-interest expense (exclusive of gain on deferred compensation
investments and gain on sale of ORE) was $62.1 million in 2016, compared
to $55.2 million in 2015. This increase was related primarily to the
Company’s: (1) expenses related to the acquisition of Delta National
Bancorp; (2) expansion into the San Francisco East Bay Area and the
equipment leasing business; (3) increased depreciation from capital
expenditures related to the remodeling of existing branch offices and
installation of the latest ATM technology; and (4) increased levels of
amortization related to expanded levels of low income housing tax credit
investments.

The Company’s efficiency ratio for 2016 was 52.7%, despite one-time
acquisition costs associated with Delta National Bancorp and significant
investment in expanding the Company’s operations and modernizing our
delivery technology.

Liquidity and Capital

At December 31, 2016, the Company’s investment portfolio totaled $506.4
million and cash balances were $44.0 million. This represents an
increase of $110.3 million in liquidity when compared to December 31,
2015. The Company did not have any borrowed funds at year-end.

At December 31, 2016, the Company’s total risk based capital ratio was
12.80%, an increase from 12.23% at December 31, 2015 and the total
common equity tier 1 capital ratio was 11.16%, resulting in the highest
possible regulatory classification of “well capitalized.” In order to
help support the Company’s recent asset growth, the Company issued $9.5
million of common equity in 2016, of which $6.9 million was issued to
the shareholders of Delta National Bancorp. With the exception of $10.3
million of subordinated debt (issued as Tier 1 qualifying trust
preferred), all of the Company’s capital is common equity.

Acquisition of Delta National Bancorp

On November 18, 2016, Farmers Merchants Bancorp completed the
acquisition of Delta National Bancorp. Delta National Bancorp,
headquartered in Manteca, California, was the parent holding company for
Delta Bank N.A.

The aggregate merger consideration paid to Delta National Bancorp’s
common and preferred shareholders was approximately $9.18 million.

About Farmers Merchants Bancorp

Farmers Merchants Bancorp, traded on the OTCQX under the symbol FMCB,
is the parent company of Farmers Merchants Bank of Central California,
also known as FM Bank. Founded in 1916, FM Bank is a locally owned and
operated community bank which proudly serves California through 27
convenient locations. The Bank recently expanded into the Bay Area with
new full service branches in Walnut Creek and Concord. The FDIC awarded
FM Bank the highest possible rating of “Outstanding” in their CRA
Evaluation, and the Bank has received BauerFinancial’s highest,
five-star rating for more than 21 consecutive years, longer than any
other commercial bank in the State of California. The Bank offers a full
complement of loan, deposit, equipment leasing, and treasury management
products to businesses, as well as a full suite of consumer banking
products. For more information about Farmers Merchants Bancorp and FM
Bank visit www.fmbonline.com.

Forward-Looking Statement

Statements concerning future performance, developments or events,
expectations for growth and income forecasts, and any other guidance on
future periods, constitute forward-looking statements that are subject
to a number of risks and uncertainties. Actual results may differ
materially from stated expectations. Specific factors include, but are
not limited to, loan production, balance sheet management, levels of net
interest margin, the ability to control costs and expenses, interest
rate changes, the competitive environment, financial and regulatory
policies of the United States government, water management issues in
California and general economic conditions. Additional information on
these and other factors that could affect financial results are included
in our Securities and Exchange Commission filings. The Company disclaims
any obligation to update any such factors or to publicly announce the
results of any revisions to any forward-looking statements contained
herein to reflect future events or developments.

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