(Lodi, California, October 26, 2020) – Farmers & Merchants Bancorp (OTCQX: FMCB) today
announced record third quarter and year-to-date net income.
For the quarter ending September 30, 2020, Farmers & Merchants Bancorp reported net income of
$14.8 million, or $18.66 per share, a 7.8% increase from net income of $13.7 million earned in the
third quarter of 2019. Additionally, the Company’s net income over the trailing twelve months was
$57.9 million ($73.03 per share as reported), as compared to $54.4 million for the same period in the
prior year.
Net interest income for the quarter ended September 30, 2020 was $37.7 million, up 6.9% from the
same quarter in 2019. The Company’s net interest margin on a tax equivalent basis was 3.80% in the
third quarter of 2020, compared to 4.31% in the third quarter of 2019. The net interest margin in the
third quarter of 2020 was impacted by the overall decline in market interest rates, as well as the
inclusion of over $347 million in Small Business Administration Paycheck Protection Program loans
(11.16% of total portfolio) originated during the second quarter which are accruing interest income
at only 1% per annum (plus accreted loan fees). For the third quarter of 2020 the Company’s
efficiency ratio was 49.20%. Return on average assets for the third quarter of 2020 was 1.40%, and
return on average equity was 14.40%.
Total assets at quarter-end were $4.3 billion, up 20.52% from the third quarter of 2019. Total loans
and leases outstanding reached $3.1 billion, an increase of 18.9% from September 30, 2019, and total
deposits of $3.8 billion increased 21.5% from September 30, 2019. A portion of this balance sheet
growth was due to the Bank’s participation in the Small Business Administration’s Paycheck
Protection Program under which we funded over $347 million of loans. At quarter-end, total checking
deposits represented 56.4% of total deposits compared to 53.0% at September 30, 2019.
The Company’s credit quality remained strong with only $498,000 of non-performing loans and
leases as of September 30, 2020. Importantly, of the $276.9 million of loans we restructured under
the CARES Act guidelines, only $24.1 million have not yet returned to payment status, whether
interest-only or full principal and interest. The provision for credit losses was $1.7 million for the
third quarter 2020, and at quarter-end the Company’s allowance for credit losses was $56.8 million,
or 1.83% of total loans and leases (2.05% exclusive of government fully guaranteed loans issued
under the SBA’s Paycheck Protection Program).
At September 30, 2020, the Company’s total capital ratio was 13.12%, and the tier 1 leverage capital
ratio was 9.50%, resulting in the highest possible regulatory classification of “well capitalized.” Had
the Company not participated in the PPP program, the net result would have been an 86 basis point
improvement to the September 30, 2020 tier 1 leverage capital ratio, increasing the ratio to 10.36%.
For the nine-month period ending September 30, 2020, net income was $43.2 million, up 4.47% from
the prior year, and earnings per weighted average share of common stock outstanding grew to $54.49,
compared to $52.64 per share in 2019. The Company’s net interest margin on a tax equivalent basis
was 3.90% in the first nine months of 2020 and the efficiency ratio was 50.5%. For the first nine
months, return on average assets was 1.44%, and return on average equity was 14.54%.
Kent Steinwert, Farmers & Merchants Bancorp’s Chairman, President and Chief Executive Officer,
stated, “We are pleased that the Company’s earnings growth has continued through the first nine
months of 2020 despite significant headwinds from both a continuing low interest rate environment
and the COVID-19 pandemic. Net income was up 4.47% over the same period in the prior year. We
are working hard to protect our margins in what is a very difficult pricing environment. Our strong
operating metrics and credit quality, when combined with adequate levels of loan loss reserves,
allowed us to report stronger financial results in the third quarter and first nine months of 2020
compared to many banks that needed to record significant loan loss provisions to reserve for the risks
of COVID-19. However, we realize that the real challenges may still lie ahead as our industry and
the country deal with the health and economic effects of the COVID-19 pandemic.
At this current moment, the COVID-19 restrictions on business and other activities put into effect by
California Governor Gavin Newsom are continuing to adversely impact economic recovery efforts.
Given the uncertainty as to how long these restrictions will remain in place, and how severe the
ultimate economic impact will be, we continue to prepare for what could be a significant recession.
Fortunately, we remain confident that our long-term strategy of focusing a large segment of our
business on agribusiness and the production, processing and distribution of food supplies will
somewhat buffer the Company from changes in the economic environment in California, the United
States and globally. Demand for high quality, protein rich food will continue to grow in the future
and California’s great Central Valley is a leading agricultural supplier of many important products.
Designated as an “essential business”, Farmers & Merchants Bank of Central California continues to
keep all branches open and maintain regular business hours during this difficult time. Our staffing
levels have remained stable during the COVID-19 crisis, and our employees have been committed to
serving the banking needs of our local communities.
We actively participated in the federal government’s Small Business Administration’s Paycheck
Protection Program (“PPP”) and we are now working with these customers as they file their
applications to have the loans forgiven by the SBA.
From a financial perspective, as reflected by the following September 30, 2020 measures, we
remain in a strong financial position as we continue to face this period of economic uncertainty:
Liquidity of $938 million consisting of Fed Funds Sold and high quality Investment
Securities;
Strong Asset Quality as reflected by only $498,000 of non-performing loans, and a
negligible delinquency ratio of .036% of total loans;
Risk Based Capital Ratio of 13.12%;
Allowance for Credit Losses of $56.8 million or 2.05% of loans and leases (exclusive of
government guaranteed SBA PPP loans); and
ROAA of 1.40% and ROAE of 14.40% in third quarter 2020.
Our credit exposure to the “Hospitality” (primarily hotels) and “Entertainment” (primarily
restaurants, health clubs and movie theaters) industries totals $147.4 million in loans and leases
outstanding at September 30, 2020. Most of these loans: (i) were underwritten with an original LTV
of 50-70% on the underlying real estate, providing us with what should be adequate collateral
coverage; and (ii) have financially strong guarantors with liquidity that provides additional protection.
Over and above the impact on the Hospitality and Entertainment industries, there continues to be a
general economic slowdown as a result of the Governor’s restrictions on business and other activities.
The Central Valley of California may be in a better position than other areas to weather this impact
because agricultural activity has substantially continued. We are monitoring the impact on our
borrowers, and working closely with them using all of the tools at our disposal to help them
successfully move through this period of reduced business activity.
Although the low market interest rates and economic slowdown caused by the COVID-19 health
crisis are negatively impacting the performance of many financial institutions, we remain cautiously
optimistic about the outlook for Farmers & Merchants Bancorp’s financial results in the remainder of
- However, the longer these headwinds persist, the greater the challenge will be to maintain
strong financial performance. Importantly, we will continue to provide support and assistance to our
employees, shareholders, customers and communities during this difficult time.”
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 F&M Bank. Founded
in 1916, F&M Bank is a locally owned and operated community bank, which proudly serves
California through 32 convenient locations. We are the 13th largest bank lender to agriculture in the
United States, and the largest community bank lender to agriculture west of the Rocky Mountains. In
2013, the Bank began an expansion into the San Francisco Bay Area with new full-service branches
in Walnut Creek and Concord. In early 2018, a loan production office opened in Napa, which
converted to a full-service branch in September 2018. 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. The FDIC awarded F&M Bank the highest possible rating of
“Outstanding” in their CRA evaluation. Farmers & Merchants Bancorp has paid dividends for 85
consecutive years and we have increased dividends for 55 consecutive years. As a result, we are a
member of a select group of only 30 publicly traded companies referred to as “Dividend Kings.”
Additionally, the Bank has maintained a 5-Star rating from BauerFinancial for 29 consecutive years,
longer than any other commercial bank in the state of California. For more information about Farmers
& Merchants Bancorp and F&M Bank, visit fmbonline.com.