Farmers & Merchants Bank of Long Beach Reports 2018 Third-Quarter Results

Farmers & Merchants Bank of Long Beach (OTCQB: FMBL) today reported financial results for the third quarter ended September 30, 2018.

Farmers and Merchants third-quarter results reflect strong loan growth, while at the same time the Bank continues to adjust to a higher interest rate environment, said Henry Walker, president of Farmers & Merchants Bank. The third quarter also marked the opening of our new branch in Santa Barbara, as we further enhance Farmers and Merchants presence in key markets that align with our growth objectives.

Income Statement

For the 2018 third quarter, interest and dividend income rose to $66.6 million from $60.7 million in the 2017 third quarter. Interest and dividend income for the nine-month period ended September 30, 2018 increased to $192.1 million from $176.9 million reported for the same period in 2017.

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Interest expense for the 2018 third quarter was $5.8 million, compared with $3.8 million a year ago. Interest expense for the nine-month period ended September 30, 2018 was $15.4 million, versus $10.4 million reported for the same period last year.

Net interest income for the 2018 third quarter rose to $60.9 million from $56.9 million for the third quarter of 2017 and advanced to $176.7 million for the first nine months of 2018 from $166.5 million for the same period in 2017.

Farmers & Merchants net interest margin was 3.47% for the 2018 third quarter, compared with 3.42% for the 2017 third quarter. Net interest margin was 3.41% for the first nine months of 2018, versus 3.43% for the same period in 2017.

The Banks provision for loan losses was $2.0 million for the third quarter of 2018, as lending volumes increased during the period, compared with $1.0 million for the third quarter of 2017. The Banks allowance for loan losses as a percentage of loans outstanding was 1.47% at September 30, 2018. Farmers & Merchants allowance for loan losses as a percentage of loans outstanding was 1.53% at December 31, 2017.

Non-interest income was $7.4 million for the 2018 third quarter, compared with $6.6 million in the third quarter a year ago. Non-interest income was $21.9 million for the nine-month period ended September 30, 2018, compared with $22.5 million for the same period in 2017.

Non-interest expense for the 2018 third quarter was $44.7 million, versus $41.6 million for the same period last year. Non-interest expense for the first nine months of 2018 was $116.2 million, compared with $119.5 million last year.

Net income for the 2018 third quarter rose to $20.7 million, or $157.82 per diluted share, from $16.7 million, or $127.46 per diluted share, in the year-ago period. The Banks net income for the first nine months of 2018 was $63.5 million, or $484.90 per diluted share, up from $53.3 million, or $407.12 per diluted share, for the same period in 2017.

Balance Sheet

At September 30, 2018, net loans totaled $4.17 billion, compared with $3.83 billion at December 31, 2017. The Banks deposits totaled $5.63 billion at the end of the 2018 third quarter, compared with $5.39 billion at December 31, 2017. Non-interest-bearing deposits represented 38.8% of total deposits at September 30, 2018, versus 37.6% of total deposits at December 31, 2017. Total assets increased to $7.31 billion at the close of the 2018 third quarter, compared with $6.99 billion at the close of the prior year.

At September 30, 2018, Farmers & Merchants Bank remained well-capitalized under all regulatory categories, with a total risk-based capital ratio of 19.56%, a tier 1 risk-based capital ratio of 18.33%, a common equity tier 1 capital ratio of 18.33%, and a tier 1 leverage ratio of 13.87%. The minimum ratios for capital adequacy for a well-capitalized bank are 10.00%, 8.00%, 6.50% and 5.00%, respectively.

F&M is entering the final stretch of the year in a position of strength with excellent loan growth that is consistent with the Banks conservative lending standards and culture to protect depositors money while maintaining a strong balance sheet, said Daniel Walker, chief executive officer and chairman of the board. Additionally, we are excited to welcome clients to our new Santa Barbara branch, building relationships with a community that we believe will resonate with F&Ms core values and sound fundamentals, rooted in 111 years of serving Southern California.

Farmers & Merchants Bank also announced today that its board of directors has authorized the Bank to repurchase up to $20 million of its common stock prior to December 31, 2019. The Bank may purchase shares of its common stock from time to time through various means, including open market transactions, privately negotiated transactions, or otherwise in accordance with applicable laws.

To the extent the Bank repurchases shares, the number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, stock price, trading volume, regulatory requirements, general business conditions and other factors. The Bank may choose to modify, suspend or discontinue such proposed repurchases at any time and anticipates that any such repurchases will be funded from existing cash and cash equivalents or future cash flow.

About Farmers & Merchants Bank

Founded in Long Beach in 1907 by C.J. Walker, Farmers & Merchants Bank has 25 branches across Orange County, Long Beach, the South Bay and now in Santa Barbara. The Bank specializes in commercial and small business banking, business loan programs, home loans, and a robust offering of consumer retail banking products, including checking, savings and youth accounts. Farmers & Merchants Bank is a California state-chartered bank with deposits insured by the Federal Deposit Insurance Corporation (Member FDIC) and an Equal Housing Lender. For more information about F&M, please visit the website, www.fmb.com.

Forward-Looking Statements

In addition to the historical information contained herein, this press release may contain forward-looking statements about Farmers & Merchants Bank of Long Beach, including statements about the Banks expectations regarding the amount of and timing, methods and funding sources for potential repurchases of its common stock. Readers of this press release should understand that such forward-looking statements are neither promises nor guarantees and are subject to various risks and uncertainties, many of which are beyond the Banks control. Such risks and uncertainties could cause actual results and actions to differ materially from those contemplated in such forward-looking statements and the Banks reported results should not be considered an indication of the Banks future performance. Factors that could cause or contribute to such differences include, but are not limited to, credit, market, operational, liquidity and interest rate risks associated with the Banks business and operations, changes in interest rates, changes in general business and economic conditions, changes in banking laws and regulations, loan losses, increases in expenses, changes in rates charged on loans and earned on investments, accounting estimates and judgments, changes in rates on deposits, competition effects, the amount of non-interest income earned, as well as other factors. Given these factors, readers should not place undue reliance on any forward-looking statement.

FARMERS & MERCHANTS BANK OF LONG BEACH
Income Statements (Unaudited)
(In thousands except per share data)
Three Months Ended Sept. 30,Nine Months Ended Sept. 30,
2018201720182017
Interest and dividend income:
Loans$48,714$44,235$139,521$127,503
Investment securities16,85915,42249,70847,229
Investments in FHLB and FRB stock3533521,0581,147
Interest-bearing deposits in financial institutions7136991,7771,023
Total interest and dividend income66,63960,708192,064176,902
Interest expense:
Deposits3,7622,6359,9717,372
Securities sold under repurchase agreements2,0161,2045,4182,964
Other borrowings42764
Total interest expense5,7823,84115,39610,400
Net interest income60,85756,867176,668166,502
Provision for loan losses2,0001,0002,0001,000
Net interest income after provision for loan losses58,85755,867174,668165,502
Non-interest income:
Service charges on deposit accounts1,5431,0034,1162,966
Other real estate owned income17
Merchant bankcard income3,0142,6938,9828,057
Other income2,8912,8658,79511,425
Total non-interest income7,4486,56121,89322,465
Non-interest expense:
Salaries and employee benefits21,83521,57366,18964,015
FDIC and other insurance expense6476511,9541,922
Occupancy expense2,5292,3057,2836,792
Software and equipment expense2,6752,2887,8096,537
Other real estate owned expense113349157
Merchant bankcard expense2,3772,0967,0836,391
Professional and legal services1,5972,3284,1704,188
Marketing expense1,9621,4974,1834,067
Other expense11,1038,78417,45125,448
Total non-interest expense44,73641,555116,171119,517
Income before income tax expense21,56920,87380,39068,450
Income tax expense9064,18516,90315,146
Net income$20,663$16,688$63,487$53,304
Basic and diluted earnings per common share$157.82$127.46$484.90$407.12
FARMERS & MERCHANTS BANK OF LONG BEACH
Balance Sheets (Unaudited)
(In thousands except share and per share data)
Sep. 30, 2018Dec. 31, 2017
Assets
Cash and due from banks:
Noninterest-bearing balances$59,453$56,604
Interest-bearing balances21,30343,512
Total cash and due from banks80,756100,116
Securities available-for-sale, at fair value145,892187,102
Securities held-to-maturity, at amortized cost2,667,9082,657,796
Loans held for sale20,40715,038
Gross loans4,233,5783,899,110
Allowance for loan losses(61,961)(59,502)
Unamortized deferred loan fees, net(6,443)(5,611)
Loans, net4,165,1743,833,997
Investments in FHLB and FRB stock, at cost20,69020,690
Bank premises and equipment, net99,06195,550
Deferred tax assets, net21,74320,726
Other assets87,58860,563
Total assets$7,309,219$6,991,578
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand deposits$2,183,544$2,026,237
Interest-bearing demand deposits1,135,258925,308
Savings and money market savings1,577,8011,643,859
Time deposits734,304795,707
Total deposits5,630,9075,391,111
Securities sold under repurchase agreements584,026614,410
FHLB advances15,000
Other liabilities67,64226,937
Total liabilities6,297,5756,032,458
Stockholders’ Equity:
Common Stock, par value $20; authorized 250,000
shares; issued and outstanding 130,928 shares2,6192,619
Additional paid-in capital112,044112,044
Retained earnings898,823844,370
Accumulated other comprehensive income(1,842)87
Total stockholders’ equity1,011,644959,120
Total liabilities and stockholders’ equity$7,309,219$6,991,578

Farmers & Merchants Bank of Long Beach
John Hinrichs
Executive
Vice President
562-437-0011, ext. 4835
or
PondelWilkinson
Inc.
Evan Pondel
Investor Relations
310-279-5980
[email protected]

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