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,
2018 2017 2018 2017
 
Interest and dividend income:
 
Loans $ 48,714 $ 44,235 $ 139,521 $ 127,503
Investment securities 16,859 15,422 49,708 47,229
Investments in FHLB and FRB stock 353 352 1,058 1,147
Interest-bearing deposits in financial institutions 713 699 1,777 1,023
 
Total interest and dividend income 66,639 60,708 192,064 176,902
 
Interest expense:
 
Deposits 3,762 2,635 9,971 7,372
Securities sold under repurchase agreements 2,016 1,204 5,418 2,964
Other borrowings 4 2 7 64
 
Total interest expense 5,782 3,841 15,396 10,400
 
Net interest income 60,857 56,867 176,668 166,502
 
Provision for loan losses 2,000 1,000 2,000 1,000
 
Net interest income after provision for loan losses 58,857 55,867 174,668 165,502
 
Non-interest income:
 
Service charges on deposit accounts 1,543 1,003 4,116 2,966
Other real estate owned income 17
Merchant bankcard income 3,014 2,693 8,982 8,057
Other income 2,891 2,865 8,795 11,425
 
Total non-interest income 7,448 6,561 21,893 22,465
 
Non-interest expense:
 
Salaries and employee benefits 21,835 21,573 66,189 64,015
FDIC and other insurance expense 647 651 1,954 1,922
Occupancy expense 2,529 2,305 7,283 6,792
Software and equipment expense 2,675 2,288 7,809 6,537
Other real estate owned expense 11 33 49 157
Merchant bankcard expense 2,377 2,096 7,083 6,391
Professional and legal services 1,597 2,328 4,170 4,188
Marketing expense 1,962 1,497 4,183 4,067
Other expense 11,103 8,784 17,451 25,448
 
Total non-interest expense 44,736 41,555 116,171 119,517
 
Income before income tax expense 21,569 20,873 80,390 68,450
 
Income tax expense 906 4,185 16,903 15,146
 
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, 2018 Dec. 31, 2017
 
Assets
 
Cash and due from banks:
Noninterest-bearing balances $ 59,453 $ 56,604
Interest-bearing balances 21,303   43,512  
 
Total cash and due from banks 80,756 100,116
Securities available-for-sale, at fair value 145,892 187,102
Securities held-to-maturity, at amortized cost 2,667,908 2,657,796
Loans held for sale 20,407 15,038
Gross loans 4,233,578 3,899,110
Allowance for loan losses (61,961 ) (59,502 )
Unamortized deferred loan fees, net (6,443 ) (5,611 )
 
Loans, net 4,165,174   3,833,997  
 
Investments in FHLB and FRB stock, at cost 20,690 20,690
Bank premises and equipment, net 99,061 95,550
Deferred tax assets, net 21,743 20,726
Other assets 87,588   60,563  
 
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 deposits 1,135,258 925,308
Savings and money market savings 1,577,801 1,643,859
Time deposits 734,304   795,707  
 
Total deposits 5,630,907 5,391,111
Securities sold under repurchase agreements 584,026 614,410
FHLB advances 15,000
Other liabilities 67,642   26,937  
 
Total liabilities 6,297,575   6,032,458  
 
Stockholders’ Equity:
 
Common Stock, par value $20; authorized 250,000
shares; issued and outstanding 130,928 shares 2,619 2,619
Additional paid-in capital 112,044 112,044
Retained earnings 898,823 844,370
Accumulated other comprehensive income (1,842 ) 87  
 
Total stockholders’ equity 1,011,644   959,120  
 
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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