Farmers & Merchants Bancorp, Inc. Reports 2019 Second-Quarter and Year-to-Date Financial Results

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Positive Operating Momentum Drives Strong Second Quarter Financial Results ARCHBOLD, Ohio, July 19, 2019 (GLOBE NEWSWIRE) -- Farmers & Merchants Bancorp, Inc. (Nasdaq: FMAO) today reported financial results for the 2019 second quarter and year-to-date June 30, 2019. 2019 Second Quarter Financial Highlights Include (on a year-over-year basis unless noted): 65 consecutive quarters of profitabilityTotal loans increased 31.3% to $1.091 billion as a result of the contribution from the Limberlost acquisition and strong organic consumer lending and residential mortgage growthTotal assets increased 38.5% and crossed $1.5 billion for the first time in F&M’s historyStrong organic deposit growth, which has increased year-to-date by 16.6% or $154.2 millionNet interest income after provision for loan losses increased 45.2% to $14.5 millionNet income increased 50.2% to $6.2 millionAdjusted net income was $6.2 million, which accounts for one-time acquisition related expenses of $31,000 and a $1.6 million benefit from recoveries that occurred in the 2019 second quarterEarnings per basic and diluted share increased 27.3% to $0.56 per basic and diluted shareAdjusted earnings per basic and diluted share was $0.42, which accounts for one-time adjusted acquisition related expenses of $0.00 per basic and diluted share and a $0.14 per basic and diluted share benefit from recoveries that occurred in the 2019 second quarterTangible book value per share increased 7.9% to $15.49 per share “Strong operating momentum continued in the 2019 second quarter and earnings per diluted share increased 27.3% to $0.56,” stated Lars B. Eller, President and Chief Executive Officer. “While earnings benefited from a nice recovery in the second quarter, core profitability remains strong as a result of year-over-year loan growth, improved margins, and favorable asset quality.  In addition, the Limberlost acquisition, which was completed on January 1, 2019, is now fully integrated and has started contributing to our financial performance and earnings.  I am extremely pleased with the quick combination of Limberlost and F&M and the opportunities our larger scale will create for F&M in the future.”  “Total loans declined slightly over the past three months, primarily due to the impacts a wet planting season had on agricultural customers across our markets and the payoff of several classified loans that occurred in the second quarter, which was higher than normal.  Our loan portfolio would have increased sequentially, if second quarter payoffs and paydowns were in line with historical trends.  We have a strong pipeline of new loans that will be originated during the third quarter, including several large loans to customers in Southern Michigan.  This market supports a compelling opportunity for F&M and we already have $62.8 million in loans and $16.3 million in deposits in Southern Michigan, even though we have no physical presence in the market.  As large regional financial institutions focus on bigger markets and opportunities, we believe F&M is well positioned to grow our brand throughout our Ohio, Indiana and Michigan markets.”  Income StatementNet income for the 2019 second quarter ended June 30, 2019, was $6.2 million, compared to $4.1 million for the same period last year.  Net income for the 2019 second quarter included $31,000 of one-time acquisition related expenses and a $1.6 million benefit from recoveries.  Net income per basic and diluted share for the 2019 second quarter was $0.56, compared to $0.44 for the same period last year.  2019 second quarter earnings included $0.00 per basic and diluted share of one-time acquisition related expenses and a $0.14 per basic and diluted share benefit from recoveries.  Cost of funds outpaced asset yield improvements for the 2019 second quarter and first half as a result of higher dollar volume of deposits and increased rates on deposits.  Overall, the company believes profitability from core operations is on track to match the expectations for 2019 with the acquisition factored in. Net income for the 2019 first half ended June 30, 2019, was $9.4 million, compared to $7.9 million for the same period last year.  Net income for the 2019 first half included $1.2 million of one-time acquisition related expenses and a $1.6 million benefit from recoveries.  Net income per basic and diluted share for the 2019 first half was $0.85, compared to $0.85 for the same period last year.  2019 first half earnings included $0.09 per basic and diluted share of one-time acquisition related expenses and a $0.14 per basic and diluted share benefit from recoveries.  Loan Portfolio and Asset QualityTotal loans, net at June 30, 2019, increased 31.3% or by $260.1 million to $1.091 billion, compared to $831.0 million at June 30, 2018. The year-over-year improvement resulted primarily from the contribution of the Limberlost acquisition and organic loan growth.  F&M’s asset quality remains strong.  Despite the 38.5% year-over-year increase in total assets at June 30, 2019, nonperforming assets were up only $105,000 or 6.7%.  In addition, nonperforming loans to total loans remains low and at June 30, 2019 were 0.12%, compared to 0.11% for the same period last year.  The allowance for loan losses to nonperforming loans was 375.5% at June 30, 2019, compared to 751.5% at June 30, 2018.  Net charge-offs for the quarter ended June 30, 2019, were $86,000, or 0.01% of average loans, compared to $143,000 or 0.02% of average loans, at June 30, 2018.  Year-to-date, net charge-offs at June 30, 2019, were $255,000, or 0.02% of average loans, compared to $251,000 or 0.03% of average loans at June 30, 2018.  Mr. Eller continued, “Economic trends within our markets remain stable, supporting F&M’s growth and excellent asset quality.  Total agricultural loans were $307.5 million at June 30, 2019, compared to $307.8 million at March 31, 2019, and $174.5 million at June 30, 2018.  Most of our agricultural customers utilize crop insurance, which will protect them from the wettest planting season in approximately 40 years and the impacts weather has on farm revenues.  Agricultural lending is one of F&M’s core competencies.  All of F&M’s agricultural lenders are farmers themselves and many of our communities are dependent on the farm economy.  F&M is dedicated to helping our agricultural customers during this difficult season, especially as other larger lenders have pulled back from this market.”  DepositsOver the past three months, deposits have increased organically 4.6% or by $54.9 million to $1.242 billion at June 30, 2019.  The significant organic deposit growth we have been experiencing continues to be due primarily to new product development that has allowed the company to attract new customers and expand existing customer holdings.  Stockholders’ Equity and DividendsTangible stockholders’ equity increased to $172.0 million at June 30, 2019, compared to $165.5 million at March 31, 2019, and $137.5 million at June 30, 2018.  On a per share basis, tangible stockholders’ equity at June 30, 2019, was $15.49 per share, compared to $14.90 per share at March 31, 2019, and $14.36 at June 30, 2018.  Total stockholders’ equity increased 62.9% to $224.0 million at June 30, 2019, from $137.6 million at June 30, 2018, and increased 3.3% from $216.9 million at March 31, 2019.  At June 30, 2019, the company had a Tier 1 leverage ratio of 11.77%, compared to 12.38% at June 30, 2018.  The decline in the Tier 1 leverage ratio was primarily due to the added goodwill associated with the Limberlost acquisition.  For the 2019 second quarter, the company declared cash dividends of $0.15 per share, which is a 7.1% increase over the 2018 second quarter declared dividend payment.  F&M is committed to returning capital to shareholders and has increased the annual cash dividend for over nine consecutive years.  “Over the past year we have made significant investments across our organization to strengthen F&M’s platform and expand our leadership team, while remodeling our offices and providing our customers with new, market-leading financial products and services.  In addition, attracting, developing, and retaining our employees is an important component of our strategy and during the second quarter, we announced the addition of Benét Rupp as F&M’s Chief People Officer.  The investments we are making are focused on supporting the current and future needs of both F&M and our customers, and I am encouraged by our progress.  We are currently working on a three-year strategic plan, which will be the basis of our success in the future.  I remain excited by our near- and long-term potential and based on our strong year-to-date financial results, expect 2019 to be another record year for F&M,” concluded Mr. Eller.  About Farmers & Merchants State Bank:Farmers & Merchants Bancorp, Inc. (“F&M”) (Nasdaq: FMAO), is the holding company for the Farmers & Merchants State Bank, a local independent community bank with $1.5 billion in assets 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 30 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 Adams, Allen, DeKalb, Jay and Steuben counties. Safe harbor statementFarmers & 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 Exchange 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 or through F&M’s website www.fm.bank. Company Contact:Investor and Media ContactMarty FilogamoSenior Vice President – Marketing ManagerFarmers & Merchants Bancorp, Inc.(419) 445-3501 ext. 15435mfilogamo@fm.bank Andrew M. BergerManaging DirectorSM Berger & Company, Inc. (216) 464-6400andrew@smberger.com      FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME(Unaudited) (in thousands of dollars, except per share data)   Three  Months Ended  Six Months Ended  June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 June 30, 2019 June 30, 2018Interest Income                            Loans, including fees $16,723  $14,680  $10,955  $10,725  $10,521  $31,403  $20,623 Debt securities:                            U.S. Treasury and government agencies  816   713   630   613   612   1,529   1,235 Municipalities  211   211   250   275   289   422   570 Dividends  76   88   56   56   53   164   108 Federal funds sold and other  457   170   112   84   62   627   137 Total interest income  18,283   15,862   12,003   11,753   11,537   34,145   22,673 Interest Expense                            Deposits  3,339   2,613   1,670   1,611   1,389   5,952   2,708 Federal funds purchased and securities sold                            under agreements to repurchase  141   185   127   134   118   326   242 Borrowed funds  269   287   20   20   20   556   40 Total interest expense  3,749   3,085   1,817   1,765   1,527   6,834   2,990 Net Interest Income - Before Provision for Loan Losses  14,534   12,777   10,186   9,988   10,010   27,311   19,683 Provision for Loan Losses   133   30   105   47   132   163   172 Net Interest Income After Provision For Loan Losses  14,401   12,747   10,081   9,941   9,878   27,148   19,511 Noninterest Income                            Customer service fees  1,694   1,578   1,612   1,392   1,465   3,272   2,931 Other service charges and fees  1,091   1,041   1,032   1,097   1,040   2,132   2,052 Net gain on sale of loans  196   102   140   184   301   298   433 Net gain (loss) on sale of available-for-sale securities  -   (26)  (19)  10   -   (26)  - Total noninterest income  2,981   2,695   2,765   2,683   2,806   5,676   5,416 Noninterest Expense                            Salaries and wages  3,830   4,312   3,834   3,391   3,225   8,142   6,535 Employee benefits  1,223   1,594   1,102   1,029   848   2,817   1,984 Net occupancy expense  614   667   451   478   441   1,281   828 Furniture and equipment  763   696   450   588   565   1,459   1,072 Data processing  376   1,299   318   364   305   1,675   636 Franchise taxes  229   258   244   243   228   487   467 ATM expense  418   447   368   327   333   865   645 Advertising  382   260   218   236   247   642   433 Net (gain) loss on sale of other assets owned  28   15   27   1   (1)  43   16 FDIC assessment  98   96   77   81   81   194   168 Mortgage servicing rights amortization  105   75   100   84   95   180   180 Consulting fees  95   113   461   179   178   208   288 Other general and administrative  1,551   1,679   1,167   1,125   1,093   3,230   2,026 Total noninterest expense  9,712   11,511   8,817   8,126   7,638   21,223   15,278 Income Before Income Taxes  7,670   3,931   4,029   4,498   5,046   11,601   9,649 Income Taxes  1,490   707   836   623   932   2,197   1,768 Net Income  6,180   3,224   3,193   3,875   4,114   9,404   7,881 Other Comprehensive Income (Loss) (Net of Tax):                            Net unrealized gain (loss) on available-for-sale securities  3,061   1,749   2,374   (617)  (344)  4,810   (2,815)Reclassification adjustment for (gain) loss on sale of available-for-sale securities  -   26   19   (10)  -   26   - Net unrealized gain (loss) on available-for-sale securities  3,061   1,775   2,393   (627)  (344)  4,836   (2,815)Tax expense (benefit)  643   373   503   (132)  (72)  1,016   (591)Other comprehensive income (loss)  2,418   1,402   1,890   (495)  (272)  3,820   (2,224)Comprehensive Income $8,598  $4,626  $5,083  $3,380  $3,842  $13,224  $5,657 Basic and Diluted Earnings Per Share $0.56  $0.29  $0.34  $0.42  $0.44  $0.85  $0.85 Dividends Declared $0.15  $0.15  $0.15  $0.14  $0.14  $0.30  $0.27                                                              FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (in thousands of dollars, except share data)  June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 (Unaudited)        Assets                     Cash and due from banks $108,085  $48,740  $37,492  $28,782  $31,838 Federal funds sold    15,193     33,109     873     939     726  Total cash and cash equivalents  123,278   81,849   38,365   29,721   32,564                       Interest-bearing time deposits  4,509   4,509   4,019   4,019   4,019 Securities - available-for-sale  204,415   174,682   168,447   183,075   187,036 Other securities, at cost  5,789   5,789   3,679   3,717   3,717 Loans held for sale  1,909   859   495   1,679   913 Loans, net  1,084,448   1,091,829   839,599   831,943   824,226 Premises and equipment  26,013   25,205   22,615   22,117   21,957 Goodwill  47,340   47,340   4,074   4,074   4,074 Mortgage servicing rights  2,465   2,397   2,385   2,373   2,356 Other real estate owned  329   510   600   717   649 Bank owned life insurance  15,050   14,963   14,884   14,799   14,692 Other assets    15,002     15,729     17,001     9,778     9,129                       Total Assets $  1,530,547  $  1,465,661  $  1,116,163  $  1,108,012  $  1,105,332  Liabilities and Stockholders' Equity                    Liabilities                    Deposits                     Noninterest-bearing $242,510  $236,847  $215,422  $197,088  $200,067  Interest-bearing                     NOW accounts  430,505   418,773   298,254   314,873   311,185  Savings  293,179   272,875   227,701   230,306   238,167  Time    276,153     258,929     187,413     186,592     181,347  Total deposits  1,242,347   1,187,424   928,790   928,859   930,766                        Federal Funds Purchased and                     securities sold under agreements to repurchase  27,102   25,521   32,181   27,026   23,898  Federal Home Loan Bank (FHLB) advances  24,532   24,682   -   5,000   5,000  Dividend payable  1,654   1,654   1,379   1,287   1,284  Accrued expenses and other liabilities    10,865     9,446     10,526     6,493     6,808  Total liabilities    1,306,500     1,248,727     972,876     968,665     967,756                       Commitments and Contingencies                                          Stockholders' Equity                     Common stock - No par value 20,000,000 shares authorized; issued                     and outstanding 12,230,000 shares 6/30/19, 10,400,000 shares 12/31/18  81,955   81,760   10,823   10,589   11,842  Treasury stock - 1,123,817 shares 6/30/19, 1,114,739 shares 12/31/18  (12,707)  (12,680)  (12,409)  (12,409)  (12,186) Retained earnings  153,993   149,466   147,887   146,072   142,330  Accumulated other comprehensive income (loss)    806     (1,612)    (3,014)    (4,905)    (4,410) Total stockholders' equity    224,047     216,934     143,287     139,347     137,576                       Total Liabilities and Stockholders' Equity $  1,530,547  $  1,465,661  $  1,116,163  $  1,108,012  $  1,105,332                          FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESSELECT FINANCIAL DATA                       For the Three Months Ended For the Six Months EndedSelected financial data June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 June 30, 2019  June 30, 2018Return on average assets  1.63%  1.00%  1.15%  1.40%  1.48% 1.32%  1.41%Return on average equity  11.21%  7.16%  9.04%  11.19%  12.08% 8.63%  11.64%Yield on earning assets  5.25%  4.80%  4.52%  4.52%  4.41% 5.03%  4.35%Cost of interest bearing liabilities  1.45%  1.26%  0.92%  0.92%  0.79% 1.36%  0.78%Net interest spread  3.80%  3.54%  3.60%  3.60%  3.62% 3.57%  3.57%Net interest margin  4.18%  3.87%  3.85%  3.85%  3.83% 3.78%  3.78%Efficiency  56.00%  73.11%  67.59%  63.86%  60.89% 64.09%  60.55%Dividend payout ratio  26.78%  42.77%  43.16%  33.21%  31.21% 32.26%  31.43%Tangible book value per share (1) $15.49  $14.90  $14.96  $14.53  $14.36      Tier 1 capital to average assets  11.77%  13.35%  12.81%  12.63%  12.38%                                   Loans June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018     (Dollar amounts in thousands)                    Commercial real estate $443,257  $440,993  $419,784  $417,217  $411,509      Agricultural real estate  193,768   191,752   68,609   68,548   69,701      Consumer real estate  159,540   160,967   80,766   83,134   82,853      Commercial and industrial  125,609   137,949   121,793   119,536   116,351      Agricultural  113,755   112,898   108,495   103,624   104,830      Consumer  48,952   47,647   41,953   41,444   40,513      Industrial development bonds  7,341   7,392   5,889   6,005   6,071      Less: Net deferred loan fees and costs  (1,091)  (1,133)  (915)  (810)  (813)     Total loans,net $1,091,131  $1,098,465  $846,374  $838,698  $831,015                                    Asset quality data June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018     (Dollar amounts in thousands)                    Nonaccrual loans $1,328  $1,188  $542  $483  $903      Troubled debt restructuring $981  $102  $178  $205  $218      90 day past due and accruing $-  $-  $-  $-  $-      Nonperforming loans $1,328  $1,188  $542  $483  $903      Other real estate owned $329  $510  $600  $717  $649      Nonperforming assets $1,657  $1,698  $1,142  $1,200  $1,552                           (Dollar amounts in thousands)                    Allowance for loan and lease losses $6,964  $6,636  $6,755  $6,755  $7,104      Allowance for loan and lease losses/total loans  0.64%  0.60%  0.80%  0.81%  0.85%     Net charge-offs:                    Quarter-to-date $86  $169  $84  $81  $143      Year-to-date $255  $169  $417  $332  $251      Net charge-offs to average loans                    Quarter-to-date  0.01%  0.02%  0.01%  0.01%  0.02%     Year-to-date  0.02%  0.02%  0.05%  0.04%  0.03%     Nonperforming loans/total loans  0.12%  0.11%  0.06%  0.06%  0.11%     Allowance for loan and lease losses/nonperforming loans  375.51%  558.92%  1249.57%  1399.58%  751.49%                          (1)  Tangible Equity = Stockholder Equity less goodwill and other intangibles (core deposit intangible, mortgage servicing rights and unrealized gain/loss on securities)                              FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS(in thousands of dollars, except per share data)PRO-FORMA EARNINGS PER SHARE           Pro-forma Three Months Ended Pro-forma Six Months Ended  June 30, June 30, June 30, June 30,   2019   2018   2019   2018 Earnings per share                Net income $6,149  $6,787  $10,402  $11,589 Less: distributed earnings allocated to participating securities  (11)  (13)  (23)  (25)Less: undistributed earnings allocated to participating securities  (33)  (43)  (52)  (72)Net earnings available to common shareholders $6,105  $6,731  $10,327  $11,492                                   Weighted average common shares outstanding including participating securities  11,106,367   11,095,898   11,098,149   11,095,928 Less: average unvested restricted shares  (77,304)  (92,368)  (80,343)  (92,398)Weighted average common shares outstanding  11,029,063   11,003,530   11,017,806   11,003,530 Basic earnings and diluted per share $0.56  $0.61  $0.94  $1.04  The results of operations of Bank of Geneva have been included in the Company’s consolidated financial statements since the acquisition date of January 1, 2019.  The following schedule includes pro-forma results for the three and six months ended June 30, 2019 and 2018 as if the Bank of Geneva acquisitions had occurred as of the beginning of the comparable prior reporting period.   FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIESAVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES(in thousands of dollars, except percentages)                          For the Three Months Ended For the Three Months Ended  June 30, 2019 June 30, 2018Interest Earning Assets: Average Balance Interest/Dividends Yield/Rate Average Balance Interest/Dividends Yield/RateLoans $1,107,271 $16,723 6.04% $833,932 $10,521 5.05%Taxable Investment Securities  169,776  933 2.20%  149,284  707 1.89%Tax-exempt Investment Securities  33,622  170 2.56%  50,663  247 2.47%Fed Funds Sold & Other  85,145  457 2.15%  19,315  62 1.28%Total Interest Earning Assets  1,395,814  18,283 5.25%  1,053,194  11,537 4.41%                   Nonearning Assets  117,185        61,343                         Total Assets $1,512,999       $1,114,537                         Interest Bearing Liabilities:                  Savings Deposits $718,731 $2,006 1.12% $558,826 $835 0.60%Other Time Deposits  265,113  1,333 2.01%  181,590  554 1.22%Other Borrowed Money  24,668  269 4.36%  5,000  20 1.60%Fed Funds Purchased & Securities                  Sold under Agreement to Repurch.  26,231  141 2.15%  26,292  118 1.80%Total Interest Bearing Liabilities  1,034,743  3,749 1.45%  771,708  1,527 0.79%                   Noninterest bearing Liabilities    257,765           206,602                          Stockholders Equity $220,491       $136,227                         Net Interest Income and interest rate spread     14,534 3.80%     10,010 3.62%                   Net Interest Margin       4.18%       3.83%                   Yields on Tax exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts                                     For the Six Months Ended For the Six Months Ended  June 30, 2019 June 30, 2018Interest Earning Assets: Average Balance Interest/Dividends Yield/Rate Average Balance Interest/Dividends Yield/RateLoans $1,107,649 $31,403 5.67% $829,545 $20,623 4.97%Taxable Investment Securities  160,830  1,775 2.21%  150,464  1,426 1.90%Tax-exempt Investment Securities  34,067  340 2.53%  50,245  487 2.45%Fed Funds Sold & Other  59,526  627 2.11%  19,435  137 1.41%Total Interest Earning Assets  1,362,072  34,145 5.03%  1,049,689  22,673 4.35%                  Nonearning Assets  59,609        65,358                        Total Assets $1,421,681       $1,115,047                         Interest Bearing Liabilities:                  Savings Deposits $695,302 $3,533 1.02% $555,181 $1,576 0.57%Other Time Deposits  253,991  2,419 1.90%  183,729  1,132 1.23%Other Borrowed Money  26,424  556 4.21%  5,000  40 1.60%Fed Funds Purchased & Securities                  Sold under Agreement to Repurch.  30,012  326 2.17%  26,689  242 1.81%Total Interest Bearing Liabilities  1,005,729  6,834 1.36%  770,599  2,990 0.78%                   Noninterest bearing Liabilities    198,042           208,991                          Stockholders Equity $217,910       $135,457                         Net Interest Income and interest rate spread     27,311 3.67%     19,683 3.57%                   Net Interest Margin       4.03%       3.78%   Yields on Tax exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts   Source: Farmers & Merchants Bancorp, Inc.

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