Farmers and Merchants Bancshares, Inc.

Transcription

1 Farmers and Merchants Bancshares, Inc Annual Report

2 Contents 3-5 Message from the President 6 Report of the Audit Committee 7 Financials 8 Organizational Chart 9 Contact Information

3 President s Message It was another good year for Farmers and Merchants Bancshares, Inc. (Company) as we continue to show financial performance improvement over the past few years. I am happy to report that your Company earned $752,604 on a consolidated basis for 2013, a 17% increase over The 2013 earnings for Farmers & Merchants Bank & Trust (Bank) of $975,507 was an 18% increase in net income over Earnings per share for the Company were $2.85 per share which is a 17% increase over last year at $2.44 per share. Book value per share was $43.93 at year-end 2013 for the Company. We continue to make great strides in improving credit quality at the Bank. Classified loans decreased $4,568,919 during the year ending at $7,856,013. This is a 36% decrease. Non-accrual loans were reduced by $396,081 and stood at $2,397,380 at year-end, a 14% decrease. Net loan charge offs were $571,398 during 2013 which is down from the previous year charge off totals of $1,255,092. OREO (Other Real Estate Owned) saw an increase year over year and ended at $1,649,592. Bank Management is diligently working on the disposal of this real estate and hope to have some gains for the coming year. Past due loan balances at year-end were $3,224,033 a decrease of $2,408,293 or 43% year over year. The total loan portfolio balances at year-end were $118,278,011, an increase of $1,957,716 or 2% year over year. The Bank was afforded some unique opportunities this past year and was able to take advantage and realize some gains from the sale of securities which enhanced our income for the year. Gain on the sale of investment securities for 2013 was $166,251 as compared to $55,895 the previous year, an improvement of 197% year over year. The investment security portfolio balances decreased $13,751,283 or 23% to $46,361,713 from $60,112,996. The Bank was able to reinvest some of these funds at an increased yield which will result in increased interest income. The Bank used $4,000,000 of these funds to pay down the Federal Home Loan Bank by $2,000,000 and to pay a dividend in the amount of $2,000,000 to the Company to pay off our debt which has saved the Company over $120,000 in interest expense annually. The payoff of this note has paved the way for the Company to pay the deferred interest on the Trust Preferred obligation and for future dividends to stockholders. At year-end 2013, the Bank s Tier 1 Leverage Ratio was 8.42% with Total Risk-Based Capital Ratio at 14.35%, which are both in excess of regulatory requirements. With this message, I would like to share some additional highlights of 2013: It was another good year for Integrated Financial Resources (IFR), our Four Points Financial and Trust Services, as we closed 2013 achieving records in many important measurement categories: o Assets under Management - $172.8 million o Number of accounts 1,427 o Number of relationships 972 o Gross income - $1,060,385 (4.82% over budget) Over the last few years, IFR has gone from a service center at the Bank to a profit center of the Bank. With an aging Baby Boomer population and our integrated model we feel we are ideally situated to take 3

4 advantage of future opportunities as they present themselves and look forward to achieving greater levels of income each and every year going forward. Farmers & Merchants Bank & Trust donated $63,971 to various community organizations in 2013 and our employees donated an additional $11,488 through a payroll deduction program. Beyond the financial contributions, F&M employees gave over 7000 hours of volunteer work in our community during Some of the volunteerism included cooking meals for families with loved ones in Great River Hospice, serving on Boards of non-profit organizations and mentoring elementary students in the local school systems which are just a few examples of their commitment to our communities. Brandon Kipp was recongized for his outstanding efforts in the community by receiving the Burlington/West Burlington Area Chamber of Commerce Young Professional of the year award. The F&M Community Foundation complements these community efforts by raising more than $16,000 and collecting school supplies that benefit Burlington, West Burlington and Mediapolis teachers and their students. The Creepy Crawl 5K Fun Run/Walk is the main fund-raiser for the F&M Community Foundation was the fourth year for the race. Corporate partners such as Staples and Iowa Illinois Office Supplies also contributed to the success of the Foundation with supplies and monetary gifts. The F&M Navigators had a successful The mission of the Navigators is to build and solidify long-lasting relationships with F&M clients by offering distinctive travel, entertainment and educational opportunities. This past year Navigator clients have had the opportunity to attend the IFR and Four Points Financial seminars hosted by the Bank. In addition, last August the Bank hosted an annual trip to the St. Louis Cardinals versus Chicago Cubs baseball game with over 40 clients attending. And in December, several Navigators attended our Bel Canto Chorale concert that has been held in the F&M Main Bank Lobby for over 40 years during the holiday season. We saw growth this year of almost 3% in the number of commercial checking accounts we serve. We saw a 56% growth in the number of Businesses Debit cards our clients are using, which takes a traditional expense item, processing checks, and turns it into a revenue producing item. Our financial literacy programs, F&M Kids Bank and F&M Teen Bank, continue to grow and prosper. The F&M Kids Banks are located in all 8 elementary schools in Burlington and West Burlington. This program gives elementary aged students the opportunity to learn the basics of banking by becoming a client, working as a bookkeeper, teller or serving on the school bank s board of directors. During the 2013 school year, Notre Dame Elementary School celebrated their 15th birthday as part of our program. The F&M Teen Bank, follows our students in to middle school. The F&M Teen Bank is in every middle school in Burlington and will be opening its doors in West Burlington at the beginning of the school year. The Teen Bank program is similar to the Kids Bank program, but the added element of the Teen Bank allows students to utilize electronic banking. Financial literacy classes are also taught to the 7th and 8th grade students covering topics such as Financial Planning, Investments, Identity Theft/Online security, and Simple Interest. F&M Teen Bank also facilitated an after school program at Aldo Leopold and Edward Stone. On the technology side, we upgraded all of our computers to be able to deal with Microsoft s decision to end support for Windows XP. In order to ensure the protection of our data, we were forced to upgrade our computers, which we did by purchasing new computers with a new operating system and new hardware. With the introduction of our new Virtual Branch by Amy Walsh, we implemented online account opening. We have seen good results, with both checking and savings accounts opened, by existing clients, as well as those with no prior relationship. We also crossed the 1,000 user threshold for mobile banking clients at 14 months, which was a success. Our third party provider (Fiserv) told us it would take two to three years to reach this level, and that 1,000 users for a bank our size would signal a successful implementation. 4

5 Meeting the growing needs of our clients for almost 100 years has been the objective of F&M s strategy. To address the client needs, the Bank s strategy and brand has evolved from offering your normal banking products such as checking and loan accounts to offering investment services and financial planning along with our trust services. The Bank will continue to look for ways to enhance income for the shareholder and will be launching a new compliance service to smaller community banks to assist them with all the regulatory changes our industry is facing. Our performance in 2013, shows our strength and commitment to this community as well as the talent and dedication of our entire F&M Team. And at this time I would like to thank them all for their hard work and commitment to the Bank and community in which we live and serve. I would also like to thank you, our shareholder, for your continued support and wish you and your families a prosperous I would be remiss if I did not mention that John W. McCulley, our Board of Director going on 49 years, passed away on November 10, John will be remembered for his strong commitment to this Company and Bank, the community and his family. As a friend and mentor to all of us, his presence on our Board was a definite asset. His dedication, leadership and kind caring manner will be greatly missed. I look forward to seeing you at our annual meeting in May. 5

6 Audit Committee Report REPORT OF THE AUDIT COMMITTEE The Audit Committee assists the Board in its oversight of the integrity of the financial statements of the Company, the qualifications, independence and performance of the Company s independent registered public accounting firm, the performance of the Company s internal audit function and compliance by the Company with legal and regulatory requirements. As permitted by law, the Audit committee has not, nor has the Board, chosen to designate any one of the committee members as an Audit committee Financial Expert as defined by the Rules of the Securities and Exchange Commission. The Board has determined such designation is not necessary. The Board believes the committee members possess the financial literacy and business experience to qualify them to serve on the Audit Committee. During the year, the Committee met five (5) times. The Committee has received from the independent registered public accounting firm, Roth & Co., a written statement describing all relationships between Roth & Co. and the Company that might bear on the Roth & Co. s independence consistent with Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, ; it has discussed with Roth & Co. any relationships that may impact their objectivity and independence, and satisfied itself as to Roth & Co. s independence. The Committee discussed with management, the internal auditors and Roth & Co. the quality and adequacy of the Company s internal controls and the internal audit functions. The Committee also reviewed with both management and the independent registered public accounting firm their audit plans, audit scope, and identification of audit risks. The Committee discussed and reviewed with Roth & Co. all communications required by generally accepted accounting standards and, with and without management present, discussed and reviewed the results of Roth & Co. s examination of the financial statements. The Committee also discussed the results of the internal audit examinations. The Committee reviewed and discussed the audited financial statements of the Company for the fiscal year ended December 31, 2013, with management and Roth & Co. Management has the responsibility for the preparation of the Company s financial statements and the independent registered public accounting firm has the responsibility for the examination of those statements. Based on the above review and discussions with management and the independent registered public accounting firm, the Committee recommended to the Board of Directors that the Company s audited financial statements be included in its Annual Report for the last fiscal year. The Committee also recommended the reappointment of the independent registered public accounting firm. Submitted by the Fiscal 2013 Audit Committee of the Company s Board of Directors: Mark R. Hagerla, Chair Brian K. Readinger William J. Kuepper 6

7 Balance Sheets Assets Cash Investments Net Loans All Other Assets TOTAL ASSETS Financials (in thousands) 12/31/2013 4,763 46, ,922 16,275 $183,322 12/31/2012 5,996 60, ,403 15,644 $195,156 Liabilities Total Deposits All Other Liabilities TOTAL LIABILITIES Capital Total Capital Accounts TOTAL LIABILITIES AND CAPITAL Income Statements Total Interest Income Total Interest Expense Net Interest Income Net Total Non-Interest Expense Income Tax Provision NET INCOME Other Comprehensive Income (Loss) Net of income taxes, net unrealized gains on investment securities available for Sale Net change in deferred costs of defined benefit plan Total Other Comprehensive Income (Loss) COMPREHENSIVE INCOME 159,869 11,463 $171,332 11,990 $183,322 6,695 (1,003) 5,692 (4,546) (393) $753 (839) 380 (459) $ ,667 20,792 $183,459 11,697 $195,156 7,473 (1,345) 6,128 (5,146) (337) $ (210) 98 $743 These summary financial statements are derived from the Company s audited consolidated financial statements, which are prepared in accordance with auditing standards generally accepted in the United States of America. Roth & Company, P.C. is the Company s independent auditor. The Company s audited consolidated financial statements are available upon written request to Farmers and Merchants Bancshares, Inc., P.O. Box 928, Burlington, Iowa

8 Organizational Chart Farmers and Merchants Bancshares, Inc. Established in 1993, is a Holding Company consisting of 198 shareholders representing 264,291 shares owning 100% of Farmers & Merchants Bank & Trust, Burlington, Iowa. Farmers & Merchants Bank & Trust Established in 1916, is a financial institution whose primary market area is Des Moines and Louisa Counties, Iowa Farmers and Merchants Building Corporation Burlington, Iowa Owned 100% by Farmers & Merchants Bank & Trust, Burlington, Iowa. The building corporation s primary purpose is to manage the real estate assets held and leased by Farmers & Merchants Bank & Trust, Burlington, Iowa Compliance Safeguard, LLC Burlington, Iowa Established in Owned 100% by Farmers & Merchants Bank & Trust. The company s primary purpose is to provide compliance consulting services to other financial institutions. 8

9 Farmers and Merchants Bancshares, Inc. 221 Jefferson Street P.O. Box 928 Burlington, Iowa BANK or BANK