Annual Report 2014 Farmers and Merchants Bancshares, Inc.
Contents 3-4 5 6 7 8 Message from the President Report of the Audit Committee Financials Organizational Chart Contact Information
President s Message I am pleased to report that we were able to deliver another year of improved earnings for Farmers and Merchants Bancshares, Inc. (Company). Your Company earned $981,478 on a consolidated basis for 2014 a 30% increase over 2013. While the earnings for Farmers & Merchants Bank & Trust (Bank) decreased a slight 7% from $975,507 to $904,608 year over year, the Company maintained strong earnings due to interest and dividend income on investments. Earnings per share for the Company were $3.71 per share which is a 30% increase over last year at $2.85 per share. Book value per share was $47.92 at year-end 2014 for the Company. In 2014, total assets increased 3.5% to $189,752,440 from $183,322,456 at year end 2013. This is primarily due to deposits growing approximately $4.5 million. The total loan portfolio balances at year end were $118,094,000, a slight decrease from year end 2013. Stockholders equity grew $674,618 primarily due to retained earnings, net of dividends paid. Capital ratios remain steady with the Bank s Tier 1 Leverage Ratio at 8.62% and Total Risk-Based Capital Ratio at 15.20% as of December 31, 2014. Both of these are in excess of regulatory requirements. The Company s continued success is driven by the hard work and dedication of our staff, the F&M team. While our results were strong during the past year, I am excited about our future and things to come. With that, I would like to share some additional highlights of 2014: Integrated Financial Resources (IFR) had a great year in both their trust services and brokerage division, Four Points Financial. IFR finished the year contributing 32% of net income to the Bank s bottom line. Assets under Management (AUM) totaled $183.5 million with over 1,000 client relationships. To break IFR down, trust services finished the year at $112.3 million in AUM and contributed 31% to the bottom line of the Bank, clearly showing that Trust Services was a profit center for the Bank. Gross income exceeded budget by 3.94% in 2014. Four Points Financial also had a good year with income exceeding budget by 10.37% in 2014. Four Points ended the year with $71.3 million in AUM and has over 800 client relationships. The division is poised to contribute substantially to the bottom line of the Bank for years to come. Farmers & Merchants Bank & Trust donated $85,111.40 to various community organizations in 2014 and our employees donated an additional $10,110 through a payroll deduction program. Beyond the financial contributions, F&M employees gave over 6,200 hours of volunteer work in our community during 2014. 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 system. The F&M Community Foundation complemented these community efforts by raising more than $23,000 and collecting school supplies that benefit Burlington, West Burlington and Mediapolis teachers and their students. The Creepy Crawl 5K Fun Run/Walk has been the main fundraiser for the F&M Community Foundation. 2014 was the fifth year for the race. The F&M Navigators had a successful 2014. 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 the Navigators hosted an annual trip to the St. Louis Cardinals versus Chica- 3
go Cubs baseball game with over 40 clients attending. In October 2014, we launched the Navigator Lunch n-learn, with a wonderful program Educate, Enrich, Empower and Excel. These Lunch n-learns will be held semi-annually. 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. The Bank saw a 2.8% growth in total deposits during 2014. In all of our electronic banking products, we continued to see an increase. The Bank added 107 consumer internet banking clients, 373 mobile banking clients and enrolled an additional 77 clients in e-statements. The Bank also increased debit card users by 138. Our financial literacy programs have continued 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 students the opportunity to learn the basics of banking. In February of 2014, both Sunnyside Elementary and West Burlington Elementary celebrated their 15th Kids Bank birthdays. The F&M Teen Bank program follows the students into middle school. The F&M Teen Bank is located in all middle schools in Burlington and West Burlington. F&M Teen Bank is similar to the F&M Kids Bank program, but has the added benefit of technology by way of electronic banking. Financial literacy classes are also presented to the middle school students covering topics such as: Saving for your future, Simple Interest, Identity Theft/ Online security, Taxes, and Budgeting Basics, to name a few. F&M Teen Bank also presents a financial literacy program to the After School Program students once a month at both Aldo Leopold and Edward Stone middle schools. As I reflect over the past year, I am proud of what the F&M team has accomplished but more importantly excited about the future and what it will bring. We continue to focus on providing the highest level of client service that our community expects and offering the products and technology our clients expect. I believe our performance in 2014 is a testament to our dedicated staff, loyal clients and shareholders. Thank you all! I look forward to seeing you at our annual meeting in May. Sincerely, Charles E. Walsh President 4
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, 2014, 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 2014 Audit Committee of the Company s Board of Directors: Mark R. Hagerla, Chair Brian K. Readinger William J. Kuepper 5
Financials (in thousands) Balance Sheets Assets Cash Investments Net Loans All Other Assets TOTAL ASSETS 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 12/31/2014 9,605 49,390 115,978 14,779 $189,752 164,375 12,712 $177,087 12,665 $189,752 6,697 (675) 6,022 (4,557) (484) $981 524 (659) (135) $846 12/31/2013 4,763 46,362 115,922 16,275 $183,322 159,869 11,463 $171,332 11,990 $183,322 6,695 (1,003) 5,692 (4,546) (393) $753 (839) 380 (459) $294 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 52601. 6
Organizational Chart Farmers and Merchants Bancshares, Inc. Established in 1993, is a Holding Company consisting of 195 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 7
Farmers and Merchants Bancshares, Inc. 221 Jefferson Street P.O. Box 928 Burlington, Iowa 52601 319-754-BANK or 888-331-BANK www.fmbanktrust.com