Hello, and welcome to the 2022 annual shareholders meeting of Farmers & Merchants Bancorp, Inc. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Lars Eller, President and CEO of the company. Mr. Eller, the floor is yours.
We are F&M, and we stand by our promise to create sustainable value for our customers, our community, and our shareholders. In 2021, we delivered on our promise like never before. We kept small businesses running and main streets thriving. We gave it our all and gave big too, ending the year with record-breaking charitable donations. We consolidated, we acquired, we cut operating costs and added four new locations along the way. We grew, closing in on $3 billion in assets by December, increasing our head count by 30% since 2018 and boosting average wages by almost 14%. Together, we built a stronger and more dedicated team. As we get ready to celebrate our 125th anniversary, feel prouder than ever knowing that we are truly delivering on our promise to help hardworking customers live their best lives.
Good afternoon, and welcome to the 2022 annual shareholder meeting for Farmers and Merchants Bancorp. I'm Lars Eller, President and CEO of the company. It is my distinct pleasure to welcome you here today for the meeting and to introduce Jack Johnson, our Chairman of the Board. Jack.
Lars, thank you so much. Welcome everyone. I want to thank you for joining us today. We are excited to be hosting our virtual meeting, which allows us to be more inclusive and reach a greater number of our shareholders. We now have shareholders attending via the web portal. As chairman of the board of directors of the company, I officially call this meeting to order. In keeping with the digital approach to this year's meeting, it is now shortly after 1:30 P.M. Eastern Standard Time on April 12, 2022. As the company's code of regulations provide, I will act as chairman of the meeting. Our corporate secretary, Lydia A. Huber, will act as secretary of the meeting, and Marilyn Johnson will act as Inspector of Election at this annual meeting.
After the formal meeting has been adjourned, we will provide time for general questions through the web portal. Only validated shareholders may ask questions in the designated field on the web portal. Out of consideration for others, please limit yourself to one question. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible and will address any unanswered questions on our corporate website as soon as practical after the meeting. Please also note this meeting is being recorded. Now, I would like to introduce the members of the board that are joining today's meeting. Lars Eller, President and CEO of the company. Kevin Sauder, Vice Chairman of the company. Andrew Briggs, Eugene Burkholder, Jo Ellen Hornish, Lori Johnston, Dr. Marcia Latta, Steven Planson, Frank Simon, Dr. K. Brad Stamm, and David Vernon.
Matthew Stout from BKD, our independent registered public accounting firm, is joining us today, as well as Tom Blank and David Mack with Shumaker, Loop & Kendrick, who serve as our SEC counsel. They will be available during the question and answer session following today's meeting to respond to appropriate questions. Finally, I would like to introduce executive management member Barbara Britenriker, CFO of the company, who will be sharing the financial highlights later in this meeting. The board of directors fixed the close of business on February 18th, 2022 as the record date for determination of shareholders who are entitled to vote at this annual meeting.
An affidavit from our secretary, Lydia Huber, has been delivered attesting to the fact that the notice of this meeting and related proxy materials were mailed on or about March 8th, 2022 to the shareholders of record, which affidavit will be incorporated into the minutes of this meeting. I have been informed by the Inspector of Election that the Farmers & Merchants Bancorp shareholder registered list shows as of the record date, the company had 13,066,283 shares of common stock eligible to vote at this meeting, and that a quorum is present for the purposes of transacting business. Please allow me to thank everyone who voted. We have two items of business on the agenda as set forth in the proxy materials delivered to each of the shareholders. Proposal 1 is the election of 12 directors.
The nominating and corporate governance committee of the board recommended, and the current board has nominated the following individuals to serve as directors until the 2023 annual meeting. Andrew Briggs, Eugene Burkholder, Lars Eller, Jo Ellen Hornish, Jack Johnson, Laurie Johnston, Dr. Marcia Latta, Steven Planson, Kevin Sauder, Frank Simon, Dr. K. Brad Stamm, and David Vernon. Proposal 2 is the advisory vote to ratify the appointment of the independent registered accounting firm, BKD, for the fiscal year ending December 31st, 2022. Please let the record reflect that it is now 1:37 P.M. Eastern Standard Time on April 12, 2022, and the polls are now open. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and follow the instructions that are given. The Inspector of Election will tabulate those votes.
All proxies will be voted as you have marked them. No further action is needed for shareholders who have sent in proxies, voted via telephone or the Internet and do not want to change their vote. I'm now going to pause briefly for those votes that are being cast. Seeing that everyone has had the opportunity to vote, I now declare the polls for the 2021 Farmers & Merchants Bancorp annual shareholder meeting closed at 1:38 P.M. Eastern Standard Time on April 12, 2022. Marilyn, as Inspector of Elections, do we have initial voting results?
Mr. Chairman, yes, we do. At this time, the preliminary report regarding proposal one shows that the 12 nominees for the election of the board have been duly elected. Regarding Proposal 2, the appointment of BKD, LLP as the independent accounting firm for the company for the fiscal year ending December 31st, 2022, has been ratified.
Thank you, Marilyn. I appreciate your efforts. The Inspector of Election will furnish the Secretary with a written report of the final vote counts, which shall be included in the minutes of this meeting. In addition, the company will file a report on Form 8-K with the Securities and Exchange Commission within four business days of this meeting, confirming such votes. There being no further business to come before the meeting, the 2021 annual meeting of shareholders of Farmers & Merchants Bancorp is now adjourned. We will now proceed with our presentations. President and CEO Lars Eller and CFO Barbara Britenriker will each give a brief presentation featuring the financial and company highlights, followed by our question and answer session. Thank you.
Thank you, Jack. I am Barb Britenriker, your Chief Financial Officer. I am excited to share the numbers with you that highlight our activity in 2021. As I begin, I'm gonna switch to sharing the presentation larger so the numbers will show better. First, I must share the following disclosure regarding our presentations going forward. We may make statements today that are forward-looking and definitely what we intend to do. However, history has shown us that events can happen that may alter those plans between now and then, and we will not be obligated to explain why those results may differ. On April 1st, we celebrated our 125th anniversary. I went back and found a quote from 1897 spoken from our president at the time, Grover Cleveland.
I quote, "A truly American sentiment recognizes the dignity of labor and the fact that honor lies in honest toil." One of the best ratios I can share this afternoon that represents honest toil is the Operating Efficiency Ratio of the company. In 2020, we broke through the 50s in the Operating Efficiency Ratio. We have wanted it to begin with a five, and we finally succeeded. In 2021, we continued to lower that ratio as we worked ahead to the mid-50s. The adjusted number removes the additional expenses related to the two acquisitions of $3.9 million. As a reminder, operating efficiency is non-interest expense divided by the sum of net interest income and non-interest income. Or, as I like to say, how many pennies it costs us to raise a dollar of revenue, or how many of those pennies go out the door.
This ratio is important to us because we improve it by controlling our expenses and by increasing our revenue through our core business. Gain on sale of investments and loan loss provision expense are not included. We reached it again in 2021 by increasing the net interest income by 16.3%, which in and of itself saw interest income rise and interest expense fall. We don't usually see these moving in opposite positive directions, even though we have for the second year in a row in a low rate environment. Interest income was aided by the assisting of our business and agricultural customers within the PPP program to seek forgiveness in 2021, and an increase in our loan to deposit ratio, putting our funds where they help the community and our customers to grow and succeed and are our highest earning asset.
Now back to our efficiency calculation. The non-interest components of operating efficiency both increased. The non-interest expense component increased 22.1%, which represents an increase of $9.8 million , of which $3.9 million was tied to acquisition costs. A larger workforce growing from 367 full-time equivalent workers in 2020 to 385 for 2021. Along with the number of team members increasing, we also instituted a pay grade system and created a higher minimum living wage of $26,000 a year. Benefit costs also increased with the higher 401(k) profit-sharing percentage being paid out and higher health insurance costs due to higher level of claims and more team members to insure. A bright spot in the occupancy expense was the increase in rental income, which helps to offset those previously mentioned expenses.
The biggest source of rental income the bank receives is from our F&M investment division. Building rent increased $408,000 in 2021 as compared to 2020, driven by the addition of relationships with the acquisition of Adams County Financial Resources in November of 2020. Noninterest income rose 4.9% when comparing 2021 to 2020, which represents an increase of $822,000. We were very pleased with the gain on sale of loans for 2021. While it was down $125,000 from 2020, it was up over 2019's activity by $3.2 million. The drop in long-term rates kept our lenders busy with refinancing of loans and new purchases at lower rates than has been seen in years prior to 2020.
Commercial activity was strong, with the majority of new production coming from our loan production offices in West Bloomfield, Michigan, Muncie, Indiana, and Oxford, Ohio. Kudos to all our lenders and the processing teams. We see the results of that hard work by having an operating efficiency ratio that starts with a five. Congratulations on a job well done goes to the whole F&M team. A big portion of what enables the company to continue to record strong performances is the consistency of our growth in both loans and deposits. Even in 2020 and 2021, when personal contact with our customers was more challenging, we were able to grow organically. We grew an amazing 15.9% for 2021, which excludes the acquisition and the PPP growth over 2020.
The last five years, our compounded annual growth rate is an amazing number of 20% from 2016 to 2021. We were able to grow that loan growth with deposits as the overall savings attitude of the economy factored in to a 37.4% increase in deposits in 2021 over 2020. The five-year compounded annual growth rate from 2016 to 2021 was 21% for deposits. We have long said that the company does well when we focus on our strengths. It should come as no surprise that we again enjoyed record earnings in 2021, up 16.9% from 2020. The 17% shows why continued growth, both organically and through acquisition, is so important to our continued success. Over $20 million in net income for 2020 was amazing, and we continue to build on that.
The 2021 performance only includes one quarter of income from our Perpetual merger, which bodes extremely well for 2022. Now, let's take a look at what that means to you, our shareholders. I must note one item on this chart. The share numbers have been adjusted for the two-to-one stock split in 2017. Earnings per share recorded an 11.7% increase in 2021 as compared to 2020, and dividends declared recorded a similar 7.6% increase. It has long been the policy of F&M to maintain a steady and ever-increasing dividend to our shareholders. We recognize how beneficial this has been to many of our longtime shareholders, and we increased the dividends twice in 2021. The last increase was for the income that we are receiving from the Perpetual merger and wish to share.
History has shown us that our acquisitions have returned great rewards to us in the shareholders we've added and in the performance of the company. Last year, we added three communities to our footprint. From Ossian State Bank, we added the communities of Ossian and Bluffton, Indiana, and Perpetual Federal Savings Bank of Urbana was a single location bank in Urbana, Ohio. If you consider the improvement in the company in 2019 with the merger of Limberlost, and in 2021 with the mergers of Ossian and Perpetual, you see the direct correlation to our improved performance. We have shown the benefits of the economies of scale and the operating efficiency and the increased profitability in the earnings per share and the increased dividend declarations. In order to make the Perpetual merger happen, we engaged in two new forms of funding at the company level.
We established the ability to borrow and utilize a $30 million term note and a $10 million line of credit in October. In July of last year, we went out to the market and issued sub-debt. We raised $35 million in sub-debt at a rate of 3.25%. All of these steps were taken to enable us to continue to take advantage of opportunities as they arise. One last piece of information to share today on the benefits of our climbing those steps on the rungs of opportunity is the trend of improvement in the stock price of FMAO.
The annual report shows the company has consistently outperformed the Nasdaq Bank Index over the last five years, and we doubled our value at 205% increase since 2016. Today, I share what our stock price has done the first 90 days of 2022, as recorded by Nasdaq. Not only has the dividend increased, but as you can see, so has the value of your stock. The Nasdaq Bank Index was down 5.72% compared to a 4.62% decrease in the S&P 500 index. While very important to note, FMAO was up 10.05%. Thank you for believing in the value of FMAO and sharing in our vision to be the best community bank we can.
We celebrate 125 years of F&M, along with five years of being part of the Nasdaq this year. We envision a better and stronger F&M as we continue to grow. We welcome the opportunity to keep you by our side. Thank you. I will now turn the podium back over to Lars Eller, our President and CEO.
Thank you, Barb. Very well done. On behalf of everyone at F&M, I'm proud to share the progress we made during 2021, growing our bank and delivering on our promise to create sustainable value for our customers, associates, communities, and shareholders. For the year ending December 31st, 2021, F&M achieved record financial results, including record net income, record net earnings per share, record total assets, and record loans. We also gave back to our communities a record amount of charitable donations, supporting organizations, and returned a record amount of capital to our shareholders through our ever-increasing dividend policy. This continued success is a testament to the strength of our company, the valuable financial services we provide to customers across our local markets, and the dedication and hard work of our team members.
As we celebrate our 125th anniversary this year, we remain focused on becoming a $3 billion+ asset bank and continue to deliver on our promises. Thanks to the dedication of our 387 team members throughout Ohio, Indiana, Michigan, we were able to achieve our 7th year of record assets and earnings. In 2019, we set a strategic plan which focused on increasing earnings, growing assets, and creating long-term value for our shareholders. I'm proud to report that in 2021, assets grew over 38% to $2.6 billion, including organic loan growth of almost 16%. FMAO stock price saw a major resurgence in 2021, up 47%. Yeah, 47%. Reflecting the confidence we have in F&M's future, we raised our dividend twice throughout the year, increasing it 12% year-over-year.
This represents the 27th consecutive annual increase in the company's regular dividend payment. In fact, according to data from S&P Global Market Intelligence, of the nearly 800 publicly traded banks, F&M has the 11th longest track record of consecutive dividend increases. I'm proud to say that F&M ended 2021 with a record amount of charitable giving, which was up nearly 24% from last year. We provided over $435,000 of charitable donations to support organizations throughout the F&M footprint. Our associates also contributed another $14,000 to our communities with our Jeans Day fund, truly bringing our vision of being community vested to life. I believe our consistent track record of producing record financial results is an outcome of our community-oriented values, our commitment to our customers, communities, and associates, and the successful pursuit of our strategic plan growth.
2021 was a historic year of growth. We made significant progress across each of the five strategic objectives outlined in our 2019 strategic plan. We ended 2021 with $2.638 billion of assets, an increase of 38.2% when compared to the $1.91 billion in 2020. This growth was primarily due to a 15.9% organic increase in total loans, the contribution of recently opened up loan production offices, we call them LPOs, a new full service office in Fort Wayne, Indiana, the April 30th, 2021 acquisition of Ossian Financial Services, and the October 1st, 2021 acquisition of Perpetual Federal Savings Bank.
We also completed our office realignment program during 2021, consolidating three offices in Ohio, one office in Indiana, and successfully integrating the December 2nd, 2020 asset purchase of Adams County Financial Resources to F&M Investment Services. As a result of these actions, we entered 2022 with 19 full service offices in Ohio, 11 full service offices in Indiana, highly productive LPOs or loan production offices in Ohio, Indiana, Michigan, and a significantly larger investment management platform. To further support our growth efforts, in August 2021, F&M completed a $35 million private placement of 3.25% fixed-to-floating rate subordinate notes due July 30th, 2031 to various accredited investors. These notes are intended to qualify as Tier 2 capital for regulatory purposes. The company intends to use the net proceeds from the offering for general corporate purposes, including financing acquisitions and organic growth.
Of course, 2021 still had its challenges as we managed through the second year of the COVID-19 pandemic. Throughout the pandemic, we have remained steadfast on our commitment to support our customers, associates, and communities. We funded a two-year total of $142.3 million in Paycheck Protection Program or PPP loans, including this year, we did $53.8 million in 2021 of that $142 million. We believe our participation in the Paycheck Protection Program helped small businesses protect over 18,750 jobs across our local communities.
We continue to adapt to face market challenges around talent. We have and continue to make positive adjustments to our benefits and compensation packages to attract top talent who align with our community-vested values. I'd like to also recognize the 2021 retirements of Anthony J. Rupp, or Tony Rupp, and Paul S. Siebenmorgen from F&M's Board of Directors. Tony served as a director for over 21 years. During his tenure at F&M, he was Vice Chairman of the Board of Directors and a member of Corporate Governance and Nominating Committee, Executive Committee, and the Compensation Committee. Paul served as a director for 16 years and as F&M's CEO for 14 years.
During Paul's tenure, F&M grew from a bank with 13 offices in two regions and $700 million in total assets to a more diverse institution with 30 offices in five regions and $1.3 billion in total assets. Paul and Tony have been committed members of the bank, and on behalf of everyone at F&M and my fellow board members, I wanna thank them both for all their contributions over the years. Overall, 2021 was a transformative year for the bank as we delivered on our financial, operational, and community-vested promises. I'm extremely proud of the hard work of our team members, especially an extremely busy year here at F&M. I'm proud of our record operating and financial accomplishments, and I'm excited to continue delivering on our promises well into the future.
What we'll do here is we're gonna stop and open this up for shareholder comments and questions, and let me turn it over to you guys.
All right, so let's begin with a few that we received in advance of today's meeting. What we'll do is we'll take shareholder questions that are being entered today on the web portal as well, but we'll start with the ones that we got in advance. Please note we will attempt to answer as many questions as time allows, but only questions into the meeting will be addressed. Any questions that are omitted will be addressed on our company website. With that, let me ask Marilyn if we have some questions in advance, and give us the first one.
The first question is, can you provide shareholders with an update on the company's recent acquisitions? What is the expected contribution to profitability in 2022 of the company's recent acquisitions? How are the acquisitions contributing to loan and revenue growth?
Good question. I think we've. If I look at it, we've really created a successful M&A platform. I think our team has completed four acquisitions since January 2019. If we look at the benefits of the two most recent acquisitions and the office alignment that went with it, I don't think we saw the full benefit in 2021 in the financial results. I believe we'll see the most of that in 2022. I think we'll add, we feel, around $0.30 to our earnings per share in 2022. In terms of the acquisitions, how they contribute to revenue growth, you know, I think you can see that in the fourth quarter, we had some really good results. You could see some of those, but I think you'll really see it in the first quarter when it comes out next week. We'll see those results.
In fact, we've been pretty surprised with some of the loan growth that we've gotten. Bluffton, Indiana, has turned out to be a wonderful loan growth market for us. Perpetual had a terrific loan growth market in Columbus, and we've been able to maintain that. We've also experienced some really nice loan growth in Champaign County, where our bank exists, and in the neighboring market in Springfield.
The next question is, are there opportunities to make additional acquisitions? Do you think you'll make another acquisition in 2022? Does the company have the capital to make a sizable acquisition?
The easier part is we definitely have the capital to make additional acquisitions. You know, we're focused on continuing to integrate and accelerate growth of the two acquisitions we did complete in 2021. However, you know, our team's gotten really good at successfully identifying, closing, and integrating acquisitions, so we'd like to continue to use that. The challenge is, you know, in some acquisitions, some take a while, and some happen really quickly, but it's funny, they had the same circumstances coming into it, so we don't really know. We're ready to undertake another acquisition, nonetheless.
This question is directed to Ms. Britenriker. How is the company positioned for a rising rate environment?
This is a topic that really seems to be top of mind right now. The short answer is favorable. I'd like to give you just a little bit, further response as far as how we got to that conclusion and what different levels of rising rates, how we expect different outcomes there. Each month, we analyze our balance sheet to see what impact, if any, changes in rates will have on our business and adjust accordingly. We perform the analysis, and we look at different scenarios. We include rising, flat, and decreasing rate environments. At the end of February, our analysis showed a positive improvement in earnings in a rising rate environment. We look at net interest income showed improvement of 7.5% when 100 basis points or a 1% instant increase was applied over a 12-month period.
In March, we got the 25 basis point increase in the short-term rates from the Federal Reserve Board, and that is really not large enough to make a significant impact on our profitability. A great deal of our variable rate loans are operating at their floor rates or just under, and the rate increase either got them to the floor or they're just slightly below. We won't see real improvement until we get over a 50 basis point increase. The longer answer to that question is, in a rising rate environment, to really benefit our profitability, we need to see another 50-75 basis point increase to the prime rate.
Another question is a lot of banks have experienced strong growth in digital banking solutions since the COVID-19 pandemic. How is the company thinking about its digital offerings and expansion?
Let me first start by defining how we define digital banking. Online banking for us is mobile banking for both mobile businesses and consumers, and we've seen really, really nice growth. We're particularly proud of consumer mobile usage. It's grown over 20% in the last year. The other piece of this, the mobile deposit, that's another real shining spot for us. It's up 47%. Really proud of that as well. You know, as we move forward or look forward here, we've put a digital transformation roadmap in place that encompasses the end-to-end customer experience. We're looking at everything from back office processes to product offerings to how to reach customers where they digitally like to be. I think that's gonna truly transform our bank.
The last question is F&M has started to grow in Michigan. Can you provide shareholders with additional information on the company's Michigan expansion strategy?
Southwest Michigan has been a great new market for us. Our LPO, our loan production office up there has seen extremely strong lending growth. We hired an outside firm to help us identify the next 10 best office locations, and interestingly enough, four of those top five are in Southwest Michigan. We've identified two sites that should come to fruition in the next 18 months, and then there's two more that we'll get to over the next 24 months after that. We're really excited about our opportunities to expand in Michigan. It looks really prosperous for us. All right, let's see on our portal if we have any other questions that have come from anybody. Give that a few seconds. Couple refreshes.
All right, if we don't have any more questions then, I'll take the 2022 annual meeting of shareholders of Farmers & Merchants Bancorp is now concluded, and we thank everybody for your attention and attending our virtual meeting today. Thank you.