8-K
Farmers & Merchants Bancshares, Inc. (FMFG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 25, 2023
Farmers and Merchants Bancshares, Inc.
(Exact name of registrant as specified in its charter)
| Maryland | 000-55756 | 81-3605835 |
|---|---|---|
| (State or other jurisdiction of<br><br> <br>incorporation or organization) | (Commission file number) | (IRS Employer<br><br> <br>Identification No.) |
| 4510 Lower Beckleysville Road, Suite H, Hampstead, MD | 21074 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (410) 374-1510
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operation and Financial Condition.
On April 25, 2023, Farmers and Merchants Bancshares, Inc. (the “Company”) issued a press release describing its financial results for the three-month period ended March 31, 2023. A copy of the press release is furnished herewith as Exhibit 99.1.
The information contained in this Item 2.02 and in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01. Regulation FD Disclosure.
On April 25, 2023, the Company will hold its Annual Meeting of Stockholders at which members of management will present information, including certain public financial data and performance trends, for the year ended December 31, 2022 and the first quarter of 2023. You may access management’s presentation, free of charge, by clicking on the following link: https://investors.fmb1919.com/news-market-data/presentations/default.aspx. The information on the Company’s website is not, and shall not be deemed to be, a part of this report or incorporated into other filings that the Company makes with the Securities and Exchange Commission.
The information contained in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The exhibits furnished with this report are listed in the following Exhibit Index:
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release dated April 25, 2023 (furnished herewith). |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FARMERS AND MERCHANTS BANCSHARES, INC. | ||
|---|---|---|
| Dated: April 25, 2023 | By: | /s/ Gary A. Harris |
| Gary A. Harris | ||
| President & CEO |
ex_505601.htm
Exhibit 99.1
| FOR IMMEDIATE RELEASE<br><br> <br>April 25, 2023 | FOR FURTHER INFORMATION CONTACT: |
|---|---|
| Farmers and Merchants Bancshares, Inc.<br><br> <br>4510 Lower Beckleysville Rd, Suite H<br><br> <br>Hampstead, Maryland 21074 | Contact: Mr. Gary A. Harris<br><br> <br>President and Chief Executive Officer<br><br> <br>(410) 374-1510, ext. 1104 |
FARMERS AND MERCHANTS BANCSHARES, INC. REPORTS EARNINGS OF $1,900,851 OR $0.62 PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 2023
HAMPSTEAD, MARYLAND (April 24, 2023) – Farmers and Merchants Bancshares, Inc. (the “Company”), the parent of Farmers and Merchants Bank (the “Bank”), announced that net income for the three months ended March 31, 2023 was $1,900,851, or $0.62 per common share (basic and diluted), compared to $2,050,802, or $0.68 per common share, for the same period in 2022. The Company’s return on average equity during the three months ended March 31, 2023 was 15.49% compared to 14.55% for the same period in 2022. The Company’s return on average assets during the three months ended March 31, 2023 was 1.05% compared to 1.15% for the same period in 2022.
Net interest income for the three months ended March 31, 2023 was $307,021 lower when compared to the same period in 2022 due to a decrease in the taxable equivalent net yield on average net interest earning assets to 3.24% for the three months ended March 31, 2023 from 3.56% for the same period in 2022. The decline in net yield was partially offset by a $29.4 million increase in average interest earning assets to $704.1 million for the three months ended March 31, 2023 from $674.7 million for the same period in 2022. Higher interest expense was the driving factor in the lower net interest income. The Federal Reserve rate increases caused the cost of deposits and borrowings to increase significantly by 63 basis points to 1.03% for the three months ended March 31, 2023 from 0.40% for the same period in 2022. In addition, average interest bearing liabilities increased by $19.2 million to $543.2 million for the three months ended March 31, 2023 from $524.0 million for the same period in 2022. The taxable equivalent yield on total average interest-earning assets increased 16 basis points to 4.03% for the three months ended March 31, 2023 from 3.87% for the same period in 2022, offsetting the higher cost of funds. There was a $270,000 recovery of credit losses for the three months ended March 31, 2023 compared to no provision or recovery for the three months ended March 31, 2022. The recovery was from loans charged off over 10 years ago.
Noninterest income decreased by $113,393 for the three months ended March 31, 2023 when compared to the same period in 2022, primarily as a result of a $97,395 decrease in mortgage banking revenue and a $93,600 decrease in the gain on sale of SBA loans, offset by a $32,584 increase in the fair value adjustment of an equity security and a $30,115 increase in Bank owned life insurance income. The decrease in mortgage banking revenue reflects a decline in refinances due to rising interest rates. Noninterest expense was $42,163 lower in the three months ended March 31, 2023 than in the same period in 2022, due primarily to $271,278 decrease in other expenses, offset by a $218,314 increase in salaries and benefits. The decrease in other expenses was due primarily to third party fees incurred during the first quarter of 2022 related to the recruitment and hiring of new employees. The increase in salaries and benefits was due to normal annual salary increases as well as the hiring of several new employees. Income taxes increased by $41,700 during the three months ended March 31, 2023 when compared to the same period in 2022 due to a decrease in the amount of nontaxable income included in pretax income year-over-year. The effective tax rate increased to 25.5% for the three months ended March 31, 2023 from 22.9% for the same period last year.
Total assets increased slightly to $723 million at March 31, 2023 from $718 million at December 31, 2022. Loans increased to $521 million at March 31, 2023 from $517 million at December 31, 2022. The implementation of the new credit loss methodology required by generally accepted accounting principles, known as current expected credit losses, or CECL, on January 1, 2023 resulted in a $470,999 increase in the credit loss reserve. This additional reserve, net of income taxes, was recorded as a reduction of equity and was not a component of the income statement. Investments in debt securities decreased to $146 million at March 31, 2023 from $147 million at December 31, 2022. Deposits increased to $637 million at March 31, 2023 from $624 million at December 31, 2022. The Company’s tangible equity was $44 million at March 31, 2023 compared to $41 million at December 31, 2022.
The book value of the Company’s common stock increased to $16.53 per share at March 31, 2023 from to $15.56 per share at December 31, 2022. Book value per share at March 31, 2023 is reflective of the $21 million unrealized loss on the Company’s available for sale (“AFS”) investment portfolio as a result of the significant rise in interest rates over the last 18 months. Changes in the market value of the AFS investment portfolio, net of income taxes, are reflected in the Company’s equity, but are not included in the income statement. The Company’s AFS investment portfolio is comprised of 85% government agency mortgage backed securities which are fully guaranteed, 8% investment grade non agency mortgage backed securities, 3% investment grade corporate and municipal bonds, and 4% subordinated debt of other community banks. There is no indication of credit deterioration in any of the bonds and the Company intends to hold these investments to maturity, so no actual losses are anticipated. There is no impact on regulatory capital because the Bank elected many years ago to not include in the calculation of regulatory capital changes in the market value of the AFS investment portfolio regardless of whether they are positive or negative.
Gary A. Harris, President and CEO, commented “The banking industry has been in the news a lot over the last two months due to the failure of two large regional banks that were outside of our market area. We believe that Farmers and Merchants does not have the same issues as the failed institutions. The amount of uninsured deposits at the Bank is low at approximately 20%, and the Bank has ample liquidity and significant tangible equity. In addition, the Bank is not involved in crypto currency. We remain committed to providing banking services to businesses and consumers in our local communities. Our first quarter earnings were negatively impacted by higher deposit and borrowing costs, which is squeezing our interest margin, but the loan portfolio had net growth and continues to perform very well. Overall, we believe that the Bank is in very good condition.”
About the Company
The Company is a financial holding company and the parent of the Bank. The Bank was chartered in Maryland in 1919 and has over 100 years of service to the community. The Bank serves the deposit and financing needs of both consumers and businesses in Carroll and Baltimore Counties along the Route 30, Route 795, Route 140, and Route 26 corridors. The main office is located in Upperco, Maryland, with seven additional branches in Owings Mills, Hampstead, Greenmount, Reisterstown, Westminster, and Eldersburg. Certain broker-dealers make a market in the common stock of Farmers and Merchants Bancshares, Inc., and trades are reported through the OTC Markets Group’s Pink Market under the symbol “FMFG”.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “will,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Farmers and Merchants Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| December 31, | |||||
|---|---|---|---|---|---|
| 2022 | |||||
| Assets | |||||
| Cash and due from banks | 8,295,466 | $ | 6,414,822 | ||
| Federal funds sold and other interest-bearing deposits | 1,270,888 | 848,715 | |||
| Cash and cash equivalents | 9,566,354 | 7,263,537 | |||
| Certificates of deposit in other banks | 100,000 | 100,000 | |||
| Securities available for sale, at fair value | 125,822,067 | 126,314,449 | |||
| Securities held to maturity, less allowance for credit losses of 60,592 and 0 | 20,478,223 | 20,508,997 | |||
| Equity security, at fair value | 497,812 | 489,145 | |||
| Restricted stock, at cost | 907,500 | 1,332,500 | |||
| Mortgage loans held for sale | - | 428,355 | |||
| Loans, less allowance for credit losses of 4,665,703 and 4,150,198 | 520,819,129 | 516,920,540 | |||
| Premises and equipment, net | 6,096,874 | 6,186,594 | |||
| Accrued interest receivable | 1,739,314 | 1,815,784 | |||
| Deferred income taxes, net | 7,998,178 | 8,392,658 | |||
| Other real estate owned, net | 1,242,365 | 1,242,365 | |||
| Bank owned life insurance | 14,668,447 | 14,585,342 | |||
| Goodwill and other intangibles, net | 7,040,670 | 7,042,752 | |||
| Other assets | 5,626,083 | 5,587,654 | |||
| 722,603,016 | $ | 718,210,672 | |||
| Liabilities and Stockholders' Equity | |||||
| Deposits | |||||
| Noninterest-bearing | 127,342,442 | $ | 126,695,349 | ||
| Interest-bearing | 509,966,348 | 496,915,775 | |||
| Total deposits | 637,308,790 | 623,611,124 | |||
| Securities sold under repurchase agreements | 3,077,227 | 5,175,303 | |||
| Federal Home Loan Bank of Atlanta advances | 10,000,000 | 20,000,000 | |||
| Long-term debt, net of issuance costs | 14,624,826 | 15,095,642 | |||
| Accrued interest payable | 721,007 | 349,910 | |||
| Other liabilities | 6,114,025 | 6,203,730 | |||
| 671,845,875 | 670,435,709 | ||||
| Stockholders' equity | |||||
| Common stock, par value .01 per share, authorized 5,000,000 shares; issued and outstanding 3,071,214 shares in 2023 and 2022 | 30,712 | 30,712 | |||
| Additional paid-in capital | 29,549,914 | 29,549,914 | |||
| Retained earnings | 36,851,782 | 35,300,166 | |||
| Accumulated other comprehensive loss | (15,675,267 | ) | (17,105,829 | ) | |
| 50,757,141 | 47,774,963 | ||||
| 722,603,016 | $ | 718,210,672 |
All values are in US Dollars.
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
| Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Interest income | ||||||
| Loans, including fees | $ | 6,045,548 | $ | 5,683,362 | ||
| Investment securities - taxable | 762,208 | 644,461 | ||||
| Investment securities - tax exempt | 139,844 | 149,487 | ||||
| Federal funds sold and other interest earning assets | 104,929 | 12,415 | ||||
| Total interest income | 7,052,529 | 6,489,725 | ||||
| Interest expense | ||||||
| Deposits | 1,034,851 | 338,560 | ||||
| Securities sold under repurchase agreements | 4,338 | 3,251 | ||||
| Federal Home Loan Bank advances and other borrowings | 356,272 | 183,825 | ||||
| Total interest expense | 1,395,461 | 525,636 | ||||
| Net interest income | 5,657,068 | 5,964,089 | ||||
| Recovery of credit losses | (270,000 | ) | - | |||
| Net interest income after recovery of credit losses | 5,927,068 | 5,964,089 | ||||
| Noninterest income | ||||||
| Service charges on deposit accounts | 186,707 | 181,466 | ||||
| Mortgage banking income | 25,293 | 122,688 | ||||
| Bank owned life insurance income | 83,105 | 52,990 | ||||
| Fair value adjustment of equity security | 5,767 | (26,817 | ) | |||
| Gain on sale of SBA loans | - | 93,600 | ||||
| Other fees and commissions | 81,542 | 71,880 | ||||
| Total noninterest income | 382,414 | 495,807 | ||||
| Noninterest expense | ||||||
| Salaries | 1,876,444 | 1,740,395 | ||||
| Employee benefits | 594,057 | 511,792 | ||||
| Occupancy | 214,116 | 228,427 | ||||
| Furniture and equipment | 239,727 | 214,615 | ||||
| Other | 833,091 | 1,104,369 | ||||
| Total noninterest expense | 3,757,435 | 3,799,598 | ||||
| Income before income taxes | 2,552,047 | 2,660,298 | ||||
| Income taxes | 651,196 | 609,496 | ||||
| Net income | $ | 1,900,851 | $ | 2,050,802 | ||
| Earnings per share - basic and diluted | $ | 0.62 | $ | 0.68 |