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): October 28, 2020
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 October 28, 2020, Farmers and Merchants Bancshares, Inc. issued a press release describing its financial results for the three and nine month periods ended September 30, 2020. 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 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 October 28, 2020 (furnished herewith). |
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: October 28, 2020 | By: | /s/ James R. Bosley, Jr. |
| James R. Bosley, Jr.<br><br> <br>President & CEO |
ex_209130.htm
Exhibit 99.1
| FOR IMMEDIATE RELEASE | FOR FURTHER INFORMATION CONTACT: | |
|---|---|---|
| October 28, 2020 | ||
| Farmers and Merchants Bancshares, Inc. | Contact: | Mr. James R. Bosley, Jr. |
| 4510 Lower Beckleysville Rd, Suite H | President | |
| Hampstead, Maryland 21074 | (410) 374-1510, ext.104 |
FARMERS AND MERCHANTS BANCSHARES, INC. REPORTS EARNINGS OF $0.76 PER SHARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
HAMPSTEAD, MARYLAND (October 28, 2020) – Farmers and Merchants Bancshares, Inc. (the “Company”), the parent of Farmers and Merchants Bank (the “Bank”), announced that net income for the nine months ended September 30, 2020 was $2,264,609, or $0.76 per common share, compared to $3,500,018, or $1.19 per common share, for the same period in 2019. Net income for the three months ended September 30, 2020 was $385,247, or $0.13 per common share, compared to $1,177,910, or $0.40 per common share, for the same period in 2019. On October 1, 2020, the Company consummated its previously-announced acquisition of Carroll Bancorp, Inc. and Carroll Community Bank. The Company incurred significant one-time costs of $1,267,401 and $1,612,321 during the three- and nine-months ended September 30, 2020 related to this acquisition. The table below provides a comparison of the Company’s results for the three- and nine-month periods ended September 30, 2020 and 2019, both with and without the acquisition costs.
| Three Months Ended | Nine Months Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||
| Excluding | Excluding | |||||||||||||||||
| As Reported | Acquisition Costs | As Reported | As Reported | Acquisition Costs | As Reported | |||||||||||||
| Income before taxes | $ | 462,110 | $ | 1,729,511 | $ | 1,485,634 | $ | 2,724,959 | $ | 4,337,280 | $ | 4,284,526 | ||||||
| Income taxes | 76,863 | 370,835 | 307,724 | 460,350 | 849,235 | 784,508 | ||||||||||||
| Net income | $ | 385,247 | $ | 1,358,676 | $ | 1,177,910 | $ | 2,264,609 | $ | 3,488,045 | $ | 3,500,018 | ||||||
| Earnings per share | $ | 0.13 | $ | 0.45 | $ | 0.40 | $ | 0.76 | $ | 1.17 | $ | 1.19 | ||||||
| Return on average assets | 0.31 | % | 1.10 | % | 1.09 | % | 0.63 | % | 0.97 | % | 1.09 | % | ||||||
| Return on average equity | 2.95 | % | 10.40 | % | 9.70 | % | 5.88 | % | 9.06 | % | 9.84 | % |
Net interest income for the nine months ended September 30, 2020 was $513,340 higher than for the same period in 2019 due to a $47.5 million increase in average interest earning assets to $457.4 million for the nine months ended September 30, 2020 as compared to $409.8 million for the same period in 2019, offset by a decline in the taxable equivalent net yield on interest earning assets to 3.46% in the 2020 period from 3.69% in the 2019 period. The net yield declined because the yield on loans and investments decreased 38 basis points to 4.20% for the nine months ended September 30, 2020 from 4.58% for the same period in 2019 as a result of the Federal Reserve rate cuts and the Company’s origination of $31 million of Paycheck Protection Program (“PPP”) loans that are yielding less than 2.50%. The Company’s cost of deposits and borrowings of 0.98% for the nine months ended September 30, 2020 was 16 basis points lower than the cost of 1.14% for the nine months ended September 30, 2019. The Company expects the cost of funds to continue to decline over the remainder of 2020 because the Company has significantly reduced rates on many of its deposit products. The provision for loan losses totaled $475,000 for the nine months ended September 30, 2020 as a result of the economic downturn caused by the COVID-19 pandemic, compared to no provision for the same period in 2019.
Noninterest income increased by $288,999 in the nine months ended September 30, 2020 when compared to the same period in 2019, primarily as a result of a $434,797 increase in mortgage banking income and a $210,150 decrease in the write down of other real estate owned, offset by a $194,368 decrease in bank owned life insurance income, a $75,900 decrease in the gain on the sale of SBA loans, and a $80,251 decrease in service charges. Noninterest expense was $1,886,906 higher in the nine months ended September 30, 2020 when compared to the same period in 2019 due primarily to the aforementioned acquisition costs of $1,612,321 and usual salary and benefit increases of $295,331. Income taxes declined by $324,158 during the nine months ended September 30, 2020 when compared to the same period in 2019 due to lower income before taxes and a higher percentage of tax-exempt revenue.
Total assets increased to $513 million at September 30, 2020 from $442 million at December 31, 2019. Loans increased to $390 million at September 30, 2020 from $359 million at December 31, 2019. The increase in loans was due primarily to the origination of $31 million of PPP loans. Investment in debt securities increased to $62 million at September 30, 2020 from $56 million at December 31, 2019. Deposits increased to $426 million at September 30, 2020 from $377 million at December 31, 2019. The increase in deposits was due in large part to existing customers who deposited the proceeds of their PPP loans with the Bank. In many cases, the customers have not withdrawn the PPP funds. In connection with the acquisition by merger of Carroll Bancorp, Inc., the Company borrowed $17 million that it used to fund a portion of the $25 million cash merger consideration. Although the acquisition was consummated on October 1, 2020, the terms of the acquisition agreement required the Company to deposit the borrowed funds, together with $8 million in cash on hand, in escrow with the parties’ exchange agent on September 30, 2020. The $17 million borrowing was recorded as a long-term debt and the $25 million deposit was recorded as other assets as of September 30, 2020. The book value of the common stock of Farmers and Merchants Bancshares, Inc. was $17.36 per share at September 30, 2020, compared to $16.63 per share at December 31, 2019.
The COVID-19 pandemic has been wreaking havoc on the U.S. economy. The full impact and its effect on the banking industry will not be known for several quarters, but will be significant. The Bank is providing relief to its borrowers, as needed, including temporary deferral of payments. During the second quarter, the Bank granted 90-day payment deferrals on 107 loans totalling $109.2 million, which was approximately 30% of the portfolio. The initial 90-day deferral period has ended. Of these deferred loans, 13 loans totaling $21.8 million, or 6% of the portfolio, have been granted an additional 90-day deferral. In addition, as mentioned previously, the Bank has made a significant amount of PPP loans to customers.
James R. Bosley, Jr., President and CEO, commented “We are excited that the acquisition of Carroll Community Bank has finally closed effective October 1. During the fourth quarter we will be converting systems and integrating operations between the two banks. While the COVID-19 pandemic continues, we are happy to report that our employees are healthy and that most of our borrowers are weathering the storm. We are pleased to have helped many of our borrowers with payment deferrals and/or PPP loans. Finally, our earnings excluding acquisition costs are just slightly behind 2019’s earnings indicating that the Bank’s core operations are performing well.”
About the Company
Farmers and Merchants Bancshares, Inc. is a financial holding company and the parent of Farmers and Merchants Bank. The Bank was chartered in Maryland in 1919, and is currently celebrating 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 and Route 795 corridors from Owings Mills, Maryland to the Pennsylvania State line. The main office is located in Upperco, Maryland, with seven additional branches in Owings Mills, Hampstead, Greenmount, Reisterstown, and Westminster. 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
| December 31, | |||
|---|---|---|---|
| 2019 | |||
| Assets | |||
| Cash and due from banks | 14,766,830 | $ | 6,664,307 |
| Federal funds sold and other interest-bearing deposits | 465,755 | 2,457,045 | |
| Cash and cash equivalents | 15,232,585 | 9,121,352 | |
| Certificate of deposit in other bank | 100,000 | 100,000 | |
| Securities available for sale | 39,882,135 | 36,531,774 | |
| Securities held to maturity | 22,602,562 | 19,510,018 | |
| Equity security at fair value | 553,057 | 532,321 | |
| Federal Home Loan Bank stock, at cost | 696,300 | 376,200 | |
| Mortgage loans held for sale | 2,650,459 | 242,000 | |
| Loans, less allowance for loan losses of 3,141,312 and 2,593,715 | 390,114,430 | 359,382,843 | |
| Premises and equipment | 5,096,063 | 5,036,851 | |
| Accrued interest receivable | 1,215,284 | 1,019,540 | |
| Deferred income taxes | 754,417 | 1,036,078 | |
| Bank owned life insurance | 7,272,949 | 7,145,477 | |
| Other assets | 27,307,504 | 2,180,644 | |
| 513,477,745 | $ | 442,215,098 | |
| Liabilities and Stockholders' Equity | |||
| Deposits | |||
| Noninterest-bearing | 79,010,403 | $ | 60,659,015 |
| Interest-bearing | 347,065,245 | 315,954,299 | |
| Total deposits | 426,075,648 | 376,613,314 | |
| Securities sold under repurchase agreements | 6,317,682 | 10,958,118 | |
| Federal Home Loan Bank of Atlanta advances | 7,000,000 | - | |
| Long-tem debt | 16,971,874 | - | |
| Accrued interest payable | 230,177 | 346,214 | |
| Other liabilities | 4,954,184 | 4,843,936 | |
| 461,549,565 | 392,761,582 | ||
| Stockholders' equity | |||
| Common stock, par value .01 per share, authorized 5,000,000 shares; issued and outstanding 2,991,964 in 2020 and 2,974,019 in 2019 | 29,920 | 29,740 | |
| Additional paid-in capital | 28,054,158 | 27,812,991 | |
| Retained earnings | 23,059,567 | 21,568,161 | |
| Accumulated other comprehensive income | 784,535 | 42,624 | |
| 51,928,180 | 49,453,516 | ||
| 513,477,745 | $ | 442,215,098 |
All values are in US Dollars.
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||
| Interest income | ||||||||||
| Loans, including fees | $ | 4,489,992 | $ | 4,250,071 | $ | 13,205,913 | $ | 12,582,392 | ||
| Investment securities - taxable | 159,277 | 234,274 | 561,038 | 631,382 | ||||||
| Investment securities - tax exempt | 163,522 | 150,141 | 462,305 | 431,354 | ||||||
| Federal funds sold and other interest earning assets | 9,563 | 84,526 | 58,362 | 280,876 | ||||||
| Total interest income | 4,822,354 | 4,719,012 | 14,287,618 | 13,926,004 | ||||||
| Interest expense | ||||||||||
| Deposits | 690,833 | 916,452 | 2,429,496 | 2,577,229 | ||||||
| Securities sold under repurchase agreements | 18,020 | 29,190 | 95,710 | 82,912 | ||||||
| Federal Home Loan Bank advances and other borrowings | 12,752 | 10,769 | 25,726 | 42,517 | ||||||
| Total interest expense | 721,605 | 956,411 | 2,550,932 | 2,702,658 | ||||||
| Net interest income | 4,100,749 | 3,762,601 | 11,736,686 | 11,223,346 | ||||||
| Provision for loan losses | - | (13,000 | ) | 475,000 | - | |||||
| Net interest income after provision for loan losses | 4,100,749 | 3,775,601 | 11,261,686 | 11,223,346 | ||||||
| Noninterest income | ||||||||||
| Service charges on deposit accounts | 138,288 | 176,577 | 414,501 | 494,752 | ||||||
| Mortgage banking income | 272,297 | 144,268 | 684,664 | 249,867 | ||||||
| Bank owned life insurance income | 42,250 | 39,443 | 127,473 | 321,841 | ||||||
| Unrealized gain on equity security | 1 | 3,966 | 13,045 | 18,721 | ||||||
| Write down of other real estate owned | - | - | - | (210,150 | ) | |||||
| Gain on sale of SBA loans | - | - | 63,635 | 139,535 | ||||||
| Other fees and commissions | 34,532 | 28,714 | 94,278 | 94,031 | ||||||
| Total noninterest income | 487,368 | 392,968 | 1,397,596 | 1,108,597 | ||||||
| Noninterest expense | ||||||||||
| Salaries | 1,462,946 | 1,358,208 | 4,114,143 | 3,993,998 | ||||||
| Employee benefits | 376,860 | 312,119 | 1,183,414 | 1,008,228 | ||||||
| Occupancy | 183,719 | 189,603 | 552,265 | 594,566 | ||||||
| Furniture and equipment | 175,006 | 149,191 | 501,267 | 460,271 | ||||||
| Acquisition | 1,267,401 | - | 1,612,321 | - | ||||||
| Other | 660,075 | 673,814 | 1,970,913 | 1,990,354 | ||||||
| Total noninterest expense | 4,126,007 | 2,682,935 | 9,934,323 | 8,047,417 | ||||||
| Income before income taxes | 462,110 | 1,485,634 | 2,724,959 | 4,284,526 | ||||||
| Income taxes | 76,863 | 307,724 | 460,350 | 784,508 | ||||||
| Net income | $ | 385,247 | $ | 1,177,910 | $ | 2,264,609 | $ | 3,500,018 | ||
| Earnings per share - basic and diluted | $ | 0.13 | $ | 0.40 | $ | 0.76 | $ | 1.19 |