HAMPSTEAD, Md., Oct. 24, 2023 (GLOBE NEWSWIRE) -- 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, 2023 was $5,003,107, or $1.63 per common share (basic and diluted), compared to $6,075,845, or $2.00 per common share (basic and diluted), for the same period in 2022. The Company’s return on average equity during the nine months ended September 30, 2023 was 13.45% compared to 15.53% for the same period in 2022. The Company’s return on average assets during the nine months ended September 30, 2023 was 0.91% compared to 1.14% for the same period in 2022.
Net income for the three months ended September 30, 2023 was $1,432,139, or $0.46 per common share (basic and diluted), compared to $1,974,310, or $0.65 per common share (basic and diluted), for the third quarter of 2022. The Company’s return on average equity during the three months ended September 30, 2023 was 11.54% compared to 15.85% for the same period in 2022. The Company’s return on average assets during the three months ended September 30, 2023 was 0.77% compared to 1.10% for the same period in 2022.
Net interest income for the nine months ended September 30, 2023 was $1,713,139 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 3.04% for the nine months ended September 30, 2023 from 3.51% for the same period in 2022. The decline in net yield was partially offset by a $30.6 million increase in average interest earning assets to $713.2 million for the nine months ended September 30, 2023 from $682.6 million for the same period in 2022. Higher interest expense on deposits and borrowings 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 113 basis points to 1.52% for the nine months ended September 30, 2023 from 0.39% for the same period in 2022. In addition, average interest bearing liabilities increased by $28.2 million to $554.6 million for the nine months ended September 30, 2023 from $526.4 million for the same period in 2022. The taxable equivalent yield on total average interest-earning assets increased 41 basis points to 4.22% for the nine months ended September 30, 2023 from 3.81% for the same period in 2022, partially offsetting the higher cost of funds. The Company has entered into several interest rate swaps structured as fair value hedges during 2023, some in combination with the purchase of mortgage backed securities, to offset the impact of higher interest expense on deposits and borrowings.
Based on the Company’s CECL methodology, a recovery of $570,000 of credit losses was recorded for the nine months ended September 30, 2023 compared to a provision of $95,000 for the nine months ended September 30, 2022. The recovery of credit losses was due primarily to a recovery of $381,000 from loans charged off over 10 years ago which also resulted in lower historical losses and a significant decrease in the required reserve for loans. In addition, an individually evaluated loan that had a $74,208 reserve at December 31, 2022 no longer required a reserve as of September 30, 2023.
Noninterest income decreased by $106,043 for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily as a result of a $103,315 decrease in mortgage banking revenue and a $158,123 decrease in the gain on sale of SBA loans, offset by a $47,181 increase in the fair value adjustment of an equity security and a $81,860 increase in bank owned life insurance income. The decrease in mortgage banking revenue reflects a decline in refinancings due to rising interest rates. Noninterest expense was $36,155 higher in the nine months ended September 30, 2023 than in the same period in 2022, due primarily to a $102,548 increase in salaries and benefits and a $97,264 increase in furniture and equipment, offset by a $138,117 decrease in other expenses. 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 decreased by $117,599 during the nine months ended September 30, 2023 when compared to the same period in 2022 due to lower earnings before taxes. The effective tax rate increased to 24.9% for the nine months ended September 30, 2023 from 22.7% for the same period last year due to a decrease in the amount of nontaxable income included in pretax income year-over-year.
Total assets increased to $757 million at September 30, 2023 from $718 million at December 31, 2022. Loans increased to $526 million at September 30, 2023 from $517 million at December 31, 2022. Investments in debt securities increased to $157 million at September 30, 2023 from $147 million at December 31, 2022. Deposits increased to $644 million at September 30, 2023 from $624 million at December 31, 2022. Approximately 20% of total deposits are uninsured by the FDIC at September 30, 2023. 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 on loans, available credit, and held to maturity securities. This additional reserve, net of income taxes, was recorded as a reduction of equity and was not a component of the income statement. The Company’s tangible equity was $41 million at both September 30, 2023 and December 31, 2022. Tangible equity is equity less goodwill and other intangibles.
The book value of the Company’s common stock increased to $15.61 per share at September 30, 2023 from $15.56 per share at December 31, 2022. Book value per share at September 30, 2023 is reflective of the $29 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 24 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 72% government agency mortgage backed securities which are fully guaranteed, 22% investment grade non agency mortgage backed securities, 2% investment grade corporate and municipal bonds, and 4% subordinated debt of other community banks. Based on management's analysis, 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. The unrealized loss on the AFS investment portfolio had no impact on regulatory capital because the Bank elected many years ago to not include market value fluctuations in the calculation of regulatory capital.
The Company began utilizing the Federal Reserve Bank’s (“FRB”) Bank Term Funding Program (“BTFP”) during the second quarter of 2023 and had borrowings of $33,000,000 outstanding at September 30, 2023. Eligible collateral for the BTFP includes mortgage backed securities which are valued at par instead of market providing greater availability than other facilities. The BTFP also provides competitive fixed rates for up to a one year term and advances can be refinanced or paid off in full or in part at any time. This facility, along with our Federal Home Loan Bank facility, other borrowing lines available, unpledged securities, brokered deposit access, and cash, provided us with access to approximately $353 million of liquidity at September 30, 2023.
Gary A. Harris, President and CEO, commented “Higher deposit and borrowing costs continue to squeeze our net interest margin and negatively impact our earnings. We are optimistic about our growing, high quality loan portfolio and new loan activity. Our liquidity position remains strong. I have confidence in our experienced team to manage through this difficult interest rate environment.”
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”.
FOR FURTHER INFORMATION CONTACT:
Contact: Mr. Gary A. Harris
President and Chief Executive Officer
(410) 374-1510, ext. 1104
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||
| 2023 | 2022 | |||||
| Assets | ||||||
| Cash and due from banks | $ | 23,474,989 | $ | 6,414,822 | ||
| Federal funds sold and other interest-bearing deposits | 1,536,689 | 848,715 | ||||
| Cash and cash equivalents | 25,011,678 | 7,263,537 | ||||
| Certificates of deposit in other banks | 100,000 | 100,000 | ||||
| Securities available for sale, at fair value | 136,563,220 | 126,314,449 | ||||
| Securities held to maturity, at amortized cost less allowance for credit losses of $92,045 and $0 | 20,134,028 | 20,508,997 | ||||
| Equity security, at fair value | 482,907 | 489,145 | ||||
| Restricted stock, at cost | 863,500 | 1,332,500 | ||||
| Mortgage loans held for sale | - | 428,355 | ||||
| Loans, less allowance for credit losses of $4,516,402 and $4,150,198 | 526,133,041 | 516,920,540 | ||||
| Premises and equipment, net | 6,093,372 | 6,186,594 | ||||
| Accrued interest receivable | 2,018,786 | 1,815,784 | ||||
| Deferred income taxes, net | 9,901,701 | 8,392,658 | ||||
| Other real estate owned, net | 1,242,365 | 1,242,365 | ||||
| Bank owned life insurance | 14,846,937 | 14,585,342 | ||||
| Goodwill and other intangibles, net | 7,036,506 | 7,042,752 | ||||
| Other assets | 6,209,726 | 5,587,654 | ||||
| $ | 756,637,767 | $ | 718,210,672 | |||
| Liabilities and Stockholders' Equity | ||||||
| Deposits | ||||||
| Noninterest-bearing | $ | 113,326,966 | $ | 126,695,349 | ||
| Interest-bearing | 530,935,768 | 496,915,775 | ||||
| Total deposits | 644,262,734 | 623,611,124 | ||||
| Securities sold under repurchase agreements | 5,357,674 | 5,175,303 | ||||
| Federal Home Loan Bank of Atlanta advances | 5,000,000 | 20,000,000 | ||||
| Federal Reserve Bank advances | 33,000,000 | - | ||||
| Long-term debt, net of issuance costs | 13,683,195 | 15,095,642 | ||||
| Accrued interest payable | 1,491,099 | 349,910 | ||||
| Other liabilities | 5,581,129 | 6,203,730 | ||||
| 708,375,831 | 670,435,709 | |||||
| Stockholders' equity | ||||||
| Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 3,092,368 shares in 2023 and 3,071,214 shares in 2022 | 30,924 | 30,712 | ||||
| Additional paid-in capital | 29,979,718 | 29,549,914 | ||||
| Retained earnings | 38,940,539 | 35,300,166 | ||||
| Accumulated other comprehensive loss | (20,689,245 | ) | (17,105,829 | ) | ||
| 48,261,936 | 47,774,963 | |||||
| $ | 756,637,767 | $ | 718,210,672 | |||
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Interest income | ||||||||||||
| Loans, including fees | $ | 6,609,039 | $ | 5,606,913 | $ | 19,023,308 | $ | 16,660,625 | ||||
| Investment securities - taxable | 996,586 | 783,606 | 2,528,793 | 2,170,154 | ||||||||
| Investment securities - tax exempt | 137,254 | 140,185 | 416,626 | 430,495 | ||||||||
| Federal funds sold and other interest earning assets | 258,818 | 55,361 | 469,721 | 89,663 | ||||||||
| Total interest income | 8,001,697 | 6,586,065 | 22,438,448 | 19,350,937 | ||||||||
| Interest expense | ||||||||||||
| Deposits | 2,239,808 | 313,556 | 5,010,624 | 971,320 | ||||||||
| Securities sold under repurchase agreements | 12,110 | 2,874 | 23,949 | 8,558 | ||||||||
| Federal Home Loan Bank advances | 39,289 | 12,727 | 452,272 | 37,765 | ||||||||
| Federal Reserve Bank advances | 378,500 | - | 391,763 | - | ||||||||
| Long-term debt | 145,001 | 165,156 | 444,953 | 505,268 | ||||||||
| Total interest expense | 2,814,708 | 494,313 | 6,323,561 | 1,522,911 | ||||||||
| Net interest income | 5,186,989 | 6,091,752 | 16,114,887 | 17,828,026 | ||||||||
| (Recovery of) provision for credit losses | (75,000 | ) | 95,000 | (570,000 | ) | 95,000 | ||||||
| Net interest income after (recovery of) provision for credit losses | 5,261,989 | 5,996,752 | 16,684,887 | 17,733,026 | ||||||||
| Noninterest income | ||||||||||||
| Service charges on deposit accounts | 195,566 | 201,251 | 586,999 | 574,444 | ||||||||
| Mortgage banking income | 33,585 | 8,155 | 92,514 | 195,829 | ||||||||
| Bank owned life insurance income | 89,748 | 70,479 | 261,595 | 179,735 | ||||||||
| Fair value adjustment of equity security | (13,769 | ) | (17,611 | ) | (15,343 | ) | (62,524 | ) | ||||
| Gain on sale of SBA loans | - | - | - | 158,123 | ||||||||
| Other fees and commissions | 78,096 | 75,211 | 243,125 | 229,326 | ||||||||
| Total noninterest income | 383,226 | 337,485 | 1,168,890 | 1,274,933 | ||||||||
| Noninterest expense | ||||||||||||
| Salaries | 1,916,804 | 1,987,991 | 5,643,742 | 5,656,643 | ||||||||
| Employee benefits | 348,048 | 418,422 | 1,483,278 | 1,367,829 | ||||||||
| Occupancy | 229,135 | 229,273 | 645,398 | 670,938 | ||||||||
| Furniture and equipment | 246,896 | 203,075 | 739,547 | 642,283 | ||||||||
| Other | 1,005,065 | 945,930 | 2,677,065 | 2,815,182 | ||||||||
| Total noninterest expense | 3,745,948 | 3,784,691 | 11,189,030 | 11,152,875 | ||||||||
| Income before income taxes | 1,899,267 | 2,549,546 | 6,664,747 | 7,855,084 | ||||||||
| Income taxes | 467,128 | 575,236 | 1,661,640 | 1,779,239 | ||||||||
| Net income | $ | 1,432,139 | $ | 1,974,310 | $ | 5,003,107 | $ | 6,075,845 | ||||
| Earnings per common share - basic and diluted | $ | 0.46 | $ | 0.65 | $ | 1.63 | $ | 2.00 | ||||
