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, Md., April 25, 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 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)
	March 31,			December 31,
	2023			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

Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
	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

FOR FURTHER INFORMATION CONTACT:

Contact: Mr. Gary A. Harris
President and Chief Executive Officer
(410) 374-1510, ext. 1104