UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For quarterly period ended
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from _______________ to ________________
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
(I. R. S. Employer Identification No.) |
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incorporation or organization) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Table of Contents
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PART I – FINANCIAL INFORMATION |
3 |
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Item 1. Financial Statements |
3 |
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Consolidated balance sheets at March 31, 2025 (unaudited) and December 31, 2024 |
3 |
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Consolidated statements of income (unaudited) for the three months ended March 31, 2025 and 2024 |
4 |
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Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2025 and 2024 |
5 |
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Consolidated statements of changes in stockholders’ equity (unaudited) for the three months ended March 31, 2025 and 2024 |
6 |
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Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2025 and 2024 |
7 |
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Notes to consolidated financial statements (unaudited) |
9 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. Controls and Procedures |
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PART II – OTHER INFORMATION |
47 |
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Item 1. Legal Proceedings |
47 |
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Item 1A. Risk Factors |
47 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
47 |
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Item 3. Defaults upon Senior Securities |
47 |
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Item 4. Mine Safety Disclosures |
48 |
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Item 5. Other Information |
48 |
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Item 6. Exhibits |
48 |
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SIGNATURES |
48 |
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Farmers and Merchants Bancshares, Inc.
Consolidated Balance Sheets
(Dollars in thousands except per share data)
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March 31, |
December 31, |
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2025 |
2024 * |
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Assets |
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Cash and due from banks |
$ | $ | ||||||
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Federal funds sold and other interest-bearing deposits |
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Cash and cash equivalents |
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Certificates of deposit in other banks |
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Securities available for sale, at fair value |
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Securities held to maturity, at amortized cost less allowance for credit losses of $ |
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Equity security, at fair value |
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Restricted stock, at cost |
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Mortgage loans held for sale |
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Loans, less allowance for credit losses of $ |
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Premises and equipment, net |
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Accrued interest receivable |
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Deferred income taxes, net |
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Other real estate owned, net |
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Bank owned life insurance |
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Goodwill and other intangibles, net |
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Other assets |
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Total Assets |
$ | $ | ||||||
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Liabilities and Stockholders' Equity |
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Deposits |
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Noninterest-bearing |
$ | $ | ||||||
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Interest-bearing |
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Total deposits |
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Securities sold under repurchase agreements |
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Federal Home Loan Bank of Atlanta advances |
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Long-term debt, net of unamortized issuance costs |
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Accrued interest payable |
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Total liabilities |
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Stockholders' equity |
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Common stock, par value $ per share, authorized |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
( |
) | ( |
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Total Stockholders' equity |
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Total liabilities and stockholders' equity |
$ | $ | ||||||
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* Derived from audited consolidated financial statements |
The accompanying notes are an integral part of these consolidated financial statements.
Farmers and Merchants Bancshares, Inc.
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
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Three Months Ended March 31, |
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2025 |
2024 |
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Interest income |
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Loans, including fees |
$ | $ | ||||||
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Investment securities - taxable |
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Investment securities - tax exempt |
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Federal funds sold and other interest earning assets |
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Total interest income |
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Interest expense |
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Deposits |
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Securities sold under repurchase agreements |
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Federal Home Loan Bank advances |
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Federal Reserve Bank advances |
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Long-term debt |
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Total interest expense |
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Net interest income |
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Provision for (recovery of) credit losses |
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Net interest income after provision for (recovery of) credit losses |
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Noninterest income |
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Service charges on deposit accounts |
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Mortgage banking income |
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Bank owned life insurance income |
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Fair value adjustment of equity security |
( |
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Gain on unwound fair value hedge |
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Loss on sale of premises and equipment |
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Gain on sale of SBA loans |
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Gain on insurance proceeds, net |
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Other fees and commissions |
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Total noninterest income |
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Noninterest expense |
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Salaries |
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Employee benefits |
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Occupancy |
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Furniture and equipment |
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Professional services |
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Automated teller machine and debit card expenses |
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Federal Deposit Insurance Corporation premiums |
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Postage, delivery, and armored carrier |
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Advertising |
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Other real estate owned expense/(income), net |
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Other |
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Total noninterest expense |
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Income before income taxes |
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Income taxes |
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Net income |
$ | $ | ||||||
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Earnings per common share - basic |
$ | $ | ||||||
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Earnings per common share - diluted |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
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Three Months Ended |
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March 31, |
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2025 |
2024 |
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Net income |
$ | $ | ||||||
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Other comprehensive income, net of income taxes: |
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Total unrealized gain (loss) on investment securities available for sale |
( |
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Reclassification adjustment for realized losses |
( |
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Income tax (expense) benefit |
( |
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Net unrealized gain (loss) on investment securities available for sale |
( |
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Total unrealized (loss) gain on derivatives designated as fair value hedges |
( |
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Income tax benefit (expense) |
( |
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Net unrealized (loss) gain on derivatives designated as fair value hedges |
( |
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Total other comprehensive income (loss) |
( |
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Total comprehensive income |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Farmers and Merchants Bancshares, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Three months Ended March 31, 2025 and 2024
(Unaudited)
(Dollars in thousands except share data)
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Additional |
Accumulated other |
Total |
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Common stock |
paid-in |
Retained |
comprehensive |
stockholders' |
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Shares |
Par value |
capital |
earnings |
income |
equity |
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Balance, December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Stock-based compensation |
- | - | ||||||||||||||||||||||
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Balance, March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Balance, December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Other comprehensive income |
- | |||||||||||||||||||||||
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Stock-based compensation |
- | 158 | ||||||||||||||||||||||
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Other |
- | ( |
) | ( |
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Balance, March 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
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Three Months Ended March 31, |
2025 |
2024 |
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Reconciliation of net income to net cash provided by operating activities |
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Net income |
$ | $ | ||||||
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
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Provision for credit losses |
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Amortization (accretion) of right of use asset |
( |
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Equity security dividends reinvested |
( |
) | ( |
) | ||||
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Unrealized loss (gain) on equity security |
( |
) | ||||||
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Gain on insurance proceeds |
( |
) | ||||||
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Loss on fair value hedge |
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Gain on sale of security |
( |
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Stock based compensation |
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Amortization of debt issuance costs |
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Amortization of premiums and (accretion of discounts), net |
( |
) | ( |
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Increase in bank owned life insurance cash surrender value |
( |
) | ( |
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Increase (decrease) in |
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Deferred loan fees and costs, net |
( |
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Accrued interest payable |
( |
) | ( |
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Other liabilities |
( |
) | ( |
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Decrease (increase) in |
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Mortgage loans held for sale |
( |
) | ||||||
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Accrued interest receivable |
( |
) | ||||||
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Other assets |
( |
) | ||||||
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Net cash provided by operating activities |
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The accompanying notes are an integral part of these consolidated financial statements
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
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Three Months Ended March 31, |
2025 |
2024 |
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Cash flows from investing activities |
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Proceeds from paydowns, maturity and call of securities |
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Available for sale |
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Purchases of securities |
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Available for sale |
( |
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Held to maturity |
( |
) | ||||||
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Loans made to customers, net of principal collected |
( |
) | ( |
) | ||||
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(Purchase) redemption of stock in FHLB of Atlanta |
( |
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Proceeds from insurance |
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Purchases of premises, equipment and software |
( |
) | ( |
) | ||||
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Net cash used in investing activities |
( |
) | ( |
) | ||||
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Cash flows from financing activities |
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Net increase (decrease) in |
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Noninterest-bearing deposits |
( |
) | ||||||
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Interest-bearing deposits |
( |
) | ( |
) | ||||
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Securities sold under repurchase agreements |
( |
) | ( |
) | ||||
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Federal Home Loan Bank of Atlanta advances |
( |
) | ||||||
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Federal Reserve Bank advances |
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Long-term debt principal payments |
( |
) | ( |
) | ||||
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Net cash used in financing activities |
( |
) | ( |
) | ||||
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Net decrease in cash and cash equivalents |
( |
) | ( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ | $ | ||||||
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
$ | $ | ||||||
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Cash paid during the period for income taxes |
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Supplemental disclosure of non-cash transactions: |
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Net unrealized gain (loss) on securities available for sale |
( |
) | ||||||
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(Decrease) increase in fair value of interest rate swap agreements |
( |
) | ||||||
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Additions to right of use assets obtained in exchange for lease liabilities |
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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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1. |
Principles of consolidation |
The consolidated financial statements include the accounts of Farmers and Merchants Bancshares, Inc. and its wholly owned subsidiaries, Farmers and Merchants Bank (the “Bank”), and Series Protected Cell FCB-4 (the “Insurance Subsidiary”), and one subsidiary of the Bank, Reliable Community Financial Services, Inc. (collectively the “Company”, “we”, “us”, or “our”). The Insurance Subsidiary is a series investment,
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2. |
Basis of Presentation |
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been made. Such adjustments were normal and recurring in nature. The results of operations for the three month period ended March 31, 2025 do not necessarily reflect the results that may be expected for the fiscal year ending December 31, 2025 or any future interim period. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2025, which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024 that was filed with the Securities and Exchange Commission (the “SEC”).
Recent Accounting Pronouncements
Management has the responsibility for the selection and use of appropriate accounting policies. The significant accounting policies used by the Company are described in the notes to the consolidated financial statements.
In January 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2025-01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” ASU 2025-01 amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2025-01 is permitted. The Bank/Company does not expect the adoption of ASU 2025-01 to have a material impact on its (consolidated) financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
Recently Adopted Accounting Developments
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 was effective for the Company on January 1, 2025. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
Management believes that the accounting policies adopted by management are consistent with authoritative GAAP and are consistent with those followed by our peers.
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2. |
Basis of Presentation (continued) |
Summary of Significant Accounting Policies
There have been no changes to significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 was issued.
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3. |
Investment Securities |
Investments in debt securities are summarized as follows:
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(dollars in thousands) |
Amortized |
Unrealized |
Unrealized |
Fair |
Allowance for |
Net Carrying |
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March 31, 2025 |
cost |
gains |
losses |
value |
Credit Losses |
Amount |
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Available for sale |
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State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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SBA pools |
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Corporate bonds |
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Mortgage-backed securities |
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| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
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Held to maturity |
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State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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(dollars in thousands) |
Amortized |
Unrealized |
Unrealized |
Fair |
Allowance for |
Net Carrying |
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December 31, 2024 |
cost |
gains |
losses |
value |
Credit Losses |
Amount |
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Available for sale |
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State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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SBA pools |
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Corporate bonds |
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Mortgage-backed securities |
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| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
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Held to maturity |
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State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
3. |
Investment Securities (continued) |
The allowance for credit losses on held-to-maturity securities is a contra-asset valuation allowance that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to securities issued by states and political subdivisions, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Unrated bonds were underwritten similar to commercial loans and the financial condition of the issuer is monitored periodically. Expected credit losses on commercial loans are applied to unrated bonds. The duration of each bond is used as the remaining life in the calculation of expected credit losses.
The following table summarizes Moody's and/or Standard & Poor's bond ratings (the Company’s primary credit quality indicators) for our portfolio of held-to-maturity securities issued by states and political subdivisions as of March 31, 2025 and December 31, 2024 at amortized cost:
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(dollars in thousands) |
March 31, 2025 |
December 31, 2024 |
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AAA |
$ | $ | ||||||
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AA |
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A |
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Not rated |
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Total |
$ | $ | ||||||
Generally, the historical loss rates associated with securities having similar grades as those in our portfolio have not been significant. Furthermore, as of March 31 2025, there were no past due principal or interest payments associated with these securities and none were on nonaccrual status.
The following table details activity in the allowance for credit losses on held-to-maturity securities for the three-month periods ended March 31, 2025 and 2024:
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Three Months |
Three Months |
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Ended |
Ended |
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(dollars in thousands) |
March 31, 2025 |
March 31, 2024 |
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Beginning balance |
$ | $ | ||||||
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Credit loss (recovery) provision |
( |
) | ||||||
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Ending balance |
$ | $ | ||||||
Accrued interest receivable on available for sale securities totaled $
|
3. |
Investment Securities (continued) |
Contractual maturities, shown below, will differ from actual maturities because borrowers and issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Available for Sale |
Held to Maturity |
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(dollars in thousands) |
Amortized |
Fair |
Amortized |
Fair |
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March 31, 2025 |
cost |
value |
cost |
value |
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Within one year |
$ | $ | $ | $ | ||||||||||||
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Over one to five years |
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Over five to ten years |
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Over ten years |
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Mortgage-backed securities and SBA pools, due in monthly installments |
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| $ | $ | $ | $ | |||||||||||||
Securities with a carrying value of $
During the three-month period ended March 31, 2025, there were sales of available for sale securities. The bank unwound a fair value hedge during the first quarter of 2025 which resulted in a gain of $
The following table sets forth the Company’s gross unrealized losses on a continuous basis for available for sale debt securities, by category and length of time.
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(dollars in thousands) |
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|
March 31, 2025 |
Less than 12 months |
12 months or more |
Total |
|||||||||||||||||||||
|
Description of investments |
Fair Value |
Unrealized Loss |
Fair Value |
Unrealized Loss |
Fair Value |
Unrealized Loss |
||||||||||||||||||
|
State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
SBA pools |
||||||||||||||||||||||||
|
Corporate bonds |
||||||||||||||||||||||||
|
Mortgage-backed securities |
||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
3. |
Investment Securities (continued) |
|
(dollars in thousands) |
||||||||||||||||||||||||
|
December 31, 2024 |
Less than 12 months |
12 months or more |
Total |
|||||||||||||||||||||
|
Unrealized |
Unrealized |
Unrealized |
||||||||||||||||||||||
|
Description of investments |
Fair value |
losses |
Fair value |
losses |
Fair value |
losses |
||||||||||||||||||
|
State and municipal |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
SBA pools |
||||||||||||||||||||||||
|
Corporate bonds |
||||||||||||||||||||||||
|
Mortgage-backed securities |
||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
As of March 31, 2025, management did not have the intent to sell any of the securities before a recovery of cost and it is more likely than not that the Company will not be required to sell before the recovery of the amortized cost basis. The unrealized losses as of March 31, 2025 were due to increases in market interest rates over the yields available at the time the underlying securities were purchased as well as other market conditions for each particular security based upon the structure and remaining principal balance. The fair values of the investment securities are expected to recover as the securities approach their maturity dates or repricing dates or if market yields for such investments decline. Based on these factors, as of March 31, 2025, management believes that the unrealized losses detailed in the table above are temporary and, accordingly, none of these unrealized losses have been recognized in the Company’s consolidated statement of income.
|
4. |
Loans and Allowance for Credit Losses |
Major categories of loans are as follows:
|
March 31, |
December 31, |
|||||||
|
(Dollars in Thousands) |
2025 |
2024 |
||||||
|
Real estate: |
||||||||
|
Commercial |
$ | $ | ||||||
|
Construction/Land development |
||||||||
|
Residential |
||||||||
|
Commercial |
||||||||
|
Consumer |
||||||||
|
Total Loans |
||||||||
|
Less: Allowance for credit losses |
||||||||
|
Deferred origination fees, net of costs |
||||||||
| $ | $ | |||||||
For purposes of monitoring the performance of the loan portfolio and estimating the allowance for credit losses, the Company's loans receivable portfolio is segmented as follows: (i) commercial real estate; (ii) construction and land development; (iii) residential; (iv) commercial and industrial; (v) and consumer.
|
4. |
Loans and Allowance for Credit Losses (continued) |
Commercial real estate loans carry risks associated with the borrower's ability to repay the loan from the cash flow derived from the underlying real estate. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate. Real estate security diminishes risks only to the extent that a market exists for the subject collateral. These risks are attempted to be mitigated by carefully underwriting loans of this type and by following appropriate loan-to-value standards. The Company generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for real estate-commercial loans generally do not exceed 80%.
Construction and land development real estate loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and/or the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project. The Company generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for real estate-commercial loans generally do not exceed 80%.
Residential real estate mortgage loans, including equity lines of credit, carry risks associated with the continued credit-worthiness of the borrower and the changes in the value of the collateral.
Commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.
Consumer loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral. The Company's consumer loans consist primarily of installment loans made to individuals for personal, family and household purposes. These risks are attempted to be mitigated by following appropriate loan-to-value standards and an experienced management team for this type of portfolio.
|
4. |
Loans and Allowance for Credit Losses (continued) |
The following tables present the amortized cost basis of loans on nonaccrual status as of March 31, 2025 and December 31, 2024:
|
Nonaccrual |
Nonaccrual |
Loans Past |
||||||||||
|
With No |
With |
Due 90 Days |
||||||||||
|
Allowance |
Allowance |
or More and |
||||||||||
|
(Dollars in thousands) |
for Credit Losses |
for Credit Losses |
Still Accruing |
|||||||||
|
March 31, 2025 |
||||||||||||
|
Real estate: |
||||||||||||
|
Commercial |
$ | $ | $ | |||||||||
|
Construction and land development |
||||||||||||
|
Residential |
||||||||||||
|
Commercial |
||||||||||||
|
Consumer |
||||||||||||
| $ | $ | $ | ||||||||||
|
December 31, 2024 |
||||||||||||
|
Real estate: |
||||||||||||
|
Commercial |
$ | $ | $ | |||||||||
|
Construction and land development |
||||||||||||
|
Residential |
||||||||||||
|
Commercial |
||||||||||||
|
Consumer |
||||||||||||
| $ | $ | $ | ||||||||||
The Company did recognize any interest income on nonaccrual loans during the three-month periods ended March 31, 2025 and 2024.
At March 31, 2025, the Company had nonaccrual loans totaling $
At December 31, 2024, the Company had nonaccrual loans totaling $
|
4. |
Loans and Allowance for Credit Losses (continued) |
An age analysis of past due loans, segregated by type of loan, is as follows:
|
90 Days |
Past Due 90 |
|||||||||||||||||||||||||||
|
(Dollars in thousands) |
30 - 59 Days |
60 - 89 Days |
or More |
Total |
Total |
Days or More |
||||||||||||||||||||||
|
March 31, 2025 |
Past Due |
Past Due |
Past Due |
Past Due |
Current |
Loans |
and Accruing |
|||||||||||||||||||||
|
Real estate: |
||||||||||||||||||||||||||||
|
Commercial |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||||||
|
Residential |
||||||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
|
December 31, 2024 |
||||||||||||||||||||||||||||
|
Real estate: |
||||||||||||||||||||||||||||
|
Commercial |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||||||
|
Residential |
||||||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2025 and December 31, 2024:
|
March 31, |
December 31, |
|||||||
|
(Dollars in thousands) |
2025 |
2024 |
||||||
|
Real estate: |
||||||||
|
Commercial |
$ | $ | ||||||
|
Residential |
||||||||
| $ | $ | |||||||
|
4. |
Loans and Allowance for Credit Losses (continued) |
From time to time, loans to borrowers experiencing financial difficulty may be modified. Generally, the modifications we grant are extensions of terms, deferrals of payments for an extended period or interest rate reductions. Occasionally, we may modify a loan by providing principal forgiveness. In some cases, we will modify a loan by providing multiple types, or combinations, of concessions.
The Bank modified one commercial real estate loan to a borrower experiencing financial distress during the three-month period ended March 31, 2025. The following table presents the amortized cost basis of the loan at March 31, 2025 and the percentage of the amortized cost basis of the loan to the total cost basis of the class of loans and total loans.
|
March 31, 2025 |
||||||||
|
Total Class |
||||||||
|
Term |
of Financing |
|||||||
|
(Dollars in thousands) |
Extension |
Receivable |
||||||
|
Commercial real estate |
$ | % | ||||||
|
Total |
$ | % | ||||||
There were modifications to borrowers experiencing financial distress during the three months ended March 31, 2024. There were loan defaults during the three months ended March 31, 2024.
There were payment defaults of modified loans during the three months ended March 31, 2025 and 2024.
Accrued interest receivable on loans totaled $
Credit Quality Indicators
As part of our portfolio risk management, the Company assigns a risk grade to each loan. The factors used to determine the grade are the payment history of the loan and the borrower, the value of the collateral and net worth of the guarantor, and cash flow projections of the borrower. Excellent, Above Average, Average, Acceptable, and Pass/Watch grades are assigned to loans with limited or no delinquent payments and more than sufficient collateral and/or cash flow.
A description of the general characteristics of loans characterized as watch list or classified is as follows:
Special Mention
A special mention loan is a loan that management believes has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Borrowers may exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing may be limited to finance companies for business borrowers and may be unavailable for commercial real estate borrowers.
Substandard
A substandard loan is a loan that management believes is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Such loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Borrowers may exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. Substandard loans require more intense supervision by Company management.
Doubtful
A doubtful loan is a loan that management believes has all of the weaknesses inherent in a substandard loan with the added characteristic that the weaknesses, based on currently existing facts, conditions, and values, make collection or liquidation in full highly questionable and improbable.
|
4. |
Loans and Allowance for Credit Losses (continued) |
Loans by credit grade, segregated by loan type, and year originated as of March 31, 2025 as well as charge-offs for the three months ended March 31, 2025 are as follows:
|
Term Loans Amortized Cost Basis by Origination |
||||||||||||||||||||||||||||||||
|
As of and for the three months ended March 31, 2025 |
||||||||||||||||||||||||||||||||
|
(dollars in thousands) |
Revolving |
|||||||||||||||||||||||||||||||
|
2025 |
2024 |
2023 |
2022 |
2021 |
Prior |
Loans |
Total | |||||||||||||||||||||||||
|
Commercial Real Estate |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Construction and Land Development |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Residential Real Estate |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Aggregate total |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
4. |
Loans and Allowance for Credit Losses (continued) |
Loans by credit grade, segregated by loan type, and year originated as of December 31, 2024 as well as gross charge-offs for the three months ended December 31, 2024 are as follows:
|
Term Loans Amortized Cost Basis by Origination |
||||||||||||||||||||||||||||||||
|
As of and for the three months ended December 31, 2024 |
||||||||||||||||||||||||||||||||
|
Revolving |
||||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2024 |
2023 |
2022 |
2021 |
2020 |
Prior |
Loans |
Total |
||||||||||||||||||||||||
|
Commercial Real Estate |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Construction and Land Development |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Residential Real Estate |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Aggregate total |
||||||||||||||||||||||||||||||||
|
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Special Mention |
||||||||||||||||||||||||||||||||
|
Substandard |
||||||||||||||||||||||||||||||||
|
Doubtful |
||||||||||||||||||||||||||||||||
|
Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
Charge-offs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
|
4. |
Loans and Allowance for Credit Losses (continued) |
The following tables detail activity in the allowance for credit losses and loan balances by portfolio as of and for the three-month periods ended March 31, 2025 and 2024 and as of and for the year ended December 31, 2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|
Allowance for credit losses ending |
Outstanding loan balances |
|||||||||||||||||||||||||||||||||||
|
Provision for |
by evaluation method |
evaluated: |
||||||||||||||||||||||||||||||||||
|
(Dollars in thousands) |
Beginning |
(recovery of) |
Charge |
Ending |
||||||||||||||||||||||||||||||||
|
March 31, 2025 |
balance |
credit losses |
offs |
Recoveries |
balance |
Individually |
Collectively |
Individually |
Collectively |
|||||||||||||||||||||||||||
|
Real estate: |
||||||||||||||||||||||||||||||||||||
|
Commercial |
$ | $ | ( |
) | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
|
Construction and land development |
( |
) | ||||||||||||||||||||||||||||||||||
|
Residential |
( |
) | ||||||||||||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||||||||||
|
Unallocated |
||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| (Dollars in | Impact of |
Provision for |
Allowance for credit losses ending by evaluation method |
Outstanding loan balances evaluated: |
||||||||||||||||||||||||||||||||||||
| thousands) | Beginning |
ASC 326 |
(recovery of) |
Charge |
Ending |
|||||||||||||||||||||||||||||||||||
|
March 31, 2024 |
balance |
Adoption |
credit losses |
offs |
Recoveries |
balance |
Individually |
Collectively |
Individually |
Collectively |
||||||||||||||||||||||||||||||
|
Real estate: |
||||||||||||||||||||||||||||||||||||||||
|
Commercial |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
|
Construction and |
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
land development |
( |
) | ||||||||||||||||||||||||||||||||||||||
|
Residential |
( |
) | ||||||||||||||||||||||||||||||||||||||
|
Commercial |
||||||||||||||||||||||||||||||||||||||||
|
Consumer |
( |
) | ||||||||||||||||||||||||||||||||||||||
|
Unallocated |
||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ( |
) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
|
4. |
Loans and Allowance for Credit Losses (continued) |
|
Provision for |
Allowance for credit losses ending by evaluation method |
Outstanding loan balances |
||||||||||||||||||||||||||||||||||
|
(Dollars in thousands) |
Beginning |
(recovery of) |
Charge |
Ending |
||||||||||||||||||||||||||||||||
|
December 31, 2024 |
balance |
credit losses |
offs |
Recoveries |
balance |
Individually |
Collectively |
Individually |
Collectively |
|||||||||||||||||||||||||||
|
Real estate: |
||||||||||||||||||||||||||||||||||||
|
Commercial |
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||||||||||||||
|
Residential |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
|
Commercial |
( |
) | ||||||||||||||||||||||||||||||||||
|
Consumer |
( |
) | ||||||||||||||||||||||||||||||||||
|
Unallocated |
( |
) | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( |
) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
Loans acquired from Carroll Community Bank in 2020 in connection with the Company’s acquisition of Carroll Bancorp, Inc. and Carroll Community Bank (collectively, the “Merger”) were measured at fair value at the acquisition date with no carryover of any allowance for credit losses. The following table provides activity for the accretable credit discount of purchased loans:
|
(Dollars in thousands) |
||||
|
Balance at December 31, 2024 |
$ | |||
|
Accretion |
( |
) | ||
|
Balance at March 31, 2025 |
$ |
|
4. |
Loans and Allowance for Credit Losses (continued) |
The following table details activity in the allowance for credit losses on unfunded loan commitments for the three- month periods ended March 31, 2025 and 2024:
|
Three Months |
Three Months |
|||||||
|
Ended |
Ended |
|||||||
|
(dollars in thousands) |
March 31, 2025 |
March 31, 2024 |
||||||
|
Beginning balance |
$ | $ | ||||||
|
Recovery of credit losses |
( |
) | ( |
) | ||||
|
Ending balance |
$ | $ | ||||||
The following table provides a summary of all of the components of the allowance for credit losses:
|
Three Months Ended March 31, 2025 |
||||||||||||||||
|
(Dollars in thousands) |
Held to maturity securities |
Loans |
Unfunded
loan commitments |
Total |
||||||||||||
|
Beginning balance |
$ | $ | $ | $ | ||||||||||||
|
Provision for (recovery of) credit losses |
( |
) | ||||||||||||||
|
Charge-offs |
||||||||||||||||
|
Recoveries |
||||||||||||||||
|
Ending balance |
$ | $ | $ | $ | ||||||||||||
|
Three Months Ended March 31, 2024 |
||||||||||||||||
|
(Dollars in thousands) |
Held to maturity securities |
Loans |
Unfunded
loan commitments |
Total |
||||||||||||
|
Beginning balance |
$ | $ | $ | $ | ||||||||||||
|
Provision for (recovery of) credit losses |
( |
) | ( |
) | ||||||||||||
|
Charge-offs |
( |
) | ( |
) | ||||||||||||
|
Recoveries |
||||||||||||||||
|
Ending balance |
$ | $ | $ | $ | ||||||||||||
|
5. |
Goodwill and Other Intangibles |
The Merger resulted in the recording of goodwill and a core deposit intangible (“CDI”). The following table presents the changes in both assets for the three-month periods ended March 31, 2025 and 2024:
|
(dollars in thousands) |
Goodwill |
CDI |
Total | |||||||||
|
Balance at December 31, 2024 |
$ | $ | $ | |||||||||
|
Amortization |
- | ( |
) | $ | ( |
) | ||||||
|
Balance at March 31, 2025 |
$ | $ | $ | |||||||||
|
Balance at December 31, 2023 |
$ | $ | $ | |||||||||
|
Amortization |
- | ( |
) | ( |
) | |||||||
|
Balance at March 31, 2024 |
$ | $ | $ | |||||||||
The CDI is being amortized over
|
6. |
Capital Standards |
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).
In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.
Under the revised prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (i) a Common Equity Tier 1 risk-based capital ratio of
The implementation of the capital conservation buffer began on January 1, 2015, at the 0.625% level and was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have current applicability to the Bank.
The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
|
6. |
Capital Standards (continued) |
On September 17, 2019, the Federal Deposit Insurance Corporation (the “FDIC”) finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
Under the interim final rules, the community bank leverage ratio was reduced to 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 8%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The Company has not opted-in to the CBLR framework.
As of March 31, 2025 the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain ratios as set forth in the table. There have been no conditions or events since that notification that management believes have changed the Bank’s category. The Company's capital ratios as of March 31, 2025 were substantially the same as the Bank’s.
The FDIC, through formal or informal agreement, has the authority to require an institution to maintain higher capital ratios than those provided by statute, to be categorized as well capitalized under the regulatory framework for prompt corrective action.
|
6. |
Capital Standards (continued) |
The following table presents actual and required capital ratios as of March 31, 2025 and December 31, 2024 for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2025 and December 31, 2024, based on the provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
|
Minimum |
To Be Well |
|||||||||||||||||||||||
|
(Dollars in thousands) |
Actual |
Capital Adequacy (1) |
Capitalized |
|||||||||||||||||||||
|
March 31, 2025 |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||
|
Total capital (to risk-weighted assets) |
$ | % | $ | % | $ | % | ||||||||||||||||||
|
Tier 1 capital (to risk-weighted assets) |
% | % | % | |||||||||||||||||||||
|
Common equity tier 1 (to risk-weighted assets) |
% | % | % | |||||||||||||||||||||
|
Tier 1 leverage (to average assets) |
% | % | % | |||||||||||||||||||||
|
Minimum |
To Be Well |
|||||||||||||||||||||||
|
(Dollars in thousands) |
Actual |
Capital Adequacy |
Capitalized |
|||||||||||||||||||||
|
December 31, 2024 |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||
|
Total capital (to risk-weighted assets) |
$ | % | $ | % | $ | % | ||||||||||||||||||
|
Tier 1 capital (to risk-weighted assets) |
% | % | % | |||||||||||||||||||||
|
Common equity tier 1 (to risk-weighted assets) |
% | % | % | |||||||||||||||||||||
|
Tier 1 leverage (to average assets) |
% | % | % | |||||||||||||||||||||
|
(1) |
|
|
7. |
Derivative Financial Instruments |
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and other terms of the individual interest rate swap agreements.
Fair Value Hedges: Interest rate swaps with notional amounts totaling $
|
7. |
Derivative Financial Instruments (continued) |
The following table presents the amounts recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges at March 31, 2025 and December 31, 2024:
| (dollars in thousands) | ||||||||||||||||
|
Line item in |
Carrying |
Carrying |
||||||||||||||
|
the balance sheet |
Carrying |
amount of fair |
Carrying |
amount of fair |
||||||||||||
|
in which the |
amount of the |
value hedging |
amount of the |
value hedging |
||||||||||||
|
hedged item is |
hedged assets |
adjustment |
hedged assets |
adjustment |
||||||||||||
|
included |
March 31, 2025 |
March 31, 2025 |
December 31, 2024 |
December 31, 2024 |
||||||||||||
|
Securities for sale |
$ | $ | $ | $ | ||||||||||||
The Company presents derivative positions gross on the consolidated balance sheets. The following table reflects the derivatives recorded on the balance sheet at March 31, 2025 and December 31, 2024:
|
March 31, 2025 |
December 31, 2024 |
|||||||
|
Fair |
Fair |
|||||||
|
(dollars in thousands) |
Value |
Value |
||||||
|
Included in other assets: |
||||||||
|
Derivatives designated as hedges: |
||||||||
|
Interest rate swaps related to securities available for sale |
$ | $ | ||||||
|
Total included in other assets |
$ | $ | ||||||
|
Included in other liabilities: |
||||||||
|
Derivatives designated as hedges: |
||||||||
|
Interest rate swaps related to securities available for sale |
$ | $ | ||||||
|
Total included in other liabilities |
$ | $ | ||||||
|
7. |
Derivative Financial Instruments (continued) |
The effect of fair value hedge accounting on the statement of income for the three- month periods ended March 31, 2025 and 2024 are as follows:
|
Fair Value Hedging Relationships |
|||||||||
|
Total amounts of income and expense line items presented in the statements of income in which the effects of the fair value hedge is recorded are as follows: |
|||||||||
|
Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
||||||||
|
Interest |
Interest |
||||||||
|
(dollars in thousands) |
Income |
Income |
|||||||
|
The effects of fair value hedging: |
|||||||||
|
Loss (gain) on fair value hedging relationships: |
|||||||||
|
Hedged items |
$ | ( |
) | $ | ( |
) | |||
|
Interest rate contracts designated as hedging instruments |
|||||||||
|
Net gain on fair value hedging relationships included in interest income from investment securities- taxable |
$ | $ | |||||||
|
8. |
Fair Value |
In accordance with FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosure”, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is the most representative of fair value under current market conditions.
|
8. |
Fair Value (continued) |
In accordance with the guidance, a hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC Topic 820 based on these two types of inputs, are as follows:
|
● |
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
|
● |
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. |
|
● |
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The Company uses the following methods and significant assumptions to estimate the fair values of the following assets:
|
● |
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices from a nationally recognized securities pricing agent. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities. |
|
● |
Equity security at fair value: The Company’s investment in an equity mutual fund is valued based on the net asset value of the fund, which is classified as Level 1. |
|
● |
Other real estate owned (“OREO”): Nonrecurring fair value adjustments to OREO reflect full or partial write-downs that are based on the OREO’s observable market price or current appraised value of the real estate. Since the market for OREO is not active, OREO subjected to nonrecurring fair value adjustments based on the current appraised value of the real estate are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been |
|
● |
Collateral-dependent loans: Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs and reserves that are based on the collateral-dependent loan’s observable market price or current appraised value of the collateral. Because the market for collateral-dependent loans is not active, such loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been |
|
● |
Fair value hedges: The market value based on independent third party valuation sources that uses observable and traded prices of interest rate swaps from leading banks and brokers. |
|
● |
Loans held for sales: These loans are carried at the lower of cost or market. The market value is the price at which the loan is locked in with the investor. |
|
8. |
Fair Value (continued) |
The following tables summarize financial assets measured at fair value on a recurring and nonrecurring basis at March 31, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
Carrying Value: |
||||||||||||||||
|
(dollars in thousands) |
||||||||||||||||
|
March 31, 2025 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
Recurring: |
||||||||||||||||
|
Available for sale securities |
||||||||||||||||
|
State and municipal |
$ | $ | $ | $ | ||||||||||||
|
SBA pools |
||||||||||||||||
|
Corporate bonds |
||||||||||||||||
|
Mortgage-backed securities |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Fair value hedge: |
||||||||||||||||
|
Hedging asset |
$ | $ | $ | $ | ||||||||||||
|
Hedging liability |
( |
) | ( |
) | ||||||||||||
|
Net fair value hedge |
$ | $ | $ | $ | ||||||||||||
|
Equity securities at fair value |
||||||||||||||||
|
Mutual fund |
$ | $ | $ | $ | ||||||||||||
|
Nonrecurring: |
||||||||||||||||
|
Other real estate owned, net |
$ | $ | $ | $ | ||||||||||||
|
Collateral-dependent loans, net |
$ | $ | $ | $ | ||||||||||||
|
Carrying Value: |
||||||||||||||||
|
(dollars in thousands) |
||||||||||||||||
|
December 31, 2024 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
Recurring: |
||||||||||||||||
|
Available for sale securities |
||||||||||||||||
|
State and municipal |
$ | $ | $ | $ | ||||||||||||
|
SBA pools |
||||||||||||||||
|
Corporate bonds |
||||||||||||||||
|
Mortgage-backed securities |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Fair value hedge: |
||||||||||||||||
|
Hedging asset |
$ | $ | $ | $ | ||||||||||||
|
Hedging liability |
||||||||||||||||
|
Net fair value hedge |
$ | $ | $ | $ | ||||||||||||
|
Equity securities at fair value |
||||||||||||||||
|
Mutual fund |
$ | $ | $ | $ | ||||||||||||
|
Nonrecurring: |
||||||||||||||||
|
Other real estate owned, net |
$ | $ | $ | $ | ||||||||||||
|
Collateral-dependent loans, net |
$ | $ | $ | $ | ||||||||||||
|
8. |
Fair Value (continued) |
The following table provides information describing the unobservable inputs used in level 3 fair value measurements at March 31, 2025 and December 31, 2024:
|
March 31, 2025: |
||||||||||||
|
(dollars in thousands) |
||||||||||||
|
Assets |
Fair Value |
Valuation Technique |
Unobservable Inputs |
Range (Average) |
||||||||
|
Collateral-dependent loans |
$ |
Third party appraisals |
Marketability/selling |
to | ( |
|||||||
|
and in-house real estate |
costs and current market |
|||||||||||
|
valuations of fair value |
conditions |
|||||||||||
|
Other real estate owned |
$ |
Third party appraisals |
Marketability/selling |
to | ( |
|||||||
|
and in-house real estate |
costs and current market |
|||||||||||
|
valuations of fair value |
conditions |
|||||||||||
|
December 31, 2024: |
||||||||||||
|
(dollars in thousands) |
||||||||||||
|
Assets |
Fair Value |
Valuation Techniques |
Unobservable Input |
Average |
||||||||
|
Collateral-dependent loans |
$ |
Third party appraisals |
Marketability/selling |
to | ( |
|||||||
|
and in-house real estate |
costs and current market |
|||||||||||
|
valuations of fair value |
conditions |
|||||||||||
|
Other real estate owned |
$ |
Third party appraisals |
Marketability/selling |
to | ( |
|||||||
|
and in-house real estate |
costs and current market |
|||||||||||
|
valuations of fair value |
conditions |
|||||||||||
|
8. |
Fair Value (continued) |
The estimated fair value of financial instruments that are reported at amortized cost less allowance for credit losses in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs were as follows:
|
March 31, 2025 |
December 31, 2024 |
|||||||||||||||
|
Carrying |
Estimated |
Carrying |
Estimated |
|||||||||||||
|
(dollars in thousands) |
Amount |
Fair Value |
Amount |
Fair Value |
||||||||||||
|
Financial assets |
||||||||||||||||
|
Level 1 inputs |
||||||||||||||||
|
Cash and cash equivalents |
$ | $ | $ | $ | ||||||||||||
|
Equity securities |
||||||||||||||||
|
Level 2 inputs |
||||||||||||||||
|
Certificates of deposit in other banks |
||||||||||||||||
|
Accrued interest receivable |
||||||||||||||||
|
Securities available for sale |
||||||||||||||||
|
Securities held to maturity, net |
||||||||||||||||
|
Mortgage loans held for sale |
||||||||||||||||
|
Restricted stock, at cost |
||||||||||||||||
|
Bank owned life insurance |
||||||||||||||||
|
Fair value hedge |
||||||||||||||||
|
Level 3 inputs |
||||||||||||||||
|
Securities held to maturity, net |
||||||||||||||||
|
Loans, net |
||||||||||||||||
|
Financial liabilities |
||||||||||||||||
|
Level 1 inputs |
||||||||||||||||
|
Noninterest-bearing deposits |
$ | $ | $ | $ | ||||||||||||
|
Securities sold under repurchase agreements |
||||||||||||||||
|
Level 2 inputs |
||||||||||||||||
|
Interest-bearing deposits |
||||||||||||||||
|
Federal Home Loan Bank advances |
||||||||||||||||
|
Long-term debt, net |
||||||||||||||||
|
Accrued interest payable |
||||||||||||||||
|
Fair value hedge |
||||||||||||||||
|
9. |
Earnings per Share |
Earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding, giving retroactive effect to any stock dividends. The following table shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares of dilutive potential common stock. The weighted average number of dilutive shares included 143 shares subject to restricted stock units ("RSUs") for the three-month period ended March 31, 2025, and 206 shares subject to RSUs for the same period of 2024.
|
Three Months Ended |
||||||||
|
March 31, |
||||||||
|
2025 |
2024 |
|||||||
|
Net income |
$ | $ | ||||||
|
Weighted average shares outstanding - basic |
||||||||
|
Effect of dilutive restricted stock units |
||||||||
|
Weighted average shares outstanding - diluted |
||||||||
|
Earnings per share - basic |
$ | $ | ||||||
|
Earnings per share - diluted |
$ | $ | ||||||
|
10. |
Retirement Plans |
The Company has a profit sharing plan qualifying under Section 401(k) of the Internal Revenue Code. All employees age 21 or older with nine months of service are eligible for participation in the plan. The Company matches employee contributions up to
The Company has entered into agreements with
The Company adopted supplemental executive retirement plans for of its executives. The plans provide cash compensation to the executive officers under certain circumstances, including a separation of service. The benefits vest over the period from adoption to a specified age for each executive. The Company recorded expenses, including interest, of $
Retirement plan expenses are included in employee benefits on the Consolidated Statements of Income.
|
11. |
Borrowed Funds |
Borrowed funds may consist of securities sold under repurchase agreements, which represent overnight or term borrowings from customers, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), advances from the Federal Reserve Bank of Richmond (the “Reserve Bank”), term borrowings from a commercial bank, and overnight borrowings from commercial banks.
Additional information is as follows:
|
March 31, |
December 31, |
|||||||
|
(dollars in thousands) |
2025 |
2024 |
||||||
|
Amount outstanding at period-end: |
||||||||
|
Securities sold under repurchase agreements |
$ | $ | ||||||
|
Federal Home Loan Bank advances |
||||||||
|
Long-term debt (net of issuance costs) |
||||||||
|
Average rate at period-end: |
||||||||
|
Securites sold under repurchase agreements |
% | % | ||||||
|
Federal Home Loan Bank advances |
% | |||||||
|
Long-term debt |
% | % | ||||||
The Bank is approved to borrow
FHLB advances of $
|
12. |
Stock-Based Compensation |
On November 22, 2023, the Board of Directors approved the Farmers and Merchants Bancshares, Inc. 2023 Equity Compensation Plan (the “Equity Plan”). The Equity Plan allows the Board of Directors or its Compensation Committee to grant awards that may be payable in shares of common stock or the cash equivalent thereof.
The Company complies with the provisions of ASC Topic 718, Compensation-Stock Compensation, in measuring and disclosing stock compensation cost. The measurement objective in ASC Paragraph 718-10-30-6 requires public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized in expense over the period in which an employee is required to provide service in exchange for the award (the vesting period).
|
12. |
Stock-Based Compensation (continued) |
During the year ended December 31, 2023,
A summary of the Company’s RSU activity during the three months ended March 31, 2025 is shown below:
|
Grant Date |
||||||||
|
Number of shares |
Fair Value per Share |
|||||||
|
Balance at December 31, 2024 |
$ | |||||||
|
Granted |
||||||||
|
Vested |
||||||||
|
Forfeited |
||||||||
|
Balance at March 31, 2025 |
$ | |||||||
The compensation cost charged to income in respect of awards granted under the Equity Plan was $
During the quarter ended March 31, 2025, the Company paid bonuses in the aggregate amount of $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of Farmers and Merchants Bancshares, Inc. and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations, the audited consolidated financial statements and notes thereto, and the other statistical information contained in the Annual Report of Farmers and Merchants Bancshares, Inc. on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”). References in this report to “us”, “we”, “our”, and “the Company” are to Farmers and Merchants Bancshares, Inc. and, unless the context clearly suggests otherwise, its consolidated subsidiaries.
Forward-Looking Statements
This report may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of “forward-looking statements.” Statements that are not historical in nature, including those that include the words “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of our loan and investment portfolios; our ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on our business or operations. These and other risks are discussed in detail in the registration statements and periodic reports that Farmers and Merchants Bancshares, Inc. files with the Securities and Exchange Commission (the “SEC”) (see Item 1A of Part II of this report for further information). Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.
Farmers and Merchants Bancshares, Inc.
Farmers and Merchants Bancshares, Inc. is a Maryland corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended. The Company was incorporated on November 8, 2016 for the purpose of becoming the holding company of Farmers and Merchants Bank (the “Bank”) in a share exchange transaction that was intended to constitute a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended (the “Reorganization”). The Reorganization was consummated on November 1, 2016, at which time the Bank became a wholly-owned subsidiary of the Company and all of the Bank’s stockholders became stockholders of the Company by virtue of the conversion of their shares of common stock of the Bank into an equal number of shares of common stock of the Company.
The Company’s primary business activities are serving as the parent company of the Bank and holding a series investment in First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed protected cell captive insurance company (“FCBI”). The Company owns 100% of one series of membership interests issued by FCBI, which series is deemed a “protected cell” under Tennessee law and has been designated “Series Protected Cell FCB-4” (such series investment is hereinafter referred to as the “Insurance Subsidiary”).
The Bank is a Maryland commercial bank chartered on October 24, 1919 that is engaged in a general commercial and retail banking business. The Bank has had one inactive subsidiary, Reliable Community Financial Services, Inc., a Maryland corporation that was incorporated in April 1992 to facilitate the sale of fixed rate annuity products and later positioned to sell a full array of investment and insurance products.
The Insurance Subsidiary represents one protected cell of a protected cell captive insurance company (i.e., FCBI) that was formed on November 9, 2016 to better manage our risk programs, provide insurance efficiencies, and add operating income by both keeping insurance premiums paid with respect to such risks within our affiliated group of entities and realizing certain tax benefits that are unique to captive insurance companies. The Company’s investment in the Insurance Subsidiary represents one series of membership interests in FCBI. As a “series” limited liability company, FCBI is authorized by state law and its governing instruments to issue one or more series of membership interests, each of which, for all purposes under state law, is deemed to be a legal entity separate and apart from FCBI and its other series.
Effective October 1, 2020, pursuant to a series of merger transactions, Farmers and Merchants Bancshares, Inc. acquired Carroll Bancorp, Inc. (“Carroll”) and the Bank acquired Carroll’s wholly-owned bank subsidiary, Carroll Community Bank (collectively, the “Merger”).
The Company maintains an Internet site at www.fmb1919.bank on which it makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
Estimates and Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. See Note 1 of the Notes to the audited consolidated financial statements as of and for the year ended December 31, 2024, which were included in Item 8 of Part II of the Form 10-K. On an on-going basis, management evaluates estimates, including those related to credit losses and intangible assets, impairment of investment securities, income taxes, and fair value of investments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
The allowance for credit losses on loans represents management’s estimate of expected credit losses inherent in the loan portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on collateral dependent loans, estimated losses on pools of homogeneous loans based on historical loss experience, consideration of current economic trends and conditions and reasonable and supportable forecasts, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet.
Management applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit and other intangible assets, other assets and liabilities obtained or assumed in business combinations. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on our results of operations, financial condition or disclosures of fair value information. In addition to valuation, we must assess whether there are any declines in value below the carrying value of assets that should be considered impaired or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statements of income. Examples include investment securities, goodwill and core deposit intangible, among others.
Management does not believe that any material changes in our critical accounting policies have occurred since December 31, 2024.
Financial Condition
Total assets decreased by $27.0 million, or 3.2%, to $817.6 million at March 31, 2025 from $844.6 million at December 31, 2024. The decrease in total assets was due primarily to a decrease of $42.0 million in cash and cash equivalents and a decrease of $1.3 million in debt securities, offset by an increase of $17.1 million in loans.
Total liabilities decreased by $29.4 million, or 3.7%, to $759.0 at March 31, 2025 from $788.4 million at December 31, 2024. The decrease was due primarily to a $23.2 million decrease in deposits and a $5.0 million decrease in advances from the Federal Home Loan Bank of Atlanta.
Stockholders’ equity increased by $2.3 million, or 4.0%, to $58.6 million at March 31, 2025 from $56.3 million at December 31, 2024. The increase was primarily due to net income of $1.2 million and a decrease of $1.0 million in accumulated other comprehensive loss.
Loans
Major categories of loans at March 31, 2025 and December 31, 2024 were as follows:
|
March 31, |
December 31, |
|||||||||||||||
|
(dollars in thousands) |
2025 |
2024 |
||||||||||||||
|
Real estate: |
||||||||||||||||
|
Commercial |
$ | 415,060 | 69 | % | $ | 398,126 | 68 | % | ||||||||
|
Construction/Land development |
25,650 | 4 | % | 27,357 | 5 | % | ||||||||||
|
Residential |
108,053 | 18 | % | 111,898 | 19 | % | ||||||||||
|
Commercial |
55,903 | 9 | % | 50,405 | 9 | % | ||||||||||
|
Consumer |
447 | 0 | % | 176 | 0 | % | ||||||||||
|
Total loans |
605,113 | 100 | % | 587,962 | 100 | % | ||||||||||
|
Less: Allowance for credit losses on loans |
4,304 | 4,260 | ||||||||||||||
|
Deferred origination fees net of costs |
761 | 709 | ||||||||||||||
| $ | 600,048 | $ | 582,993 | |||||||||||||
Loans increased by $17.0 million, or 2.9%, to $600.0 million at March 31, 2025 from $583.0 million at December 31, 2024. The increase was due primarily to increases of $16.9 million in commercial real estate loans and $5.5 million in commercial loans, offset by decreases of $3.8 million in residential real estate and $1.7 million in construction/land development loans. The growth was due to the addition of new lending staff during the last 18 months and stabilizing interest rates. The allowance for credit losses on loans remained flat at $4.3 million at both March 31, 2025 and December 31, 2024.
The Company has adopted policies and procedures that seek to mitigate credit risk and to maintain the quality of the loan portfolio. These policies include underwriting standards for new credits as well as the continuous monitoring and reporting of asset quality and the adequacy of the allowance for credit losses on loans. These policies, coupled with continuous training efforts, have provided effective checks and balances for the risk associated with the lending process. Lending authority is based on the level of risk, size of the loan, and the experience of the lending officer. The Company’s policy is to make the majority of its loan commitments in the market area it serves. Management believes that this tends to reduce risk because management is familiar with the credit histories of loan applicants and has in-depth knowledge of the risk to which a given credit is subject. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region.
The following table provides the activity for the allowance for credit losses losses for the three-month periods ended March 31, 2025 and 2024:
|
Three Months Ended March 31, 2025 |
||||||||||||||||
|
(Dollars in thousands) |
Held to maturity securities |
Loans |
Unfunded loan commitments |
Total |
||||||||||||
|
Beginning balance |
$ | 60 | $ | 4,260 | $ | 240 | $ | 4,560 | ||||||||
|
Provision for (recovery of) credit losses |
3 | 40 | (13 | ) | 30 | |||||||||||
|
Charge-offs |
- | - | - | - | ||||||||||||
|
Recoveries |
- | 4 | - | 4 | ||||||||||||
|
Ending balance |
$ | 63 | $ | 4,304 | $ | 227 | $ | 4,594 | ||||||||
|
Three Months Ended March 31, 2024 |
||||||||||||||||
|
(Dollars in thousands) |
Held to maturity securities |
Loans |
Unfunded loan commitments |
Total |
||||||||||||
|
Beginning balance |
$ | 36 | $ | 4,285 | $ | 228 | $ | 4,549 | ||||||||
|
Provision for (recovery of) credit losses |
(4 | ) | 28 | (24 | ) | - | ||||||||||
|
Charge-offs |
- | (1 | ) | - | (1 | ) | ||||||||||
|
Recoveries |
- | 6 | - | 6 | ||||||||||||
|
Ending balance |
$ | 32 | $ | 4,318 | $ | 204 | $ | 4,553 | ||||||||
Watch list loans include loans classified as Special Mention, Substandard, and Doubtful. As of March 31, 2025, the Company had $12.7 million of loans on a watch list, other than collateral-dependent loans, for which the borrowers have the potential for experiencing financial difficulties. As of December 31, 2024, the Company had $8.1 million of such loans. Watch List loans are subject to ongoing management attention and their classifications are reviewed regularly.
Management believes that the $4.3 million reserve at March 31, 2025 is adequate to cover the expected losses inherent in the loan portfolio. The Company’s loan portfolio grew by $16 million during the first three months of 2025. The allowance for credit losses on loans was 0.71% of the loan portfolio at March 31, 2025 compared to 0.72% at December 31, 2024. The decrease in the percentage is due primarily to the decrease in the duration of the loans per the CECL calculation.
The reserve for held to maturity securities was $62 thousand at March 31, 2025 and $60 thousand at December 31, 2024. The reserve can vary from quarter to quarter due to the unrated portion of the bond portfolio where the projected life is the most significant factor in determining the reserve. The unrated bonds have a call provision at the option of the issuer. Market rates at quarter end determines if the bonds are projected to be called which shortens the projected life of the bonds significantly. If market rates are at a level that a call is not projected, the bonds are assumed to reach maturity which significantly lengthens the projected life. A longer projected life increases the allowance for credit losses.
Investment Securities
Investments in debt securities decreased by $1.3 million, or 0.9%, to $144.9 million at March 31, 2025 from $146.2 million at December 31, 2024. At both March 31, 2025 and December 31, 2024, the Company had classified 86% of the investment portfolio as available for sale. The remaining balance of the portfolio was classified as held to maturity.
Securities classified as available for sale are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions as part of the Company’s asset/liability management strategy. Available for sale debt securities are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income taxes. Securities classified as held to maturity, which the Company has both the positive intent and ability to hold to maturity, are reported at amortized cost. The Company records unrealized gains and losses on equity securities in earnings. The Company does not currently follow a strategy of making security purchases with a view to near-term sales, and, therefore, does not own trading securities. The Company manages the investment portfolio within policies that seek to achieve desired levels of liquidity, manage interest rate sensitivity, meet earnings objectives, and provide required collateral for deposit and borrowing activities.
Other Real Estate Owned
Other real estate owned (“OREO”) at both March 31, 2025 and December 31, 2024 included one property. The property is an apartment building in Baltimore, Maryland that was acquired in the Merger. The property is being marketed for sale.
|
March 31, |
December 31, |
|||||||
|
(dollars in thousands) |
2025 |
2024 |
||||||
|
Other Real Estate Owned |
$ | 1,176 | $ | 1,176 | ||||
Other assets
Other assets decreased by $417.0 thousand to $7.7 million at March 31, 2025 from $8.2 million at December 31, 2024 due primarily to a decrease of $432.9 thousand in the value of an interest rate swap.
Deposits
Total deposits decreased by $23.2 million, or 3.1%, to $735.6 million at March 31, 2025 from $758.8 million at December 31, 2024. The decrease in deposits was due primarily to a $27.7 million decrease in brokered CDs, a $3.4 million decrease in certificates of deposit and a $2.8 million decrease in noninterest-bearing checking accounts, offset by a $8.7 million increase in money market accounts. Generally, the decreases are due to the competition for deposits among all financial institutions due to higher interest rates.
The following table shows the average balances and average costs of deposits for the three-month periods ended March 31, 2025 and 2024:
|
March 31, 2025 |
March 31, 2024 |
|||||||||||||||
|
Average |
Average |
|||||||||||||||
|
(dollars in thousands) |
Balance |
Cost |
Balance |
Cost |
||||||||||||
|
Noninterest bearing demand deposits |
$ | 104,058 | 0.00 | % | $ | 113,411 | 0.00 | % | ||||||||
|
Interest bearing demand deposits |
119,970 | 0.81 | % | 130,458 | 0.68 | % | ||||||||||
|
Savings and money market deposits |
147,106 | 0.70 | % | 157,978 | 0.65 | % | ||||||||||
|
Time deposits |
361,605 | 4.15 | % | 261,573 | 4.01 | % | ||||||||||
| $ | 732,739 | 2.32 | % | $ | 663,420 | 1.87 | % | |||||||||
Liquidity Management
Liquidity describes our ability to meet financial obligations that arise out of the ordinary course of business. Liquidity is primarily needed to meet depositor withdrawal requirements, to fund loans, and to fund our other debts and obligations as they come due in the normal course of business. We maintain our asset liquidity position internally through short-term investments, the maturity distribution of the investment portfolio, loan repayments, and income from earning assets. On the liability side of the balance sheet, liquidity is affected by the timing of maturing liabilities and the ability to generate new deposits or borrowings as needed.
The Bank is approved to borrow 75% of eligible pledged single-family residential loans and 50% of eligible pledged commercial loans as well as investment securities, or approximately $70.1 million under a secured line of credit with the FHLB. The Bank also has two facilities with the Reserve Bank. Under the first facility, which has been in place for over 10 years and is collateralized by loans, the Bank can borrow approximately $41.3 million. The second facility is the Bank Term Funding Program (“BTFP”) that the Reserve Bank created in 2023. The BTFP facility allows securities to be pledged at par, provides fixed rates for up to one-year terms, and allows prepayments in whole or in part at any time. Effective, March 11, 2024, no new advances are available under the BTFP facility. Finally, the Bank has $23.5 million ($14.5 million unsecured and $9.0 million secured) of overnight federal funds lines of credit available from commercial banks.
FHLB advances of $0 and $5.0 million were outstanding as of March 31, 2025 and December 31, 2024, respectively. BTFP advances of $0.0 were outstanding as of both March 31, 2025 and December 31, 2024. The Company borrowed $17.0 million to facilitate the Merger in 2020 as more fully described below. There were no borrowings from the Reserve Bank other than the BTFP advances noted above or our commercial bank lenders at March 31, 2025 or December 31, 2024. Management believes that we have adequate liquidity sources to meet all anticipated liquidity needs over the next 12 months. Management knows of no trend or event which is likely to have a material impact on our ability to maintain liquidity at satisfactory levels. Uninsured deposits were approximately $172.7 million, or 23.5% of total deposits, at March 31, 2025.
Borrowings and Other Contractual Obligations
The Company’s contractual obligations consist primarily of borrowings and operating leases for various facilities.
Securities sold under agreements to repurchase represent overnight borrowings from customers. Securities owned by the Company which are used as collateral for these borrowings are primarily U.S. government agency securities.
On September 30, 2020, the Company borrowed $17.0 million from First Horizon Bank (“FHN”) to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger. Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The loan matures on September 30, 2025. The interest rate on the loan is fixed at 4.10%. The Company made quarterly interest-only payments through October 1, 2021. During the remaining term of the loan, the Company is required to make quarterly interest and principal payments of approximately $646.5 thousand, which is based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million will be due at maturity. To secure its obligations under this loan, the Company pledged all of its shares of common stock of the Bank to the lender.
Specific information about the Company’s borrowings and contractual obligations is set forth in the following table:
|
March 31, |
December 31, |
|||||||
|
(dollars in thousands) |
2025 |
2024 |
||||||
|
Amount outstanding at period-end: |
||||||||
|
Securities sold under repurchase agreements |
$ | 5,482 | $ | 5,564 | ||||
|
Federal Home Loan Bank advance (matures on March 31, 2025) |
- | 5,000 | ||||||
|
Long-term debt (net of issuance costs) |
10,858 | 11,329 | ||||||
|
Weighted average rate paid at period-end: |
||||||||
|
Securities sold under repurchase agreements |
1.25 | % | 1.25 | % | ||||
|
Federal Home Loan Bank advances |
0.00 | % | 1.00 | % | ||||
|
Long-term debt |
4.10 | % | 4.10 | % | ||||
The long-term debt outstanding at March 31, 2025 will require the following principal payments:
| (dollars in thousands) | ||||
|
Year ending December 31, 2025 |
$ | 10,858 |
Off-Balance Sheet Arrangements
In the normal course of business, the Bank makes commitments to extend credit and issues standby letters of credit. Outstanding loan commitments, unused lines of credit, and letters of credit as of March 31, 2025 and December 31, 2024 are as follows:
|
March 31, |
December 31, |
|||||||
|
(dollars in thousands) |
2025 |
2024 |
||||||
|
Loan commitments |
||||||||
|
Construction and land development |
$ | 1,901 | $ | 532 | ||||
|
Commercial |
4,300 | 7,250 | ||||||
|
Commercial real estate |
2,515 | 24,062 | ||||||
|
Residential |
9,330 | 405 | ||||||
| $ | 18,046 | $ | 32,249 | |||||
|
Unused lines of credit |
||||||||
|
Home-equity lines |
$ | 14,140 | $ | 17,505 | ||||
|
Commercial lines |
53,405 | 49,249 | ||||||
| $ | 67,545 | $ | 66,754 | |||||
|
Letters of credit |
$ | 1,974 | $ | 1,974 | ||||
Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have interest rates at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.
The maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss that is likely to be incurred as a result of funding its credit commitments.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended March 31, 2025 and 2024
General
Net income for the three months ended March 31, 2025 and March 31, 2024 remained steady at $1.2 million. Total interest income increased by $820 thousand, from $9.1 million for the three months ended March 31, 2024 to $9.9 million for the three months ended March 31, 2025. Total interest expense increased by $499 thousand, from $3.9 million for the three months ended March 31, 2024 to $4.4 million for the three months ended March 31, 2025. The provision for credit losses for the three-month periods ended March 31, 2025 and March 31, 2024 was $30 thousand and $0, respectively. Noninterest income increased by $10 thousand, from $504 thousand for the three months ended March 31, 2024 to $514 thousand for the three months ended March 31, 2025. Noninterest expense increased by $386 thousand, from $4.1 million March 31, 2024 to $4.5 million at March 31, 2025. Income tax expense decreased by $30 thousand, from $346 thousand March 31, 2024 to $316 thousand March 31, 2025.
Net Interest Income
Net interest income was $5.5 million for the three months ended March 31, 2025 compared to $5.2 million for the same period of 2024. The net yield on interest earning assets increased to 2.81% for the three months ended March 31, 2025 from 2.69% for the same period of 2024. Higher interest income on loans was the driving factor in the higher net interest income, offset by the Federal Reserve rate decreases.
Total interest income for the three months ended March 31, 2025 was $9.9 million compared to $9.1 million for the same period of 2024, an increase of $820 thousand, or 9.0%.
Total interest income on loans for the three months ended March 31, 2025 increased by $1.5 million when compared to the same period of 2024 due to a $59.1 million higher average loan balance for the three months ended March 31, 2025 when compared to the same period of 2024 and a higher loan yield of 5.64% for the three months ended March 31, 2025 versus 5.15% for the same period of 2024. Investment income for the three months ended March 31, 2025 decreased by $502 thousand, or 28.7%, when compared to the same period of 2024 due to a decrease in the fully-taxable equivalent yield to 2.97% for the three months ended March 31, 2025 compared to 3.36% for the same period of 2024, and a $39.9 million lower average investment balance. The fully-taxable equivalent yield on total interest-earning assets increased 35 basis points to 5.03% for the three months ended March 31, 2025 from 4.68% for the same period of 2024. The average balance of total interest-earning assets increased by $10.6 million to $790.6 million for the three months ended March 31, 2025 compared to $779.9 million for the same period of 2024.
Total interest expense for the three months ended March 31, 2025 was $4.4 million compared to $3.9 million for the same period of 2024, an increase of $499 thousand, or 12.8%. The increase was due to a $23.0 million increase in the average balance of interest-bearing liabilities to $650.0 million for the three months ended March 31, 2025 compared to $626.9 million for the same period of 2024, and a higher overall cost of funds on interest bearing deposits and borrowings of 2.70% for the three months ended March 31, 2025 compared to 2.48% for the same period of 2024. Cost of funds for time deposits increased to 4.15% for the three months ended March 31, 2025 from 4.01% for the same period of 2024. Costs of funds attributable to long-term debt and FHLB, Reserve Bank and other borrowings decreased to 3.17% for the three months ended March 31, 2025 from 4.42% for the same period of 2024.
Average noninterest-earning assets increased by $6.3 million to $26.2 million for the three months ended March 31, 2025 compared to $19.9 million in the same period of 2024. Average noninterest-bearing deposits decreased by $9.3 million to $104.1 million during the three months ended March 31, 2025 compared to $113.4 million in the same period of 2024. The average balance in stockholders’ equity increased by $4.7 million for the three months ended March 31, 2025 when compared with the same period of 2024.
The following table sets forth information regarding the average balances of interest-earning assets and interest-bearing liabilities, the amount of interest income and interest expense and the resulting yields on average interest-earning assets and rates paid on average interest-bearing liabilities for the three-month periods ended March 31, 2025 and 2024. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.
|
Three Months Ended |
Three Months Ended |
|||||||||||||||||||||||
|
(dollars in thousands) |
March 31, 2025 |
March 31, 2024 |
||||||||||||||||||||||
|
Average |
Average |
|||||||||||||||||||||||
|
Balance |
Interest |
Yield |
Balance |
Interest |
Yield |
|||||||||||||||||||
|
Assets: |
||||||||||||||||||||||||
|
Loans |
$ | 593,653 | $ | 8,366 | 5.64 | % | $ | 534,566 | $ | 6,882 | 5.15 | % | ||||||||||||
|
Securities, taxable (1) |
149,525 | 1,052 | 2.81 | % | 190,082 | 1,580 | 3.33 | % | ||||||||||||||||
|
Securities, tax exempt (1) |
18,690 | 196 | 4.19 | % | 18,052 | 170 | 3.77 | % | ||||||||||||||||
|
Deposits at other financial institutions and other interest-earning assets (1) |
28,701 | 335 | 4.67 | % | 37,224 | 501 | 5.38 | % | ||||||||||||||||
|
Total interest-earning assets |
790,569 | 9,949 | 5.03 | % | 779,924 | 9,133 | 4.68 | % | ||||||||||||||||
|
Noninterest-earning assets |
26,191 | 19,917 | ||||||||||||||||||||||
|
Total assets |
$ | 816,760 | $ | 799,841 | ||||||||||||||||||||
|
Liabilities and Stockholders’ Equity: |
||||||||||||||||||||||||
|
NOW, savings, and money market |
$ | 267,076 | 500 | 0.75 | % | $ | 288,437 | 476 | 0.66 | % | ||||||||||||||
|
Certificates of deposit |
361,605 | 3,749 | 4.15 | % | 261,573 | 2,625 | 4.01 | % | ||||||||||||||||
|
Securities sold under repurchase agreements |
5,496 | 17 | 1.24 | % | 7,380 | 23 | 1.25 | % | ||||||||||||||||
|
FHLB advances |
4,944 | 12 | 0.97 | % | 5,000 | 12 | 1.01 | % | ||||||||||||||||
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FRB advances and other borrowings |
- | - | 0.00 | % | 51,692 | 622 | 4.81 | % | ||||||||||||||||
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Long-term debt |
10,852 | 113 | 4.17 | % | 12,859 | 134 | 4.16 | % | ||||||||||||||||
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Total interest-bearing liabilities |
649,973 | 4,391 | 2.70 | % | 626,941 | 3,892 | 2.48 | % | ||||||||||||||||
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Noninterest-bearing deposits |
104,058 | 113,411 | ||||||||||||||||||||||
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Noninterest-bearing liabilities |
6,072 | 7,561 | ||||||||||||||||||||||
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Total liabilities |
760,103 | 747,913 | ||||||||||||||||||||||
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Stockholders' equity |
56,657 | 51,928 | ||||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ | 816,760 | $ | 799,841 | ||||||||||||||||||||
|
Net interest income |
$ | 5,558 | 5,241 | |||||||||||||||||||||
|
Interest rate spread |
2.33 | % | 2.20 | % | ||||||||||||||||||||
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Net yield on interest-earning assets |
2.81 | % | 2.69 | % | ||||||||||||||||||||
|
Ratio of average interest-earning assets to Average interest-bearing liabilities |
121.63 | % | 124.40 | % | ||||||||||||||||||||
(1) - Interest on tax-exempt securities and other tax-exempt investments are reported on a fully taxable equivalent basis. The federal, state and combined tax rates used were 21.00%, 8.25% and 27.5175% respectively.
Provision for Credit Losses
For the three months ended March 31, 2025, a provision for credit losses on loans of $40 thousand and a provision for held to maturity securities of $3 thousand, offset by a recovery for unfunded loan commitments of $13 thousand, resulted in a net provision of $30 thousand. For the three months ended March 31, 2024, a provision for credit losses on loans of $28 thousand, offset by a provision for held to maturity securities of $4 thousand and a recovery for unfunded loan commitments of $24 thousand, resulted in a net provision of $0.
|
Allocation of the Allowance for Credit Losses on Loans |
|||||
|
At March 31, 2025 and December 31, 2024 |
|||||
|
(Dollars in thousands) |
|
2025 |
2024 |
|||||||||||||||
|
Allocation |
% of Total* |
Allocation |
% of Total* |
|||||||||||||
|
Real estate: |
||||||||||||||||
|
Commercial |
$ | 2,363 | 68.59 | % | $ | 2,481 | 67.71 | % | ||||||||
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Construction and land development |
415 | 4.24 | % | 478 | 4.65 | % | ||||||||||
|
Residential |
646 | 17.86 | % | 751 | 19.03 | % | ||||||||||
|
Commercial |
749 | 9.24 | % | 513 | 8.57 | % | ||||||||||
|
Consumer |
32 | 0.07 | % | 4 | 0.03 | % | ||||||||||
|
Unallocated |
99 | 0.00 | % | 33 | 0.00 | % | ||||||||||
| $ | 4,304 | 100.00 | % | $ | 4,260 | 100.00 | % | |||||||||
* Percentage of loan type to the total loan portfolio.
|
For the Quarters Ended |
||||||||
|
March 31, |
||||||||
|
2025 |
2024 |
|||||||
|
(Dollars in thousands) |
||||||||
|
Balance at beginning of year |
$ | 4,260 | $ | 4,285 | ||||
|
Charge-offs: |
||||||||
|
Commercial |
- | (1 | ) | |||||
|
Total Charge-offs |
- | (1 | ) | |||||
|
Recoveries: |
||||||||
|
Real Estate: |
||||||||
|
Residential |
4 | 6 | ||||||
|
Total Recoveries |
4 | 6 | ||||||
|
Net recoveries |
4 | 5 | ||||||
|
Provision for credit losses - loans |
40 | 28 | ||||||
|
Balance at end of period |
$ | 4,304 | $ | 4,318 | ||||
|
Ratios: |
||||||||
|
ACL on loans to loans |
0.71 | % | 0.80 | % | ||||
|
Non accrual loans to loans |
0.43 | % | 0.12 | % | ||||
|
ACL on loans to non accrual loans |
164.71 | % | 658.80 | % | ||||
|
Provision for |
||||||||||||||||||||
|
(Dollars in thousands) |
Beginning |
(recovery of) |
Charge |
Ending |
||||||||||||||||
|
March 31, 2025 |
balance |
credit losses |
offs |
Recoveries |
balance |
|||||||||||||||
|
Real estate: |
||||||||||||||||||||
|
Commercial |
$ | 2,481 | $ | (118 | ) | $ | - | $ | - | $ | 2,363 | |||||||||
|
Construction and land development |
478 | (63 | ) | - | - | 415 | ||||||||||||||
|
Residential |
751 | (109 | ) | - | 4 | 646 | ||||||||||||||
|
Commercial |
513 | 236 | - | - | 749 | |||||||||||||||
|
Consumer |
4 | 28 | - | - | 32 | |||||||||||||||
|
Unallocated |
33 | 66 | - | - | 99 | |||||||||||||||
| $ | 4,260 | $ | 40 | $ | - | $ | 4 | $ | 4,304 | |||||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
|
ACL on loans to loans |
0.71 | % | 0.72 | % | ||||
|
Non accrual loans to loans |
0.43 | % | 0.41 | % | ||||
|
ACL on loans to non accrual loans |
164.71 | % | 174.59 | % | ||||
Noninterest Income
Noninterest income for the three months ended March 31, 2025 was $514 thousand compared to $504 thousand for the same period of 2024, an increase of $10 thousand, or 2.0%. The increase was due primarily to an increase of $94 thousand for the gain on the unwinding of a fair value hedge and a $24 thousand increase in mortgage banking income and an increase of $15 thousand in Bank owned life insurance income, offset by a non-recurring $143 thousand of insurance proceeds from the storm damage to the Bank’s Upperco, Maryland location recorded during the three months ended March 31, 2024.
Noninterest Expense
Noninterest expense for the three months ended March 31, 2025 totaled $4.5 million compared to $4.1 million for the same period of 2024, an increase of $386 thousand, or 9.4%. The increase was due primarily to an increase in Federal Deposit Insurance Corporation premiums of $101 thousand as a result of increased premiums, an increase in occupancy and furniture and equipment expense as a result of increased building repairs, office maintenance expenses, increased rent expense, and increased software maintenance costs due to the core system conversion in the fourth quarter of 2024, and an increase in other expenses of $96 thousand, due primarily to increases in ATM expense and insurance premium taxes.
Income Tax Expense
Income tax expense for the three months ended March 31, 2025 was $316 thousand compared to $346 thousand for the same period of 2024. The effective tax rate was 21.3% for the three months ended March 31, 2025 compared to 22.1% for the same period of 2024. The decrease in the effective tax rate was due to a higher percentage of tax exempt revenue in 2025 versus 2024.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of the Form 10-K. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
of the directors or officers of the Company notified the Company that, during the quarter ended March 31, 2025, they adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) promulgated under the Exchange Act or (ii) any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of the SEC’s Regulation S-K.
Item 6. Exhibits
The exhibits filed or furnished with this quarterly report are listed in the following Exhibit Index:
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Exhibit |
Description |
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|
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31.1 |
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31.2 |
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|
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32 |
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101 |
Interactive Data Files pursuant to Rule 405 of Regulation S-T (filed herewith) |
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104 |
The cover page of Farmers and Merchants Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 formatted in Inline XBRL, included within the Exhibit 101 attachments (filed 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 thereunto duly authorized.
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FARMERS AND MERCHANTS BANCSHARES, INC. |
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Date: May 15, 2025 |
/s/ Gary A. Harris |
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Gary A. Harris |
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Chief Executive Officer |
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|
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(Principal Executive Officer) |
|
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Date May 15, 2025 |
/s/ Mark C. Krebs |
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Mark C. Krebs |
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Treasurer and Chief Financial Officer |
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|
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(Principal Financial Officer & Principal Accounting Officer) |
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