Farmers and Merchants Bancshares reports net income of $5,003,107 for the nine months ended September 30, 2023, compared to $6,075,845 for the same period in 2022. Return on average equity decreases to 13.45% from 15.53%. Net interest income decreases due to higher interest expense on deposits and borrowings. Noninterest income decreases primarily due to a decline in mortgage banking revenue. Total assets, loans, investments in debt securities, and deposits increase. Tangible equity remains unchanged. Book value per share increases to $15.61. The company utilizes the Federal Reserve Bank's Bank Term Funding Program for liquidity.
Positive
Farmers and Merchants Bancshares reports net income of $5,003,107 for the nine months ended September 30, 2023, compared to $6,075,845 for the same period in 2022. Total assets increase to $757 million. Loans increase to $526 million. Investments in debt securities increase to $157 million. Deposits increase to $644 million. Book value per share increases to $15.61. The company utilizes the Federal Reserve Bank's Bank Term Funding Program for liquidity.
Negative
Return on average equity decreases to 13.45% from 15.53%. Net interest income decreases due to higher interest expense on deposits and borrowings. Noninterest income decreases primarily due to a decline in mortgage banking revenue.
Insights
Analyzing...
HAMPSTEAD, Md., Oct. 24, 2023 (GLOBE NEWSWIRE) -- Farmers and Merchants Bancshares, Inc. (the “Company”), the parent of Farmers and Merchants Bank (the “Bank”), announced that net income for the nine months ended September 30, 2023 was $5,003,107, or $1.63 per common share (basic and diluted), compared to $6,075,845, or $2.00 per common share (basic and diluted), for the same period in 2022. The Company’s return on average equity during the nine months ended September 30, 2023 was 13.45% compared to 15.53% for the same period in 2022. The Company’s return on average assets during the nine months ended September 30, 2023 was 0.91% compared to 1.14% for the same period in 2022.
Net income for the three months ended September 30, 2023 was $1,432,139, or $0.46 per common share (basic and diluted), compared to $1,974,310, or $0.65 per common share (basic and diluted), for the third quarter of 2022. The Company’s return on average equity during the three months ended September 30, 2023 was 11.54% compared to 15.85% for the same period in 2022. The Company’s return on average assets during the three months ended September 30, 2023 was 0.77% compared to 1.10% for the same period in 2022.
Net interest income for the nine months ended September 30, 2023 was $1,713,139 lower when compared to the same period in 2022 due to a decrease in the taxable equivalent net yield on average net interest earning assets to 3.04% for the nine months ended September 30, 2023 from 3.51% for the same period in 2022. The decline in net yield was partially offset by a $30.6 million increase in average interest earning assets to $713.2 million for the nine months ended September 30, 2023 from $682.6 million for the same period in 2022. Higher interest expense on deposits and borrowings was the driving factor in the lower net interest income. The Federal Reserve rate increases caused the cost of deposits and borrowings to increase significantly by 113 basis points to 1.52% for the nine months ended September 30, 2023 from 0.39% for the same period in 2022. In addition, average interest bearing liabilities increased by $28.2 million to $554.6 million for the nine months ended September 30, 2023 from $526.4 million for the same period in 2022. The taxable equivalent yield on total average interest-earning assets increased 41 basis points to 4.22% for the nine months ended September 30, 2023 from 3.81% for the same period in 2022, partially offsetting the higher cost of funds. The Company has entered into several interest rate swaps structured as fair value hedges during 2023, some in combination with the purchase of mortgage backed securities, to offset the impact of higher interest expense on deposits and borrowings.
Based on the Company’s CECL methodology, a recovery of $570,000 of credit losses was recorded for the nine months ended September 30, 2023 compared to a provision of $95,000 for the nine months ended September 30, 2022. The recovery of credit losses was due primarily to a recovery of $381,000 from loans charged off over 10 years ago which also resulted in lower historical losses and a significant decrease in the required reserve for loans. In addition, an individually evaluated loan that had a $74,208 reserve at December 31, 2022 no longer required a reserve as of September 30, 2023.
Noninterest income decreased by $106,043 for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily as a result of a $103,315 decrease in mortgage banking revenue and a $158,123 decrease in the gain on sale of SBA loans, offset by a $47,181 increase in the fair value adjustment of an equity security and a $81,860 increase in bank owned life insurance income. The decrease in mortgage banking revenue reflects a decline in refinancings due to rising interest rates. Noninterest expense was $36,155 higher in the nine months ended September 30, 2023 than in the same period in 2022, due primarily to a $102,548 increase in salaries and benefits and a $97,264 increase in furniture and equipment, offset by a $138,117 decrease in other expenses. The decrease in other expenses was due primarily to third party fees incurred during the first quarter of 2022 related to the recruitment and hiring of new employees. The increase in salaries and benefits was due to normal annual salary increases as well as the hiring of several new employees.
Income taxes decreased by $117,599 during the nine months ended September 30, 2023 when compared to the same period in 2022 due to lower earnings before taxes. The effective tax rate increased to 24.9% for the nine months ended September 30, 2023 from 22.7% for the same period last year due to a decrease in the amount of nontaxable income included in pretax income year-over-year.
Total assets increased to $757 million at September 30, 2023 from $718 million at December 31, 2022. Loans increased to $526 million at September 30, 2023 from $517 million at December 31, 2022. Investments in debt securities increased to $157 million at September 30, 2023 from $147 million at December 31, 2022. Deposits increased to $644 million at September 30, 2023 from $624 million at December 31, 2022. Approximately 20% of total deposits are uninsured by the FDIC at September 30, 2023. The implementation of the new credit loss methodology required by generally accepted accounting principles, known as current expected credit losses, or CECL, on January 1, 2023 resulted in a $470,999 increase in the credit loss reserve on loans, available credit, and held to maturity securities. This additional reserve, net of income taxes, was recorded as a reduction of equity and was not a component of the income statement. The Company’s tangible equity was $41 million at both September 30, 2023 and December 31, 2022. Tangible equity is equity less goodwill and other intangibles.
The book value of the Company’s common stock increased to $15.61 per share at September 30, 2023 from $15.56 per share at December 31, 2022. Book value per share at September 30, 2023 is reflective of the $29 million unrealized loss on the Company’s available for sale (“AFS”) investment portfolio as a result of the significant rise in interest rates over the last 24 months. Changes in the market value of the AFS investment portfolio, net of income taxes, are reflected in the Company’s equity, but are not included in the income statement. The Company’s AFS investment portfolio is comprised of 72% government agency mortgage backed securities which are fully guaranteed, 22% investment grade non agency mortgage backed securities, 2% investment grade corporate and municipal bonds, and 4% subordinated debt of other community banks. Based on management's analysis, there is no indication of credit deterioration in any of the bonds and the Company intends to hold these investments to maturity, so no actual losses are anticipated. The unrealized loss on the AFS investment portfolio had no impact on regulatory capital because the Bank elected many years ago to not include market value fluctuations in the calculation of regulatory capital.
The Company began utilizing the Federal Reserve Bank’s (“FRB”) Bank Term Funding Program (“BTFP”) during the second quarter of 2023 and had borrowings of $33,000,000 outstanding at September 30, 2023. Eligible collateral for the BTFP includes mortgage backed securities which are valued at par instead of market providing greater availability than other facilities. The BTFP also provides competitive fixed rates for up to a one year term and advances can be refinanced or paid off in full or in part at any time. This facility, along with our Federal Home Loan Bank facility, other borrowing lines available, unpledged securities, brokered deposit access, and cash, provided us with access to approximately $353 million of liquidity at September 30, 2023.
Gary A. Harris, President and CEO, commented “Higher deposit and borrowing costs continue to squeeze our net interest margin and negatively impact our earnings. We are optimistic about our growing, high quality loan portfolio and new loan activity. Our liquidity position remains strong. I have confidence in our experienced team to manage through this difficult interest rate environment.”
About the Company
The Company is a financial holding company and the parent of the Bank. The Bank was chartered in Maryland in 1919 and has over 100 years of service to the community. The Bank serves the deposit and financing needs of both consumers and businesses in Carroll and Baltimore Counties along the Route 30, Route 795, Route 140, and Route 26 corridors. The main office is located in Upperco, Maryland, with seven additional branches in Owings Mills, Hampstead, Greenmount, Reisterstown, Westminster, and Eldersburg. Certain broker-dealers make a market in the common stock of Farmers and Merchants Bancshares, Inc., and trades are reported through the OTC Markets Group’s Pink Market under the symbol “FMFG”.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “will,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Farmers and Merchants Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.
FOR FURTHER INFORMATION CONTACT:
Contact: Mr. Gary A. Harris President and Chief Executive Officer (410) 374-1510, ext. 1104
Farmers and Merchants Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
September 30,
December 31,
2023
2022
Assets
Cash and due from banks
$
23,474,989
$
6,414,822
Federal funds sold and other interest-bearing deposits
1,536,689
848,715
Cash and cash equivalents
25,011,678
7,263,537
Certificates of deposit in other banks
100,000
100,000
Securities available for sale, at fair value
136,563,220
126,314,449
Securities held to maturity, at amortized cost less allowance for credit losses of $92,045 and $0
20,134,028
20,508,997
Equity security, at fair value
482,907
489,145
Restricted stock, at cost
863,500
1,332,500
Mortgage loans held for sale
-
428,355
Loans, less allowance for credit losses of $4,516,402 and $4,150,198
526,133,041
516,920,540
Premises and equipment, net
6,093,372
6,186,594
Accrued interest receivable
2,018,786
1,815,784
Deferred income taxes, net
9,901,701
8,392,658
Other real estate owned, net
1,242,365
1,242,365
Bank owned life insurance
14,846,937
14,585,342
Goodwill and other intangibles, net
7,036,506
7,042,752
Other assets
6,209,726
5,587,654
$
756,637,767
$
718,210,672
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing
$
113,326,966
$
126,695,349
Interest-bearing
530,935,768
496,915,775
Total deposits
644,262,734
623,611,124
Securities sold under repurchase agreements
5,357,674
5,175,303
Federal Home Loan Bank of Atlanta advances
5,000,000
20,000,000
Federal Reserve Bank advances
33,000,000
-
Long-term debt, net of issuance costs
13,683,195
15,095,642
Accrued interest payable
1,491,099
349,910
Other liabilities
5,581,129
6,203,730
708,375,831
670,435,709
Stockholders' equity
Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 3,092,368 shares in 2023 and 3,071,214 shares in 2022
30,924
30,712
Additional paid-in capital
29,979,718
29,549,914
Retained earnings
38,940,539
35,300,166
Accumulated other comprehensive loss
(20,689,245
)
(17,105,829
)
48,261,936
47,774,963
$
756,637,767
$
718,210,672
Farmers and Merchants Bancshares, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Interest income
Loans, including fees
$
6,609,039
$
5,606,913
$
19,023,308
$
16,660,625
Investment securities - taxable
996,586
783,606
2,528,793
2,170,154
Investment securities - tax exempt
137,254
140,185
416,626
430,495
Federal funds sold and other interest earning assets
258,818
55,361
469,721
89,663
Total interest income
8,001,697
6,586,065
22,438,448
19,350,937
Interest expense
Deposits
2,239,808
313,556
5,010,624
971,320
Securities sold under repurchase agreements
12,110
2,874
23,949
8,558
Federal Home Loan Bank advances
39,289
12,727
452,272
37,765
Federal Reserve Bank advances
378,500
-
391,763
-
Long-term debt
145,001
165,156
444,953
505,268
Total interest expense
2,814,708
494,313
6,323,561
1,522,911
Net interest income
5,186,989
6,091,752
16,114,887
17,828,026
(Recovery of) provision for credit losses
(75,000
)
95,000
(570,000
)
95,000
Net interest income after (recovery of) provision for credit losses
5,261,989
5,996,752
16,684,887
17,733,026
Noninterest income
Service charges on deposit accounts
195,566
201,251
586,999
574,444
Mortgage banking income
33,585
8,155
92,514
195,829
Bank owned life insurance income
89,748
70,479
261,595
179,735
Fair value adjustment of equity security
(13,769
)
(17,611
)
(15,343
)
(62,524
)
Gain on sale of SBA loans
-
-
-
158,123
Other fees and commissions
78,096
75,211
243,125
229,326
Total noninterest income
383,226
337,485
1,168,890
1,274,933
Noninterest expense
Salaries
1,916,804
1,987,991
5,643,742
5,656,643
Employee benefits
348,048
418,422
1,483,278
1,367,829
Occupancy
229,135
229,273
645,398
670,938
Furniture and equipment
246,896
203,075
739,547
642,283
Other
1,005,065
945,930
2,677,065
2,815,182
Total noninterest expense
3,745,948
3,784,691
11,189,030
11,152,875
Income before income taxes
1,899,267
2,549,546
6,664,747
7,855,084
Income taxes
467,128
575,236
1,661,640
1,779,239
Net income
$
1,432,139
$
1,974,310
$
5,003,107
$
6,075,845
Earnings per common share - basic and diluted
$
0.46
$
0.65
$
1.63
$
2.00
FAQ
What is the net income of Farmers and Merchants Bancshares for the nine months ended September 30, 2023?
Farmers and Merchants Bancshares reports net income of $5,003,107 for the nine months ended September 30, 2023, compared to $6,075,845 for the same period in 2022.
What is the total assets of Farmers and Merchants Bancshares at September 30, 2023?
Total assets increase to $757 million at September 30, 2023.
What is the book value per share of Farmers and Merchants Bancshares at September 30, 2023?
Book value per share increases to $15.61 at September 30, 2023.
What program does Farmers and Merchants Bancshares utilize for liquidity?
Farmers and Merchants Bancshares utilizes the Federal Reserve Bank's Bank Term Funding Program for liquidity.
An email has been sent to your address with instructions for changing your password.
There is no user registered with this email.
Sign Up
To create a free account, please fill out the form below.
Thank you for signing up!
A confirmation email has been sent to your email address. Please check your email and follow the instructions in the message to complete the registration process. If you do not receive the email, please check your spam folder or contact us for assistance.
Welcome to our platform!
Oops!
Something went wrong while trying to create your new account. Please try again and if the problem persist, Email Us to receive support.