Farmers and Merchants Bancshares, Inc. Reports Earnings of $6,418,337 or $2.08 Per Share for the Year Ended December 31, 2023

Rhea-AI Summary

Farmers and Merchants Bancshares, Inc. reported a decrease in net income and return on equity and assets for the year ended December 31, 2023, compared to the same period in 2022. The net interest income and noninterest income also decreased, while noninterest expenses and income taxes decreased. Total assets, loans, investments, cash and cash equivalents, and deposits increased. The company's tangible equity and book value per share also increased. The implementation of the new credit loss methodology resulted in an increase in the credit loss reserve on loans, available credit, and held to maturity securities. The company utilized the Federal Reserve Bank’s Bank Term Funding Program and had borrowings outstanding at December 31, 2023. The CEO commented on the challenging year and the impact of the higher interest rate environment.

Positive

• Increase in total assets, loans, investments, cash and cash equivalents, and deposits
• Increase in tangible equity and book value per share
• Utilization of the Federal Reserve Bank’s Bank Term Funding Program

Negative

• Decrease in net income and return on equity and assets
• Decrease in net interest income and noninterest income
• Higher deposit and borrowing costs negatively impacting earnings

HAMPSTEAD, Md., Jan. 31, 2024 (GLOBE NEWSWIRE) -- Farmers and Merchants Bancshares, Inc. (the “Company”), the parent of Farmers and Merchants Bank (the “Bank”), announced that net income for the year ended December 31, 2023 was $6,418,337, or $2.08 per common share (basic and diluted), compared to $8,090,127, or $2.66 per common share (basic and diluted), for the same period in 2022. The Company’s return on average equity during the year ended December 31, 2023 was 13.08% compared to 16.03% for the same period in 2022. The Company’s return on average assets during the year ended December 31, 2023 was 0.86% compared to 1.13% for the same period in 2022.

Net income for the three months ended December 31, 2023 was $1,415,230, or $0.46 per common share (basic and diluted), compared to $2,014,282, or $0.66 per common share (basic and diluted), for the fourth quarter of 2022. The Company’s return on average equity during the three months ended December 31, 2023 was 11.92% compared to 17.76% for the same period in 2022. The Company’s return on average assets during the three months ended December 31, 2023 was 0.72% compared to 1.12% for the same period in 2022.          

Net interest income for the year ended December 31, 2023 was $2,707,482 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 2.97% for the year ended December 31, 2023 from 3.54% for the same period in 2022. The decline in net yield was partially offset by a $41.2 million increase in average interest earning assets to $728.0 million for the year ended December 31, 2023 from $686.8 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 133 basis points to 1.74% for the year ended December 31, 2023 from 0.41% for the same period in 2022. In addition, average interest bearing liabilities increased by $42.2 million to $570.4 million for the year ended December 31, 2023 from $528.2 million for the same period in 2022. The taxable equivalent net yield on total average interest-earning assets increased 48 basis points to 4.33% for the year ended December 31, 2023 from 3.85% for the same period in 2022, partially offsetting the higher cost of funds. The Company 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 year ended December 31, 2023 compared to provision expense of $475,000 recorded for the year ended December 31, 2022. The recovery of credit losses was due primarily to a recovery of $387,000 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 December 31, 2023.

Noninterest income decreased by $702,438 for the year ended December 31, 2023 when compared to the same period in 2022, primarily as a result of a $669,077 net decrease in gain on insurance proceeds, a $117,046 decrease in mortgage banking revenue and a $138,741 decrease in the gain on the sale of SBA loans, offset by a $67,539 increase in the fair value adjustment of an equity security, and a $116,233 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 $225,354 lower for the year ended December 31, 2023 compared to the prior year, due primarily to a $257,243 decrease on other real estate owned and an $117,639 decrease in salaries and benefits, offset by a $91,876 increase in furniture and equipment and a $65,777 increase in other expenses. The decrease in other real estate owned expense is primarily due to a $249,217 gain on the sale of other real estate owned for which the carrying value was $0. The decrease in salaries and benefits was due to a $495,875 decrease in bonus expense, primarily due to lower net income, offset by normal annual salary increases as well as the hiring of several new employees. The increase in furniture and equipment expenses was due primarily to upgrades of equipment as the Company moves toward a conversion of its core system in 2024.

Income taxes decreased by $467,776 during the year ended December 31, 2023 when compared to the same period in 2022 due to lower earnings before taxes. The effective tax rate increased to 23.9% for the year ended December 31, 2023 from 23.5% 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 $800 million at December 31, 2023 from $718 million at December 31, 2022. Loans increased to $523 million at December 31, 2023 from $517 million at December 31, 2022. Investments in debt securities increased to $184 million at December 31, 2023 from $147 million at December 31, 2022. Cash and cash equivalents increased to $45 million at December 31, 2023 from $7 million at December 31, 2022. Deposits increased to $681 million at December 31, 2023 from $624 million at December 31, 2022. Approximately 20% of total deposits were uninsured by the FDIC at December 31, 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 $335,935 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 $45 million at December 31, 2023 and $41 million at December 31, 2022. Tangible equity is a non-GAAP measure, which is equity ($52 million and $48 million at December 31, 2023 and 2022, respectively) less goodwill and other intangibles ($7 million at both December 31, 2023 and 2022).

The book value of the Company’s common stock increased to $16.74 per share at December 31, 2023 from to $15.56 per share at December 31, 2022. Book value per share at December 31, 2023 is reflective of the $23 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 58% government agency mortgage backed securities which are fully guaranteed, 36% 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 Company 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 Bank Term Funding Program (“BTFP”) during the second quarter of 2023 and had borrowings of $33,000,000 outstanding at December 31, 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 the Company’s Federal Home Loan Bank facility, other borrowing lines available, unpledged securities, brokered deposit access, and cash, provided the Company with access to approximately $379 million of liquidity at December 31, 2023.

Gary A. Harris, President and CEO, commented “2023 was a challenging year with higher deposit and borrowing costs, which significantly reduced our net interest margin and negatively impacted our earnings. It appears that the higher interest rate environment will continue well into 2024. However, we are optimistic about our 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 Company’s periodic reports filed with the Securities and Exchange Commission entitled “Risk Factors”.

Farmers and Merchants Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
	December 31,				December 31,
		2023				2022
Assets
Cash and due from banks	$	44,404,473			$	6,414,822
Federal funds sold and other interest-bearing deposits		285,864				848,715
Cash and cash equivalents		44,690,337				7,263,537
Certificates of deposit in other banks		100,000				100,000
Securities available for sale, at fair value		164,084,673				126,314,449
Securities held to maturity, at amortized cost less allowance for credit losses of $35,627 and $0		20,163,622				20,508,997
Equity security, at fair value		507,130				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 $4,285,247 and $4,150,198		523,308,044				516,920,540
Premises and equipment, net		6,583,452				6,186,594
Accrued interest receivable		2,180,734				1,815,784
Deferred income taxes, net		8,312,482				8,392,658
Other real estate owned, net		1,242,365				1,242,365
Bank owned life insurance		14,930,754				14,585,342
Goodwill and other intangibles, net		7,034,424				7,042,752
Other assets		5,939,309				5,587,654
	$	799,940,826			$	718,210,672
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$	115,284,706			$	126,695,349
Interest-bearing		565,678,145				496,915,775
Total deposits		680,962,851				623,611,124
Securities sold under repurchase agreements		6,760,493				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		13,212,378				15,095,642
Accrued interest payable		1,482,773				349,910
Other liabilities		7,344,040				6,203,730
		747,762,535				670,435,709
Stockholders' equity
Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 3,116,966 shares in 2023 and 3,071,214 shares in 2022		31,170				30,712
Additional paid-in capital		30,398,080				29,549,914
Retained earnings		39,433,185				35,300,166
Accumulated other comprehensive loss		(17,684,144	)			(17,105,829	)
		52,178,291				47,774,963
	$	799,940,826			$	718,210,672

Farmers and Merchants Bancshares, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
	Year Ended December 31,
		2023				2022
Interest income
Loans, including fees	$	25,730,722			$	22,565,034
Investment securities - taxable		4,299,206				2,981,300
Investment securities - tax exempt		554,396				570,655
Federal funds sold and other interest earning assets		738,814				152,664
Total interest income		31,323,138				26,269,653
Interest expense
Deposits		7,971,094				1,375,691
Securities sold under repurchase agreements		41,873				12,768
Federal Home Loan Bank advances		485,886				93,079
Federal Reserve Bank advances		823,319				-
Long-term debt		584,953				664,620
Total interest expense		9,907,125				2,146,158
Net interest income		21,416,013				24,123,495
(Recovery of) provision for credit losses		(570,000	)			475,000
Net interest income after (recovery of) provision for credit losses		21,986,013				23,648,495
Noninterest income
Service charges on deposit accounts		792,941				777,901
Mortgage banking income		96,997				214,043
Bank owned life insurance income		345,412				229,179
Fair value adjustment of equity security		5,445				(62,094	)
Gain on sale of SBA loans		19,392				158,123
Gain on insurance proceeds, net		4,406				673,483
Other fees and commissions		326,907				303,303
Total noninterest income		1,591,500				2,293,938
Noninterest expense
Salaries		7,544,773				7,865,194
Employee benefits		2,000,932				1,798,150
Occupancy		874,775				890,926
Furniture and equipment		983,126				891,250
Other real estate owned, net		(235,538	)			21,705
Other		3,973,858				3,900,055
Total noninterest expense		15,141,926				15,367,280
Income before income taxes		8,435,587				10,575,153
Income taxes		2,017,250				2,485,026
Net income	$	6,418,337			$	8,090,127
Earnings per common share - basic	$	2.08			$	2.66
Earnings per common share - diluted	$	2.08			$	2.66

Farmers and Merchants Bancshares, Inc.
Selected Consolidated Financial Data
(unaudited)
		2023				2022				2021
OPERATING DATA
Interest income	$	31,323,138			$	26,269,653			$	25,680,403
Interest expense		9,907,125				2,146,158				2,805,299
Net interest income		21,416,013				24,123,495				22,875,104
Provision for (recovery of) loan losses		(570,000	)			475,000				330,000
Net interest income after provision for (recovery of) loan losses		21,986,013				23,648,495				22,545,104
Noninterest income		1,591,500				2,293,938				2,165,914
Noninterest expense		15,141,926				15,367,280				14,128,599
Income before income taxes		8,435,587				10,575,153				10,582,419
Income taxes		2,017,250				2,485,026				2,432,813
Net income	$	6,418,337			$	8,090,127			$	8,149,606
PER SHARE DATA
Net income (basic and diluted)	$	2.08			$	2.66			$	2.70
Dividends	$	0.66			$	0.63			$	0.57
Book value	$	16.74			$	15.56			$	18.64
KEY RATIOS
Return on average assets		0.86	%			1.13	%			1.16	%
Return on average equity		13.08	%			16.03	%			14.85	%
Efficiency ratio		65.81	%			58.17	%			56.42	%
Dividend payout ratio		31.73	%			23.68	%			21.11	%
Net yield on interest-earning assets		2.97	%			3.54	%			3.47	%
Tier 1 capital leverage ratio		9.42	%			9.83	%			9.27	%
AT PERIOD END
Total assets	$	799,940,826			$	718,210,672			$	716,677,255
Gross loans		528,166,501				521,679,143				485,661,602
Cash and cash equivalents		44,690,337				7,263,537				26,462,106
Securities		184,248,295				146,823,446				171,089,891
Deposits		680,962,851				623,611,124				626,414,670
Borrowings		57,972,871				40,270,945				27,392,931
Stockholders' equity		52,178,291				47,774,963				56,621,458
SELECTED AVERAGE BALANCES
Total assets	$	745,478,612			$	714,115,497			$	703,455,422
Gross loans		528,910,091				498,427,308				515,167,318
Cash and cash equivalents		18,497,261				20,015,477				38,059,811
Securities		182,159,701				174,776,879				119,905,876
Deposits		642,039,185				631,809,943				489,816,460
Borrowings		48,040,853				26,042,874				32,398,746
Stockholders' equity		49,063,426				50,457,994				54,885,256
ASSET QUALITY
Nonperforming assets	$	1,897,775			$	1,897,775			$	6,454,940
Nonperforming assets/total assets		0.24	%			0.26	%			0.90	%
Allowance for credit losses on loans/total loans		0.81	%			0.80	%			0.75	%

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

FAQ

What was the net income for the year ended December 31, 2023?

The net income for the year ended December 31, 2023 was $6,418,337.

What was the return on average equity for the year ended December 31, 2023?

The return on average equity for the year ended December 31, 2023 was 13.08%.

What was the net interest income for the year ended December 31, 2023?

The net interest income for the year ended December 31, 2023 was $2,707,482 lower when compared to the same period in 2022.

What was the change in total assets from December 31, 2022, to December 31, 2023?

Total assets increased to $800 million at December 31, 2023 from $718 million at December 31, 2022.

What is the book value per share at December 31, 2023?

The book value per share at December 31, 2023 is $16.74 per share.