Farmers and Merchants Bancshares, Inc. Reports Earnings of $0.76 Per Share for the Nine Months Ended September 30, 2020

HAMPSTEAD, Md., Oct. 28, 2020 (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, 2020 was $2,264,609, or $0.76 per common share, compared to $3,500,018, or $1.19 per common share, for the same period in 2019. Net income for the three months ended September 30, 2020 was $385,247, or $0.13 per common share, compared to $1,177,910, or $0.40 per common share, for the same period in 2019. On October 1, 2020, the Company consummated its previously-announced acquisition of Carroll Bancorp, Inc. and Carroll Community Bank. The Company incurred significant one-time costs of $1,267,401 and $1,612,321 during the three- and nine-months ended September 30, 2020 related to this acquisition. The table below provides a comparison of the Company’s results for the three- and nine-month periods ended September 30, 2020 and 2019, both with and without the acquisition costs.

	Three Months Ended									Nine Months Ended
	September 30, 2020						September 30, 2019			September 30, 2020						September 30, 2019
				Excluding									Excluding
	As Reported			Acquisition Costs			As Reported			As Reported			Acquisition Costs			As Reported
Income before taxes	$	462,110		$	1,729,511		$	1,485,634		$	2,724,959		$	4,337,280		$	4,284,526
Income taxes		76,863			370,835			307,724			460,350			849,235			784,508
Net income	$	385,247		$	1,358,676		$	1,177,910		$	2,264,609		$	3,488,045		$	3,500,018
Earnings per share	$	0.13		$	0.45		$	0.40		$	0.76		$	1.17		$	1.19
Return on average assets		0.31	%		1.10	%		1.09	%		0.63	%		0.97	%		1.09	%
Return on average equity		2.95	%		10.40	%		9.70	%		5.88	%		9.06	%		9.84	%

Net interest income for the nine months ended September 30, 2020 was $513,340 higher than for the same period in 2019 due to a $47.5 million increase in average interest earning assets to $457.4 million for the nine months ended September 30, 2020 as compared to $409.8 million for the same period in 2019, offset by a decline in the taxable equivalent net yield on interest earning assets to 3.46% in the 2020 period from 3.69% in the 2019 period. The net yield declined because the yield on loans and investments decreased 38 basis points to 4.20% for the nine months ended September 30, 2020 from 4.58% for the same period in 2019 as a result of the Federal Reserve rate cuts and the Company’s origination of $31 million of Paycheck Protection Program (“PPP”) loans that are yielding less than 2.50%. The Company’s cost of deposits and borrowings of 0.98% for the nine months ended September 30, 2020 was 16 basis points lower than the cost of 1.14% for the nine months ended September 30, 2019. The Company expects the cost of funds to continue to decline over the remainder of 2020 because the Company has significantly reduced rates on many of its deposit products. The provision for loan losses totaled $475,000 for the nine months ended September 30, 2020 as a result of the economic downturn caused by the COVID-19 pandemic, compared to no provision for the same period in 2019.

Noninterest income increased by $288,999 in the nine months ended September 30, 2020 when compared to the same period in 2019, primarily as a result of a $434,797 increase in mortgage banking income and a $210,150 decrease in the write down of other real estate owned, offset by a $194,368 decrease in bank owned life insurance income, a $75,900 decrease in the gain on the sale of SBA loans, and a $80,251 decrease in service charges. Noninterest expense was $1,886,906 higher in the nine months ended September 30, 2020 when compared to the same period in 2019 due primarily to the aforementioned acquisition costs of $1,612,321 and usual salary and benefit increases of $295,331. Income taxes declined by $324,158 during the nine months ended September 30, 2020 when compared to the same period in 2019 due to lower income before taxes and a higher percentage of tax-exempt revenue.

Total assets increased to $513 million at September 30, 2020 from $442 million at December 31, 2019. Loans increased to $390 million at September 30, 2020 from $359 million at December 31, 2019. The increase in loans was due primarily to the origination of $31 million of PPP loans. Investment in debt securities increased to $62 million at September 30, 2020 from $56 million at December 31, 2019. Deposits increased to $426 million at September 30, 2020 from $377 million at December 31, 2019. The increase in deposits was due in large part to existing customers who deposited the proceeds of their PPP loans with the Bank. In many cases, the customers have not withdrawn the PPP funds. In connection with the acquisition by merger of Carroll Bancorp, Inc., the Company borrowed $17 million that it used to fund a portion of the $25 million cash merger consideration. Although the acquisition was consummated on October 1, 2020, the terms of the acquisition agreement required the Company to deposit the borrowed funds, together with $8 million in cash on hand, in escrow with the parties’ exchange agent on September 30, 2020. The $17 million borrowing was recorded as a long-term debt and the $25 million deposit was recorded as other assets as of September 30, 2020. The book value of the common stock of Farmers and Merchants Bancshares, Inc. was $17.36 per share at September 30, 2020, compared to $16.63 per share at December 31, 2019.

The COVID-19 pandemic has been wreaking havoc on the U.S. economy. The full impact and its effect on the banking industry will not be known for several quarters, but will be significant. The Bank is providing relief to its borrowers, as needed, including temporary deferral of payments. During the second quarter, the Bank granted 90-day payment deferrals on 107 loans totalling $109.2 million, which was approximately 30% of the portfolio. The initial 90-day deferral period has ended. Of these deferred loans, 13 loans totaling $21.8 million, or 6% of the portfolio, have been granted an additional 90-day deferral. In addition, as mentioned previously, the Bank has made a significant amount of PPP loans to customers.

James R. Bosley, Jr., President and CEO, commented “We are excited that the acquisition of Carroll Community Bank has finally closed effective October 1. During the fourth quarter we will be converting systems and integrating operations between the two banks. While the COVID-19 pandemic continues, we are happy to report that our employees are healthy and that most of our borrowers are weathering the storm. We are pleased to have helped many of our borrowers with payment deferrals and/or PPP loans. Finally, our earnings excluding acquisition costs are just slightly behind 2019’s earnings indicating that the Bank’s core operations are performing well.”

About the Company

Farmers and Merchants Bancshares, Inc. is a financial holding company and the parent of Farmers and Merchants Bank. The Bank was chartered in Maryland in 1919, and is currently celebrating 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 and Route 795 corridors from Owings Mills, Maryland to the Pennsylvania State line. The main office is located in Upperco, Maryland, with seven additional branches in Owings Mills, Hampstead, Greenmount, Reisterstown, and Westminster. Certain broker-dealers make a market in the common stock of Farmers and Merchants Bancshares, Inc., and trades are reported through the OTC Markets Group’s Pink Market under the symbol “FMFG”.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “will,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Farmers and Merchants Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

Farmers and Merchants Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets

		September 30,			December 31,
		2020			2019
		(Unaudited)
Assets
Cash and due from banks	$	14,766,830		$	6,664,307
Federal funds sold and other interest-bearing deposits		465,755			2,457,045
Cash and cash equivalents		15,232,585			9,121,352
Certificate of deposit in other bank		100,000			100,000
Securities available for sale		39,882,135			36,531,774
Securities held to maturity		22,602,562			19,510,018
Equity security at fair value		553,057			532,321
Federal Home Loan Bank stock, at cost		696,300			376,200
Mortgage loans held for sale		2,650,459			242,000
Loans, less allowance for loan losses of $3,141,312 and 2,593,715		390,114,430			359,382,843
Premises and equipment		5,096,063			5,036,851
Accrued interest receivable		1,215,284			1,019,540
Deferred income taxes		754,417			1,036,078
Bank owned life insurance		7,272,949			7,145,477
Other assets		27,307,504			2,180,644
	$	513,477,745		$	442,215,098
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$	79,010,403		$	60,659,015
Interest-bearing		347,065,245			315,954,299
Total deposits		426,075,648			376,613,314
Securities sold under repurchase agreements		6,317,682			10,958,118
Federal Home Loan Bank of Atlanta advances		7,000,000			-
Long-tem debt		16,971,874			-
Accrued interest payable		230,177			346,214
Other liabilities		4,954,184			4,843,936
		461,549,565			392,761,582
Stockholders' equity
Common stock, par value $.01 per share,
authorized 5,000,000 shares; issued and outstanding
2,991,964 in 2020 and 2,974,019 in 2019		29,920			29,740
Additional paid-in capital		28,054,158			27,812,991
Retained earnings		23,059,567			21,568,161
Accumulated other comprehensive income		784,535			42,624
		51,928,180			49,453,516
	$	513,477,745		$	442,215,098

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

	Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019				2020			2019
Interest income
Loans, including fees	$	4,489,992		$	4,250,071			$	13,205,913		$	12,582,392
Investment securities - taxable		159,277			234,274				561,038			631,382
Investment securities - tax exempt		163,522			150,141				462,305			431,354
Federal funds sold and other interest earning assets		9,563			84,526				58,362			280,876
Total interest income		4,822,354			4,719,012				14,287,618			13,926,004
Interest expense
Deposits		690,833			916,452				2,429,496			2,577,229
Securities sold under repurchase agreements		18,020			29,190				95,710			82,912
Federal Home Loan Bank advances and other borrowings		12,752			10,769				25,726			42,517
Total interest expense		721,605			956,411				2,550,932			2,702,658
Net interest income		4,100,749			3,762,601				11,736,686			11,223,346
Provision for loan losses		-			(13,000	)			475,000			-
Net interest income after provision for loan losses		4,100,749			3,775,601				11,261,686			11,223,346
Noninterest income
Service charges on deposit accounts		138,288			176,577				414,501			494,752
Mortgage banking income		272,297			144,268				684,664			249,867
Bank owned life insurance income		42,250			39,443				127,473			321,841
Unrealized gain on equity security		1			3,966				13,045			18,721
Write down of other real estate owned		-			-				-			(210,150	)
Gain on sale of SBA loans		-			-				63,635			139,535
Other fees and commissions		34,532			28,714				94,278			94,031
Total noninterest income		487,368			392,968				1,397,596			1,108,597
Noninterest expense
Salaries		1,462,946			1,358,208				4,114,143			3,993,998
Employee benefits		376,860			312,119				1,183,414			1,008,228
Occupancy		183,719			189,603				552,265			594,566
Furniture and equipment		175,006			149,191				501,267			460,271
Acquisition		1,267,401			-				1,612,321			-
Other		660,075			673,814				1,970,913			1,990,354
Total noninterest expense		4,126,007			2,682,935				9,934,323			8,047,417
Income before income taxes		462,110			1,485,634				2,724,959			4,284,526
Income taxes		76,863			307,724				460,350			784,508
Net income	$	385,247		$	1,177,910			$	2,264,609		$	3,500,018
Earnings per share - basic and diluted	$	0.13		$	0.40			$	0.76		$	1.19

Farmers and Merchants Bancshares, Inc.	Contact:	Mr. James R. Bosley, Jr.
4510 Lower Beckleysville Rd, Suite H		President
Hampstead, Maryland 21074		(410) 374-1510, ext.104