FMFG 10-K & 10-Q changes, risk factors and insider trading
Farmers & Merchants Bancshares, Inc. · OTC · Savings Institutions, Not Federally Chartered · CIK 1698022 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our ability to pay dividends or make most other distributions on the common stock could be limited by the terms of our outstanding subordinated debentures.”
Largest changes
“On September 25, 2025, Farmers and Merchants Bancshares, Inc. issued $12,500,000 million in aggregate principal amount of its 7.875% Fixed to Floating Rate Subordinated Notes due September 25, 2035 (the “Subordinated Notes”). …”see in full comparison
“Our ability to pay dividends or make most other distributions on the common stock could be limited by the terms of our outstanding subordinated debentures.”see in full comparison
see in full comparisonDue toSince the 2008 recession that involved a large number of bankfailures that have occurred since the 2008 recession,failures, banking customers across the country have become increasingly concerned about the extent to which their deposits are insured by the FDIC. This concern could cause the Bank’s customers to withdraw deposits from the Bank in an effort to ensure that the amount they have on deposit with us is fully-insured. Because the Bank relies heavily on deposits to fund loans and purchase other interest-earning assets, a decrease in deposits could have a materially adverse effect on our funding costs and net income.
We formed the Insurance Subsidiary as a captive insurance company in late 2016 to insure or reinsure certain risks faced by the Bank as part of our enterprise-wide, multi-year insurance strategy to better position our risk programs and provide us with increased flexibility in the management of our insurance programs as well as contribute to efficiencies relating to our insurance programs over time. As indicated by our decision to not renew our most recent policy, we may deviate from or change our insurance strategy from time to time, such as by choosing to not purchase insurance coverage through the Insurance Subsidiary for a particular year. If we do purchase insurance coverage through the Insurance Subsidiary, we may experience unanticipated events that could reduce or eliminate the benefits, both operational and financial, that we hope to realize through this entity, including, without limitation, significant insurance claims and/or changes in tax laws. In particular, we may not realize the tax benefits of owning a captive insurance company, which are discussed insee in full comparisonthe section ofItem 1 of thisannualAnnualreportReportentitledunder the heading “Supervision and Regulation”under the heading- “Laws Related to the Insurance Subsidiary”. Although we believe that we have structured the Insurance Subsidiary’s operations to achieve these benefits, no assurance can be given that our efforts were or will be successful.If we are unable to achieve these benefits, then we will likely suspend the operations of the Insurance Subsidiary.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. Although the digital asset marketplace hassee in full comparisonin recent monthsexperienced substantialinstability,instability over the past few years, transactions utilizing digital assets, including cryptocurrencies, stablecoins and other similar assets, have increasedsubstantially over the course of the last several years.substantially. Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions as illustrated by the current and ongoing market volatility. Accordingly, digital asset service providers, which at present are not subject to the extensive regulation of banking organizations and other financial institutions, have become active competitors for our customers’ banking business. The process of eliminating banks as intermediaries, known as “disintermediation”, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Further, an initiative by the CFPB, as prompted by the current Presidential Administration, to promote “open and decentralized banking” through the proposal of a Personal Financial Data Rights rule designed to facilitate the transfer of customer information at the direction of the customer to other financial institutions could lead to greater competition for products and services among banks and nonbanks alike if a final rule is adopted. The timing of and prospects for any such action are uncertain at this time. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Full comparison: every changed paragraph (9)
The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loans being made, the creditworthiness of the borrowers over the term of the loans and, in the case of collateralized loans, the value and marketability of the collateral for the loans. Management of the Bank maintains an allowance for loancredit losses on loans based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for credit losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable. If management’s assumptions and judgments prove to be incorrect and the allowance for credit losses is inadequate to absorb future losses, or if the bank regulatory authorities require us to increase the allowance for credit losses as a part of its examination process, our earnings and capital could be significantly and adversely affected. Although management continually monitors our loan portfolio and makes determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic or other conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Material additions to the allowance for credit losses could result in a material decrease in our net income and capital, and could have a material adverse effect on our financial condition.
Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of Governors,Reserve, and market interest rates.
In addition, changes to the banking laws over the last several years have facilitated interstate branching, merger and expanded activities by banks and holding companies. For example, the federal Gramm-Leach-Bliley Act revised the BHC Act and repealed the affiliation provisions of the Glass-Steagall Act of 1933, which, taken together, limited the securities and other non-banking activities of any company that controls an FDIC insured financial institution. As a result, the ability of financial institutions to branch across state lines and the ability of these institutions to engage in previously-prohibited activities are now accepted elements of competition in the banking industry. These changes may bring us into competition with more and a wider array of institutions, which may reduce our ability to attract or retain customers. Management cannot predict the extent to which we will face such additional competition or the degree to which such competition will impact our financial conditions or results of operations.
Due toSince the 2008 recession that involved a large number of bank failures that have occurred since the 2008 recession,failures, banking customers across the country have become increasingly concerned about the extent to which their deposits are insured by the FDIC. This concern could cause the Bank’s customers to withdraw deposits from the Bank in an effort to ensure that the amount they have on deposit with us is fully-insured. Because the Bank relies heavily on deposits to fund loans and purchase other interest-earning assets, a decrease in deposits could have a materially adverse effect on our funding costs and net income.
We formed the Insurance Subsidiary as a captive insurance company in late 2016 to insure or reinsure certain risks faced by the Bank as part of our enterprise-wide, multi-year insurance strategy to better position our risk programs and provide us with increased flexibility in the management of our insurance programs as well as contribute to efficiencies relating to our insurance programs over time. As indicated by our decision to not renew our most recent policy, we may deviate from or change our insurance strategy from time to time, such as by choosing to not purchase insurance coverage through the Insurance Subsidiary for a particular year. If we do purchase insurance coverage through the Insurance Subsidiary, we may experience unanticipated events that could reduce or eliminate the benefits, both operational and financial, that we hope to realize through this entity, including, without limitation, significant insurance claims and/or changes in tax laws. In particular, we may not realize the tax benefits of owning a captive insurance company, which are discussed in the section of Item 1 of this annualAnnual reportReport entitledunder the heading “Supervision and Regulation” under the heading- “Laws Related to the Insurance Subsidiary”. Although we believe that we have structured the Insurance Subsidiary’s operations to achieve these benefits, no assurance can be given that our efforts were or will be successful. If we are unable to achieve these benefits, then we will likely suspend the operations of the Insurance Subsidiary.
Consumers may decide to not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. Although the digital asset marketplace has in recent months experienced substantial instability,instability over the past few years, transactions utilizing digital assets, including cryptocurrencies, stablecoins and other similar assets, have increased substantially over the course of the last several years.substantially. Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions as illustrated by the current and ongoing market volatility. Accordingly, digital asset service providers, which at present are not subject to the extensive regulation of banking organizations and other financial institutions, have become active competitors for our customers’ banking business. The process of eliminating banks as intermediaries, known as “disintermediation”, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Further, an initiative by the CFPB, as prompted by the current Presidential Administration, to promote “open and decentralized banking” through the proposal of a Personal Financial Data Rights rule designed to facilitate the transfer of customer information at the direction of the customer to other financial institutions could lead to greater competition for products and services among banks and nonbanks alike if a final rule is adopted. The timing of and prospects for any such action are uncertain at this time. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Our ability to pay dividends or make most other distributions on the common stock could be limited by the terms of our outstanding subordinated debentures.
On September 25, 2025, Farmers and Merchants Bancshares, Inc. issued $12,500,000 million in aggregate principal amount of its 7.875% Fixed to Floating Rate Subordinated Notes due September 25, 2035 (the “Subordinated Notes”). Subject to certain exceptions set forth in the Subordinated Notes, if the Company were to fail to make any required payment of principal or interest under one of the Subordinated Notes or an Event of Default (as defined in the Subordinated Notes) were to occur, then, until such Event of Default is cured by the Company or waived by the holders of the Subordinated Notes, the Company would be prohibited from, among other things, declaring or paying any dividends or distributions on, or redeeming, purchasing, acquiring, or making a liquidation payment with respect to, any of the Company’s capital stock, including the common stock.
Management's Discussion & Analysis (MD&A)
New heading “RATE/VOLUME ANALYSIS”
Removed heading “Quarterly Results of Operations”
Largest changes
“Management applies various valuation methodologies to assets and liabilities that 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. …”see in full comparison
“The payment of principal and interest on the Subordinated Notes is subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company. The Subordinated Notes are general unsecured, subordinated obligations of the Company and rank junior to all of its existing and future Senior Indebtedness (as defined in the Subordinated Notes). The Subordinated Notes are obligations of only the Company and are not obligations of, and are not guaranteed by, any of its subsidiaries, including the Bank. …”see in full comparison
“From and including the original issue date of the Subordinated Notes the (“Issue Date”) to but excluding September 26, 2030 or the date of earlier redemption, the Company will pay interest on the Subordinated Notes semi-annually in arrears on March 26th and September 26th of each year at a fixed interest rate of 7.875% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, beginning on March 26, 2026. …”see in full comparison
“The Subordinated Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Subordinated Notes are not subject to redemption at the option of the holder. Prior to September 26, 2030, the Company may redeem the Notes, in whole or in part, only under the certain limited circumstances set forth in the Subordinated Notes. …”see in full comparison
“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).”see in full comparison
Full comparison: every changed paragraph (64)
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto as of and for the years ended December 31, 20242025 and 2023,2024, which are presented elsewhere in this annualAnnual report.Report.
The allowance for credit losses on loans represents management’s estimate of expected credit losses 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, and consideration of current and future economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet. Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses.
Management applies various valuation methodologies to assets and liabilities that 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 credit losses 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.
Total assets were $844.6$872.0 million at December 31, 2024,2025, an increase of $44.7$27.3 million, or 5.6%,3.2%, over the $799.9$844.6 million recorded at December 31, 2023.2024. The increase was due primarily to a $59.7$50.2 million increase in loans and a $20.0 million increase cash and cash equivalents, offset by a decrease of $38.0$18.0 million in investments.cash and cash equivalents and a decrease in investments of $6.4 million.
Total liabilities were $788.4$807.3 million at December 31, 2024,2025, an increase of $40.6$18.9 million, or 5.4%,2.4%, over the $747.8$788.4 million recorded at December 31, 2023.2024. The increase was due primarily to an increase of $77.8$57.7 million in deposits,FHLB, offset by a decrease of $33.0$88.5 million in Federalbrokered ReserveCDs, Bankand (“FRB”)an advances,increase ain decreaseother deposits of $1.2$50.0 million in repurchase agreements, a $1.9 million decrease in long term debt, and a decrease of $1.1 million in accrued interest payable and other liabilities.million.
Stockholders’ equity was $64.7 million at December 31, 2025 compared to $56.3 million at December 31, 2024 compared to $52.2 at December 31, 2023,2024, an increase of $4.1$8.4 million or 7.8%.14.9%. The increase was due primarily to net income for 20242025 of $4.3$5.8 million and a decrease in after-tax unrealized losslosses on available for sale securities of $1.2$3.8 million, offset by dividends paid, net of reinvestments, of $1.4$1.3 million.
Loans increased by $59.7$50.2 million, or 11.4%,8.6%, to $633.1 million at December 31, 2025 from $583.0 million at December 31, 2024 from $523.3 million at December 31, 2023.2024. The increase was due primarily to an increase of $36.2$34.6 million in commercial real estate loans and an increase of $17.6$9.0 million in commercial loans. Additionally, construction/land development loansloans. increased by $1.7 million andAdditionally, residential loans increased by $4.4$7.0 million. The growth was due to addition of new lending staff during the year and stabilizing interest rates. Total loan production increased by $68.5 million in 2024 when compared to 2023 and loan payoffs increased by $19.7 million as stabilizing rising rates allowed for more borrowers to refinance. The allowance for credit losses remainedincreased flatslightly atto $4.4 million as of December 31, 2025 compared to $4.3 million atas bothof December 31, 2024 and December 31, 2023.2024.
At December 31, 2024, the Company had three non-accrual commercial real estate loans totaling $2,440.5 thousand. Gross interest income of $25.0 thousand would have been recorded in 2024 if these non-accrual loan had been current and performing in accordance with the original terms. The Company allocated $360.0 thousand of its allowance for credit losses to these three non-accrual loans.
At December 31, 2023, the Company had one non-accrual commercial real estate loan totaling $502.9 thousand and one non-accrual commercial loan totaling $152.4 thousand. The commercial loan was secured by business assets and a personal guaranty. Gross interest income of $45.9 thousand would have been recorded in 2023 if these non-accrual loans had been current and performing in accordance with the original terms. The Company allocated $450.0 thousand of its allowance for credit losses to these non-accrual loans.
At December 31, 2024 and 2023,2025, the Company had no loans that were delinquent 90 days or greater other than the non-accrual loans listed above.loans.
At December 31, 2024, the Company had three non-accrual commercial real estate loans totaling $2.4 million. Gross interest income of $25.0 thousand would have been recorded in 2024 if these non-accrual loans had been current and performing in accordance with the original terms. The Company allocated $360.0 thousand of its allowance for credit losses to these three non-accrual loans.
At December 31, 2025 and 2024, the Company had no loans that were delinquent 90 days or greater other than the non-accrual loans listed above.
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 any guarantor, and cash flow projections of the borrower. Special mention, Substandard, and Doubtful grades are assigned to loans with a higher frequency of delinquent payments and/or the collateral and/or cash flow are insufficient to support the loan and such loans are included on the Company’s watch list. The Special mention grade is intended to be a temporary grade. During 2025 two of our large borrowers experienced short term financial stress. Accordingly, we placed these relationships on special mention status and continue to monitor them closely.
The allowance for credit losses is a reserve established through a provision for credit losses and is charged to expense. The allowance for credit losses represents an amount which, in management’s judgment, will be adequate to absorb expected losses on existing loans and other of credit that may become uncollectible. The Company’s allowance for credit loss methodology is calculated in accordance with FinancialFASB AccountingTopic Standards326 Board- Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.Losses. The amount of the allowance represents management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms, adjusted for expected prepayments when appropriate.
The following tables detail the distribution of the allowance and the activity in the allowance for credit losses by portfolio segment as of and for the years ended December 31, 20242025 and 2023.2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
The Company recorded net loan charge offs of $624 thousand during 2025 and $138 thousand in 2024. The impact on the income statement was a $725 thousand provision for credit losses in 2025 compared to a $114 thousand provision for credit losses in 2024. While the Bank’s historical loss rates have been very low, the increase in the provision was necessary to restore the allowance to a level consistent with the Bank’s methodology. This was accomplished by evaluating and adjusting, as necessary, certain qualitative and environmental factors.
Net charge offs/(recoveries) during the period to average loans outstanding:
The Company recorded net loan charge offs of $138.0 thousand during 2024. In 2023, the Company recorded a net recovery of previously charged off loans of $398.9 thousand. The impact on the income statement was a $114.0 thousand provision for credit losses in 2024 compared to a $700.0 thousand recovery of credit losses in 2023.
Management believes that the $4.3$4.4 million reserve at December 31, 20242025 is appropriate to adequately cover the expected losses inherent in the loan portfolio. The reserve remained unchanged at $4.3 million as of December 31, 2024. The Company’s loan portfolio grew by $59.7$50.2 million during the 2024.2025. The allowance for credit losses as a percentage of gross loans was 0.72%0.68% and 0.81%0.72% as of December 31, 20242025 and 2023,2024, respectively.
Other real estate owned (“OREO”) at December 31, 2025 included two properties with a carrying value of $1.7 million. One property is a strip center in Westminster, MD and the other is a vacant lot in Orrtanna, PA. The properties are being marketed for sale. At December 31, 2024, OREO included an apartment building located in Baltimore City, MD with a carrying value of $1.2 million, which was sold in 2025.
Other real estate owned (“OREO”) at December 31, 2024 included one property with a carrying value of $1.2 million. The property is an apartment building in Baltimore, Maryland that was acquired in the Merger. The property is being marketed for sale.
During 2023, the Company sold property located in Cecil County, Maryland with a carrying value of $0 for a gain of $249,217. Due to the length of time that the property had been held, Maryland banking law required a write-down of the value to $0 in 2019.
InvestmentInvestments in debt securities decreased by $38.0$6.4 million, or 20.6%,4.4%, to $139.8 million at December 31, 2025 from $146.2 million at December 31, 2024 from $184.2 million at December 31, 2023.2024. The decrease was due primarily to thematurities unwindingand repayments of anmortgage-backed interest rate swap which included the sale of $28 million of mortgage backed securities and maturities of $1.5 million.securities. At December 31, 20242025 and 2023,2024, the Company had classified 86%85% and 89%,86%, respectively, 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 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 management has both the positive intent and ability to hold to maturity, are reported at amortized cost. 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.
Total deposits were $720.5 million at December 31, 2025 compared to $758.8 million at December 31, 20242024, compareda to $681.0 million at December 31, 2023, an increasedecrease of $77.8$38.3 million, or 11.4%.5.1%. The increasedecrease was due to an $88.5 million reduction in brokered CDs, and an $11.1 million decrease in savings accounts, offset by a $108.6$19.9 million increase in certificatesmoney ofmarket depositaccounts, a $3.9$14.7 million increase in reciprocal deposits, and a $0.5$12.5 million increase in individual retirement accounts, offset by a $13.0 million decrease in checking accounts, a $6.9$10.3 million decrease in savings accounts, a $4.1 million decrease in money market accounts and an $8.1 million decreaseincrease in noninterest-bearing accounts, and a $3.8 million increase in CDs and individual retirement accounts.
Deposits in excess of $250 thousand were $199.8 million as of December 31, 2025. The bank offers programs to its depositors which provide insurance above the FDIC’s $250 thousand threshold.
Uninsured deposits totaled $145.9 million at December 31, 2024.
At December 31, 2024, the Company’s off-balance sheet financial instruments were as follows:
On September 30, 2020, Farmers and Merchants Bancshares, Inc. borrowed $17.0 million from First Horizon Bank to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger.Merger (the “Merger Loan”). Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The loan maturesmatured on September 30, 2025 and the Company is exploring refinancing options.2025. The interest rate on the loan iswas 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 makepaid quarterly interest and principal payments of approximately $646.5 thousand, which iswas based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million willwas be duerepaid at maturity.maturity To secure its obligations under this loan,using the Company pledged all of its shares of common stockproceeds of the BankSeptember to2025 sale of the lender.Subordinated Notes.
On September 25, 2025, Farmers and Merchants Bancshares, Inc. issued and sold $12.5 million in aggregate principal amount of its Subordinated Notes. The Subordinated Notes were issued by the Company at a price equal to 100% of their face amounts. The Subordinated Notes have stated maturity dates of September 25, 2035 (the “Maturity Date”).
From and including the original issue date of the Subordinated Notes the (“Issue Date”) to but excluding September 26, 2030 or the date of earlier redemption, the Company will pay interest on the Subordinated Notes semi-annually in arrears on March 26th and September 26th of each year at a fixed interest rate of 7.875% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, beginning on March 26, 2026. From and including September 26, 2030, to, but excluding, the Maturity Date or the date of earlier redemption (the “Floating Rate Period”), the Company will pay interest on the Subordinated Notes at a floating interest rate at the Three-Month Term SOFR (as defined in the Subordinated Notes), reset quarterly, plus 458 basis points, computed on the basis of a 360-day year and the actual number of days elapsed. During the Floating Rate Period, the Company will pay interest on the Subordinated Notes quarterly in arrears on March 26th, June 26th, September 26th, and December 26th of each year, beginning on December 26, 2030. Notwithstanding the foregoing, if the Three-Month Term SOFR rate is less than zero, then the Three-Month Term SOFR rate shall be deemed to be zero.
The Subordinated Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Subordinated Notes are not subject to redemption at the option of the holder. Prior to September 26, 2030, the Company may redeem the Notes, in whole or in part, only under the certain limited circumstances set forth in the Subordinated Notes. On or after September 26, 2030, the Company may redeem the Subordinated Notes, in whole or in part, at its option, on any Interest Payment Date (as defined in the Subordinated Notes). Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, together with any accrued and unpaid interest on the Subordinated Notes being redeemed to but excluding the date of redemption. Any redemption of the Subordinated Notes will be subject to the receipt of any and all required federal and state regulatory approvals, including the approval of the Federal Reserve to the extent then required under applicable laws or regulations.
The payment of principal and interest on the Subordinated Notes is subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company. The Subordinated Notes are general unsecured, subordinated obligations of the Company and rank junior to all of its existing and future Senior Indebtedness (as defined in the Subordinated Notes). The Subordinated Notes are obligations of only the Company and are not obligations of, and are not guaranteed by, any of its subsidiaries, including the Bank. Further, the Subordinated Notes are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.
The Company reported net income of $5.8 million for the year ended December 31, 2025 compared to $4.3 million for the year ended December 31, 2024 compared to $6.4 million for the year ended December 31, 2023.2024. The decreaseincrease of $2.1$1.5 million from 20232024 was due to aan decreaseincrease in net interest income of $0.6$3.6 million,million and an increase on non-interest income of $224 thousand. This was offset by an increase in the provision for credit losses of $0.7$548 million, andthousand, an increase in noninterest expense of $1.8$1.4 millionmillion, offsetand bya an$376 thousand increase in noninterest income of $0.2 million and a decrease in income taxes of $0.8 million.taxes.
For the year ended December 31, 2024,2025, the Company recorded net interest income of $20.8$24.4 million compared to $21.4$20.8 million for 2023,2024, aan decreaseincrease of $0.6$3.6 million. The decreaseincrease was attributable to a 10230 basis point increase in the yield on earning assets from 4.92% to 5.22% and a 6 basis point decrease in the cost of interest bearing liabilities to 2.70% in 2025 from 2.76% in 2024 from 1.74% in 2023. Higher interest expense on deposits and borrowings due to the Federal Reserve rate increases was the driving factor in the lower net interest income.2024.
Total interest income for the year ended December 31, 20242025 increased by $7.0$4.0 million to $38.4$42.4 million from $31.3$38.4 million for 2023.2024. The increase was due primarily to an increase in average interest earning assets of $56.6$31.1 million to $815.7 million in 2025 from $784.6 million in 2024 from $728.0 million in 2023 and by an increase of 59 basis points in the yield on interest earning assets to 4.92% in 2024 from 4.33% in 2023.2024.
Interest income from loans was $36.1 million in 2025 compared to $30.3 million in 2024 compared to $25.7 in 2023,2024, an increase of $4.6$5.8 million. This increase was attributable to a $29$59.4 million increase in the average balance of loans to $557.9$617.2 million in 20242025 from $528.9$557.9 million 20232024 and a 5840 basis point increase in the average yield on loans to 5.84% in 2025 from 5.44% in 2024 from 4.86% in 2023.2024.
For the year ended December 31, 2024,2025, the Company recorded interest income on securities of $6.8$4.8 million compared to $4.9$6.8 million for the same period in 2023.2024. The $1.9$2.0 million increasedecrease in 20242025 was attributable to a $19.1$37.0 million increasedecrease in the average balance of securities to $164.3 million in 2025 from $201.3 million in 2024 from $182.2 million in 2023 and a 7148 basis point increasedecrease in the average yield on securities to 2.98% in 2025 from 3.46% in 2024 from 2.75% in 2023.2024.
Interest income on federal funds sold and other interest-earning assets (FHLB stock and certificates of deposit) increased by $0.5$300 thousand to $1.5 million in 2025 compared to $1.2 million in 2024 compared to $0.7 million in 2023.2024. The increase was due to a 39 basis point increase in the average yield to 5.05% in 2024 from 4.66% in 2023 and an $8.6 million increase in the average balance of federal funds sold and other interest-earning assets to $34.1 million in 2025 from $25.5 million in 20242024, offset by a 39 basis point decrease in the average yield to 4.66% in 2025 from $16.9 million5.05% in 2023.2024.
Total interest expense increased by $7.6 million to $17.5 million in 2024 compared to $9.9 million in 2023. The increase was due to a 102 basis point increase in the cost of interest-bearing liabilities to 2.76% in 2024 from 1.74% in 2023 and an increase of $64.2 in the average balance of interest-bearing liabilities to $634.6 million in 2024 from $570.4 million in 2023. The Federal Reserve rate increases were the primary cause of the significant increase in the cost of funds.
InterestTotal paidinterest on NOW, savings, and money market deposit accountsexpense increased by $616.0$438 thousand to $2.0$18.0 million in 20242025 compared to $1.4$17.5 million in 2023.2024. The increase was due to a 28 basis point increase in the cost of funds to 0.74% in 2024 from 0.46% in 2023 offset by a $31.0$31.6 million decreaseincrease in the average balance of theseinterest-bearing depositsliabilities to $272.6$666.2 million in 2025 from $634.6 million in 2024 fromoffset $303.6by milliona 6 basis point decrease in 2023.the cost of interest-bearing liabilities to 2.70% in 2025 from 2.76% in 2024.
Interest paid on time deposits increased by $5.9 million to $12.5 million in 2024 compared to $6.6 million in 2023. The increase was due to an increase of 131 basis points in the average rate paid to 4.32% in 2024 from 3.01% in 2023 and an increase of $71.0 million in the average balance to $289.7 million in 2024 from $218.7 million in 2023.
Interest paid on securities sold under repurchase agreements increased by $23.5 thousand to $65.3 thousand in 2024 compared to $41.8 thousand in 2023. The increase was attributable to an increase of 36 basis points in the average rate paid to 1.26% in 2024 from 0.90% in 2023 and a $540.0 thousand increase in the average balance of securities sold under repurchase agreements to $5.2 million in 2024 from $4.7 million in 2023.
Interest paid on long-term debt was $507.0 thousand in 2024 compared to $585.0 thousand in 2023. This debt relates to the $17 million term loan obtained on September 30, 2020 to finance a portion of the cash paid to the former stockholders of Carroll in the Merger. The average balance, net of issuance costs, decreased $2.1 million to $12.1 million in 2024 from $14.3 million in 2023 due to scheduled principal payments.
The FRB’s Bank Term Funding Program (“BTFP”) was initiated in March 2023. The Company utilized the BTFP with an average balance of $48.7 million and $15.5 million during 2024 and 2023, respectively and cost of 4.75% and 5.31% in 2024 and 2023, respectively. We recorded an associated interest expense of $2.3 million and $823.0 thousand in 2024 and 2023, respectively.
Interest paid on FHLBNOW, advancessavings, decreasedand $363.2money market deposit accounts increased by $397 thousand to $122.7$2.4 thousandmillion in 20242025 fromcompared $485.9to thousand$2.0 million in 2023.2024. The changeincrease was attributabledue to a decrease of 16116 basis pointspoint increase in the averagecost rateof paidfunds to 1.96%0.90% in 20242025 from 3.57%0.74% in 20232024, andoffset by a $7.3$3.7 million decrease in the average balance of FHLBthese advances and other borrowingsdeposits to $6.3$268.9 million in 20242025 from $13.6$272.6 million in 2023.2024.
Interest paid on time deposits increased by $1.5 million to $14.0 million in 2025 compared to $12.5 million in 2024. The increase was due to an increase of $69.6 million in the average balance to $359.3 million in 2025 from $289.7 million in 2024, offset by a decrease of 41 basis points in the average rate paid to 3.91% in 2025 from 4.32% in 2024.
Interest paid on securities sold under repurchase agreements decreased by $6 thousand to $59 thousand in 2025 compared to $65 thousand in 2024. The decrease was attributable to a $500 thousand decrease in the average balance of securities sold under repurchase agreements to $4.7 million in 2025 from $5.2 million in 2024.
Interest paid on long-term debt was $599 thousand in 2025 compared to $508 thousand in 2024. This debt relates to the $17 million Merger Loan, which was repaid on September 30, 2025, and the Subordinated Notes issued in September 2025. The average balance, net of issuance costs, decreased $1.1 million to $11.0 million in 2025 from $12.1 million in 2024 due to scheduled principal payments.
The FRB’s Bank Term Funding Program (“BTFP”) was initiated in March 2023. The Company utilized the BTFP with an average balance of $0 and $48.7 million during 2025 and 2024, respectively and a cost of 0% and 4.75% in 2025 and 2024, respectively. We recorded an associated interest expense of $0 and $2.3 million in 2025 and 2024, respectively. The balance was fully repaid late in 2024.
Interest paid on FHLB advances increased by $724 thousand to $847 thousand in 2025 from $123 thousand in 2024. The change was attributable to a $16.0 million increase in the average balance of FHLB advances to $22.3 million in 2025 from $6.3 million in 2024 and an increase in the average rate paid to 3.80% in 2025 from 1.96% in 2024.
RATE/VOLUME ANALYSIS
Noninterest income was $2.0 million in 2025 compared to $1.8 million in 2024, an increase of $200 thousand. The increase was due primarily to an increase of $89 thousand on the gain on SBA loans, a $94 thousand increase in the gain on the settlement of a fair value hedge, an increase of $49 thousand in mortgage banking income, and an increase in bank owned life insurance income of $30 thousand. This was offset by a decrease in insurance proceeds of $89 thousand, a decrease in service charges on deposit accounts of $117 thousand, and decreases in other fees and commissions.
Noninterest income was $1.7 million in 2024 compared to $1.6 million in 2023, an increase of $0.1 million. The increase was due primarily to an increase of $138.4 thousand on insurance proceeds from storm damage to the Bank’s Upperco, Maryland location, an increase in service charges on deposit accounts of $17.3 thousand, an increase in mortgage banking revenue of $10.8 thousand and an increase of $48.3 thousand in bank owned life insurance income, offset by a decrease in the fair value adjustment on an equity security of $9.8 thousand, a write down of the value of other real estate owned of $50.0 thousand, a loss on the sale of investment securities of $13.2 thousand, a loss on the sale of property and equipment of $5.2 thousand, a decrease in the gain on sale of SBA loans of $19.4 thousand, and a $6.3 thousand decrease in other fees and commissions.
Total noninterest expense increased by $1.8$1.4 million to $18.3 million in 2025 from $16.9 million in 2024 from $15.1 million in 2023.2024. The increase was due primarily to an increase in salaries and benefits of $495.7$677 thousand due to additional lending staff being added during the year, andan increase in occupancy costs of $195.7$99 thousand as a result of theincreased openingrent ofand therepairs Towsoncosts, office in 2024,and an increase on furniture and equipment costs of $309.6$300 thousand due primarily to higher software maintenance costs. Professional fees decreased by $127 thousand due to the additionlower use of the Towson office and purchases of computer equipment. Additionally, professional fees increased by $222.4 thousand due to consultant fees related to the Company’s core system conversion in 2024 and legal fees. ATM and debit card expenses increased by $138.5 thousand related to the core conversion in 2024,consultants. FDIC insurance premiums increased $52.2$187 thousand due to higher assessment rates,rates. postage,Losses delivery,on and armored car servicesOREO increased by $27.1$101 thousand. Gains on other real estate owned increased by $311.5 thousand. All of which were offset by decreased advertising and other expenses of $14.8 thousand.
Income taxes decreasedincreased by $786.2$376 thousand to $1.6 million in 2025 from $1.2 million in 2024 from $2.1 million in 2023.2024.
The Company’s effective tax rate decreased to 21.8% in 2025, from 22.4% in 2024, from 23.9% in 2023.2024. The decrease was due to a higher percentage of tax exempt revenue.revenue and the reduction of a deferred tax liability. Note 11 to the consolidated financial statements provides additional information about the Company’s taxes, including a reconciliation of the Company’s effective tax rate to the Federal statutory rate of 21%.
Quarterly Results of Operations
Based upon the most recent data available to the Company (as of SeptemberDecember 30,31, 20242025), the simulation analysis produced the following estimated changes in NII, assuming the indicated rate changes:
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 $70.4$86.3 million under a secured line of credit with the FHLB. The Bank also has twoa facilitiesfacility with the FRB.Federal Reserve Bank of Richmond (the “FRB”). Under the first facility, which has been in place for over 10 years and is collateralized by loans, the Bank can borrow approximately $32.5 million. The second facility is the BTFP that the Federal Reserve previously created in 2023, but expired in 2024. The BTFP facility allowed securities to be pledged at par, provided fixed rates for up to one-year terms, and allowed prepayments in whole or in part at any time. 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 $5.0$62.7 million were outstanding as of both December 31, 2024 and 2023. BTFP advances of $0.0 and $33.0$5.0 million were outstanding as of December 31, 20242025 and 2023,2024, respectively. TheIn 2020 the Company borrowed $17.0 million to facilitate the Merger in 2020.2020 which was repaid in September 2025. On September 25, 2025, the Company issued $12.5 million in Subordinated Notes. There were no borrowings from the FRB, other than the BTFP advances noted above,FRB or from our commercial bank lenders at December 31, 20242025 and 2023.2024. 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. TheDeposits Company’sin uninsuredexcess depositsof $250 thousand were approximately$199.8 $477.1 thousandmillion as of December 31, 2024.2025. The bank offers programs to its depositors which provide insurance above the FDIC’s $250 thousand threshold.
What changed in the latest 10-Q
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.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Farmers and Merchants Bancshares, Inc.”
New heading “Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025”
New heading “Net Interest Income”
New heading “Provision for Credit Losses”
New heading “Noninterest Income”
New heading “Noninterest Expense”
New heading “Income Tax Expense”
Removed heading “Part II – OTHER INFORMATION”
Removed heading “Item 1. Legal Proceedings”
Removed heading “Item 1A. Risk Factors”
Removed heading “Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities”
Largest changes
“Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities”see in full comparison
“Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025”see in full comparison
Full comparison: every changed paragraph (63)
Farmers and Merchants Bancshares, Inc.
Total assets decreasedincreased by $9.0$2.2 million, or 1.0%,0.3%, to $862.9$874.2 million at MarchJune 31,30, 2026 from $872.0 million at December 31, 2025. The decreaseincrease in total assets was due primarily to an increase of $8.8 million in cash and cash equivalents and an increase of $3.4 million in loans, offset by a decrease of $6.3$9.6 million in available for sale securities and a decrease of $4.8 million in loans, offset by an increase of $2.1 million in cash and cash equivalents.securities.
Total liabilities decreased by $10.5$680 million,thousand, or 1.3%,0.1%, to $796.8$806.6 million at MarchJune 31,30, 2026 from $807.3 million at December 31, 2025. The decrease was due primarily to a $9.2$5.0 million decrease in deposits,Federal $8.5Home Loan Bank advances, offset by a $4.7 million ofincrease whichin weredeposits brokeredand CDsa that$242 werethousand repaid.increase in repurchase agreements.
Stockholders’ equity increased by $1.4$2.9 million, or 2.2%,4.5%, to $66.1$67.6 million at MarchJune 31,30, 2026 from $64.7 million at December 31, 2025. The increase was primarily due to net income of $1.8$3.7 million, partially$236 thousand in stock based compensation, and $352 thousand of reinvested dividends. These increases were offset by ancash increasedividends paid of $500$1.1 thousandmillion in accumulatedand other comprehensive loss.loss of $210 thousand.
Major categories of loans at MarchJune 31,30, 2026 and December 31, 2025 were as follows:
Net loans decreasedincreased by $4.8$3.4 million, or 0.8%,0.5%, to $628.3$636.5 million at MarchJune 31,30, 2026 from $633.1 million at December 31, 2025. The decreaseincrease was due primarily to a decreaseincreases of $4.1$8.5 million in construction/landcommercial developmentreal loans,estate aloans decreaseand of $682$277 thousand in commercial loansloans, andoffset aby decreasedecreases of $320$4.8 million in construction loans, $359 thousand in consumer loans and $121 thousand in residential real estate loans. The allowance for credit losses on loans increased slightly to $4.5 million at MarchJune 31,30, 2026, up from $4.4 million as of December 31, 2025.
The following table provides the activity for the allowance for credit losses for the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025:
Watch list loans include loans classified as Special Mention, Substandard, and Doubtful. As of MarchJune 31,30, 2026, the Company had $39.3$42.1 million of loans on a watch listlist, other than collateral-dependent loans, for which management believes that the borrowers have the potential for experiencing financial difficulties. As of December 31, 2025, the Company had $39.8 million of such loans. Watch List loans are subject to ongoing management attention and their classifications are reviewed regularly.
Management believes that the $4.5 million allowance for credit losses on loans at MarchJune 31,30, 2026 is adequate to cover the expectedpotential losses inherent in the loan portfolio. The Company’s loan portfolio decreasedgrew by $4.8$3.6 million during the first threesix months of 2026. The allowance for credit losses on loans was 0.70% of the loan portfolio at MarchJune 31,30, 2026 compared to 0.68% at December 31, 2025.
Investments in debt securities decreased by $6.1$9.8 million, or 4.4%,7.0%, to $133.7$130.0 million at MarchJune 31,30, 2026 from $139.8 million at December 31, 2025. At March 31, 2026 and December 31, 2025, theThe Company had classified 84% and 85%, respectively85% of the investment portfolio as available for sale.sale as of June 30, 2026 and December 31, 2025, respectively. The remaining balance of the portfolio was classified as held to maturity.
The reserveallowance for held to maturity securities was $88$63 thousand at MarchJune 31,30, 2026 and $79 thousand at December 31, 2025. 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.
Other real estate owned (“OREO”) included one property at bothJune March 31,30, 2026 and two properties at December 31, 2025 included two properties.2025. The propertiesproperty areis being marketed for sale.
Other assets remainedincreased consistentby $78 thousand to $7.4 million at June 30, 2026 from $7.3 million as of March 31, 2026 andat December 31, 2025.
Total deposits decreasedincreased by $9.2$4.6 million, or 1.3%,0.6%, to $711.3$725.1 million at MarchJune 31,30, 2026 from $720.5 million at December 31, 2025. The decreaseincrease in deposits was due primarily to an $8.3 million increase in non-interest bearing demand deposits, a $5.0 million increase in certificates of deposit, a $1.7 million increase in CDARs, a $1.6 million increase in interest bearing checking accounts and a $500 thousand increase in savings accounts, offset by an $8.5 million decrease in brokered CDs,deposits, and a $6.2$5.1 million decrease in money market accounts and a $1.7 million decrease in interest-bearing checking accounts, offset by a $5.9 million increase in non-interest bearing checking accounts and a $1.1 million increase in certificates of deposit and CDARS accounts.
The following table shows the average balances and average costs of deposits for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025:
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 $83.8$105.4 million under a secured line of credit with the Federal Home Loan Bank of Atlanta (the “FHLB”). The Bank also has a facility with the Federal Reserve Bank of Richmond (the “FRBReserve Bank”), which has been in place for over 10 years and is collateralized by loans. Under this facility, the Bank can borrow approximately $34.0$31.9 million. Additionally, 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 $57.7 million and $62.7 million were outstanding as of MarchJune 31,30, 2026 and December 31, 2025, respectively. 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 $196.9$107.4 million, or 27.7%14.8% of total deposits, at MarchJune 31,30, 2026.
The Company’s contractual obligations consist primarily of borrowings and operating leases for various facilities.
Borrowed funds consist of securities sold under repurchase agreements, which represent overnight or term borrowings from customers, advances from the FHLB, the FRB, and overnight borrowings from a commercial bank. The government agency securities that are the collateral for these agreements are owned by the Company and maintained in the custody of an unaffiliated agent designated by the Company.
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 MarchJune 31,30, 2026 and December 31, 2025 are as follows:
Comparison of Operating Results for the ThreeSix Months Ended MarchJune 31,30, 2026 and 2025
Net income for the threesix months ended MarchJune 31,30, 2026 was $1.8$3.7 million compared to $1.2$2.4 million for the threesame monthsperiod ended March 31,of 2025. Total interest income increased by $1.3$2.0 million, from $9.9$20.2 million for the threesix months ended MarchJune 31,30, 2025 to $11.2$22.2 million for the threesix months ended MarchJune 31,30, 2026. Total interest expense decreased by $13$72 thousand, remainingfrom consistent at $4.4$8.7 million for the threesix months ended MarchJune 31,30, 20262025 andto 2025.$8.6 million for the six months ended June 30, 2026. The provision for credit losses for the three-monthsix-month periods ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 was $0 and $30$268 thousand, respectively. Noninterest income decreased by $83$15 thousand, from $514$969 thousand for the threesix months ended MarchJune 31,30, 2025 to $431$954 thousand for the threesix months ended MarchJune 31,30, 2026. Noninterest expense increased by $244$306 thousand, from $4.5$9.2 million for the threesix months ended MarchJune 31,30, 2025 to $4.7$9.5 million for the threesix months ended MarchJune 31,30, 2026. Income tax expense increased by $320$650 thousand, from $316$596 thousand for the threesix months ended MarchJune 31,30, 2025 to $636$1.2 thousandmillion for the threesix months ended MarchJune 31,30, 2026.
Net interest income was $6.8$13.5 million for the threesix months ended MarchJune 31,30, 2026 compared to $5.5$11.5 million for the same period of 2025. The net yield on interest earning assets increased to 3.28%3.27% for the threesix months ended MarchJune 31,30, 2026 from 2.81%2.92% for the same period of 2025. 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 threesix months ended MarchJune 31,30, 2026 was $11.2$22.2 million compared to $9.9$20.2 million for the same period of 2025, an increase of $1.3$2.0 million, or 12.8%.9.9%.
Total interest income on loans for the threesix months ended MarchJune 31,30, 2026 increased by $1.4$2.1 million when compared to the same period of 2025 due to a $44.3$31.9 million higher average loan balance for the threesix months ended MarchJune 31,30, 2026 when compared to the same period of 2025 and a higher loan yield of 6.12%6.10% for the threesix months ended MarchJune 31,30, 2026 versus 5.64%5.71% for the same period of 2025. Investment income for the threesix months ended MarchJune 31,30, 2026 decreased by $224$489 thousand, or 17.9%,20.1%, when compared to the same period of 2025 due to a decrease in the fully-taxable equivalent yield to 2.65%2.56% for the threesix months ended MarchJune 31,30, 2026 compared to 2.97%3.01% for the same period of 2025, and a $13.6$14.4 million lower average investment balance. The fully-taxable equivalent yield on total interest-earning assets increased 3424 basis points to 5.37%5.35% for the threesix months ended MarchJune 31,30, 2026 from 5.03%5.11% for the same period of 2025. The average balance of total interest-earning assets increased by $44.5$38.3 million to $835.0$831.8 million for the threesix months ended MarchJune 31,30, 2026 compared to $790.6$793.5 million for the same period of 2025.
Total interest expense for the threesix months ended MarchJune 31,30, 2026 and 2025 was $4.4 million. There was an increase of $9.8$8.6 million in the average balance of interest-bearing liabilities to $659.9 million for the three months ended March 31, 2026 compared to $650.0$8.7 million for the same period of 2025, offseta bydecrease of $72 thousand, or 0.8%. The decrease was due to a lower overall cost of funds on interest bearing deposits and borrowings of 2.65%2.57% for the threesix months ended MarchJune 31,30, 2026 compared to 2.70%2.67% for the same period of 2025, offset by a $19.1 million increase in the average balance of interest-bearing liabilities to $669.8 million for the six months ended June 30, 2026 compared to $650.7 million for the same period of 2025. Cost of funds for time deposits decreased to 3.53%3.50% for the threesix months ended MarchJune 31,30, 2026 from 4.15%3.92% for the same period of 2025. Costs of funds attributable to long-term debt andincreased from 4.15% for the six months ended June 30, 2025 to 8.57% for the same period of 2026. The cost of advances from the FHLB and other borrowings increased to 4.59%3.83% for the threesix months ended MarchJune 31,30, 2026 from 3.17%3.21% for the same period of 2025.
Average noninterest-earning assets increased by $6.0$4.5 million to $32.2$31.9 million for the threesix months ended MarchJune 31,30, 2026 compared to $26.2$27.4 million in the same period of 2025. Average noninterest-bearing deposits increased by $13.6$14.0 million to $117.7$119.9 million during the threesix months ended MarchJune 31,30, 2026 compared to $104.1$105.9 million in the same period of 2025. The average balance in stockholders’ equity increased by $9.5$9.1 million for the threesix months ended MarchJune 31,30, 2026 when compared with the same period of 2025.
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-monthsix-month periods ended MarchJune 31,30, 2026 and 2025. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.
(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.
For the six months ended June 30, 2026, provisions for credit losses on loans totaling $97 thousand, offset by a recovery of held to maturity securities of $16 thousand and a recovery for unfunded loan commitments of $81 thousand, resulted in a net provision of $0. For the six months ended June 30, 2025, provisions for credit losses on loans totaling $314 thousand and a provision for held to maturity securities of $21 thousand, offset by a recovery for unfunded loan commitments of $67 thousand, resulted in a net provision of $268 thousand.
For the three months ended March 31, 2026, a provision for credit losses on loans of $90 thousand and a provision for held to maturity securities of $9 thousand, offset by a recovery for unfunded loan commitments of $99 thousand, resulted in a net provision of $0. 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.
The table below provides a breakdown of the allowance for credit losses by loan portfolio as of March 31, 2026 and December 31, 2025.
Allocation of the Allowance for Credit Losses on Loans
At March 31, 2026 and December 31, 2025
* Percentage of loan type to the total loan portfolio.
The following table details the activity in the allowance for credit losses for the three months ended March 31, 2026 and 2025.
Noninterest income for the threesix months ended MarchJune 31,30, 2026 was $431$954 thousand compared to $514$969 thousand for the same period of 2025, a decrease of $83$15 thousand, or 16.1%.1.5%. The decrease was due primarily to a decrease of $94 thousand for the gain on the unwinding of a fair value hedge and a decrease of $8$11 thousand in service charge income, offset by a $29$54 thousand increase in mortgage banking income.
Noninterest expense for the threesix months ended MarchJune 31,30, 2026 totaled $4.7$9.5 million compared to $4.5$9.2 million for the same period of 2025, an increase of $244$306 thousand, or 5.4%.3.3%. The increase was due primarily to an increase of $182$391 thousand in salaries and employee benefits due to higher staffing levels and benefits in 2026,2026 and an increase of $130$70 thousand in furniture and equipment expense due to an increase in software maintenance costs, anoffset increaseby a decrease in other real estate owned expense of $39$21 thousand,thousand offset byand a decrease of $98$134 thousand in Federal Deposit Insurance Corporation premiums.assessments resulting from lower brokered CD levels.
Income tax expense for the threesix months ended MarchJune 31,30, 2026 was $636$1.3 thousandmillion compared to $316$596 thousand for the same period of 2025. The effective tax rate was 25.8%25.1% for the threesix months ended MarchJune 31,30, 2026 compared to 21.3%20.1% for the same period of 2025. The increase in the effective tax rate was due to a lower percentage of tax exempt revenue in 2026 versus 2025.
Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025
General
Net income for the three months ended June 30, 2026 was $1.9 million compared to $1.2 million for the same period in 2025. Total interest income increased by $726 thousand, from $10.3 million for the three months ended June 30, 2025 to $11.0 million for the three months ended June 30, 2026. Total interest expense decreased by $58 thousand, from $4.3 million for the three months ended June 30, 2025 to $4.2 million for the three months ended June 30, 2026. The provision for credit losses for the three-month periods ended June 30, 2026 and June 30, 2025 was $0 and $238 thousand, respectively. Noninterest income increased by $67 thousand, from $456 thousand for the three months ended June 30, 2025 to $523 thousand for the three months ended June 30, 2026. Noninterest expense increased by $62 thousand, from $4.7 million for the three months ended June 30, 2025 to $4.8 million for the three months ended June 30, 2026. Income tax expense increased by $330 thousand, from $280 thousand for the three months ended June 30, 2025 to $610 thousand for the three months ended June 30, 2026.
Net Interest Income
Net interest income was $6.8 million for the three months ended June 30, 2026 compared to $6.0 million for the same period of 2025. The net yield on interest earning assets increased to 3.27% for the three months ended June 30, 2026 from 3.03% for the same period of 2025. 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 on loans for the three months ended June 30, 2026 increased by $748 thousand when compared to the same period of 2025 due to a $19.4 million higher average loan balance for the three months ended June 30, 2026 when compared to the same period of 2025 and a higher loan yield of 6.07% for the three months ended June 30, 2026 versus 5.78% for the same period of 2025. Investment income for the three months ended June 30, 2026 decreased by $330 thousand, or 26.2%, when compared to the same period of 2025 due to a decrease in the fully-taxable equivalent yield to 2.48% for the three months ended June 30, 2026 compared to 3.05% for the same period of 2025, and a $15.3 million lower average investment balance. The fully-taxable equivalent yield on total interest-earning assets increased 13 basis points to 5.32% for the three months ended June 30, 2026 from 5.19% for the same period of 2025. The average balance of total interest-earning assets increased by $32.1 million to $828.6 million for the three months ended June 30, 2026 compared to $796.5 million for the same period of 2025.
Total interest expense for the three months ended June 30, 2026 was $4.2 million compared to $4.3 million for the same period of 2025, a decrease of $58 thousand, or 1.4%. The decrease was due to a lower overall cost of funds on interest bearing deposits and borrowings of 2.56% for the three months ended June 30, 2026 compared to 2.64% for the same period of 2025, offset by a $12.3 million increase in the average balance of interest-bearing liabilities to $663.7 million for the three months ended June 30, 2026 compared to $651.4 million for the same period of 2025. The cost of funds for time deposits decreased to 3.47% for the three months ended June 30, 2026 from 3.70% for the same period of 2025. Costs of funds attributable to long-term debt increased from 4.14% for the three months ended June 30, 2025 to 8.56% for the same period of 2026. The cost of advances from the FHLB decreased to 3.83% for the three months ended June 30, 2026 from 4.29% for the same period of 2025.
Average noninterest-earning assets increased by $3.0 million to $31.6 million for the three months ended June 30, 2026 compared to $28.6 million in the same period of 2025. Average noninterest-bearing deposits increased by $14.2 million to $122.0 million during the three months ended June 30, 2026 compared to $107.8 million in the same period of 2025. The average balance in stockholders’ equity increased by $8.6 million for the three months ended June 30, 2026 when compared with the same period of 2025.
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 June 30, 2026 and 2025. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.
Provision for Credit Losses
For the three months ended June 30, 2026, provisions for credit losses on loans totaling $7 thousand and a provision for unfunded loan commitments of $18 thousand, offset by a recovery of held to maturity securities of $25 thousand, resulted in a net provision of $0. For the three months ended June 30, 2025, provisions for credit losses on loans totaling $274 thousand and a provision for held to maturity securities of $18 thousand, offset by a recovery for unfunded loan commitments of $54 thousand, resulted in a net provision of $238 thousand.
Noninterest Income
Noninterest income for the three months ended June 30, 2026 was $523 thousand compared to $456 thousand for the same period of 2025, an increase of $67 thousand, or 14.7%. The increase was due primarily to a $25 thousand increase in mortgage banking income and a $53 thousand increase in other fees and commissions.
Noninterest Expense
Noninterest expense for the three months ended June 30, 2026 totaled $4.8 million compared to $4.7 million for the same period of 2025, an increase of $62 thousand, or 1.3%. The increase was due primarily to an increase of $209 thousand in salaries and employee benefits due to higher staffing levels in 2026, offset by a decrease in other real estate owned expense of $61 thousand, a decrease of $60 thousand in furniture and equipment expense due to a decrease in software maintenance costs, and a decrease of $36 thousand in Federal Deposit Insurance Corporation premiums.
Income Tax Expense
Income tax expense for the three months ended June 30, 2026 was $610 thousand compared to $280 thousand for the same period of 2025. The effective tax rate was 24.3% for the three months ended June 30, 2026 compared to 18.9% for the same period of 2025. The increase in the effective tax rate was due to a lower percentage of tax exempt revenue in 2026 versus 2025.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
FMFG insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-06-18 | Renbaum Barry J. |
Other | 7,054 | $17.64 | $124.4K |
Well-known investors holding FMFG (13F)
None of the 59 investors we track reported a position in their latest 13F.