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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For quarterly period ended June 30, 2024

 

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
   
  For the transition period from _______________ to ________________

 

Commission file number 000-55756

 

Farmers and Merchants Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   81-3605835

(State or other jurisdiction of 

incorporation or organization)

   (I. R. S. Employer Identification No.)

 

4510 Lower Beckleysville Road, Suite H, Hampstead, Maryland         21074

(Address of principal executive offices)          (Zip Code)

 

(410) 374-1510

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☑ Smaller reporting company ☑
Emerging growth company ☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,144,974 as of August 14, 2024.

 

 
 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

 

Table of Contents

 

  Page
PART I – FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated balance sheets at June 30, 2024 (unaudited) and December 31, 2023 3

Consolidated statements of income (unaudited) for the three and six months ended June 30, 2024 and 2023

 4

Consolidated statements of comprehensive income (loss) (unaudited) for the three and six months ended June 30, 2024 and 2023

 5

Consolidated statements of changes in stockholders’ equity (unaudited) for the three and six months ended June 30, 2024 and 2023

 6

Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2024 and 2023

 7
Notes to financial statements (unaudited) 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures About Market Risk 51
Item 4. Controls and Procedures  51
   
PART II – OTHER INFORMATION 52
Item 1. Legal Proceedings 52
Item 1A. Risk Factors  52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  52
Item 3. Defaults upon Senior Securities 52
Item 4. Mine Safety Disclosures 52
Item 5. Other Information 52
Item 6. Exhibits 52
SIGNATURES  53

 

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1 – Financial Statements

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   

June 30,

    

December 31,

  
   

2024

    

2023 *

  
   

(Unaudited)

          

Assets

  
                 

Cash and due from banks

   $ 24,212,716     $ 44,404,473  

Federal funds sold and other interest-bearing deposits

     297,604       285,864  

Cash and cash equivalents

     24,510,320       44,690,337  

Certificates of deposit in other banks

     100,000       100,000  

Securities available for sale, at fair value

     157,524,568       164,084,673  

Securities held to maturity, at amortized cost (allowance for credit losses of $126,631 and $35,627)

     20,135,893       20,163,622  

Equity security, at fair value

     508,333       507,130  

Restricted stock, at cost

     1,395,900       863,500  

Loans, less allowance for credit losses of $4,082,098 and $4,285,247

     546,036,461       523,308,044  

Premises and equipment, net

     7,455,924       6,583,452  

Accrued interest receivable

     2,191,090       2,180,734  

Deferred income taxes, net

     8,061,994       8,312,482  

Other real estate owned, net

     1,242,365       1,242,365  

Bank owned life insurance

     15,115,536       14,930,754  

Goodwill and other intangibles, net

     7,030,260       7,034,424  

Other assets

     7,247,205       5,939,309  
    $ 798,555,849     $ 799,940,826  
                 

Liabilities and Stockholders' Equity

  
                 

Deposits

                

Noninterest-bearing

   $ 108,907,898     $ 115,284,706  

Interest-bearing

     542,301,597       565,678,145  

Total deposits

     651,209,495       680,962,851  

Securities sold under repurchase agreements

     2,758,183       6,760,493  

Federal Home Loan Bank of Atlanta advances

     15,000,000       5,000,000  

Federal Reserve Bank advances

     54,000,000       33,000,000  

Long-term debt, net of issuance costs

     12,270,747       13,212,378  

Accrued interest payable

     2,217,250       1,482,773  

Other liabilities

     6,557,384       7,344,040  
      744,013,059       747,762,535  

Stockholders' equity

                

Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 3,144,974 and 3,116,966 shares in 2024 and 2023, respectively

     31,450       31,170  

Additional paid-in capital

     30,832,609       30,398,080  

Retained earnings

     40,703,077       39,433,185  

Accumulated other comprehensive loss

     (17,024,346 )     (17,684,144 )
      54,542,790       52,178,291  
    $ 798,555,849     $ 799,940,826  

 

* Derived from audited consolidated financial statements         

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

 

- 3 -
 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

   

Three months ended

   

Six months ended

 
   

June 30,

    

June 30,

  
   

2024

    

2023

    

2024

    

2023

  
                                 

Interest income

                                

Loans, including fees

   $ 7,237,816     $ 6,368,721     $ 14,119,727     $ 12,414,269  

Investment securities - taxable

     1,592,316       769,999       3,171,382       1,532,207  

Investment securities - tax exempt

     137,593       139,528       274,371       279,372  

Federal funds sold and other interest earning assets

     212,043       105,974       680,350       210,903  

Total interest income

     9,179,768       7,384,222       18,245,830       14,436,751  
                                 

Interest expense

                                

Deposits

     3,231,886       1,735,965       6,332,812       2,770,816  

Securities sold under repurchase agreements

     13,035       7,501       36,044       11,839  

Federal Home Loan Bank advances

     31,929       208,536       44,517       412,983  

Federal Reserve Bank advances

     640,846       13,000       1,262,529       13,263  

Long-term debt

     128,705       148,390       262,305       299,952  

Total interest expense

     4,046,401       2,113,392       7,938,207       3,508,853  

Net interest income

     5,133,367       5,270,830       10,307,623       10,927,898  
                                 

Recovery of credit losses

     -       (225,000 )     -       (495,000 )
                                 

Net interest income after recovery of credit losses

     5,133,367       5,495,830       10,307,623       11,422,898  
                                 

Noninterest income

                                

Service charges on deposit accounts

     217,427       204,726       412,101       391,433  

Mortgage banking income

     18,376       33,636       23,327       58,929  

Bank owned life insurance income

     94,462       88,742       184,782       171,847  

Fair value adjustment on equity security

     (2,430 )     (7,341 )     (5,971 )     (1,574 )

Loss on sale of debt securities

     (31,922 )     -       (31,922 )     -  

Gain on insurance proceeds

     -       -       142,794       -  

Other fees and commissions

     78,047       83,487       153,264       165,029  

Total noninterest income

     373,960       403,250       878,375       785,664  
                                 

Noninterest expense

                                

Salaries

     1,993,580       1,850,494       3,969,767       3,726,938  

Employee benefits

     441,546       541,173       1,047,859       1,135,230  

Occupancy

     277,690       202,147       524,017       416,263  

Furniture and equipment

     327,884       252,924       570,305       492,651  

Other

     1,082,561       838,909       2,123,780       1,672,000  

Total noninterest expense

     4,123,261       3,685,647       8,235,728       7,443,082  
                                 

Income before income taxes

     1,384,066       2,213,433       2,950,270       4,765,480  

Income taxes

     305,557       543,316       651,774       1,194,512  

Net income

   $ 1,078,509     $ 1,670,117     $ 2,298,496     $ 3,570,968  
                                 

Earnings per share - basic

   $ 0.35     $ 0.54     $ 0.74     $ 1.16  

Earnings per share - diluted

   $ 0.35     $ 0.54     $ 0.74     $ 1.16  

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

 

- 4 -
 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

    Three months ended     Six months ended  
   

June 30,

    

June 30,

  
   

2024

    

2023

    

2024

    

2023

  
                                 

Net income

   $ 1,078,509     $ 1,670,117     $ 2,298,496     $ 3,570,968  
                                 

Other comprehensive income (loss), net of income taxes:

                                
                                 

Securities available for sale

                                

Net unrealized gain (loss) arising during the period

     1,012,337       (2,994,650 )     (561,876 )     (807,464 )

Reclassification adjustment for realized losses included in net income

     31,922       -       31,922       -  

Total unrealized gain (loss) on investment securities available for sale

     1,044,259       (2,994,650 )     (529,954 )     (807,464 )

Income tax (expense) benefit

     (287,355 )     824,053       145,830       222,194  

Net unrealized gain (loss) on investment securities available for sale

     756,904       (2,170,597 )     (384,124 )     (585,270 )
                                 

Total unrealized gain on derivatives

     327,405       274,986       1,440,306       61,465  

Income tax expense

     (98,497 )     (75,670 )     (396,384 )     (16,914 )
                                 

Net unrealized gain on derivatives

     228,908       199,316       1,043,922       44,551  
                                 

Total other comprehensive income (loss)

     985,812       (1,971,281 )     659,798       (540,719 )
                                 

Total comprehensive income (loss)

     2,064,321       (301,164 )     2,958,294       3,030,249  

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

 

- 5 -
 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Three and six months Ended June 30, 2024 and 2023

(Unaudited)

 

                   

Additional

            

Accumulated other

    

Total

  
   

Common stock

    

paid-in

    

Retained

    

comprehensive

    

stockholders'

  
   

Shares

    

Par value

    

capital

    

earnings

    

income (loss)

    

equity

  
                                                 

Three months ended June 30, 2023

                                                

Balance, March 31, 2023

     3,071,214     $ 30,712     $ 29,549,914     $ 36,851,782     $ (15,675,267 )   $ 50,757,141  

Net income

     -       -       -       1,670,117       -       1,670,117  

Other comprehensive loss

     -       -       -       -       (1,971,281 )     (1,971,281 )

Cash dividends, $0.33 per share

     -       -       -       (1,013,499 )     -       (1,013,499 )

Dividends reinvested

     19,154       192       391,574       -       -       391,766  
                                                 

Balance, June 30, 2023

     3,090,368     $ 30,904     $ 29,941,488     $ 37,508,400     $ (17,646,548 )   $ 49,834,244  
                                                 

Six months ended June 30, 2023

                                                

Balance, December 31, 2022

     3,071,214     $ 30,712     $ 29,549,914     $ 35,300,166     $ (17,105,829 )   $ 47,774,963  

Net income

     -       -       -       3,570,968       -       3,570,968  

Other comprehensive loss

     -       -       -       -       (540,719 )     (540,719 )

Cash dividends, $0.33 per share

     -       -       -       (1,013,499 )     -       (1,013,499 )

Reclassification due to the adoption of ASU 2016-13

                                                

Dividends reinvested

     19,154       192       391,574       (7,843 )     -       383,923  
                                                 

Balance, June 30, 2023

     3,090,368     $ 30,904     $ 29,941,488     $ 37,508,400     $ (17,646,548 )   $ 49,834,244  
                                                 

Three months ended June 30, 2024

                                                

Balance, March 31, 2024

     3,116,966     $ 31,170     $ 30,402,618     $ 40,653,172     $ (18,010,158 )   $ 53,076,802  

Net income

     -       -       -       1,078,509       -       1,078,509  

Stock-based compensation

     -       -       4,538       -       -       4,538  

Other comprehensive gain

     -       -       -       -       985,812       985,812  

Cash dividends, $0.33 per share

     -       -       -       (1,028,604 )     -       (1,028,604 )

Dividends reinvested

     28,008       280       425,453       -       -       425,733  
                                                 

Balance, June 30, 2024

     3,144,974     $ 31,450     $ 30,832,609     $ 40,703,077     $ (17,024,346 )   $ 54,542,790  
                                                 

Six months ended June 30, 2024

                                                

Balance, December 31, 2023

     3,116,966     $ 31,170     $ 30,398,080     $ 39,433,185     $ (17,684,144 )   $ 52,178,291  

Net income

     -       -       -       2,298,496       -       2,298,496  

Stock-based compensation

     -       -       9,076       -       -       9,076  

Other comprehensive gain

     -       -       -       -       659,798       659,798  

Cash dividends, $0.33 per share

     -       -       -       (1,028,604 )     -       (1,028,604 )

Dividends reinvested

     28,008       280       425,453       -       -       425,733  
                                                 

Balance, June 30, 2024

     3,144,974     $ 31,450     $ 30,832,609     $ 40,703,077     $ (17,024,346 )   $ 54,542,790  

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements

 

- 6 -
 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

Six Months Ended June 30,

  

2024

    

2023

  
                 

Reconciliation of net income to net cash provided by operating activities

                

Net income

   $ 2,298,496     $ 3,570,968  

Adjustments to reconcile net income to net cash provided by operating activities

                

Depreciation and amortization

     285,948       256,738  

Recovery of credit losses

     -       (495,000 )

(Accretion) amortization of right of use asset and lease liability

     2,893       (2,245 )

Equity security dividends reinvested

     (7,174 )     (5,918 )

Unrealized loss on equity security

     5,971       1,574  

Gain on sale of premises and equipment

     -       (9,000 )

Gain on insurance proceeds

     (142,794 )     -  

Gain (loss) on fair value hedge

     65       (32,005 )

Loss on sale of security

     31,922       -  

Stock based compensation

     9,076       -  

Amortization of debt issuance costs

     2,813       2,812  

Amortization of premiums and (accretion of discounts), net

     (489,221 )     12,127  

Bank owned life insurance cash surrender value

     (184,782 )     (171,847 )

Increase (decrease) in

                

Deferred loan fees and costs, net

     41,015       8,295  

Accrued interest payable

     734,477       771,053  

Other liabilities

     (245,769 )     (896,980 )

Decrease (increase) in

                

Mortgage loans held for sale

     -       428,355  

Accrued interest receivable

     (10,356 )     (9,643 )

Other assets

     (405,923 )     (125,480 )

Net cash provided by operating activities

     1,926,657       3,303,804  
                 

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements

 

- 7 -
 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

Six Months Ended June 30,

  

2024

    

2023

  
                 

Cash flows from investing activities

                

Proceeds from maturity and call of securities

                

Available for sale

     9,165,014       5,612,435  

Held to maturity

     -       330,000  

Proceeds from sale of securities

                

Available for sale

     521,162       -  

Purchase of securities

                

Available for sale

     (3,269,141 )     -  

Loans made to customers, net of principal collected

     (22,702,071 )     (13,951,062 )

(Purchase) redemption of stock in FHLB of Atlanta

     (532,400 )     255,000  

Proceeds from sale of premises and equipment

     -       9,000  

Proceeds from insurance

     142,794       -  

Purchases of premises, equipment and software

     (1,132,363 )     (102,439 )

Net cash used in investing activities

     (17,807,005 )     (7,847,066 )
                 

Cash flows from financing activities

                

Net increase (decrease) in

                

Noninterest-bearing deposits

     (6,376,808 )     (5,723,680 )

Interest-bearing deposits

     (23,373,236 )     13,977,308  

Securities sold under repurchase agreements

     (4,002,310 )     (1,112,365 )

Federal Home Loan Bank of Atlanta advances

     10,000,000       (6,000,000 )

Federal Reserve Bank advances

     21,000,000       10,000,000  

Long-term debt principal payments

     (944,444 )     (944,444 )

Dividends paid, net of reinvestments

     (602,871 )     (629,576 )

Net cash (used in) provided by financing activities

     (4,299,669 )     9,567,243  
                 

Net (decrease) increase in cash and cash equivalents

     (20,180,017 )     5,023,981  
                 

Cash and cash equivalents at beginning of period

     44,690,337       7,263,537  

Cash and cash equivalents at end of period

   $ 24,510,320     $ 12,287,518  
                 

Supplemental disclosure of cash flow information:

                

Cash paid during the period for interest

   $ 7,200,065     $ 2,784,686  

Cash paid during the period for income taxes

     190,000       1,300,848  

Supplemental disclosure of non-cash transactions:

                

Net unrealized loss on securities available for sale

     (529,953 )     (807,464 )

Additions to right of use assets obtained in exchange for lease liabilities

     704,577       -  

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements

 

- 8 -

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1.

Principles of consolidation

 

The consolidated financial statements include the accounts of Farmers and Merchants Bancshares, Inc. and its wholly owned subsidiaries, Farmers and Merchants Bank (the “Bank”), and Series Protected Cell FCB-4 (the “Insurance Subsidiary”), and one subsidiary of the Bank, Reliable Community Financial Services, Inc. The Insurance Subsidiary is a series investment, 100% owned by Farmers and Merchants Bancshares, Inc. in First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed property and casualty insurance company. Intercompany balances and transactions, including insurance premium paid by the Bank that were received by the Insurance Subsidiary through an intermediary, have been eliminated.

 

As used in these notes, the terms the “Company”, “we”, “us”, or “our” refer to Farmers and Merchants Bancshares, Inc. and, unless the context clearly suggests otherwise, its consolidated subsidiaries.

 

 

2.

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been made. Such adjustments were normal and recurring in nature. The results of operations for the three- and six-month periods ended June 30, 2024 do not necessarily reflect the results that may be expected for the fiscal year ending December 31, 2024 or any future interim period. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2023, which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the Securities and Exchange Commission (the “SEC”).

 

Recent Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (“CODM”), an amount for other segments items by reportable segment and a description of its composition, all annual disclosures required by ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Company does not expect that the adoption of ASU 2023-07 will have a material impact on its consolidated financial statements.

 

- 9 -
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
 

 

2.

Basis of Presentation (continued)

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect that the adoption of ASU 2023-09 will have a material impact on its consolidated financial statements.

 

The accounting policies adopted by management are consistent with authoritative GAAP and are consistent with those followed by our peers.

 

Summary of Significant Accounting Policies

 

There have been no changes to significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 was issued.

 

- 10 -
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
 

 
 

3.

Investment Securities

 

Investments in debt securities are summarized as follows:

 

   

Amortized

    

Unrealized

    

Unrealized

    

Fair

    

Allowance for

    

Net Amortized

  

June 30, 2024

  

cost

    

gains

    

losses

    

value

    

Credit Losses

    

Amount

  
                                                 

Available for sale

                                                
                                                 

State and municipal

   $ 500,000     $ -     $ 16,982     $ 483,018     $ -     $ 483,018  

SBA pools

     720,085       1,897       6,857       715,125       -       715,125  

Corporate bonds

     8,814,018       -       1,153,555       7,660,463       -       7,660,463  

Mortgage-backed securities

     170,808,981       621,265       22,764,284       148,665,962       -       148,665,962  
    $ 180,843,084     $ 623,162     $ 23,941,678     $ 157,524,568     $ -     $ 157,524,568  
                                                 

Held to maturity

                                                
                                                 

State and municipal

   $ 20,262,524     $ 592     $ 1,371,384     $ 18,891,732     $ 126,631     $ 20,135,893  

 

   

Amortized

    

Unrealized

    

Unrealized

    

Fair

    

Allowance for

    

Net Carrying

  

December 31, 2023

  

cost

    

gains

    

losses

    

value

    

Credit Losses

    

Amount

  
                                                 

Available for sale

                                                
                                                 

State and municipal

   $ 500,000     $ -     $ 15,192     $ 484,808     $ -     $ 484,808  

SBA pools

     776,686       1,160       11,136       766,710       -       766,710  

Corporate bonds

     9,853,988       -       1,283,559       8,570,429       -       8,570,429  

Mortgage-backed securities

     175,742,562       1,025,623       22,505,459       154,262,726       -       154,262,726  
    $ 186,873,236     $ 1,026,783     $ 23,815,346     $ 164,084,673     $ -     $ 164,084,673  
                                                 

Held to maturity

                                                
                                                 

State and municipal

   $ 20,199,249     $ 39,537     $ 1,175,565     $ 19,063,221     $ 35,627     $ 20,163,622  

 

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to securities issued by states and political subdivisions, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Unrated bonds were underwritten similar to commercial loans and the financial condition of the issuer is monitored periodically. Expected credit losses on commercial loans are applied to unrated bonds. The duration of each bond is used as the remaining life in the calculation of expected credit losses.

 

- 11 -
Farmers and Merchants Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
 

 

3.

Investment Securities (continued)

 

The following table summarizes Moody's and/or Standard & Poor's bond ratings (the Company’s primary credit quality indicators) for our portfolio of held-to-maturity securities issued by states and political subdivisions as of June 30, 2024 and December 31, 2023 at amortized cost:

 

   

June 30, 2024

    

December 31, 2023

  

AAA

   $ 2,794,320     $ 2,785,955  

AA

     10,477,327       10,434,388  

A

     3,816,717       3,808,365  

BAA

     253,557       250,661  

Not rated

     2,920,603       2,919,880  

Total

   $ 20,262,524     $ 20,199,249  

 

Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of June 30, 2024, there were no past due principal or interest payments associated with these securities and none are on nonaccrual.

 

The following table details activity in the allowance for credit losses on held-to-maturity securities for the three- and six-month periods ended June 30, 2024 and 2023:

 

   

Three Months

    

Six Months