# Farmers & Merchants Bancshares, Inc.: Form 10-Q for the period ended Mar 31, 2025

- Company: [Farmers & Merchants Bancshares, Inc.](/companies/fmfg.md) (CIK 1698022)
- Form: 10-Q
- Filed: 2025-05-15
- Accepted by EDGAR: May 15, 2025, 20:46 ET
- Period: 2025-03-31
- Accession: 0001437749-25-017235
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1698022/000143774925017235/fmfg20250331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1698022/000143774925017235/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $316.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | $1.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 3,173,365 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | $590.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2025-01-01 to 2025-03-31 | $106.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Total assets | at 2025-03-31 | $817.6m | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $759.0m | us-gaap:Liabilities |
| Long-term debt | at 2025-03-31 | $10.9m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2025-03-31 | $58.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,965 characters.

### Introduction

The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of Farmers and Merchants Bancshares, Inc. and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations, the audited consolidated financial statements and notes thereto, and the other statistical information contained in the Annual Report of Farmers and Merchants Bancshares, Inc. on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”). References in this report to “us”, “we”, “our”, and “the Company” are to Farmers and Merchants Bancshares, Inc. and, unless the context clearly suggests otherwise, its consolidated subsidiaries.

### Forward-Looking Statements

This report may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of “forward-looking statements.” Statements that are not historical in nature, including those that include the words “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of our loan and investment portfolios; our ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on our business or operations. These and other risks are discussed in detail in the registration statements and periodic reports that Farmers and Merchants Bancshares, Inc. files with the Securities and Exchange Commission (the “SEC”) (see Item 1A of Part II of this report for further information). Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

### Farmers and Merchants Bancshares, Inc.

Farmers and Merchants Bancshares, Inc. is a Maryland corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended. The Company was incorporated on November 8, 2016 for the purpose of becoming the holding company of Farmers and Merchants Bank (the “Bank”) in a share exchange transaction that was intended to constitute a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended (the “Reorganization”). The Reorganization was consummated on November 1, 2016, at which time the Bank became a wholly-owned subsidiary of the Company and all of the Bank’s stockholders became stockholders of the Company by virtue of the conversion of their shares of common stock of the Bank into an equal number of shares of common stock of the Company.

The Company’s primary business activities are serving as the parent company of the Bank and holding a series investment in First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed protected cell captive insurance company (“FCBI”). The Company owns 100% of one series of membership interests issued by FCBI, which series is deemed a “protected cell” under Tennessee law and has been designated “Series Protected Cell FCB-4” (such series investment is hereinafter referred to as the “Insurance Subsidiary”).

\- 37 -

The Bank is a Maryland commercial bank chartered on October 24, 1919 that is engaged in a general commercial and retail banking business. The Bank has had one inactive subsidiary, Reliable Community Financial Services, Inc., a Maryland corporation that was incorporated in April 1992 to facilitate the sale of fixed rate annuity products and later positioned to sell a full array of investment and insurance products.

The Insurance Subsidiary represents one protected cell of a protected cell captive insurance company (*i.e.*, FCBI) that was formed on November 9, 2016 to better manage our risk programs, provide insurance efficiencies, and add operating income by both keeping insurance premiums paid with respect to such risks within our affiliated group of entities and realizing certain tax benefits that are unique to captive insurance companies. The Company’s investment in the Insurance Subsidiary represents one series of membership interests in FCBI. As a “series” limited liability company, FCBI is authorized by state law and its governing instruments to issue one or more series of membership interests, each of which, for all purposes under state law, is deemed to be a legal entity separate and apart from FCBI and its other series.

Effective October 1, 2020, pursuant to a series of merger transactions, Farmers and Merchants Bancshares, Inc. acquired Carroll Bancorp, Inc. (“Carroll”) and the Bank acquired Carroll’s wholly-owned bank subsidiary, Carroll Community Bank (collectively, the “Merger”).

The Company maintains an Internet site at www.fmb1919.bank on which it makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.

### Estimates and Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. See Note 1 of the Notes to the audited consolidated financial statements as of and for the year ended December 31, 2024, which were included in Item 8 of Part II of the Form 10-K. On an on-going basis, management evaluates estimates, including those related to credit losses and intangible assets, impairment of investment securities, income taxes, and fair value of investments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

The allowance for credit losses on loans represents management’s estimate of expected credit losses inherent 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, consideration of current economic trends and conditions and reasonable and supportable forecasts, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet.

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Management applies various valuation methodologies to assets and liabilities which 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 impaired 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.

Management does not believe that any material changes in our critical accounting policies have occurred since December 31, 2024.

### Financial Condition

Total assets decreased by $27.0 million, or 3.2%, to $817.6 million at March 31, 2025 from $844.6 million at December 31, 2024. The decrease in total assets was due primarily to a decrease of $42.0 million in cash and cash equivalents and a decrease of $1.3 million in debt securities, offset by an increase of $17.1 million in loans.

Total liabilities decreased by $29.4 million, or 3.7%, to $759.0 at March 31, 2025 from $788.4 million at December 31, 2024. The decrease was due primarily to a $23.2 million decrease in deposits and a $5.0 million decrease in advances from the Federal Home Loan Bank of Atlanta.

Stockholders’ equity increased by $2.3 million, or 4.0%, to $58.6 million at March 31, 2025 from $56.3 million at December 31, 2024. The increase was primarily due to net income of $1.2 million and a decrease of $1.0 million in accumulated other comprehensive loss.

### Loans

Major categories of loans at March 31, 2025 and December 31, 2024 were as follows:

*(dollars in thousands)*

| Real estate: | March 31, 2025 |  | December 31, 2024 |  |
| --- | ---: | ---: | ---: | ---: |
| Commercial | $415,060 | 69% | $398,126 | 68% |
| Construction/Land development | 25,650 | 4% | 27,357 | 5% |
| Residential | 108,053 | 18% | 111,898 | 19% |
| Commercial | 55,903 | 9% | 50,405 | 9% |
| Consumer | 447 | 0% | 176 | 0% |
| Total loans | 605,113 | 100% | 587,962 | 100% |
| Less: Allowance for credit losses on loans | 4,304 |  | 4,260 |  |
| Deferred origination fees net of costs | 761 |  | 709 |  |
|  | $600,048 |  | $582,993 |  |

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Loans increased by $17.0 million, or 2.9%, to $600.0 million at March 31, 2025 from $583.0 million at December 31, 2024. The increase was due primarily to increases of $16.9 million in commercial real estate loans and $5.5 million in commercial loans, offset by decreases of $3.8 million in residential real estate and $1.7 million in construction/land development loans. The growth was due to the addition of new lending staff during the last 18 months and stabilizing interest rates. The allowance for credit losses on loans remained flat at $4.3 million at both March 31, 2025 and December 31, 2024.

The Company has adopted policies and procedures that seek to mitigate credit risk and to maintain the quality of the loan portfolio. These policies include underwriting standards for new credits as well as the continuous monitoring and reporting of asset quality and the adequacy of the allowance for credit losses on loans. These policies, coupled with continuous training efforts, have provided effective checks and balances for the risk associated with the lending process. Lending authority is based on the level of risk, size of the loan, and the experience of the lending officer. The Company’s policy is to make the majority of its loan commitments in the market area it serves. Management believes that this tends to reduce risk because management is familiar with the credit histories of loan applicants and has in-depth knowledge of the risk to which a given credit is subject. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region.

The following table provides the activity for the allowance for credit losses losses for the three-month periods ended March 31, 2025 and 2024:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2025 Held to maturity securities | Loans | Unfunded loan commitments | Total |
| --- | ---: | ---: | ---: | ---: |
| Beginning balance | $60 | $4,260 | $240 | $4,560 |
| Provision for (recovery of) credit losses | 3 | 40 | (13) | 30 |
| Charge-offs | - | - | - | - |
| Recoveries | - | 4 | - | 4 |
| Ending balance | $63 | $4,304 | $227 | $4,594 |

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 Held to maturity securities | Loans | Unfunded loan commitments | Total |
| --- | ---: | ---: | ---: | ---: |
| Beginning balance | $36 | $4,285 | $228 | $4,549 |
| Provision for (recovery of) credit losses | (4) | 28 | (24) | - |
| Charge-offs | - | (1) | - | (1) |
| Recoveries | - | 6 | - | 6 |
| Ending balance | $32 | $4,318 | $204 | $4,553 |

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Watch list loans include loans classified as Special Mention, Substandard, and Doubtful. As of March 31, 2025, the Company had $12.7 million of loans on a watch list, other than collateral-dependent loans, for which the borrowers have the potential for experiencing financial difficulties. As of December 31, 2024, the Company had $8.1 million of such loans. Watch List loans are subject to ongoing management attention and their classifications are reviewed regularly.

Management believes that the $4.3 million reserve at March 31, 2025 is adequate to cover the expected losses inherent in the loan portfolio. The Company’s loan portfolio grew by $16 million during the first three months of 2025. The allowance for credit losses on loans was 0.71% of the loan portfolio at March 31, 2025 compared to 0.72% at December 31, 2024. The decrease in the percentage is due primarily to the decrease in the duration of the loans per the CECL calculation.

The reserve for held to maturity securities was $62 thousand at March 31, 2025 and $60 thousand at December 31, 2024. 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.

### Investment Securities

Investments in debt securities decreased by $1.3 million, or 0.9%, to $144.9 million at March 31, 2025 from $146.2 million at December 31, 2024. At both March 31, 2025 and December 31, 2024, the Company had classified 86% 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 debt 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 the Company has both the positive intent and ability to hold to maturity, are reported at amortized cost. The Company records unrealized gains and losses on equity securities in earnings. 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.

### Other Real Estate Owned

Other real estate owned (“OREO”) at both March 31, 2025 and December 31, 2024 included one property. The property is an apartment building in Baltimore, Maryland that was acquired in the Merger. The property is being marketed for sale.

*(dollars in thousands)*

|  | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Other Real Estate Owned | $1,176 | $1,176 |

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### Other assets

Other assets decreased by $417.0 thousand to $7.7 million at March 31, 2025 from $8.2 million at December 31, 2024 due primarily to a decrease of $432.9 thousand in the value of an interest rate swap.

### Deposits

Total deposits decreased by $23.2 million, or 3.1%, to $735.6 million at March 31, 2025 from $758.8 million at December 31, 2024. The decrease in deposits was due primarily to a $27.7 million decrease in brokered CDs, a $3.4 million decrease in certificates of deposit and a $2.8 million decrease in noninterest-bearing checking accounts, offset by a $8.7 million increase in money market accounts. Generally, the decreases are due to the competition for deposits among all financial institutions due to higher interest rates.

The following table shows the average balances and average costs of deposits for the three-month periods ended March 31, 2025 and 2024:

*(dollars in thousands)*

|  | March 31, 2025 Average Balance | Cost | March 31, 2024 Average Balance | Cost |
| --- | ---: | ---: | ---: | ---: |
| Noninterest bearing demand deposits | $104,058 | 0.00% | $113,411 | 0.00% |
| Interest bearing demand deposits | 119,970 | 0.81% | 130,458 | 0.68% |
| Savings and money market deposits | 147,106 | 0.70% | 157,978 | 0.65% |
| Time deposits | 361,605 | 4.15% | 261,573 | 4.01% |
|  | $732,739 | 2.32% | $663,420 | 1.87% |

### Liquidity Management

Liquidity describes our ability to meet financial obligations that arise out of the ordinary course of business. Liquidity is primarily needed to meet depositor withdrawal requirements, to fund loans, and to fund our other debts and obligations as they come due in the normal course of business. We maintain our asset liquidity position internally through short-term investments, the maturity distribution of the investment portfolio, loan repayments, and income from earning assets. On the liability side of the balance sheet, liquidity is affected by the timing of maturing liabilities and the ability to generate new deposits or borrowings as needed.

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 $70.1 million under a secured line of credit with the FHLB. The Bank also has two facilities with the Reserve Bank. Under the first facility, which has been in place for over 10 years and is collateralized by loans, the Bank can borrow approximately $41.3 million. The second facility is the Bank Term Funding Program (“BTFP”) that the Reserve Bank created in 2023. The BTFP facility allows securities to be pledged at par, provides fixed rates for up to one-year terms, and allows prepayments in whole or in part at any time. Effective, March 11, 2024, no new advances are available under the BTFP facility. 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 $0 and $5.0 million were outstanding as of March 31, 2025 and December 31, 2024, respectively. BTFP advances of $0.0 were outstanding as of both March 31, 2025 and December 31, 2024. The Company borrowed $17.0 million to facilitate the Merger in 2020 as more fully described below. There were no borrowings from the Reserve Bank other than the BTFP advances noted above or our commercial bank lenders at March 31, 2025 or December 31, 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. Uninsured deposits were approximately $172.7 million, or 23.5% of total deposits, at March 31, 2025.

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### Borrowings and Other Contractual Obligations

The Company’s contractual obligations consist primarily of borrowings and operating leases for various facilities.

Securities sold under agreements to repurchase represent overnight borrowings from customers. Securities owned by the Company which are used as collateral for these borrowings are primarily U.S. government agency securities.

On September 30, 2020, the Company borrowed $17.0 million from First Horizon Bank (“FHN”) to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger. Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The loan matures on September 30, 2025. The interest rate on the loan is 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 make quarterly interest and principal payments of approximately $646.5 thousand, which is based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million will be due at maturity. To secure its obligations under this loan, the Company pledged all of its shares of common stock of the Bank to the lender.

Specific information about the Company’s borrowings and contractual obligations is set forth in the following table:

*(dollars in thousands)*

| Amount outstanding at period-end: | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Securities sold under repurchase agreements | $5,482 | $5,564 |
| Federal Home Loan Bank advance (matures on March 31, 2025) | - | 5,000 |
| Long-term debt (net of issuance costs) | 10,858 | 11,329 |
| Weighted average rate paid at period-end: |  |  |
| Securities sold under repurchase agreements | 1.25% | 1.25% |
| Federal Home Loan Bank advances | 0.00% | 1.00% |
| Long-term debt | 4.10% | 4.10% |

The long-term debt outstanding at March 31, 2025 will require the following principal payments:

*(dollars in thousands)*

|  |  |
| --- | ---: |
| Year ending December 31, 2025 | $10,858 |

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### Off-Balance Sheet Arrangements

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 March 31, 2025 and December 31, 2024 are as follows:

*(dollars in thousands)*

| Loan commitments | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Construction and land development | $1,901 | $532 |
| Commercial | 4,300 | 7,250 |
| Commercial real estate | 2,515 | 24,062 |
| Residential | 9,330 | 405 |
|  | $18,046 | $32,249 |
| Unused lines of credit |  |  |
| Home-equity lines | $14,140 | $17,505 |
| Commercial lines | 53,405 | 49,249 |
|  | $67,545 | $66,754 |
| Letters of credit | $1,974 | $1,974 |

Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have interest rates at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.

The maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss that is likely to be incurred as a result of funding its credit commitments.

### RESULTS OF OPERATIONS

### Comparison of Operating Results for the Three Months Ended March 31, 2025 and 2024

### General

Net income for the three months ended March 31, 2025 and March 31, 2024 remained steady at $1.2 million. Total interest income increased by $820 thousand, from $9.1 million for the three months ended March 31, 2024 to $9.9 million for the three months ended March 31, 2025. Total interest expense increased by $499 thousand, from $3.9 million for the three months ended March 31, 2024 to $4.4 million for the three months ended March 31, 2025. The provision for credit losses for the three-month periods ended March 31, 2025 and March 31, 2024 was $30 thousand and $0, respectively. Noninterest income increased by $10 thousand, from $504 thousand for the three months ended March 31, 2024 to $514 thousand for the three months ended March 31, 2025. Noninterest expense increased by $386 thousand, from $4.1 million March 31, 2024 to $4.5 million at March 31, 2025. Income tax expense decreased by $30 thousand, from $346 thousand March 31, 2024 to $316 thousand March 31, 2025.

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### Net Interest Income

Net interest income was $5.5 million for the three months ended March 31, 2025 compared to $5.2 million for the same period of 2024. The net yield on interest earning assets increased to 2.81% for the three months ended March 31, 2025 from 2.69% for the same period of 2024. 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 three months ended March 31, 2025 was $9.9 million compared to $9.1 million for the same period of 2024, an increase of $820 thousand, or 9.0%.

Total interest income on loans for the three months ended March 31, 2025 increased by $1.5 million when compared to the same period of 2024 due to a $59.1 million higher average loan balance for the three months ended March 31, 2025 when compared to the same period of 2024 and a higher loan yield of 5.64% for the three months ended March 31, 2025 versus 5.15% for the same period of 2024. Investment income for the three months ended March 31, 2025 decreased by $502 thousand, or 28.7%, when compared to the same period of 2024 due to a decrease in the fully-taxable equivalent yield to 2.97% for the three months ended March 31, 2025 compared to 3.36% for the same period of 2024, and a $39.9 million lower average investment balance. The fully-taxable equivalent yield on total interest-earning assets increased 35 basis points to 5.03% for the three months ended March 31, 2025 from 4.68% for the same period of 2024. The average balance of total interest-earning assets increased by $10.6 million to $790.6 million for the three months ended March 31, 2025 compared to $779.9 million for the same period of 2024.

Total interest expense for the three months ended March 31, 2025 was $4.4 million compared to $3.9 million for the same period of 2024, an increase of $499 thousand, or 12.8%. The increase was due to a $23.0 million increase in the average balance of interest-bearing liabilities to $650.0 million for the three months ended March 31, 2025 compared to $626.9 million for the same period of 2024, and a higher overall cost of funds on interest bearing deposits and borrowings of 2.70% for the three months ended March 31, 2025 compared to 2.48% for the same period of 2024. Cost of funds for time deposits increased to 4.15% for the three months ended March 31, 2025 from 4.01% for the same period of 2024. Costs of funds attributable to long-term debt and FHLB, Reserve Bank and other borrowings decreased to 3.17% for the three months ended March 31, 2025 from 4.42% for the same period of 2024.

Average noninterest-earning assets increased by $6.3 million to $26.2 million for the three months ended March 31, 2025 compared to $19.9 million in the same period of 2024. Average noninterest-bearing deposits decreased by $9.3 million to $104.1 million during the three months ended March 31, 2025 compared to $113.4 million in the same period of 2024. The average balance in stockholders’ equity increased by $4.7 million for the three months ended March 31, 2025 when compared with the same period of 2024.

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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 March 31, 2025 and 2024. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.

*(dollars in thousands)*

| Assets: | Three Months Ended March 31, 2025 Average Balance | Interest | Yield | Three Months Ended March 31, 2024 Average Balance | Interest | Yield |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans | $593,653 | $8,366 | 5.64% | $534,566 | $6,882 | 5.15% |
| Securities, taxable (1) | 149,525 | 1,052 | 2.81% | 190,082 | 1,580 | 3.33% |
| Securities, tax exempt (1) | 18,690 | 196 | 4.19% | 18,052 | 170 | 3.77% |
| Deposits at other financial institutions and other interest-earning assets (1) | 28,701 | 335 | 4.67% | 37,224 | 501 | 5.38% |
| Total interest-earning assets | 790,569 | 9,949 | 5.03% | 779,924 | 9,133 | 4.68% |
| Noninterest-earning assets | 26,191 |  |  | 19,917 |  |  |
| Total assets | $816,760 |  |  | $799,841 |  |  |
| Liabilities and Stockholders’ Equity: |  |  |  |  |  |  |
| NOW, savings, and money market | $267,076 | 500 | 0.75% | $288,437 | 476 | 0.66% |
| Certificates of deposit | 361,605 | 3,749 | 4.15% | 261,573 | 2,625 | 4.01% |
| Securities sold under repurchase agreements | 5,496 | 17 | 1.24% | 7,380 | 23 | 1.25% |
| FHLB advances | 4,944 | 12 | 0.97% | 5,000 | 12 | 1.01% |
| FRB advances and other borrowings | - | - | 0.00% | 51,692 | 622 | 4.81% |
| Long-term debt | 10,852 | 113 | 4.17% | 12,859 | 134 | 4.16% |
| Total interest-bearing liabilities | 649,973 | 4,391 | 2.70% | 626,941 | 3,892 | 2.48% |
| Noninterest-bearing deposits | 104,058 |  |  | 113,411 |  |  |
| Noninterest-bearing liabilities | 6,072 |  |  | 7,561 |  |  |
| Total liabilities | 760,103 |  |  | 747,913 |  |  |
| Stockholders' equity | 56,657 |  |  | 51,928 |  |  |
| Total liabilities and stockholders' equity | $816,760 |  |  | $799,841 |  |  |
| Net interest income |  | $5,558 |  |  | 5,241 |  |
| Interest rate spread |  |  | 2.33% |  |  | 2.20% |
| Net yield on interest-earning assets |  |  | 2.81% |  |  | 2.69% |
| Ratio of average interest-earning assets to Average interest-bearing liabilities |  |  | 121.63% |  |  | 124.40% |

(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.

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### Provision for Credit Losses

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. For the three months ended March 31, 2024, a provision for credit losses on loans of $28 thousand, offset by a provision for held to maturity securities of $4 thousand and a recovery for unfunded loan commitments of $24 thousand, resulted in a net provision of $0.

Allocation of the Allowance for Credit Losses on Loans

At March 31, 2025 and December 31, 2024

(Dollars in thousands)

| Real estate: | 2025 Allocation | % of Total\* | 2024 Allocation | % of Total\* |
| --- | ---: | ---: | ---: | ---: |
| Commercial | $2,363 | 68.59% | $2,481 | 67.71% |
| Construction and land development | 415 | 4.24% | 478 | 4.65% |
| Residential | 646 | 17.86% | 751 | 19.03% |
| Commercial | 749 | 9.24% | 513 | 8.57% |
| Consumer | 32 | 0.07% | 4 | 0.03% |
| Unallocated | 99 | 0.00% | 33 | 0.00% |
|  | $4,304 | 100.00% | $4,260 | 100.00% |

\* Percentage of loan type to the total loan portfolio.

*(Dollars in thousands)*

|  | For the Quarters Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Balance at beginning of year | $4,260 | $4,285 |
| Charge-offs: |  |  |
| Commercial | - | (1) |
| Total Charge-offs | - | (1) |
| Recoveries: |  |  |
| Real Estate: |  |  |
| Residential | 4 | 6 |
| Total Recoveries | 4 | 6 |
| Net recoveries | 4 | 5 |
| Provision for credit losses - loans | 40 | 28 |
| Balance at end of period | $4,304 | $4,318 |
| Ratios: |  |  |
| ACL on loans to loans | 0.71% | 0.80% |
| Non accrual loans to loans | 0.43% | 0.12% |
| ACL on loans to non accrual loans | 164.71% | 658.80% |

*(Dollars in thousands)*

| March 31, 2025 Real estate: | Beginning balance | Provision for (recovery of) credit losses | Charge offs | Recoveries | Ending balance |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$2,481** | **$(118)** | **$-** | **$-** | **$2,363** |
| Construction and land development | **478** | **(63)** | **-** | **-** | **415** |
| Residential | **751** | **(109)** | **-** | **4** | **646** |
| Commercial | **513** | **236** | **-** | **-** | **749** |
| Consumer | **4** | **28** | **-** | **-** | **32** |
| Unallocated | **33** | **66** | **-** | **-** | **99** |
|  | **$4,260** | **$40** | **$-** | **$4** | **$4,304** |

|  | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| ACL on loans to loans | 0.71% | 0.72% |
| Non accrual loans to loans | 0.43% | 0.41% |
| ACL on loans to non accrual loans | 164.71% | 174.59% |

### Noninterest Income

Noninterest income for the three months ended March 31, 2025 was $514 thousand compared to $504 thousand for the same period of 2024, an increase of $10 thousand, or 2.0%. The increase was due primarily to an increase of $94 thousand for the gain on the unwinding of a fair value hedge and a $24 thousand increase in mortgage banking income and an increase of $15 thousand in Bank owned life insurance income, offset by a non-recurring $143 thousand of insurance proceeds from the storm damage to the Bank’s Upperco, Maryland location recorded during the three months ended March 31, 2024.

### Noninterest Expense

Noninterest expense for the three months ended March 31, 2025 totaled $4.5 million compared to $4.1 million for the same period of 2024, an increase of $386 thousand, or 9.4%. The increase was due primarily to an increase in Federal Deposit Insurance Corporation premiums of $101 thousand as a result of increased premiums, an increase in occupancy and furniture and equipment expense as a result of increased building repairs, office maintenance expenses, increased rent expense, and increased software maintenance costs due to the core system conversion in the fourth quarter of 2024, and an increase in other expenses of $96 thousand, due primarily to increases in ATM expense and insurance premium taxes.

### Income Tax Expense

Income tax expense for the three months ended March 31, 2025 was $316 thousand compared to $346 thousand for the same period of 2024. The effective tax rate was 21.3% for the three months ended March 31, 2025 compared to 22.1% for the same period of 2024. The decrease in the effective tax rate was due to a higher percentage of tax exempt revenue in 2025 versus 2024.

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## Risk factors

As filed, 270 characters.

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.

Filed May 15, 2025.
Source: SEC EDGAR, the filing index for accession 0001437749-25-017235. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.