10-Q

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 March 31, 2020

☐	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	(I. R. S. Employer Identification No.)
incorporation or organization)

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: 2,974,019 as of May 12, 2020.

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 March 31, 2020 (unaudited)	3
Consolidated statements of income (unaudited) for the three months ended March 31, 2020	4
Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2020	5
Consolidated statements of changes in stockholders’ equity (unaudited) for the three months ended March 31, 2020	6
Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2020	7
Notes to financial statements (unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	41
PART II – OTHER INFORMATION	41
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults upon Senior Securities	45
Item 4. Mine Safety Disclosures	45
Item 5. Other Information	45
Item 6. Exhibits	46
SIGNATURES	46

2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

	March 31,		December 31,
	2020		2019
	(Unaudited)
Assets
Cash and due from banks	$	17,409,858	$	6,664,307
Federal funds sold and other interest-bearing deposits		5,233,944		2,457,045
Cash and cash equivalents		22,643,802		9,121,352
Certificate of deposit in other bank		100,000		100,000
Securities available for sale		40,666,044		36,531,774
Securities held to maturity		19,017,782		19,510,018
Equity security at fair value		543,600		532,321
Federal Home Loan Bank stock, at cost		611,300		376,200
Mortgage loans held for sale		1,481,450		242,000
Loans, less allowance for loan losses of $2,740,150 and $2,593,715		358,319,859		359,382,843
Premises and equipment		5,136,920		5,036,851
Accrued interest receivable		1,065,397		1,019,540
Deferred income taxes		988,558		1,036,078
Bank owned life insurance		7,187,489		7,145,477
Other assets		1,839,179		2,180,644
	$	459,601,380	$	442,215,098
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$	61,153,068	$	60,659,015
Interest-bearing		328,611,361		315,954,299
Total deposits		389,764,429		376,613,314
Securities sold under repurchase agreements		9,708,344		10,958,118
Federal Home Loan Bank of Atlanta advances		5,000,000		-
Accrued interest payable		349,725		346,214
Other liabilities		4,356,888		4,843,936
		409,179,386		392,761,582
Stockholders' equity
Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 2,974,019 in 2020 and 2019		29,740		29,740
Additional paid-in capital		27,812,991		27,812,991
Retained earnings		22,411,468		21,568,161
Accumulated other comprehensive income		167,795		42,624
		50,421,994		49,453,516
	$	459,601,380	$	442,215,098

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
	March 31
	2020		2019
Interest income
Loans, including fees	$	4,322,654	$	4,160,086
Investment securities - taxable		210,506		152,317
Investment securities - tax exempt		144,084		160,607
Federal funds sold and other interest earning assets		32,792		74,526
Total interest income		4,710,036		4,547,536
Interest expense
Deposits		906,199		775,531
Securities sold under repurchase agreements		38,194		25,299
Federal Home Loan Bank advances and other borrowings		109		20,553
Total interest expense		944,502		821,383
Net interest income		3,765,534		3,726,153
Provision for loan losses		125,000		13,000
Net interest income after provision for loan losses		3,640,534		3,713,153
Noninterest income
Service charges on deposit accounts		158,555		152,060
Mortgage banking income		62,257		32,719
Bank owned life insurance income		42,012		40,386
Unrealized gain on equity security		8,510		7,845
Gain on sale of SBA loans		-		130,015
Other fees and commissions		30,668		29,371
Total noninterest income		302,002		392,396
Noninterest expense
Salaries		1,354,919		1,326,783
Employee benefits		447,104		381,964
Occupancy		183,152		214,420
Furniture and equipment		160,449		155,147
Acquisition		179,824		-
Other		620,865		676,972
Total noninterest expense		2,946,313		2,755,286
Income before income taxes		996,223		1,350,263
Income taxes		152,916		253,976
Net income	$	843,307	$	1,096,287
Earnings per share - basic and diluted	$	0.28	$	0.37

  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

(Unaudited)

	Three Months Ended
	March 31,
	2020		2019
Net income	$	843,307	$	1,096,287
Other comprehensive income, net of income taxes:
Securities available for sale
Net unrealized gain arising during the period		172,691		412,306
Income tax expense		47,520		113,456
Total other comprehensive income		125,171		298,850
Total comprehensive income	$	968,478	$	1,395,137

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 months ended March 31, 2020 and 2019

(Unaudited except for year-end amounts)

					Additional					Accumulated other			Total
	Common stock				paid-in		Retained			comprehensive			stockholders'
	Shares		Par value		capital		earnings			income			equity
Balance, December 31, 2018		1,682,997	$	16,830	$	27,324,794	$	18,621,382		$	(568,299	)	$	45,394,707
Net income		-		-		-		1,096,287			-			1,096,287
Unrealized loss on securities available for sale net of income tax expense of $113,456		-		-		-		-			298,850			298,850
Reclassification due to adoption of ASU No. 2016-02		-		-		-		(91,447	)		-			(91,447	)
Balance, March 31, 2019		1,682,997	$	16,830	$	27,324,794	$	19,626,222		$	(269,449	)	$	46,698,397
Balance, December 31, 2019		2,974,019	$	29,740	$	27,812,991	$	21,568,161		$	42,624		$	49,453,516
Net income		-		-		-		843,307			-			843,307
Unrealized gain on securities available for sale net of income tax expense of $47,520		-		-		-		-			125,171			125,171
Balance, March 31, 2020		2,974,019	$	29,740	$	27,812,991	$	22,411,468		$	167,795		$	50,421,994

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)

Three Months Ended March 31,	2020			2019
Cash flows from operating activities
Interest received	$	4,640,609		$	4,508,539
Fees and commissions received		251,480			214,151
Interest paid		(940,991	)		(782,666	)
Proceeds from sale of mortgage loans held for sale		3,148,200			1,488,092
Origination of mortgage loans held for sale		(4,387,650	)		(1,331,919	)
Cash paid to suppliers and employees		(3,112,503	)		(2,865,997	)
		(400,855	)		1,230,200
Cash flows from investing activities
Proceeds from maturity and call of securities
Available for sale		2,412,263			1,438,497
Held to maturity		500,000			200,000
Purchase of securities
Available for sale		(6,434,692	)		(5,062,430	)
Held to maturity		-			(132,187	)
Loans made to customers, net of principal collected		958,785			4,403,357
Proceeds from sale of loans		-			1,483,594
Redemption (purchase) of stock in FHLB of Atlanta		(235,100	)		72,100
Purchases of premises, equipment and software		(179,292	)		(33,464	)
		(2,978,036	)		2,369,467
Cash flows from financing activities
Net increase (decrease) in
Noninterest-bearing deposits		494,053			(2,285,616	)
Interest-bearing deposits		12,657,062			12,760,098
Securities sold under repurchase agreements		(1,249,774	)		(1,879,205	)
Federal Home Loan Bank of Atlanta advances		5,000,000			-
		16,901,341			8,595,277
Net increase in cash and cash equivalents		13,522,450			12,194,944
Cash and cash equivalents at beginning of period		9,121,352			14,618,237
Cash and cash equivalents at end of period	$	22,643,802		$	26,813,181

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)

Three Months Ended March 31,	2020			2019
Reconciliation of net income to net cash provided by operating activities
Net income	$	843,307		$	1,096,287
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		89,852			90,167
Provision for loan losses		125,000			13,000
Lease expense in excess of rent paid		8,672			11,083
Equity security dividend reinvested		(2,769	)		(3,045	)
Unrealized gain on equity security		(8,510	)		(7,845	)
Gain on sale of loans		-			(130,015	)
Decrease (increase) in mortgage loans held for sale		(1,239,450	)		156,173
Amortization of premiums and accretion of discounts, net		53,086			19,721
Increase (decrease) in
Deferred loan fees		(20,801	)		(11,680	)
Accrued interest payable		3,511			38,717
Other liabilities		(458,358	)		(115,566	)
Decrease (increase) in
Accrued interest receivable		(45,857	)		(24,271	)
Bank owned life insurance cash surrender value		(42,012	)		(40,386	)
Other assets		293,474			137,860
	$	(400,855	)	$	1,230,200

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. (collectively the “Company”, “we”, “us”, or “our”). The Insurance Subsidiary constitutes an investment in a series of membership interests, 100% owned by the Company, issued by First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed property and casualty insurance company. Intercompany balances and transactions have been eliminated.

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 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 months ended March 31, 2020 do not necessarily reflect the results that may be expected for the entire fiscal year ending December 31, 2020 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, 2019, which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019. 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 841).” Among other things, in the amendments in ASU 2016-02, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company adopted the provisions of ASU 2016-02, effective January 1, 2019, by recording an asset of $1,400,855, a liability of $1,527,019, a $91,447 adjustment to retained earnings, and a $34,717 adjustment to deferred income taxes.

9

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Basis of Presentation (continued)

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective Dates” extended the implementation date to 2023 for SEC registered smaller reporting companies and private companies. The Company is considered a smaller reporting company. The Company has engaged a third-party vendor to assist in the implementation of this ASU.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements in ASC Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 was effective for us on January 1, 2020, with early adoption permitted, and did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” ASU 2018-14 amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 will be effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU 2018-15 was effective for us on January 1, 2020, with early adoption permitted, and did not have a material impact on the Company’s financial statements.

Subsequent Events

On March 11, 2020, the World Health Organization declared a pandemic as a result of the global spread of the coronavirus, commonly referred to as COVID-19.  The spread of the disease quickly accelerated in the United States and to date, all 50 states have reported cases.  The U.S. and state governments reacted to the pandemic by issuing shelter-at-home orders and requiring that non-essential businesses be closed to prevent spread of the virus.  The health crisis quickly turned into a financial crisis resulting in guidance and mandates regarding foreclosures and repossessions and accounting and regulatory changes designed to encourage banks to work with customers suffering detrimental financial impact.

10

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

As a result of the pandemic effecting the states and local markets in which it operates, the Company successfully implemented its Pandemic Contingency Plan with the goal of protecting the health, safety and financial well-being of its associates and customers.  As part of its plan to protect the financial well-being of its customers, the Company chose to participate and educate its customers on the government sponsored plans established to provide financial assistance to businesses.

The U.S. Government’s Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) established the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) which provides small businesses with resources to maintain payroll, hire back employees who may have been laid off, and to cover applicable overhead expenses.  We acted expeditiously to prepare our associates so they could guide our customers on the proper procedures necessary to enable them to take advantage of this program.  We developed an SBA PPP specific information site within our website that provided detailed information, links and materials for eligible customers to access.  Internally, we reallocated resources to review, process and data enter customer applications, working tirelessly over extended hours to provide access to as many local business owners as possible.  We were able to fund 172 loan applications for approximately $25.3 million from the first tranche of PPP designated funds.  Congress allocated additional funding to the PPP on April 23, 2020.  Due to our advance preparation and software implementation, we were able to quickly gain approval for an additional 78 loan applications for approximately $5.1 million through May 11, 2020.  In total, we have gained approval for over $30 million dollars to 250 small businesses.  Approximately 68% of the loans were under $100,000 in size. We will continue to provide access to the PPP and process applications for as long as the PPP is open and funds are available so that we can assist as many small business owners in our markets as possible.  These loans are 100% guaranteed by the SBA, have up to a two-year maturity, provide for a six-month deferral period, and have an interest rate of 1%.  These loans may be forgiven by the SBA if the borrower meets certain conditions, including by using at least 75% of the loan proceeds for payroll costs.  The SBA also established processing fees from 1% to 5%, depending on the loan amount.  We anticipate receiving approximately $1,257,000 in fees.

In April 2020, the Bank established eligibility to participate in the Paycheck Protection Program Liquidity Facility (“PPPLF”) which was established by Congress and administered by the Federal Reserve Bank.  This facility uses the SBA guaranteed PPP loans as collateral, offering 100% collateral coverage with no recourse to the Bank.  The majority of the PPP loan disbursements, which were all subsequent to quarter end, have been to internal, non-interest-bearing accounts awaiting use by borrowers.  As a result, we have not yet accessed the PPPLF, but are prepared to utilize the fund when management determines the timing is appropriate.

The Company’s allowance for loan losses (the “ALL”) increased $146,435 to $2,740,150 at March 31, 2020 compared to $2,593,715 at December 31, 2019.  The ALL to total loans was 0.76% and 0.72% at March 31, 2020 and December 31, 2019, respectively.  This increase was driven by the increased provision expense which was adjusted for qualitative factors related to the economic uncertainty and increased unemployment rates related to the COVID-19 pandemic.

The Company has provided loan modifications to its borrowers who are impacted by the COVID-19. Modifications include deferrals of principal and interest for periods up to three months and interest only periods of three months. These deferrals could be extended an additional three months. As of May 6, 2020, the Company has modified loans with an aggregate principal balance of $80.4 million, or 22% of its loan portfolio.  The Company is currently evaluating requests for relief on an additional $33.8 million in loans, or 9% of its loan portfolio. The pandemic has had an impact on most industries represented by the Company’s loan portfolio with respect to which these modifications have been made, including retail, mixed use, residential rental, land development, accommodations, senior living, commercial office, and warehouse. 

11

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Investment Securities

Investments in debt securities are summarized as follows:

	Amortized		Unrealized		Unrealized		Fair
March 31, 2020	cost		gains		losses		value
Available for sale
State and municipal	$	2,382,514	$	1,218	$	3,104	$	2,380,628
SBA pools		2,054,025		-		46,398		2,007,627
Corporate bonds		495,000		-		9,552		485,448
Mortgage-backed securities		35,503,008		461,811		172,478		35,792,341
	$	40,434,547	$	463,029	$	231,532	$	40,666,044
Held to maturity
State and municipal	$	19,017,782	$	63,126	$	434,872	$	18,646,036

	Amortized		Unrealized		Unrealized		Fair
December 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	508,134	$	4,536	$	-	$	512,670
SBA pools		2,203,834		-		52,037		2,151,797
Mortgage-backed securities		33,760,999		255,843		149,535		33,867,307
	$	36,472,967	$	260,379	$	201,572	$	36,531,774
Held to maturity
State and municipal	$	19,510,018	$	588,393	$	480	$	20,097,931

12

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Investment Securities (continued)

Contractual maturities, shown below, will differ from actual maturities because borrowers and issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
March 31, 2020	cost		value		cost		value
Within one year	$	1,875,000	$	1,875,000	$	256,279	$	257,642
Over one to five years		752,514		739,858		561,884		561,512
Over five to ten years		250,000		251,218		3,224,291		3,246,851
Over ten years		-		-		14,975,328		14,580,031
		2,877,514		2,866,076		19,017,782		18,646,036
Mortgage-backed securities and SBA pools, due in monthly installments		37,557,033		37,799,968		-		-
	$	40,434,547	$	40,666,044	$	19,017,782	$	18,646,036
December 31, 2019
Within one year	$	-	$	-	$	257,150	$	261,204
Over one to five years		258,134		258,838		562,587		565,140
Over five to ten years		250,000		253,832		2,717,125		2,782,474
Over ten years		-		-		15,973,156		16,489,113
		508,134		512,670		19,510,018		20,097,931
Mortgage-backed securities and SBA pools, due in monthly installments		35,964,833		36,019,104		-		-
		36,472,967	$	36,531,774	$	19,510,018	$	20,097,931

Securities with a carrying value of $10,258,557 and $11,441,474 as of March 31, 2020 and December 31, 2019, respectively, were pledged as collateral for government deposits and securities sold under repurchase agreements.

13

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Investment Securities (continued)

The following table sets forth the Company’s gross unrealized losses on a continuous basis for investments in debt securities, by category and length of time, at March 31, 2020 and December 31, 2019.

March 31, 2020	Less than 12 months				12 months or more				Total
Description of investments	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	10,322,326	$	437,976	$	-	$	-	$	10,322,326	$	437,976
SBA pools		-		-		2,007,627		46,398		2,007,627		46,398
Corporate bonds		485,448		9,552		-		-		485,448		9,552
Mortgage-backed securities		13,848,896		128,364		2,366,487		44,114		16,215,383		172,478
Total	$	24,656,670	$	575,892	$	4,374,114	$	90,512	$	29,030,784	$	666,404

December 31, 2019	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	251,618	$	480	$	-	$	-	$	251,618	$	480
SBA pools		-		-		2,151,797		52,037		2,151,797		52,037
Mortgage-backed securities		10,643,624		58,063		7,295,788		91,472		17,939,412		149,535
Total	$	10,895,242	$	58,543	$	9,447,585	$	143,509	$	20,342,827	$	202,052

Management has the ability and intent to hold securities classified as held to maturity until they mature, at which time the Company should receive full value for the securities. As of March 31, 2020 and December 31, 2019, management did not have the intent to sell any of the held to maturity or available for sale securities with unrealized losses before a recovery of cost. The unrealized losses detailed in the table above were due to increases in market interest rates over the yields available at the time the underlying securities were purchased as well as other market conditions for each particular security based upon the structure and remaining principal balance. The fair values of the investment securities are expected to recover as the securities approach their maturity dates or repricing dates or if market yields for such investments decline. Based on the foregoing factors, as of March 31, 2020 and December 31, 2019, management believes that these unrealized losses are temporary and, accordingly, have not been recognized in the Company’s consolidated statement of income.

14

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans

Major categories of loans are as follows:

	March 31,		December 31,
	2020		2019
Real estate:
Commercial	$	241,137,394	$	240,938,149
Construction and land development		19,574,506		18,194,955
Residential		75,106,688		76,122,069
Commercial		25,452,964		26,947,503
Consumer		285,801		292,027
		361,557,353		362,494,703
Less: Allowance for loan losses		2,740,150		2,593,715
Deferred origination fees net of costs		497,344		518,145
	$	358,319,859	$	359,382,843

At March 31, 2020 and December 31, 2019, the Company had no nonaccrual loans.

An age analysis of past due loans, segregated by type of loan, is as follows:

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2020
Real estate:
Commercial	$	3,836,886	$	-	$	-	$	3,836,886	$	237,300,508	$	241,137,394	$	-
Construction and land development		-		-		-		-		19,574,506		19,574,506		-
Residential		58,834		-		-		58,834		75,047,854		75,106,688		-
Commercial		-		-		-		-		25,452,964		25,452,964		-
Consumer		-		-		-		-		285,801		285,801		-
Total	$	3,895,720	$	-	$	-	$	3,895,720	$	357,661,633	$	361,557,353	$	-
December 31, 2019
Real estate:
Commercial	$	224,794	$	-	$	-	$	224,794	$	240,713,355	$	240,938,149	$	-
Construction and land development		-		-		-		-		18,194,955		18,194,955		-
Residential		59,892		-		-		59,892		76,062,177		76,122,069		-
Commercial		-		-		-		-		26,947,503		26,947,503		-
Consumer		-		-		-		-		292,027		292,027		-
Total	$	284,686	$	-	$	-	$	284,686	$	362,210,017	$	362,494,703	$	-

15

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans (continued)

Impaired loans, segregated by class of loans with average recorded investment and interest recognized for the three months ended March 31, 2020 and the year ended December 31, 2019, are set forth in the following table:

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
	Balance		Allowance		Allowance		Investment		Allowance		Investment
March 31, 2020
Real estate:
Commercial	$	2,071,836	$	2,071,836	$	-	$	2,071,836	$	-	$	2,078,412
Residential		49,342		49,342		-		49,342		-		24,671
	$	2,121,178	$	2,121,178	$	-	$	2,121,178	$	-	$	2,103,083
December 31, 2019
Real estate:
Commercial	$	2,084,988	$	2,084,988	$	-	$	2,084,988	$	-	$	2,631,185
Residential		50,057		50,057		-		50,057		-		25,029
	$	2,135,045	$	2,135,045	$	-	$	2,135,045	$	-	$	2,656,214

Impaired loans include certain loans that have been modified in troubled debt restructurings (“TDRs”) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

At March 31, 2020, the Company had one commercial real estate loan totaling $2,071,836 and one residential real estate loan totaling $49,342 that were classified as TDRs. All are included in impaired loans above. At March 31, 2020, the commercial real estate loan is paying as agreed while the residential real estate loan was 30 to 59 days delinquent. There have been no charge-offs or allowances associated with these two loans.

At December 31, 2019, the Company had one commercial real estate loan totaling $2,084,988 and one residential real estate loan totaling $50,057 that were classified as TDRs. All are included in impaired loans above. Each loan is paying as agreed. There have been no charge-offs or allowances associated with these two loans.

Section 4013 of the CARES Act allows financial institutions to suspend application of certain current TDRs accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40. The Company continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing appropriate allowance for loan losses on its loan portfolio.  As of May 6, 2020, the Company has modified loans, due to the pandemic and at the borrower’s request, with an aggregate principal balance of $80.4 million, or 22% of its loan portfolio.  The Company is currently evaluating requests for relief on an additional $33.8 million in loans, or 9% of its loan portfolio.  All of these modifications are not be accounted for as TDRs since they currently meet the guidelines of the CARES Act. See Note 2 to the financial statements included elsewhere in this report for additional information. 

16

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans (continued)

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 the guarantor, and cash flow projections of the borrower. Excellent, Above Average, Average and Acceptable grades are assigned to loans with limited or no delinquent payments and more than sufficient collateral and/or cash flow.

A description of the general characteristics of loans characterized as watch list or classified is as follows:

Pass/Watch

Loans graded as Pass/Watch are secured by generally acceptable assets which reflect above-average risk. The loans warrant closer scrutiny by management than is routine, due to circumstances affecting the borrower, the borrower’s industry, or the overall economic environment. Borrowers may reflect weaknesses such as inconsistent or weak earnings, break even or moderately deficit cash flow, thin liquidity, minimal capacity to increase leverage, or volatile market fundamentals or other industry risks. Such loans are typically secured by acceptable collateral, at or near appropriate margins, with realizable liquidation values.

Special Mention

A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Borrowers may exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing may be limited to finance companies for business borrowers and may be unavailable for commercial real estate borrowers.

Substandard

A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Borrowers may exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. These loans require more intense supervision by Company management.

17

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans (continued)

Doubtful

A doubtful loan has all the weaknesses inherent in a substandard loan with the added characteristic that the weaknesses, based on currently existing facts, conditions, and values, make collection or liquidation in full highly questionable and improbable.

Loans by credit grade, segregated by loan type, are as follows:

			Above						Pass		Special
March 31, 2020	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,638,429	$	83,131,894	$	107,599,125	$	38,927,221	$	-	$	8,840,725	$	-	$	241,137,394
Construction and land development		-		-		2,468,630		11,206,356		5,899,520		-		-		-		19,574,506
Residential		39,853		1,509,432		29,534,359		35,577,567		5,964,205		-		2,481,272		-		75,106,688
Commercial		-		20,000		6,649,244		15,520,228		3,263,492		-		-		-		25,452,964
Consumer		8,714		96,856		75,772		56,794		18,408		-		-		29,257		285,801
	$	48,567	$	4,264,717	$	121,859,899	$	169,960,070	$	54,072,846	$	-	$	11,321,997	$	29,257	$	361,557,353

			Above						Pass		Special
December 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,769,944	$	91,274,940	$	110,566,629	$	27,438,005	$	-	$	8,888,631	$	-	$	240,938,149
Construction and land development		-		216,000		4,737,737		8,572,151		4,669,067		-		-		-		18,194,955
Residential		39,817		1,633,783		30,767,418		34,784,120		6,386,377		-		2,510,554		-		76,122,069
Commercial		153,848		20,000		11,682,299		11,995,143		3,096,213		-		-		-		26,947,503
Consumer		2,327		99,385		91,620		60,049		19,214		-		240		19,192		292,027
	$	195,992	$	4,739,112	$	138,554,014	$	165,978,092	$	41,608,876	$	-	$	11,399,425	$	19,192	$	362,494,703

The Company’s allowance for loan losses is based on management’s evaluation of the risks inherent in the Company’s loan portfolio and the general economy. The allowance for loan losses is maintained at the amount management considers adequate to cover estimated losses in loans receivable that are deemed probable based on information currently known to management. The allowance is based upon a number of factors, including current economic conditions, actual loss experience by pools of similar loans, diversification and size of the portfolio, adequacy of the collateral, the amount of non-performing loans and industry trends. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for estimated loan losses based upon judgments different from those of management.

18

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans (Continued)

The following table details activity in the allowance for loan losses by portfolio for the three-month periods ended March 31, 2020 and 2019 and for the year ended December 31, 2019.   Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2020	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,763,861	$	149,860		$	-	$	2,000	$	1,915,721	$	-	$	1,915,721	$	2,071,836	$	239,065,558
Construction and land development		192,828		13,677			-		3,600		210,105		-		210,105		-		19,574,506
Residential		478,124		1,629			-		-		479,753		-		479,753		49,342		75,057,346
Commercial		107,782		(16,720	)		-		15,835		106,897		-		106,897		-		25,452,964
Consumer		4,133		824			-		-		4,957		-		4,957		-		285,801
Unallocated		46,987		(24,270	)		-		-		22,717		-		22,717		-		-
	$	2,593,715	$	125,000		$	-	$	21,435	$	2,740,150	$	-	$	2,740,150	$	2,121,178	$	359,436,175

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	3,524		$	-	$	1,000	$	1,758,896	$	-	$	1,758,896	$	3,163,793	$	233,630,509
Construction and land development		196,374		(29,317	)		-		3,375		170,432		-		170,432		-		15,914,131
Residential		401,626		32,059			-		-		433,685		-		433,685		-		63,019,749
Commercial		102,610		(3,482	)		-		2,500		101,628		-		101,628		-		22,095,306
Consumer		10,428		(5,569	)		-		-		4,859		-		4,859		-		367,293
Unallocated		43,924		15,785			-		-		59,709		-		59,709		-		-
	$	2,509,334	$	13,000		$	-	$	6,875	$	2,529,209	$	-	$	2,529,209	$	3,163,793	$	335,026,988

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
December 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	(11,700	)	$	-	$	21,189	$	1,763,861	$	-	$	1,763,861	$	2,084,988	$	238,853,161
Construction and land development		196,374		(17,571	)		-		14,025		192,828		-		192,828		-		18,194,955
Residential		401,626		76,498			-		-		478,124		-		478,124		50,057		76,072,012
Commercial		102,610		(3,995	)		-		9,167		107,782		-		107,782		-		26,947,503
Consumer		10,428		(6,295	)		-		-		4,133		-		4,133		-		292,027
Unallocated		43,924		3,063			-		-		46,987		-		46,987		-		-
	$	2,509,334	$	40,000		$	-	$	44,381	$	2,593,715	$	-	$	2,593,715	$	2,135,045	$	360,359,658

19

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

5. Lease Commitments

The Company and its subsidiaries are obligated under operating leases for certain office premises.

The following table shows operating lease right of use assets and operating lease liabilities as of March 31, 2020 and December 31, 2020:

	Consolidated Balance
	Sheet classification	March 31, 2020		December 31, 2019
Operating lease right of use asset	Other assets	$	1,354,918	$	1,392,281
Operating lease liabilities	Other liabilities		1,530,666		1,559,356

Operating lease cost included in occupancy expense in the statement of income for the three-month periods ended March 31, 2020 and 2019 was $49,791 and $47,807, respectively.

Future minimum payments under the agreements, including those option years for which the Company is reasonably certain to renew, are as follows:

Year	Amount
2020	$	149,884
2021		210,955
2022		221,497
2023		228,531
2024		234,910
Thereafter		1,140,679
Total lease payments		2,186,456
Less imputed interest		(655,790	)
Present value of operating lease liabilities	$	1,530,666

For operating leases as of March 31, 2020, the weighted average remaining lease term is 9.3 years and the weighted average discount rate is 3.25%.  During the three-month periods ended March 31, 2020 and 2019, cash paid for amounts included in the measurement of lease liabilities was $41,119 and $36,724, respectively.

6. Capital Standards

Farmers and Merchants Bancshares, Inc. and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

20

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Capital Standards (continued)

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).

In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Under the revised prompt corrective action requirements, as of January 1, 2015, insured depository institutions are required to meet the following in order to qualify as “well capitalized”: (i) a common equity Tier 1 risk-based capital ratio of 6.5%; (ii) a Tier 1 risk-based capital ratio of 8%; (iii) a total risk-based capital ratio of 10%; and (iv) a Tier 1 leverage ratio of 5%.

The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have current applicability to the Bank. As of March 31, 2020, the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

21

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Capital Standards (continued)

The following table presents actual and required capital ratios as of March 31, 2020 and December 31, 2019 for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2020 and December 31, 2019 based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. Capital ratios of the Company are substantially the same as the Bank’s.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2020	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,985		14.09	%	$	38,741		10.50	%	$	36,896		10.00	%
Tier 1 capital (to risk-weighted assets)		49,245		13.35	%		31,362		8.50	%		29,517		8.00	%
Common equity tier 1 (to risk-weighted assets)		49,245		13.35	%		25,827		7.00	%		23,982		6.50	%
Tier 1 leverage (to average assets)		49,245		10.98	%		17,933		4.00	%		22,416		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,274		13.88	%	$	38,775		10.50	%	$	36,928		10.00	%
Tier 1 capital (to risk-weighted assets)		48,681		13.18	%		31,389		8.50	%		29,543		8.00	%
Common equity tier 1 (to risk-weighted assets)		48,681		13.18	%		25,850		7.00	%		24,003		6.50	%
Tier 1 leverage (to average assets)		48,681		10.94	%		17,798		4.00	%		22,247		5.00	%

To be categorized as well capitalized, the Bank must maintain ratios as set forth in the table. As of March 31, 2020, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

The FDIC, through formal or informal agreement, has the authority to require an institution to maintain higher capital ratios than those provided by statute, to be categorized as well capitalized under the regulatory framework for prompt corrective action.

7. Fair Value

Accounting standards define fair value as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants. The price in the principal market used to measure the fair value of the asset or liability is not adjusted for transaction costs. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The standards require the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. The standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

22

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

The fair value hierarchy is as follows:

● Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company uses the following methods and significant assumptions to estimate the fair values of the following assets:

● Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices from a nationally recognized securities pricing agent. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities.

● Other real estate owned (“OREO”): Nonrecurring fair value adjustments to OREO reflect full or partial write-downs that are based on the OREO’s observable market price or current appraised value of the real estate. Since the market for OREO is not active, OREO subjected to nonrecurring fair value adjustments based on the current appraised value of the real estate are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been 10% of the appraised value.

● Impaired loans: Nonrecurring fair value adjustments to impaired loans reflect full or partial write-downs and reserves that are based on the impaired loan’s observable market price or current appraised value of the collateral. Since the market for impaired loans is not active, such loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been 10% of the appraised value.

23

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

The following table summarizes financial assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2020
Recurring
Available for sale securities
State and municipal	$	-	$	2,380,628	$	-	$	2,380,628
SBA pools		-		2,007,627		-		2,007,627
Corporate bonds		-		485,448		-		485,448
Mortgage-backed securities		-		35,792,341		-		35,792,341
	$	-	$	40,666,044	$	-	$	40,666,044
Equity security at fair value
Mutual fund	$	543,600	$	-	$	-	$	543,600
Nonrecurring
Impaired loans	$	-	$	-	$	2,121,178	$	2,121,178
December 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	512,670	$	-	$	512,670
SBA pools		-		2,151,797		-		2,151,797
Mortgage-backed securities		-		33,867,307		-		33,867,307
	$	-	$	36,531,774	$	-	$	36,531,774
Equity security at fair value
Mutual fund	$	532,321	$	-	$	-	$	532,321
Nonrecurring
Impaired loans	$	-	$	-	$	2,135,045	$	2,135,045

24

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

The estimated fair value of financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs were as follows:

	March 31, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	19,017,782	$	18,646,036	$	19,510,018	$	20,097,931
Mortgage loans held for sale		1,481,450		1,501,296		242,000		245,857
Federal Home Loan Bank stock		611,300		611,300		376,200		376,200
Level 3 inputs
Loans, net		358,319,859		358,411,804		359,382,843		359,346,031
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	61,153,068	$	61,153,068	$	60,659,015	$	60,659,015
Securities sold under repurchase agreements		9,708,344		9,708,344		10,958,118		10,958,118
Level 2 inputs
Interest-bearing deposits		328,611,361		340,381,361		315,954,299		313,622,299
Federal Home Loan Bank advances		5,000,000		5,250,000		-		-

The fair value of mortgage loans held for sale is determined by the expected sales price. The fair value of loans were determined using an exit price methodology. The exit price estimation of fair value is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital (Level 3). In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. 

The fair values of interest-bearing checking, savings, and money market deposit accounts are equal to their carrying amounts. The fair values of fixed-maturity time deposits are estimated based on interest rates currently offered for deposits of similar remaining maturities.

The fair value of credit commitments are considered to be the same as the contractual amounts, and are not included in the table above. These commitments generate fees that approximate those currently charged to originate similar commitments.

25

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

8. Earnings per Share

Basic earnings per share is determined by dividing net income available to stockholders by the weighted-average number of shares of common stock outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents, giving retroactive effect to stock dividends declared during the period.  Diluted earnings per share is determined in the same manner, except that the weighted-average number of shares of common stock outstanding is adjusted for the dilutive effect of outstanding common stock equivalents. The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2020 and 2019.  There were no common stock equivalents outstanding for the three-month periods ended March 31, 2020 or 2019.

	Three Months Ended		Three Months Ended
	March 31, 2020		March 31, 2019
Net income	$	843,307	$	1,096,287
Weighted average shares outstanding		2,974,019		2,945,245
Earnings per share - basic and diluted	$	0.28	$	0.37

9. Retirement Plans

The Company has a profit sharing plan qualifying under Section 401(k) of the Internal Revenue Code.  All employees age 21 or more with six months of service are eligible for participation in the plan. The Company matches employee contributions up to 4% of total compensation and may make additional discretionary contributions. Employee and employer contributions are 100% vested when made. The Company’s contributions to this plan were $66,649 and $61,817 for the three-month periods ended March 31, 2020 and 2019, respectively.

The Company has entered into agreements with 12 employees to provide certain life insurance benefits payable in connection with policies of life insurance on those employees that are owned by the Company. Each of the agreements provides for the amount of death insurance benefits to be paid to beneficiaries of the insured. For this plan, the Company expensed $1,589 and $1,468 for the three-month periods ended March 31, 2020 and 2019, respectively.

The Company adopted supplemental executive retirement plans for three of its executives. The plans provide cash compensation to the executive officers under certain circumstances, including a separation of service. The benefits vest over the period from adoption to a specified age for each executive.  The Company recorded expenses, including interest, of $51,300 and $30,600 for the three-month periods ended March 31, 2020 and 2019, respectively.

Retirement plan expenses are included in employee benefits on the consolidated statements of income.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2019. 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 August 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”).

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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 (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.

On March 6, 2020, the Company, Anthem Acquisition Sub, a wholly-owned subsidiary of the Company (“Merger Sub”) and Carroll Bancorp, (“Carroll”), the parent company of Carroll Community Bank, a Maryland commercial bank (“Carroll Bank”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will be merged with and into Carroll, with Carroll as the surviving corporation, and, immediately thereafter, Carroll will be merged with and into the Company, with the Company as the surviving corporation (collectively, the “Merger”). The Merger Agreement, which has been approved by the boards of the Company, Merger Sub and Carroll, provides that the outstanding shares of Carroll’s common stock will be converted into the right to receive cash in the aggregate amount of $25 million, subject to a dollar-for-dollar reduction if and to the extent Carroll’s tangible book value prior to the closing does not equal or exceed $18,200,000. Immediately following the Merger, Carroll Bank will be merged with and into the Bank, with the Bank as the surviving insured depository institution (the “Bank Merger” and, together with the Merger, the “Merger Transactions”).

Our ability to consummate the Merger Transactions is subject to certain conditions, including, among others, the approval of the Merger by the stockholders of Carroll and the receipt of required regulatory approvals.  We expect the Merger to close in the third quarter of 2020, but this date is subject to change.  For additional information regarding the pending Merger, please see as our Current Reports on Form 8-K filed with the SEC on March 6, 2020 and March 11, 2020.

You should keep in mind that discussions in this report that refer to the Company’s business, operations and risks in the future refer to the Company as a stand-alone entity, and that these considerations will be different with respect to the combined company after the closing of the Merger Transactions.

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, 2019, which were included in Item 8 of Part II of Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019. On an on-going basis, management evaluates estimates, including those related to loan losses and intangible assets, other-than-temporary impairment (“OTTI”) 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.

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The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan 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 impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current 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.

Management does not believe that any material changes in our critical accounting policies have occurred since December 31, 2019.

Paycheck Protection Program

The U.S. Government’s Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) established the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) which provides small businesses with resources to maintain payroll, hire back employees who may have been laid off, and to cover applicable overhead expenses.  We acted expeditiously to prepare our associates so they could guide our customers on the proper procedures necessary to enable them to take advantage of this program.  We developed an SBA PPP specific information site within our website that provided detailed information, links and materials for eligible customers to access.  Internally, we reallocated resources to review, process and data enter customer applications, working tirelessly over extended hours to provide access to as many local business owners as possible.  We were able to fund 172 loan applications for approximately $25.3 million from the first tranche of PPP designated funds.  Congress allocated additional funding to the PPP on April 23, 2020.  Due to our advance preparation and software implementation, we were able to quickly gain approval for an additional 78 loan applications for approximately $5.1 million through May 11, 2020.  In total, we have gained approval for over $30 million dollars to 250 small businesses.  Approximately 68% of the loans were under $100,000 in size. We will continue to provide access to the PPP and process applications for as long as the PPP is open and funds are available so that we can assist as many small business owners in our markets as possible.  These loans are 100% guaranteed by the SBA, have up to a two-year maturity, provide for a six-month deferral period, and have an interest rate of 1%.  These loans may be forgiven by the SBA if the borrower meets certain conditions, including by using at least 75% of the loan proceeds for payroll costs.  The SBA also established processing fees from 1% to 5%, depending on the loan amount.  We anticipate receiving approximately $1,257,000 in fees.

Financial Condition

Total assets increased by $17,386,282 or 3.9% during the first quarter of 2020 to $459,601,380 at March 31, 2020 from $442,215,098 at December 31, 2019. The increase in total assets was due primarily to increases of $13,522,450 in cash and cash equivalents and $3,642,034 in debt securities.

Total liabilities increased $16,417,804 or 4.2% during the first quarter of 2020 to $409,179,386 at March 31, 2020 from $392,761,582 at December 31, 2019. The increase was due primarily to a $13,151,115 increase in deposits and a $5,000,000 increase in FHLB advances, offset by a reduction of $1,249,774 in securities sold under repurchase agreements.

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Stockholders’ equity increased by $968,478 during the first quarter of 2020 to $50,421,994 at March 31, 2020 from $49,453,516 at December 31, 2019. The increase was due primarily to net income for the period of $843,307 and an increase of $125,171 in accumulated other comprehensive income.

Loans

Major categories of loans at March 31, 2020 and December 31, 2019 are as follows:

	March 31,				December 31,
	2020				2019
Real estate:
Commercial	$	241,137,394	67	%	$	240,938,149	67	%
Construction/Land development		19,574,506	5	%		18,194,955	5	%
Residential		75,106,688	21	%		76,122,069	21	%
Commercial		25,452,964	7	%		26,947,503	7	%
Consumer		285,801	0	%		292,027	0	%
		361,557,353	100	%		362,494,703	100	%
Less: Allowance for loan losses		2,740,150				2,593,715
Deferred origination fees net of costs		497,344				518,145
	$	358,319,859			$	359,382,843

Loans decreased by $1,062,984 or 0.3% to $358,319,859 at March 31, 2020 from $359,382,843 at December 31, 2019. The decline was due primarily to a $1,015,381 decrease in residential loans and a $1,494,539 decrease in commercial loans, offset by a $1,379,551 increase in construction/land development loans. The allowance for loan losses increased $146,435 to $2,740,150 at March 31, 2020 from $2,593,715 at December 31, 2019.

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 loan losses. 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.

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An age analysis of past due loans, segregated by class of loans, as of March 31, 2020 and December 31, 2019, is as follows:

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or more		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2020
Real estate:
Commerical	$	3,836,886	$	-	$	-	$	3,836,886	$	237,300,508	$	241,137,394	$	-
Construction/Land development		-		-		-		-		19,574,506		19,574,506		-
Residential		58,834		-		-		58,834		75,047,854		75,106,688		-
Commercial		-		-		-		-		25,452,964		25,452,964		-
Consumer		-		-		-		-		285,801		285,801		-
Total	$	3,895,720	$	-	$	-	$	3,895,720	$	357,661,633	$	361,557,353	$	-

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or more		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
December 31, 2019
Real estate:
Commerical	$	224,794	$	-	$	-	$	224,794	$	240,713,355	$	240,938,149	$	-
Construction/Land development		-		-		-		-		18,194,955		18,194,955		-
Residential		59,892		-		-		59,892		76,062,177		76,122,069		-
Commercial		-		-		-		-		26,947,503		26,947,503		-
Consumer		-		-		-		-		292,027		292,027		-
Total	$	284,686	$	-	$	-	$	284,686	$	362,210,017	$	362,494,703	$	-

It is the Company’s policy to place a loan in nonaccrual status whenever there is substantial doubt about the ability of the borrower to pay principal or interest on any outstanding credit. Management considers such factors as payment history, the nature of the collateral securing the loan, and the overall economic situation of the borrower when making a nonaccrual decision. Management closely monitors nonaccrual loans. The Company returns a nonaccrual loan to accruing status when (i) the loan is brought current with the full payment of all principal and interest arrearages, (ii) all contractual payments are thereafter made on a timely basis for at least six months, and (iii) management determines, based on a credit review, that it is reasonable to expect that future payments will be made as and when required by the contract.

At March 31, 2020 and December 31, 2019, the Company had no nonaccrual loans or loans that were delinquent 90 days or greater.

Impaired loans as of March 31, 2020 and December 31, 2019 are set forth in the following table:

	March 31		December 31,
	2020		2019
Impaired loans with no valuation allowance	$	2,121,178	$	2,135,045
Impaired loans with a valuation allowance		-		-
Total impaired loans	$	2,121,178	$	2,135,045

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Impaired loans include certain loans that have been modified in troubled debt restructurings (“TDRs”) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

Section 4013 of the U.S. Government’s Coronavirus Aid, Relief, and Economic Security Act allows financial institutions to suspend application of certain current TDRs accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40. The Company continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing appropriate allowance for credit losses on its loan portfolio.  See Notes 2 and 4 to the financial statements included elsewhere in this report for additional information. 

At March 31, 2020, the Company had one commercial real estate loan totaling $2,071,836 and one residential real estate loan totaling $49,342 that were classified as TDRs. All are included in impaired loans above. At March 31, 2020, the commercial real estate loan is paying as agreed while the residential real estate loan was 30 to 59 days delinquent. There have been no charge-offs or allowances associated with these two loans.

At December 31, 2019, the Company had one commercial real estate loan totaling $2,084,988 and one residential real estate loan totaling $50,057 that were classified as TDRs. All are included in impaired loans above. Each loan is paying as agreed. There have been no charge-offs or allowances associated with these two loans.

	March 31,		December 31,
	2020		2019
Restructured loans (TDRs):
Performing as agreed	$	2,071,836	$	2,135,045
Not performing as agreed		49,342		-
Total TDRs	$	2,121,178	$	2,135,045

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense.  The allowance for loan losses represents an amount which, in management’s judgment, will be adequate to absorb probable losses on existing loans and other extensions of credit that may become uncollectible. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with Accounting Standards Codification (“ASC”) Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions.

The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, classified and criticized loans and net charge-offs or recoveries, among other factors.

Although management believes that, based on information currently available, the Company’s allowance for loan losses is sufficient to cover losses inherent in its loan portfolio at this time, no assurances can be given that the Company’s level of allowance for loan losses will be sufficient to cover future loan losses incurred by the Company or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions at the time management determined the current level of the allowance for loan losses.

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The following table details activity in the allowance for loan losses by portfolio for the three months ended March 31, 2020 and 2019 and the year ended December 31, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2020	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:	$	1,763,861	$	149,860		$	-	$	2,000	$	1,915,721	$	-	$	1,915,721	$	2,071,836	$	239,065,558
Commercial
Construction and land development		192,828		13,677			-		3,600		210,105		-		210,105		-		19,574,506
Residential		478,124		1,629			-		-		479,753		-		479,753		49,342		75,057,346
Commercial		107,782		(16,720	)		-		15,835		106,897		-		106,897		-		25,452,964
Consumer		4,133		824			-		-		4,957		-		4,957		-		285,801
Unallocated		46,987		(24,270	)		-		-		22,717		-		22,717		-		-
	$	2,593,715	$	125,000		$	-	$	21,435	$	2,740,150	$	-	$	2,740,150	$	2,121,178	$	359,436,175

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	3,524		$	-	$	1,000	$	1,758,896	$	-	$	1,758,896	$	3,163,793	$	233,630,509
Construction and land development		196,374		(29,317	)		-		3,375		170,432		-		170,432		-		15,914,131
Residential		401,626		32,059			-		-		433,685		-		433,685		-		63,019,749
Commercial		102,610		(3,482	)		-		2,500		101,628		-		101,628		-		22,095,306
Consumer		10,428		(5,569	)		-		-		4,859		-		4,859		-		367,293
Unallocated		43,924		15,785			-		-		59,709		-		59,709		-		-
	$	2,509,334	$	13,000		$	-	$	6,875	$	2,529,209	$	-	$	2,529,209	$	3,163,793	$	335,026,988

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
December 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	(11,700	)	$	-	$	21,189	$	1,763,861	$	-	$	1,763,861	$	2,084,988	$	238,853,161
Construction and land development		196,374		(17,571	)		-		14,025		192,828		-		192,828		-		18,194,955
Residential		401,626		76,498			-		-		478,124		-		478,124		50,057		76,072,012
Commercial		102,610		(3,995	)		-		9,167		107,782		-		107,782		-		26,947,503
Consumer		10,428		(6,295	)		-		-		4,133		-		4,133		-		292,027
Unallocated		43,924		3,063			-		-		46,987		-		46,987		-		-
	$	2,509,334	$	40,000		$	-	$	44,381	$	2,593,715	$	-	$	2,593,715	$	2,135,045	$	360,359,658

The provision for loan losses was $125,000 for the three months ended March 31, 2020 and $13,000 for the three months ended March 31, 2019.

During the three-month periods ended March 31, 2020 and March 31, 2019, the Company had no loan charge-offs. Recoveries from loans written off in prior periods totaled $21,435 and $6,875 for the three-month periods ended March 31, 2020 and 2019, respectively.

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As of March 31, 2020, the Company had $9,200,820 of loans on a watch list, other than impaired loans, for which the borrowers have the potential for experiencing financial difficulties. As of December 31, 2019, the Company had $9,264,380 of such loans. These loans are subject to ongoing management attention and their classifications are reviewed regularly.

Investment Securities

Investments in debt securities increased by $3,642,034 or 6.5% to $59,683,826 at March 31, 2020 from $56,041,792 at December 31, 2019. At March 31, 2020 and December 31, 2019, the Company had classified 68% and 65%, respectively, of the investment portfolio as available for sale. The 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 management 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.

The following table sets forth the carrying value of investments in debt securities at March 31, 2020 and December 31, 2019:

	March 31		December 31,
	2020		2019
Available for sale
State and municipal	$	2,380,628	$	512,670
SBA pools		2,007,627		2,151,797
Corporate Bonds		485,448		-
Mortgage-backed securities		35,792,341		33,867,307
	$	40,666,044	$	36,531,774
Held to maturity
State and municipal	$	19,017,782	$	19,510,018

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The following table sets forth the scheduled maturities of investments in debt securities at March 31, 2020:

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	1,875,000	$	1,875,000	$	256,279	$	257,642
Over 1 to 5 years		752,514		739,858		561,884		561,512
Over 5 to 10 years		250,000		251,218		3,224,291		3,246,851
Over 10 years		-		-		14,975,328		14,580,031
		2,877,514		2,866,076		19,017,782		18,646,036
SBA Pools		2,054,025		2,007,627		-		-
Mortgage-backed securities		35,503,008		35,792,341		-		-
	$	40,434,547	$	40,666,044	$	19,017,782	$	18,646,036

SBA pools and mortgage-backed securities are due in monthly installments.

Other Real Estate Owned

The Bank owns one property in Cecil County, Maryland that was acquired through foreclosure in 2007 and is classified as other real estate owned (“OREO”). The Bank was required by statute to write this property down during 2019 to $0 due to the length of time that it has been held by the Bank. The property is under contract to be sold by the end of 2020.

Deposits

Total deposits increased by $13,151,115 or 3.5% to $389,764,429 at March 31, 2020 from $376,613,314 at December 31, 2019. The increase in deposits was due to a $6,557,268 increase in interest bearing checking accounts, a $5,219,590 increase in time deposits, a $1,315,375 increase in money market accounts and a $494,053 increase in noninterest-bearing accounts, offset by a $435,171 decrease in savings accounts.

The following table shows the average balances and average costs of deposits for the three months ended March 31, 2020 and 2019:

	March 31, 2020					March 31, 2019
	Average					Average
	Balance		Cost			Balance		Cost
Noninterest bearing demand deposits	$	59,982,921		0.00	%	$	58,107,801		0.00	%
Interest bearing demand deposits		63,806,965		0.35	%		53,649,964		0.32	%
Savings and money market deposits		102,211,943		0.32	%		100,148,340		0.30	%
Time deposits		156,493,583		1.97	%		143,504,411		1.83	%
	$	382,495,412		0.95	%	$	355,410,516		0.87	%

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 $58.7 million under a secured line of credit with the FHLB. The Bank also has a facility with the Federal Reserve Bank of Richmond (the “Reserve Bank”) under which the Bank can borrow approximately $21.4 million. Finally, the Bank has an $18,500,000 ($9,500,000 unsecured and $9,000,000 secured) overnight federal funds line of credit available from two commercial banks. FHLB advances of $5,000,000 and $0 were outstanding as of March 31, 2020 and December 31, 2019, respectively. There were no borrowings from the Reserve Bank or our commercial bank lenders at March 31, 2020 and December 31, 2019. 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.

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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.

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

	March 31			December 31,
	2020			2019
Amount oustanding at period-end:
Securities sold under repurchase agreements	$	9,708,344		$	10,958,118
Federal Home Loan Bank advances mature in 2025		5,000,000			-
Weighted average rate paid at period-end:
Securites sold under repurchase agreements		1.47	%		1.49	%
Federal Home Loan Bank advances		1.00	%		0.00	%

Capital Resources and Adequacy

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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).

Additional information regarding the capital requirements that apply to us can be found in Note 6 to the consolidated financial statements presented elsewhere in this report and in Item 1 of Part I of Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019 under the heading, “Supervision and Regulation – Capital Requirements”.

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The following table presents actual and required capital ratios as of March 31, 2020 and December 31, 2019 for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2020 and December 31, 2019, based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phased In Schedule					Capitalized
March 31, 2020	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,985		14.09	%	$	38,741		10.50	%	$	36,896		10.00	%
Tier 1 capital (to risk-weighted assets)		49,245		13.35	%		31,362		8.50	%		29,517		8.00	%
Common equity tier 1 (to risk- weighted assets)		49,245		13.35	%		25,827		7.00	%		23,982		6.50	%
Tier 1 leverage (to average assets)		49,245		10.98	%		17,933		4.00	%		22,416		5.00	%
December 31, 2019
Total capital (to risk-weighted assets)	$	51,274		13.88	%	$	38,775		10.50	%	$	36,928		10.00	%
Tier 1 capital (to risk-weighted assets)		48,681		13.18	%		31,389		8.50	%		29,543		8.00	%
Common equity tier 1 (to risk- weighted assets)		48,681		13.18	%		25,850		7.00	%		24,003		6.50	%
Tier 1 leverage (to average assets)		48,681		10.94	%		17,798		4.00	%		22,247		5.00	%

The Company intends to fund future growth primarily with cash, federal funds, maturities of investment securities and deposit growth. Management knows of no other trend or event that will have a material impact on capital.

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, 2020 and December 31, 2019 are as follows:

	March 31,		December 31,
	2020		2019
Loan commitments
Construction and land development	$	1,165,500	$	1,322,275
Commercial		3,467,000		4,102,000
Commercial real estate		2,792,000		7,560,714
Residential		285,000		770,499
	$	7,709,500	$	13,755,488
Unused lines of credit
Home-equity lines	$	3,768,471	$	3,700,404
Commercial lines		23,697,296		22,229,095
	$	27,465,767	$	25,929,499
Letters of credit	$	2,203,399	$	1,935,613

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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, 2020 and 2019

General

Net income for the three months ended March 31, 2020 was $843,307, compared to $1,096,287 for the same period of 2019. The decrease of $252,980 or 23.1% was due to a $191,027 increase in noninterest expenses, a $112,000 increase in the loan loss provision, and a decrease in noninterest income of $90,394, offset by a $39,381 increase in net interest income and a $101,060 decrease in income taxes. Included in noninterest expense is $179,824 of one-time expenses incurred in connection with the pending acquisition of Carroll Bank. Without these acquisition costs, net income would have been $973,648 for the three months ended March 31, 2020.

	Three Months Ended
	March 31, 2020						March 31, 2019
				Excluding
	As Reported			Acquisition Costs			As Reported
Income before taxes	$	996,223		$	1,176,047		$	1,350,263
Income taxes		152,916			202,399			253,976
Net income	$	843,307		$	973,648		$	1,096,287
Earnings per share	$	0.28		$	0.33		$	0.37
Return on average assets		0.75	%		0.87	%		1.05	%
Return on average equity		6.72	%		7.76	%		9.49	%

Net Interest Income

Net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowings, was $3,765,534 for the three months ended March 31, 2020, compared to $3,726,153 for the same period of 2019.

Total interest income for the three months ended March 31, 2020 was $4,710,036 compared to $4,547,536 for the same period of 2019, an increase of $162,500 or 3.6%.

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Total interest income on loans for the three months ended March 31, 2020 increased by $162,568 when compared to the same period of 2019 due to a $20.4 million higher average loan balance for the first three months of 2020 when compared to the same period of 2019, offset by a lower loan yield of 4.74% for the first three months of 2020 versus 4.83% for the same period of 2019. Investment income for the first three months of 2020 increased by $41,666 or 13.3% when compared to the same period of 2019 due to a $10.2 million higher average investment balance, offset by a decrease in fully-taxable equivalent yield to 2.86% for three months ended March 31, 2020, compared to 2.93% for the same period of 2019. The fully-taxable equivalent yield on total interest-earning assets decreased 13 basis points to 4.42% for the three months ended March 31, 2020 compared to 4.55% for the same period of 2019. The average balance of total interest-earning assets increased by $28.2 million to $430.0 million for the three months ended March 31, 2020, compared to $401.8 million for the same period of 2019.

Total interest expense for the three months ended March 31, 2020 was $944,502, compared to $821,383 for the same period of 2019, an increase of $123,119, or 15.0%. The increase was due to a higher overall cost of funds on interest bearing deposits and borrowings of 1.13% for the three months ended March 31, 2020, compared to 1.06% for the same period of 2019, and a $22.4 million increase in the average balance of interest-bearing liabilities to $333.0 million in the first three months of 2020, compared to $310.6 million in the same period of 2019. Cost of funds for time deposits increased to 1.97% for the three months ended March 31, 2020 from 1.83% for the same period of 2019. Securities sold under repurchase agreements cost of funds increased to 1.47% for the first three months of 2020 from 1.14% for the first three months of 2020.

Average noninterest-earning assets increased by $2.0 million to $17.8 million in the first three months of 2020, compared to $15.8 million in the same period of 2019. Average noninterest-bearing deposits increased by $1.9 million to $60.0 million during the first three months of 2020, compared to $58.1 million in the same period of 2019. The average balance in stockholders’ equity increased by $4.0 million for the three months ended March 31, 2020, when compared with the same period of 2019.

In August 2019 the FRB began reducing rates after having raised them numerous times from 2015 to 2018 to a peak fed funds range of 2.25% to 2.50%. Two more cuts occurred in 2019 and two have occurred in 2020 reducing the federal funds range to 0.00% to 0.25% As a result, yields on loans and investments have decreased. Our cost of funds, while not lower for the three months ended March 31, 2020 compared to the same period in 2019, is lower than the last three quarters of 2019 and will continue to decline as higher rate certificates of deposit mature and are replaced by lower rate certificates. Management will closely monitor its asset-liability position so that it can respond to any future changes in interest rates and/or changes to the Bank’s interest rate spread.

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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, 2020 and 2019. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.

	Three Months Ended March 31, 2020							Three Months Ended March 31, 2019
	Average							Average
	Balance		Interest		Yield			Balance		Interest		Yield
Assets:
Loans	$	364,706,926	$	4,322,654		4.74	%	$	344,347,514	$	4,160,086		4.83	%
Securities, taxable		37,155,531		211,746		2.28	%		27,673,598		153,887		2.22	%
Securities, tax exempt		18,023,848		183,275		4.07	%		17,287,806		175,390		4.06	%
Federal funds sold and other interest-earning assets		10,125,466		34,059		1.35	%		12,497,670		76,972		2.46	%
Total interest-earning assets		430,011,771		4,751,734		4.42	%		401,806,588		4,566,335		4.55	%
Noninterest-earning assets		17,754,285							15,776,177
Total assets	$	447,766,056						$	417,582,765
Liabilities and Stockholders’ Equity:
NOW, savings, and money market	$	166,018,908		136,947		0.33	%	$	153,798,304		118,448		0.31	%
Certificates of deposit		156,493,583		769,252		1.97	%		143,504,411		657,083		1.83	%
Securities sold under repurchase agreements		10,391,770		38,194		1.47	%		8,845,852		25,299		1.14	%
FHLB advances and other borrowings		131,958		109		0.33	%		4,457,778		20,553		1.84	%
Total interest-bearing liabilities		333,036,219		944,502		1.13	%		310,606,345		821,383		1.06	%
Noninterest-bearing deposits		59,982,921							58,107,801
Noninterest-bearing liabilities		4,539,576							2,648,888
Total liabilities		397,558,716							371,363,034
Stockholders' equity		50,207,340							46,219,731
Total liabilities and stockholders' equity	$	447,766,056						$	417,582,765
Net interest income			$	3,807,232						$	3,744,952
Interest rate spread						3.29	%						3.49	%
Net yield on interest-earning assets						3.54	%						3.73	%
Ratio of average interest-earning assets to Average interest-bearing liabilities						129.12	%						129.36	%

Interest on tax-exempt securities and other tax-exempt investments are reported on fully taxable equivalent basis.

Noninterest Income

Noninterest income for the three months ended March 31, 2020 was $302,002, compared to $392,396 for the same period of 2019, a decrease of $90,394 or 23.0%. The decrease was primarily a result of a $130,015 lower gain on the sale of SBA loans, offset by a $29,538 increase in mortgage banking income.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2020 totaled $2,946,313 compared to $2,755,286 for the same period of 2019, an increase of $191,027 or 6.9%. The increase was due primarily to costs incurred related to the pending acquisition of Carroll Bank of $179,824, increases in salaries and benefits of $93,276, offset by decreases in occupancy of $31,268 and in other of $56,107.

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Income Tax Expense

Income tax expense for the three months ended March 31, 2020 was $152,916, compared to $253,976 for the same period of 2019. The effective tax rate was 15.3% for the three months ended March 31, 2020, compared to 18.8% for the same period of 2019. The decrease in income tax expense was due primarily to lower income before income taxes and a higher percentage of tax exempt revenue for the three months ended March 31, 2020 when compared to the same period in 2019.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk is interest rate fluctuation and we have procedures in place to evaluate and mitigate this risk. This market risk and our procedures are described in Item 7 of Part II of Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019 under the heading, “Interest Rate Risk”, which provides information as of December 31, 2019. Management believes that no material changes in market risk or our procedures used to evaluate and mitigate these risks have occurred since December 31, 2019.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act with the SEC, such as this Quarterly Report, is recorded, processed, summarized and reported within the periods specified in those rules and forms, and that such information is accumulated and communicated to our management, including Farmers and Merchants Bancshares, Inc.’s principal executive officer (“PEO”) and the principal financial officer (“PFO”), as appropriate, to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

An evaluation of the effectiveness of these disclosure controls as of March 31, 2020 was carried out under the supervision and with the participation of management, including the PEO and the PFO. Based on that evaluation, management, including the PEO and the PFO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the quarter ended March 31, 2020, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1.     Legal Proceedings

None.

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Item 1A.      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. Except as set forth below, management does not believe that any material changes in our risk factors have occurred since they were last disclosed.

Risks Related to Our Pending Merger with Carroll Bancorp, Inc.

The COVID-19 pandemic and resulting adverse economic conditions could increase the risks associated with the Company’s proposed merger with Carroll Bancorp, Inc.

Our ability to consummate our proposed acquisition of Carroll and the Bank’s ability to consummate its proposed acquisition of Carroll Bank are both subject to certain conditions, including, among others, our receipt of required regulatory approvals and our receipt of funding from a third-party lender necessary to pay the merger consideration (the “Holding Company Loan”), we cannot guaranty that we or Carroll will be able to satisfy all of these conditions.  A bank regulator’s decision to approve an acquisition is based on, among many other factors, its review of various current and estimated financial information regarding the purchaser and the target and how the proposed acquisition will impact the purchaser’s financial condition and results of operations.  Likewise, a third-party lender’s decision to make a loan to the purchaser like the Holding Company Loan is based in large part on the current and estimated financial condition and results of operations of the borrower.  The ongoing COVID-19 pandemic and the risks that it presents to the Company, to Carroll, and to their respective customers could heighten the risks associated with the Merger Transactions, including, without limitation, risks related to the satisfaction of the conditions to closing the Merger Transactions in the anticipated timeframe or at all, including risks related to the failure to obtain necessary regulatory and Carroll stockholder approvals, the Company’s failure to close on the Holding Company Loan, and the possibility that the Merger Transactions do not close, including in circumstances in which Carroll would be obligated to pay the Company a termination fee or other expenses and vice versa; risks related to the ability to realize the anticipated benefits of the Merger Transactions, including the possibility that the expected synergies from the Merger Transactions will not be realized or will not be realized within the expected time period; the risk that the businesses will not be integrated successfully; disruption from the transaction making it more difficult to maintain business and operational relationships; negative effects of the consummation of the Merger Transactions on the market price of the Company’s common stock; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the Merger Transactions; other business effects, including the effects of industry, market, economic, political or regulatory conditions; future interest rates; changes in tax laws, regulations, rates and policies; competitive developments; and other risk factors detailed from time to time in the Company’s filings with the SEC.  We cannot predict the impacts that COVID-19 will have on us or on Carroll or whether any such impacts will delay or impair our ability to consummate the Merger Transactions. 

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Risks Relating to the Company and its Affiliates

The novel coronavirus (“COVID-19”) pandemic and resulting adverse economic conditions have already adversely impacted the Company’s business and results, and could have a more material adverse impact on its business, financial condition, and results of operations.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Almost all states, including Maryland, where the Company is headquartered, have issued “stay-at-home orders” and have declared states of emergency.

Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to the Company’s business and could cause material disruptions to its business and operations in the future. Impacts to the business have included increases in costs and reductions in operating effectiveness due to additional health and safety precautions implemented at the Company’s branches and the transition of a portion of its workforce to home locations, decreases in customer traffic in its branches, and increases in requests for and the making of loan modifications. The Company anticipates that additional future impacts to its business will include increases in our customers’ inability to make scheduled loan payments and increases in requests for forbearance. Further, loan payment deferment programs implemented by the Company or under government stimulus programs, like the Paycheck Protection Program (the “PPP”), may mask credit deterioration in its loan portfolio by making less applicable standard measures of identifying developing financial weakness in a client or portfolio, such as past due monitoring and non-accrual assessments. To the extent that commercial and social restrictions remain in place or increase, the Company’s expenses, delinquencies, charge-offs, foreclosures, and credit losses may materially increase, and the Company could experience reductions in fee income. In addition, any declines in credit quality could significantly affect the adequacy of the Company’s allowance for loan losses, which would lead to increases in the provision for credit losses and related declines in its net income.

Unfavorable economic conditions and increasing unemployment figures may also make it more difficult for the Company to maintain deposit levels and loan origination volume and to obtain additional financing. Furthermore, such conditions have and may continue to cause the value of the Company’s investment portfolio and of collateral associated with its existing loans to decline. In addition, in March 2020 the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25% in part as a result of the pandemic. A prolonged period of very low interest rates could reduce the Company’s net interest income and have a material adverse impact on its cash flows.

While the Company has taken and is continuing to take precautions to protect the safety and well-being of its employees and customers, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can the Company predict the level of disruption which will occur to its employees’ ability to provide customer support and service. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct the Company’s business, the business and operations of its third-party service providers who perform critical services for the business, or the businesses of many of the Company’s customers and borrowers. If COVID-19 is not successfully contained, the Company could experience a material adverse effect on its business, financial condition, results of operations, and cash flow.

43

Among the factors outside the Company’s control that are likely to affect the impact that the COVID-19 pandemic will ultimately have on its business are, without limitation:

● the pandemic's duration, nature, and severity;

● the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, the residential housing market, consumer spending and real estate and investment securities market values;

● political, legal, and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce and banking, such as current temporary or required continuing moratoria and other suspensions of collections, foreclosures, and related obligations;

● the timing, magnitude, and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits, and commercial activity;

● effects on the Company’s liquidity position due to changes in customers’ deposit and loan activity in response to the pandemic and its economic effects;

● the timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;

● the long-term effect of the economic downturn on the Company’s intangible assets such as its deferred tax asset and goodwill;

● potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

● the ability of the Company's employees to work effectively during the course of the pandemic;

● the ability of the Company's third-party vendors to maintain a high-quality and effective level of service;

● the possibility of increased fraud, cybercrime, and similar incidents, due to vulnerabilities posed by the significant increase in Company employees and customers handling their banking interactions remotely from home, the quick roll-out of various government-sponsored lending programs, like the PPP, or otherwise;

● required changes to the Company’s internal controls over financial reporting to reflect a rapidly changing work environment;

● potential longer-term shifts toward mobile banking, telecommuting, and telecommerce;

● short- and long-term health impacts;

● unforeseen effects of the pandemic; and

● geographic variation in the severity and duration of the COVID-19 pandemic, including in Maryland.

The ongoing COVID-19 pandemic has contributed to severe volatility in the financial markets and meaningfully lower stock prices for many companies, including the Company's common stock. Depending on the extent and duration of the COVID-19 pandemic and perceptions regarding national and global recovery from the pandemic, the price of the Company's common stock may continue to experience volatility and declines.

44

The Company is continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on the Company. However, if the pandemic continues to spread or otherwise result in a continuation or worsening of the current economic and commercial environments, the Company’s business, financial condition, results of operations, and cash flows could be materially adversely affected.

Our fiscal year 2016, 2017, and 2018 U.S. consolidated federal income tax returns are currently being audited.

In April 2018, we were notified by the IRS that our 2016 U.S. consolidated federal tax return was selected for audit. In April 2020, we were notified by the IRS that our 2017 and 2018 U.S. consolidated federal tax returns were selected for audit. As part of its audits, the IRS is reviewing the deductions related to, and the income generated by, the Insurance Subsidiary. Management cannot predict whether any of our tax positions, including those relating to the Insurance Subsidiary, will be challenged by the IRS or, if challenged, whether we will be successful in defending those tax positions. Defending our tax positions and challenging adverse IRS tax conclusions could require us to expend significant funds and there can be no assurance that we would be successful in any such defense or challenge.  If we are not successful in defending a challenge, then we may be required to amend our tax return and pay additional taxes, interest, fines and/or penalties of approximately $2.2 million as of March 31, 2020 and our taxable earnings and/or the effective tax rate on our future earnings could increase substantially, any of which could have a material adverse effect on our business, financial condition and results of operations. Management believes that it is more than likely that the Company would prevail in any challenge to our tax treatment of the Insurance Subsidiary and, therefore, a reserve for uncertain tax positions has not been recorded.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

None.

45

Item 6.     Exhibits

The exhibits filed or furnished with this quarterly report are listed in the following Exhibit Index:

Exhibit	Description
2.1	Agreement and Plan of Merger, dated as of March 6, 2020, by and among the Company, Anthem Acquisition Corp., and Carroll Bancorp, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 11, 2020)
10.1	Form of Support Agreement with the directors and certain officers of Carroll Bancorp, Inc. (incorporated by reference to Appendix B of Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 11, 2020)
10.2	Settlement Agreement with Russell J. Grimes, Jr. (incorporated by reference to Appendix E of Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 11, 2020)
10.3	Business Protection Agreement with Russell J. Grimes, Jr. (incorporated by reference to Appendix F of Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 11, 2020)
31.1	Certifications of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
31.2	Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
32	Certification of the Principal Executive Officer and the Principal Financial Office pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith)
101	Interactive Data Files pursuant to Rule 405 of Regulation S-T (filed herewith)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FARMERS AND MERCHANTS BANCSHARES, INC.
Date:     May 13, 2020	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date    May 13, 2020	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer & Principal Accounting Officer)

46

EX-31.1

 Exhibit 31.1

Certifications of the Principal Executive Officer

Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James R. Bosley, Jr., certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Farmers and Merchants Bancshares, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     May 13, 2020	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications of the Principal Financial Officer

Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark C. Krebs, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Farmers and Merchants Bancshares, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date     May 13, 2020	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Periodic Report

Pursuant to 18 U.S.C. § Section 1350

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to, and for purposes only of, 18 U.S.C. § 1350, each of the undersigned hereby certifies that (i) the Quarterly Report of Farmers and Merchants Bancshares, Inc. on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Farmers and Merchants Bancshares, Inc.

Date:     May 13, 2020	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date:     May 13, 2020	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer)

XML

Note 4 - Loans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. Loans

Major categories of loans are as follows:

	March 31,		December 31,
	2020		2019
Real estate:
Commercial	$	241,137,394	$	240,938,149
Construction and land development		19,574,506		18,194,955
Residential		75,106,688		76,122,069
Commercial		25,452,964		26,947,503
Consumer		285,801		292,027
		361,557,353		362,494,703
Less: Allowance for loan losses		2,740,150		2,593,715
Deferred origination fees net of costs		497,344		518,145
	$	358,319,859	$	359,382,843

At

March 31, 2020

and

December 31, 2019,

the Company had

no

nonaccrual loans.

An age analysis of past due loans, segregated by type of loan, is as follows:

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2020
Real estate:
Commercial	$	3,836,886	$	-	$	-	$	3,836,886	$	237,300,508	$	241,137,394	$	-
Construction and land development		-		-		-		-		19,574,506		19,574,506		-
Residential		58,834		-		-		58,834		75,047,854		75,106,688		-
Commercial		-		-		-		-		25,452,964		25,452,964		-
Consumer		-		-		-		-		285,801		285,801		-
Total	$	3,895,720	$	-	$	-	$	3,895,720	$	357,661,633	$	361,557,353	$	-
December 31, 2019
Real estate:
Commercial	$	224,794	$	-	$	-	$	224,794	$	240,713,355	$	240,938,149	$	-
Construction and land development		-		-		-		-		18,194,955		18,194,955		-
Residential		59,892		-		-		59,892		76,062,177		76,122,069		-
Commercial		-		-		-		-		26,947,503		26,947,503		-
Consumer		-		-		-		-		292,027		292,027		-
Total	$	284,686	$	-	$	-	$	284,686	$	362,210,017	$	362,494,703	$	-

15

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans (continued)

Impaired loans, segregated by class of loans with average recorded investment and interest recognized for the

three

months ended

March 31, 2020

and the year ended

December 31, 2019,

are set forth in the following table:

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
	Balance		Allowance		Allowance		Investment		Allowance		Investment
March 31, 2020
Real estate:
Commercial	$	2,071,836	$	2,071,836	$	-	$	2,071,836	$	-	$	2,078,412
Residential		49,342		49,342		-		49,342		-		24,671
	$	2,121,178	$	2,121,178	$	-	$	2,121,178	$	-	$	2,103,083
December 31, 2019
Real estate:
Commercial	$	2,084,988	$	2,084,988	$	-	$	2,084,988	$	-	$	2,631,185
Residential		50,057		50,057		-		50,057		-		25,029
	$	2,135,045	$	2,135,045	$	-	$	2,135,045	$	-	$	2,656,214

Impaired loans include certain loans that have been modified in troubled debt restructurings (“TDRs”) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and

may

only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally

six

months.

At

March 31, 2020,

the Company had

one

commercial real estate loan totaling

$2,071,836

and

one

residential real estate loan totaling

$49,342

that were classified as TDRs. All are included in impaired loans above. At

March 31, 2020,

the commercial real estate loan is paying as agreed while the residential real estate loan was

30

to

59

days delinquent. There have been

no

charge-offs or allowances associated with these

two

loans.

At

December 31, 2019,

the Company had

one

commercial real estate loan totaling

$2,084,988

and

one

residential real estate loan totaling

$50,057

that were classified as TDRs. All are included in impaired loans above. Each loan is paying as agreed. There have been

no

charge-offs or allowances associated with these

two

loans.

Section

4013

of the CARES Act allows financial institutions to suspend application of certain current TDRs accounting guidance under ASC

310

-

40

for loan modifications related to the COVID-

19

pandemic made between

March 1, 2020

and the earlier of

December 31, 2020

or

60

days after the end of the COVID-

19

national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that were

not

more than

30

days past due as of

December 31, 2019

and to loan modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan. In

April 2020,

federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g.,

six

months) or mandated by a federal or state government in response to the COVID-

19

pandemic, the borrower is

not

experiencing financial difficulty under ASC

310

-

40.

The Company continues to prudently work with borrowers negatively impacted by the COVID-

19

pandemic while managing credit risks and recognizing appropriate allowance for loan losses on its loan portfolio.  As of

May 6, 2020,

the Company has modified loans, due to the pandemic and at the borrower’s request, with an aggregate principal balance of

$80.4

million, or

22%

of its loan portfolio.  The Company is currently evaluating requests for relief on an additional

$33.8

million in loans, or

9%

of its loan portfolio.  All of these modifications are

not

be accounted for as TDRs since they currently meet the guidelines of the CARES Act. See Note

2

to the financial statements included elsewhere in this report for additional information. 

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 the guarantor, and cash flow projections of the borrower. Excellent, Above Average, Average and Acceptable grades are assigned to loans with limited or

no

delinquent payments and more than sufficient collateral and/or cash flow.

A description of the general characteristics of loans characterized as watch list or classified is as follows:

Pass/Watch

Loans graded as Pass/Watch are secured by generally acceptable assets which reflect above-average risk. The loans warrant closer scrutiny by management than is routine, due to circumstances affecting the borrower, the borrower’s industry, or the overall economic environment. Borrowers

may

reflect weaknesses such as inconsistent or weak earnings, break even or moderately deficit cash flow, thin liquidity, minimal capacity to increase leverage, or volatile market fundamentals or other industry risks. Such loans are typically secured by acceptable collateral, at or near appropriate margins, with realizable liquidation values.

Special Mention

A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are

not

adversely classified and do

not

expose the Company to sufficient risk to warrant adverse classification.

Borrowers

may

exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing

may

be limited to finance companies for business borrowers and

may

be unavailable for commercial real estate borrowers.

Substandard

A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are

not

corrected.

Borrowers

may

exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. These loans require more intense supervision by Company management.

Doubtful

A doubtful loan has all the weaknesses inherent in a substandard loan with the added characteristic that the weaknesses, based on currently existing facts, conditions, and values, make collection or liquidation in full highly questionable and improbable.

Loans by credit grade, segregated by loan type, are as follows:

			Above						Pass		Special
March 31, 2020	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,638,429	$	83,131,894	$	107,599,125	$	38,927,221	$	-	$	8,840,725	$	-	$	241,137,394
Construction and land development		-		-		2,468,630		11,206,356		5,899,520		-		-		-		19,574,506
Residential		39,853		1,509,432		29,534,359		35,577,567		5,964,205		-		2,481,272		-		75,106,688
Commercial		-		20,000		6,649,244		15,520,228		3,263,492		-		-		-		25,452,964
Consumer		8,714		96,856		75,772		56,794		18,408		-		-		29,257		285,801
	$	48,567	$	4,264,717	$	121,859,899	$	169,960,070	$	54,072,846	$	-	$	11,321,997	$	29,257	$	361,557,353

			Above						Pass		Special
December 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,769,944	$	91,274,940	$	110,566,629	$	27,438,005	$	-	$	8,888,631	$	-	$	240,938,149
Construction and land development		-		216,000		4,737,737		8,572,151		4,669,067		-		-		-		18,194,955
Residential		39,817		1,633,783		30,767,418		34,784,120		6,386,377		-		2,510,554		-		76,122,069
Commercial		153,848		20,000		11,682,299		11,995,143		3,096,213		-		-		-		26,947,503
Consumer		2,327		99,385		91,620		60,049		19,214		-		240		19,192		292,027
	$	195,992	$	4,739,112	$	138,554,014	$	165,978,092	$	41,608,876	$	-	$	11,399,425	$	19,192	$	362,494,703

The Company’s allowance for loan losses is based on management’s evaluation of the risks inherent in the Company’s loan portfolio and the general economy. The allowance for loanlosses is maintained at the amount management considers adequate to cover estimated losses in loans receivable that are deemed probable based on information currently known to management. The allowance is based upon a number of factors, including current economic conditions, actual loss experience by pools of similar loans, diversification and size of the portfolio, adequacy of the collateral, the amount of non-performing loans and industry trends. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company’s allowance for loan losses. Such agencies

may

require the Company to make additional provisions for estimated loan losses based upon judgments different from those of management.

The following table details activity in the allowance for loan losses by portfolio for the

three

-month periods ended

March 31, 2020

and

2019

and for the year ended

December 31, 2019.  

Allocation of a portion of the allowance to

one

category of loans does

not

preclude its availability to absorb losses in other categories.

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2020	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,763,861	$	149,860		$	-	$	2,000	$	1,915,721	$	-	$	1,915,721	$	2,071,836	$	239,065,558
Construction and land development		192,828		13,677			-		3,600		210,105		-		210,105		-		19,574,506
Residential		478,124		1,629			-		-		479,753		-		479,753		49,342		75,057,346
Commercial		107,782		(16,720	)		-		15,835		106,897		-		106,897		-		25,452,964
Consumer		4,133		824			-		-		4,957		-		4,957		-		285,801
Unallocated		46,987		(24,270	)		-		-		22,717		-		22,717		-		-
	$	2,593,715	$	125,000		$	-	$	21,435	$	2,740,150	$	-	$	2,740,150	$	2,121,178	$	359,436,175

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	3,524		$	-	$	1,000	$	1,758,896	$	-	$	1,758,896	$	3,163,793	$	233,630,509
Construction and land development		196,374		(29,317	)		-		3,375		170,432		-		170,432		-		15,914,131
Residential		401,626		32,059			-		-		433,685		-		433,685		-		63,019,749
Commercial		102,610		(3,482	)		-		2,500		101,628		-		101,628		-		22,095,306
Consumer		10,428		(5,569	)		-		-		4,859		-		4,859		-		367,293
Unallocated		43,924		15,785			-		-		59,709		-		59,709		-		-
	$	2,509,334	$	13,000		$	-	$	6,875	$	2,529,209	$	-	$	2,529,209	$	3,163,793	$	335,026,988

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
December 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	(11,700	)	$	-	$	21,189	$	1,763,861	$	-	$	1,763,861	$	2,084,988	$	238,853,161
Construction and land development		196,374		(17,571	)		-		14,025		192,828		-		192,828		-		18,194,955
Residential		401,626		76,498			-		-		478,124		-		478,124		50,057		76,072,012
Commercial		102,610		(3,995	)		-		9,167		107,782		-		107,782		-		26,947,503
Consumer		10,428		(6,295	)		-		-		4,133		-		4,133		-		292,027
Unallocated		43,924		3,063			-		-		46,987		-		46,987		-		-
	$	2,509,334	$	40,000		$	-	$	44,381	$	2,593,715	$	-	$	2,593,715	$	2,135,045	$	360,359,658

XML

Note 8 - Earnings Per Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

8. Earnings per Share

Basic earnings per share is determined by dividing net income available to stockholders by the weighted-average number of shares of common stock outstanding during the period and does

not

include the effect of any potentially dilutive common stock equivalents, giving retroactive effect to stock dividends declared during the period.  Diluted earnings per share is determined in the same manner, except that the weighted-average number of shares of common stock outstanding is adjusted for the dilutive effect of outstanding common stock equivalents. The following table sets forth the calculation of basic and diluted earnings per share for the

three

-month period ended

March 31, 2020

and

2019.

  There were

no

common stock equivalents outstanding for the

three

-month periods ended

March 31, 2020

or

2019.

	Three Months Ended		Three Months Ended
	March 31, 2020		March 31, 2019
Net income	$	843,307	$	1,096,287
Weighted average shares outstanding		2,974,019		2,945,245
Earnings per share - basic and diluted	$	0.28	$	0.37

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Note 4 - Loans - Loans by Credit Grade (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Loans	$ 361,557,353	$ 362,494,703
Excellent [Member]
Loans	48,567	195,992
Above Average [Member]
Loans	4,264,717	4,739,112
Average [Member]
Loans	121,859,899	138,554,014
Acceptable [Member]
Loans	169,960,070	165,978,092
Pass [Member]
Loans	54,072,846	41,608,876
Special Mention [Member]
Loans
Substandard [Member]
Loans	11,321,997	11,399,425
Doubtful [Member]
Loans	29,257	19,192
Commercial Real Estate Portfolio Segment [Member]
Loans	241,137,394	240,938,149
Commercial Real Estate Portfolio Segment [Member] | Excellent [Member]
Loans
Commercial Real Estate Portfolio Segment [Member] | Above Average [Member]
Loans	2,638,429	2,769,944
Commercial Real Estate Portfolio Segment [Member] | Average [Member]
Loans	83,131,894	91,274,940
Commercial Real Estate Portfolio Segment [Member] | Acceptable [Member]
Loans	107,599,125	110,566,629
Commercial Real Estate Portfolio Segment [Member] | Pass [Member]
Loans	38,927,221	27,438,005
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member]
Loans
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member]
Loans	8,840,725	8,888,631
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member]
Loans
Construction and Land Development [Member]
Loans	19,574,506	18,194,955
Construction and Land Development [Member] | Excellent [Member]
Loans
Construction and Land Development [Member] | Above Average [Member]
Loans		216,000
Construction and Land Development [Member] | Average [Member]
Loans	2,468,630	4,737,737
Construction and Land Development [Member] | Acceptable [Member]
Loans	11,206,356	8,572,151
Construction and Land Development [Member] | Pass [Member]
Loans	5,899,520	4,669,067
Construction and Land Development [Member] | Special Mention [Member]
Loans
Construction and Land Development [Member] | Substandard [Member]
Loans
Construction and Land Development [Member] | Doubtful [Member]
Loans
Residential Portfolio Segment [Member]
Loans	75,106,688	76,122,069
Residential Portfolio Segment [Member] | Excellent [Member]
Loans	39,853	39,817
Residential Portfolio Segment [Member] | Above Average [Member]
Loans	1,509,432	1,633,783
Residential Portfolio Segment [Member] | Average [Member]
Loans	29,534,359	30,767,418
Residential Portfolio Segment [Member] | Acceptable [Member]
Loans	35,577,567	34,784,120
Residential Portfolio Segment [Member] | Pass [Member]
Loans	5,964,205	6,386,377
Residential Portfolio Segment [Member] | Special Mention [Member]
Loans
Residential Portfolio Segment [Member] | Substandard [Member]
Loans	2,481,272	2,510,554
Residential Portfolio Segment [Member] | Doubtful [Member]
Loans
Commercial Portfolio Segment [Member]
Loans	25,452,964	26,947,503
Commercial Portfolio Segment [Member] | Excellent [Member]
Loans		153,848
Commercial Portfolio Segment [Member] | Above Average [Member]
Loans	20,000	20,000
Commercial Portfolio Segment [Member] | Average [Member]
Loans	6,649,244	11,682,299
Commercial Portfolio Segment [Member] | Acceptable [Member]
Loans	15,520,228	11,995,143
Commercial Portfolio Segment [Member] | Pass [Member]
Loans	3,263,492	3,096,213
Commercial Portfolio Segment [Member] | Special Mention [Member]
Loans
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans
Consumer Portfolio Segment [Member]
Loans	285,801	292,027
Consumer Portfolio Segment [Member] | Excellent [Member]
Loans	8,714	2,327
Consumer Portfolio Segment [Member] | Above Average [Member]
Loans	96,856	99,385
Consumer Portfolio Segment [Member] | Average [Member]
Loans	75,772	91,620
Consumer Portfolio Segment [Member] | Acceptable [Member]
Loans	56,794	60,049
Consumer Portfolio Segment [Member] | Pass [Member]
Loans	18,408	19,214
Consumer Portfolio Segment [Member] | Special Mention [Member]
Loans
Consumer Portfolio Segment [Member] | Substandard [Member]
Loans		240
Consumer Portfolio Segment [Member] | Doubtful [Member]
Loans	$ 29,257	$ 19,192

XML

Note 4 - Loans (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)	May 06, 2020 USD ($)
Financing Receivable, Number of Loans, Nonaccrual Status	0		0
Financing Receivable, Allowance for Credit Loss, Writeoff
Subsequent Event [Member]
Financing Receivable, Temporary Modifications				$ 80,400,000
Percentage of Loan Portfolio with Modifications				22.00%
Financing Receivable, Loans Being Evaluated for Temporary Modifications				$ 33,800,000
Percentage of Loan Portfolio Under Evaluation for Temporary Modification				9.00%
Commercial Real Estate Portfolio Segment [Member]
Number of Loans Classified as TDR	1		1
Financing Receivable, Troubled Debt Restructuring	$ 2,071,836		$ 2,084,988
Financing Receivable, Allowance for Credit Loss, Writeoff
Residential Portfolio Segment [Member]
Number of Loans Classified as TDR	1		1
Financing Receivable, Troubled Debt Restructuring	$ 49,342		$ 50,057
Financing Receivable, Allowance for Credit Loss, Writeoff
Commercial Real Estate and Residential Loans Classified As TDR [Member]
Financing Receivable, Allowance for Credit Loss, Writeoff			$ 0

XML

Note 5 - Lease Commitments - Operating Lease Liabilities (Details)	Mar. 31, 2020 USD ($)
2020	$ 149,884
2021	210,955
2022	221,497
2023	228,531
2024	234,910
Thereafter	1,140,679
Total lease payments	2,186,456
Less imputed interest	(655,790)
Operating Lease, Liability, Total	$ 1,530,666

XML

Note 8 - Earnings Per Share - Basic and Diluted Earnings Per Share (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income	$ 843,307	$ 1,096,287
Weighted average shares outstanding (in shares)	2,974,019	2,945,245
Earnings per share - basic and diluted (in dollars per share)	$ 0.28	$ 0.37

XML

Note 6 - Capital Standards - Capital Requirements (Details) $ in Thousands	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Capital	$ 51,985	$ 51,274
Capital to Risk Weighted Assets	0.1409	0.1388
Capital Required for Capital Adequacy	$ 38,741	$ 38,775
Capital Required for Capital Adequacy to Risk Weighted Assets	0.105	0.105
Capital Required to be Well Capitalized	$ 36,896	$ 36,928
Capital Required to be Well Capitalized to Risk Weighted Assets	0.1	0.1
Tier One Risk Based Capital	$ 49,245	$ 48,681
Tier One Risk Based Capital to Risk Weighted Assets	0.1335	0.1318
Tier One Risk Based Capital Required for Capital Adequacy	$ 31,362	$ 31,389
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	0.085	0.085
Tier One Risk Based Capital Required to be Well Capitalized	$ 29,517	$ 29,543
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	0.08	0.08
Common Equity Tier One Capital	$ 49,245	$ 48,681
Common Equity Tier One Capital Ratio	0.1335	0.1318
Common Equity Tier One Capital Required for Capital Adequacy	$ 25,827	$ 25,850
Common Equity Tier One Capital Required for Capital Adequacy Ratio	0.07	0.07
Common Equity Tier One Capital Required to be Well-Capitalized	$ 23,982	$ 24,003
Common Equity Tier One Capital Required to be Well Capitalized Ratio	0.065	0.065
Tier One Leverage Capital	$ 49,245	$ 48,681
Tier One Leverage Capital to Average Assets	0.1098	0.1094
Tier One Leverage Capital Required for Capital Adequacy	$ 17,933	$ 17,798
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	0.04	0.04
Tier One Leverage Capital Required to be Well Capitalized	$ 22,416	$ 22,247
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	0.05	0.05

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Assets:
Cash and due from banks	$ 17,409,858	$ 6,664,307
Federal funds sold and other interest-bearing deposits	5,233,944	2,457,045
Cash and cash equivalents	22,643,802	9,121,352
Certificate of deposit in other bank	100,000	100,000
Securities available for sale	40,666,044	36,531,774
Securities held to maturity	19,017,782	19,510,018
Equity security at fair value	543,600	532,321
Federal Home Loan Bank stock, at cost	611,300	376,200
Mortgage loans held for sale	1,481,450	242,000
Loans, less allowance for loan losses of $2,740,150 and $2,593,715	358,319,859	359,382,843
Premises and equipment	5,136,920	5,036,851
Accrued interest receivable	1,065,397	1,019,540
Deferred income taxes	988,558	1,036,078
Bank owned life insurance	7,187,489	7,145,477
Other assets	1,839,179	2,180,644
Assets, Total	459,601,380	442,215,098
Deposits:
Noninterest-bearing	61,153,068	60,659,015
Interest-bearing	328,611,361	315,954,299
Total deposits	389,764,429	376,613,314
Securities sold under repurchase agreements	9,708,344	10,958,118
Federal Home Loan Bank of Atlanta advances	5,000,000
Accrued interest payable	349,725	346,214
Other liabilities	4,356,888	4,843,936
Liabilities, Total	409,179,386	392,761,582
Stockholders' equity:
Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 2,974,019 in 2020 and 2019	29,740	29,740
Additional paid-in capital	27,812,991	27,812,991
Retained earnings	22,411,468	21,568,161
Accumulated other comprehensive income	167,795	42,624
Stockholders' Equity Attributable to Parent, Ending Balance	50,421,994	49,453,516
Liabilities and Equity, Total	$ 459,601,380	$ 442,215,098

XML

Note 3 - Investment Securities - Investments in Debt Securities (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Amortized cost, available for sale	$ 40,434,547	$ 36,472,967
Unrealized gains, available for sale	463,029	260,379
Unrealized losses, available for sale	231,532	201,572
Fair value, available for sale	40,666,044	36,531,774
Amortized cost, held to maturity	19,017,782	19,510,018
Fair value, held to maturity	18,646,036	20,097,931
US States and Political Subdivisions Debt Securities [Member]
Amortized cost, available for sale	2,382,514	508,134
Unrealized gains, available for sale	1,218	4,536
Unrealized losses, available for sale	3,104
Fair value, available for sale	2,380,628	512,670
Amortized cost, held to maturity	19,017,782	19,510,018
Unrealized gains, held to maturity	63,126	588,393
Unrealized losses, held to maturity	434,872	480
Fair value, held to maturity	18,646,036	20,097,931
SBA Pools [Member]
Amortized cost, available for sale	2,054,025	2,203,834
Unrealized gains, available for sale
Unrealized losses, available for sale	46,398	52,037
Fair value, available for sale	2,007,627	2,151,797
Corporate Debt Securities [Member]
Amortized cost, available for sale	495,000
Unrealized gains, available for sale
Unrealized losses, available for sale	9,552
Fair value, available for sale	485,448
Collateralized Mortgage Backed Securities [Member]
Amortized cost, available for sale	35,503,008	33,760,999
Unrealized gains, available for sale	461,811	255,843
Unrealized losses, available for sale	172,478	149,535
Fair value, available for sale	$ 35,792,341	$ 33,867,307

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited Except for Year-end Amounts) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2018	1,682,997
Balance at Dec. 31, 2018	$ 16,830	$ 27,324,794	$ 18,621,382	$ (568,299)	$ 45,394,707
Net income			1,096,287		1,096,287
Unrealized gain (loss) on securities available for sale net of income tax expense (benefit)				298,850	298,850
Reclassification due to adoption of ASU No. 2016-02 | Accounting Standards Update 2016-01 [Member]			(91,447)		(91,447)
Balance (in shares) at Mar. 31, 2019	1,682,997
Balance at Mar. 31, 2019	$ 16,830	27,324,794	19,626,222	(269,449)	46,698,397
Balance (in shares) at Dec. 31, 2019	2,974,019
Balance at Dec. 31, 2019	$ 29,740	27,812,991	21,568,161	42,624	49,453,516
Net income			843,307		843,307
Unrealized gain (loss) on securities available for sale net of income tax expense (benefit)				125,171	125,171
Balance (in shares) at Mar. 31, 2020	2,974,019
Balance at Mar. 31, 2020	$ 29,740	$ 27,812,991	$ 22,411,468	$ 167,795	$ 50,421,994

XML

Note 4 - Loans (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	March 31,		December 31,
	2020		2019
Real estate:
Commercial	$	241,137,394	$	240,938,149
Construction and land development		19,574,506		18,194,955
Residential		75,106,688		76,122,069
Commercial		25,452,964		26,947,503
Consumer		285,801		292,027
		361,557,353		362,494,703
Less: Allowance for loan losses		2,740,150		2,593,715
Deferred origination fees net of costs		497,344		518,145
	$	358,319,859	$	359,382,843

Financing Receivable, Past Due [Table Text Block]

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2020
Real estate:
Commercial	$	3,836,886	$	-	$	-	$	3,836,886	$	237,300,508	$	241,137,394	$	-
Construction and land development		-		-		-		-		19,574,506		19,574,506		-
Residential		58,834		-		-		58,834		75,047,854		75,106,688		-
Commercial		-		-		-		-		25,452,964		25,452,964		-
Consumer		-		-		-		-		285,801		285,801		-
Total	$	3,895,720	$	-	$	-	$	3,895,720	$	357,661,633	$	361,557,353	$	-
December 31, 2019
Real estate:
Commercial	$	224,794	$	-	$	-	$	224,794	$	240,713,355	$	240,938,149	$	-
Construction and land development		-		-		-		-		18,194,955		18,194,955		-
Residential		59,892		-		-		59,892		76,062,177		76,122,069		-
Commercial		-		-		-		-		26,947,503		26,947,503		-
Consumer		-		-		-		-		292,027		292,027		-
Total	$	284,686	$	-	$	-	$	284,686	$	362,210,017	$	362,494,703	$	-

Impaired Financing Receivables [Table Text Block]

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
	Balance		Allowance		Allowance		Investment		Allowance		Investment
March 31, 2020
Real estate:
Commercial	$	2,071,836	$	2,071,836	$	-	$	2,071,836	$	-	$	2,078,412
Residential		49,342		49,342		-		49,342		-		24,671
	$	2,121,178	$	2,121,178	$	-	$	2,121,178	$	-	$	2,103,083
December 31, 2019
Real estate:
Commercial	$	2,084,988	$	2,084,988	$	-	$	2,084,988	$	-	$	2,631,185
Residential		50,057		50,057		-		50,057		-		25,029
	$	2,135,045	$	2,135,045	$	-	$	2,135,045	$	-	$	2,656,214

Financing Receivable Credit Quality Indicators [Table Text Block]

			Above						Pass		Special
March 31, 2020	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,638,429	$	83,131,894	$	107,599,125	$	38,927,221	$	-	$	8,840,725	$	-	$	241,137,394
Construction and land development		-		-		2,468,630		11,206,356		5,899,520		-		-		-		19,574,506
Residential		39,853		1,509,432		29,534,359		35,577,567		5,964,205		-		2,481,272		-		75,106,688
Commercial		-		20,000		6,649,244		15,520,228		3,263,492		-		-		-		25,452,964
Consumer		8,714		96,856		75,772		56,794		18,408		-		-		29,257		285,801
	$	48,567	$	4,264,717	$	121,859,899	$	169,960,070	$	54,072,846	$	-	$	11,321,997	$	29,257	$	361,557,353

			Above						Pass		Special
December 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	2,769,944	$	91,274,940	$	110,566,629	$	27,438,005	$	-	$	8,888,631	$	-	$	240,938,149
Construction and land development		-		216,000		4,737,737		8,572,151		4,669,067		-		-		-		18,194,955
Residential		39,817		1,633,783		30,767,418		34,784,120		6,386,377		-		2,510,554		-		76,122,069
Commercial		153,848		20,000		11,682,299		11,995,143		3,096,213		-		-		-		26,947,503
Consumer		2,327		99,385		91,620		60,049		19,214		-		240		19,192		292,027
	$	195,992	$	4,739,112	$	138,554,014	$	165,978,092	$	41,608,876	$	-	$	11,399,425	$	19,192	$	362,494,703

Financing Receivable, Allowance for Credit Loss [Table Text Block]

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2020	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,763,861	$	149,860		$	-	$	2,000	$	1,915,721	$	-	$	1,915,721	$	2,071,836	$	239,065,558
Construction and land development		192,828		13,677			-		3,600		210,105		-		210,105		-		19,574,506
Residential		478,124		1,629			-		-		479,753		-		479,753		49,342		75,057,346
Commercial		107,782		(16,720	)		-		15,835		106,897		-		106,897		-		25,452,964
Consumer		4,133		824			-		-		4,957		-		4,957		-		285,801
Unallocated		46,987		(24,270	)		-		-		22,717		-		22,717		-		-
	$	2,593,715	$	125,000		$	-	$	21,435	$	2,740,150	$	-	$	2,740,150	$	2,121,178	$	359,436,175

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
March 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	3,524		$	-	$	1,000	$	1,758,896	$	-	$	1,758,896	$	3,163,793	$	233,630,509
Construction and land development		196,374		(29,317	)		-		3,375		170,432		-		170,432		-		15,914,131
Residential		401,626		32,059			-		-		433,685		-		433,685		-		63,019,749
Commercial		102,610		(3,482	)		-		2,500		101,628		-		101,628		-		22,095,306
Consumer		10,428		(5,569	)		-		-		4,859		-		4,859		-		367,293
Unallocated		43,924		15,785			-		-		59,709		-		59,709		-		-
	$	2,509,334	$	13,000		$	-	$	6,875	$	2,529,209	$	-	$	2,529,209	$	3,163,793	$	335,026,988

												Allowance for loan losses				Outstanding loan
			Provision									ending balance evaluated				balances evaluated
	Beginning		for loan			Charge				Ending		for impairment:				for impairment:
December 31, 2019	balance		losses			offs		Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,754,372	$	(11,700	)	$	-	$	21,189	$	1,763,861	$	-	$	1,763,861	$	2,084,988	$	238,853,161
Construction and land development		196,374		(17,571	)		-		14,025		192,828		-		192,828		-		18,194,955
Residential		401,626		76,498			-		-		478,124		-		478,124		50,057		76,072,012
Commercial		102,610		(3,995	)		-		9,167		107,782		-		107,782		-		26,947,503
Consumer		10,428		(6,295	)		-		-		4,133		-		4,133		-		292,027
Unallocated		43,924		3,063			-		-		46,987		-		46,987		-		-
	$	2,509,334	$	40,000		$	-	$	44,381	$	2,593,715	$	-	$	2,593,715	$	2,135,045	$	360,359,658

XML

Note 8 - Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended		Three Months Ended
	March 31, 2020		March 31, 2019
Net income	$	843,307	$	1,096,287
Weighted average shares outstanding		2,974,019		2,945,245
Earnings per share - basic and diluted	$	0.28	$	0.37

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Note 7 - Fair Value - Estimated Fair Value of Financial Instruments (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Fair value, held to maturity	$ 18,646,036	$ 20,097,931
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Fair value, held to maturity	19,017,782	19,510,018
Mortgage loans held for sale	1,481,450	242,000
Federal Home Loan Bank stock	611,300	376,200
Interest-bearing deposits	328,611,361	315,954,299
Federal Home Loan Bank advances	5,000,000
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	358,319,859	359,382,843
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Noninterest-bearing deposits	61,153,068	60,659,015
Securities sold under repurchase agreements	9,708,344	10,958,118
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Fair value, held to maturity	18,646,036	20,097,931
Mortgage loans held for sale	1,501,296	245,857
Federal Home Loan Bank stock	611,300	376,200
Interest-bearing deposits	340,381,361	313,622,299
Federal Home Loan Bank advances	5,250,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	358,411,804	359,346,031
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Noninterest-bearing deposits	61,153,068	60,659,015
Securities sold under repurchase agreements	$ 9,708,344	$ 10,958,118

XML

Note 6 - Capital Standards (Details Textual)	Mar. 31, 2020	Dec. 31, 2019
Banking Regulation, Common Equity Tier One Risk-Based Capital Ratio, Well Capitalized, Minimum	0.065	0.065
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	0.08	0.08
Capital Required to be Well Capitalized to Risk Weighted Assets	0.1	0.1
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	0.05	0.05

XML

Note 5 - Lease Commitments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Components of Lease Assets and Liabilities [Table Text Block]

	Consolidated Balance
	Sheet classification	March 31, 2020		December 31, 2019
Operating lease right of use asset	Other assets	$	1,354,918	$	1,392,281
Operating lease liabilities	Other liabilities		1,530,666		1,559,356

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Year	Amount
2020	$	149,884
2021		210,955
2022		221,497
2023		228,531
2024		234,910
Thereafter		1,140,679
Total lease payments		2,186,456
Less imputed interest		(655,790	)
Present value of operating lease liabilities	$	1,530,666

XML

Note 1 - Principles of Consolidation (Details Textual)	3 Months Ended
	Mar. 31, 2020
First Community Bankers Insurance Co., LLC [Member]
Percentage of Ownership	100.00%

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Allowance for loan losses	$ 2,740,150	$ 2,593,715
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, share authorized (in shares)	5,000,000	5,000,000
Common stock, share issued (in shares)	2,974,019	2,974,019
Common stock, share outstanding (in shares)	2,974,019	2,974,019

XML

Note 3 - Investment Securities - Contractual Maturities (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Available for Sale Amortized cost, Within one year	$ 1,875,000
Available for Sale Fair value, Within one year	1,875,000
Held to Maturity Amortized cost, Within one year	256,279	257,150
Held to Maturity Fair value, Within one year	257,642	261,204
Available for Sale Amortized cost, Over one to five years	752,514	258,134
Available for Sale Fair value, Over one to five years	739,858	258,838
Held to Maturity Amortized cost, Over one to five years	561,884	562,587
Held to Maturity Fair value, Over one to five years	561,512	565,140
Available for Sale Amortized cost, Over five to ten years	250,000	250,000
Available for Sale Fair value, Over five to ten years	251,218	253,832
Held to Maturity Amortized cost, Over five to ten years	3,224,291	2,717,125
Held to Maturity Fair value, Over five to ten years	3,246,851	2,782,474
Available for Sale Amortized cost, Over ten years
Available for Sale Fair value, Over ten years
Held to Maturity Amortized cost, Over ten years	14,975,328	15,973,156
Held to Maturity Fair value, Over ten years	14,580,031	16,489,113
Available for Sale Amortized cost, total maturity	2,877,514	508,134
Available for Sale Fair value, total maturity	2,866,076	512,670
Held to Maturity Amortized cost, total maturity	19,017,782	19,510,018
Held to Maturity Fair value, total maturity	18,646,036	20,097,931
Available for Sale Amortized cost, due in monthly installments	37,557,033	35,964,833
Available for Sale Fair value, due in monthly installments	37,799,968	36,019,104
Held to Maturity Amortized cost, due in monthly installments
Held to Maturity Fair value, due in monthly installments
Available for Sale Amortized cost Total	40,434,547	36,472,967
Available for Sale Fair value Total	40,666,044	36,531,774
Held to Maturity Amortized cost Total	19,017,782	19,510,018
Held to Maturity Fair value Total	$ 18,646,036	$ 20,097,931

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited Except for Year-end Amounts) (Parentheticals) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Unrealized gain (loss) on securities available for sale, tax expense (benefit)	$ 47,520	$ 113,456

XML

Note 5 - Lease Commitments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

5. Lease Commitments

The Company and its subsidiaries are obligated under operating leases for certain office premises.

The following table shows operating lease right of use assets and operating lease liabilities as of

March 31, 2020

and

December 31, 2020:

	Consolidated Balance
	Sheet classification	March 31, 2020		December 31, 2019
Operating lease right of use asset	Other assets	$	1,354,918	$	1,392,281
Operating lease liabilities	Other liabilities		1,530,666		1,559,356

Operating lease cost included in occupancy expense in the statement of income for the

three

-month periods ended

March 31, 2020

and

2019

was

$49,791

and

$47,807,

respectively.

Future minimum payments under the agreements, including those option years for which the Company is reasonably certain to renew, are as follows:

Year	Amount
2020	$	149,884
2021		210,955
2022		221,497
2023		228,531
2024		234,910
Thereafter		1,140,679
Total lease payments		2,186,456
Less imputed interest		(655,790	)
Present value of operating lease liabilities	$	1,530,666

For operating leases as of

March 31, 2020,

the weighted average remaining lease term is

9.3

years and the weighted average discount rate is

3.25%.

  During the

three

-month periods ended

March 31, 2020

and

2019,

cash paid for amounts included in the measurement of lease liabilities was

$41,119

and

$36,724,

respectively.

XML

Note 9 - Retirement Plans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Retirement Benefits [Text Block]

9. Retirement Plans

The Company has a profit sharing plan qualifying under Section

401

(k) of the Internal Revenue Code.  All employees age

21

or more with

six

months of service are eligible for participation in the plan. The Company matches employee contributions up to

4%

of total compensation and

may

make additional discretionary contributions. Employee and employer contributions are

100%

vested when made. The Company’s contributions to this plan were

$66,649

and

$61,817

for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

The Company has entered into agreements with

12

employees to provide certain life insurance benefits payable in connection with policies of life insurance on those employees that are owned by the Company. Each of the agreements provides for the amount of death insurance benefits to be paid to beneficiaries of the insured. For this plan, the Company expensed

$1,589

and

$1,468

for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

The Company adopted supplemental executive retirement plans for

three

of its executives. The plans provide cash compensation to the executive officers under certain circumstances, including a separation of service. The benefits vest over the period from adoption to a specified age for each executive.  The Company recorded expenses, including interest, of

$51,300

and

$30,600

for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

Retirement plan expenses are included in employee benefits on the consolidated statements of income.

XML

Note 5 - Lease Commitments - Operating Lease Assets and Liabilities (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Operating Lease, Liability, Total	$ 1,530,666
Other Assets [Member]
Operating Lease, Right-of-Use Asset	1,354,918	$ 1,392,281
Other Liabilities [Member]
Operating Lease, Liability, Total	$ 1,530,666	$ 1,559,356

XML

Note 4 - Loans - Impaired Loans (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Unpaid Contractual Principal Balance	$ 2,121,178	$ 2,135,045
Recorded Investment With No Allowance	2,121,178	2,135,045
Recorded Investment With Allowance
Total Recorded Investment	2,121,178	2,135,045
Related Allowance
Average Recorded Investment	2,103,083	2,656,214
Commercial Real Estate Portfolio Segment [Member]
Unpaid Contractual Principal Balance	2,071,836	2,084,988
Recorded Investment With No Allowance	2,071,836	2,084,988
Recorded Investment With Allowance
Total Recorded Investment	2,071,836	2,084,988
Related Allowance
Average Recorded Investment	2,078,412	2,631,185
Residential Portfolio Segment [Member]
Unpaid Contractual Principal Balance	49,342	50,057
Recorded Investment With No Allowance	49,342	50,057
Recorded Investment With Allowance
Total Recorded Investment	49,342	50,057
Related Allowance
Average Recorded Investment	$ 24,671	$ 25,029

XML

Note 3 - Investment Securities - Gross Unrealized Losses on Continuous Basis for Investment Securities (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Less than 12 months Fair value	$ 24,656,670	$ 10,895,242
Less than 12 months Unrealized losses	575,892	58,543
12 months or more Fair value	4,374,114	9,447,585
12 months or more Unrealized losses	90,512	143,509
Total Fair value	29,030,784	20,342,827
Total Unrealized losses	666,404	202,052
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months Fair value	10,322,326	251,618
Less than 12 months Unrealized losses	437,976	480
12 months or more Fair value
12 months or more Unrealized losses
Total Fair value	10,322,326	251,618
Total Unrealized losses	437,976	480
SBA Pools [Member]
Less than 12 months Fair value
Less than 12 months Unrealized losses
12 months or more Fair value	2,007,627	2,151,797
12 months or more Unrealized losses	46,398	52,037
Total Fair value	2,007,627	2,151,797
Total Unrealized losses	46,398	52,037
Corporate Debt Securities [Member]
Less than 12 months Fair value	485,448
Less than 12 months Unrealized losses	9,552
12 months or more Fair value
12 months or more Unrealized losses
Total Fair value	485,448
Total Unrealized losses	9,552
Collateralized Mortgage Backed Securities [Member]
Less than 12 months Fair value	13,848,896	10,643,624
Less than 12 months Unrealized losses	128,364	58,063
12 months or more Fair value	2,366,487	7,295,788
12 months or more Unrealized losses	44,114	91,472
Total Fair value	16,215,383	17,939,412
Total Unrealized losses	$ 172,478	$ 149,535

XML

Note 9 - Retirement Plans (Details Textual)	3 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)
Number of Employees Covered by Life Insurance Policy	12
Other Postretirement Benefits Cost (Reversal of Cost)	$ 1,589	$ 1,468
Employee Benefits and Share-based Compensation	$ 447,104	381,964
Supplemental Employee Retirement Plan [Member]
Number of Employees Participating in Plan	3
Employee Benefits and Share-based Compensation	$ 51,300	30,600
Profit Sharing Plan [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	4.00%
Defined Contribution Plan, Employers Matching Contribution, Annual Vesting Percentage	100.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 66,649	$ 61,817

XML

Note 7 - Fair Value (Details Textual)	3 Months Ended
	Mar. 31, 2020
Other Real Estate Owned [Member]
Expected Sales Costs to Appraised Value, Percentage	10.00%
Impaired Loans [Member]
Expected Sales Costs to Appraised Value, Percentage	10.00%

XML

Note 7 - Fair Value (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2020
Recurring
Available for sale securities
State and municipal	$	-	$	2,380,628	$	-	$	2,380,628
SBA pools		-		2,007,627		-		2,007,627
Corporate bonds		-		485,448		-		485,448
Mortgage-backed securities		-		35,792,341		-		35,792,341
	$	-	$	40,666,044	$	-	$	40,666,044
Equity security at fair value
Mutual fund	$	543,600	$	-	$	-	$	543,600
Nonrecurring
Impaired loans	$	-	$	-	$	2,121,178	$	2,121,178
December 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	512,670	$	-	$	512,670
SBA pools		-		2,151,797		-		2,151,797
Mortgage-backed securities		-		33,867,307		-		33,867,307
	$	-	$	36,531,774	$	-	$	36,531,774
Equity security at fair value
Mutual fund	$	532,321	$	-	$	-	$	532,321
Nonrecurring
Impaired loans	$	-	$	-	$	2,135,045	$	2,135,045

Fair Value, by Balance Sheet Grouping [Table Text Block]

	March 31, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	19,017,782	$	18,646,036	$	19,510,018	$	20,097,931
Mortgage loans held for sale		1,481,450		1,501,296		242,000		245,857
Federal Home Loan Bank stock		611,300		611,300		376,200		376,200
Level 3 inputs
Loans, net		358,319,859		358,411,804		359,382,843		359,346,031
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	61,153,068	$	61,153,068	$	60,659,015	$	60,659,015
Securities sold under repurchase agreements		9,708,344		9,708,344		10,958,118		10,958,118
Level 2 inputs
Interest-bearing deposits		328,611,361		340,381,361		315,954,299		313,622,299
Federal Home Loan Bank advances		5,000,000		5,250,000		-		-

XML

Note 1 - Principles of Consolidation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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. (collectively the “Company”, “we”, “us”, or “our”). The Insurance Subsidiary constitutes an investment in a series of membership interests,

100%

owned by the Company, issued by First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed property and casualty insurance company. Intercompany balances and transactions have been eliminated.

XML

Note 3 - Investment Securities (Details Textual) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Security Owned and Pledged as Collateral, Fair Value, Total	$ 10,258,557	$ 11,441,474

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 12, 2020
Document Information [Line Items]
Entity Registrant Name	Farmers & Merchants Bancshares, Inc.
Entity Central Index Key	0001698022
Trading Symbol	fmfg
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		2,974,019
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(g) Security	Common stock, par value $.01 per share

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income	$ 843,307	$ 1,096,287
Securities available for sale
Net unrealized gain arising during the period	172,691	412,306
Income tax expense	47,520	113,456
Total other comprehensive income	125,171	298,850
Total comprehensive income	$ 968,478	$ 1,395,137

XML

Note 4 - Loans - Allowance for Loan Losses (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Beginning balance	$ 2,593,715	$ 2,509,334	$ 2,509,334
Provision for loan losses	125,000	13,000	40,000
Charge offs
Recoveries	21,435	6,875	44,381
Ending balance	2,740,150	2,529,209	2,593,715
Allowance for loan losses, individually
Allowance for loan losses, collectively	2,740,150	2,529,209	2,593,715
Outstanding loan, individually	2,121,178	3,163,793	2,135,045
Outstanding loan, collectively	359,436,175	335,026,988	360,359,658
Commercial Real Estate Portfolio Segment [Member]
Beginning balance	1,763,861	1,754,372	1,754,372
Provision for loan losses	149,860	3,524	(11,700)
Charge offs
Recoveries	2,000	1,000	21,189
Ending balance	1,915,721	1,758,896	1,763,861
Allowance for loan losses, individually
Allowance for loan losses, collectively	1,915,721	1,758,896	1,763,861
Outstanding loan, individually	2,071,836	3,163,793	2,084,988
Outstanding loan, collectively	239,065,558	233,630,509	238,853,161
Construction and Land Development [Member]
Beginning balance	192,828	196,374	196,374
Provision for loan losses	13,677	(29,317)	(17,571)
Charge offs
Recoveries	3,600	3,375	14,025
Ending balance	210,105	170,432	192,828
Allowance for loan losses, individually
Allowance for loan losses, collectively	210,105	170,432	192,828
Outstanding loan, individually
Outstanding loan, collectively	19,574,506	15,914,131	18,194,955
Residential Portfolio Segment [Member]
Beginning balance	478,124	401,626	401,626
Provision for loan losses	1,629	32,059	76,498
Charge offs
Recoveries
Ending balance	479,753	433,685	478,124
Allowance for loan losses, individually
Allowance for loan losses, collectively	479,753	433,685	478,124
Outstanding loan, individually	49,342		50,057
Outstanding loan, collectively	75,057,346	63,019,749	76,072,012
Commercial Portfolio Segment [Member]
Beginning balance	107,782	102,610	102,610
Provision for loan losses	(16,720)	(3,482)	(3,995)
Charge offs
Recoveries	15,835	2,500	9,167
Ending balance	106,897	101,628	107,782
Allowance for loan losses, individually
Allowance for loan losses, collectively	106,897	101,628	107,782
Outstanding loan, individually
Outstanding loan, collectively	25,452,964	22,095,306	26,947,503
Consumer Portfolio Segment [Member]
Beginning balance	4,133	10,428	10,428
Provision for loan losses	824	(5,569)	(6,295)
Charge offs
Recoveries
Ending balance	4,957	4,859	4,133
Allowance for loan losses, individually
Allowance for loan losses, collectively	4,957	4,859	4,133
Outstanding loan, individually
Outstanding loan, collectively	285,801	367,293	292,027
Unallocated Financing Receivables [Member]
Beginning balance	46,987	43,924	43,924
Provision for loan losses	(24,270)	15,785	3,063
Charge offs
Recoveries
Ending balance	22,717	59,709	46,987
Allowance for loan losses, individually
Allowance for loan losses, collectively	22,717	59,709	46,987
Outstanding loan, individually
Outstanding loan, collectively

XML

Note 4 - Loans - Major Categories of Loans (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Loans	$ 361,557,353	$ 362,494,703
Allowance for loan losses	2,740,150	2,593,715
Deferred origination fees net of costs	497,344	518,145
Loans and Leases Receivable, Net Amount, Total	358,319,859	359,382,843
Commercial Real Estate Portfolio Segment [Member]
Loans	241,137,394	240,938,149
Construction and Land Development [Member]
Loans	19,574,506	18,194,955
Residential Portfolio Segment [Member]
Loans	75,106,688	76,122,069
Commercial Portfolio Segment [Member]
Loans	25,452,964	26,947,503
Consumer Portfolio Segment [Member]
Loans	$ 285,801	$ 292,027

XML

Note 3 - Investment Securities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Marketable Securities [Table Text Block]

	Amortized		Unrealized		Unrealized		Fair
March 31, 2020	cost		gains		losses		value
Available for sale
State and municipal	$	2,382,514	$	1,218	$	3,104	$	2,380,628
SBA pools		2,054,025		-		46,398		2,007,627
Corporate bonds		495,000		-		9,552		485,448
Mortgage-backed securities		35,503,008		461,811		172,478		35,792,341
	$	40,434,547	$	463,029	$	231,532	$	40,666,044
Held to maturity
State and municipal	$	19,017,782	$	63,126	$	434,872	$	18,646,036

	Amortized		Unrealized		Unrealized		Fair
December 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	508,134	$	4,536	$	-	$	512,670
SBA pools		2,203,834		-		52,037		2,151,797
Mortgage-backed securities		33,760,999		255,843		149,535		33,867,307
	$	36,472,967	$	260,379	$	201,572	$	36,531,774
Held to maturity
State and municipal	$	19,510,018	$	588,393	$	480	$	20,097,931

Investments Classified by Contractual Maturity Date [Table Text Block]

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
March 31, 2020	cost		value		cost		value
Within one year	$	1,875,000	$	1,875,000	$	256,279	$	257,642
Over one to five years		752,514		739,858		561,884		561,512
Over five to ten years		250,000		251,218		3,224,291		3,246,851
Over ten years		-		-		14,975,328		14,580,031
		2,877,514		2,866,076		19,017,782		18,646,036
Mortgage-backed securities and SBA pools, due in monthly installments		37,557,033		37,799,968		-		-
	$	40,434,547	$	40,666,044	$	19,017,782	$	18,646,036
December 31, 2019
Within one year	$	-	$	-	$	257,150	$	261,204
Over one to five years		258,134		258,838		562,587		565,140
Over five to ten years		250,000		253,832		2,717,125		2,782,474
Over ten years		-		-		15,973,156		16,489,113
		508,134		512,670		19,510,018		20,097,931
Mortgage-backed securities and SBA pools, due in monthly installments		35,964,833		36,019,104		-		-
		36,472,967	$	36,531,774	$	19,510,018	$	20,097,931

Schedule of Unrealized Loss on Investments [Table Text Block]

March 31, 2020	Less than 12 months				12 months or more				Total
Description of investments	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	10,322,326	$	437,976	$	-	$	-	$	10,322,326	$	437,976
SBA pools		-		-		2,007,627		46,398		2,007,627		46,398
Corporate bonds		485,448		9,552		-		-		485,448		9,552
Mortgage-backed securities		13,848,896		128,364		2,366,487		44,114		16,215,383		172,478
Total	$	24,656,670	$	575,892	$	4,374,114	$	90,512	$	29,030,784	$	666,404

December 31, 2019	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	251,618	$	480	$	-	$	-	$	251,618	$	480
SBA pools		-		-		2,151,797		52,037		2,151,797		52,037
Mortgage-backed securities		10,643,624		58,063		7,295,788		91,472		17,939,412		149,535
Total	$	10,895,242	$	58,543	$	9,447,585	$	143,509	$	20,342,827	$	202,052

XML

Note 3 - Investment Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3. Investment Securities

Investments in debt securities are summarized as follows:

	Amortized		Unrealized		Unrealized		Fair
March 31, 2020	cost		gains		losses		value
Available for sale
State and municipal	$	2,382,514	$	1,218	$	3,104	$	2,380,628
SBA pools		2,054,025		-		46,398		2,007,627
Corporate bonds		495,000		-		9,552		485,448
Mortgage-backed securities		35,503,008		461,811		172,478		35,792,341
	$	40,434,547	$	463,029	$	231,532	$	40,666,044
Held to maturity
State and municipal	$	19,017,782	$	63,126	$	434,872	$	18,646,036

	Amortized		Unrealized		Unrealized		Fair
December 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	508,134	$	4,536	$	-	$	512,670
SBA pools		2,203,834		-		52,037		2,151,797
Mortgage-backed securities		33,760,999		255,843		149,535		33,867,307
	$	36,472,967	$	260,379	$	201,572	$	36,531,774
Held to maturity
State and municipal	$	19,510,018	$	588,393	$	480	$	20,097,931

Contractual maturities, shown below, will differ from actual maturities because borrowers and issuers

may

have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
March 31, 2020	cost		value		cost		value
Within one year	$	1,875,000	$	1,875,000	$	256,279	$	257,642
Over one to five years		752,514		739,858		561,884		561,512
Over five to ten years		250,000		251,218		3,224,291		3,246,851
Over ten years		-		-		14,975,328		14,580,031
		2,877,514		2,866,076		19,017,782		18,646,036
Mortgage-backed securities and SBA pools, due in monthly installments		37,557,033		37,799,968		-		-
	$	40,434,547	$	40,666,044	$	19,017,782	$	18,646,036
December 31, 2019
Within one year	$	-	$	-	$	257,150	$	261,204
Over one to five years		258,134		258,838		562,587		565,140
Over five to ten years		250,000		253,832		2,717,125		2,782,474
Over ten years		-		-		15,973,156		16,489,113
		508,134		512,670		19,510,018		20,097,931
Mortgage-backed securities and SBA pools, due in monthly installments		35,964,833		36,019,104		-		-
		36,472,967	$	36,531,774	$	19,510,018	$	20,097,931

Securities with a carrying value of

$10,258,557

and

$11,441,474

as of

March 31, 2020

and

December 31, 2019,

respectively, were pledged as collateral for government deposits and securities sold under repurchase agreements.

The following table sets forth the Company’s gross unrealized losses on a continuous basis for investments in debt securities, by category and length of time, at

March 31, 2020

and

December 31, 2019.

March 31, 2020	Less than 12 months				12 months or more				Total
Description of investments	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	10,322,326	$	437,976	$	-	$	-	$	10,322,326	$	437,976
SBA pools		-		-		2,007,627		46,398		2,007,627		46,398
Corporate bonds		485,448		9,552		-		-		485,448		9,552
Mortgage-backed securities		13,848,896		128,364		2,366,487		44,114		16,215,383		172,478
Total	$	24,656,670	$	575,892	$	4,374,114	$	90,512	$	29,030,784	$	666,404

December 31, 2019	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	251,618	$	480	$	-	$	-	$	251,618	$	480
SBA pools		-		-		2,151,797		52,037		2,151,797		52,037
Mortgage-backed securities		10,643,624		58,063		7,295,788		91,472		17,939,412		149,535
Total	$	10,895,242	$	58,543	$	9,447,585	$	143,509	$	20,342,827	$	202,052

Management has the ability and intent to hold securities classified as held to maturity until they mature, at which time the Company should receive full value for the securities. As of

March 31, 2020

and

December 31, 2019,

management did

not

have the intent to sell any of the held to maturity or available for sale securities with unrealized losses before a recovery of cost. The unrealized losses detailed in the table above were due to increases in market interest rates over the yields available at the time the underlying securities were purchased as well as other market conditions for each particular security based upon the structure and remaining principal balance. The fair values of the investment securities are expected to recover as the securities approach their maturity dates or repricing dates or if market yields for such investments decline. Based on the foregoing factors, as of

March 31, 2020

and

December 31, 2019,

management believes that these unrealized losses are temporary and, accordingly, have

not

been recognized in the Company’s consolidated statement of income.

XML

Note 7 - Fair Value

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

7. Fair Value

Accounting standards define fair value as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants. The price in the principal market used to measure the fair value of the asset or liability is

not

adjusted for transaction costs. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The standards require the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. The standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

● Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company uses the following methods and significant assumptions to estimate the fair values of the following assets:

● Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices from a nationally recognized securities pricing agent. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities.

● Other real estate owned (“OREO”): Nonrecurring fair value adjustments to OREO reflect full or partial write-downs that are based on the OREO’s observable market price or current appraised value of the real estate. Since the market for OREO is not active, OREO subjected to nonrecurring fair value adjustments based on the current appraised value of the real estate are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been 10% of the appraised value.

● Impaired loans: Nonrecurring fair value adjustments to impaired loans reflect full or partial write-downs and reserves that are based on the impaired loan’s observable market price or current appraised value of the collateral. Since the market for impaired loans is not active, such loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral are classified as Level 3. The appraised value is obtained annually from an independent third party appraiser and is reduced by expected sales costs, which has historically been 10% of the appraised value.

The following table summarizes financial assets measured at fair value on a recurring and nonrecurring basis as of

March 31, 2020

and

December 31, 2019,

segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2020
Recurring
Available for sale securities
State and municipal	$	-	$	2,380,628	$	-	$	2,380,628
SBA pools		-		2,007,627		-		2,007,627
Corporate bonds		-		485,448		-		485,448
Mortgage-backed securities		-		35,792,341		-		35,792,341
	$	-	$	40,666,044	$	-	$	40,666,044
Equity security at fair value
Mutual fund	$	543,600	$	-	$	-	$	543,600
Nonrecurring
Impaired loans	$	-	$	-	$	2,121,178	$	2,121,178
December 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	512,670	$	-	$	512,670
SBA pools		-		2,151,797		-		2,151,797
Mortgage-backed securities		-		33,867,307		-		33,867,307
	$	-	$	36,531,774	$	-	$	36,531,774
Equity security at fair value
Mutual fund	$	532,321	$	-	$	-	$	532,321
Nonrecurring
Impaired loans	$	-	$	-	$	2,135,045	$	2,135,045

The estimated fair value of financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs were as follows:

	March 31, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	19,017,782	$	18,646,036	$	19,510,018	$	20,097,931
Mortgage loans held for sale		1,481,450		1,501,296		242,000		245,857
Federal Home Loan Bank stock		611,300		611,300		376,200		376,200
Level 3 inputs
Loans, net		358,319,859		358,411,804		359,382,843		359,346,031
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	61,153,068	$	61,153,068	$	60,659,015	$	60,659,015
Securities sold under repurchase agreements		9,708,344		9,708,344		10,958,118		10,958,118
Level 2 inputs
Interest-bearing deposits		328,611,361		340,381,361		315,954,299		313,622,299
Federal Home Loan Bank advances		5,000,000		5,250,000		-		-

The fair value of mortgage loans held for sale is determined by the expected sales price. The fair value of loans were determined using an exit price methodology. The exit price estimation of fair value is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital (Level

3

). In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. 

The fair values of interest-bearing checking, savings, and money market deposit accounts are equal to their carrying amounts. The fair values of fixed-maturity time deposits are estimated based on interest rates currently offered for deposits of similar remaining maturities.

The fair value of credit commitments are considered to be the same as the contractual amounts, and are

not

included in the table above. These commitments generate fees that approximate those currently charged to originate similar commitments.

XML

Note 5 - Lease Commitments (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Operating Lease, Cost	$ 49,791	$ 47,807
Operating Lease, Weighted Average Remaining Lease Term (Year)	9 years 109 days
Operating Lease, Weighted Average Discount Rate, Percent	3.25%
Operating Lease, Payments	$ 41,119	$ 36,724

XML

Note 4 - Loans - Past Due Loans (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Loans, past due	$ 3,895,720	$ 284,686
Loans, current	357,661,633	362,210,017
Loans	361,557,353	362,494,703
Loans, 90 days past due and still accruing
Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	3,895,720	284,686
Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member]
Loans, past due	3,836,886	224,794
Loans, current	237,300,508	240,713,355
Loans	241,137,394	240,938,149
Loans, 90 days past due and still accruing
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	3,836,886	224,794
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Construction and Land Development [Member]
Loans, past due
Loans, current	19,574,506	18,194,955
Loans	19,574,506	18,194,955
Loans, 90 days past due and still accruing
Construction and Land Development [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Construction and Land Development [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Construction and Land Development [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Residential Portfolio Segment [Member]
Loans, past due	58,834	59,892
Loans, current	75,047,854	76,062,177
Loans	75,106,688	76,122,069
Loans, 90 days past due and still accruing
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	58,834	59,892
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Commercial Portfolio Segment [Member]
Loans, past due
Loans, current	25,452,964	26,947,503
Loans	25,452,964	26,947,503
Loans, 90 days past due and still accruing
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member]
Loans, past due
Loans, current	285,801	292,027
Loans	285,801	292,027
Loans, 90 days past due and still accruing
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due

XML

Note 2 - Basis of Presentation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

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 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

months ended

March 31, 2020

do

not

necessarily reflect the results that

may

be expected for the entire fiscal year ending

December 31, 2020

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, 2019,

which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form

10

-K for the year ended

December 31, 2019. 

Recent Accounting Pronouncements

In

February 2016,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

-

02,

“Leases (Topic

841

).” Among other things, in the amendments in ASU

2016

-

02,

lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Accounting Standards Codification (“ASC”) Topic

606,

Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after

December 

15,

2018,

and interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company adopted the provisions of ASU

2016

-

02,

effective

January 1, 2019,

by recording an asset of

$1,400,855,

a liability of

$1,527,019,

a

$91,447

adjustment to retained earnings, and a

$34,717

adjustment to deferred income taxes.

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. ASU

2019

-

10

“Financial Instruments – Credit Losses (Topic

326

), Derivatives and hedging (Topic

815

), and Leases (Topic

842

): Effective Dates” extended the implementation date to

2023

for SEC registered smaller reporting companies and private companies. The Company is considered a smaller reporting company. The Company has engaged a

third

-party vendor to assist in the implementation of this ASU.

In

August 2018,

the FASB issued ASU

2018

-

13,

 “Fair Value Measurement (Topic

820

) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU

2018

-

13

modifies the disclosure requirements on fair value measurements in ASC Topic

820.

The amendments in this update remove disclosures that

no

longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU

2018

-

13

was effective for us on

January 1, 2020,

with early adoption permitted, and did

not

have a material impact on the Company’s financial statements.

In

August 2018,

the FASB issued ASU

2018

-

14,

“Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic

715

-

20

).” ASU

2018

-

14

amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that

no

longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU

2018

-

14

will be effective for us on

January 1, 2021,

with early adoption permitted, and is

not

expected to have a material impact on the Company’s financial statements.

In

August 2018,

the FASB issued ASU 

2018

-

15,

“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

-

40

) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 

2018

-

15

clarifies certain aspects of ASU

2015

-

05,

“Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in

April 2015.

Specifically, ASU

2018

-

15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 

2018

-

15

does

not

affect the accounting for the service element of a hosting arrangement that is a service contract. ASU

2018

-

15

was effective for us on

January 1, 2020,

with early adoption permitted, and did

not

have a material impact on the Company’s financial statements.

Subsequent Events

On

March 11, 2020,

the World Health Organization declared a pandemic as a result of the global spread of the coronavirus, commonly referred to as COVID-

19.

  The spread of the disease quickly accelerated in the United States and to date, all

50

states have reported cases.  The U.S. and state governments reacted to the pandemic by issuing shelter-at-home orders and requiring that non-essential businesses be closed to prevent spread of the virus.  The health crisis quickly turned into a financial crisis resulting in guidance and mandates regarding foreclosures and repossessions and accounting and regulatory changes designed to encourage banks to work with customers suffering detrimental financial impact.

As a result of the pandemic effecting the states and local markets in which it operates, the Company successfully implemented its Pandemic Contingency Plan with the goal of protecting the health, safety and financial well-being of its associates and customers.  As part of its plan to protect the financial well-being of its customers, the Company chose to participate and educate its customers on the government sponsored plans established to provide financial assistance to businesses.

The U.S. Government’s Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) established the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) which provides small businesses with resources to maintain payroll, hire back employees who

may

have been laid off, and to cover applicable overhead expenses.  We acted expeditiously to prepare our associates so they could guide our customers on the proper procedures necessary to enable them to take advantage of this program.  We developed an SBA PPP specific information site within our website that provided detailed information, links and materials for eligible customers to access.  Internally, we reallocated resources to review, process and data enter customer applications, working tirelessly over extended hours to provide access to as many local business owners as possible.  We were able to fund

172

loan applications for approximately

$25.3

million from the

first

tranche of PPP designated funds.  Congress allocated additional funding to the PPP on

April 23, 2020. 

Due to our advance preparation and software implementation, we were able to quickly gain approval for an additional

78

loan applications for approximately

$5.1

million through

May 11, 2020. 

In total, we have gained approval for over

$30

million dollars to

250

small businesses.  Approximately

68%

of the loans were under

$100,000

in size. We will continue to provide access to the PPP and process applications for as long as the PPP is open and funds are available so that we can assist as many small business owners in our markets as possible.  These loans are

100%

guaranteed by the SBA, have up to a

two

-year maturity, provide for a

six

-month deferral period, and have an interest rate of

1%.

  These loans

may

be forgiven by the SBA if the borrower meets certain conditions, including by using at least

75%

of the loan proceeds for payroll costs.  The SBA also established processing fees from

1%

to

5%,

depending on the loan amount.  We anticipate receiving approximately

$1,257,000

in fees.

In

April 2020,

the Bank established eligibility to participate in the Paycheck Protection Program Liquidity Facility (“PPPLF”) which was established by Congress and administered by the Federal Reserve Bank.  This facility uses the SBA guaranteed PPP loans as collateral, offering

100%

collateral coverage with

no

recourse to the Bank.  The majority of the PPP loan disbursements, which were all subsequent to quarter end, have been to internal, non-interest-bearing accounts awaiting use by borrowers.  As a result, we have

not

yet accessed the PPPLF, but are prepared to utilize the fund when management determines the timing is appropriate.

The Company’s allowance for loan losses (the “ALL”) increased

$146,435

to

$2,740,150

at

March 31, 2020

compared to

$2,593,715

at

December 31, 2019. 

The ALL to total loans was

0.76%

and

0.72%

at

March 31, 2020

and

December 31, 2019,

respectively.  This increase was driven by the increased provision expense which was adjusted for qualitative factors related to the economic uncertainty and increased unemployment rates related to the COVID-

19

pandemic.

The Company has provided loan modifications to its borrowers who are impacted by the COVID-

19.

Modifications include deferrals of principal and interest for periods up to

three

months and interest only periods of

three

months. These deferrals could be extended an additional

three

months. As of

May 6, 2020,

the Company has modified loans with an aggregate principal balance of

$80.4

million, or

22%

of its loan portfolio.  The Company is currently evaluating requests for relief on an additional

$33.8

million in loans, or

9%

of its loan portfolio. The pandemic has had an impact on most industries represented by the Company’s loan portfolio with respect to which these modifications have been made, including retail, mixed use, residential rental, land development, accommodations, senior living, commercial office, and warehouse. 

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Note 6 - Capital Standards

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

6. Capital Standards

Farmers and Merchants Bancshares, Inc. and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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).

In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier

1

capital. Common Equity Tier

1

capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Under the revised prompt corrective action requirements, as of

January 

1,

2015,

insured depository institutions are required to meet the following in order to qualify as “well capitalized”: (i) a common equity Tier

1

risk-based capital ratio of

6.5%;

(ii) a Tier

1

risk-based capital ratio of

8%;

(iii) a total risk-based capital ratio of

10%;

and (iv) a Tier

1

leverage ratio of

5%.

The implementation of the capital conservation buffer began on

January 

1,

2016,

at the

0.625%

level and was phased in over a

four

-year period (increasing by that amount on each subsequent

January 

1,

until it reached

2.5%

on

January 

1,

2019

). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does

not

have current applicability to the Bank. As of

March 31, 2020,

the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier

1

capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The following table presents actual and required capital ratios as of

March 31, 2020

and

December 

31,

2019

for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of

March 31, 2020

and

December 

31,

2019

based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. Capital ratios of the Company are substantially the same as the Bank’s.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2020	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,985		14.09	%	$	38,741		10.50	%	$	36,896		10.00	%
Tier 1 capital (to risk-weighted assets)		49,245		13.35	%		31,362		8.50	%		29,517		8.00	%
Common equity tier 1 (to risk-weighted assets)		49,245		13.35	%		25,827		7.00	%		23,982		6.50	%
Tier 1 leverage (to average assets)		49,245		10.98	%		17,933		4.00	%		22,416		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,274		13.88	%	$	38,775		10.50	%	$	36,928		10.00	%
Tier 1 capital (to risk-weighted assets)		48,681		13.18	%		31,389		8.50	%		29,543		8.00	%
Common equity tier 1 (to risk-weighted assets)		48,681		13.18	%		25,850		7.00	%		24,003		6.50	%
Tier 1 leverage (to average assets)		48,681		10.94	%		17,798		4.00	%		22,247		5.00	%

To be categorized as well capitalized, the Bank must maintain ratios as set forth in the table. As of

March 31, 2020,

the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There have been

no

conditions or events since that notification that management believes have changed the Bank’s category.

The FDIC, through formal or informal agreement, has the authority to require an institution to maintain higher capital ratios than those provided by statute, to be categorized as well capitalized under the regulatory framework for prompt corrective action.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

February 2016,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

-

02,

“Leases (Topic

841

).” Among other things, in the amendments in ASU

2016

-

02,

lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Accounting Standards Codification (“ASC”) Topic

606,

Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after

December 

15,

2018,

and interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company adopted the provisions of ASU

2016

-

02,

effective

January 1, 2019,

by recording an asset of

$1,400,855,

a liability of

$1,527,019,

a

$91,447

adjustment to retained earnings, and a

$34,717

adjustment to deferred income taxes.

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. ASU

2019

-

10

“Financial Instruments – Credit Losses (Topic

326

), Derivatives and hedging (Topic

815

), and Leases (Topic

842

): Effective Dates” extended the implementation date to

2023

for SEC registered smaller reporting companies and private companies. The Company is considered a smaller reporting company. The Company has engaged a

third

-party vendor to assist in the implementation of this ASU.

In

August 2018,

the FASB issued ASU

2018

-

13,

 “Fair Value Measurement (Topic

820

) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU

2018

-

13

modifies the disclosure requirements on fair value measurements in ASC Topic

820.

The amendments in this update remove disclosures that

no

longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU

2018

-

13

was effective for us on

January 1, 2020,

with early adoption permitted, and did

not

have a material impact on the Company’s financial statements.

In

August 2018,

the FASB issued ASU

2018

-

14,

“Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic

715

-

20

).” ASU

2018

-

14

amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that

no

longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU

2018

-

14

will be effective for us on

January 1, 2021,

with early adoption permitted, and is

not

expected to have a material impact on the Company’s financial statements.

In

August 2018,

the FASB issued ASU 

2018

-

15,

“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

-

40

) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 

2018

-

15

clarifies certain aspects of ASU

2015

-

05,

“Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in

April 2015.

Specifically, ASU

2018

-

15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 

2018

-

15

does

not

affect the accounting for the service element of a hosting arrangement that is a service contract. ASU

2018

-

15

was effective for us on

January 1, 2020,

with early adoption permitted, and did

not

have a material impact on the Company’s financial statements.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements were issued.

No

significant subsequent events were identified which would affect the presentation of the financial statements except as noted below.

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Note 7 - Fair Value - Summarizes Financial Assets Measured at Fair Value (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Fair value, available for sale	$ 40,666,044	$ 36,531,774
Mutual fund	543,600	532,321
Fair Value, Recurring [Member]
Fair value, available for sale	40,666,044	36,531,774
Mutual fund	543,600	532,321
Fair Value, Nonrecurring [Member]
Corporate bonds	485,448
Impaired loans	2,121,178	2,135,045
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Mutual fund	543,600	532,321
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Corporate bonds
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	40,666,044	36,531,774
Mutual fund
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Corporate bonds	485,448
Impaired loans
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Mutual fund
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Corporate bonds
Impaired loans	2,121,178	2,135,045
US States and Political Subdivisions Debt Securities [Member]
Fair value, available for sale	2,380,628	512,670
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,380,628	512,670
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,380,628	512,670
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
SBA Pools [Member]
Fair value, available for sale	2,007,627	2,151,797
SBA Pools [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,007,627	2,151,797
SBA Pools [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
SBA Pools [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,007,627	2,151,797
SBA Pools [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Collateralized Mortgage Backed Securities [Member]
Fair value, available for sale	35,792,341	33,867,307
Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	35,792,341	33,867,307
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	35,792,341	33,867,307
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest income:
Loans, including fees	$ 4,322,654	$ 4,160,086
Investment securities - taxable	210,506	152,317
Investment securities - tax exempt	144,084	160,607
Federal funds sold and other interest earning assets	32,792	74,526
Total interest income	4,710,036	4,547,536
Interest expense:
Deposits	906,199	775,531
Securities sold under repurchase agreements	38,194	25,299
Federal Home Loan Bank advances and other borrowings	109	20,553
Total interest expense	944,502	821,383
Net interest income	3,765,534	3,726,153
Provision for loan losses	125,000	13,000
Net interest income after provision for loan losses	3,640,534	3,713,153
Noninterest income:
Mortgage banking income	62,257	32,719
Bank owned life insurance income	42,012	40,386
Unrealized gain on equity security	8,510	7,845
Gain on sale of SBA loans		130,015
Total noninterest income	302,002	392,396
Noninterest expense:
Salaries	1,354,919	1,326,783
Employee benefits	447,104	381,964
Occupancy	183,152	214,420
Furniture and equipment	160,449	155,147
Acquisition	179,824
Other	620,865	676,972
Total noninterest expense	2,946,313	2,755,286
Income before income taxes	996,223	1,350,263
Income taxes	152,916	253,976
Net income	$ 843,307	$ 1,096,287
Earnings per share - basic and diluted (in dollars per share)	$ 0.28	$ 0.37
Deposit Account [Member]
Noninterest income:
Noninterest revenue	$ 158,555	$ 152,060
Financial Service, Other [Member]
Noninterest income:
Noninterest revenue	$ 30,668	$ 29,371

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Note 6 - Capital Standards (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2020	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,985		14.09	%	$	38,741		10.50	%	$	36,896		10.00	%
Tier 1 capital (to risk-weighted assets)		49,245		13.35	%		31,362		8.50	%		29,517		8.00	%
Common equity tier 1 (to risk-weighted assets)		49,245		13.35	%		25,827		7.00	%		23,982		6.50	%
Tier 1 leverage (to average assets)		49,245		10.98	%		17,933		4.00	%		22,416		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	51,274		13.88	%	$	38,775		10.50	%	$	36,928		10.00	%
Tier 1 capital (to risk-weighted assets)		48,681		13.18	%		31,389		8.50	%		29,543		8.00	%
Common equity tier 1 (to risk-weighted assets)		48,681		13.18	%		25,850		7.00	%		24,003		6.50	%
Tier 1 leverage (to average assets)		48,681		10.94	%		17,798		4.00	%		22,247		5.00	%

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities
Interest received	$ 4,640,609	$ 4,508,539
Fees and commissions received	251,480	214,151
Interest paid	(940,991)	(782,666)
Proceeds from sale of mortgage loans held for sale	3,148,200	1,488,092
Origination of mortgage loans held for sale	(4,387,650)	(1,331,919)
Cash paid to suppliers and employees	(3,112,503)	(2,865,997)
Net Cash Provided by (Used in) Operating Activities, Total	(400,855)	1,230,200
Cash flows from investing activities
Available for sale	(2,412,263)	(1,438,497)
Held to maturity	500,000	200,000
Available for sale	(6,434,692)	(5,062,430)
Held to maturity		(132,187)
Loans made to customers, net of principal collected	958,785	4,403,357
Proceeds from sale of loans		1,483,594
Redemption (purchase) of stock in FHLB of Atlanta	(235,100)	72,100
Purchases of premises, equipment and software	(179,292)	(33,464)
Net Cash Provided by (Used in) Investing Activities, Total	(2,978,036)	2,369,467
Cash flows from financing activities
Noninterest-bearing deposits	494,053	(2,285,616)
Interest-bearing deposits	12,657,062	12,760,098
Securities sold under repurchase agreements	(1,249,774)	(1,879,205)
Federal Home Loan Bank of Atlanta advances	5,000,000
Net Cash Provided by (Used in) Financing Activities, Total	16,901,341	8,595,277
Net increase in cash and cash equivalents	13,522,450	12,194,944
Cash and cash equivalents at beginning of period	9,121,352	14,618,237
Cash and cash equivalents at end of period	22,643,802	26,813,181
Reconciliation of net income to net cash provided by operating activities
Net income	843,307	1,096,287
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	89,852	90,167
Provision for loan losses	125,000	13,000
Lease expense in excess of rent paid	8,672	11,083
Equity security dividend reinvested	(2,769)	(3,045)
Unrealized gain on equity security	(8,510)	(7,845)
Gain on sale of loans		(130,015)
Decrease (increase) in mortgage loans held for sale	(1,239,450)	156,173
Amortization of premiums and accretion of discounts, net	53,086	19,721
Increase (decrease) in
Deferred loan fees	(20,801)	(11,680)
Accrued interest payable	3,511	38,717
Other liabilities	(458,358)	(115,566)
Decrease (increase) in
Accrued interest receivable	(45,857)	(24,271)
Bank owned life insurance cash surrender value	(42,012)	(40,386)
Other assets	293,474	137,860
Net Cash Provided by (Used in) Operating Activities, Total	$ (400,855)	$ 1,230,200

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Note 2 - Basis of Presentation (Details Textual)	1 Months Ended	3 Months Ended
	May 11, 2020 USD ($)	Mar. 31, 2020 USD ($)	May 06, 2020 USD ($)	Apr. 22, 2020 USD ($)	Dec. 31, 2019 USD ($)	Mar. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Operating Lease, Liability, Total		$ 1,530,666
Retained Earnings (Accumulated Deficit), Ending Balance		22,411,468			$ 21,568,161
Deferred Income Tax Assets, Net, Total		988,558			1,036,078
Financing Receivable, Allowance for Credit Loss, Period Increase (Decrease), Total		146,435
Financing Receivable, Allowance for Credit Loss, Ending Balance		$ 2,740,150			$ 2,593,715	$ 2,529,209		$ 2,509,334
Percentage of Allowance for Loan Losses to Total Loans		0.76%			0.72%
Subsequent Event [Member]
Number of SBA PPP Loans Funded				172
Amount of SBA PPP Loans Funded				$ 25,300,000
Number of Additional SBA PPP Loans Funded	78
Amount of Additional SBA PPP Loans Funded	$ 5,100,000
Amount of SBA PPP Loans Received Approvals	$ 30,000,000
Number of SBA PPP Loans Received Approvals	250
Percentage of SBA PPP Loans Funded Under 100,000	68.00%
Expected Fee Income from SBA PPP Loans	$ 1,257,000
Financing Receivable, Temporary Modifications			$ 80,400,000
Percentage of Loan Portfolio with Modifications			22.00%
Financing Receivable, Loans Being Evaluated for Temporary Modifications			$ 33,800,000
Percentage of Loan Portfolio Under Evaluation for Temporary Modification			9.00%
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset							$ 1,400,855
Operating Lease, Liability, Total							1,527,019
Retained Earnings (Accumulated Deficit), Ending Balance							(91,447)
Deferred Income Tax Assets, Net, Total							$ 34,717