0001437749-23-014479.txt : 20230515 0001437749-23-014479.hdr.sgml : 20230515 20230515143532 ACCESSION NUMBER: 0001437749-23-014479 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 74 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230515 DATE AS OF CHANGE: 20230515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Farmers & Merchants Bancshares, Inc. CENTRAL INDEX KEY: 0001698022 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 813605835 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55756 FILM NUMBER: 23921032 BUSINESS ADDRESS: STREET 1: 4510 LOWER BECKLEYSVILLE ROAD STREET 2: SUITE H CITY: HAMPSTEAD STATE: MD ZIP: 21074 BUSINESS PHONE: 4103741510 MAIL ADDRESS: STREET 1: 4510 LOWER BECKLEYSVILLE ROAD STREET 2: SUITE H CITY: HAMPSTEAD STATE: MD ZIP: 21074 10-Q 1 fmfg20230331_10q.htm FORM 10-Q fmfg20230331_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For quarterly period ended March 31, 2023

 

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 filerSmaller reporting company
Emerging growth company  

             

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

 

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

Yes No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,071,214 as of May 12, 2023.

 

 

 

 
 

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, 2023 (unaudited) and December 31, 2022

3

Consolidated statements of income (unaudited) for the three months ended March 31, 2023 and 2022

4

Consolidated statements of comprehensive income (loss) (unaudited) for the three months ended March 31, 2023 and 2022

5

Consolidated statements of changes in stockholders’ equity (unaudited) for the three months ended March 31, 2023 and 2022

6

Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2023 and 2022

7

Notes to financial statements (unaudited)

9

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

34

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.  Controls and Procedures

43

PART II – OTHER INFORMATION

44

Item 1.  Legal Proceedings

44

Item 1A.  Risk Factors

44

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

44

Item 3.  Defaults upon Senior Securities

44

Item 4.  Mine Safety Disclosures

44

Item 5.  Other Information

44

Item 6.  Exhibits

44

SIGNATURES

45

 

2

 

 

PART I FINANCIAL INFORMATION

Item 1 Financial Statements

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 
         

Assets

     
         

Cash and due from banks

 $8,295,466  $6,414,822 

Federal funds sold and other interest-bearing deposits

  1,270,888   848,715 

Cash and cash equivalents

  9,566,354   7,263,537 

Certificates of deposit in other banks

  100,000   100,000 

Securities available for sale, at fair value

  125,822,067   126,314,449 

Securities held to maturity, at amortized cost less allowance for credit losses of $60,592 and $0

  20,478,223   20,508,997 

Equity security, at fair value

  497,812   489,145 

Restricted stock, at cost

  907,500   1,332,500 

Mortgage loans held for sale

  -   428,355 

Loans, less allowance for credit losses of $4,589,232 and $4,150,198

  520,895,600   516,920,540 

Premises and equipment, net

  6,096,874   6,186,594 

Accrued interest receivable

  1,739,314   1,815,784 

Deferred income taxes, net

  7,998,178   8,392,658 

Other real estate owned, net

  1,242,365   1,242,365 

Bank owned life insurance

  14,668,447   14,585,342 

Goodwill and other intangibles, net

  7,040,670   7,042,752 

Other assets

  5,626,083   5,587,654 
  $722,679,487  $718,210,672 
         

Liabilities and Stockholders' Equity

 
         

Deposits

        

Noninterest-bearing

 $127,342,442  $126,695,349 

Interest-bearing

  509,966,348   496,915,775 

Total deposits

  637,308,790   623,611,124 

Securities sold under repurchase agreements

  3,077,227   5,175,303 

Federal Home Loan Bank of Atlanta advances

  10,000,000   20,000,000 

Long-term debt, net of issuance costs

  14,624,826   15,095,642 

Accrued interest payable

  721,007   349,910 

Other liabilities

  6,190,496   6,203,730 
   671,922,346   670,435,709 

Commitments and contingencies

          
         

Stockholders' equity

        

Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 3,071,214 shares in 2023 and 2022

  30,712   30,712 

Additional paid-in capital

  29,549,914   29,549,914 

Retained earnings

  36,851,782   35,300,166 

Accumulated other comprehensive loss

  (15,675,267)  (17,105,829)
   50,757,141   47,774,963 
  $722,679,487  $718,210,672 

 

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,

 
   

2023

   

2022

 
                 

Interest income

               

Loans, including fees

  $ 6,045,548     $ 5,683,362  

Investment securities - taxable

    762,208       644,461  

Investment securities - tax exempt

    139,844       149,487  

Federal funds sold and other interest earning assets

    104,929       12,415  

Total interest income

    7,052,529       6,489,725  
                 

Interest expense

               

Deposits

    1,034,851       338,560  

Securities sold under repurchase agreements

    4,338       3,251  

Federal Home Loan Bank advances and long-term debt

    356,272       183,825  

Total interest expense

    1,395,461       525,636  

Net interest income

    5,657,068       5,964,089  
                 

Recovery of credit losses

    (270,000 )     -  
                 

Net interest income after recovery of credit losses

    5,927,068       5,964,089  
                 

Noninterest income

               

Service charges on deposit accounts

    186,707       181,466  

Mortgage banking income

    25,293       122,688  

Bank owned life insurance income

    83,105       52,990  

Fair value adjustment on equity security

    5,767       (26,817 )

Gain on sale of SBA loans

    -       93,600  

Other fees and commissions

    81,542       71,880  

Total noninterest income

    382,414       495,807  
                 

Noninterest expense

               

Salaries

    1,876,444       1,740,395  

Employee benefits

    594,057       511,792  

Occupancy

    214,116       228,427  

Furniture and equipment

    239,727       214,615  

Other

    833,091       1,104,369  

Total noninterest expense

    3,757,435       3,799,598  
                 

Income before income taxes

    2,552,047       2,660,298  

Income taxes

    651,196       609,496  

Net income

  $ 1,900,851     $ 2,050,802  
                 

Earnings per share - basic and diluted

  $ 0.62     $ 0.68  

 

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

 

4

 
 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2023

   

2022

 
                 

Net income

  $ 1,900,851     $ 2,050,802  
                 

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

               
                 

Securities available for sale

               

Net unrealized gain (loss) arising during the period

    1,973,665       (8,920,463 )
                 

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

    1,973,665       (8,920,463 )
                 

Income tax expense (benefit)

    543,103       (2,454,690 )
                 

Total other comprehensive income (loss)

    1,430,562       (6,465,773 )
                 

Total comprehensive income (loss)

  $ 3,331,413     $ (4,414,971 )

 

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, 2023 and 2022

(Unaudited)

 

                   

Additional

           

Accumulated other

   

Total

 
   

Common stock

   

paid-in

   

Retained

   

comprehensive

   

stockholders'

 
   

Shares

   

Par value

   

capital

   

earnings

   

income (loss)

   

equity

 
                                                 

Balance, December 31, 2021

    3,037,137     $ 30,372     $ 28,857,422     $ 29,128,600     $ (1,394,936 )   $ 56,621,458  

Net income

    -       -       -       2,050,802       -       2,050,802  

Other comprehensive loss

    -       -       -       -       (6,465,773 )     (6,465,773 )
                                                 

Balance, March 31, 2022

    3,037,137     $ 30,372     $ 28,857,422     $ 31,179,402     $ (7,860,709 )   $ 52,206,487  
                                                 
                                                 

Balance, December 31, 2022

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

Net income

    -       -       -       1,900,851       -       1,900,851  

Other comprehensive income

    -       -       -       -       1,430,562       1,430,562  

Reclassification due to the adoption of ASU 2016-13

    -       -       -       (341,392 )     -       (341,392 )

Dividend adjustment

    -       -       -       (7,843 )     -       (7,843 )
                                                 

Balance, March 31, 2023

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

 

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,

 

2023

  

2022

 
         

Reconciliation of net income to net cash provided by operating activities

        

Net income

 $1,900,851  $2,050,802 

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

        

Depreciation and amortization

  127,908   116,110 

Recovery of credit losses

  (270,000)  - 

Amortization of right of use asset

  (927)  2,177 

Equity security dividends reinvested

  (2,900)  (1,303)

Unrealized loss on equity security

  (5,767)  26,817 

Gain on sale of SBA loans

  -   (93,600)

Gain on sale of premises and equipment

  (9,000)  - 

Gain on fair value hedge

  (34,113)  - 

Amortization of debt issuance costs

  1,406   1,406 

Amortization of premiums and accretion of discounts, net

  (808)  (212,443)

Bank owned life insurance cash surrender value

  (83,105)  (52,990)

Increase (decrease) in

        

Deferred loan fees and costs, net

  (12,202)  (112,930)

Accrued interest payable

  371,097   (19,337)

Other liabilities

  (249,840)  106,030 

Decrease (increase) in

        

Mortgage loans held for sale

  428,355   (158,500)

Accrued interest receivable

  76,470   47,049 

Other assets

  (86,736)  (127,624)

Net cash provided by operating activities

  2,150,689   1,571,664 

 

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 (Continued)

(Unaudited)

 

Three Months Ended March 31,

 

2023

   

2022

 
                 

Cash flows from investing activities

               

Proceeds from maturity and call of securities

               

Available for sale

    2,615,824       6,232,740  

Held to maturity

    -       535,000  

Purchase of securities

               

Available for sale

    -       (11,776,091 )

Loans made to customers, net of principal collected

    (4,020,500 )     (2,067,575 )

Proceeds from sale of SBA loans

    -       664,650  

Redemption (purchase) of stock in FHLB of Atlanta

    425,000       (19,600 )

Proceeds from sale of premises and equipment

    9,000       -  

Purchases of premises, equipment and software

    (27,243 )     (116,388 )

Net cash used in investing activities

    (997,919 )     (6,547,264 )
                 

Cash flows from financing activities

               

Net increase (decrease) in

               

Noninterest-bearing deposits

    647,093       8,453,893  

Interest-bearing deposits

    13,081,095       (1,043,666 )

Securities sold under repurchase agreements

    (2,098,076 )     (1,330,319 )

Federal Home Loan Bank of Atlanta advances

    (10,000,000 )     -  

Long-term debt principal payments

    (472,222 )     (427,221 )

Dividends paid, net of reinvestments

    (7,843 )     -  
                 

Net cash provided by financing activities

    1,150,047       5,652,687  
                 

Net decrease in cash and cash equivalents

    2,302,817       677,087  
                 

Cash and cash equivalents at beginning of period

    7,263,537       26,462,106  

Cash and cash equivalents at end of period

  $ 9,566,354     $ 27,139,193  
                 

Supplementary disclosure of cash flow information:

               

Cash paid during the period for interest

  $ 1,051,398     $ 585,729  

Cash paid during the period for income taxes

    -       -  

Supplementary disclosure of noncash investing and financing activities:

         

Net unrealized gain (loss) on securities available for sale

  $ 2,187,186     $ (8,920,461 )

Cumulative effect adjustment for implemenation of ASU 2016-13

    341,392       -  

 

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 by Farmers and Merchants Bancshares, Inc. in 100% of a series of membership interests 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, including the insurance premium paid by the Bank to the Insurance Subsidiary through an intermediary, 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 (“GAAP”) 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 month period ended March 31, 2023 do not necessarily reflect the results that may be expected for the fiscal year ending December 31, 2023 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, 2022, which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the Securities and Exchange Commission (the “SEC”).

 

Recent Accounting Pronouncements

 

Management has the responsibility for the selection and use of appropriate accounting policies. The significant accounting policies used by the Company are described in the notes to the consolidated financial statements.

 

The following accounting guidance has been approved by the FASB and would apply to the Company if the Company entered into an applicable activity.

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848)”: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU Provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform, on financial reporting. The risk of termination of the London Interbank Offered Rate (LIBOR), has caused regulators to undertake reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based that are less susceptible to manipulation. ASU 2020-04 is effective between March 12, 2020 and December 31, 2022. As of March 31, 2023, the Company has converted all its LIBOR loans to an alternative reference rate.

 

9

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

 

The ASU is effective for all entities upon issuance. As of March 31, 2023, the Company has converted all its LIBOR loans to an alternative reference rate.

 

Recently Adopted Accounting Developments

 

During June 2016, FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration.   The Company adopted ASU 2016-13 as of January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans and held-to-maturity securities, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $470,999. The adjustment net of tax recorded to shareholders’ equity totaled $341,392.

 

The Company is utilizing a third-party model to tabulate its estimate of current expected credit losses, using an average charge off or loss rate methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics which included call report categories as well watch list and collateral-dependent. The Company primarily utilizes historical loss rates for the CECL calculation based on Company-specific historical losses and supplemented with peer loss history where applicable.  For its reasonable and supportable forecasting of current expected credit losses, the Company analyzes a simple regression using forecasted economic metrics and historical peer loss data. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: economic conditions, concentrations of credit, interest rates, ability of staff, loan review, trends in loan quality, policy changes, and changes in nature and/or volume of loans. The Company’s CECL implementation process was overseen by the Chief Financial Officer and included an assessment of data availability and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative factors and correlation analysis of multiple potential loss drivers and their impact on the Company’s historical loss experience.

 

10

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

In March 2022, FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU were applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity had the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ASU 2022-02 was effective for the Company on January 1, 2023. The allowance for credit losses on loans and held-to-maturity securities, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $470,999. The adjustment net of tax recorded to shareholders’ equity totaled $341,392.

 

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. ASU 2022-01 was effective for the Company on January 1, 2023. The Company entered into a fair value hedge in February 2023 with a notional amount of $10,000,000. As of March 31, 2023, there was no material impact to the Company’s financial condition or results of operations.

 

Summary of Significant Accounting Policies

 

Allowance for Credit Losses. As further discussed below, we adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2020. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaced the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.

 

11

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

Allowance for Credit Losses - Held-to-Maturity Securities: The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, which is deducted from the amortized cost basis of held-to-maturity securities to present management's best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on held-to-maturity securities is presented in Note 3 - Securities.

 

Allowance For Credit Losses - Available-for-Sale Securities: For available-for-sale securities in an unrealized loss position, we first assess whether (i) we intend to sell or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. Prior to the adoption of ASU 2016-13, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that were deemed to be other than temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to January 1, 2023, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

Allowance for Credit Losses - Loans: The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, which is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

 

12

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a loan to an individual borrower that is experiencing financial difficulty will be modified or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

 

Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

 

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, and historical/expected credit loss patterns. For modeling purposes, our loan pools include (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction/land development, (iv) residential – multifamily, (v) residential – single family (vi) residential – single family home equity, (vii) commercial and industrial (viii) consumer and other. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.

 

The average charge-off method calculates an estimate of losses based upon past experience which is applied prospectively across the life of each loan. This method allows for analysis and calculation on a note-by-note basis due to the CECL model calculating future cash flows at the individual note level based upon note characteristics. A forward balance is calculated from each note’s prior period balance, less monthly principal paydown and prepayment amount.

 

13

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

The Company will be utilizing its own loss data as the source for its historical loss calculations within the CECL model, where appropriate. This information is sourced from call report data and spans back to an effective start date of March 31, 2000. Loss data will continuously be uploaded into the model across subsequent periods, with results always one quarter in arrears. Utilization of loss rates across this length of time helps to incorporate results recognized across the full economic cycle and smooth periods of economic recession and recovery. The Company may deviate from utilization of its own loss rates on an as-needed basis when said loss rates have historically been non-existent. The Company may also deviate from its existing loss rates when said rates are no longer indicative of the current portfolio composition/quality, such as historical rates impacted by losses resulting from purchased loan portfolios which have since matured or been divested. In these events, the Company will utilize aggregate loss rates recognized from Banks of comparable asset size throughout the state of Maryland, incurred across the same period, March 31, 2000 to present.

 

The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Significant loan/borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status/delinquency history and (viii) expected recoveries of previously charged-off amounts.

 

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) any concentrations of credit, (ii) local and national economic and business conditions, (iii) changes in the nature and volume of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans, (vi) our credit review function, (vii) changes in lending policies and procedures and, (viii) other factors such as rising interest rates.

 

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

 

Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures: The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of credit loss expense.

 

14

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

The table below provides the impact of the implementation of ASC 326:

 

  

January 1, 2023

 
  

As Reported

Under ASC 326

  

Pre-ASC 326

Adoption

  

Impact of

ASC 326

Adoption

 

Assets:

            

Allowance for credit losses on debt securities held to maturity

 $51,990  $-  $51,990 
             

Loans

            

Real estate:

            

Commercial

  2,467,744   2,818,582   (350,838)

Construction and land development

  285,572   164,596   120,976 

Residential

  1,258,146   793,919   464,227 

Commercial

  472,503   337,303   135,200 

Consumer

  169   4,706   (4,537)

Unallocated

  -   31,092   (31,092)

Allowance for credit losses on loans

  4,484,134   4,150,198   333,936 
             

Liabilities

            
             

Allowance for credit losses on off balance sheet credit exposures

  85,073   -   85,073 

 

Derivative Financial Instruments: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge.  These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”).  For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change.  For a cash flow hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change.  For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.  Changes in the fair value of derivatives not designated or that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

 

Accrued settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged.  Accrued settlements on derivatives not designated or that do not qualify for hedge accounting are reported in non-interest income.  Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

 

15

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

2.

Basis of Presentation (continued)

 

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship.  This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.  The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.  The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

 

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income.  When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.  When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

 

The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position.  The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.  All the contracts to which the Company is a party settle monthly or quarterly.  In addition, the Company obtains collateral above certain thresholds of the fair value of its derivatives for each counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.

 

The Company’s derivative financial instruments are described more fully in Note 7.

 

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

 

16

 
 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

 

3.

Investment Securities

 

Investments in debt securities are summarized as follows:

 

  

Amortized

  

Unrealized

  

Unrealized

  

Fair

  

Allowance for

  

Net Carrying

 

March 31, 2023

 

cost

  

gains

  

losses

  

value

  

Credit Losses

  

Amount

 
                         

Available for sale

                        
                         

State and municipal

 $500,000  $15  $13,167  $486,848  $-  $486,848 

SBA pools

  952,033   1,556   13,700   939,889   -   939,889 

Corporate bonds

  10,398,704   -   978,981   9,419,723   -   9,419,723 

Mortgage-backed securities

  135,384,087   -   20,408,480   114,975,607   -   114,975,607 
  $147,234,824  $1,571  $21,414,328  $125,822,067  $-  $125,822,067 
                         

Held to maturity

                        
                         

State and municipal

 $20,538,815  $14,857  $1,317,685  $19,235,987  $60,592  $20,478,223 

 

  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 

December 31, 2022

 

cost

  

gains

  

losses

  

value

 
                 

Available for sale

                
                 

State and municipal

 $570,122  $-  $17,841  $552,281 

SBA pools

  1,033,606   1,425   15,234   1,019,797 

Corporate bonds

  10,414,146   -   1,024,250   9,389,896 

Mortgage-backed securities

  137,896,519   -   22,544,044   115,352,475 
  $149,914,393  $1,425  $23,601,369  $126,314,449 
                 

Held to maturity

                
                 

State and municipal

 $20,508,997  $4,176  $1,633,378  $18,879,795 

 

17

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

3.

Investment Securities (continued)

 

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Unrated bonds were underwritten similar to commercial loans and the financial condition of the issuer is monitored periodically. Expected credit losses on commercial loans are applied to unrated bonds. The following table summarizes Moody's and/or Standard & Poor's bond ratings (Company’s primary credit quality indicator) for our portfolio of held-to-maturity securities issued by states and political subdivisions as of March 31, 2023 at amortized cost:

 

  

March 31, 2023

 

AAA

  2,774,579 

AA

  10,371,643 

A

  4,126,007 

BAA

  246,355 

Not rated

  3,020,231 
     

Total

  20,538,815 

 

Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of March 31, 2023, there were no past due principal or interest payments associated with these securities and none are on nonaccrual.

 

The following table details activity in the allowance for credit losses on held-to-maturity securities:

 

  

March 31, 2023

 
     

Beginning balance

 $- 

Impact of adopting ASC 326

  51,990 

Credit loss expense

  8,602 

Ending balance

 $60,592 

 

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, 2023

 

cost

  

value

  

cost

  

value

 
                 

Within one year

 $1,014,934  $985,535  $330,000  $330,198 

Over one to five years

  2,561,931   2,427,580   476,355   473,747 

Over five to ten years

  7,321,839   6,493,456   3,493,376   3,423,349 

Over ten years

  -   -   16,178,492   15,008,693 
   10,898,704   9,906,571   20,478,223   19,235,987 

Mortgage-backed securities and SBA pools, due in monthly installments

  136,336,120   115,915,496   -   - 
  $147,234,824  $125,822,067  $20,478,223  $19,235,987 

 

Securities with a carrying value of $24,184,578 and $24,258,980 as of March 31, 2023 and December 31, 2022, respectively, were pledged as collateral for government deposits and securities sold under repurchase agreements.

 

During the three months ended March 31, 2023 and 2022, there were no sales of securities.

 

18

 

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, 2023 and December 31, 2022.

 

March 31, 2023

 

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

 $-  $-  $236,833  $13,167  $236,833  $13,167 

SBA pools

  -   -   778,455   13,700   778,455   13,700 

Corporate bonds

  1,776,149   130,322   7,643,574   848,659   9,419,723   978,981 

Mortgage-backed securities

  14,930,119   945,787   100,045,490   19,462,693   114,975,609   20,408,480 

Total

 $16,706,268  $1,076,109  $108,704,352  $20,338,219  $125,410,620  $21,414,328 

 

December 31, 2022

 

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

 $13,668,676  $1,057,412  $1,537,715  $593,807  $15,206,391  $1,651,219 

SBA pools

  -   -   857,259   15,234   857,259   15,234 

Corporate bonds

  4,184,875   356,746   4,805,021   667,504   8,989,896   1,024,250 

Mortgage-backed securities

  25,284,430   2,293,151   90,068,045   20,250,893   115,352,475   22,544,044 

Total

 $43,137,981  $3,707,309  $97,268,040  $21,527,438  $140,406,021  $25,234,747 

 

 

4.

Loans and allowance for credit losses

 

Major categories of loans are as follows:

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

Real estate:

        

Commercial

 $357,768,606  $351,794,702 

Construction and land development

  24,911,711   23,978,373 

Residential

  113,384,265   114,683,149 

Commercial

  29,876,303   31,066,497 

Consumer

  140,150   156,422 
   526,081,035   521,679,143 

Less: Allowance for credit losses

  4,589,232   4,150,198 

Deferred origination fees net of costs

  596,203   608,405 
  $520,895,600  $516,920,540 

 

19

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.

Loans and allowance for credit losses (continued)

 

The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of March 31, 2023 and December 31, 2022:

 

  

Nonaccrual

      

Loans Past

 
  

With No

      

Due 90 Days

 
  

Allowance

      

or More and

 
  

for Credit Loss

  

Nonaccrual

  

Still Accruing

 

March 31, 2023

            

Real estate:

            

Commercial

 $-  $502,961  $- 

Construction and land development

  -   -   - 

Residential

  -   -   - 

Commercial

  -   152,449   - 

Consumer

  -   -   - 
  $-  $655,410  $- 
             

December 31, 2022

            

Real estate:

            

Commercial

 $-  $502,961  $- 

Construction and land development

  -   -   - 

Residential

  -   -   - 

Commercial

  -   152,449   - 

Consumer

  -   -   - 
  $-  $655,410  $- 

 

The Company recognized no interest income on nonaccrual loans during the three months ended March 31, 2023 nor during the year ended December 31. 2022.

 

At March 31, 2023, the Company had one nonaccrual commercial real estate loan totaling $502,961 and one nonaccrual commercial loan totaling $152,449. The commercial loan was secured by business assets and was personally guaranteed. Gross interest income of $11,307 would have been recorded for the three months ended March 31, 2023 had these nonaccrual loans been current and performing in accordance with their original terms. The Company allocated $281,910 of its allowance for credit losses to these nonaccrual loans.

 

At December 31, 2022, the Company had one nonaccrual commercial real estate loan totaling $502,961 and one nonaccrual commercial loan totaling $152,449. The commercial loan was secured by business assets and was personally guaranteed. Gross interest income of $45,856 would have been recorded in 2022 if these nonaccrual loans had been current and performing in accordance with their original terms. The Company allocated $281,910 of its allowance for credit losses to these nonaccrual loans.

 

20

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.

Loans and allowance for credit losses (continued)

 

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

 

          

90 Days

             
  

30 - 59 Days

  

60 - 89 Days

  

or More

  

Total

      

Total

 
  

Past Due

  

Past Due

  

Past Due

  

Past Due

  

Current

  

Loans

 

March 31, 2023

                        

Real estate:

                        

Commercial

 $-  $-  $502,961  $502,961  $357,265,645  $357,768,606 

Construction and land development

  -   -   -   -   24,911,711   24,911,711 

Residential

  312,897   -   -   312,897   113,071,368   113,384,265 

Commercial

  -   -   152,449   152,449   29,723,854   29,876,303 

Consumer

  -   -   -   -   140,150   140,150 

Total

 $312,897  $-  $655,410  $968,307  $525,112,728  $526,081,035 
                         

December 31, 2022

                        

Real estate:

                        

Commercial

 $-  $-  $502,961  $502,961  $351,291,741  $351,794,702 

Construction and land development

  -   -   -   -   23,978,373   23,978,373 

Residential

  311,409   -   -   311,409   114,371,740   114,683,149 

Commercial

  -   -   152,449   152,449   30,914,048   31,066,497 

Consumer

  -   -   -   -   156,422   156,422 

Total

 $311,409  $-  $655,410  $966,819  $520,712,324  $521,679,143 

 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2023:

 

Real estate:

    

Commercial

 $502,961 

Construction and land development

  - 

Residential

  - 

Commercial

  152,449 

Consumer

  - 
  $655,410 

 

Impaired loans, segregated by class of loans with average recorded investment and interest recognized for the year ended December 31, 2022, are set forth in the following table:

 

  

Unpaid

  

Recorded

  

Recorded

                 
  

Contractual

  

Investment

  

Investment

  

Total

      

Average

     
  

Principal

  

With No

  

With

  

Recorded

  

Related

  

Recorded

  

Interest

 
  

Balance