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Noninterest expense was $386 thousand higher for the quarter ended March 31, 2025 when compared to the same period in 2024. This increase was due primarily to a $175 thousand increase in occupancy and furniture and equipment costs, a $101 thousand increase in FDIC premiums, a $33 thousand increase in ATM related costs, and a $96 thousand increase in other expenses. The increase in other expenses was due primarily to legal fees incurred for stockholder matters and additional costs related to the Company’s captive insurance company subsidiary. The Bank’s FDIC assessment expense increased due to higher asset size and higher FDIC assessment rates. The increase in occupancy and furniture and equipment was due primarily to depreciation on the renovations and new equipment for the Bank’s Upperco, Maryland location which was placed in service at the end of the first quarter of 2024 and the Bank’s new Towson, Maryland location that was placed in service during the second quarter of 2024. The increase in ATM related expenses was due to vendor price increases.

Income taxes decreased by $30 thousand during the quarter ended March 31, 2025 when compared to the same period in 2024 due to lower earnings before taxes. The effective tax rate decreased to 21.3% for the quarter ended March 31, 2025 from 22.1% for the same period last year due to an increase in the amount of nontaxable income included in pretax income year over year.

Total assets were $817.6 million at March 31, 2025 compared to $844.6 million at December 31, 2024. Compared to December 31, 2024, total loans, net of the allowance for credit losses, increased $17.1 million to $600.0 million at March 31, 2025. Offsetting the increase in loans was a decrease in cash and cash equivalents of $42.0 million. The decrease was primarily due to the funding of new loans of $17.1 million, a decrease in deposits of $23.2 million, and the repayment of $5.0 million of Federal Home Loan Bank borrowings. Deposits decreased to $735.6 million at March 31, 2025 from $758.8 million at December 31, 2024. The Company’s tangible equity was $51.5 million at March 31, 2025 compared to $49.2 million at December 31, 2024.

The book value of the Company’s common stock increased to $18.44 per share at March 31, 2025 from $17.77 per share at December 31, 2024. Book value per share at March 31, 2025 was inclusive of the $15.6 million unrealized loss, net of income taxes, on the Bank’s available for sale (“AFS”) investment portfolio as a result of higher interest rates. Changes in the market value of the AFS investment portfolio, net of income taxes, are reflected in the Company’s equity, but are not included in the income statement. The AFS investment portfolio is comprised of 72% government agency mortgage backed securities which are fully guaranteed, 22% investment grade non agency mortgage backed securities, less than 1% investment grade corporate and municipal bonds, and 5% subordinated debt of other community banks. There is no indication of credit deterioration in any of the bonds and we intend to hold these investments to maturity, so no actual losses are anticipated. The unrealized loss in the AFS investment portfolio did not impact regulatory capital because the Bank elected many years ago to not include changes in the market value of the AFS investment portfolio in the calculation of regulatory capital regardless of whether they are positive or negative.

Our Federal Home Loan Bank facility, other borrowing lines available, unpledged securities, brokered deposit access, and cash and cash equivalents provided us with access to approximately $337.8 million of liquidity as of March 31, 2025.

Gary A. Harris, President and CEO, commented “Our loan growth remains strong with a $17.1 million increase in net loans over the past quarter. We previously announced the opening of the new Towson Commercial Banking Office. Since its inception in June 2024, the office has produced over $29 million in new commercial loans and $8 million in new relationship deposits through March 31, 2025. We believe that this new office will be instrumental in both loan and deposit growth in 2025. Our asset growth along with the Federal Reserve’s three interest rate decreases over the past seven months have led to positive gains in our net interest margin. Asset quality remains high and our liquidity position remains strong. We continue to believe that Farmers and Merchants is well positioned to grow earnings in 2025.”

About the Company

The Company is a financial holding company and the parent company of the Bank. The Bank was chartered in Maryland in 1919 and has over 100 years of service to the community. The Bank serves the deposit and financing needs of both consumers and businesses in Carroll and Baltimore Counties along the Route 30, Route 795, Route 140, Route 26, and Route 45 corridors. The main office is located in Upperco, Maryland, with seven additional Maryland branches in Owings Mills, Hampstead, Greenmount, Reisterstown, Westminster, Eldersburg, and Towson. Certain broker-dealers make a market in the common stock of Farmers and Merchants Bancshares, Inc., and trades are reported through the OTC Markets Group’s Pink Market under the symbol “FMFG”.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “will,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Farmers and Merchants Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.