Farmers & Merchants Bancshares, Inc. - Quarter Report: 2019 March (Form 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, 2019

 

☐	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: 1,682,997 as of May 13, 2019.

 

 

 

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, 2019 (unaudited) and December 31, 2018	3
Consolidated statements of income (unaudited) for the three months ended March 31, 2019 and 2018	4
Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2019 and 2018	5
Consolidated statements of changes in stockholders’ equity (unaudited) for the three months ended March 31, 2019 and 2018	6
Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2019 and 2018	7
Notes to financial statements (unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II – OTHER INFORMATION	40
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3. Defaults upon Senior Securities	40
Item 4. Mine Safety Disclosures	40
Item 5. Other Information	40
Item 6. Exhibits	41
SIGNATURES	41

 

 

 

		March 31,				December 31,
		2019				2018
		(Unaudited)
Assets
Cash and due from banks		$	20,088,893			$	11,480,608
Federal funds sold and other interest-bearing deposits			6,724,288				3,137,629
Cash and cash equivalents			26,813,181				14,618,237
Certificate of deposit in other bank			100,000				100,000
Securities available for sale			30,601,771				26,591,991
Securities held to maturity			18,065,993				18,127,067
Equity security at fair value			514,717				503,827
Federal Home Loan Bank stock, at cost			503,700				575,800
Mortgage loans held for sale			417,465				573,638
Loans, less allowance for loan losses of $2,529,209 and $2,509,334			335,142,379				340,900,635
Premises and equipment			5,032,002				5,075,310
Accrued interest receivable			1,014,800				990,529
Deferred income taxes			1,100,714				1,179,454
Other real estate owned			210,150				210,150
Bank owned life insurance			7,093,740				7,053,354
Other assets			1,873,120				657,885
		$	428,483,732			$	417,157,877
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing		$	60,431,904			$	62,717,520
Interest-bearing			304,755,581				291,995,483
Total deposits			365,187,485				354,713,003
Securities sold under repurchase agreements			9,132,795				11,012,000
Federal Home Loan Bank of Atlanta advances			3,000,000				3,000,000
Accrued interest payable			350,206				311,489
Other liabilities			4,114,849				2,726,678
			381,785,335				371,763,170
Stockholders' equity
Common stock, par value $.01 per share, authorized 5,000,000 shares; issued and outstanding 1,682,997 shares in 2019 and 2018			16,830				16,830
Additional paid-in capital			27,324,794				27,324,794
Retained earnings			19,626,222				18,621,382
Accumulated other comprehensive income			(269,449	)			(568,299	)
			46,698,397				45,394,707
		$	428,483,732			$	417,157,877

 

---

Three Months Ended March 31,		2019				2018
Interest income
Loans, including fees		$	4,160,086			$	3,933,155
Investment securities - taxable			152,317				154,860
Investment securities - tax exempt			160,607				142,763
Federal funds sold and other interest earning assets			74,526				26,968
Total interest income			4,547,536				4,257,746
Interest expense
Deposits			775,531				438,410
Securities sold under repurchase agreements			25,299				34,389
Federal Home Loan Bank advances and other borrowings			20,553				62,962
Total interest expense			821,383				535,761
Net interest income			3,726,153				3,721,985
Provision for loan losses			13,000				50,000
Net interest income after provision for loan losses			3,713,153				3,671,985
Noninterest income
Service charges on deposit accounts			152,060				161,840
Mortgage banking income			32,719				54,193
Bank owned life insurance income			40,386				39,905
Unrealized gain on equity security			7,845				960
Gain on sale of SBA loans			130,015				60,508
Other fees and commissions			29,371				22,874
Total noninterest income			392,396				340,280
Noninterest expense
Salaries			1,326,783				1,283,510
Employee benefits			381,964				367,454
Occupancy			214,420				177,533
Furniture and equipment			155,147				161,616
Other			676,972				639,177
Total noninterest expense			2,755,286				2,629,290
Income before income taxes			1,350,263				1,382,975
Income taxes			253,976				260,857
Net income		$	1,096,287			$	1,122,118
Earnings per share - basic and diluted		$	0.65			$	0.67

 

---

Three Months Ended March 31,		2019				2018
Net income		$	1,096,287			$	1,122,118
Other comprehensive income (loss), net of income taxes:
Securities available for sale
Net unrealized gain (loss) arising during the period			412,306				(311,961	)
Income tax expense (benefit)			113,456				(85,843	)
Total other comprehensive income (loss)			298,850				(226,118	)
Total comprehensive income		$	1,395,137			$	896,000

 

---

										Additional								Accumulated other				Total
		Common stock								paid-in				Retained				comprehensive				stockholders'
		Shares				Par value				capital				earnings				income				equity
Balance, December 31, 2017			1,667,813			$	16,678			$	26,869,796			$	15,306,625			$	(394,167	)		$	41,798,932
Net income			-				-				-				1,122,118				-				1,122,118
Unrealized loss on securities available for sale net of income tax benefit of $85,843			-				-				-				-				(226,118	)			(226,118	)
Reclassification due to adoption of ASU No. 2016-01			-				-				-				(10,416	)			10,416				-
Common stock issued			50				1				1,549				-				-				1,550
Balance, March 31, 2018			1,667,863			$	16,679			$	26,871,345			$	16,418,327			$	(609,869	)		$	42,696,482
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 gain on securities available for sale net of income tax expense of $113,456			-				-				-				-				298,850				298,850
Adjustment 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

 

---

Three Months Ended March 31,		2019				2018
Cash flows from operating activities
Interest received		$	4,508,539			$	4,238,900
Fees and commissions received			214,151				238,907
Interest paid			(782,666	)			(487,695	)
Proceeds from sale of mortgage loans held for sale			1,488,092				2,567,407
Origination of mortgage loans held for sale			(1,331,919	)			(2,539,707	)
Cash paid to suppliers and employees			(2,865,997	)			(2,609,031	)
Income taxes paid, net of refunds received			-				-
			1,230,200				1,408,781
Cash flows from investing activities
Proceeds from maturity and call of securities
Available for sale			1,438,497				1,364,864
Held to maturity			200,000				-
Purchase of securities
Available for sale			(5,062,430	)			-
Held to maturity			(132,187	)			-
Purchase of certificate of deposit			-				(242,000	)
Loans made to customers, net of principal collected			4,403,357				(5,234,852	)
Proceeds from sale of SBA loans			1,483,594				668,508
Redemption of stock in FHLB of Atlanta			72,100				84,000
Purchases of premises, equipment and software			(33,464	)			(18,677	)
			2,369,467				(3,378,157	)
Cash flows from financing activities
Net increase (decrease) in
Noninterest-bearing deposits			(2,285,616	)			(5,217,949	)
Interest-bearing deposits			12,760,098				19,219,973
Securities sold under repurchase agreements			(1,879,205	)			(2,164,199	)
Federal Home Loan Bank of Atlanta advances			-				(4,500,000	)
Common stock issued			-				1,550
			8,595,277				7,339,375
Net increase in cash and cash equivalents			12,194,944				5,369,999
Cash and cash equivalents at beginning of period			14,618,237				7,237,385
Cash and cash equivalents at end of period		$	26,813,181			$	12,607,384

---

Three Months Ended March 31,		2019				2018
Reconciliation of net income to net cash provided by operating activities
Net income		$	1,096,287			$	1,122,118
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			90,167				97,862
Provision for loan losses			13,000				50,000
Lease expense in excess of rent paid			11,083				-
Equity security dividends reinvested			(3,045	)			(2,721	)
Unrealized gain on equity security			(7,845	)			(960	)
Gain on sale of SBA loans			(130,015	)			(60,508	)
Amortization of premiums and accretion of discounts, net			19,721				37,045
Increase (decrease) in
Deferred loan fees			(11,680	)			(9,183	)
Accrued interest payable			38,717				48,066
Other liabilities			(115,566	)			149,648
Decrease (increase) in
Mortgage loans held for sale			156,173				27,700
Accrued interest receivable			(24,271	)			(6,942	)
Bank owned life insurance cash surrender value			(40,386	)			(39,905	)
Other assets			137,860				(3,439	)
		$	1,230,200			$	1,408,781

---

 

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 indirect subsidiary, 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, 2019 do not necessarily reflect the results that may be expected for the entire fiscal year ending December 31, 2019 or any other 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, 2018, which are included in Farmers and Merchants Bancshares, Inc.’s Annual Report on Form 10-K.

 

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 will be 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.

 

 

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. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. 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 will be effective for us on January 1, 2020, 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 2018-14, “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 will be effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a material impact on the Company’s financial statements.

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

 

3.	Investment Securities

 

Investments in debt securities are summarized as follows:

 

 

 

 

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.

 

 

 

Securities with a carrying value of $9,657,069 and $11,706,765 as of March 31, 2019 and December 31, 2018, respectively, were pledged as collateral for Federal Home Loan Bank advances, government deposits and securities sold under repurchase agreements.

 

 

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, 2019 and December 31, 2018.

 

 

 

 

 

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, 2019 and December 31, 2018, management did not have the intent to sell any of the securities before a recovery of cost. The unrealized losses are 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 these factors, as of March 31, 2019 and December 31, 2018, management believes the unrealized losses detailed in the table above are temporary and, accordingly, none of these unrealized losses have been recognized in the Company’s consolidated statement of income.

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.

Loans

 

Major categories of loans are as follows:

 

 

Non-accrual loans, segregated by class of loans, were as follows:

 

 

At March 31, 2019, the Company had two nonaccrual commercial real estate loans to the same borrower totaling $988,811. The loans were secured by real estate and business assets and were personally guaranteed. Gross interest income of $31,733 would have been recorded during the three months ended March 31, 2019 if these nonaccrual loans had been current and performing in accordance with the original terms. The Company allocated $0 of its allowance for loan losses to these nonaccrual loans. The balance of the nonaccrual loans was net of charge-offs of $690,000 at March 31, 2019.

 

At December 31, 2018, the Company had two nonaccrual commercial real estate loans to the same borrower totaling $988,811. The loans were secured by real estate and business assets and were personally guaranteed. Gross interest income of $115,168 would have been recorded during the year ended December 31, 2018 if these nonaccrual loans had been current and performing in accordance with the original terms. The Company allocated $0 of its allowance for loan losses to these nonaccrual loans. The balance of the nonaccrual loans was net of charge-offs of $690,000 at December 31, 2018.

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.	Loans (continued)

 

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

 

 

Impaired loans, segregated by class of loans with average recorded investment and interest recognized for the three months ended March 31, 2019 and the year ended December 31, 2018, are set forth in the following table:

 

 

Impaired loans also 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.

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.	Loans (continued)

 

At March 31, 2019, the Company had one commercial real estate loan totaling $2,122,044 and one residential real estate loan totaling $52,938 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.

 

At December 31, 2018, the Company had one commercial real estate loan totaling $2,134,570 and one residential real estate loan totaling $54,000 that were classified as TDRs. The $54,000 loan was restructured as a TDR during 2018. 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.

 

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.

 

 

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 as a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

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

 

 

 

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.

 

 

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 months ended March 31, 2019 and 2018, and the year ended December 31, 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

 

 

 

 

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)