Farmers & Merchants Bancshares, Inc.
For the period ended Dec 31, 2025. Filed Mar 26, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 26, 2026
FMFGStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-03-13.
0001437749-25-007333
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-26.
0001437749-26-009952
Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 110 previous paragraphs and 108 current paragraphs.
63 unchanged; 37 reworded; 8 added; 9 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 26 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (8)
Current report
Total liabilities were $807.3 million at December 31, 2025, an increase of $18.9 million, or 2.4%, over the $788.4 million recorded at December 31, 2024. The increase was due primarily to an increase of $57.7 million in FHLB, offset by a decrease of $88.5 million in brokered CDs, and an increase in other deposits of $50.0 million.
Current report
At December 31, 2025, the Company had no non-accrual loans.
Current report
Deposits in excess of $250 thousand were $199.8 million as of December 31, 2025. The bank offers programs to its depositors which provide insurance above the FDIC’s $250 thousand threshold.
Current report
On September 25, 2025, Farmers and Merchants Bancshares, Inc. issued and sold $12.5 million in aggregate principal amount of its Subordinated Notes. The Subordinated Notes were issued by the Company at a price equal to 100% of their face amounts. The Subordinated Notes have stated maturity dates of September 25, 2035 (the “Maturity Date”).
Current report
From and including the original issue date of the Subordinated Notes the (“Issue Date”) to but excluding September 26, 2030 or the date of earlier redemption, the Company will pay interest on the Subordinated Notes semi-annually in arrears on March 26th and September 26th of each year at a fixed interest rate of 7.875% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, beginning on March 26, 2026. From and including September 26, 2030, to, but excluding, the Maturity Date or the date of earlier redemption (the “Floating Rate Period”), the Company will pay interest on the Subordinated Notes at a floating interest rate at the Three-Month Term SOFR (as defined in the Subordinated Notes), reset quarterly, plus 458 basis points, computed on the basis of a 360-day year and the actual number of days elapsed. During the Floating Rate Period, the Company will pay interest on the Subordinated Notes quarterly in arrears on March 26th, June 26th, September 26th, and December 26th of each year, beginning on December 26, 2030. Notwithstanding the foregoing, if the Three-Month Term SOFR rate is less than zero, then the Three-Month Term SOFR rate shall be deemed to be zero.
Current report
The Subordinated Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Subordinated Notes are not subject to redemption at the option of the holder. Prior to September 26, 2030, the Company may redeem the Notes, in whole or in part, only under the certain limited circumstances set forth in the Subordinated Notes. On or after September 26, 2030, the Company may redeem the Subordinated Notes, in whole or in part, at its option, on any Interest Payment Date (as defined in the Subordinated Notes). Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, together with any accrued and unpaid interest on the Subordinated Notes being redeemed to but excluding the date of redemption. Any redemption of the Subordinated Notes will be subject to the receipt of any and all required federal and state regulatory approvals, including the approval of the Federal Reserve to the extent then required under applicable laws or regulations.
Current report
The payment of principal and interest on the Subordinated Notes is subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company. The Subordinated Notes are general unsecured, subordinated obligations of the Company and rank junior to all of its existing and future Senior Indebtedness (as defined in the Subordinated Notes). The Subordinated Notes are obligations of only the Company and are not obligations of, and are not guaranteed by, any of its subsidiaries, including the Bank. Further, the Subordinated Notes are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.
Current report
Income taxes increased by $376 thousand to $1.6 million in 2025 from $1.2 million in 2024.
Removed paragraphs (9)
Previous report
Management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit and other intangible assets, other assets and liabilities obtained or assumed in business combinations. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on our results of operations, financial condition or disclosures of fair value information. In addition to valuation, we must assess whether there are any declines in value below the carrying value of assets that should be considered credit losses or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statements of income. Examples include investment securities, goodwill and core deposit intangible, among others.
Previous report
Total liabilities were $788.4 million at December 31, 2024, an increase of $40.6 million, or 5.4%, over the $747.8 million recorded at December 31, 2023. The increase was due primarily to an increase of $77.8 million in deposits, offset by a decrease of $33.0 million in Federal Reserve Bank (“FRB”) advances, a decrease of $1.2 million in repurchase agreements, a $1.9 million decrease in long term debt, and a decrease of $1.1 million in accrued interest payable and other liabilities.
Previous report
Net charge offs/(recoveries) during the period to average loans outstanding:
Previous report
During 2023, the Company sold property located in Cecil County, Maryland with a carrying value of $0 for a gain of $249,217. Due to the length of time that the property had been held, Maryland banking law required a write-down of the value to $0 in 2019.
Previous report
Uninsured deposits totaled $145.9 million at December 31, 2024.
Previous report
(1) - Interest on tax-exempt securities and other tax-exempt investments are reported on a fully taxable equivalent basis. The federal, state and combined tax rates used were 21.00%, 8.25% and 27.5175% respectively.
Previous report
Income taxes decreased by $786.2 thousand to $1.2 million in 2024 from $2.1 million in 2023.
Previous report
Quarterly Results of Operations
Previous report
The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).
Reworded paragraphs (37)
Previous wording
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2024 and 2023, which are presented elsewhere in this annual report.
Current wording
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto as of and for the years ended December 31, 2025 and 2024, which are presented elsewhere in this Annual Report.
Previous wording
The allowance for credit losses on loans represents management’s estimate of expected credit losses in the loan portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on collateral dependent loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet. Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses.
Current wording
The allowance for credit losses on loans represents management’s estimate of expected credit losses in the loan portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on collateral dependent loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current and future economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet. Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses.
Previous wording
Total assets were $844.6 million at December 31, 2024, an increase of $44.7 million, or 5.6%, over the $799.9 million recorded at December 31, 2023. The increase was due primarily to a $59.7 million increase in loans and a $20.0 million increase cash and cash equivalents, offset by a decrease of $38.0 million in investments.
Current wording
Total assets were $872.0 million at December 31, 2025, an increase of $27.3 million, or 3.2%, over the $844.6 million recorded at December 31, 2024. The increase was due primarily to a $50.2 million increase in loans offset by a decrease of $18.0 million in cash and cash equivalents and a decrease in investments of $6.4 million.
Previous wording
Stockholders’ equity was $56.3 million at December 31, 2024 compared to $52.2 at December 31, 2023, an increase of $4.1 million or 7.8%. The increase was due primarily to net income for 2024 of $4.3 million and a decrease in after-tax unrealized loss on available for sale securities of $1.2 million, offset by dividends paid, net of reinvestments, of $1.4 million.
Current wording
Stockholders’ equity was $64.7 million at December 31, 2025 compared to $56.3 million at December 31, 2024, an increase of $8.4 million or 14.9%. The increase was due primarily to net income for 2025 of $5.8 million and a decrease in after-tax unrealized losses on available for sale securities of $3.8 million, offset by dividends paid, net of reinvestments, of $1.3 million.
Previous wording
Loans increased by $59.7 million, or 11.4%, to $583.0 million at December 31, 2024 from $523.3 million at December 31, 2023. The increase was due primarily to an increase of $36.2 million in commercial real estate loans and an increase of $17.6 million in commercial loans. Additionally, construction/land development loans increased by $1.7 million and residential loans increased by $4.4 million. The growth was due to addition of new lending staff during the year and stabilizing interest rates. Total loan production increased by $68.5 million in 2024 when compared to 2023 and loan payoffs increased by $19.7 million as stabilizing rising rates allowed for more borrowers to refinance. The allowance for credit losses remained flat at $4.3 million at both December 31, 2024 and December 31, 2023.
Current wording
Loans increased by $50.2 million, or 8.6%, to $633.1 million at December 31, 2025 from $583.0 million at December 31, 2024. The increase was due primarily to an increase of $34.6 million in commercial real estate loans and an increase of $9.0 million in construction/land development loans. Additionally, residential loans increased by $7.0 million. The allowance for credit losses increased slightly to $4.4 million as of December 31, 2025 compared to $4.3 million as of December 31, 2024.
Previous wording
At December 31, 2024, the Company had three non-accrual commercial real estate loans totaling $2,440.5 thousand. Gross interest income of $25.0 thousand would have been recorded in 2024 if these non-accrual loan had been current and performing in accordance with the original terms. The Company allocated $360.0 thousand of its allowance for credit losses to these three non-accrual loans.
Current wording
At December 31, 2024, the Company had three non-accrual commercial real estate loans totaling $2.4 million. Gross interest income of $25.0 thousand would have been recorded in 2024 if these non-accrual loans had been current and performing in accordance with the original terms. The Company allocated $360.0 thousand of its allowance for credit losses to these three non-accrual loans.
Previous wording
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 any guarantor, and cash flow projections of the borrower. Special mention, Substandard, and Doubtful grades are assigned to loans with a higher frequency of delinquent payments and/or the collateral and/or cash flow are insufficient to support the loan and such loans are included on the Company’s watch list. The Special mention grade is intended to be a temporary grade.
Current wording
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 any guarantor, and cash flow projections of the borrower. Special mention, Substandard, and Doubtful grades are assigned to loans with a higher frequency of delinquent payments and/or the collateral and/or cash flow are insufficient to support the loan and such loans are included on the Company’s watch list. The Special mention grade is intended to be a temporary grade. During 2025 two of our large borrowers experienced short term financial stress. Accordingly, we placed these relationships on special mention status and continue to monitor them closely.
Previous wording
The allowance for credit losses is a reserve established through a provision for credit losses and is charged to expense. The allowance for credit losses represents an amount which, in management’s judgment, will be adequate to absorb expected losses on existing loans and other of credit that may become uncollectible. The Company’s allowance for credit loss methodology is calculated in accordance with Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. 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.
Current wording
The allowance for credit losses is a reserve established through a provision for credit losses and is charged to expense. The allowance for credit losses represents an amount which, in management’s judgment, will be adequate to absorb expected losses on existing loans and other of credit that may become uncollectible. The Company’s allowance for credit loss methodology is calculated in accordance with FASB Topic 326 - Financial Instruments – Credit Losses. 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.
Previous wording
The following tables detail activity in the allowance for credit losses by portfolio for the years ended December 31, 2024 and 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Current wording
The following tables detail the distribution of the allowance and the activity in the allowance for credit losses by portfolio segment as of and for the years ended December 31, 2025 and 2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Previous wording
The Company recorded net loan charge offs of $138.0 thousand during 2024. In 2023, the Company recorded a net recovery of previously charged off loans of $398.9 thousand. The impact on the income statement was a $114.0 thousand provision for credit losses in 2024 compared to a $700.0 thousand recovery of credit losses in 2023.
Current wording
The Company recorded net loan charge offs of $624 thousand during 2025 and $138 thousand in 2024. The impact on the income statement was a $725 thousand provision for credit losses in 2025 compared to a $114 thousand provision for credit losses in 2024. While the Bank’s historical loss rates have been very low, the increase in the provision was necessary to restore the allowance to a level consistent with the Bank’s methodology. This was accomplished by evaluating and adjusting, as necessary, certain qualitative and environmental factors.
Previous wording
Management believes that the $4.3 million reserve at December 31, 2024 is appropriate to adequately cover the expected losses inherent in the loan portfolio. The reserve remained unchanged at $4.3 million as of December 31, 2024. The Company’s loan portfolio grew by $59.7 million during the 2024. The allowance for credit losses as a percentage of gross loans was 0.72% and 0.81% as of December 31, 2024 and 2023, respectively.
Current wording
Management believes that the $4.4 million reserve at December 31, 2025 is appropriate to adequately cover the expected losses in the loan portfolio. The Company’s loan portfolio grew by $50.2 million during 2025. The allowance for credit losses as a percentage of gross loans was 0.68% and 0.72% as of December 31, 2025 and 2024, respectively.
Previous wording
Other real estate owned (“OREO”) at December 31, 2024 included one property with a carrying value of $1.2 million. The property is an apartment building in Baltimore, Maryland that was acquired in the Merger. The property is being marketed for sale.
Current wording
Other real estate owned (“OREO”) at December 31, 2025 included two properties with a carrying value of $1.7 million. One property is a strip center in Westminster, MD and the other is a vacant lot in Orrtanna, PA. The properties are being marketed for sale. At December 31, 2024, OREO included an apartment building located in Baltimore City, MD with a carrying value of $1.2 million, which was sold in 2025.
Previous wording
Investment securities decreased by $38.0 million, or 20.6%, to $146.2 million at December 31, 2024 from $184.2 million at December 31, 2023. The decrease was due primarily to the unwinding of an interest rate swap which included the sale of $28 million of mortgage backed securities and maturities of $1.5 million. At December 31, 2024 and 2023, the Company had classified 86% and 89%, respectively, of the investment portfolio as available for sale. The remaining balance of the portfolio was classified as held to maturity. Securities classified as available for sale are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions as part of the Company’s asset/liability management strategy. Available for sale securities are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income taxes. Securities classified as held to maturity, which management has both the positive intent and ability to hold to maturity, are reported at amortized cost. The Company does not currently follow a strategy of making security purchases with a view to near-term sales, and, therefore, does not own trading securities. The Company manages the investment portfolio within policies that seek to achieve desired levels of liquidity, manage interest rate sensitivity, meet earnings objectives, and provide required collateral for deposit and borrowing activities.
Current wording
Investments in debt securities decreased by $6.4 million, or 4.4%, to $139.8 million at December 31, 2025 from $146.2 million at December 31, 2024. The decrease was due primarily to maturities and repayments of mortgage-backed securities. At December 31, 2025 and 2024, the Company had classified 85% and 86%, respectively, of the investment portfolio as available for sale. The remaining balance of the portfolio was classified as held to maturity. Securities classified as available for sale are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions as part of the Company’s asset/liability management strategy. Available for sale securities are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income taxes. Securities classified as held to maturity, which management has both the positive intent and ability to hold to maturity, are reported at amortized cost. The Company does not currently follow a strategy of making security purchases with a view to near-term sales, and, therefore, does not own trading securities. The Company manages the investment portfolio within policies that seek to achieve desired levels of liquidity, manage interest rate sensitivity, meet earnings objectives, and provide required collateral for deposit and borrowing activities.
Previous wording
Total deposits were $758.8 million at December 31, 2024 compared to $681.0 million at December 31, 2023, an increase of $77.8 million, or 11.4%. The increase was due to a $108.6 million increase in certificates of deposit a $3.9 million increase in reciprocal deposits, and a $0.5 million increase in individual retirement accounts, offset by a $13.0 million decrease in checking accounts, a $6.9 million decrease in savings accounts, a $4.1 million decrease in money market accounts and an $8.1 million decrease in noninterest-bearing accounts.
Current wording
Total deposits were $720.5 million at December 31, 2025 compared to $758.8 million at December 31, 2024, a decrease of $38.3 million, or 5.1%. The decrease was due to an $88.5 million reduction in brokered CDs, and an $11.1 million decrease in savings accounts, offset by a $19.9 million increase in money market accounts, a $14.7 million increase in reciprocal deposits, a $12.5 million increase in checking accounts, a $10.3 million increase in noninterest-bearing accounts, and a $3.8 million increase in CDs and individual retirement accounts.
Previous wording
On September 30, 2020, Farmers and Merchants Bancshares, Inc. borrowed $17.0 million from First Horizon Bank to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger. Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The loan matures on September 30, 2025 and the Company is exploring refinancing options. The interest rate on the loan is fixed at 4.10%. The Company made quarterly interest-only payments through October 1, 2021. During the remaining term of the loan, the Company is required to make quarterly interest and principal payments of approximately $646.5 thousand, which is based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million will be due at maturity. To secure its obligations under this loan, the Company pledged all of its shares of common stock of the Bank to the lender.
Current wording
On September 30, 2020, Farmers and Merchants Bancshares, Inc. borrowed $17.0 million from First Horizon Bank to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger (the “Merger Loan”). Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The loan matured on September 30, 2025. The interest rate on the loan was fixed at 4.10%. The Company made quarterly interest-only payments through October 1, 2021. During the remaining term of the loan, the Company paid quarterly interest and principal payments of approximately $646.5 thousand, which was based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million was repaid at maturity using the proceeds of the September 2025 sale of the Subordinated Notes.
Previous wording
The Company reported net income of $4.3 million for the year ended December 31, 2024 compared to $6.4 million for the year ended December 31, 2023. The decrease of $2.1 million from 2023 was due to a decrease in net interest income of $0.6 million, an increase in the provision for credit losses of $0.7 million, and an increase in noninterest expense of $1.8 million offset by an increase in noninterest income of $0.2 million and a decrease in income taxes of $0.8 million.
Current wording
The Company reported net income of $5.8 million for the year ended December 31, 2025 compared to $4.3 million for the year ended December 31, 2024. The increase of $1.5 million from 2024 was due to an increase in net interest income of $3.6 million and an increase on non-interest income of $224 thousand. This was offset by an increase in the provision for credit losses of $548 thousand, an increase in noninterest expense of $1.4 million, and a $376 thousand increase in income taxes.
Previous wording
For the year ended December 31, 2024, the Company recorded net interest income of $20.8 million compared to $21.4 million for 2023, a decrease of $0.6 million. The decrease was attributable to a 102 basis point increase in the cost of interest bearing liabilities to 2.76% in 2024 from 1.74% in 2023. Higher interest expense on deposits and borrowings due to the Federal Reserve rate increases was the driving factor in the lower net interest income.
Current wording
For the year ended December 31, 2025, the Company recorded net interest income of $24.4 million compared to $20.8 million for 2024, an increase of $3.6 million. The increase was attributable to a 30 basis point increase in the yield on earning assets from 4.92% to 5.22% and a 6 basis point decrease in the cost of interest bearing liabilities to 2.70% in 2025 from 2.76% in 2024.
Previous wording
Total interest income for the year ended December 31, 2024 increased by $7.0 million to $38.4 million from $31.3 million for 2023. The increase was due primarily to an increase in average interest earning assets of $56.6 million to $784.6 million in 2024 from $728.0 million in 2023 and by an increase of 59 basis points in the yield on interest earning assets to 4.92% in 2024 from 4.33% in 2023.
Current wording
Total interest income for the year ended December 31, 2025 increased by $4.0 million to $42.4 million from $38.4 million for 2024. The increase was due primarily to an increase in average interest earning assets of $31.1 million to $815.7 million in 2025 from $784.6 million in 2024.
Previous wording
Interest income from loans was $30.3 million in 2024 compared to $25.7 in 2023, an increase of $4.6 million. This increase was attributable to a $29 million increase in the average balance of loans to $557.9 million in 2024 from $528.9 million 2023 and a 58 basis point increase in the average yield on loans to 5.44% in 2024 from 4.86% in 2023.
Current wording
Interest income from loans was $36.1 million in 2025 compared to $30.3 million in 2024, an increase of $5.8 million. This increase was attributable to a $59.4 million increase in the average balance of loans to $617.2 million in 2025 from $557.9 million 2024 and a 40 basis point increase in the average yield on loans to 5.84% in 2025 from 5.44% in 2024.
Previous wording
For the year ended December 31, 2024, the Company recorded interest income on securities of $6.8 million compared to $4.9 million for the same period in 2023. The $1.9 million increase in 2024 was attributable to a $19.1 million increase in the average balance of securities to $201.3 million in 2024 from $182.2 million in 2023 and a 71 basis point increase in the average yield on securities to 3.46% in 2024 from 2.75% in 2023.
Current wording
For the year ended December 31, 2025, the Company recorded interest income on securities of $4.8 million compared to $6.8 million for the same period in 2024. The $2.0 million decrease in 2025 was attributable to a $37.0 million decrease in the average balance of securities to $164.3 million in 2025 from $201.3 million in 2024 and a 48 basis point decrease in the average yield on securities to 2.98% in 2025 from 3.46% in 2024.
Previous wording
Interest income on federal funds sold and other interest-earning assets (FHLB stock and certificates of deposit) increased by $0.5 million to $1.2 million in 2024 compared to $0.7 million in 2023. The increase was due to a 39 basis point increase in the average yield to 5.05% in 2024 from 4.66% in 2023 and an $8.6 million increase in the average balance of federal funds sold and other interest-earning assets to $25.5 million in 2024 from $16.9 million in 2023.
Current wording
Interest income on federal funds sold and other interest-earning assets (FHLB stock and certificates of deposit) increased by $300 thousand to $1.5 million in 2025 compared to $1.2 million in 2024. The increase was due to an $8.6 million increase in the average balance of federal funds sold and other interest-earning assets to $34.1 million in 2025 from $25.5 million in 2024, offset by a 39 basis point decrease in the average yield to 4.66% in 2025 from 5.05% in 2024.
Previous wording
Total interest expense increased by $7.6 million to $17.5 million in 2024 compared to $9.9 million in 2023. The increase was due to a 102 basis point increase in the cost of interest-bearing liabilities to 2.76% in 2024 from 1.74% in 2023 and an increase of $64.2 in the average balance of interest-bearing liabilities to $634.6 million in 2024 from $570.4 million in 2023. The Federal Reserve rate increases were the primary cause of the significant increase in the cost of funds.
Current wording
Total interest expense increased by $438 thousand to $18.0 million in 2025 compared to $17.5 million in 2024. The increase was due to a $31.6 million increase in the average balance of interest-bearing liabilities to $666.2 million in 2025 from $634.6 million in 2024 offset by a 6 basis point decrease in the cost of interest-bearing liabilities to 2.70% in 2025 from 2.76% in 2024.
Previous wording
Interest paid on NOW, savings, and money market deposit accounts increased by $616.0 thousand to $2.0 million in 2024 compared to $1.4 million in 2023. The increase was due to a 28 basis point increase in the cost of funds to 0.74% in 2024 from 0.46% in 2023 offset by a $31.0 million decrease in the average balance of these deposits to $272.6 million in 2024 from $303.6 million in 2023.
Current wording
Interest paid on NOW, savings, and money market deposit accounts increased by $397 thousand to $2.4 million in 2025 compared to $2.0 million in 2024. The increase was due to a 16 basis point increase in the cost of funds to 0.90% in 2025 from 0.74% in 2024, offset by a $3.7 million decrease in the average balance of these deposits to $268.9 million in 2025 from $272.6 million in 2024.
Previous wording
Interest paid on time deposits increased by $5.9 million to $12.5 million in 2024 compared to $6.6 million in 2023. The increase was due to an increase of 131 basis points in the average rate paid to 4.32% in 2024 from 3.01% in 2023 and an increase of $71.0 million in the average balance to $289.7 million in 2024 from $218.7 million in 2023.
Current wording
Interest paid on time deposits increased by $1.5 million to $14.0 million in 2025 compared to $12.5 million in 2024. The increase was due to an increase of $69.6 million in the average balance to $359.3 million in 2025 from $289.7 million in 2024, offset by a decrease of 41 basis points in the average rate paid to 3.91% in 2025 from 4.32% in 2024.
Previous wording
Interest paid on securities sold under repurchase agreements increased by $23.5 thousand to $65.3 thousand in 2024 compared to $41.8 thousand in 2023. The increase was attributable to an increase of 36 basis points in the average rate paid to 1.26% in 2024 from 0.90% in 2023 and a $540.0 thousand increase in the average balance of securities sold under repurchase agreements to $5.2 million in 2024 from $4.7 million in 2023.
Current wording
Interest paid on securities sold under repurchase agreements decreased by $6 thousand to $59 thousand in 2025 compared to $65 thousand in 2024. The decrease was attributable to a $500 thousand decrease in the average balance of securities sold under repurchase agreements to $4.7 million in 2025 from $5.2 million in 2024.
Previous wording
Interest paid on long-term debt was $507.0 thousand in 2024 compared to $585.0 thousand in 2023. This debt relates to the $17 million term loan obtained on September 30, 2020 to finance a portion of the cash paid to the former stockholders of Carroll in the Merger. The average balance, net of issuance costs, decreased $2.1 million to $12.1 million in 2024 from $14.3 million in 2023 due to scheduled principal payments.
Current wording
Interest paid on long-term debt was $599 thousand in 2025 compared to $508 thousand in 2024. This debt relates to the $17 million Merger Loan, which was repaid on September 30, 2025, and the Subordinated Notes issued in September 2025. The average balance, net of issuance costs, decreased $1.1 million to $11.0 million in 2025 from $12.1 million in 2024 due to scheduled principal payments.
Previous wording
The FRB’s Bank Term Funding Program (“BTFP”) was initiated in March 2023. The Company utilized the BTFP with an average balance of $48.7 million and $15.5 million during 2024 and 2023, respectively and cost of 4.75% and 5.31% in 2024 and 2023, respectively. We recorded an associated interest expense of $2.3 million and $823.0 thousand in 2024 and 2023, respectively.
Current wording
The FRB’s Bank Term Funding Program (“BTFP”) was initiated in March 2023. The Company utilized the BTFP with an average balance of $0 and $48.7 million during 2025 and 2024, respectively and a cost of 0% and 4.75% in 2025 and 2024, respectively. We recorded an associated interest expense of $0 and $2.3 million in 2025 and 2024, respectively. The balance was fully repaid late in 2024.
Previous wording
Interest paid on FHLB advances decreased $363.2 thousand to $122.7 thousand in 2024 from $485.9 thousand in 2023. The change was attributable to a decrease of 161 basis points in the average rate paid to 1.96% in 2024 from 3.57% in 2023 and a $7.3 million decrease in the average balance of FHLB advances and other borrowings to $6.3 million in 2024 from $13.6 million in 2023.
Current wording
Interest paid on FHLB advances increased by $724 thousand to $847 thousand in 2025 from $123 thousand in 2024. The change was attributable to a $16.0 million increase in the average balance of FHLB advances to $22.3 million in 2025 from $6.3 million in 2024 and an increase in the average rate paid to 3.80% in 2025 from 1.96% in 2024.
Previous wording
Noninterest income was $1.7 million in 2024 compared to $1.6 million in 2023, an increase of $0.1 million. The increase was due primarily to an increase of $138.4 thousand on insurance proceeds from storm damage to the Bank’s Upperco, Maryland location, an increase in service charges on deposit accounts of $17.3 thousand, an increase in mortgage banking revenue of $10.8 thousand and an increase of $48.3 thousand in bank owned life insurance income, offset by a decrease in the fair value adjustment on an equity security of $9.8 thousand, a write down of the value of other real estate owned of $50.0 thousand, a loss on the sale of investment securities of $13.2 thousand, a loss on the sale of property and equipment of $5.2 thousand, a decrease in the gain on sale of SBA loans of $19.4 thousand, and a $6.3 thousand decrease in other fees and commissions.
Current wording
Noninterest income was $2.0 million in 2025 compared to $1.8 million in 2024, an increase of $200 thousand. The increase was due primarily to an increase of $89 thousand on the gain on SBA loans, a $94 thousand increase in the gain on the settlement of a fair value hedge, an increase of $49 thousand in mortgage banking income, and an increase in bank owned life insurance income of $30 thousand. This was offset by a decrease in insurance proceeds of $89 thousand, a decrease in service charges on deposit accounts of $117 thousand, and decreases in other fees and commissions.
Previous wording
Total noninterest expense increased by $1.8 million to $16.9 million in 2024 from $15.1 million in 2023. The increase was due primarily to an increase in salaries and benefits of $495.7 thousand due to additional lending staff being added during the year, and increase in occupancy costs of $195.7 thousand as a result of the opening of the Towson office in 2024, an increase on furniture and equipment costs of $309.6 due to the addition of the Towson office and purchases of computer equipment. Additionally, professional fees increased by $222.4 thousand due to consultant fees related to the Company’s core system conversion in 2024 and legal fees. ATM and debit card expenses increased by $138.5 thousand related to the core conversion in 2024, FDIC insurance premiums increased $52.2 thousand due to higher assessment rates, postage, delivery, and armored car services increased by $27.1 thousand. Gains on other real estate owned increased by $311.5 thousand. All of which were offset by decreased advertising and other expenses of $14.8 thousand.
Current wording
Total noninterest expense increased by $1.4 million to $18.3 million in 2025 from $16.9 million in 2024. The increase was due primarily to an increase in salaries and benefits of $677 thousand due to additional staff being added during the year, an increase in occupancy costs of $99 thousand as a result of increased rent and repairs costs, and an increase on furniture and equipment costs of $300 thousand due primarily to higher software maintenance costs. Professional fees decreased by $127 thousand due to the lower use of consultants. FDIC insurance premiums increased $187 thousand due to higher assessment rates. Losses on OREO increased by $101 thousand.
Previous wording
The Company’s effective tax rate decreased to 22.4% in 2024, from 23.9% in 2023. The decrease was due to a higher percentage of tax exempt revenue. Note 11 to the consolidated financial statements provides additional information about the Company’s taxes, including a reconciliation of the Company’s effective tax rate to the Federal statutory rate of 21%.
Current wording
The Company’s effective tax rate decreased to 21.8% in 2025, from 22.4% in 2024. The decrease was due to a higher percentage of tax exempt revenue and the reduction of a deferred tax liability. Note 11 to the consolidated financial statements provides additional information about the Company’s taxes, including a reconciliation of the Company’s effective tax rate to the Federal statutory rate of 21%.
Previous wording
The Bank is approved to borrow 75% of eligible pledged single-family residential loans and 50% of eligible pledged commercial loans as well as investment securities, or approximately $70.4 million under a secured line of credit with the FHLB. The Bank also has two facilities with the FRB. Under the first facility, which has been in place for over 10 years and is collateralized by loans, the Bank can borrow approximately $32.5 million. The second facility is the BTFP that the Federal Reserve previously created in 2023, but expired in 2024. The BTFP facility allowed securities to be pledged at par, provided fixed rates for up to one-year terms, and allowed prepayments in whole or in part at any time. Finally, the Bank has $23.5 million ($14.5 million unsecured and $9.0 million secured) of overnight federal funds lines of credit available from commercial banks.
Current wording
The Bank is approved to borrow 75% of eligible pledged single-family residential loans and 50% of eligible pledged commercial loans as well as investment securities, or approximately $86.3 million under a secured line of credit with the FHLB. The Bank also has a facility with the Federal Reserve Bank of Richmond (the “FRB”). Under the facility, which has been in place for over 10 years and is collateralized by loans, the Bank can borrow approximately $32.5 million. Finally, the Bank has $23.5 million ($14.5 million unsecured and $9.0 million secured) of overnight federal funds lines of credit available from commercial banks.
Previous wording
FHLB advances of $5.0 million were outstanding as of both December 31, 2024 and 2023. BTFP advances of $0.0 and $33.0 million were outstanding as of December 31, 2024 and 2023, respectively. The Company borrowed $17.0 million to facilitate the Merger in 2020. There were no borrowings from the FRB, other than the BTFP advances noted above, or from our commercial bank lenders at December 31, 2024 and 2023. Management believes that we have adequate liquidity sources to meet all anticipated liquidity needs over the next 12 months. Management knows of no trend or event which is likely to have a material impact on our ability to maintain liquidity at satisfactory levels. The Company’s uninsured deposits were approximately $477.1 thousand as of December 31, 2024.
Current wording
FHLB advances of $62.7 million and $5.0 million were outstanding as of December 31, 2025 and 2024, respectively. In 2020 the Company borrowed $17.0 million to facilitate the Merger in 2020 which was repaid in September 2025. On September 25, 2025, the Company issued $12.5 million in Subordinated Notes. There were no borrowings from the FRB or from our commercial bank lenders at December 31, 2025 and 2024. Management believes that we have adequate liquidity sources to meet all anticipated liquidity needs over the next 12 months. Management knows of no trend or event which is likely to have a material impact on our ability to maintain liquidity at satisfactory levels. Deposits in excess of $250 thousand were $199.8 million as of December 31, 2025. The bank offers programs to its depositors which provide insurance above the FDIC’s $250 thousand threshold.
Previous wording
Cash provided by operating activities decreased by $3.6 million to $2.3 million in 2024 from $6.2 million in 2023. Cash used in investing activities decreased by $19.7 million to $22.7 million in 2024 from $42.4 in 2023 due primarily to a $5.1 million increase in the net cash inflow from the debt securities portfolio, $23.9 million provided by the sale of a security, and a decrease in the purchases of securities of $45.9 million offset by a $54.1 million increase in the net cash outflow from the loan portfolio. Cash provided by financing activities decreased by $33.5 million to $40.4 million in 2024 from $73.9 million in 2023 due primarily to a $2.8 million decrease in repurchase agreement activity and a $66.0 million decrease in the net cash inflow from FRB advances. These were offset by a $20.4 million increase in the net cash inflow from deposits $15.0 million a increase in the net cash outflow from Federal Home Loan Bank of Atlanta advances.
Current wording
Cash provided by operating activities increased by $3.7 million to $6.1 million in 2025 from $2.3 million in 2024. Cash used in investing activities increased by $18.8 million to $41.5 million in 2025 from $22.7 in 2024 due primarily to a $4.8 million decrease in the net cash inflow from the debt securities portfolio, a decrease of $23.9 million in cash provided by the sale of a security, and an increase in the purchases of FHLB stock of $2.7 million offset by a $7.4 million decrease in the net cash outflow from the loan portfolio and an increase in the proceeds from the sale of OREO property of $906 thousand. Cash provided by financing activities decreased by $22.9 million to $17.5 million in 2025 from $40.4 million in 2024 due primarily to a $33.0 million decrease in cashflow from FRB advances and a decrease in interest bearing deposits of $48.2 million, of which $40.9 million were brokered CDs. These were offset by a $57.7 million increase in the net cash inflow from FHLB advances, $12.0 million in net cash flow from the issuance of Subordinated Notes, and an increase in cash flow from non-interest bearing deposits of $9.9 million.
Previous wording
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
Current wording
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. These requirements are discussed in Item 1 of Part I of this Annual Report under the heading, “Supervision and Regulation–* Capital Requirements*”.
Previous wording
On April 6, 2020, in a joint statement, the FDIC, Federal Reserve and the Office of Comptroller of the Currency, issued two interim final rules regarding temporary changes to the CBLR framework to implement provisions of the CARES Act. Under the interim final rules, the community bank leverage ratio was reduced to 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 8%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The Company has not opted-in to the CBLR framework.
Current wording
On April 6, 2020, in a joint statement, the FDIC, Federal Reserve and the Office of Comptroller of the Currency, issued two interim final rules regarding temporary changes to the CBLR framework to implement provisions of the CARES Act. Under the interim final rules, the community bank leverage ratio was reduced to 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The Company has not opted-in to the CBLR framework.
Previous wording
The following table presents actual and required capital ratios as of December 31, 2024 and 2023, for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2024 and 2023, based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
Current wording
The following table presents actual and required capital ratios as of December 31, 2025 and 2024, for the Bank under the applicable capital regulations. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2025 and 2024. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
At December 31, 2023, the Company had one non-accrual commercial real estate loan totaling $502.9 thousand and one non-accrual commercial loan totaling $152.4 thousand. The commercial loan was secured by business assets and a personal guaranty. Gross interest income of $45.9 thousand would have been recorded in 2023 if these non-accrual loans had been current and performing in accordance with the original terms. The Company allocated $450.0 thousand of its allowance for credit losses to these non-accrual loans.