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

2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

	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

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,	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

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

4

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended March 31,	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

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, 2019 and 2018

(Unaudited except for year-end amounts)

					Additional					Accumulated other			Total
	Common stock				paid-in		Retained			comprehensive			stockholders'
	Shares		Par value		capital		earnings			income			equity
Balance, December 31, 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

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,	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

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

7

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,	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

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 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.

9

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Basis of Presentation (continued)

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. 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.

10

Farmers and Merchants Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Investment Securities

Investments in debt securities are summarized as follows:

	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	1,130,283	$	8,235	$	5,228	$	1,133,290
SBA pools		2,658,758		-		54,648		2,604,110
Mortgage-backed securities		27,184,473		102,422		422,524		26,864,371
	$	30,973,514	$	110,657	$	482,400	$	30,601,771
Held to maturity
State and municipal	$	18,065,993	$	220,230	$	50,038	$	18,236,185

	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	cost		gains		losses		value
Available for sale
State and municipal	$	1,506,011	$	11,161	$	10,667	$	1,506,505
SBA pools		2,779,411		-		60,039		2,719,372
Mortgage-backed securities		23,090,618		33,594		758,098		22,366,114
	$	27,376,040	$	44,755	$	828,804	$	26,591,991
Held to maturity
State and municipal	$	18,127,067	$	115,220	$	209,194	$	18,033,093

11

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Investment Securities (continued)

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

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
March 31, 2019	cost		value		cost		value
Within one year	$	-	$	-	$	804,270	$	805,908
Over one to five years		259,981		254,753		589,690		597,571
Over five to ten years		870,302		878,537		1,859,628		1,900,827
Over ten years		-		-		14,812,405		14,931,879
		1,130,283		1,133,290		18,065,993		18,236,185
Mortgage-backed securities and SBA pools, due in monthly installments		29,843,231		29,468,481		-		-
	$	30,973,514	$	30,601,771	$	18,065,993	$	18,236,185
December 31, 2018
Within one year	$	375,000	$	375,653	$	1,009,284	$	1,011,165
Over one to five years		260,587		249,920		590,522		598,528
Over five to ten years		870,424		880,932		1,858,695		1,876,364
Over ten years		-		-		14,668,566		14,547,036
		1,506,011		1,506,505		18,127,067		18,033,093
Mortgage-backed securities and SBA pools, due in monthly installments		25,870,029		25,085,486		-		-
	$	27,376,040	$	26,591,991	$	18,127,067	$	18,033,093

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.

12

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.

March 31, 2019	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	$	-	$	-	$	3,092,607	$	55,266	$	3,092,607	$	55,266
SBA pools		-		-		2,604,110		54,648		2,604,110		54,648
Mortgage-backed securities		-		-		17,414,593		422,524		17,414,593		422,524
Total	$	-	$	-	$	23,111,310	$	532,438	$	23,111,310	$	532,438

December 31, 2018	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	3,435,052	$	42,080	$	3,740,467	$	177,781	$	7,175,519	$	219,861
SBA pools		443,288		6,707		2,276,084		53,332		2,719,372		60,039
Mortgage-backed securities		596,002		6,631		17,770,790		751,467		18,366,792		758,098
Total	$	4,474,342	$	55,418	$	23,787,341	$	982,580	$	28,261,683	$	1,037,998

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.

13

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. Loans

Major categories of loans are as follows:

	March 31,		December 31,
	2019		2018
Real estate:
Commercial	$	236,794,302	$	238,834,149
Construction and land development		15,914,131		18,265,505
Residential		63,019,749		63,024,106
Commercial		22,095,306		23,323,073
Consumer		367,293		494,009
		338,190,781		343,940,842
Less: Allowance for loan losses		2,529,209		2,509,334
Deferred origination fees net of costs		519,193		530,873
	$	335,142,379	$	340,900,635

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

	March 31,		December 31,
	2019		2018
Commercial real estate	$	988,811	$	988,811

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.

14

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:

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2019
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	235,805,491	$	236,794,302	$	-
Construction and land development		-		-		-		-		15,914,131		15,914,131		-
Residential		274,110		-		-		274,110		62,745,639		63,019,749		-
Commercial		-		-		-		-		22,095,306		22,095,306		-
Consumer		-		-		-		-		367,293		367,293		-
Total	$	274,110	$	-	$	988,811	$	1,262,921	$	336,927,860	$	338,190,781	$	-
December 31, 2018
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	237,845,338	$	238,834,149	$	-
Construction and land development		-		-		-		-		18,265,505		18,265,505		-
Residential		-		-		10,507		10,507		63,013,599		63,024,106		10,507
Commercial		-		25,000		-		25,000		23,298,073		23,323,073		-
Consumer		-		-		-		-		494,009		494,009		-
Total	$	-	$	25,000	$	999,318	$	1,024,318	$	342,916,524	$	343,940,842	$	10,507

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:

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded		Interest
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
March 31, 2019
Real estate:
Commercial real estate	$	3,800,855	$	3,110,855	$	-	$	3,110,855	$	-	$	3,144,118	$	26,589
Residential real estate		52,938		52,938		-		52,938		-		26,469		724
	$	3,853,793	$	3,163,793	$	-	$	3,163,793	$	-	$	3,170,587	$	27,313
December 31, 2018
Commercial real estate	$	3,867,381	$	3,177,381	$	-	$	3,177,381	$	-	$	4,180,282	$	120,193

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.

15

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.

16

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:

			Above						Pass		Special
March 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,491,312	$	97,290,160	$	104,534,189	$	22,775,714	$	-	$	8,702,927	$	-	$	236,794,302
Construction and land development		-		-		5,865,774		7,733,236		2,315,121		-		-		-		15,914,131
Residential		20,490		1,416,824		24,815,266		28,517,090		5,653,182		-		2,596,897		-		63,019,749
Commercial		912,227		22,200		9,998,931		8,135,261		3,026,687		-		-		-		22,095,306
Consumer		12,944		108,534		159,671		60,543		-		-		5,188		20,413		367,293
	$	945,661	$	5,038,870	$	138,129,802	$	148,980,319	$	33,770,704	$	-	$	11,305,012	$	20,413	$	338,190,781

			Above						Pass		Special
December 31, 2018	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,632,231	$	101,633,803	$	104,454,812	$	20,356,642	$	-	$	8,756,661	$	-	$	238,834,149
Construction and land development		-		-		8,190,212		7,871,642		2,203,651		-		-		-		18,265,505
Residential		35,926		1,178,899		26,856,131		30,169,305		2,093,825		-		2,690,020		-		63,024,106
Commercial		977,054		24,180		12,373,503		7,130,122		2,818,214		-		-		-		23,323,073
Consumer		3,668		80,670		266,704		63,160		-		-		1,340		78,467		494,009
	$	1,016,648	$	4,915,980	$	149,320,353	$	149,689,041	$	27,472,332	$	-	$	11,448,021	$	78,467	$	343,940,842

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.

17

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.

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

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
March 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	62,323		$	-		$	2,000	$	1,931,720	$	28,577	$	1,903,143	$	4,396,741	$	232,971,398
Construction and land development		223,274		16,225			(10,622	)		-		228,877		-		228,877		-		19,247,095
Residential		247,953		(722	)		-			-		247,231		-		247,231		-		59,083,653
Commercial		87,353		(2,648	)		-			1,666		86,371		-		86,371		-		23,996,157
Consumer		7,027		729			-			-		7,756		-		7,756		-		520,768
Unallocated		25,907		(25,907	)		-			-		-		-		-		-		-
	$	2,458,911	$	50,000		$	(10,622	)	$	3,666	$	2,501,955	$	28,577	$	2,473,378	$	4,396,741	$	335,819,071

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
December 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	372,315		$	(690,000	)	$	204,660	$	1,754,372	$	-	$	1,754,372	$	3,177,381	$	235,656,768
Construction and land development		223,274		(78,496	)		(12,115	)		63,711		196,374		-		196,374		-		18,265,505
Residential		247,953		153,673			-			-		401,626		-		401,626		-		63,024,106
Commercial		87,353		6,090			-			9,167		102,610		-		102,610		-		23,323,073
Consumer		7,027		3,401			-			-		10,428		-		10,428		-		494,009
Unallocated		25,907		18,017			-			-		43,924		-		43,924		-		-
	$	2,458,911	$	475,000		$	(702,115	)	$	277,538	$	2,509,334	$	-	$	2,509,334	$	3,177,381	$	340,763,461

18

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

5. Lease Commitments

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

The following table shows operating lease right of use assets and operating lease liabilities as of March 31, 2019:

	Consolidated Balance
	Sheet classification	March 31, 2019
Operating lease right of use asset	Other assets	$	1,366,490
Operating lease liabilities	Other liabilities	$	1,503,737

Operating lease cost included in occupancy expense in the statement of income for the three months ended March 31, 2019 was $47,807.

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

Year	Amount
2019	$	103,387
2020		141,680
2021		146,120
2022		150,707
2023		155,447
Thereafter		911,769
Total lease payments		1,609,110
Less imputed interest		(105,373	)
Present value of operating lease liabilities	$	1,503,737

For operating leases as of March 31, 2019, the weighted average remaining lease term is 10.1 years and the weighted average discount rate is 3.35%. During the three months ended March 31, 2019, cash paid for amounts included in the measurement of lease liabilities was $36,724

6. Capital Standards

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, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).

19

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Capital Standards (continued)

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

Under the revised prompt corrective action requirements, as of January 1, 2015, insured depository institutions are required to meet the following in order to qualify as “well capitalized”: (i) a common equity Tier 1 risk-based capital ratio of 6.5%; (ii) a Tier 1 risk-based capital ratio of 8%; (iii) a total risk-based capital ratio of 10%; and (iv) a Tier 1 leverage ratio of 5%. As of March 31, 2019, the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

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

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

The table below presents actual and required capital ratios as of March 31, 2019 and December 31, 2018, for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2019 and December 31, 2018 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.

20

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Capital Standards (continued)

Capital ratios of the Company are substantially the same as the Bank’s.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	48,615		13.79	%	$	37,022		10.50	%	$	35,259		10.00	%
Tier 1 capital (to risk-weighted assets)		46,086		13.07	%		29,970		8.50	%		28,207		8.00	%
Common equity tier 1 (to risk- weighted assets)		46,086		13.07	%		24,681		7.00	%		22,918		6.50	%
Tier 1 leverage (to average assets)		46,086		10.97	%		16,812		4.00	%		21,015		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	47,857		13.50	%	$	34,996		9.88	%	$	35,439		10.00	%
Tier 1 capital (to risk-weighted assets)		45,348		12.80	%		27,908		7.88	%		28,351		8.00	%
Common equity tier 1 (to risk- weighted assets)		45,348		12.80	%		22,593		6.38	%		23,036		6.50	%
Tier 1 leverage (to average assets)		45,348		10.86	%		16,698		4.00	%		20,872		5.00	%

As of March 31, 2019, the most recent notification from the Federal Deposit Insurance Corporation (the “FDIC”), the Bank’s primary federal regulator, has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain ratios as set forth in the table. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

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

7. Fair Value

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

The standards require the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

21

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. The standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

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

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

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

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

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

● Equity security at fair value: The Company’s investment in an equity mutual fund is valued based on the net asset value of the fund, which is classified as Level 1.

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

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

22

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

The following table summarizes financial assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2019 and December 31, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	1,133,290	$	-	$	1,133,290
SBA pools		-		2,604,110		-		2,604,110
Mortgage-backed securities		-		26,864,371		-		26,864,371
	$	-	$	30,601,771	$	-	$	30,601,771
Equity security at fair value
Mutual fund	$	514,717	$	-	$	-	$	514,717
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,163,793		3,163,793
December 31, 2018
Recurring
Available for sale securities
State and municipal	$	-	$	1,506,505	$	-	$	1,506,505
SBA pools		-		2,719,372		-		2,719,372
Mortgage-backed securities		-		22,366,114		-		22,366,114
	$	-	$	26,591,991	$	-	$	26,591,991
Equity security at fair value
Mutual fund	$	503,827	$	-	$	-	$	503,827
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,177,381		3,177,381

23

Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Fair Value (continued)

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

	March 31, 2019				December 31, 2018
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	18,065,993	$	18,236,185	$	18,127,067	$	18,033,093
Mortgage loans held for sale		417,465		426,075		573,638		582,248
Federal Home Loan Bank stock		503,700		503,700		575,800		575,800
Level 3 inputs
Loans, net		335,142,379		331,705,398		340,900,635		337,385,842
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	60,431,904	$	60,431,904	$	62,717,520	$	62,717,520
Securities sold under repurchase agreements		9,132,795		9,132,795		11,012,000		11,012,000
Level 2 inputs
Interest-bearing deposits		304,755,581		297,345,581		291,995,483		281,761,483
Federal Home Loan Bank advances		3,000,000		2,983,000		3,000,000		2,971,000

The fair value of mortgage loans held for sale is determined by the expected sales price. The fair value of loans were determined using an exit price methodology as prescribed by ASU 2016-01. The exit price estimation of fair value is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital (Level 3). In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. 

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

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

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Farmers and Merchants Bancshares, Inc. and Subsidiaries 

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

8. Earnings per Share

Basic earnings per share is determined by dividing net income available to stockholders by the weighted-average number of shares of common stock outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents, giving retroactive effect to stock dividends declared during the period. Diluted earnings per share is determined in the same manner, except that the weighted-average number of shares of common stock outstanding is adjusted for the dilutive effect of outstanding common stock equivalents. The following table sets forth the calculation of basic and diluted earnings per share for the three-month periods ended March 31, 2019 and 2018. There were no common stock equivalents outstanding at March 31, 2019 or 2018.

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Net income	$	1,096,287	$	1,122,118
Weighted average shares outstanding		1,682,997		1,667,833
Earnings per share - basic and diluted	$	0.65	$	0.67

9. Retirement Plans

The Company has a profit sharing plan qualifying under Section 401(k) of the Internal Revenue Code. All employees age 21 or more with six months of service are eligible for participation in the plan. The Company matches employee contributions up to 4% of total compensation and may make additional discretionary contributions. Employee and employer contributions are 100% vested when made. The Company’s contributions to this plan were $61,817 and $48,654 for the three months ended March 31, 2019 and 2018, respectively.

The Company has entered into agreements with 12 employees to provide certain life insurance benefits payable in connection with policies of life insurance on those employees that are owned by the Company. Each of the agreements provides for the amount of death insurance benefits to be paid to beneficiaries of the insured. For this plan, the Company expensed $1,468 and $1,418 for the three months ended March 31, 2019 and 2018, respectively.

The Company adopted supplemental executive retirement plans for three of its executives. The plans provide cash compensation to the executive officers under certain circumstances, including a separation of service. The benefits vest over the period from adoption to a specified age for each executive. The Company recorded expenses, including interest, of $30,600 and $60,000 for the three months ended March 31, 2019 and 2018, respectively, for these plans.

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

10. Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements were issued. No significant subsequent events were identified which would affect the presentation of the financial statements.

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

Introduction

The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of Farmers and Merchants Bancshares, Inc. and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, and with the audited consolidated financial statements and other statistical information contained in the Annual Report of Farmers and Merchants Bancshares, Inc. on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”). References in this report to “us”, “we”, “our”, and “the Company” are to Farmers and Merchants Bancshares, Inc. and, unless the context clearly suggests otherwise, its consolidated subsidiaries.

Forward-Looking Statements

This report may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of “forward-looking statements.” Statements that are not historical in nature, including those that include the words “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of our loan and investment portfolios; our ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on our business or operations. These and other risks are discussed in detail in the registration statements and periodic reports that Farmers and Merchants Bancshares, Inc. files with the Securities and Exchange Commission (the “SEC”) (see Item 1A of Part II of this report for further information). Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

Farmers and Merchants Bancshares, Inc.

Farmers and Merchants Bancshares, Inc. is a Maryland corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended. The Company was incorporated on August 8, 2016 for the purpose of becoming the holding company of Farmers and Merchants Bank (the “Bank”) in a share exchange transaction that was intended to constitute a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended (the “Reorganization”). The Reorganization was consummated on November 1, 2016, at which time the Bank became a wholly-owned subsidiary of the Company and all of the Bank’s stockholders became stockholders of the Company by virtue of the conversion of their shares of common stock of the Bank into an equal number of shares of common stock of the Company.

The Company’s primary business activities are serving as the parent company of the Bank and holding a series investment in First Community Bankers Insurance Co., LLC, a Tennessee “series” limited liability company and licensed protected cell captive insurance company (“FCBI”). The Company owns 100% of one series of membership interests issued by FCBI, which series is deemed a “protected cell” under Tennessee law and has been designated “Series Protected Cell FCB-4” (such series investment is hereinafter referred to as the “Insurance Subsidiary”).

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The Bank is a Maryland commercial bank chartered on October 24, 1919 that is engaged in a general commercial and retail banking business. The Bank has had one inactive subsidiary, Reliable Community Financial Services, Inc., a Maryland corporation that was incorporated in April 1992 to facilitate the sale of fixed rate annuity products and later positioned to sell a full array of investment and insurance products.

The Insurance Subsidiary represents one protected cell of a protected cell captive insurance company (FCBI) that was formed on November 9, 2016 to better manage our risk programs, provide insurance efficiencies, and add operating income by both keeping insurance premiums paid with respect to such risks within our affiliated group of entities and realizing certain tax benefits that are unique to captive insurance companies. The Company’s investment in the Insurance Subsidiary represents one series of membership interests in FCBI. As a “series” limited liability company, FCBI is authorized by state law and its governing instruments to issue one or more series of membership interests, each of which, for all purposes under state law, is deemed to be a legal entity separate and apart from FCBI and its other series.

The Company maintains an Internet site at www.fmb1919.com on which it makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.

Estimates and Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. (See Note 1 of the Notes to the audited consolidated financial statements as of and for the year ended December 31, 2018, which were included in Item 8 of Part II of the Form 10-K. On an on-going basis, management evaluates estimates, including those related to loan losses and intangible assets, other-than-temporary impairment (“OTTI”) of investment securities, income taxes, and fair value of investments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet.

Management does not believe that any material changes in our critical accounting policies have occurred since December 31, 2018.

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Financial Condition

Total assets increased by $11,325,855 or 2.7% during the first quarter of 2019 to $428,483,732 at March 31, 2019 from $417,157,877 at December 31, 2018. The increase in total assets was due primarily to increases of $12,194,944 in cash and cash equivalents and $4,009,780 in securities available for sale, offset by a decrease of $5,758,256 in loans.

Total liabilities increased $10,022,165 or 2.7% during the first quarter of 2019 to $381,785,335 at March 31, 2019 from $371,763,170 at December 31, 2018. The increase was due primarily to increases of $10,474,482 in deposits and $1,388,171 in other liabilities, offset by a reduction of $1,879,205 in securities sold under repurchase agreements.

Stockholders’ equity increased by $1,303,690 during the first quarter of 2019 to $46,698,397 at March 31, 2019 from $45,394,707 at December 31, 2018. The increase was due primarily to net income for the period of $1,096,287 and an increase of $298,850 in accumulated other comprehensive income.

Loans

Major categories of loans at March 31, 2019 and December 31, 2018 are as follows:

	March 31,				December 31,
	2019				2018
Real estate:
Commercial	$	236,794,302	70	%	$	238,834,149	70	%
Construction/Land development		15,914,131	5	%		18,265,505	5	%
Residential		63,019,749	19	%		63,024,106	18	%
Commercial		22,095,306	6	%		23,323,073	7	%
Consumer		367,293	0	%		494,009	0	%
		338,190,781	100	%		343,940,842	100	%
Less: Allowance for loan losses		2,529,209				2,509,334
Deferred origination fees net of costs		519,193				530,873
	$	335,142,379			$	340,900,635

Loans decreased by $5,738,256 or 1.7% to $335,142,379 at March 31, 2019 from $340,900,635 at December 31, 2018. The decline was due primarily to a $2,039,847 decrease in commercial real estate loans, a $2,351,374 decrease in construction/land development loans, and a $1,227,767 decrease in commercial loans. The allowance for loan losses increased $19,875 to $2,529,209 at March 31, 2019 when compared to the $2,509,334 recorded at December 31, 2018.

The Company has adopted policies and procedures that seek to mitigate credit risk and to maintain the quality of the loan portfolio. These policies include underwriting standards for new credits as well as the continuous monitoring and reporting of asset quality and the adequacy of the allowance for loan losses. These policies, coupled with continuous training efforts, have provided effective checks and balances for the risk associated with the lending process. Lending authority is based on the level of risk, size of the loan, and the experience of the lending officer. The Company’s policy is to make the majority of its loan commitments in the market area it serves. Management believes that this tends to reduce risk because management is familiar with the credit histories of loan applicants and has in-depth knowledge of the risk to which a given credit is subject. Although the loan portfolio is diversified, its performance will be influenced by the economy of the region.

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An age analysis of past due loans, segregated by class of loans, as of March 31, 2019 and December 31, 2018, is as follows:

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or more		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2019
Real estate:
Commerical	$	-	$	-	$	988,811	$	988,811	$	235,805,491	$	236,794,302	$	-
Construction/Land development		-		-		-		-		15,914,131		15,914,131		-
Residential		274,110		-		-		274,110		62,745,639		63,019,749
Commercial		-		-		-		-		22,095,306		22,095,306		-
Consumer		-		-		-		-		367,293		367,293		-
Total	$	274,110	$	-	$	988,811	$	1,262,921	$	336,927,860	$	338,190,781	$	-

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or more		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
December 31, 2018
Real estate:
Commerical	$	-	$	-	$	988,811	$	988,811	$	237,845,338	$	238,834,149	$	-
Construction/Land development		-		-		-		-		18,265,505		18,265,505		-
Residential		-		-		10,507		10,507		63,013,599		63,024,106		10,507
Commercial		-		25,000		-		25,000		23,298,073		23,323,073		-
Consumer		-		-		-		-		494,009		494,009		-
Total	$	-	$	25,000	$	999,318	$	1,024,318	$	342,916,524	$	343,940,842	$	10,507

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

Non-accrual loans as of March 31, 2019 and December 31, 2018, segregated by class of loans, were as follows:

	March 31,		December 31,
	2019		2018
Commercial real estate	$	988,811	$	988,811

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.

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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.

At March 31, 2019, the Company had no loans that were delinquent 90 days or greater other than the nonaccrual loans discussed above.

Impaired loans as of March 31, 2019 and December 31, 2018 are set forth in the following table:

	March 31,		December 31,
	2019		2018
Impaired loans no valuation allowance	$	3,163,793	$	3,177,381
Impaired loans with a valuation allowance		-		-
Total impaired loans	$	3,163,793	$	3,177,381

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.

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.

	March 31,		December 31,
	2019		2018
Restructured loans (TDRs):
Performing as agreed	$	2,174,982	$	2,188,570
Not performing as agreed		-		-
Total TDRs	$	2,174,982	$	2,188,570

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

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

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

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.

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

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													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
March 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	62,323		$	-		$	2,000	$	1,931,720	$	28,577	$	1,903,143	$	4,396,741	$	232,971,398
Construction and land development		223,274		16,225			(10,622	)		-		228,877		-		228,877		-		19,247,095
Residential		247,953		(722	)		-			-		247,231		-		247,231		-		59,083,653
Commercial		87,353		(2,648	)		-			1,666		86,371		-		86,371		-		23,996,157
Consumer		7,027		729			-			-		7,756		-		7,756		-		520,768
Unallocated		25,907		(25,907	)		-			-		-		-		-		-		-
	$	2,458,911	$	50,000		$	(10,622	)	$	3,666	$	2,501,955	$	28,577	$	2,473,378	$	4,396,741	$	335,819,071

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
December 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	372,315		$	(690,000	)	$	204,660	$	1,754,372	$	-	$	1,754,372	$	3,177,381	$	235,656,768
Construction and land development		223,274		(78,496	)		(12,115	)		63,711		196,374		-		196,374		-		18,265,505
Residential		247,953		153,673			-			-		401,626		-		401,626		-		63,024,106
Commercial		87,353		6,090			-			9,167		102,610		-		102,610		-		23,323,073
Consumer		7,027		3,401			-			-		10,428		-		10,428		-		494,009
Unallocated		25,907		18,017			-			-		43,924		-		43,924		-		-
	$	2,458,911	$	475,000		$	(702,115	)	$	277,538	$	2,509,334	$	-	$	2,509,334	$	3,177,381	$	340,763,461

The provision for loan losses was $13,000 for the three months ended March 31, 2019 and $50,000 for the three months ended March 31, 2018.

During the three months ended March 31, 2019, the Company had no loan charge-offs and had recoveries of $6,875 from loans written off in prior periods. During the three months ended March 31, 2018, the Company had loan charge-offs of $10,622 and had recoveries of $3,666 from loans written off in prior periods.

As of March 31, 2019, the Company had $8,141,218 of loans on a watch list, other than impaired loans, for which management believes the borrowers have the potential for experiencing financial difficulties. As of December 31, 2018, the Company had $8,270,641 of such loans. These loans are subject to ongoing management attention and their classifications are reviewed regularly.

Investment Securities

Investments in debt securities increased $3,948,706 or 8.8% to $48,667,764 at March 31, 2019 from $44,719,058 at December 31, 2018. At March 31, 2019 and December 31, 2018, the Company had classified 63% and 59%, respectively, of the investment portfolio as available for sale. The balance of the portfolio was classified as held to maturity.

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Securities classified as available for sale are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions as part of the Company’s asset/liability management strategy. Available for sale debt securities are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income taxes. Securities classified as held to maturity, which management has both the positive intent and ability to hold to maturity, are reported at amortized cost. Effective January 1, 2018, the Company began recording unrealized gains and losses on equity securities in earnings. The Company does not currently follow a strategy of making security purchases with a view to near-term sales, and, therefore, does not own trading securities. The Company manages the investment portfolio within policies that seek to achieve desired levels of liquidity, manage interest rate sensitivity, meet earnings objectives, and provide required collateral for deposit and borrowing activities.

The following table sets forth the carrying value of investments in debt securities at March 31, 2019 and December 31, 2018:

	March 31,		December 31,
	2019		2018
Available for sale
State and municipal	$	1,133,290	$	1,506,505
SBA pools		2,604,110		2,719,372
Mortgage-backed securities		26,864,371		22,366,114
	$	30,601,771	$	26,591,991
Held to maturity
State and municipal	$	18,065,993	$	18,127,067

The following table sets forth the scheduled maturities of investments in debt securities at March 31, 2019:

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	-	$	-	$	804,270	$	805,908
Over 1 to 5 years		259,981		254,753		589,690		597,571
Over 5 to 10 years		870,302		878,357		1,859,628		1,900,827
Over 10 years		-		-		14,812,405		14,931,879
		1,130,283		1,133,110		18,065,993		18,236,185
SBA Pools		2,658,758		2,604,110		-		-
Mortgage-backed securities		27,184,473		26,864,371		-		-
	$	30,973,514	$	30,601,591	$	18,065,993	$	18,236,185

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

Other Real Estate Owned

Other real estate owned at March 31, 2019 and December 31, 2018 included one property with a carrying value of $210,150. The property is land in Cecil County, Maryland and was acquired through foreclosure in 2007. The property consists of 10.43 acres and is under contract to sell.

33

Deposits

Total deposits increased by $10,474,482 or 3.0% during the first quarter of 2019 to $365,187,485 at March 31, 2019 from $354,713,003 at December 31, 2018. The increase in deposits was due to a $2,326,590 increase in money market accounts, a $1,222,718 increase in savings accounts, and a $10,653,054 increase in time deposits, offset by a $1,442,264 decrease in interest bearing checking accounts and a $2,285,616 decrease in noninterest-bearing accounts.

The following table shows the average balances and average costs of deposits for the three months ended March 31, 2019 and 2018:

	March 31, 2019					March 31, 2018
	Average					Average
	Balance		Cost			Balance		Cost
Noninterest bearing demand deposits	$	58,107,801		0.00	%	$	60,862,946		0.00	%
Interest bearing demand deposits		53,649,964		0.32	%		43,214,553		0.11	%
Savings and money market deposits		100,148,340		0.30	%		95,944,064		0.22	%
Time deposits		143,504,411		1.83	%		123,292,532		1.20	%
	$	355,410,516		0.87	%	$	323,314,095		0.54	%

Liquidity Management

Liquidity describes our ability to meet financial obligations that arise out of the ordinary course of business. Liquidity is primarily needed to meet depositor withdrawal requirements, to fund loans, and to fund our other debts and obligations as they come due in the normal course of business. We maintain our asset liquidity position internally through short-term investments, the maturity distribution of the investment portfolio, loan repayments, and income from earning assets. On the liability side of the balance sheet, liquidity is affected by the timing of maturing liabilities and the ability to generate new deposits or borrowings as needed. The Bank is approved to borrow 75% of eligible pledged single family residential loans and 50% of eligible pledged commercial loans as well as investment securities, or approximately $51.2 million under a secured line of credit with the FHLB. The Bank also has a facility with the Federal Reserve Bank of Richmond (the “Reserve Bank”) under which the Bank can borrow approximately $29.1 million. Finally, the Bank has an $18,500,000 ($9,500,000 unsecured and $9,000,000 secured) overnight federal funds line of credit available from commercial banks. FHLB advances of $3,000,000 were outstanding as of March 31, 2019 and December 31, 2018. There were no borrowings from the Reserve Bank or our commercial bank lender at March 31, 2019 and December 31, 2018. 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.

Borrowings and Other Contractual Obligations

The Company’s contractual obligations consist primarily of borrowings and operating leases for various facilities.

Securities sold under agreements to repurchase represent overnight borrowings from customers. Securities owned by the Company which are used as collateral for these borrowings are primarily U.S. government agency securities.

34

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

		March 31,			December 31,
		2019			2018
Amount oustanding at period-end:
Securities sold under repurchase agreements		$	9,132,795		$	11,012,000
Federal Home Loan Bank advances			3,000,000			3,000,000
Federal Home Loan Bank advances mature in:
	2019		3,000,000			3,000,000
Weighted average rate paid at period-end:
Securites sold under repurchase agreements			1.16	%		1.07	%
Federal Home Loan Bank advances			1.50	%		1.50	%

Capital Resources and Adequacy

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

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).

Additional information regarding the capital requirements that apply to us can be found in Item 1 of Part I of the Form 10-K under the heading, “Supervision and Regulation – Capital Requirements”.

35

The following table presents actual and required capital ratios as of March 31, 2019 and December 31, 2018 for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2019 and December 31, 2018, based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phased In Schedule					Capitalized
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	48,615		13.79	%	$	37,022		10.50	%	$	35,259		10.00	%
Tier 1 capital (to risk-weighted assets)		46,086		13.07	%		29,970		8.50	%		28,207		8.00	%
Common equity tier 1 (to risk- weighted assets)		46,086		13.07	%		24,681		7.00	%		22,918		6.50	%
Tier 1 leverage (to average assets)		46,086		10.97	%		16,812		4.00	%		21,015		5.00	%
December 31, 2018
Total capital (to risk-weighted assets)	$	47,857		13.50	%	$	34,996		9.88	%	$	35,439		10.00	%
Tier 1 capital (to risk-weighted assets)		45,348		12.80	%		27,908		7.88	%		28,351		8.00	%
Common equity tier 1 (to risk- weighted assets)		45,348		12.80	%		22,593		6.38	%		23,036		6.50	%
Tier 1 leverage (to average assets)		45,348		10.86	%		16,698		4.00	%		20,872		5.00	%

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

Off-Balance Sheet Arrangements

In the normal course of business, the Bank makes commitments to extend credit and issues standby letters of credit. Outstanding loan commitments, unused lines of credit, and letters of credit as of March 31, 2019 and December 31, 2018 are as follows:

	March 31,		December 31,
	2019		2018
Loan commitments
Construction and land development	$	4,087,600	$	6,800,240
Commercial		205,000		1,143,217
Commercial real estate		6,365,500		2,853,913
Residential		2,499,900		1,557,500
	$	13,158,000	$	12,354,870
Unused lines of credit
Home-equity lines	$	3,662,233	$	3,594,847
Commercial lines		32,336,243		23,389,326
	$	35,998,476	$	26,984,173
Letters of credit	$	1,882,227	$	1,905,553

Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have interest rates at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.

36

The maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss that is likely to be incurred as a result of funding its credit commitments.

RESULTS OF OPERATIONS

General

Net income for the three months ended March 31, 2019 was $1,096,287, compared to $1,122,118 for the same period in 2018. The decrease of $25,831 or 2.3% was due to a $125,996 increase in noninterest expense, offset by a $4,168 increase in net interest income, a $37,000 decrease in the provision for loan losses, a $52,116 increase in noninterest income, and a $6,881 decrease in income taxes.

Net Interest Income

Net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowings, was $3,726,153 for the three months ended March 31, 2019, compared to $3,721,985 for the same period in 2018.

Total interest income for the three months ended March 31, 2019 was $4,547,536, compared to $4,257,746 for the same period in 2018, an increase of $289,790 or 6.8%.

Total interest income on loans for the three months ended March 31, 2019 increased $226,931 over the same period in 2018 due to a $7.2 million higher average loan balance for the first three months of 2019 when compared to the same period of 2018 and a higher loan yield of 4.83% for the first three months of 2019 versus 4.67% for the same period of 2018. Investment income for the first three months of 2019 increased by $15,301 or 5.1% when compared to the same period in 2018 due to an increase in fully-taxable equivalent yield to 2.93% for three months ended March 31, 2019, compared to 2.91% for the same period in 2018, offset by a $1.1 million lower average investment balance. Interest income on federal funds sold and other interest earning assets increased to $74,526 for the three months ended March 31, 2019 from $26,968 for the same period in 2018 due to a $7.4 million higher average balance and an increase in the fully-taxable equivalent net yield to 2.46% for the three months ended March 31, 2019, compared to 2.22% for the same period in 2018. The fully-taxable equivalent yield on total interest-earning assets increased 12 basis points to 4.55% for the first three months of 2019, compared to 4.43% for the same period in 2018. The average balance of total interest-earning assets increased by $13.5 million to $401.8 million for the three months ended March 31, 2019, compared to $388.3 million for the same period in 2018.

Total interest expense for the three months ended March 31, 2019 was $821,383, compared to $535,761 for the same period in 2018, an increase of $285,622 or 53.3%. The increase was due to a higher overall cost of funds of 1.06% for the three months ended March 31, 2019, compared to 0.71% for the same period in 2018, and a $10.3 million increase in the average balance of interest-bearing liabilities to $310.6 million in the first three months of 2019, compared to $300.3 million in the same period of 2018. Cost of funds for time deposits increased to 1.83% for the three months ended March 31, 2019 from 1.20% for the same period of 2018. Securities sold under repurchase agreements cost of funds increased to 1.14% for the first three months of 2019 from 0.67% for the first three months of 2018. FHLB advances cost of funds increased to 1.84% for the first three months of 2019 from 1.46% for the first three months of 2018.

Average noninterest-earning assets decreased by $1.9 million to $15.8 million in the first three months of 2019, compared to $17.7 million in the same period in 2018. Average noninterest-bearing deposits decreased by $2.8 million to $58.1 million during the first three months of 2019, compared to $60.9 million in the same period in 2018. The average balance in stockholders’ equity increased by $3.8 million for the three months ended March 31, 2019 when compared with the same period in 2018.

37

The FRB has raised rates nine times in the last 42 months. The cost of deposits and borrowings has increased significantly over that time. However, the yields on loans and investments have increased only slightly. At this time, it is unclear what the FRB’s next move may be. Management will closely monitor its asset-liability position so that it can respond to any future changes in interest rates and/or changes to the Bank’s interest rate spread.

The following table sets forth information regarding the average balances of interest-earning assets and interest-bearing liabilities, the amount of interest income and interest expense and the resulting yields on average interest-earning assets and rates paid on average interest-bearing liabilities for the three-month periods ended March 31, 2019 and 2018. Average balances are also provided for noninterest-earning assets and noninterest-bearing liabilities.

	Three Months Ended March 31, 2019							Three Months Ended March 31, 2018
	Average							Average
	Balance		Interest		Yield			Balance		Interest		Yield
Assets:
Loans	$	344,347,514	$	4,160,086		4.83	%	$	337,180,803	$	3,933,155		4.67	%
Securities, taxable		27,673,598		153,887		2.22	%		28,320,116		156,433		2.21	%
Securities, tax exempt		17,287,806		175,390		4.06	%		17,697,283		178,295		4.03	%
Federal funds sold and other interest-earning assets		12,497,670		76,972		2.46	%		5,134,525		28,518		2.22	%
Total interest-earning assets		401,806,588		4,566,335		4.55	%		388,332,727		4,296,401		4.43	%
Noninterest-earning assets		15,776,177							17,678,513
Total assets	$	417,582,765						$	406,011,240
Liabilities and Stockholders’ Equity:
NOW, savings, and money market	$	153,798,304		118,448		0.31	%	$	139,158,617		67,203		0.19	%
Certificates of deposit		143,504,411		657,083		1.83	%		123,292,532		371,207		1.20	%
Securities sold under repurchase agreements		8,845,852		25,299		1.14	%		20,606,083		34,389		0.67	%
FHLB advances and other borrowings		4,457,778		20,553		1.84	%		17,248,889		62,962		1.46	%
Total interest-bearing liabilities		310,606,345		821,383		1.06	%		300,306,121		535,761		0.71	%
Noninterest-bearing deposits		58,107,801							60,862,946
Noninterest-bearing liabilities		2,648,888							2,423,643
Total liabilities		371,363,034							363,592,710
Stockholders' equity		46,219,731							42,418,530
Total liabilities and stockholders' equity	$	417,582,765						$	406,011,240
Net interest income			$	3,744,952						$	3,760,640
Interest rate spread						3.49	%						3.72	%
Net yield on interest-earning assets						3.73	%						3.87	%
Ratio of average interest-earning assets to Average interest-bearing liabilities						129.36	%						129.31	%

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

38

Noninterest Income

Noninterest income for the three months ended March 31, 2019 was $392,396, compared to $340,280 for the same period in 2018, an increase of $52,116 or 15.3%. The increase was due primarily to a $69,507 increase in the gain on the sale of SBA loans, offset by a $21,474 decrease in mortgage banking income.

Noninterest Expense

Noninterest expenses for the three months ended March 31, 2019 totaled $2,755,286, compared to $2,629,290 for the same period in 2018, an increase of $125,996 or 4.8%. The increase was due primarily to increases in salaries and benefits of $57,783, occupancy costs of $36,887, and other expenses of $37,795.

Income Tax Expense

Our income tax expense for the three months ended March 31, 2019 was $253,976, compared to $260,857 for the same period in 2018. The effective tax rate was 18.8% for the three months ended March 31, 2019, compared to 18.9% for the same period in 2018.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk is interest rate fluctuation and we have procedures in place to evaluate and mitigate this risk. This market risk and our procedures are described in Item 7 of Part II of the Form 10-K under the heading, “Interest Rate Risk”, which provides information as of December 31, 2018. Management believes that no material changes in our procedures used to evaluate and mitigate these risks have occurred since December 31, 2018.

Item 4. Controls and Procedures

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

An evaluation of the effectiveness of these disclosure controls as of March 31, 2019 was carried out under the supervision and with the participation of management, including the CEO and the CFO. Based on that evaluation, management, including the CEO and the CFO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the quarter ended March 31, 2019, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

39

Part II – OTHER INFORMATION

Item 1.     Legal Proceedings

None.

Item 1A.      Risk Factors

The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of the Form 10-K. Except as set forth below, management does not believe that any material changes in our risk factors have occurred since they were last disclosed.

Our fiscal year 2016 U.S. consolidated federal income tax return is currently being audited.

In April 2018, we were notified by the IRS that our fiscal year 2016 U.S. consolidated federal tax return was selected for audit. As part of its audit, the IRS is reviewing the deductions related to, and the income generated by, the Insurance Subsidiary. Management cannot predict whether any of our tax positions, including those relating to the Insurance Subsidiary, will be challenged by the IRS or, if challenged, whether we will be successful in defending those tax positions. Defending our tax positions and challenging adverse IRS tax conclusions could require us to expend significant funds and there can be no assurance that we would be successful in any such defense or challenge. If we are not successful in defending a challenge, then we may be required to amend our tax return and pay additional taxes, interest, fines and/or penalties and our taxable earnings and/or the effective tax rate on our future earnings could increase substantially, any of which could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to the Company and its Affiliates

None.

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

None.

Item 3.     Defaults upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

None.

40

Item 6.     Exhibits

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

Exhibit Description

31.1 Certifications of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)

31.2 Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)

32 Certification of the Principal Executive Officer and the Principal Financial Office pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith)

101 Interactive Data Files pursuant to Rule 405 of Regulation S-T (filed herewith)

SIGNATURES

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

	FARMERS AND MERCHANTS BANCSHARES, INC.
Date:     May 14, 2019	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date     May 14, 2019	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer & Principal Accounting Officer)

41

EX-31.1

Exhibit 31.1

Certifications of the Principal Executive Officer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Date:     May 14, 2019	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications of the Principal Financial Officer

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

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

I, Mark C. Krebs, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date     May 14, 2019	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Periodic Report

Pursuant to 18 U.S.C. § Section 1350

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

Pursuant to, and for purposes only of, 18 U.S.C. § 1350, each of the undersigned hereby certifies that (i) the Quarterly Report of Farmers and Merchants Bancshares, Inc. on Form 10-Q for the quarter ended March 31, 2019 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Farmers and Merchants Bancshares, Inc.

Date:     May 14, 2019	/s/ James R. Bosley, Jr.
	James R. Bosley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)

Date     May 14, 2019	/s/ Mark C. Krebs
	Mark C. Krebs, Treasurer and Chief Financial Officer
	(Principal Financial Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 13, 2019
Document Information [Line Items]
Entity Registrant Name	Farmers & Merchants Bancshares, Inc.
Entity Central Index Key	0001698022
Trading Symbol	fmfg
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		1,682,997
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
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
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

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Allowance for loan losses	$ 2,529,209	$ 2,509,334
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, share authorized (in shares)	5,000,000	5,000,000
Common stock, share issued (in shares)	1,682,997	1,682,997
Common stock, share outstanding (in shares)	1,682,997	1,682,997

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 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:
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
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 (in dollars per share)	$ 0.65	$ 0.67
Deposit Account [Member]
Noninterest income:
Noninterest revenue	$ 152,060	$ 161,840
Financial Service, Other [Member]
Noninterest income:
Noninterest revenue	$ 29,371	$ 22,874

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 1,096,287	$ 1,122,118
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

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited Except for Year-end Amounts) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	1,667,813
Balance at Dec. 31, 2017	$ 16,678	$ 26,869,796	$ 15,306,625	$ (394,167)	$ 41,798,932
Net income			1,122,118		1,122,118
Unrealized gain (loss) on securities available for sale net of income tax expense (benefit)				(226,118)	(226,118)
Reclassification due to adoption of ASU No. 2016-01 | Accounting Standards Update 2016-01 [Member]			(10,416)	10,416
Common stock issued (in shares)	50
Common stock issued	$ 1	1,549			1,550
Balance (in shares) at Mar. 31, 2018	1,667,863
Balance at Mar. 31, 2018	$ 16,679	26,871,345	16,418,327	(609,869)	42,696,482
Balance (in shares) at Dec. 31, 2018	1,682,997
Balance at Dec. 31, 2018	$ 16,830	27,324,794	18,621,382	(568,299)	45,394,707
Net income			1,096,287		1,096,287
Unrealized gain (loss) on securities available for sale net of income tax expense (benefit)				298,850	298,850
Adjustment due to adoption of ASU No. 2016-02			(91,447)		(91,447)
Balance (in shares) at Mar. 31, 2019	1,682,997
Balance at Mar. 31, 2019	$ 16,830	$ 27,324,794	$ 19,626,222	$ (269,449)	$ 46,698,397

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited Except for Year-end Amounts) (Parentheticals) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Unrealized gain (loss) on securities available for sale, tax expense (benefit)	$ 113,456	$ (85,843)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 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
Available for sale	(1,438,497)	(1,364,864)
Held to maturity	200,000
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
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
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

XML

Note 1 - Principles of Consolidation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

1. Principles of consolidation

The consolidated financial statements include the accounts of Farmers and Merchants Bancshares, Inc. and its wholly-owned subsidiaries, Farmers and Merchants Bank (the “Bank”) and Series Protected Cell FCB-

4

(the “Insurance Subsidiary”), and

one

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.

XML

Note 2 - Basis of Presentation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form

10

-Q and Rule

8

-

03

of Regulation S-

X.

Accordingly, they do

not

include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been made. Such adjustments were normal and recurring in nature. The results of operations for the

three

months ended

March 31, 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.

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.

XML

Note 3 - Investment Securities

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

3. Investment Securities

Investments in debt securities are summarized as follows:

	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	1,130,283	$	8,235	$	5,228	$	1,133,290
SBA pools		2,658,758		-		54,648		2,604,110
Mortgage-backed securities		27,184,473		102,422		422,524		26,864,371
	$	30,973,514	$	110,657	$	482,400	$	30,601,771
Held to maturity
State and municipal	$	18,065,993	$	220,230	$	50,038	$	18,236,185

	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	cost		gains		losses		value
Available for sale
State and municipal	$	1,506,011	$	11,161	$	10,667	$	1,506,505
SBA pools		2,779,411		-		60,039		2,719,372
Mortgage-backed securities		23,090,618		33,594		758,098		22,366,114
	$	27,376,040	$	44,755	$	828,804	$	26,591,991
Held to maturity
State and municipal	$	18,127,067	$	115,220	$	209,194	$	18,033,093

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, 2019	cost		value		cost		value
Within one year	$	-	$	-	$	804,270	$	805,908
Over one to five years		259,981		254,753		589,690		597,571
Over five to ten years		870,302		878,537		1,859,628		1,900,827
Over ten years		-		-		14,812,405		14,931,879
		1,130,283		1,133,290		18,065,993		18,236,185
Mortgage-backed securities and SBA pools, due in monthly installments		29,843,231		29,468,481		-		-
	$	30,973,514	$	30,601,771	$	18,065,993	$	18,236,185
December 31, 2018
Within one year	$	375,000	$	375,653	$	1,009,284	$	1,011,165
Over one to five years		260,587		249,920		590,522		598,528
Over five to ten years		870,424		880,932		1,858,695		1,876,364
Over ten years		-		-		14,668,566		14,547,036
		1,506,011		1,506,505		18,127,067		18,033,093
Mortgage-backed securities and SBA pools, due in monthly installments		25,870,029		25,085,486		-		-
	$	27,376,040	$	26,591,991	$	18,127,067	$	18,033,093

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.

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.

March 31, 2019	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	$	-	$	-	$	3,092,607	$	55,266	$	3,092,607	$	55,266
SBA pools		-		-		2,604,110		54,648		2,604,110		54,648
Mortgage-backed securities		-		-		17,414,593		422,524		17,414,593		422,524
Total	$	-	$	-	$	23,111,310	$	532,438	$	23,111,310	$	532,438

December 31, 2018	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	3,435,052	$	42,080	$	3,740,467	$	177,781	$	7,175,519	$	219,861
SBA pools		443,288		6,707		2,276,084		53,332		2,719,372		60,039
Mortgage-backed securities		596,002		6,631		17,770,790		751,467		18,366,792		758,098
Total	$	4,474,342	$	55,418	$	23,787,341	$	982,580	$	28,261,683	$	1,037,998

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.

XML

Note 4 - Loans

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

4. Loans

Major categories of loans are as follows:

	March 31,		December 31,
	2019		2018
Real estate:
Commercial	$	236,794,302	$	238,834,149
Construction and land development		15,914,131		18,265,505
Residential		63,019,749		63,024,106
Commercial		22,095,306		23,323,073
Consumer		367,293		494,009
		338,190,781		343,940,842
Less: Allowance for loan losses		2,529,209		2,509,334
Deferred origination fees net of costs		519,193		530,873
	$	335,142,379	$	340,900,635

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

	March 31,		December 31,
	2019		2018
Commercial real estate	$	988,811	$	988,811

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.

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

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2019
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	235,805,491	$	236,794,302	$	-
Construction and land development		-		-		-		-		15,914,131		15,914,131		-
Residential		274,110		-		-		274,110		62,745,639		63,019,749		-
Commercial		-		-		-		-		22,095,306		22,095,306		-
Consumer		-		-		-		-		367,293		367,293		-
Total	$	274,110	$	-	$	988,811	$	1,262,921	$	336,927,860	$	338,190,781	$	-
December 31, 2018
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	237,845,338	$	238,834,149	$	-
Construction and land development		-		-		-		-		18,265,505		18,265,505		-
Residential		-		-		10,507		10,507		63,013,599		63,024,106		10,507
Commercial		-		25,000		-		25,000		23,298,073		23,323,073		-
Consumer		-		-		-		-		494,009		494,009		-
Total	$	-	$	25,000	$	999,318	$	1,024,318	$	342,916,524	$	343,940,842	$	10,507

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:

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded		Interest
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
March 31, 2019
Real estate:
Commercial real estate	$	3,800,855	$	3,110,855	$	-	$	3,110,855	$	-	$	3,144,118	$	26,589
Residential real estate		52,938		52,938		-		52,938		-		26,469		724
	$	3,853,793	$	3,163,793	$	-	$	3,163,793	$	-	$	3,170,587	$	27,313
December 31, 2018
Commercial real estate	$	3,867,381	$	3,177,381	$	-	$	3,177,381	$	-	$	4,180,282	$	120,193

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.

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.

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:

			Above						Pass		Special
March 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,491,312	$	97,290,160	$	104,534,189	$	22,775,714	$	-	$	8,702,927	$	-	$	236,794,302
Construction and land development		-		-		5,865,774		7,733,236		2,315,121		-		-		-		15,914,131
Residential		20,490		1,416,824		24,815,266		28,517,090		5,653,182		-		2,596,897		-		63,019,749
Commercial		912,227		22,200		9,998,931		8,135,261		3,026,687		-		-		-		22,095,306
Consumer		12,944		108,534		159,671		60,543		-		-		5,188		20,413		367,293
	$	945,661	$	5,038,870	$	138,129,802	$	148,980,319	$	33,770,704	$	-	$	11,305,012	$	20,413	$	338,190,781

			Above						Pass		Special
December 31, 2018	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,632,231	$	101,633,803	$	104,454,812	$	20,356,642	$	-	$	8,756,661	$	-	$	238,834,149
Construction and land development		-		-		8,190,212		7,871,642		2,203,651		-		-		-		18,265,505
Residential		35,926		1,178,899		26,856,131		30,169,305		2,093,825		-		2,690,020		-		63,024,106
Commercial		977,054		24,180		12,373,503		7,130,122		2,818,214		-		-		-		23,323,073
Consumer		3,668		80,670		266,704		63,160		-		-		1,340		78,467		494,009
	$	1,016,648	$	4,915,980	$	149,320,353	$	149,689,041	$	27,472,332	$	-	$	11,448,021	$	78,467	$	343,940,842

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

may

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

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

three

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.

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

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
March 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	62,323		$	-		$	2,000	$	1,931,720	$	28,577	$	1,903,143	$	4,396,741	$	232,971,398
Construction and land development		223,274		16,225			(10,622	)		-		228,877		-		228,877		-		19,247,095
Residential		247,953		(722	)		-			-		247,231		-		247,231		-		59,083,653
Commercial		87,353		(2,648	)		-			1,666		86,371		-		86,371		-		23,996,157
Consumer		7,027		729			-			-		7,756		-		7,756		-		520,768
Unallocated		25,907		(25,907	)		-			-		-		-		-		-		-
	$	2,458,911	$	50,000		$	(10,622	)	$	3,666	$	2,501,955	$	28,577	$	2,473,378	$	4,396,741	$	335,819,071

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
December 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	372,315		$	(690,000	)	$	204,660	$	1,754,372	$	-	$	1,754,372	$	3,177,381	$	235,656,768
Construction and land development		223,274		(78,496	)		(12,115	)		63,711		196,374		-		196,374		-		18,265,505
Residential		247,953		153,673			-			-		401,626		-		401,626		-		63,024,106
Commercial		87,353		6,090			-			9,167		102,610		-		102,610		-		23,323,073
Consumer		7,027		3,401			-			-		10,428		-		10,428		-		494,009
Unallocated		25,907		18,017			-			-		43,924		-		43,924		-		-
	$	2,458,911	$	475,000		$	(702,115	)	$	277,538	$	2,509,334	$	-	$	2,509,334	$	3,177,381	$	340,763,461

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Note 5 - Lease Commitments

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

5. Lease Commitments

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

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

March 31, 2019:

	Consolidated Balance
	Sheet classification	March 31, 2019
Operating lease right of use asset	Other assets	$	1,366,490
Operating lease liabilities	Other liabilities	$	1,503,737

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

three

months ended

March 31, 2019

was

$47,807.

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

Year	Amount
2019	$	103,387
2020		141,680
2021		146,120
2022		150,707
2023		155,447
Thereafter		911,769
Total lease payments		1,609,110
Less imputed interest		(105,373	)
Present value of operating lease liabilities	$	1,503,737

For operating leases as of

March 31, 2019,

the weighted average remaining lease term is

10.1

years and the weighted average discount rate is

3.35%.

During the

three

months ended

March 31, 2019,

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

$36,724

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Note 6 - Capital Standards

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

6. Capital Standards

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, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules became effective for the Bank on

January 

1,

2015

(subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier

1

capital, Tier

1

capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier

1

capital to adjusted quarterly average assets (as defined).

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

1

capital. Common Equity Tier

1

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

Under the revised prompt corrective action requirements, as of

January 

1,

2015,

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

1

risk-based capital ratio of

6.5%;

(ii) a Tier

1

risk-based capital ratio of

8%;

(iii) a total risk-based capital ratio of

10%;

and (iv) a Tier

1

leverage ratio of

5%.

As of

March 31, 2019,

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

The implementation of the capital conservation buffer began on

January 

1,

2016,

at the

0.625%

level and was phased in over a

four

-year period (increasing by that amount on each subsequent

January 

1,

until it reached

2.5%

on

January 

1,

2019

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

not

have current applicability to the Bank. As of

March 31, 2019,

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

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

1

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

The table below presents actual and required capital ratios as of

March 31, 2019

and

December 

31,

2018,

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

March 31, 2019

and

December 

31,

2018

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

Capital ratios of the Company are substantially the same as the Bank’s.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	48,615		13.79	%	$	37,022		10.50	%	$	35,259		10.00	%
Tier 1 capital (to risk-weighted assets)		46,086		13.07	%		29,970		8.50	%		28,207		8.00	%
Common equity tier 1 (to risk- weighted assets)		46,086		13.07	%		24,681		7.00	%		22,918		6.50	%
Tier 1 leverage (to average assets)		46,086		10.97	%		16,812		4.00	%		21,015		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	47,857		13.50	%	$	34,996		9.88	%	$	35,439		10.00	%
Tier 1 capital (to risk-weighted assets)		45,348		12.80	%		27,908		7.88	%		28,351		8.00	%
Common equity tier 1 (to risk- weighted assets)		45,348		12.80	%		22,593		6.38	%		23,036		6.50	%
Tier 1 leverage (to average assets)		45,348		10.86	%		16,698		4.00	%		20,872		5.00	%

As of

March 

31,

2019,

the most recent notification from the Federal Deposit Insurance Corporation (the “FDIC”), the Bank’s primary federal regulator, has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain ratios as set forth in the table. There have been

no

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

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

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Note 7 - Fair Value

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

7. Fair Value

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

not

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

The standards require the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. The standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

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

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

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

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

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

● Equity security at fair value: The Company’s investment in an equity mutual fund is valued based on the net asset value of the fund, which is classified as Level 1.

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

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

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

March 31, 2019

and

December 31, 2018,

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

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	1,133,290	$	-	$	1,133,290
SBA pools		-		2,604,110		-		2,604,110
Mortgage-backed securities		-		26,864,371		-		26,864,371
	$	-	$	30,601,771	$	-	$	30,601,771
Equity security at fair value
Mutual fund	$	514,717	$	-	$	-	$	514,717
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,163,793		3,163,793
December 31, 2018
Recurring
Available for sale securities
State and municipal	$	-	$	1,506,505	$	-	$	1,506,505
SBA pools		-		2,719,372		-		2,719,372
Mortgage-backed securities		-		22,366,114		-		22,366,114
	$	-	$	26,591,991	$	-	$	26,591,991
Equity security at fair value
Mutual fund	$	503,827	$	-	$	-	$	503,827
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,177,381		3,177,381

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

	March 31, 2019				December 31, 2018
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	18,065,993	$	18,236,185	$	18,127,067	$	18,033,093
Mortgage loans held for sale		417,465		426,075		573,638		582,248
Federal Home Loan Bank stock		503,700		503,700		575,800		575,800
Level 3 inputs
Loans, net		335,142,379		331,705,398		340,900,635		337,385,842
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	60,431,904	$	60,431,904	$	62,717,520	$	62,717,520
Securities sold under repurchase agreements		9,132,795		9,132,795		11,012,000		11,012,000
Level 2 inputs
Interest-bearing deposits		304,755,581		297,345,581		291,995,483		281,761,483
Federal Home Loan Bank advances		3,000,000		2,983,000		3,000,000		2,971,000

The fair value of mortgage loans held for sale is determined by the expected sales price. The fair value of loans were determined using an exit price methodology as prescribed by ASU

2016

-

01.

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

3

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

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

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

not

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

XML

Note 8 - Earnings Per Share

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

8. Earnings per Share

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

not

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

three

-month periods ended

March 31, 2019

and

2018.

There were

no

common stock equivalents outstanding at

March 31, 2019

or

2018.

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Net income	$	1,096,287	$	1,122,118
Weighted average shares outstanding		1,682,997		1,667,833
Earnings per share - basic and diluted	$	0.65	$	0.67

XML

Note 9 - Retirement Plans

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

9. Retirement Plans

The Company has a profit sharing plan qualifying under Section

401

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

21

or more with

six

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

4%

of total compensation and

may

make additional discretionary contributions. Employee and employer contributions are

100%

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

$61,817

and

$48,654

for the

three

months ended

March 31, 2019

and

2018,

respectively.

The Company has entered into agreements with

12

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

$1,468

and

$1,418

for the

three

months ended

March 31, 2019

and

2018,

respectively.

The Company adopted supplemental executive retirement plans for

three

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

$30,600

and

$60,000

for the

three

months ended

March 31, 2019

and

2018,

respectively, for these plans.

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

XML

Note 10 - Subsequent Events

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

10. Subsequent Events

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

No

significant subsequent events were identified which would affect the presentation of the financial statements.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

February 2016,

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

No.

2016

-

02,

“Leases (Topic

841

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

2016

-

02,

lessees 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.

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.

XML

Note 3 - Investment Securities (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Marketable Securities [Table Text Block]

	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	cost		gains		losses		value
Available for sale
State and municipal	$	1,130,283	$	8,235	$	5,228	$	1,133,290
SBA pools		2,658,758		-		54,648		2,604,110
Mortgage-backed securities		27,184,473		102,422		422,524		26,864,371
	$	30,973,514	$	110,657	$	482,400	$	30,601,771
Held to maturity
State and municipal	$	18,065,993	$	220,230	$	50,038	$	18,236,185

	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	cost		gains		losses		value
Available for sale
State and municipal	$	1,506,011	$	11,161	$	10,667	$	1,506,505
SBA pools		2,779,411		-		60,039		2,719,372
Mortgage-backed securities		23,090,618		33,594		758,098		22,366,114
	$	27,376,040	$	44,755	$	828,804	$	26,591,991
Held to maturity
State and municipal	$	18,127,067	$	115,220	$	209,194	$	18,033,093

Investments Classified by Contractual Maturity Date [Table Text Block]

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
March 31, 2019	cost		value		cost		value
Within one year	$	-	$	-	$	804,270	$	805,908
Over one to five years		259,981		254,753		589,690		597,571
Over five to ten years		870,302		878,537		1,859,628		1,900,827
Over ten years		-		-		14,812,405		14,931,879
		1,130,283		1,133,290		18,065,993		18,236,185
Mortgage-backed securities and SBA pools, due in monthly installments		29,843,231		29,468,481		-		-
	$	30,973,514	$	30,601,771	$	18,065,993	$	18,236,185
December 31, 2018
Within one year	$	375,000	$	375,653	$	1,009,284	$	1,011,165
Over one to five years		260,587		249,920		590,522		598,528
Over five to ten years		870,424		880,932		1,858,695		1,876,364
Over ten years		-		-		14,668,566		14,547,036
		1,506,011		1,506,505		18,127,067		18,033,093
Mortgage-backed securities and SBA pools, due in monthly installments		25,870,029		25,085,486		-		-
	$	27,376,040	$	26,591,991	$	18,127,067	$	18,033,093

Schedule of Unrealized Loss on Investments [Table Text Block]

March 31, 2019	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	$	-	$	-	$	3,092,607	$	55,266	$	3,092,607	$	55,266
SBA pools		-		-		2,604,110		54,648		2,604,110		54,648
Mortgage-backed securities		-		-		17,414,593		422,524		17,414,593		422,524
Total	$	-	$	-	$	23,111,310	$	532,438	$	23,111,310	$	532,438

December 31, 2018	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
Description of investments	Fair value		losses		Fair value		losses		Fair value		losses
State and municipal	$	3,435,052	$	42,080	$	3,740,467	$	177,781	$	7,175,519	$	219,861
SBA pools		443,288		6,707		2,276,084		53,332		2,719,372		60,039
Mortgage-backed securities		596,002		6,631		17,770,790		751,467		18,366,792		758,098
Total	$	4,474,342	$	55,418	$	23,787,341	$	982,580	$	28,261,683	$	1,037,998

XML

Note 4 - Loans (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	March 31,		December 31,
	2019		2018
Real estate:
Commercial	$	236,794,302	$	238,834,149
Construction and land development		15,914,131		18,265,505
Residential		63,019,749		63,024,106
Commercial		22,095,306		23,323,073
Consumer		367,293		494,009
		338,190,781		343,940,842
Less: Allowance for loan losses		2,529,209		2,509,334
Deferred origination fees net of costs		519,193		530,873
	$	335,142,379	$	340,900,635

Financing Receivable, Nonaccrual [Table Text Block]

	March 31,		December 31,
	2019		2018
Commercial real estate	$	988,811	$	988,811

Financing Receivable, Past Due [Table Text Block]

					90 Days								Past Due 90
	30 - 59 Days		60 - 89 Days		or More		Total				Total		Days or More
	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing
March 31, 2019
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	235,805,491	$	236,794,302	$	-
Construction and land development		-		-		-		-		15,914,131		15,914,131		-
Residential		274,110		-		-		274,110		62,745,639		63,019,749		-
Commercial		-		-		-		-		22,095,306		22,095,306		-
Consumer		-		-		-		-		367,293		367,293		-
Total	$	274,110	$	-	$	988,811	$	1,262,921	$	336,927,860	$	338,190,781	$	-
December 31, 2018
Real estate:
Commercial	$	-	$	-	$	988,811	$	988,811	$	237,845,338	$	238,834,149	$	-
Construction and land development		-		-		-		-		18,265,505		18,265,505		-
Residential		-		-		10,507		10,507		63,013,599		63,024,106		10,507
Commercial		-		25,000		-		25,000		23,298,073		23,323,073		-
Consumer		-		-		-		-		494,009		494,009		-
Total	$	-	$	25,000	$	999,318	$	1,024,318	$	342,916,524	$	343,940,842	$	10,507

Impaired Financing Receivables [Table Text Block]

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded		Interest
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
March 31, 2019
Real estate:
Commercial real estate	$	3,800,855	$	3,110,855	$	-	$	3,110,855	$	-	$	3,144,118	$	26,589
Residential real estate		52,938		52,938		-		52,938		-		26,469		724
	$	3,853,793	$	3,163,793	$	-	$	3,163,793	$	-	$	3,170,587	$	27,313
December 31, 2018
Commercial real estate	$	3,867,381	$	3,177,381	$	-	$	3,177,381	$	-	$	4,180,282	$	120,193

Financing Receivable Credit Quality Indicators [Table Text Block]

			Above						Pass		Special
March 31, 2019	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,491,312	$	97,290,160	$	104,534,189	$	22,775,714	$	-	$	8,702,927	$	-	$	236,794,302
Construction and land development		-		-		5,865,774		7,733,236		2,315,121		-		-		-		15,914,131
Residential		20,490		1,416,824		24,815,266		28,517,090		5,653,182		-		2,596,897		-		63,019,749
Commercial		912,227		22,200		9,998,931		8,135,261		3,026,687		-		-		-		22,095,306
Consumer		12,944		108,534		159,671		60,543		-		-		5,188		20,413		367,293
	$	945,661	$	5,038,870	$	138,129,802	$	148,980,319	$	33,770,704	$	-	$	11,305,012	$	20,413	$	338,190,781

			Above						Pass		Special
December 31, 2018	Excellent		average		Average		Acceptable		watch		mention		Substandard		Doubtful		Total
Real estate:
Commercial	$	-	$	3,632,231	$	101,633,803	$	104,454,812	$	20,356,642	$	-	$	8,756,661	$	-	$	238,834,149
Construction and land development		-		-		8,190,212		7,871,642		2,203,651		-		-		-		18,265,505
Residential		35,926		1,178,899		26,856,131		30,169,305		2,093,825		-		2,690,020		-		63,024,106
Commercial		977,054		24,180		12,373,503		7,130,122		2,818,214		-		-		-		23,323,073
Consumer		3,668		80,670		266,704		63,160		-		-		1,340		78,467		494,009
	$	1,016,648	$	4,915,980	$	149,320,353	$	149,689,041	$	27,472,332	$	-	$	11,448,021	$	78,467	$	343,940,842

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

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

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
March 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	62,323		$	-		$	2,000	$	1,931,720	$	28,577	$	1,903,143	$	4,396,741	$	232,971,398
Construction and land development		223,274		16,225			(10,622	)		-		228,877		-		228,877		-		19,247,095
Residential		247,953		(722	)		-			-		247,231		-		247,231		-		59,083,653
Commercial		87,353		(2,648	)		-			1,666		86,371		-		86,371		-		23,996,157
Consumer		7,027		729			-			-		7,756		-		7,756		-		520,768
Unallocated		25,907		(25,907	)		-			-		-		-		-		-		-
	$	2,458,911	$	50,000		$	(10,622	)	$	3,666	$	2,501,955	$	28,577	$	2,473,378	$	4,396,741	$	335,819,071

													Allowance for loan losses				Outstanding loan
			Provision										ending balance evaluated				balances evaluated
	Beginning		for loan			Charge					Ending		for impairment:				for impairment:
December 31, 2018	balance		losses			offs			Recoveries		balance		Individually		Collectively		Individually		Collectively
Real estate:
Commercial	$	1,867,397	$	372,315		$	(690,000	)	$	204,660	$	1,754,372	$	-	$	1,754,372	$	3,177,381	$	235,656,768
Construction and land development		223,274		(78,496	)		(12,115	)		63,711		196,374		-		196,374		-		18,265,505
Residential		247,953		153,673			-			-		401,626		-		401,626		-		63,024,106
Commercial		87,353		6,090			-			9,167		102,610		-		102,610		-		23,323,073
Consumer		7,027		3,401			-			-		10,428		-		10,428		-		494,009
Unallocated		25,907		18,017			-			-		43,924		-		43,924		-		-
	$	2,458,911	$	475,000		$	(702,115	)	$	277,538	$	2,509,334	$	-	$	2,509,334	$	3,177,381	$	340,763,461

XML

Note 5 - Lease Commitments (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	Consolidated Balance
	Sheet classification	March 31, 2019
Operating lease right of use asset	Other assets	$	1,366,490
Operating lease liabilities	Other liabilities	$	1,503,737

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

Year	Amount
2019	$	103,387
2020		141,680
2021		146,120
2022		150,707
2023		155,447
Thereafter		911,769
Total lease payments		1,609,110
Less imputed interest		(105,373	)
Present value of operating lease liabilities	$	1,503,737

XML

Note 6 - Capital Standards (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	48,615		13.79	%	$	37,022		10.50	%	$	35,259		10.00	%
Tier 1 capital (to risk-weighted assets)		46,086		13.07	%		29,970		8.50	%		28,207		8.00	%
Common equity tier 1 (to risk- weighted assets)		46,086		13.07	%		24,681		7.00	%		22,918		6.50	%
Tier 1 leverage (to average assets)		46,086		10.97	%		16,812		4.00	%		21,015		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	47,857		13.50	%	$	34,996		9.88	%	$	35,439		10.00	%
Tier 1 capital (to risk-weighted assets)		45,348		12.80	%		27,908		7.88	%		28,351		8.00	%
Common equity tier 1 (to risk- weighted assets)		45,348		12.80	%		22,593		6.38	%		23,036		6.50	%
Tier 1 leverage (to average assets)		45,348		10.86	%		16,698		4.00	%		20,872		5.00	%

XML

Note 7 - Fair Value (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	Carrying Value:
	Level 1		Level 2		Level 3		Total
March 31, 2019
Recurring
Available for sale securities
State and municipal	$	-	$	1,133,290	$	-	$	1,133,290
SBA pools		-		2,604,110		-		2,604,110
Mortgage-backed securities		-		26,864,371		-		26,864,371
	$	-	$	30,601,771	$	-	$	30,601,771
Equity security at fair value
Mutual fund	$	514,717	$	-	$	-	$	514,717
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,163,793		3,163,793
December 31, 2018
Recurring
Available for sale securities
State and municipal	$	-	$	1,506,505	$	-	$	1,506,505
SBA pools		-		2,719,372		-		2,719,372
Mortgage-backed securities		-		22,366,114		-		22,366,114
	$	-	$	26,591,991	$	-	$	26,591,991
Equity security at fair value
Mutual fund	$	503,827	$	-	$	-	$	503,827
Nonrecurring
Other real estate owned	$	-	$	-	$	210,150	$	210,150
Impaired loans		-		-		3,177,381		3,177,381

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

	March 31, 2019				December 31, 2018
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets
Level 2 inputs
Securities held to maturity	$	18,065,993	$	18,236,185	$	18,127,067	$	18,033,093
Mortgage loans held for sale		417,465		426,075		573,638		582,248
Federal Home Loan Bank stock		503,700		503,700		575,800		575,800
Level 3 inputs
Loans, net		335,142,379		331,705,398		340,900,635		337,385,842
Financial liabilities
Level 1 inputs
Noninterest-bearing deposits	$	60,431,904	$	60,431,904	$	62,717,520	$	62,717,520
Securities sold under repurchase agreements		9,132,795		9,132,795		11,012,000		11,012,000
Level 2 inputs
Interest-bearing deposits		304,755,581		297,345,581		291,995,483		281,761,483
Federal Home Loan Bank advances		3,000,000		2,983,000		3,000,000		2,971,000

XML

Note 8 - Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Net income	$	1,096,287	$	1,122,118
Weighted average shares outstanding		1,682,997		1,667,833
Earnings per share - basic and diluted	$	0.65	$	0.67

XML

Note 1 - Principles of Consolidation (Details Textual)	3 Months Ended
	Mar. 31, 2019
First Community Bankers Insurance Co., LLC [Member]
Percentage of Ownership	100.00%

XML

Note 2 - Basis of Presentation (Details Textual) - USD ($)	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Lease, Liability, Total	$ 1,503,737
Deferred Income Tax Assets, Net, Total	$ 1,100,714		$ 1,179,454
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 1,400,855
Operating Lease, Liability, Total		1,527,019
Deferred Income Tax Assets, Net, Total		34,717
Accounting Standards Update 2016-02 [Member] | Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption		$ 91,447

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Note 3 - Investment Securities (Details Textual) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Security Owned and Pledged as Collateral, Fair Value, Total	$ 9,657,069	$ 11,706,765

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Note 3 - Investment Securities - Investments in Debt Securities (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Amortized cost, available for sale	$ 30,973,514	$ 27,376,040
Unrealized gains, available for sale	110,657	44,755
Unrealized losses, available for sale	482,400	828,804
Fair value, available for sale	30,601,771	26,591,991
Amortized cost, held to maturity	18,065,993	18,127,067
Fair value, held to maturity	18,236,185	18,033,093
US States and Political Subdivisions Debt Securities [Member]
Amortized cost, available for sale	1,130,283	1,506,011
Unrealized gains, available for sale	8,235	11,161
Unrealized losses, available for sale	5,228	10,667
Fair value, available for sale	1,133,290	1,506,505
Amortized cost, held to maturity	18,065,993	18,127,067
Unrealized gains, held to maturity	220,230	115,220
Unrealized losses, held to maturity	50,038	209,194
Fair value, held to maturity	18,236,185	18,033,093
SBA Pools [Member]
Amortized cost, available for sale	2,658,758	2,779,411
Unrealized gains, available for sale
Unrealized losses, available for sale	54,648	60,039
Fair value, available for sale	2,604,110	2,719,372
Collateralized Mortgage Backed Securities [Member]
Amortized cost, available for sale	27,184,473	23,090,618
Unrealized gains, available for sale	102,422	33,594
Unrealized losses, available for sale	422,524	758,098
Fair value, available for sale	$ 26,864,371	$ 22,366,114

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Note 3 - Investment Securities - Contractual Maturities (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Available for Sale Amortized cost, Within one year		$ 375,000
Available for Sale Fair value, Within one year		375,653
Held to Maturity Amortized cost, Within one year	804,270	1,009,284
Held to Maturity Fair value, Within one year	805,908	1,011,165
Available for Sale Amortized cost, Over one to five years	259,981	260,587
Available for Sale Fair value,Over one to five years	254,753	249,920
Held to Maturity Amortized cost, Over one to five years	589,690	590,522
Held to Maturity Fair value, Over one to five years	597,571	598,528
Available for Sale Amortized cost, Over five to ten years	870,302	870,424
Available for Sale Fair value, Over five to ten years	878,537	880,932
Held to Maturity Amortized cost, Over five to ten years	1,859,628	1,858,695
Held to Maturity Fair value, Over five to ten years	1,900,827	1,876,364
Available for Sale Amortized cost, Over ten years
Available for Sale Fair value, Over ten years
Held to Maturity Amortized cost, Over ten years	14,812,405	14,668,566
Held to Maturity Fair value, Over ten years	14,931,879	14,547,036
Available for Sale Amortized cost, total maturity	1,130,283	1,506,011
Available for Sale Fair value, total maturity	1,133,290	1,506,505
Held to Maturity Amortized cost, total maturity	18,065,993	18,127,067
Held to Maturity Fair value, total maturity	18,236,185	18,033,093
Available for Sale Amortized cost, due in monthly installments	29,843,231	25,870,029
Available for Sale Fair value, due in monthly installments	29,468,481	25,085,486
Held to Maturity Amortized cost, due in monthly installments
Held to Maturity Fair value, due in monthly installments
Available for Sale Amortized cost Total	30,973,514	27,376,040
Available for Sale Fair value Total	30,601,771	26,591,991
Held to Maturity Amortized cost Total	18,065,993	18,127,067
Held to Maturity Fair value Total	$ 18,236,185	$ 18,033,093

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Note 3 - Investment Securities - Gross Unrealized Losses on Continuous Basis for Investment Securities (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Less than 12 months Fair value		$ 4,474,342
State and municipal		55,418
12 months or more Fair value	23,111,310	23,787,341
12 months or more Unrealized losses	532,438	982,580
Total Fair value	23,111,310	28,261,683
Total Unrealized losses	532,438	1,037,998
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months Fair value		3,435,052
State and municipal		42,080
12 months or more Fair value	3,092,607	3,740,467
12 months or more Unrealized losses	55,266	177,781
Total Fair value	3,092,607	7,175,519
Total Unrealized losses	55,266	219,861
SBA Pools [Member]
Less than 12 months Fair value		443,288
State and municipal		6,707
12 months or more Fair value	2,604,110	2,276,084
12 months or more Unrealized losses	54,648	53,332
Total Fair value	2,604,110	2,719,372
Total Unrealized losses	54,648	60,039
Collateralized Mortgage Backed Securities [Member]
Less than 12 months Fair value		596,002
State and municipal		6,631
12 months or more Fair value	17,414,593	17,770,790
12 months or more Unrealized losses	422,524	751,467
Total Fair value	17,414,593	18,366,792
Total Unrealized losses	$ 422,524	$ 758,098

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Note 4 - Loans (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Impaired Financing Receivable, Related Allowance
Financing Receivable, Allowance for Credit Loss, Writeoff		$ 10,622	$ 702,115
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Number of Loans, Nonaccrual Status	2		2
Financing Receivable, Nonaccrual	$ 988,811		$ 988,811
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	31,733		115,168
Impaired Financing Receivable, Related Allowance
Number of Loans Classified as TDR	1		1
Financing Receivable, Troubled Debt Restructuring	$ 2,122,044		$ 2,134,570
Financing Receivable, Allowance for Credit Loss, Writeoff			690,000
Commercial Real Estate Portfolio Segment [Member] | Nonaccrual Loans [Member]
Impaired Financing Receivable, Related Allowance	0		0
Allowance for Loan and Lease Losses Write-offs, Net, Total	690,000		$ 690,000
Residential Portfolio Segment [Member]
Impaired Financing Receivable, Related Allowance
Number of Loans Classified as TDR	1		1
Financing Receivable, Troubled Debt Restructuring	$ 52,938		$ 54,000
Financing Receivable, Allowance for Credit Loss, Writeoff
Financing Receivable, Troubled Debt Restructuring, Premodification			54,000
Commercial Real Estate and Residential Loans Classified As TDR [Member]
Financing Receivable, Allowance for Credit Loss, Writeoff	$ 0		$ 0

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Note 4 - Loans - Major Categories of Loans (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Loans	$ 338,190,781	$ 343,940,842
Allowance for loan losses	2,529,209	2,509,334
Deferred origination fees net of costs	519,193	530,873
	335,142,379	340,900,635
Commercial Real Estate Portfolio Segment [Member]
Loans	236,794,302	238,834,149
Construction and Land Development [Member]
Loans	15,914,131	18,265,505
Residential Portfolio Segment [Member]
Loans	63,019,749	63,024,106
Commercial Portfolio Segment [Member]
Loans	22,095,306	23,323,073
Consumer Portfolio Segment [Member]
Loans	$ 367,293	$ 494,009

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Note 4 - Loans - Non-accrual Loans (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Commercial Real Estate Portfolio Segment [Member]
Commercial real estate	$ 988,811	$ 988,811

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Note 4 - Loans - Past Due Loans (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Loans, past due	$ 1,262,921	$ 1,024,318
Loans, current	336,927,860	342,916,524
Loans	338,190,781	343,940,842
Loans, 90 days past due and still accruing		10,507
Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	274,110
Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due		25,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	988,811	999,318
Commercial Real Estate Portfolio Segment [Member]
Loans, past due	988,811	988,811
Loans, current	235,805,491	237,845,338
Loans	236,794,302	238,834,149
Loans, 90 days past due and still accruing
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	988,811	988,811
Construction and Land Development [Member]
Loans, past due
Loans, current	15,914,131	18,265,505
Loans	15,914,131	18,265,505
Loans, 90 days past due and still accruing
Construction and Land Development [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Construction and Land Development [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Construction and Land Development [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Residential Portfolio Segment [Member]
Loans, past due	274,110	10,507
Loans, current	62,745,639	63,013,599
Loans	63,019,749	63,024,106
Loans, 90 days past due and still accruing		10,507
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	274,110
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due		10,507
Commercial Portfolio Segment [Member]
Loans, past due		25,000
Loans, current	22,095,306	23,298,073
Loans	22,095,306	23,323,073
Loans, 90 days past due and still accruing
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due		25,000
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member]
Loans, past due
Loans, current	367,293	494,009
Loans	367,293	494,009
Loans, 90 days past due and still accruing
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due

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Note 4 - Loans - Impaired Loans (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Unpaid Contractual Principal Balance	$ 3,853,793
Recorded Investment With No Allowance	3,163,793
Recorded Investment With Allowance
Total Recorded Investment	3,163,793
Related Allowance
Average Recorded Investment	3,170,587
Interest Recognized	27,313
Commercial Real Estate Portfolio Segment [Member]
Unpaid Contractual Principal Balance	3,800,855	$ 3,867,381
Recorded Investment With No Allowance	3,110,855	3,177,381
Recorded Investment With Allowance
Total Recorded Investment	3,110,855	3,177,381
Related Allowance
Average Recorded Investment	3,144,118	4,180,282
Interest Recognized	26,589	$ 120,193
Residential Portfolio Segment [Member]
Unpaid Contractual Principal Balance	52,938
Recorded Investment With No Allowance	52,938
Recorded Investment With Allowance
Total Recorded Investment	52,938
Related Allowance
Average Recorded Investment	26,469
Interest Recognized	$ 724

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Note 4 - Loans - Loans by Credit Grade (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Loans	$ 338,190,781	$ 343,940,842
Excellent [Member]
Loans	945,661	1,016,648
Above Average [Member]
Loans	5,038,870	4,915,980
Average [Member]
Loans	138,129,802	149,320,353
Acceptable [Member]
Loans	148,980,319	149,689,041
Pass [Member]
Loans	33,770,704	27,472,332
Special Mention [Member]
Loans
Substandard [Member]
Loans	11,305,012	11,448,021
Doubtful [Member]
Loans	20,413	78,467
Commercial Real Estate Portfolio Segment [Member]
Loans	236,794,302	238,834,149
Commercial Real Estate Portfolio Segment [Member] | Excellent [Member]
Loans
Commercial Real Estate Portfolio Segment [Member] | Above Average [Member]
Loans	3,491,312	3,632,231
Commercial Real Estate Portfolio Segment [Member] | Average [Member]
Loans	97,290,160	101,633,803
Commercial Real Estate Portfolio Segment [Member] | Acceptable [Member]
Loans	104,534,189	104,454,812
Commercial Real Estate Portfolio Segment [Member] | Pass [Member]
Loans	22,775,714	20,356,642
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member]
Loans
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member]
Loans	8,702,927	8,756,661
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member]
Loans
Construction and Land Development [Member]
Loans	15,914,131	18,265,505
Construction and Land Development [Member] | Excellent [Member]
Loans
Construction and Land Development [Member] | Above Average [Member]
Loans
Construction and Land Development [Member] | Average [Member]
Loans	5,865,774	8,190,212
Construction and Land Development [Member] | Acceptable [Member]
Loans	7,733,236	7,871,642
Construction and Land Development [Member] | Pass [Member]
Loans	2,315,121	2,203,651
Construction and Land Development [Member] | Special Mention [Member]
Loans
Construction and Land Development [Member] | Substandard [Member]
Loans
Construction and Land Development [Member] | Doubtful [Member]
Loans
Residential Portfolio Segment [Member]
Loans	63,019,749	63,024,106
Residential Portfolio Segment [Member] | Excellent [Member]
Loans	20,490	35,926
Residential Portfolio Segment [Member] | Above Average [Member]
Loans	1,416,824	1,178,899
Residential Portfolio Segment [Member] | Average [Member]
Loans	24,815,266	26,856,131
Residential Portfolio Segment [Member] | Acceptable [Member]
Loans	28,517,090	30,169,305
Residential Portfolio Segment [Member] | Pass [Member]
Loans	5,653,182	2,093,825
Residential Portfolio Segment [Member] | Special Mention [Member]
Loans
Residential Portfolio Segment [Member] | Substandard [Member]
Loans	2,596,897	2,690,020
Residential Portfolio Segment [Member] | Doubtful [Member]
Loans
Commercial Portfolio Segment [Member]
Loans	22,095,306	23,323,073
Commercial Portfolio Segment [Member] | Excellent [Member]
Loans	912,227	977,054
Commercial Portfolio Segment [Member] | Above Average [Member]
Loans	22,200	24,180
Commercial Portfolio Segment [Member] | Average [Member]
Loans	9,998,931	12,373,503
Commercial Portfolio Segment [Member] | Acceptable [Member]
Loans	8,135,261	7,130,122
Commercial Portfolio Segment [Member] | Pass [Member]
Loans	3,026,687	2,818,214
Commercial Portfolio Segment [Member] | Special Mention [Member]
Loans
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans
Consumer Portfolio Segment [Member]
Loans	367,293	494,009
Consumer Portfolio Segment [Member] | Excellent [Member]
Loans	12,944	3,668
Consumer Portfolio Segment [Member] | Above Average [Member]
Loans	108,534	80,670
Consumer Portfolio Segment [Member] | Average [Member]
Loans	159,671	266,704
Consumer Portfolio Segment [Member] | Acceptable [Member]
Loans	60,543	63,160
Consumer Portfolio Segment [Member] | Pass [Member]
Loans
Consumer Portfolio Segment [Member] | Special Mention [Member]
Loans
Consumer Portfolio Segment [Member] | Substandard [Member]
Loans	5,188	1,340
Consumer Portfolio Segment [Member] | Doubtful [Member]
Loans	$ 20,413	$ 78,467

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Note 4 - Loans - Allowance for Loan Losses (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Beginning balance	$ 2,509,334	$ 2,458,911	$ 2,458,911
Provision for loan losses	13,000	50,000	475,000
Charge offs		(10,622)	(702,115)
Recoveries	6,875	3,666	277,538
Ending balance	2,529,209	2,501,955	2,509,334
Allowance for loan losses, individually		28,577
Allowance for loan losses, collectively	2,529,209	2,473,378	2,509,334
Outstanding loan, individually	3,163,793	4,396,741	3,177,381
Outstanding loan, collectively	335,026,988	335,819,071	340,763,461
Commercial Real Estate Portfolio Segment [Member]
Beginning balance	1,754,372	1,867,397	1,867,397
Provision for loan losses	3,524	62,323	372,315
Charge offs			(690,000)
Recoveries	1,000	2,000	204,660
Ending balance	1,758,896	1,931,720	1,754,372
Allowance for loan losses, individually		28,577
Allowance for loan losses, collectively	1,758,896	1,903,143	1,754,372
Outstanding loan, individually	3,163,793	4,396,741	3,177,381
Outstanding loan, collectively	233,630,509	232,971,398	235,656,768
Construction and Land Development [Member]
Beginning balance	196,374	223,274	223,274
Provision for loan losses	(29,317)	16,225	(78,496)
Charge offs		(10,622)	(12,115)
Recoveries	3,375		63,711
Ending balance	170,432	228,877	196,374
Allowance for loan losses, individually
Allowance for loan losses, collectively	170,432	228,877	196,374
Outstanding loan, individually
Outstanding loan, collectively	15,914,131	19,247,095	18,265,505
Residential Portfolio Segment [Member]
Beginning balance	401,626	247,953	247,953
Provision for loan losses	32,059	(722)	153,673
Charge offs
Recoveries
Ending balance	433,685	247,231	401,626
Allowance for loan losses, individually
Allowance for loan losses, collectively	433,685	247,231	401,626
Outstanding loan, individually
Outstanding loan, collectively	63,019,749	59,083,653	63,024,106
Commercial Portfolio Segment [Member]
Beginning balance	102,610	87,353	87,353
Provision for loan losses	(3,482)	(2,648)	6,090
Charge offs
Recoveries	2,500	1,666	9,167
Ending balance	101,628	86,371	102,610
Allowance for loan losses, individually
Allowance for loan losses, collectively	101,628	86,371	102,610
Outstanding loan, individually
Outstanding loan, collectively	22,095,306	23,996,157	23,323,073
Consumer Portfolio Segment [Member]
Beginning balance	10,428	7,027	7,027
Provision for loan losses	(5,569)	729	3,401
Charge offs
Recoveries
Ending balance	4,859	7,756	10,428
Allowance for loan losses, individually
Allowance for loan losses, collectively	4,859	7,756	10,428
Outstanding loan, individually
Outstanding loan, collectively	367,293	520,768	494,009
Unallocated Financing Receivables [Member]
Beginning balance	43,924	25,907	25,907
Provision for loan losses	15,785	(25,907)	18,017
Charge offs
Recoveries
Ending balance	59,709		43,924
Allowance for loan losses, individually
Allowance for loan losses, collectively	59,709		43,924
Outstanding loan, individually
Outstanding loan, collectively

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Note 5 - Lease Commitments (Details Textual)	3 Months Ended
	Mar. 31, 2019 USD ($)
Operating Lease, Cost	$ 47,807
Operating Lease, Weighted Average Remaining Lease Term	10 years 36 days
Operating Lease, Weighted Average Discount Rate, Percent	3.35%
Operating Lease, Payments	$ 36,724

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Note 5 - Lease Commitments - Operating Lease Assets and Liabilities (Details)	Mar. 31, 2019 USD ($)
Operating Lease, Liability, Total	$ 1,503,737
Other Assets [Member]
Operating Lease, Right-of-Use Asset	1,366,490
Other Liabilities [Member]
Operating Lease, Liability, Total	$ 1,503,737

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Note 5 - Lease Commitments - Operating Lease Liabilities (Details)	Mar. 31, 2019 USD ($)
2019	$ 103,387
2020	141,680
2021	146,120
2022	150,707
2023	155,447
Thereafter	911,769
Total lease payments	1,609,110
Less imputed interest	(105,373)
Operating Lease, Liability, Total	$ 1,503,737

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Note 6 - Capital Standards (Details Textual)	Mar. 31, 2019	Dec. 31, 2018
Common Equity Tier One Capital Required to be Well Capitalized Ratio	6.50%	6.50%
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	8.00%	8.00%
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%	5.00%

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Note 6 - Capital Standards - Capital Requirements (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Capital	$ 48,615	$ 47,857
Capital to Risk Weighted Assets	13.79%	13.50%
Capital Required for Capital Adequacy	$ 37,022	$ 34,996
Capital Required for Capital Adequacy to Risk Weighted Assets	10.50%	9.88%
Capital Required to be Well Capitalized	$ 35,259	$ 35,439
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Tier One Risk Based Capital	$ 46,086	$ 45,348
Tier One Risk Based Capital to Risk Weighted Assets	13.07%	12.80%
Tier One Risk Based Capital Required for Capital Adequacy	$ 29,970	$ 27,908
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	8.50%	7.88%
Tier One Risk Based Capital Required to be Well Capitalized	$ 28,207	$ 28,351
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	8.00%	8.00%
Common Equity Tier One Capital	$ 46,086	$ 45,348
Common Equity Tier One Capital Ratio	13.07%	12.80%
Common Equity Tier One Capital Required for Capital Adequacy	$ 24,681	$ 22,593
Common Equity Tier One Capital Required for Capital Adequacy Ratio	7.00%	6.38%
Common Equity Tier One Capital Required to be Well-Capitalized	$ 22,918	$ 23,036
Common Equity Tier One Capital Required to be Well Capitalized Ratio	6.50%	6.50%
Tier One Leverage Capital	$ 46,086	$ 45,348
Tier One Leverage Capital to Average Assets	10.97%	10.86%
Tier One Leverage Capital Required for Capital Adequacy	$ 16,812	$ 16,698
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	4.00%	4.00%
Tier One Leverage Capital Required to be Well Capitalized	$ 21,015	$ 20,872
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%	5.00%

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Note 7 - Fair Value (Details Textual)	3 Months Ended
	Mar. 31, 2019
Other Real Estate Owned [Member]
Expected Sales Costs to Appraised Value, Percentage	10.00%
Impaired Loans [Member]
Expected Sales Costs to Appraised Value, Percentage	10.00%

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Note 7 - Fair Value - Summarizes Financial Assets Measured at Fair Value (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Fair value, available for sale	$ 30,601,771	$ 26,591,991
Equity security at fair value	514,717	503,827
Mutual fund	514,717	503,827
Fair Value, Recurring [Member]
Fair value, available for sale	30,601,771	26,591,991
Equity security at fair value	514,717
Mutual fund	514,717
Fair Value, Nonrecurring [Member]
Other real estate owned	210,150	210,150
Impaired loans	3,163,793	3,177,381
Fair Value, Inputs, Level 1 [Member]
Equity security at fair value		503,827
Mutual fund		503,827
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Equity security at fair value	514,717
Mutual fund	514,717
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Other real estate owned
Impaired loans
Fair Value, Inputs, Level 2 [Member]
Equity security at fair value
Mutual fund
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	30,601,771	26,591,991
Equity security at fair value
Mutual fund
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Other real estate owned
Impaired loans
Fair Value, Inputs, Level 3 [Member]
Equity security at fair value
Mutual fund
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Equity security at fair value
Mutual fund
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Other real estate owned	210,150	210,150
Impaired loans	3,163,793	3,177,381
US States and Political Subdivisions Debt Securities [Member]
Fair value, available for sale	1,133,290	1,506,505
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	1,133,290	1,506,505
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	1,133,290	1,506,505
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
SBA Pools [Member]
Fair value, available for sale	2,604,110	2,719,372
SBA Pools [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,604,110	2,719,372
SBA Pools [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
SBA Pools [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	2,604,110	2,719,372
SBA Pools [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Collateralized Mortgage Backed Securities [Member]
Fair value, available for sale	26,864,371	22,366,114
Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	26,864,371	22,366,114
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale	26,864,371	22,366,114
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Fair value, available for sale

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Note 7 - Fair Value - Estimated Fair Value of Financial Instruments (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Fair value, held to maturity	$ 18,236,185	$ 18,033,093
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Fair value, held to maturity	18,065,993	18,127,067
Mortgage loans held for sale	417,465	573,638
Federal Home Loan Bank stock	503,700	575,800
Interest-bearing deposits	304,755,581	291,995,483
Federal Home Loan Bank advances	3,000,000	3,000,000
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	335,142,379	340,900,635
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Noninterest-bearing deposits	60,431,904	62,717,520
Securities sold under repurchase agreements	9,132,795	11,012,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Fair value, held to maturity	18,236,185	18,033,093
Mortgage loans held for sale	426,075	582,248
Federal Home Loan Bank stock	503,700	575,800
Interest-bearing deposits	297,345,581	281,761,483
Federal Home Loan Bank advances	2,983,000	2,971,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	331,705,398	337,385,842
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Noninterest-bearing deposits	60,431,904	62,717,520
Securities sold under repurchase agreements	$ 9,132,795	$ 11,012,000

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Note 8 - Earnings Per Share - Basic and Diluted Earnings Per Share (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 1,096,287	$ 1,122,118
Weighted average shares outstanding (in shares)	1,682,997	1,667,833
Earnings per share - basic and diluted (in dollars per share)	$ 0.65	$ 0.67

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Note 9 - Retirement Plans (Details Textual)	3 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)
Number of Employees Covered by Life Insurance Policy	12
Other Postretirement Benefits Cost (Reversal of Cost)	$ 1,468	$ 1,418
Employee Benefits and Share-based Compensation	$ 381,964	367,454
Supplemental Employee Retirement Plan [Member]
Number of Employees Participating in Plan	3
Employee Benefits and Share-based Compensation	$ 30,600	60,000
Profit Sharing Plan [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	4.00%
Defined Contribution Plan, Employers Matching Contribution, Annual Vesting Percentage	100.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 61,817	$ 48,654