v3.26.1
Note 10 - Borrowed Funds
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Debt Disclosure [Text Block]

10.

Borrowed Funds

 

Borrowed funds consist of securities sold under repurchase agreements, which represent overnight or term borrowings from customers, advances from the FHLB, the FRB, and overnight borrowings from a commercial bank. The government agency securities that are the collateral for these agreements are owned by the Company and maintained in the custody of an unaffiliated agent designated by the Company.

 

On September 30, 2020, Farmers and Merchants Bancshares, Inc. borrowed $17.0 million from First Horizon Bank to be used, on October 1, 2020, to fund a portion of the merger consideration paid in the Merger (the “Merger Loan”). Net of issuance costs of $28.1 thousand, the Company received $16.9 million in loan proceeds. The Merger Loan matured on September 30, 2025. The interest rate on the loan was fixed at 4.10%. The Company paid quarterly interest-only payments through October 1, 2021. During the remaining term of the loan, the Company made quarterly interest and principal payments of approximately $646.5 thousand, which was based on a nine-year straight-line amortization schedule. The remaining balance of approximately $9.9 million was repaid at maturity using the proceeds of the September 2025 sale of the Subordinated Notes.

 

On September 25, 2025, Farmers and Merchants Bancshares, Inc. issued and sold $12.5 million in aggregate principal amount of its Subordinated Notes. The Subordinated Notes were issued by the Company at a price equal to 100% of their face amounts. The Subordinated Notes have stated maturity dates of September 25, 2035 (the “Maturity Date”). From and including the original issue date of the Subordinated Notes (the “Issue Date”) to but excluding September 26, 2030 or the date of earlier redemption, the Company will pay interest on the Subordinated Notes semi-annually in arrears on March 26th and September 26th of each year at a fixed interest rate of 7.875% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, beginning on March 26, 2026. From and including September 26, 2030, to, but excluding, the Maturity Date or the date of earlier redemption (the “Floating Rate Period”), the Company will pay interest on the Subordinated Notes at a floating interest rate at the Three-Month Term SOFR (as defined in the Subordinated Notes), reset quarterly, plus 458 basis points, computed on the basis of a 360-day year and the actual number of days elapsed. During the Floating Rate Period, the Company will pay interest on the Subordinated Notes quarterly in arrears on March 26th, June 26th, September 26th, and December 26th of each year, beginning on December 26, 2030. Notwithstanding the foregoing, if the Three-Month Term SOFR rate is less than zero, then the Three-Month Term SOFR rate shall be deemed to be zero.

 

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.

 

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

 

     

December 31,

    

December 31,

  

(Dollars in thousands)

    

2025

    

2024

  

Amount oustanding at period end:

                  

Securities sold under repurchase agreements

   $ 4,317     $ 5,564  

Federal Home Loan Bank advances

   $ 62,700     $ 5,000  

Federal Home Loan Bank advances mature in

2025

   $ -     $ 5,000  
 

2026

   $ 50,200     $ -  
 

2027

   $ 12,500     $ -  
                   

Subordinated Debt (net of issuance costs) matures in

2035

   $ 12,036     $ -  

Long Term Debt (net of issuance costs) matures in

2025

   $ -     $ 11,329  
                   

Weighted average rate paid at period end:

                  

Securites sold under repurchase agreements

     1.25 %     1.25 %

Federal Home Loan Bank advances

     3.82 %     1.00 %

Subordinated Debt

     7.88 %     N/A  

Long-term debt

     N/A       4.10 %
                   

Average rate paid during the period ended:

                  

Securites sold under repurchase agreements

     1.25 %     1.26 %

Federal Home Loan Bank advances

     3.80 %     1.96 %

Subordinated Debt

     7.88 %     N/A  

Long-term debt

     N/A       4.19 %

 

The Company is approved to borrow approximately $84.2 million against eligible pledged single family residential loans, eligible pledged multi-family loans, eligible pledged commercial loans, and eligible pledged securities under a secured line of credit with the FHLB. In addition, the Company has a facility with the FRB whereby the Company can borrow up to $29.3 million. Additionally, the Bank had $23.5 million available through unsecured and secured lines of credit with correspondent banks.