Farmers and Merchants Bancshares (FMFG) 8-K/A Financial Statements and Exhibits

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined balance sheet as of September 30, 2020, and the unaudited pro forma condensed combined statements of income for the three- and nine-month periods ended September 30, 2020 and for the year ended December 31, 2019, illustrate the effect of the merger (the “Merger”) of Carroll Bancorp, Inc. (“Carroll”) with and into Farmers and Merchants Bancshares, Inc. (the “Company”), which was effective at 12:02 a.m., Eastern Time, on October 1, 2020.

The unaudited pro forma condensed combined balance sheet gives effect to the Merger based on the historical balance sheets of the Company and Carroll at September 30, 2020 as if it occurred on that date. The Company’s balance sheet information was derived from its unaudited balance sheet at September 30, 2020 that was included in its Quarterly Report on Form 10-Q for the quarter then ended, which was filed with the Securities and Exchange Commission on November 10, 2020. The balance sheet information for Carroll was derived from its unaudited balance sheet that is included as part of Exhibit 99.2 to this Current Report on Form 8-K, as amended (this “Report”).

The unaudited pro forma condensed combined statements of income for the Company and Carroll for the three- and nine-month periods ended September 30, 2020 and for the year ended December 31, 2019 give effect to the Merger as if it had occurred on January 1, 2020 and January 1, 2019, respectively. The historical results of the Company were derived from its unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2020 that were included in its Quarterly Report on Form 10-Q for the quarter then ended, filed on November 10, 2020, and its audited consolidated statement of income for the year ended December 31, 2019 that was included in its Annual Report on Form 10-K for the year then ended, filed on March 6, 2020. The historical results of Carroll were derived from its unaudited consolidated statement of income for the three- and nine-month periods ended September 30, 2020 and its audited consolidated statement of income for the year ended December 31, 2019, which are included as part of Exhibit 99.2 to this Report.

As required by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805- Business Combinations, the Company has used the acquisition method of accounting and adjusted the acquired assets and liabilities of Carroll to fair value as of the balance sheet date. Under this method, the Company will record Carroll’s assets and liabilities as of October 1, 2020, the date of the acquisition, at their respective fair values and add them to those of the Company. The Company will record in goodwill any difference between the purchase price for Carroll and the fair value of the identifiable net assets acquired (including core deposit intangibles); however, these are subject to change for a one-year period if material information that existed at the acquisition date previously unknown becomes known. Accordingly, the unaudited pro forma adjustments, including the allocations of the purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed consolidated financial information. The Company will not expense the amortization of the goodwill that results from the acquisition, if any, but will review it for impairment at least annually. To the extent there is an impairment of the goodwill, the Company will expense the impairment. The Company will amortize to expense core deposit and other intangibles with definite useful lives that the Company records in conjunction with the Merger. Financial statements that the Company issues after the acquisition will reflect the results attributable to the acquired operations of Carroll beginning on October 1, 2020, the date of completion of the Merger.

In connection with the Merger, the Company is currently working to consolidate the operations of Carroll. The Company continues to assess the two companies’ personnel, benefit plans, premises, equipment, computer systems and service contracts to determine where the Company may take advantage of redundancies. The Company will record any additional cost associated with such decisions as incurred and have not included them in the pro forma adjustments to the pro forma consolidated statements of income. The Company has not included these savings in the pro forma consolidated statements of income, and there are no assurances that the Company will realize these reductions.

The Company has provided the unaudited pro forma information for information purposes only. The pro forma financial information presented is not necessarily indicative of the actual results that the Company would have achieved had it consummated the Merger on the dates or at the beginning of the periods presented, and it is not necessarily indicative of future results. You should read the unaudited pro forma financial information in conjunction with notes thereto and the audited consolidated financial statements and the notes thereto of the Company and Carroll. Actual results may be materially different than the pro forma data presented.

The Company has made certain reclassification adjustments to the pro forma financial statements to conform to its financial statement presentation.

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Farmers and Merchants Bancshares, Inc. and Subsidiaries

Pro Forma Condensed Combined Balance Sheet

at September 30, 2020

(Unaudited)

	Farmers and
	Merchants		Carroll		Pro Forma				Pro Forma
	Bancshares, Inc.		Bancorp, Inc.		Adjustments				Combined
Assets
Cash and due from banks	$	14,766,830	$	317,947	$	-			$	15,084,777
Federal funds sold and other interest-bearing deposits		465,755		5,123,663		-				5,589,418
Cash and cash equivalents		15,232,585		5,441,610		-				20,674,195
Certificates of deposit in other banks		100,000		750,000		-				850,000
Securities available for sale		39,882,135		10,660,858		2,261,762		(2)		52,804,755
Securities held to maturity		22,602,562		2,202,937		(2,202,937	)	(2)		22,602,562
Equity security at fair value		553,057		-		-				553,057
Restricted stock, at cost		696,300		926,700		-				1,623,000
Mortgage loans held for sale		2,650,459		1,702,950		40,245		(3)		4,393,654
Loans, less allowance for loan losses		390,114,430		145,153,100		(72,150	)	(4)		535,195,380
Premises and equipment		5,096,063		2,619,413		64,827		(5)		7,780,303
Accrued interest receivable		1,215,284		837,496		-				2,052,780
Deferred income taxes		754,417		101,161		116,457		(6)		972,035
Other real estate owned		-		1,411,605		-				1,411,605
Bank owned life insurance		7,272,949		3,963,723		-				11,236,672
Goodwill		-		-		6,978,208		(1)		6,978,208
Core deposit intangible		-		-		83,282		(7)		83,282
Other assets		27,307,504		388,337		(18,628	)	(8)		27,677,213
	$	513,477,745	$	176,159,890	$	7,251,066			$	696,888,701
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$	79,010,403	$	21,223,297	$	-			$	100,233,700
Interest-bearing		347,065,245		123,673,693		616,095		(9)		471,355,033
Total deposits		426,075,648		144,896,990		616,095				571,588,733
Securities sold under repurchase agreements		6,317,682		-		-				6,317,682
Federal Home Loan Bank of Atlanta advances		7,000,000		13,000,000		-				20,000,000
Long-term debt		16,971,874		-		-				16,971,874
Accrued interest payable		230,177		30,046		-				260,223
Other liabilities		4,954,184		65,250		(5,153	)	(8)		5,014,281
		461,549,565		157,992,286		610,942				620,152,793
Stockholders' equity
Common stock		29,920		11,469		(11,469	)	(1)		29,920
Additional paid-in capital		28,054,158		15,345,908		9,461,820		(1)		52,861,886
Retained earnings		23,059,567		2,692,592		(2,692,592	)	(1)		23,059,567
Accumulated other comprehensive income		784,535		117,635		(117,635	)	(1)		784,535
		51,928,180		18,167,604		6,640,124				76,735,908
	$	513,477,745	$	176,159,890	$	7,251,066			$	696,888,701

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

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Farmers and Merchants Bancshares, Inc. and Subsidiaries

Pro Forma Condensed Combined Statement of Income

Three Months Ended September 30, 2020

(Unaudited)

	Farmers and
	Merchants		Carroll			Pro Forma				Pro Forma
	Bancshares, Inc.		Bancorp, Inc.			Adjustments				Combined
Interest income
Loans, including fees	$	4,489,992	$	1,727,479		$	12,776		(10)	$	6,230,247
Investment securities - taxable		159,277		65,054			-				224,331
Investment securities - tax exempt		163,522		29,219			-				192,741
Federal funds sold and other interest earning assets		9,563		5,671			-				15,234
Total interest income		4,822,354		1,827,423			12,776				6,662,553
Interest expense
Deposits		690,833		258,932			(129,844	)	(11)		819,921
Securities sold under repurchase agreements		18,020		-			-				18,020
Federal Home Loan Bank advances and other borrowings		12,752		9,736			-				22,488
Total interest expense		721,605		268,668			(129,844	)			860,429
Net interest income		4,100,749		1,558,755			142,620				5,802,124
Provision for loan losses		-		-			-				-
Net interest income after provision for loan losses		4,100,749		1,558,755			142,620				5,802,124
Noninterest income
Service charges on deposit accounts		138,288		32,920			-				171,208
Mortgage banking income		272,297		232,167			-				504,464
Bank owned life insurance income		42,250		21,121			-				63,371
Unrealized gain on equity security		1		-			-				1
Write down of other real estate owned		-		(299,496	)		-				(299,496	)
Gain on sale of SBA loans		-		-			-				-
Other fees and commissions		34,532		70,701			-				105,233
Total noninterest income		487,368		57,413			-				544,781
Noninterest expense
Salaries		1,462,946		976,825			-				2,439,771
Employee benefits		376,860		127,244			-				504,104
Occupancy		183,719		70,121			-				253,840
Furniture and equipment		175,006		92,854			-				267,860
Acquisition		1,267,401		327,915			-				1,595,316
Other		660,075		405,771			2,082		(12)		1,067,928
Total noninterest expense		4,126,007		2,000,730			2,082				6,128,819
Income (loss) before income taxes		462,110		(384,562	)		140,538				218,086
Income tax expense (benefit)		76,863		(144,145	)		38,673				(28,609	)
Net income (loss)	$	385,247	$	(240,417	)	$	101,865			$	246,695
Earnings per share - basic and diluted	$	0.13	$	(0.21	)					$	0.08
Weighted average shares outstanding - basic and diluted		2,991,964		1,133,867							2,991,964

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

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Farmers and Merchants Bancshares, Inc. and Subsidiaries

Pro Forma Condensed Combined Statement of Income

Nine Months Ended September 30, 2020

(Unaudited)

	Farmers and
	Merchants		Carroll			Pro Forma				Pro Forma
	Bancshares, Inc.		Bancorp, Inc.			Adjustments				Combined
Interest income
Loans, including fees	$	13,205,913	$	5,159,318		$	38,328		(10)	$	18,403,559
Investment securities - taxable		561,038		248,365			-				809,403
Investment securities - tax exempt		462,305		87,608			-				549,913
Federal funds sold and other interest earning assets		58,362		34,489			-				92,851
Total interest income		14,287,618		5,529,780			38,328				19,855,726
Interest expense
Deposits		2,429,496		903,976			(277,363	)	(11)		3,056,109
Securities sold under repurchase agreements		95,710		-			-				95,710
Federal Home Loan Bank advances and other borrowings		25,726		176,127			-				201,853
Total interest expense		2,550,932		1,080,103			(277,363	)			3,353,672
Net interest income		11,736,686		4,449,677			315,691				16,502,054
Provision for loan losses		475,000		137,569			-				612,569
Net interest income after provision for loan losses		11,261,686		4,312,108			315,691				15,889,485
Noninterest income
Service charges on deposit accounts		414,501		91,577			-				506,078
Mortgage banking income		684,664		467,083			-				1,151,747
Bank owned life insurance income		127,473		62,441			-				189,914
Unrealized gain on equity security		13,046		-			-				13,046
Write down of other real estate owned		-		(299,496	)		-				(299,496	)
Gain on sale of SBA loans		63,635		-			-				63,635
Other fees and commissions		94,277		179,972			-				274,249
Total noninterest income		1,397,596		501,577			-				1,899,173
Noninterest expense
Salaries		4,114,143		2,113,947			-				6,228,090
Employee benefits		1,183,414		472,124			-				1,655,538
Occupancy		552,265		311,463			-				863,728
Furniture and equipment		501,267		261,105			-				762,372
Acquisition		1,612,321		735,018			-				2,347,339
Other		1,970,913		1,201,201			(6,246	)	(12)		3,165,868
Total noninterest expense		9,934,323		5,094,858			(6,246	)			15,022,935
Income (loss) before income tax expense (benefit)		2,724,959		(281,173	)		321,937				2,765,723
Income tax expense (benefit)		460,350		(91,539	)		88,589				457,400
Net income (loss)	$	2,264,609	$	(189,634	)	$	233,348			$	2,308,323
Earnings per share - basic and diluted	$	0.76	$	(0.17	)					$	0.77
Weighted average shares outstanding - basic and diluted		2,980,372		1,131,644							2,980,372

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

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Farmers and Merchants Bancshares, Inc. and Subsidiaries

Pro Forma Condensed Combined Statement of Income

Year Ended December 31, 2019

(Unaudited)

	Farmers and
	Merchants			Carroll			Pro Forma				Pro Forma
	Bancshares, Inc.			Bancorp, Inc.			Adjustments				Combined
Interest income
Loans, including fees	$	16,894,657		$	6,994,226		$	51,104		(10)	$	23,939,987
Investment securities - taxable		869,457			427,313			-				1,296,770
Investment securities - tax exempt		580,384			125,496			-				705,880
Federal funds sold and other interest earning assets		357,840			215,763			-				573,603
Total interest income		18,702,338			7,762,798			51,104				26,516,240
Interest expense
Deposits		3,519,960			1,763,850			(332,615	)	(11)		4,951,195
Securities sold under repurchase agreements		114,641			-			-				114,641
Federal Home Loan Bank advances and other borrowings		45,352			491,316			-				536,668
Total interest expense		3,679,953			2,255,166			(332,615	)			5,602,504
Net interest income		15,022,385			5,507,632			383,719				20,913,736
Provision for loan losses		40,000			24,528			-				64,528
Net interest income after provision for loan losses		14,982,385			5,483,104			383,719				20,849,208
Noninterest income
Service charges on deposit accounts		663,675			157,123			-				820,798
Mortgage banking income		397,710			230,929			-				628,639
Bank owned life insurance income		364,729			88,189			-				452,918
Unrealized gain on equity security		16,232			-			-				16,232
Gain on sale of securities		-			92,253			-				92,253
Write down of other real estate owned		(210,150	)		(70,722	)		-				(280,872	)
Gain on sale of SBA loans		139,635			-			-				139,635
Other fees and commissions		121,836			208,219			-				330,055
Total noninterest income		1,493,667			705,991			-				2,199,658
Noninterest expense
Salaries		5,472,609			2,666,954			-				8,139,563
Employee benefits		1,352,202			592,500			-				1,944,702
Occupancy		771,917			438,001			-				1,209,918
Furniture and equipment		614,543			297,006			-				911,549
Other		2,664,543			1,772,643			8,328		(12)		4,445,514
Total noninterest expense		10,875,814			5,767,104			8,328				16,651,246
Income before income taxes		5,600,238			421,991			375,391				6,397,620
Income taxes		1,039,334			72,298			103,298				1,214,930
Net income	$	4,560,904		$	349,693		$	272,093			$	5,182,690
Earnings per share - basic and diluted	$	1.54		$	0.31						$	1.76
Weighted average shares outstanding - basic		2,952,904			1,122,759							2,952,904
Weighted average shares outstanding - diluted		2,952,904			1,125,179							2,952,904

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

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Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

1. The following table presents the preliminary allocation of the consideration paid for the acquired assets and assumed liabilities in the Merger as of the effective date of the Merger. The preliminary allocation results in goodwill of $7.0 million, which is the primary reason for the increase in equity.

	Fair value
Assets acquired:
Cash	$	5,441,610
Certificates of deposit in other banks		750,000
Securities available for sale		12,922,620
Restricted stock, at cost		926,700
Loans held for sale		1,743,195
Loans		145,080,950
Premises and equipment		2,684,240
Other real estate owned		1,411,605
Other assets		5,388,546
Core deposit intangible		83,282
Total assets	$	176,432,748
Liabilities assumed:
Deposits	$	145,513,085
FHLB advances		13,000,000
Other liabilities		90,143
Total liabilities		158,603,228
Net assets acquired		17,829,520
Cash condsideration paid		24,807,728
Total estimated goodwill	$	6,978,208

2. Securities held to maturity were reclassified to available for sale and adjusted by $58,825 to reflect the fair value.

3. Mortgage loans held for sale were adjusted by $40,245 to reflect the fair value.

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4. Loans were adjusted based upon lifetime credit loss expectations, current interest rates and liquidity, and the elimination of Carroll’s allowance for loan losses as follows to reflect the fair value:

Credit discount on performing loans	$	(2,478,000	)
Credit discount on impaired loans		(927,000	)
Yield premium		2,339,000
Allowance for loan losses		1,139,940
Deferred fees		(146,090	)
Net adjustment to loans	$	(72,150	)

5. Premises and equipment were adjusted by $64,827 to reflect the fair value of land, buildings and equipment. Appraisals and sales transactions were used as appropriate to determine the fair value.

6. Deferred income taxes adjustment relates to all of the fair value adjustments and was calculated using a blended statutory tax rate of 27.5175%.

7. Fair value of the core deposit intangible is $83,282 and will be amortized over 10 years.

8. Adjustments to right of use asset and lease liability to reflect the elimination of several office leases.

9. Adjustment of $616,095 to reflect the fair value of interest bearing time deposits based on current interest rates for similar deposits.

10. Accretion of the credit discount on performing loans, net of the amortization of the yield premium.

11. Accretion of the fair value adjustment of interest bearing time deposits.

12. Amortization of the core deposit intangible.

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