Farmers Merchants Bancshares Inc
For the period ended Dec 31, 2024. Filed Mar 13, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 13, 2025
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What changed in Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-11.
0001437749-24-007276
Item 1A. RISK FACTORSCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-13.
0001437749-25-007333
Item 1A. RISK FACTORSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 71 previous paragraphs and 76 current paragraphs.
65 unchanged; 6 reworded; 5 added; 0 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
The Company is subject to risks from a proxy* contest *and/or the actions of activist stockholders.
Current report
The Company could from time to time receive notices of a stockholder’s intention to submit proposals for approval and/or nominate candidates for election to the Company’s Board of Directors at an annual or special meeting of stockholders and, in connection therewith, solicit proxies from our stockholders. In the event that the Company’s Board of Directors disagrees with such a proposal and/or believes that such candidates would not complement the rest of the Board, the Company might oppose such proposal and/or candidates in its proxy statement for that meeting. A proxy contest or related activities on the part of the proposing stockholder could adversely affect our business for a number of reasons, including, without limitation, the following:
Current report
Proxy contests could cause our stock price to experience periods of volatility. Further, if a proxy contest results in a change in control of the Company’s Board of Directors, then such an event could subject us to risks relating to certain third parties’ rights under our existing contractual obligations, which could adversely affect our business.
Current report
The Company has adopted a stockholder rights agreement that could make it difficult for a person or group of persons to acquire more than 11% of our issued and outstanding stock. *** ***
Current report
On July 30, 2024, in an effort to protect the interests of the Company and its stockholders by, among other things, guarding against hostile takeover attempts, abusive tactics, and other tactics potentially disadvantageous to the interests of the Company and its stockholders, the Company’s Board of Directors adopted a stockholder rights agreement pursuant to which it issued to the record holders of common stock one right in respect of each share of common stock held by such holders as of the close of business on August 12, 2024 (the “Rights Agreement”). In general terms, the Rights Agreement imposes significant dilution upon any person or group (other than the Company or certain related persons) that is or becomes the beneficial owner of 11% or more of the outstanding shares of common stock without the prior approval of the Board. The Rights Agreement could make it difficult for a stockholder or group of stockholders acting together to acquire more than 11% of the outstanding shares of our common stock without causing significant dilution to that stockholder or group’s ownership interest in the Company. A more complete summary of the Rights Agreement, which is filed as Exhibit 4.1 to this Annual Report, is set forth in the Company’s Current Report on Form 8-K that was filed with the SEC on July 30, 2024.
Reworded paragraphs (6)
Previous wording
Our failure to execute on our acquisition strategy could adversely affect our business, results of operations, financial condition and future prospects risks of unknown or contingent liabilities.
Current wording
If we were to pursue or consummate an acquisition, then our failure to execute on our acquisition strategy could adversely affect our business, results of operations, financial condition and future prospects risks of unknown or contingent liabilities.
Previous wording
Most of the Bank’s loans are made to borrowers located in Maryland, and many of these loans, including construction and land development loans, are secured by real estate. At December 31, 2023, approximately 4%, or $20 million, of our total loans were real estate acquisition, construction and development loans that were secured by real estate. Accordingly, a decline in local economic conditions would likely have an adverse impact on our financial condition and results of operations, and the impact on us would likely be greater than the impact felt by larger financial institutions whose loan portfolios are geographically diverse. We cannot guarantee that any risk management practices we implement to address our geographic and loan concentrations will be effective to prevent losses relating to our loan portfolio.
Current wording
Most of the Bank’s loans are made to borrowers located in Maryland, and many of these loans, including construction and land development loans, are secured by real estate. Accordingly, a decline in local economic conditions would likely have an adverse impact on our financial condition and results of operations, and the impact on us would likely be greater than the impact felt by larger financial institutions whose loan portfolios are geographically diverse. We cannot guarantee that any risk management practices we implement to address our geographic and loan concentrations will be effective to prevent losses relating to our loan portfolio.
Previous wording
As of December 31, 2023, investment securities in our investment portfolio having a cost basis of $186.9 million and a market value of $164.1 million were classified as available-for-sale pursuant to FASB Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, relating to accounting for investments. Topic 320 requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in stockholders’ equity (net of tax) as accumulated other comprehensive gain or loss. There can be no assurance that future market performance of our investment portfolio will enable us to realize income from sales of securities. Stockholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. Moreover, there can be no assurance that the market value of our investment portfolio will not decline, causing a corresponding decline in stockholders’ equity.
Current wording
As of December 31, 2024, investment securities in our investment portfolio having a cost basis of $149.0 million and a market value of $125.7 million were classified as available-for-sale pursuant to FASB Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, relating to accounting for investments. Topic 320 requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in stockholders’ equity (net of tax) as accumulated other comprehensive gain or loss. There can be no assurance that future market performance of our investment portfolio will enable us to realize income from sales of securities. Stockholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. Moreover, there can be no assurance that the market value of our investment portfolio will not decline, causing a corresponding decline in stockholders’ equity.
Previous wording
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carry forward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carry forwards expiring unused) exists, more positive evidence than negative evidence will be necessary. At December 31, 2023, our net deferred tax assets were valued at $8.3 million.
Current wording
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carry forward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carry forwards expiring unused) exists, more positive evidence than negative evidence will be necessary. At December 31, 2024, our net deferred tax assets were valued at $7.6 million.
Previous wording
In April 2018, we were notified by the IRS that our 2016 U.S. consolidated federal tax return was selected for audit. In April 2020, we were notified by the IRS that our 2017 and 2018 U.S. consolidated federal tax returns had also been selected for audit. As part of its audits, the IRS reviewed the deductions related to, and the income generated by, the Insurance Subsidiary. Following the completion of its audits, the IRS determined that it disagreed with our tax treatment of the Insurance Subsidiary in 2016, 2017 and 2018, and we have appealed such determination. Management cannot predict whether our appeal and defense of our tax positions will be successful. If our appeal is not successful, then we could be required to pay taxes, interest, and penalties totaling approximately $1.9 million as of December 31, 2023 for the tax years under audit 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. See Note 12 to the consolidated financial statements presented elsewhere in this report for further information about this risk.
Current wording
In April 2018, we were notified by the IRS that our 2016 U.S. consolidated federal tax return was selected for audit. In April 2020, we were notified by the IRS that our 2017 and 2018 U.S. consolidated federal tax returns had also been selected for audit. As part of its audits, the IRS reviewed the deductions related to, and the income generated by, the Insurance Subsidiary. Following the completion of its audits, the IRS determined that it disagreed with our tax treatment of the Insurance Subsidiary in 2016, 2017 and 2018, and we have appealed such determination. Management cannot predict whether our appeal and defense of our tax positions will be successful. If our appeal is not successful, then we could be required to pay taxes, interest, and penalties totaling approximately $2.0 million as of December 31, 2024 for the tax years under audit 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. See Note 11 to the consolidated financial statements presented elsewhere in this report for further information about this risk.
Previous wording
In August 2023, the IRS notified us that our 2019 and 2020 U.S. consolidated federal tax returns had been selected for audit. In January 2023, the IRS notified us that our 2021 U.S. consolidated federal tax return had also been selected for audit. Management cannot predict whether any of the tax positions taken in our 2019, 2020 or 2021 returns will be challenged by the IRS or, if challenged, whether we will be successful in defending those tax positions. If we are not successful in defending a challenge, then we may be required to amend the applicable tax return and pay additional taxes, interest, fines and/or penalties of approximately $1.5 million.
Current wording
In August 2023, the IRS notified us that our 2019 and 2020 U.S. consolidated federal tax returns had been selected for audit. In January 2023, the IRS notified us that our 2021 U.S. consolidated federal tax return had also been selected for audit. Management believes that the Insurance Subsidiary is the focus of these audits, but that might not be the case. Management cannot predict whether any of the tax positions taken in our 2019, 2020 or 2021 returns will be challenged by the IRS or, if challenged, whether we will be successful in defending those tax positions. If we are not successful in defending a challenge to our tax positions, then we could be required to amend the applicable tax return and pay additional taxes, interest, fines and/or penalties. More specifically, if the Insurance Subsidiary is the focus of these audits and we are not successful in defending a challenge to our tax positions related thereto, then we estimate that we could be required to pay additional taxes, interest, fines and/or penalties of approximately $1.6 million.