Company: FMFG
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0001437749-25-007333
Chunk: 5

Company: Farmers & Merchants Bancshares, Inc.
Filing Date: 2025-03-13
Form: 10-K
Item: Item 1
Chunk 5
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 are secured by real estate located in or around Maryland. Although Management believes that the loan portfolio is diversified, its performance will be influenced by the economy of the region.

3

Investment Activities

The Bank maintains a portfolio of investment securities to provide liquidity and income. The current portfolio of $146.2 million represented approximately 17% of the total assets at December 31, 2024 and is invested primarily in mortgage-backed securities and municipal bonds.

A key objective of the investment portfolio is to provide a balance in the Bank’s asset mix of investments and loans consistent with its liability structure, and to assist in management of interest rate risk. The investments augment the Bank’s capital position, providing the necessary liquidity to meet fluctuations in credit demand of the community and fluctuations in deposit levels. In addition, the portfolio provides collateral for pledging against public funds and repurchase agreements and an opportunity to minimize income tax liability. Finally, the investment portfolio is designed to provide income for the Bank. In view of the above objectives, only securities that meet conservative investment criteria are purchased.

Insurance Activities

As noted above, the Insurance Subsidiary is one protected cell of a protected cell captive insurance company. From its formation through November 7, 2022, the Insurance Subsidiary reinsured certain risks of the Bank as well as other groups of related entities that were not affiliated with the Bank for which it received premiums. The related insurance policies were issued each year. Under the reinsurance arrangement, the premium earned by the Insurance Subsidiary for a particular year could be retained as earnings (subject to any regulatory capital and surplus requirements imposed by applicable law) once the claim deadline for that year’s policy had passed. As the sole owner of the Insurance Subsidiary, the Company may terminate the Insurance Subsidiary’s participation in this reinsurance arrangement with respect to a future year at any time. The Company chose to not renew the most recent policy when it expired on November 6, 2022. As of December 31, 2024, the Insurance Subsidiary’s only activity was paying claims for events that occurred prior to November 7, 2022.

Competition

The banking business, in all of its phases, is highly competitive. Within our market areas, we compete with commercial banks, (including local banks and branches or affiliates of other larger banks), savings and loan associations and credit unions for loans and deposits, with consumer finance companies for loans, and with other financial institutions for various types of products