FARMERS & MERCHANTS BANCORP INC Income Taxes Disclosure
Note 11 – Income Taxes
The components of income tax expense for the years ended December 31 are as follows:
|
|
(In Thousands) |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
8,846 |
|
|
$ |
6,144 |
|
|
$ |
3,052 |
|
State |
|
|
496 |
|
|
|
184 |
|
|
|
287 |
|
Total current |
|
|
9,342 |
|
|
|
6,328 |
|
|
|
3,339 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(119 |
) |
|
|
271 |
|
|
|
2,182 |
|
State |
|
|
(7 |
) |
|
|
36 |
|
|
|
46 |
|
Total deferred |
|
|
(126 |
) |
|
|
307 |
|
|
|
2,228 |
|
Total Income Tax |
|
$ |
9,216 |
|
|
$ |
6,635 |
|
|
$ |
5,567 |
|
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
Amount |
|
|
% of Pretax |
|
|
Amount |
|
|
% of Pretax |
|
|
Amount |
|
|
% of Pretax |
|
||||||
|
|
(000's) |
|
|
Income |
|
|
(000's) |
|
|
Income |
|
|
(000's) |
|
|
Income |
|
||||||
|
$ |
8,930 |
|
|
|
21.00 |
% |
|
$ |
6,840 |
|
|
|
21.00 |
% |
|
$ |
5,954 |
|
|
|
21.00 |
% |
|
(Decrease) increase resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State income tax, net of federal benefit |
|
|
386 |
|
|
|
0.91 |
% |
|
|
174 |
|
|
|
0.53 |
% |
|
|
264 |
|
|
|
0.93 |
% |
Tax exempt interest |
|
|
(121 |
) |
|
|
-0.29 |
% |
|
|
(106 |
) |
|
|
-0.32 |
% |
|
|
(129 |
) |
|
|
-0.46 |
% |
Investments reported under proportional |
|
|
46 |
|
|
|
0.11 |
% |
|
|
65 |
|
|
|
0.20 |
% |
|
|
- |
|
|
|
0.00 |
% |
Section 831 deduction |
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
(187 |
) |
|
|
-0.66 |
% |
Other |
|
|
(25 |
) |
|
|
-0.06 |
% |
|
|
(338 |
) |
|
|
-1.04 |
% |
|
|
(335 |
) |
|
|
-1.18 |
% |
Total Income Tax |
|
$ |
9,216 |
|
|
|
21.67 |
% |
|
$ |
6,635 |
|
|
|
20.37 |
% |
|
$ |
5,567 |
|
|
|
19.63 |
% |
Deferred tax assets and liabilities at December 31 are comprised of the following:
|
|
(In Thousands) |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred Tax Assets: |
|
|
|
|
|
|
||
Allowance for credit losses |
|
$ |
6,332 |
|
|
$ |
6,009 |
|
Deferred compensation |
|
|
564 |
|
|
|
578 |
|
Net unrealized loss on available-for-sale securities |
|
|
3,160 |
|
|
|
6,705 |
|
Fair value adjustments |
|
|
127 |
|
|
|
623 |
|
Other |
|
|
173 |
|
|
|
58 |
|
Total deferred tax assets |
|
|
10,356 |
|
|
|
13,973 |
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
||
Accreted discounts on bonds |
|
|
312 |
|
|
|
169 |
|
Depreciation |
|
|
1,870 |
|
|
|
2,066 |
|
FHLB stock dividends |
|
|
580 |
|
|
|
762 |
|
Intangible amortization |
|
|
1,941 |
|
|
|
2,178 |
|
Loan servicing rights |
|
|
1,141 |
|
|
|
1,247 |
|
Prepaids |
|
|
605 |
|
|
|
560 |
|
Other |
|
|
796 |
|
|
|
462 |
|
Total deferred tax liabilities |
|
|
7,245 |
|
|
|
7,444 |
|
Net Deferred Tax Asset |
|
$ |
3,111 |
|
|
$ |
6,529 |
|
For the years ended December 31, 2025, 2024 and 2023, all state income taxes were paid to the State of Indiana.
The Peoples Federal Savings and Loan acquisition included a net operating loss (NOL) carryforward of approximately $2.8 million that had a remaining balance of $824 thousand and $1.4 million at December 31, 2025 and 2024, respectively. The NOL carryforward will expire in 2027.
The Company has additional paid-in capital that is considered restricted resulting from the acquisition of Perpetual in 2021 of approximately $2.8 million and from the acquisition of Peoples in 2022 of approximately $2.2 million. No deferred tax liability is required to be recorded for the Company’s tax bad debt reserves arising before December 31, 1987, unless it is apparent that the reserves will reverse in the near future. Unrecognized deferred taxes on these reserves would total $1.0 million. If the portion of retained earnings representing these reserves is used for any purpose other than to absorb bad debts, it will be added to future taxable income and the related tax will be recognized as expense.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 22, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.