What changed in this filing

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Item 1. Business

2024-03-14 compared with 2023-03-15 · 209 added, 153 removed, 486 unchanged (43% of the section changed)

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As a registered bank holding company, FMCB is subject to regulation, supervision, and examination by the Board of

Governors of the Federal Reserve System (“FRB”) and by the California Department of Financial Protection and Innovation (“DFPI”).

The Company’s principal business is to serve as a holding company for the Bank and for other banking or banking

related subsidiaries, which the Company may establish or acquire.

As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds received from

Governors of the Federal Reserve System (“Federal Reserve”) and by the California Department of Financial Protection and Innovation (“DFPI”).

The Company’s principal business is to serve as a holding company for the Bank and for other banking or

banking related subsidiaries, which the Company may establish or acquire.

As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds received

from the Bank.

Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company.

See “Supervision and Regulation - Dividends and Other Transfer of Funds.” The Company’s outstanding common

stock as of December 31, 2022, consisted of 768,337 shares of common stock, $0.01 par value, and no shares of preferred stock were issued or outstanding.

During 2003, the Company formed a wholly-owned Connecticut statutory business trust, FMCB Statutory Trust I, for the sole purpose of issuing trust-preferred securities.

See Note 9 “Long-Term Subordinated

Debentures” located in “Item 8.

Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

See “Supervision and Regulation - Dividends and Other Transfer of Funds.” The Company’s outstanding

common stock as of December 31, 2023, consisted of 747,971 shares of common stock, $0.01 par value.

No shares of preferred stock were issued or outstanding as of December 31, 2023.

The Company operates all financial service activities through its wholly-owned banking subsidiary, Farmers & Merchants Bank of Central California, which was organized in 1916.

The Bank was incorporated under

the laws of the State of California as a non-FRB member, California state-chartered bank subject to primary regulation, supervision and examination by the Federal Deposit Insurance Corporation (“FDIC”) and by the DFPI.

The Bank’s two wholly-owned

subsidiaries are Farmers & Merchants Investment Corporation and Farmers/Merchants Corporation.

Farmers & Merchants Investment Corporation is currently dormant, and Farmers/Merchants Corporation acts as trustee on deeds of trust originated

the laws of the State of California as a non-Federal Reserve member, California state-chartered bank subject to primary regulation, supervision and examination by the Federal Deposit Insurance Corporation (“FDIC”) and by the DFPI.

The Bank’s two

wholly-owned subsidiaries are Farmers & Merchants Investment Corporation and Farmers/Merchants Corporation.

Farmers & Merchants Investment Corporation is currently dormant, and Farmers/Merchants Corporation acts as trustee on deeds of

trust originated by the Bank.

The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act, as amended (“FDIA”), up to applicable limits.

See “Supervision and Regulation – Deposit Insurance.”

F & M Bancorp, Inc.

was created in March 2002 to protect the name “F & M Bank.” During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name, “F & M

In March 2002, F & M Bancorp, Inc.

was created to protect the name “F & M Bank.” During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name, “F & M

Bank,” as part of a larger effort to enhance the Company’s image and build brand name recognition.

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and signage were redesigned to incorporate the trade name, “F & M Bank.”

In 2003, the Company formed a wholly-owned Connecticut statutory business trust, FMCB Statutory Trust I, for the sole purpose of issuing trust-preferred securities.

See Note 9 “Long-Term Subordinated Debentures”

located in Item 8.

“Financial Statements and Supplementary Data” in this Form 10-K.

The Company’s primary service area is the mid Central Valley of California, including Sacramento, San Joaquin, Solano, Stanislaus and Merced counties, and the east region of the San Francisco Bay Area, including

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The Company operates 29 full-service branches and 3 stand-alone ATMs.

The Company’s market areas include the following Metropolitan Statistical Areas (“MSA”), with data as of January 23, 2023 (the most

recent data available) set forth below:

The Sacramento MSA (Sacramento County Only), with branches in Sacramento, Elk Grove, Galt and Walnut Grove.

This county had a Population of 1.6 million and a Per Capita Income of approximately $36,152.

The MSA includes significant

employment in the following sectors:

The following statistical data, for the counties in our market area, are set forth below:

Sacramento County, with branches in Sacramento, Elk Grove, Galt and Walnut Grove.

This county had a Population of 1.6 million and a Median Household Income of approximately $83,985.

Significant employment sectors include the

government, education & health trade, and transportation & utilities.

Unemployment was at 4.7%.

The Stockton-Lodi MSA, with branches in Lodi, Linden, Stockton, Lockeford and Manteca.

This MSA had a Population of 0.79 million and a Per Capita Income of approximately $30,628.

The MSA includes significant employment in the following

San Joaquin County, with branches in Lodi, Linden, Stockton, Lockeford and Manteca.

This county had a Population of 0.79 million and a Median Household Income of approximately $82,837.

Significant employment sectors include the

trade, transportation & utilities, government, and education & health services.

Unemployment was at 6.8%.

The Vallejo-Fairfield MSA (Rio Vista Only, census tract 2535.01 & 2535.02), with a branch in Rio Vista.

This census tract had a Population of approximately 10,000 and a Per Capita Income of approximately $44,012.

The city includes

Solano County, with a branch in Rio Vista.

This county had a Population of 0.45 million and a Median Household Income of approximately $97,037.

Significant employment in the following industries:

agriculture, manufacturing, tourism and other services.

education and health services, trade,

transportation and utilities, and government.

Unemployment was at 5.1%.

The Modesto MSA, with branches in Modesto, Riverbank and Turlock.

This MSA had a Population of 0.55 million and a Per Capita Income of approximately $29,195.

The MSA includes significant employment in the following sectors:

Stanislaus County, with branches in Modesto, Riverbank and Turlock.

This county had a Population of 0.55 million and a Median Household Income of approximately $74,872.

Significant employment in the following sectors:

transportation & utilities, educational & health services, and government.

Unemployment was at 6.9%.

The Merced MSA, with branches in Hilmar and Merced.

This MSA had a Population of 0.29 million and a Per Capita Income of approximately $24,521.

The MSA includes significant employment in the following sectors:

government, trade,

transportation & utilities, and farming.

Merced County, with branches in Hilmar and Merced.

This county had a Population of 0.29 million and a Median Household Income of approximately $64,772.

Significant employment in the following sectors:

government, trade, transportation

& utilities, and farming.

Unemployment was at 10.2%.

The Oakland-Hayward-Berkeley MSA, with branches in Concord, Walnut Creek, and Oakland.

This MSA had a Population of 2.8 million and a Per Capita Income of approximately $53,736.

The MSA includes significant employment in the following

professional & business services, educational & health services, trade, and transportation & utilities.

Alameda County, with a branch in Oakland.

This county had a Population of 2.8 million and a Median Household Income of approximately $122,488.

Significant employment in the following sectors:

professional & business services,

educational & health services, trade, and transportation & utilities.

Unemployment was at 4.5%.

The Napa MSA, with a branch in Napa.

This MSA had a Population of 0.14 million and a Per Capita Income of approximately $49,641.

The MSA includes significant employment in the following sectors:

manufacturing, leisure &

hospitality, trade, and educational & health services.

Contra Costa County, with branches in Concord and Walnut Creek.

This county had a Population of 2.8 million and a Median Household Income of approximately $110,455.

The Significant employment in the following sectors:

& business services, educational & health services, trade, and transportation & utilities.

Unemployment was at 4.5%.

Napa County, with a branch in Napa.

This county had a Population of 0.13 million and a Median Household Income of approximately $105,809.

Significant employment in the following sectors:

manufacturing, leisure & hospitality,

trade, and educational & health services.

Unemployment was at 4.1%.

Through its network of banking offices, the Company emphasizes personalized service along with a broad range of banking services to businesses and individuals located in the service areas of its offices.

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The market shares of the Bank and all other banks within the eight counties in California in which we operate, at June 30, 2023 (the most recent data available), as reported by FDIC, are as follows:

Deposit Share

(Dollars in thousands)

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expense totaled $71 million, representing 68% of our total non-interest expense.

Expenses related to education, training, recruiting and placement exceeded $500,000 for the period ended December 31, 2022.

Expenses, excluding salaries, related to education, training, recruiting and placement was approximately $500,000 for the period ended December 31, 2023.

We are led by an experienced management team with substantial experience in the markets we serve and the financial products we offer.

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We also pay performance-based bonuses to our employees.

2022, total bonus compensation amounted to over 30% of base salaries.

different performance based bonus programs for those in business generating roles and those in administrative support roles to ensure incentives align with job responsibilities and proper segregation of duties.

During 2023, total bonus

compensation amounted to over 30% of base salaries.

We believe that this “pay-for-performance” approach allows us to effectively recruit and retain key employees.

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employees receive these contributions regardless of whether they make individual contributions to our 401(K)

During 2022 total expenses for the Profit Sharing Plan amounted to over 10% of base salaries, a level that we believe helps us in recruitment and retention.

During 2023 total contributions for the Profit Sharing Plan amounted to over 10% of base salaries, a level that we believe helps us in recruitment and retention.

Medical and Other Benefits

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Included are college credit courses at accredited colleges and universities, continuing education courses and certification exams.

Diversity and Inclusion

Diversity, Equity, and Inclusion (“DE&I”)

To foster a deeper understanding regarding diversity and inclusion, the Company assigns all employees diversity and inclusion training - Diversity Made Simple.

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As of December 31, 2023, all employees had met their diversity and inclusion training obligations.

Our DE&I efforts focus on shared commitment and action across

business lines to foster a culture of belonging and inclusion among our colleagues.

Our efforts extend to our markets by strengthening our DE&I efforts in our relationships with customers and the communities that we live in and serve .

In 2023, we used our expertise to provide loans and investments as well as financial support to promote affordable housing, provide small business lending, and advance neighborhood development through philanthropic support.

These initiatives and

investments create opportunities for individuals, families, and businesses to fully participate in and share the rewards of building economic stability in our communities.

Harassment Prevention

The Company assigns all employees prohibitive harassment training.

The Company assigns all employees preventative harassment training.

Every two years non-supervisory employees receive one hour of harassment prevention training while

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important in retaining and growing our employees.

Succession Planning

The Company has a succession planning process led by the Board of Directors and executive management.

The Board engages in strategic planning sessions, which includes board succession plans and succession plans for

executive management and other key positions.

Succession plans are designed to ensure a smooth and orderly transition.

These succession plans are discussed with our regulators during the examination process.

Government Policies

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major portion of the Company’s earnings.

These rates are highly sensitive to many factors that are beyond the control of the Company and the Bank, such as inflation, recession, unemployment, and the monetary policy of the FRB.

The impact that

changes in economic conditions might have on the Company and the Bank cannot be predicted.

The business of the Company is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB.

The FRB implements national monetary

policies (with objectives such as curbing inflation and maximum employment, stable prices, and moderate long-term interest rates) through its open-market operations in U.S.

Government securities by adjusting the required level of reserves for

depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions.

The actions of the FRB in these areas influence the growth of bank loans and leases, investments, and deposits and affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities.

The nature and impact on the Company of any future changes in monetary and fiscal policies cannot be predicted.

These rates are highly sensitive to many factors that are beyond the control of the Company and the Bank, such as inflation, recession, unemployment, and the monetary policy of the Federal Reserve.

impact that changes in economic conditions might have on the Company and the Bank cannot be predicted.

The business of the Company is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Federal Reserve.

The Federal Reserve implements

national monetary policies (with objectives such as curbing inflation and maximum employment, stable prices, and moderate long-term interest rates) through its open-market operations in U.S.

Government securities by adjusting the required level

of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions.

The actions of the Federal Reserve in these areas

influence the growth of bank loans and leases, investments, and deposits and affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities.

The nature and impact on the Company of any future changes in monetary

and fiscal policies cannot be predicted.

From time to time, legislative acts, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive

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Bank holding companies and banks are extensively regulated under both federal and state law.

The regulation is intended primarily for the protection of the banking system and the Deposit Insurance Fund and

clients of insured depository institutions and not for the benefit of stockholders of the Company.

The regulation is intended primarily for the protection of the banking system and the Deposit Insurance Fund (“DIF”)

and clients of insured depository institutions and not for the benefit of stockholders of the Company.

This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory

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Accordingly, the Company’s operations are subject to extensive

regulation and examination by the FRB.

The Company is required to file with the FRB quarterly and annual reports and such additional information as the FRB may require pursuant to the BHCA.

The FRB conducts periodic examinations of the Company.

The FRB may require that the Company terminate an activity, terminate control of, liquidate, or divest certain subsidiaries or affiliates when the FRB believes the activity or the control of the subsidiary or

affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries.

The FRB also has the authority to regulate provisions of certain bank holding company debt.

Under certain circumstances,

the Company must file written notice with, and obtain approval from, the FRB prior to purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the FRB, a bank holding company and its non-banking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with an extension of credit, lease

or sale of property, or furnishing of services.

For example, with certain exceptions, a bank may not condition an extension of credit on a promise by its customer to obtain other services provided by it, its holding company or other subsidiaries,

or on a promise by its customer not to obtain other services from a competitor.

regulation and examination by the Federal Reserve.

The Company is required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA.

The Federal Reserve

conducts periodic examinations of the Company.

The Federal Reserve may require that the Company terminate an activity, terminate control of, liquidate, or divest certain subsidiaries or affiliates when the Federal Reserve believes the activity or the control of

the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries.

The Federal Reserve also has the authority to regulate provisions of certain bank holding company debt.

Under certain circumstances, the Company must file written notice with, and obtain approval from, the Federal Reserve prior to purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the Federal Reserve, a bank holding company and its non-banking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with an extension of

credit, lease or sale of property, or furnishing of services.

For example, with certain exceptions, a bank may not condition an extension of credit on a promise by its customer to obtain other services provided by it, its holding company or other

subsidiaries, or on a promise by its customer not to obtain other services from a competitor.

In addition, federal law imposes certain restrictions on transactions between Farmers & Merchants Bancorp and its subsidiaries.

Further, the Company is required

by the FRB to maintain certain levels of capital.

Further, the Company

is required by the Federal Reserve to maintain certain levels of capital.

See “Capital Standards.”

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However, the Company, subject to the prior notice

to, and/or approval of, the FRB, may engage in any, or acquire shares of companies engaged in, any activities that are deemed by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

to, and/or approval of, the Federal Reserve, may engage in any, or acquire shares of companies engaged in any, activities that are deemed by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a

proper incident thereto.

A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner.

In addition, it is the FRB’s

policy, that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or

adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.

This support may be required at times when a bank holding company may not be able to provide

such support.

A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB’s

regulations or both.

In addition, it is the Federal

Reserve’s policy, that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress

or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.

This support may be required at times when a bank holding company may not be able to

provide such support.

A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a

violation of the Federal Reserve’s regulations or both.

The Company is not a financial holding company for purposes of the BHCA.

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reporting, proxy solicitation and other requirements and restrictions of the Exchange Act.

The Bank, as a California-chartered non-FRB member bank, is subject to primary supervision, periodic examination and regulation by the DFPI and the FDIC.

If, as a result of an examination of the Bank, the FDIC

should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory, or that the Bank or its management is violating or has

violated any law or regulation, various remedies are available to the FDIC.

Such remedies include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can

be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a

California-chartered bank would result in a revocation of the Bank’s charter.

The Bank, as a California-chartered non-Federal Reserve member bank, is subject to primary supervision, periodic examination and regulation by the DFPI and the FDIC.

If, as a result of an examination of the Bank,

the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory, or that the Bank or its management is violating or

has violated any law or regulation, various remedies are available to the FDIC.

direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a California-chartered bank would result

in a revocation of the Bank’s charter.

The DFPI has many of the same remedial powers.

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changing the assessment base for federal deposit insurance from the amount of the insured deposits held by the depository institution to the depository institution’s average total consolidated assets less tangible equity, eliminating

the ceiling on the size of the FDIC’s Deposit Insurance Fund and increasing the floor on the size of the FDIC’s Deposit Insurance Fund;

the ceiling on the size of the FDIC’s DIF and increasing the floor on the size of the FDIC’s DIF;

eliminating all remaining restrictions on interstate banking by authorizing state banks to establish de novo banking offices in any state that would permit a bank chartered in that state to open a banking office at that location;

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in the so-called “Volcker Rule,” subject to numerous exceptions, prohibiting depository institutions and affiliates from certain investments in, and sponsorship of, hedge funds and private equity funds and from engaging in proprietary

Many of the law’s provisions have been implemented by rules and regulations of the federal banking agencies.

The law contains many provisions which have particular relevance to our business, including provisions

that have resulted in adjustments to our FDIC deposit insurance premiums and that resulted in increased capital and liquidity requirements, increased supervision, increased regulatory and compliance risks and costs and other operational costs and

expenses, reduced fee-based revenues and restrictions on some aspects of our operations, and increased interest expense on our demand deposits.

On May 24, 2018, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act (“Economic Growth Act”), which repealed or modified certain provisions of the Dodd-Frank

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The Economic Growth Act also added certain protections for student borrowers.

Some aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us.

In addition, the

Economic Growth Act modified several provisions in the Dodd-Frank Act, but these remain subject to implementing regulations.

Although the reforms primarily target systemically important financial service providers (which the Bank is not), the

Dodd-Frank Act’s influence has and is expected to continue to filter down in varying degrees to smaller institutions over time.

We will continue to evaluate the effect of the Dodd-Frank Act;

however, in many respects, the ultimate impact of the

Dodd-Frank Act will not be fully known for years, and no current assurance may be given that the Dodd-Frank Act, or any other new legislative changes, will not have a negative impact on the results of operations and financial condition of the

Whether and the extent to which the Economic Growth Act, or any other new legislation, will result in additional regulatory initiatives and policies, or modifications of existing regulations and

policies, which may impact our business, cannot be predicted at this time.

No current assurance may be given that any other such legislative changes will not have a negative impact on the results of operations and financial condition of the

Company and the Bank.

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operations, both for transactions reported on the balance sheet as assets and for transactions, such as letters of credit and recourse arrangements, that are recorded as off-balance sheet items.

In 2013, the FRB, FDIC, and Office of the

Comptroller of the Currency issued final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S.

In 2013, the Federal Reserve, FDIC, and Office of

the Comptroller of the Currency issued final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S.

banking organizations.

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(set at 100% under the Basel I risk-based capital rules).

With respect to the Bank, the Basel III capital rules also revise the prompt corrective action regulations pursuant to Section 38 of the FDIA.

As of December 31, 2023, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for a “well

capitalized” institution under the Basel III capital rules on a fully phased-in basis.

With respect to the Bank, the Basel III capital rules also revise the prompt corrective action regulations pursuant to Section 38 of the FDIA.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms, which standards are commonly referred to as Basel

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Under the Basel framework, these standards were generally effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.

On July 27, 2023, the federal banking agencies issued a proposed rule to implement the final components of the Basel III standards set by the Basel Committee on Banking Supervision in 2017.

proposed rule, which would not apply to the Company and the Bank as proposed, would substantially revise the existing regulatory capital framework for institutions with $100 billion or more of assets.

Under the current U.S.

capital rules,

operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Bank.

The impact of Basel IV on us will depend on how it is implemented by the federal bank regulators.

capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Bank.

The impact of Basel IV on us

will depend on how it is implemented by the federal bank regulators.

Prompt Corrective Action (“PCA”)

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generally will be classified in the following categories based on the capital measures indicated:

Minimum to be

Categorized as

Minimum to be

Categorized as

Under-capitalized

Significantly

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and the deposit insurance premium paid by the bank to the FDIC.

As of December 31, 2022, we met the requirements to be classified as “well-capitalized” based upon the aforementioned ratios for purposes of the PCA regulations, as currently in

As of December 31, 2023, we met the requirements to be classified as “well capitalized” based upon the aforementioned ratios for purposes of the PCA regulations.

The Community Bank Leverage Ratio

On November 4, 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, known as the community bank leverage ratio

(“CBLR”) framework, for qualifying community banking organizations consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

The CBLR framework is designed to reduce the capital burden by removing the

requirements for calculating and reporting risk-based capital ratios for qualifying community-banking organizations that opt into the framework.

(“CBLR”) framework, for qualifying community banking organizations consistent with Section 201 of the Economic Growth Act.

The CBLR framework is designed to reduce the capital burden by removing the requirements for calculating and reporting

risk-based capital ratios for qualifying community banking organizations that opt into the framework.

The final rule was effective on January 1, 2020.

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with the privacy provisions of the GLBA.

Certain state laws and regulations designed to protect the privacy and security of customer information also apply to us and our subsidiaries, including laws requiring notification to affected individuals and

regulators of data security breaches and laws prohibiting sharing of customer information without the customer’s prior permission.

In June 2018, the State of California enacted The California Consumer Privacy Act of 2018 (“CCPA”).

This law became effective on January 1, 2020, and provides consumers with expansive rights and controls over their

personal information which is obtained by or shared with “covered businesses”, which includes the Bank and most other banking institutions subject to California law.

The CCPA gives consumers the right to request disclosure of information

collected about them and whether that information has been sold or shared with others, the right to request deletion of personal information subject to certain exceptions, the right to opt out of the sale of the consumer’s personal information

and the right not to be discriminated against because of choices regarding the consumer’s personal information.

The CCPA provides for certain monetary penalties and for its enforcement by the California Attorney General or consumers whose rights

under the law are not observed.

It also provides for damages as well as injunctive or declaratory relief if there has been unauthorized access, theft or disclosure of personal information due to failure to implement reasonable security

The CCPA contains several exemptions, including a provision to the effect that the CCPA does not apply where the information is collected, processed, sold or disclosed pursuant to the GLBA if the GLBA is in conflict with the CCPA.

November 2020, California voters approved state-wide Proposition 24, also known as the California Privacy Rights and Enforcement Act of 2020 (the “CPREA”) which expanded and amended certain provisions of the CCPA and created the California

Privacy Protection Agency to enforce privacy rights for Californians and impose fines for violations of such rights.

The CPREA requires businesses to not share a consumer’s personal information upon the consumer’s request, provides consumers with

an opt-out option for having their sensitive personal information used or disclosed for advertising or marketing, to obtain permission for collecting data on certain minors, and to correct a consumer’s inaccurate information upon the consumer’s

It also removed the ability of businesses to remedy violations before being penalized for violations and increased the penalties for such violations.

Most of the provisions of the CPREA took effect in 2023 but some portions, such as the

creation of the new state agency, went into effect immediately.

While GLBA-regulated nonpublic, personal information generally is exempt under the CCPA, the CCPA and certain other state laws apply to the personal information of representatives of

any business contacts that the Bank engages with who are California residents, employees who are California residents, and any other personal information that the Bank collects outside of the scope of GLBA, such as with respect to certain data

collected from visitors to our website.

The impact of these laws on the business of the Bank could result in increased operating expenses as well as additional exposure to the risk of litigation by or on behalf of consumers.

Dividends and Other Transfer of Funds

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During 2023, the Bank paid $33.3 million

in dividends to the Company.

in dividends to the Company of which $12.9 million was used for cash dividends to shareholders, $16.3 million was allocated for share repurchases and $4.1 million to cover expenses and maintain a cash reserve.

The FDIC and the DFPI also have authority to prohibit the Bank from engaging in activities that, in their opinion, constitute unsafe or unsound practices in conducting its business.

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the financial condition of the bank in question and other factors, that the FDIC or the DFPI could assert that the payment of dividends or other payments might, under some circumstances, be an unsafe or unsound practice.

Further, the FRB and the

FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by banks and bank holding companies under their jurisdiction.

Compliance with the standards set forth in such guidelines and the restrictions that

are or may be imposed under the PCA provisions of federal law could limit the amount of dividends that the Bank or the Company may pay.

An insured depository institution is prohibited from paying management fees to any controlling persons or,

with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized.

Further, the Federal

Reserve and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by banks and bank holding companies under their jurisdiction.

Compliance with the standards set forth in such guidelines and the

restrictions that are or may be imposed under the PCA provisions of federal law could limit the amount of dividends that the Bank or the Company may pay.

An insured depository institution is prohibited from paying management fees to any

controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized.

The DFPI may impose similar limitations on the Bank.

See “Prompt Corrective Action” and “Capital Standards”, above,

for a discussion of these additional restrictions on capital distributions.

See “Prompt Corrective Action” and

“Capital Standards”, above, for a discussion of these additional restrictions on capital distributions.

Transactions with Affiliates

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by two basis points consistent with the Amended Restoration Plan approved by the FDIC on June 21, 2022.

The FDIC indicated that it was taking this action in order to restore the Deposit Insurance Fund

(DIF) reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028.

The FDIC said that the reserve ratio had declined below this level because of the increase in

insured deposits since the start of the COVID-19 pandemic and other factors that affect the level of the DIF.

Under the final rule, the increase in rates will begin with the first quarterly assessment period of 2023 and will remain in effect

unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio.

The increase in assessment rates will apply to F&M Bank and is

projected to have an insignificant effect on the Company’s capital levels and net income.

The Bank’s FDIC premiums were $1.4 million, $1.2 million, and $517,000 for the three years ended December 31, 2022, 2021, and 2020, respectively.

In 2020, the Bank’s FDIC premiums were reduced by a one-time small

bank assessment credit applied by the FDIC.

This assessment credit was not available in 2021 or 2022.

Future increases in insurance premiums could have adverse effects on the operating expenses and results of operations of the Company.

The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028.

The FDIC said that the reserve ratio had declined below this level because of the increase in insured

deposits since the start of the COVID-19 pandemic and other factors that affect the level of the DIF.

Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and

until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio.

On November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closures in early 2023 of Silicon

Valley Bank and Signature Bank.

Under the final rule, the assessment base for an insured depository institution will be equal to the institution’s estimated uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion in

estimated uninsured deposits.

Under the final rule, the FDIC will collect the special assessment at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 and will continue to collect special assessments

for an anticipated total of eight quarterly assessment periods.

This special assessment does not apply to the Bank.

The Bank’s FDIC premiums were $2.4 million, $1.4 million, and $1.2 million for the three years ended December 31, 2023, 2022, and 2021, respectively.

Future increases in insurance premiums could have adverse

effects on the operating expenses and results of operations of the Company.

Management cannot predict what the FDIC insurance assessment rates will be in the future.

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may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws.

A bank’s compliance with the Community Reinvestment Act is assessed using an evaluation system, which bases CRA ratings on an institution’s lending, service and investment performance.

An unsatisfactory rating may

be the basis for denying a merger application.

A bank’s compliance with the CRA is assessed using an evaluation system, which bases CRA ratings on an institution’s lending, service and investment performance.

An unsatisfactory rating may be the basis for

denying a merger application.

The Bank’s latest CRA examination was completed by the FDIC in August 2022 and the Bank received an overall Outstanding rating in complying with its CRA obligations.

On May 5, 2022, the FDIC, Board

of Governors of the Federal Reserve System (“FRB”) and the Office of the Comptroller of the Currency (“OCC”) announced a proposal to modernize the agencies’ regulations under the CRA that have not been substantively updated for over 25 years.

of the date hereof, a final rule has not been issued.

On October 24, 2023, the federal banking agencies jointly issued a final rule to strengthen and modernize the existing CRA regulations.

Under the final rule, the agencies will evaluate a bank’s CRA performance

based upon the varied activities that it conducts and the communities in which it operates.

CRA evaluations and data collection requirements will be tailored based on bank size and type.

The Bank would be considered a large bank under the final

rule (with assets greater than $2 billion) and therefore will be evaluated under new lending, retail services and products, community development financing, and community development services tests.

The final rule includes CRA assessment areas

associated with mobile and online banking, and new metrics and benchmarks to assess retail lending performance.

In addition, the final rule emphasizes smaller loans and investments that can have a high impact and be more responsive to the needs

of low- and moderate-income communities.

The rule imposes new data collection requirements on large banks, although certain data collection and reporting requirements will be limited to larger banks with assets greater than $10 billion.

rule will take effect on April 1, 2024;

however, compliance with the majority of the final rule's provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1,

Consumer Protection Regulations

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Truth in Lending Act, Truth in Savings Act, Electronic Fund Transfer Act, Expedited Funds Availability Act, Equal Credit Opportunity

Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Gramm-Leach-Bliley Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act, Servicemembers Civil Relief

Act, Military Lending Act and Real Estate Settlement Procedures Act.

Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, GLBA, Home Mortgage Disclosure Act, Right to Financial Privacy Act, Servicemembers Civil Relief Act, Military

Lending Act and Real Estate Settlement Procedures Act.

Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above.

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the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization.

In 2016, several federal financial agencies (including the FRB and FDIC) re-proposed restrictions on incentive-based compensation pursuant to Section 956 of the Dodd-Frank Act for financial

institutions with $1 billion or more in total consolidated assets.

In 2016, several federal financial agencies (including the Federal Reserve and FDIC) re-proposed restrictions on incentive-based compensation pursuant to Section 956 of the Dodd-Frank Act for

financial institutions with $1 billion or more in total consolidated assets.

For institutions with at least $1 billion but less than $50 billion in total consolidated assets, the proposal would impose principles-based restrictions that are broadly consistent with existing

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being phased in on January 1, 2016.

It is currently anticipated that a third rulemaking document on incentive-based compensation arrangements for financial institutions could be proposed by these federal banking agencies in 2024.

Available Information

Company reports filed with the SEC including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and ownership reports filed by directors, executive

officers and principal stockholders can be accessed through the Company’s website at http://www.fmbonline.com.

The link to the SEC is on the About Us page.

The Company’s reports may also be accessed at

the SEC’s Internet website (http://www.sec.gov).

Company reports filed with the SEC, including the Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and ownership reports filed by directors, executive officers and principal

stockholders, can be accessed free of charge through the Company’s website at http://www.fmbonline.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The link to the SEC is

on the About Us page.

The Company’s reports may also be accessed at the SEC’s Internet website (http://www.sec.gov).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business