What changed in this filing

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Item 1. Business

2025-03-17 compared with 2024-03-14 · 161 added, 95 removed, 600 unchanged (30% of the section changed)

Organizational Structure

Farmers & Merchants Bancorp is a Delaware registered bank holding company organized in 1999.

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

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.

Farmers & Merchants Bancorp (the “Company” or “FMCB”) is a Delaware registered bank holding company organized in 1999.

As a registered bank holding company, FMCB is subject to regulation, supervision, and

examination by the Board of 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, 2023, consisted of 747,971 shares of common stock, $0.01 par value.

See “Supervision and Regulation - Dividends and Other Transfer of

Funds.” The Company’s outstanding common stock as of December 31, 2024, consisted of 699,798 shares of common stock, $0.01 par value.

No shares of preferred stock were issued or outstanding as of December 31, 2024.

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

incorporated under 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

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.

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The Company operates 30 full-service branches and 3 stand-alone ATMs.

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

The following statistical data, for the counties in our market area, as of the most recent date available, 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 $88,724.

Significant employment sectors include the

Significant employment sectors include the following:

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

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Unemployment was at 4.5%.

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

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

This county had a Population of 1.2 million and a Median Household Income of approximately $125,727.

The Significant employment in the following sectors:

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

Significant employment in the following sectors:

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

Unemployment was at 4.6%.

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Significant employment in the following sectors:

manufacturing, leisure & hospitality,

trade, and educational & health services.

manufacturing, leisure & hospitality, trade,

and educational & health services.

Unemployment was at 4.3%.

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The banking and financial services industry in California generally, and in the Company’s market areas specifically, is highly competitive.

The increasingly competitive environment is a result primarily of changes

in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial service providers.

The competitive environment is a result primarily of changes in

regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial service providers.

The Company competes with other major commercial banks, diversified financial institutions, credit

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service providers and has fostered new entrants into the financial services market.

Non-traditional financial services firms, such as financial technology companies, are less regulated and continue to expand their offerings of services

traditionally provided by financial institutions.

It is anticipated that this trend will continue.

Using the financial holding company structure, insurance companies and securities firms may compete more directly

with banks and bank holding companies.

Using the financial holding company structure, insurance companies and securities firms may compete more directly with banks and bank holding

Further, the new Trump Administration is expected to seek to promote innovation across the financial services industry through a regulatory environment that is favorable to cryptocurrencies, digital assets, open banking initiatives and

financial technology companies, which has the potential to further increase competition within the banking industry.

Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Company.

In order to compete with other

financial service providers, the Company relies upon personal contact by its officers, directors, employees, and stockholders, along with various promotional activities and specialized services.

financial service providers, the Company relies upon personal contact by its officers, directors, employees, and shareholders, along with various promotional activities and specialized services.

In those instances where the Company is unable to

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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, 2024 (the most recent data available), as reported by FDIC, are as follows:

Deposit Share

(Dollars in thousands)

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expense totaled $72.5 million, representing 69% of our total non-interest expense.

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

The Company makes significant investments in employee education, training, and recruiting.

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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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.

During 2024, total cash bonus

compensation amounted to nearly 30% of base salaries.

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

Retirement Plans

All employees are eligible to participate in our Profit Sharing Plan after one year of service and having worked at least 1,000 hours.

The Company makes contributions equal to 5% of the employee’s eligible

compensation and discretionary contributions determined annually by the Board of Directors.

All employees are eligible to participate in our Profit Sharing Plan after one year of service and having worked at the Company at least 1,000 hours.

The Company makes contributions equal to 5% of the employee’s

eligible compensation plus a discretionary contribution determined annually by the Board of Directors.

This is not a matching based program;

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

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.

employees receive these contributions regardless of whether they make individual contributions to our

401(K) program.

During 2024, total contributions by the Company for the Profit Sharing Plan amounted to approximately 9.4% of eligible wages, a level that we believe helps us in recruitment and retention.

The Company, through the Bank, sponsors an Executive Retirement Plan (“ERP”) for certain executive level employees and a Senior Management Retention Plan (“SMRP”) for certain senior level employees.

SMRP are a non-qualified deferred compensation plans and were developed to supplement the Company’s Profit Sharing Plan.

Effective November 29, 2024 both plans were terminated and frozen.

The liquidation of both plans will occur sometime between

the 12-month anniversary and the 24-month anniversary of the termination of the plans pursuant to regulations promulgated by the Department of the Treasury.

These plans were replaced with a new restricted stock compensation plan.

Stock Compensation Plan

At the special meeting of shareholders held on November 25, 2024, the Company’s shareholders approved the Farmers & Merchants Bancorp 2025 Restricted Stock Retirement Plan (the “2025 Plan”).

The 2025 Plan

permits stock-based compensation awards to employees, officers and directors of the Company and its subsidiaries and affiliates.

The 2025 Plan authorized awards up to 80,000 shares.

No shares have been issued under the 2025 Plan as of December

The first grant awards under the 2025 Plan occurred in February 2025.

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, 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.

diversity course is mandatory for all staff.

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 preventative harassment training.

The Company assigns all employees harassment prevention training.

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

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We believe that this PPC&E discipline is

important in retaining and growing our employees.

important in retaining and growing the skills of our employees.

Succession Planning

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The Company’s profitability, like that of most financial institutions, is significantly dependent on interest rate differentials.

The difference between the interest rates paid by the Company on interest-bearing

liabilities, such as deposits and other borrowings, and the interest rates received by the Company on its interest-earning assets, such as loans and leases extended to its customers and securities held in its investment portfolio, comprise the

major portion of the Company’s earnings.

The difference between the interest rates received by the Company on its

interest-earning assets, such as loans and leases extended to its customers and securities held in its investment portfolio, and the interest rates paid by the Company on interest-bearing liabilities, such as deposits and other borrowings,

comprise the 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 Federal Reserve.

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

The impact that

changes in economic conditions and governmental policies 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.

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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

balance between banks and other financial services providers.

Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers

are frequently made in the U.S.

Congress, in the state legislatures, and before various regulatory agencies.

This legislation may change banking statutes and the operating environment of the Company and the Bank in substantial and unpredictable

If enacted, such legislation or regulations could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings institutions, credit unions, and other

financial institutions.

The Company cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implemented regulations, would have on the financial condition or results of operations of

the Company or any of its subsidiaries.

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

competitive balance between banks and other financial services providers.

Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services

providers are frequently made in the U.S.

Congress, in the state legislatures including California’s, and before various regulatory agencies.

This legislation may change banking statutes and the operating environment of the Company and the Bank

in substantial and unpredictable ways.

credit unions, and other financial institutions and financial service providers.

The Company cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have

on the financial condition or results of operations of the Company or any of its subsidiaries.

Supervision and Regulation

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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.

and clients of insured depository institutions and not for the benefit of shareholders 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 Federal Reserve.

regulation, supervision, 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.

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

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As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the

The Company’s common stock is registered with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As such, the Company is subject to the

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

The Company’s common stock is registered with the Securities and Exchange Commission (“SEC”) under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As such, the Company is

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

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.

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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.

Such remedies include the power to issue cease and desist orders regarding or 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 or suspend 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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repealing the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

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

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

proprietary trading.

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

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

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.

The new Trump Administration has indicated a desire to reduce the regulatory burden on U.S.

companies, including financial institutions.

Further, in a recent statement, the Acting Chairman of the

FDIC indicated that a matter of FDIC focus (among other things) will include conducting a “wholesale” review of the agency’s regulations, guidance and manuals.

President Trump is likely to appoint, or has already appointed, new acting

leadership of bank regulatory agencies, including the CFPB, and, once appointed, this new agency leadership can rescind informal agency guidance, including advisory opinions, interpretive rules and policy statements, creating opportunities for

deregulation.

On January 20, 2025, President Trump signed an executive order to pause all pending regulations.

Sweeping in nature, the order applies to “all executive departments and agencies” while directing them to “not propose or issue any

rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.” The

order also states that agencies must “immediately withdraw any rules that have been sent to the OFR but not published in the Federal Register, so that they can be reviewed and approved.” The executive order also states that agencies must

“consider postponing for 60 days from the date of this memorandum the effective date for any rules that have been published in the Federal Register, or any rules that have been issued in any manner but have not taken effect, for the purpose of

reviewing any questions of fact, law, and policy that the rules may raise.”

At this time, no details on potential or proposed reforms have been published, and we are uncertain whether the intended deregulation will, in fact, occur, or have a significant impact on the

Whether and the extent to which any 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.

Capital Standards

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

The new Trump Administration may consider adjustments to these capital and liquidity rules.

Whether and the extent to which these proposed rules, or modifications of existing regulations and

policies, which may impact our business, will be enacted and implemented is uncertain and cannot be predicted at this time.

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

"Well Capitalized"

Minimum to be Categorized as "Adequately Capitalized"

Under-capitalized

Significantly

Significantly Under-capitalized

Critically Under-capitalized

Risk-based capital to risk-weighted assets

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framework at any time, without restriction, by reverting to the generally applicable capital requirements.

The Company and Bank did not opt into the CBLR framework.

While we are a qualifying community banking organization, the Company and Bank did not opt into the CBLR framework.

Anti-Money Laundering and Office of Foreign Assets Control Regulation

Title III of the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”), is designed to deny terrorists and criminals the

Title III of the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”), is designed to deny terrorists and criminals the

ability to obtain access to the U.S.

financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.

The Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

The USA Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

(i) customer identification programs;

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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

The CPREA requires businesses to 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.

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During 2024, the Bank paid $60.9 million

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.

in dividends to the Company of which $13.0 million was used for cash dividends to shareholders, $45.3 million was allocated for share repurchases and $2.6 million was used 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 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,

rule took effect on April 1, 2024;

however, on March 21, 2024 the agencies issued a supplemental final rule extending the applicability date for certain provisions.

Specifically, the requirements for facility-based assessment areas and public

file provisions, initially effective on April 1, 2024, were extended to January 1, 2026.

This extension aligns these provisions with the compliance date for other aspects of the final rule.

The supplemental final rule also clarifies that banks

are not required to make changes to their public files until January 1, 2026, providing institutions additional time to comply with the updated public notice requirements.

These developments indicate ongoing legal and regulatory adjustments

affecting the implementation timeline of the CRA final rule.

The Bank continues to monitor and stay informed on changes to ensure compliance with the evolving regulatory framework.

Consumer Protection Regulations

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Lending Act and Real Estate Settlement Procedures Act.

The FDIC regularly conducts compliance examinations of insured depository institutions to determine whether the institution is meeting its responsibility to comply with the requirements of

consumer protection laws and regulations.

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

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Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive or abusive acts and practices.

The review of products and practices to prevent such acts and practices is a continuing focus of the CFPB, and of banking

The review of products and practices to prevent such acts and practices have been a continuing focus of the CFPB, and of banking

regulators more broadly.

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supervision and examination, additional remediation efforts and possible penalties.

In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and

services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful

The Dodd-Frank Act also provided the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services,

including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.

The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties.

The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards.

regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.

While the new Trump

Administration appointee to lead the CFPB and Administration policies could result in the rollback of rules implementing and enforcing consumer financial law and regulatory enforcement activities, there is an expectation of increased activity

at the state level to enforce consumer protection, data privacy, and banking regulations to address potential gaps in federal oversight.

State regulation of financial products and potential enforcement actions could also adversely affect our

business, financial condition or results of operations.

The CFPB is authorized to issue rules for both bank and non-bank companies that offer consumer financial products and services, subject to consultation with the prudential banking regulators.

general, however, banks with assets of $10 billion or less, such as the Bank, will continue to be examined for consumer compliance by their primary bank regulator.

In February 2025, the director of the CFPB was dismissed by the new Trump Administration and the new Director of the Office of Management and Budget was appointed as acting director of the CFPB.

The acting director of the CFPB directed agency staff to stop virtually all work, including supervision activities and pending investigations, and announced that the CFPB would not be taking its next draw of federal funding.

Later in February

2025, President Trump nominated a new director of the CFPB who, if confirmed by the Senate, will replace the acting CFPB director.

It cannot be predicted at this time what impact these changes will have on the CFPB and its regulatory

responsibilities in the consumer protection area.

Notice and Approval Requirements Related to Control

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more than 5% of the voting shares of a bank or bank holding company which is not already a subsidiary.

In September 2024, the FDIC and the Office of the Comptroller of the Currency issued new policy statements on bank merger transactions.

The FDIC’s new policy statement, which supersedes the

agency’s prior policy statement and was intended to provide transparency and clarity around the FDIC’s approach to bank mergers, was opposed by the now Acting Chairman of the FDIC, who argued that this new supervisory guidance potentially makes

the bank merger process longer, more difficult and less predictable.

Further, in his recent statement, the Acting Chairman of the FDIC has indicated that a matter of FDIC focus (among other things) will include improving the bank merger

approval process and replacing the 2024 Statement of Policy to ensure that merger transactions that satisfy the Bank Merger Act are approved in a timely way.

At this time, it cannot be predicted whether and the extent to which this supervisory

guidance might be modified or withdrawn, or a new approach to bank merger transactions might be implemented.

Incentive Compensation

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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.

In May 2024, several federal financial agencies (including the FDIC) adopted a notice of proposed rulemaking to address incentive-based compensation arrangements for financial institutions,

re-proposing the regulatory text previously proposed in June 2016 and seeking public comment on certain related matters.

The 2024 proposed rule requires enhanced disclosure and reporting of compensation arrangements by covered institutions and

prohibits incentive compensation arrangements that involve inappropriate risks or could lead to material financial loss.

The Federal Reserve and the SEC have not joined in issuing the 2024 proposed rule, which has not yet been published in the

Federal Register or opened for formal public comment.

At this time, it cannot be predicted whether this proposed rule will be modified or implemented.

Recent Developments

Following a bankruptcy filing by a financial services company known as Synapse, in October 2024, the FDIC approved a proposal which will require banks and their “fin-tech” partners holding certain

custodial accounts to maintain timely and accurate records to determine the actual consumers who own funds held in the pooled custodial accounts and the account balance attributable to each consumer so that the FDIC can meet insured deposit

claims to beneficial owners underlying the custody accounts upon the failure of the bank.

At the present time, the Bank does not have any such “fin-tech” partners.

Available Information

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.

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 shareholders, 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