Farmers & Merchants Bancshares, Inc.

The Bank’s board of directors has implemented a bonus program under which certain officers are entitled to share each year in a bonus pool the amount of which is based on the Bank’s net income for that year. Participation is available to the CEO, President, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, other than Senior Vice Presidents and Vice Presidents who are involved in lending activities. The bonus pool amount is determined as follows:

There is no formula for determining how much of the pool is paid to a particular officer. Rather, the amount for each officer is recommended by the Compensation Committee and approved by the Board. For 2023, the percentages of the pool paid to Messrs. Harris, Oswald and Krebs were 26.99%, 15.70% and 15.70%, respectively. For 2022, the percentages of the pool paid to Messrs. Oswald and Krebs were 17.00% and 17.00%, respectively. These bonus amounts are shown in the Summary Compensation Table above under the heading “Nonequity incentive plan compensation”.

Mr. Harris did not participate in the foregoing bonus program in 2022 because he was eligible to receive a loan and deposit production bonus, paid in cash. Under this program, Mr. Harris was entitled to receive a bonus, paid as a percentage of his base salary rate, if his annual loan production were to equal or exceed $7 million. The percentage started at 10% and could increase to a maximum of 57% for an annual loan production of $35 million or more. Mr. Harris was also eligible for a commission on Small Business Administration loans, including Paycheck Protection Program loans, that ranged from 10% for the first $100,000 of sales premium to 5% for sales premiums $200,000 or over. In addition, Mr. Harris was entitled to receive 0.25% of all new non-interest checking deposits in excess of $250,000, 0.20% for all new savings accounts in excess of $250,000, and 0.15% for all new certificates of deposit in excess of $500,000. The bonus amounts paid to Mr. Harris in 2022 are shown in the Summary Compensation Table under the heading “Nonequity incentive plan compensation”.