Farmers & Merchants Bank : AND MERCHANTS BANCSHARES, INC. REPORTS SEVENTH CONSECUTIVE YEAR OF RECORD EARNINGS FOR 2016

FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:

January 23, 2017

Farmers and Merchants Bancshares, Inc.	Contact:	Mr. James R. Bosley, Jr.
4510 Lower Beckleysville Rd, Suite H	President
Hampstead, Maryland 21074	410-374-1510, ext. 104

FARMERS AND MERCHANTS BANCSHARES, INC. REPORTS SEVENTH CONSECUTIVE YEAR OF RECORD EARNINGS FOR 2016

UPPERCO, MARYLAND (January 23, 2017) - Farmers and Merchants Bancshares, Inc., the parent of Farmers and Merchants Bank (collectively the "Bank") announced that net income for the year ended December 31, 2016 was

$4,302,864 or $2.60 per share compared to $4,268,222 or $2.61 per share in 2015 - the seventh consecutive year that the Bank has set a record for net income. The increase of $34,642 over 2015 was due to an increase in net interest income of

$489,622 and a decrease in income taxes of $897,120, offset by a decrease in noninterest income of $521,063 and an increase in noninterest expense of $831,037.

The increase in net interest income was due to an increase in average interest earning assets of $27 million, offset by a decline in the net yield of 20 basis points. The decrease in income taxes was a result of the effective tax rate decreasing to 27.5% in 2016 from 37.2% in 2015 due to a higher amount of tax exempt revenue. The decrease in noninterest income was due primarily to a decrease in the gain on the sale of other real estate owned of $607,359, a decrease in the gain on sale of loans of $107,830, offset by an increase in mortgage banking income of $78,098 and an increase in bank owned life insurance income of $107,358. The noninterest expense increase is due primarily to higher compensation and benefit costs, higher telecommunication costs, mobile banking costs, professional fees, and the costs associated with the new EMV chip card technology. Compensation and benefit costs increased as a result of several new positions, incentives on higher loan production, and normal salary increases.

Return on average equity was 11.29% in 2016 compared to 12.26% in 2015. Return on average assets was 1.19% in 2016 compared to 1.29% in 2015. Cash dividends paid to shareholders in 2016 increased 9% to $0.70 per common share from

$0.64 per common share in 2015.

Net income for the three months ended December 31, 2016 was $1,409,836 or $.85 per share, compared to 1,081,074 or

$.66 per share per share for the same period in 2015. The increase of $328,762 was due to a $207,619 increase in net interest income and a $506,516 decrease in income taxes, offset by a $117,631 decrease in noninterest income, and an increase of $252,742 in noninterest expenses.

Total assets of $380 million as of December 31, 2016 increased 10% from $345 million as of December 31, 2015. The loan portfolio increased 10% to $295 million at December 31, 2016 from $268 million at December 31, 2015. Deposits also increased 10% to $303 million at December 31, 2016 from $276 million at the end of 2015. The book value of the common stock of the Bank was $23.79 per share at December 31, 2016, compared to $21.99 per share at the end of 2015.

James R. Bosley, Jr., President and CEO, commented "We are very proud to report our seventh consecutive year of record earnings. We are also very pleased that the strong growth in loans and deposits we achieved in 2016 will further solidify our balance sheet and will help to maintain a high level of earnings into the future."

Farmers and Merchants Bank was chartered in Maryland in 1919, and is currently celebrating over 97 years of service to the community. The Bank serves the deposit and financing needs of both consumers and businesses in Carroll and Baltimore Counties along the Route 30 and Route 795 corridors from Owings Mills, Maryland to the Pennsylvania State line. The main office is located in Upperco, Maryland, with six additional branches in Owings Mills, Hampstead, Greenmount, Reisterstown, and Westminster. Shares of the Bank's common stock are traded through NASDAQ's Over-The-Counter Bulletin Board under the symbol "FMFG.OB".

Consolidated Balance Sheets

Cash and due from banks	$ 13,504,081 $ 18,693,272
Federal funds sold and other interest bearing deposits	978,557 1,710,327
Cash and cash equivalents	14,482,638 20,403,599

Assets Year Ended December 31, 2016 2015 (Unaudited)

Certificate of deposit in other bank 100,000		100,000
Securities available for sale 34,385,939		23,608,646
Securities held to maturity 17,987,628		16,640,005
Federal Home Loan Bank stock, at cost 778,300		758,100
Loans held for sale 884,500		-
Loans, less allowance for loan losses of $2,363,086 and $2,583,445 295,286,572		268,207,580
Premises and equipment 5,449,678		5,647,933
Accrued interest receivable 956,963		850,923
Deferred income taxes 1,420,891		1,315,254
Other real estate owned 414,000		472,500
Bank owned life insurance 6,721,003		6,541,381
Other assets 1,356,982		508,155
$ 380,225,094		$ 345,054,076
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$ 62,791,835	$ 57,970,899
Interest-bearing	239,923,301	217,900,147
Total deposits	302,715,136	275,871,046
Securities sold under repurchase agreements	27,226,159	20,490,619
Federal Home Loan Bank of Atlanta advances	9,000,000	11,000,000
Accrued interest payable	141,903	137,968
Other liabilities	1,735,884	1,330,248
340,819,082	308,829,881
Stockholders' equity
Common stock, par value $.01 per share, authorized 5,000,000
shares; issued and outstanding 1,656,390 shares in 2016
and 1,647,541 shares in 2015	16,564	16,475,415
Surplus	26,562,919	9,889,660
Undivided profits	13,106,834	9,961,244
Accumulated other comprehensive income	(280,305)	(102,124)
39,406,012	36,224,195

$ 380,225,094 $

345,054,076

Consolidated Statements of Income

Three Months Ended December 31, Year Ended December 31,

2016	2015	2016	2015
(Unaudited)	(Unaudited)	(Unaudited)

Interest income
Loans, including fees	$ 3,651,644	$ 3,484,024	$ 14,024,899	$ 13,809,312
Investment securities - taxable	184,423	137,989	762,383	479,217
Investment securities - tax exempt	141,743	90,199	501,530	367,030
Federal funds sold and other interest earning assets	14,381	16,770	62,685	49,842
Total interest income	3,992,191	3,728,982	15,351,497	14,705,401

Interest expense

Deposits	293,265	261,616	1,098,987	1,005,317
Securities sold under repurchase agreements	47,930	25,616	144,620	99,886
Federal Home Loan Bank advances and other borrowings	27,690	26,063	102,513	84,443
Total interest expense	368,885	313,295	1,346,120	1,189,646
Net interest income	3,623,306	3,415,687	14,005,377	13,515,755

Provision for loan losses - (15,000) - -

Net interest income after provision for loan losses 3,623,306 3,430,687 14,005,377 13,515,755

Noninterest income

Service charges on deposit accounts	195,014	195,186	758,075	748,310
Mortgage banking income	124,039	86,656	471,982	393,884
Bank owned life insurance income	44,896	153,563	179,622	72,264
Net gain on sale of securities	-	(13,687)	-	(5,508)
Gain (loss) on sale and writedown of other real estate owned	(57,065)	653	(57,065)	550,474
Gain on sale of commercial loans	-	-	-	107,830
Other fees and commissions	25,714	27,858	112,583	119,006
Total noninterest income	332,598	450,229	1,465,197	1,986,260
Noninterest expense
Salaries	1,299,031	1,127,447	4,661,703	4,240,524
Employee benefits	291,838	298,355	1,217,508	1,131,389
Occupancy	162,503	149,164	649,055	640,083
Furniture and equipment	175,055	163,433	649,865	609,458
Federal Deposit Insurance premiums	22,300	49,603	189,471	207,414
Other	548,916	458,899	2,167,023	1,874,720
Total noninterest expense	2,499,643	2,246,901	9,534,625	8,703,588
Income before income taxes	1,456,261	1,634,015	5,935,949	6,798,427
Income taxes	46,425	552,941	1,633,085	2,530,205
Net income	$ 1,409,836	$ 1,081,074	$ 4,302,864	$ 4,268,222
Earnings per share - basic and diluted	$ 0.85	$ 0.66	$ 2.60	$ 2.61