Security Statement Access Accounts Online

FARMERS & MERCHANTS BANCSHARES INC.
ENTERPRISE BANK

Houston, Texas

Luxury Expenditures Policy

September 10, 2009

This policy fulfills the requirements under Section 111 of the Emergency Economic Stabilization Act of 2008 (“EESA”) as amended by the American Recovery and Reinvestment Act of 2009 ("ARRA") enacted February 17, 2009.  EESA requires that recipients of funds under the Capital Purchase Program of the Troubled Asset Relief Program develop a written policy placing certain limitations on what certain individuals or government agencies may deem to be excessive or luxury expenditures.  This policy is not intended in any way to limit or restrict the normal and customary expenditures for business development, employee moral or training or the ongoing operation of Farmers & Merchants Bancshares Inc and its subsidiary, Enterprise Bank (collectively the “Company”)

GENERAL POLICY;

The Company prohibits excessive or luxury expenditures  on entertainment and events, office or facility renovations, aviation or other transportation services or other activities or events that are not reasonable  or conducted in the normal course of business operations.

ENTERTAINMENT:

Entertainment is defined as an activity or event that is customer centered. Our expectation is that all expenses incurred to the Company would be for Company purposes and used to create or enhance business to the bank

Entertainment and events expenditures are approved through the budgeting process and managed through the expense approval and control process which requires one over review and signoff. All expenditures over $25 will be documented.

RENOVATIONS:

Office and facility renovations should be designed to: enhance operational efficiency, comply with applicable fire codes and ADA requirements, maintain a safe, sanitary and clean working environment, enhance the public image of the Company, improve employee morale, or such other worthwhile purpose as may be identified by the Company.  Quantitatively office and facility renovations may be deemed excessive if the all in cost of the renovation exceeds $200 per square foot.  By way of example, relocating or adding to movable worker stations, improving the air flow or temperature, altering the wall, ceiling or lighting configuration of a work or storage space, establishing a new branch office or sales office are not considered excessive by their very nature. 

AVIATION OR OTHER TRANSPORTATION SERVICES:

Excessive aviation or other transportation services expenditures are prohibited.  Air travel for Company business shall be by commercial airline or as a passenger on a third party owned or leased aircraft paid for by the third party.

First or business class air travel requires the prior approval of the Company’s Chief Executive Officer or Chief Financial Officer.  The Company does not own or lease, and does not intend to purchase or lease, any private aircraft for use by Company officers, directors or employees..

AUTOMOBILE EXPENSES:

The Company does not own or provide any vehicles for its officers or employees.

The Company does provide monetary car allowances to certain key individuals as part of their compensation. These individuals are expected to utilize their personal vehicles for frequent and ongoing business development purposes. These same individuals will be reimbursed for automobile expenses such as insurance, maintenance and repairs and gasoline purchases.

Expenses for employee use of personal vehicles for Company business by those employees who do not receive a car allowance  will be reimbursed at a rate that does not exceed the published IRS mileage rate. Documentation in support of such expenditures must be provided in accordance with applicable Company policies and procedures.

ACTIVITIES AND EVENTS:

Expenses for activities or events should enhance staff development, provide reasonable performance incentives for employees, or otherwise be conducted in the Company’s normal course of business.  Expenditures of this type may be made at the sole discretion or the Chief Executive Officer, the President, the Chief Financial Officer or their designated agent and are not considered excessive. 

RESPONSIBILITIES:

The Board of Directors will review and approve this policy at least annually. Executive Management will oversee the development and implementation of the policy.

All employees of the Company are required to adhere to this policy. Any violation of this policy shall be promptly reported to Executive Management by contacting the SVP/Chief Financial Officer.

Any employee found to have been in violation of this policy will be subject to disciplinary action up to and including termination of employment.

This policy and any amendments hereto, shall be posted on the Company's website and provided to the Treasury and the Company's primary federal regulator.