UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2017
Commission file number: 0-13273
F&M BANK CORP. | |
(Exact name of registrant as specified in its charter) |
Virginia | 54-1280811 | |
State or other jurisdiction of incorporation or | I.R.S. Employer Identification No. | |
P.O. Box 1111, Timberville, Virginia | 22853 | |
Address of principal executive offices | Zip Code |
(540) 896-8941
Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $5 Par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Sarbanes Act. Yes [ ]☐ No [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]☐ No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]☒ No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]☒ No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]☐ No [x]
The registrant’s Common Stock is traded Over-the-Counterquoted on the OTC Market’s OTCQX tier under the symbol FMBM. The aggregate market value of the 2,932,0293,453,393 shares of Common Stock of the registrant issued and outstanding held by non-affiliates on June 30, 20172022 was approximately $85,615,255$89,373,811 based on the closing sales price of $29.20$25.88 per share on that date. For purposes of this calculation, the term “affiliate” refers to all directors and executive officers of the registrant.
As of the close of business on March 9, 2018,7, 2023, there were 3,256,5793,457,976 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 201825, 2023 (the “Proxy Statement”).
Table of Contents
PART I
Item 1. Business
Business
F & M Bank Corp. (the “Company” or “we”), incorporated in Virginia in 1983, is a one bank financial holding company pursuant to section 3(a)(1) ofunder the Bank Holding Company Act of 1956 andthat has elected to become a financial holding company. The Company owns 100% of the outstanding stock of its affiliate,banking subsidiary, Farmers & Merchants Bank (“Bank”) and a majority interest in VS Title,VSTitle, LLC (“VST”). VBS Mortgage, LLC (“F&M Mortgage”), TEB Life Insurance Company (“TEB”) and Farmers & Merchants Financial Services, Inc. (“FMFS”) are wholly owned subsidiaries of the Bank. The Bank also holds a majority ownershipCompany’s and the Bank’s headquarters are located in VBS Mortgage, LLC (“VBS”).
On April 15, 1908, the Bank was chartered on April 15, 1908, as a state charteredstate-chartered bank under the laws of the Commonwealth of Virginia. TEB was incorporated on January 27, 1988, as a captive life insurance company under the laws of the State of Arizona. FMFS is a Virginia chartered corporation and was incorporated on February 25, 1993. VBS (formerly Valley Broker Services, Inc.) was incorporated on May 11, 1999. The Bank purchased a majority interest in VBS on November 3, 2008 and the Company purchased a majority interest in VST on January 1, 2017. VBS Mortgage owns the remaining minority interest in VST.
On January 27, 1988, TEB was incorporated as a captive life insurance company under the laws of the State of Arizona. TEB was organized to re‑insure credit life and accident and health insurance sold by the Bank in connection with its lending activities.
On February 25, 1993, FMFS was incorporated as a Virginia chartered corporation. FMFS provides brokerage services, commercial and personal lines of insurance to customers of the Bank.
On November 3, 2008, the Bank acquired a 70% ownership interest in F&M Mortgage. On April 30, 2020, the Bank acquired the remaining 30% interest to have 100% ownership of F&M Mortgage. F&M Mortgage originates both conventional and government agency sponsored mortgages for sale in the secondary market and to be held in the Bank’s mortgage portfolio.
On January 1, 2017, the Company acquired a 76% ownership interest in VST; F&M Mortgage owned the remaining minority interest and, on January 3, 2022, the Company purchased F&M Mortgage’s minority interest in VST to have 100% ownership. VST provides title insurance services to the customers in our market area, including F&M Mortgage and the Bank’s principal executive office is at 205 South Main Street, Timberville, VA 22853, and its phone number is (540) 896-8941.
Filings with the SEC
The Company files annual, quarterly and other reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the Securities and Exchange Commission (“SEC”). These reports are posted and are available at no cost on the Company’s website, www.FMBankVA.com, as soon as reasonably practicable after the Company files such documents with the SEC. The Company’s filings are also available through the SEC’s website at www.sec.gov.
Competition
The Bank's offices face strong competition from numerous other financial institutions. These other institutions includein the markets it serves. The Company competes with large national and regional banks,financial institutions, other independent community banks, nationally chartered savings banks, credit unions, consumer finance companies, mortgage companies, loan production offices, marketplace lenders and other financial technology firms, mutual funds and life insurance companies. Competition for loans and deposits is affected by a variety of factors including interest rates, types of products offered, the number and location of branch offices, marketing strategies and the reputation of the Bank within the communities served.
Human Capital
On December 31, 2022, the Bank had 143 full-time equivalent employees, including executive officers, loan and other banking officers, branch personnel, operations personnel and other support personnel. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement. No one employee devotes full-time services to F & M Bank Corp.
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Regulation and Supervision
General.
The operations of the Company and the Bank are subject to extensive federal and stateThe Company, as a bank holding company and a financial holding company, is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "Act") and is supervised by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Act requires the Company to secure the prior approval of the Federal Reserve Board before the Company acquires ownership or control of more than 5% of the voting shares or substantially all of the assets of any institution, including another bank.
As a financial holding company, the Company is required to file with the Federal Reserve Board an annual report and such additional information as it may require pursuant to the Act. The Federal Reserve Board may also conduct examinations of F & M Bank Corp. and any or all of its subsidiaries. Under Section 106 of the 1970 Amendments to the Act and the regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, provision of credit, sale or lease of property or furnishing of services.
The Federal Reserve Board regulations limitpermitted activities of financiala bank holding companiescompany are limited to managing or controlling banks, furnishing services to or non-bankingperforming services for its subsidiaries, and engaging in other activities that the Federal Reserve Board determines by regulation or order to be so closely related to banking. These activitiesbanking or managing or controlling banks as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies, such as the Company, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board). Activities that are financial in nature include thebut are not limited to securities underwriting and dealing, insurance underwriting, and making or servicing of loans, performing certain data processing services, and certain leasing and insurance agency activities.merchant banking investments. Since 1994, the Company has entered into agreements with the Virginia Community Development Corporation to purchase equity positions in several Low-Income Housing Funds; these funds provide housing for low-income individuals throughout Virginia. Approval of the Federal Reserve Board is necessary to engage in anycertain of the activities described above or to acquire interests in companies engaging in these activities.
The Bank, as a state member bank, is supervised and regularly examined by the Virginia Bureau of Financial Institutions and the Federal Reserve Board; such supervision and examination by the Virginia Bureau of Financial Institutions and the Federal Reserve Board is intended primarily for the protection of depositors and not the stockholders of the Company.
Payment of Dividends.
The Company is a legal entity, separate and distinct from its subsidiaries. A significant portion of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company. Under the current regulatory guidelines, prior approval from the Federal Reserve Board is required if cash dividends declared in any given year exceed net income for that year, plus retained net profits of the two preceding years. A bank also may not declare a dividend out of or in excess of its net undivided profits without regulatory approval. The payment of dividends by the Bank or the Company may also be limited by other factors, such as requirements to maintain capital above regulatory guidelines.Bank regulatory agencies have the authority to prohibit the Bank or the Company from engaging in an unsafe or unsound practice in conducting their businesses. The payment of dividends, depending on the financial condition of the Bank, or the Company, could be deemed to constitute such an unsafe or unsound practice. Based on the Bank’s current financial condition, the Company does not expect that any of these laws will have any impact on its ability to obtain dividends from the Bank.
The Company also is subject to regulatory restrictions on payment of dividends to its shareholders. Regulators have indicated that bank holding companies should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial condition. Further, a bank holding company should inform and consult with the Federal Reserve Board prior to declaring a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure.
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Capital Requirements.
Ratio |
| F&M Bank |
|
| Adequately Capitalized |
|
| Minimum Capital Requirements Including Conservation Buffer |
|
| Well Capitalized Under Prompt Corrective Action |
| ||||
Common equity Tier 1 (“CET1”) |
|
| 12.70 | % |
|
| 4.50 | % |
|
| 7.00 | % |
|
| 6.50 | % |
Tier 1 risk-based capital |
|
| 12.70 | % |
|
| 6.00 | % |
|
| 8.50 | % |
|
| 8.00 | % |
Total risk-based capital |
|
| 13.64 | % |
|
| 8.00 | % |
|
| 10.50 | % |
|
| 10.00 | % |
Tier 1 leverage |
|
| 8.22 | % |
|
| 4.00 | % |
|
| 4.00 | % |
|
| 5.00 | % |
An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such activities.
The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the proposed framework, these standards willwere generally be effective on January 1, 2022,2023, with an aggregate output floor phasing-in through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.
As directed by the Economic Growth, Regulatory Relief and Supervision, continued
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
Source of Strength
. Federal Reserve Board policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.Safety and Soundness
. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance fund in the event of a depository institution default. For example, under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become "undercapitalized" with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution's total assets at the time the institution became undercapitalized or(ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.
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Under the Federal Deposit Insurance Act, the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.
Transactions with Affiliates. Transactions between banks and their affiliates are financial in nature, that are incidental to such activities, or are complementary to such activities. The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker; dealing in or making markets in securities;governed by Sections 23A and engaging in merchant banking under certain restrictions. It also authorizes23B of the Federal Reserve Act. An affiliate of a bank is any bank or entity that controls, is controlled by or is under common control with such bank. Generally, Sections 23A and 23B (i) limit the extent to determine by regulation what other activities are financialwhich the Bank or its subsidiaries may engage in nature,“covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms substantially the same, or incidental or complementary thereto.
Transactions with Insiders. The Patriot Act is intended to strengthen U.S. law enforcements’ and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The continuing and potential impact of the PatriotFederal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholders of banks. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the bank’s loan-to-one borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed two times the bank’s unimpaired capital and unimpaired surplus until the bank’s total deposits equal or exceed $100,000,000, at which time the aggregate is limited to the bank’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a bank or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the Board of Directors of the bank with any “interested” director not participating in the voting. The FDIC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.
Incentive Compensation. In June 2010, the Federal Reserve issued a final rule on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of all kindsa group, is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws, and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying partiesbased upon the key principles that may be involved in terrorism or money laundering.
The Federal Reserve will review, as part of the regular, risk-focused examination process, pursuantthe incentive compensation arrangements of banking organizations, such as the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to twelve assessment factors. These factors are also consideredeach organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in evaluating mergers,reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
In 2016, the SEC and the federal banking agencies proposed rules that prohibit covered financial institutions (including bank holding companies and banks) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk taking by providing covered persons (consisting of senior executive officers and significant risk takers, as defined in the rules) with excessive compensation, fees, or benefits that could lead to material financial loss to the financial institution. The proposed rules outline factors to be considered when analyzing whether compensation is excessive and whether an incentive-based compensation arrangement encourages inappropriate risks that could lead to material loss to the covered financial institution and establishes minimum requirements that incentive-based compensation arrangements must meet to be considered to not encourage inappropriate risks and to appropriately balance risk and reward.
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The proposed rules also impose additional corporate governance requirements on the boards of directors of covered financial institutions and impose additional record-keeping requirements. The comment period for these proposed rules has closed, and a final rule has not yet been published.
Anti-Money Laundering Laws and Regulations. The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”). This category of laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. The Anti-Money Laundering Act of 2020, the most sweeping anti-money laundering legislation in 20 years, requires various federal agencies to promulgate regulations implementing a number of its provisions.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to open a branch or facility.
Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of additional disclosures for consumer mortgages. In addition, the Federal Reserve has issued new rules that have the effect of limiting the fees charged to merchants for debit card transactions. The result of these rules will be to limit the amount of interchange fee income available explicitly to larger banks and indirectly to us. The Dodd-Frank Act also contains provisions that affect corporate governance and executive compensation.
In May 2018, the Economic Growth Act was enacted to modify or remove certain regulatory financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, provisions themselves are extensive,it amends certain aspects of the ultimate impact onregulatory framework for small depository institutions with assets of less than $10 billion, such as the Bank, and for large banks with assets of more than $50 billion.
Among other matters, the Economic Growth Act expands the definition of qualified mortgages which may be held by a financial institution with total consolidated assets of less than $10 billion, exempts community banks from the Volcker Rule, and includes additional regulatory relief regarding regulatory examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Consumer Financial Protection. The Bank is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services.
If the Bank fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition transactions the Company may wish to pursue or being prohibited from engaging in such transactions even if approval is not required.
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Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires depository institutions to assist in meeting the credit needs of this massive legislationtheir market areas consistent with safe and sound banking practice.
Under the CRA, each depository institution is unknown.required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. Banking regulators consider CRA ratings when considering approval of a proposed transaction. The Act provides that severalBank received a rating of “satisfactory” in its most recent CRA examination.
In May 2022, the federal bank regulatory agencies jointly issued a proposed rule intended to strengthen and modernize the CRA regulatory framework. If implemented, the rule would, among other things, (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the Federal Reserveapplication of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.
Cybersecurity. The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s Board of Directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the Securitiesuse of third parties in the provision of financial products and Exchange Commission, shall issue regulations implementing major portionsservices. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the legislation,institution’s operations after a cyber-attack. If the Bank fails to meet the expectations set forth in this regulatory guidance, it could be subject to various regulatory actions and this process is ongoing.
In November 2021, the federal banking agencies issued the Computer-Security Incident Notification Requirements for Banking Organizations and Their Bank Service Partners that requires banking organizations to notify their primary regulator within 36 hours of becoming aware of a consumer’s ability“computer-security incident” that rises to repay any closed-end consumer credit transaction secured bythe level of a 1-4 family dwelling.“notification incident” has occurred. The rule also establishes certain protectionsrequires bank service providers to notify each affected banking organization customer when it is determined a computer security incident has caused, or is reasonably likely to cause, a material service disruption or degradation of four or more hours.
Future Regulation. Congress may enact legislation from liability under this requirementtime to ensure a borrower’s ability to repay for loanstime that meetaffects the definition of “qualified mortgage.” Loans that satisfy this “qualified mortgage” safe harbor will be presumed to have complied with the new ability-to-repay standard.
Effect of Governmental Monetary Policies. The Company’s operations are affected not only by us and the need for sufficient capital to support that growth;
Operating Revenue
The following table displays components that contributed 15% or more of the Company’s total operating revenue for the years ended December 31, 2017, 2016,2022 and 2015:
Period | Class of Service | Percentage of Total Revenues | ||||
December 31, | Interest and fees on loans held for investment | 66.13 | % | |||
December 31, | Interest and fees on loans held for investment | 69.05 | % | |||
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Executive Officers of the Company
Mark C. Hanna, 54, has served as President/CEO of the Company and Bank since MarchJuly 1, 2018. Prior to that he served as President/CEO of the Bank since May 2004; Executive Vice President of the Bank from Jan. 2003 to May 2004; Vice President of the Bank from 1993 to 2003. As stated in the form 8-K/A filed in December 2017, Mr. Withers will continue as CEO of the Company and Bank for a transition period, no official retirement date has been set.
Barton E. Black, 52, has served as the Executive Vice President and President/Chief Operating Officer of the Bank and the Company since March 1, 2018, prior to that he served as Executive Vice President/Chief Administrative Officer of the Bank and the Company from June 2013 until March 2018 and Executive Vice President/Chief Financial Officer from November 2007 until June 2013. Prior to that time, he served as Senior Vice President/Chief Financial Officer of the Bank and the Company from January 2003 until November 2007 and served as Vice President/Chief Financial Officer from October 1996 to January 2003.
Lisa F. Campbell, 55, has served as Executive Vice President/Chief Financial Officer since October 2022. Prior to joining the Company, she served as Group Vice President and Chief Financial Officer for Fidelity Bancshares N.C., Inc. in Fuquay-Varina, North Carolina from August 2014 to October 2022. Previously, she served as Executive Vice President, Chief Operating Officer and Chief Financial Officer for New Century Bancorp, Inc. in Dunn, North Carolina from March 2000 to August 2014 and as Senior Vice President and Controller for Triangle Bancorp, Inc. in Raleigh, North Carolina from September 1997 to March 2000. Ms. Campbell also worked in public accounting from September 1990 through September 1997.
Paul E. Eberly, 41, has served as Executive Vice President/Chief Development Officer since September 2022, Executive Vice President/Chief Credit Officer from September 2020 until September 2022, Senior Vice President/Agricultural & Rural Programs Leader from January 2020 until September 2020, and Vice President/Agricultural & Rural Programs Leader from January 2019 until January 2020. He also served in various sales, lending, credit, risk management and other leadership roles within the Farm Credit System from June 2005 until January 2019. Mr. Eberly has been in the banking and finance industry since 2005.
Melody Emswiler, 49, has served as Executive Vice President/Chief Human Resources Officer since January 2022, Senior Vice President/Human Resources Director from January 2019 to December 2021, Vice President/Director of Human Resources from February 2015 to December 2018, and Assistant Vice President/Human Resources Manager from February 2011 to January 2015. Ms. Emswiler has been in the human resources profession since 1997.
Kevin Russell, 45, has served as the Executive Vice President/President of Mortgage, Title and Financial Services at the Bank and the Company since November 2007.June 16, 2020. Prior to that time, he served as Senior Vicethe President of the Bank from May 1990 until November 2007 and Senior Vice President of the Company from April 2002 until November 2007. Larry has held a number of positions with the Bank over his 45-year career with the Company.
Aubrey Michael (Mike) Wilkerson, 64, has served as Executive Vice President/Chief BankingLending Officer of the Banksince January 2022, and the Company since July 2016, Executive Vice President/Chief Strategy Officer and Northern Shenandoah Valley Market Executive since January 2021. Mr. Wilkerson began his banking career at Wachovia Bank on January 4, 1982. Mr. Wilkerson’s banking includes experience in Dealer Financial Services, Retail Officer from June 2013 until July 2016, Senior Vice President/Branch Administrator from February 2005 until June 2013. She alsoBanking, Private Banking, Commercial Banking and senior strategic leadership positions. From 2012 to 2018, Mr. Wilkerson was the Business Banking Division Executive for Virginia, Maryland & Washington DC at Wachovia. Most recently, Mr. Wilkerson served as Vice President/Branch Administratorthe Commercial Banking Market Executive from March 2003 until February 2005 and as Branch Manager of the Edinburg Branch from February 2001 until March 2003.
Jason C. Withers, 40, has served as Executive Vice President and President/Chief Credit Officer of the Banksince September 2022, and the CompanySenior Vice President/Credit Manager since March 1, 2018.2021. Prior to that he serviced as Senior Vice President/Senior Lending Officer since July 2006, Senior Vice President/Commercial Loan Administrator from May 2011 until July 2016, Vice President/Commercial Loan Administrator from February 2011 until May 2011 and Vice Present/Business Development Officer III from May 2007 until February 2011.
Item 1A. Risk Factors
An investment in the Company’s securities involves significant risks. In addition to the other information set forth in this report, investors in the Company’s securities should carefully consider the factors discussed below. These factors, either alone or taken together, could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, capital position, and prospects. One or more of these could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations.
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Risk Factors Related to Economic Conditions and Our Lending Activities
General economic conditions in our market area could adversely affect us.
We are affected by the general economic conditions in the local markets in which we operate. ConditionsOur loan and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which these markets are economically dependent. A deterioration in economic conditions, whether caused by global, national, or local concerns (including the continued effects of the COVID-19 pandemic, inflation concerns, rising wages in a tight labor market, geopolitical uncertainty, and supply chain complications), could adversely affect factors such as economic recession, falling home prices, rising foreclosuresunemployment rates, business formations and other factors beyond our controlexpansions and housing market conditions. Adverse developments could lead to,result in, among other things, an increased level of commercial and consumer delinquencies. If economic conditions in our market deteriorate, we could experience further adverse consequences, including a decline in demand for our products and services and an increase in problem assets, foreclosesforeclosures and loan losses. Future economic conditions in our market will depend on factors outside of our control such as political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government, military and fiscal policies and inflation, any of which could negatively affect our performance and financial condition.
Our allowance for loan losses may prove to be insufficient to absorb losses in the loan portfolio.
Like all financial institutions, we maintain an allowance for loan losses to provide for loans that our borrowers may not repay in their entirety. We believe that we maintain an allowance for loan losses at a level adequate to absorb probable losses inherent in the loan portfolio. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loansin accordance with applicable accounting and performance of customers relative to their financial obligations with us. At December 31, 2017, our non-performing loans were $7.1 million, compared to $4.9 million at December 31, 2016. Approximately $1.5 million of the increase is related to one relationship that is reviewed for impairment and a specific reserve of $249,000 has been recorded. The Company did not record a provision for loan losses for the year ended December 31, 2017, and our loan loss allowance was $6.04 million, or .98% of total loans held for investment at December 31, 2017. The Company anticipates that a provision for loan losses will be required in 2018 based on expected growth coupled with normalized five year historical charge-offs in the lookback period.
The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. Although we believe the allowance for loan losses is a reasonable estimate of known and inherent losses in the loan portfolio, itwe cannot fully predict such losses or that the loss allowance will be adequate in the future. Accounting measurements related to impairment and the allowance for loan losses require significant estimates that are subject to uncertainty and changes relating to new information and changing circumstances. While the risk of nonpayment is inherent in banking, we could experience greater nonpayment levels than we anticipate. In addition, we have loan participation arrangements with several other banks within the region and may not be able to exercise control of negotiations with borrowers in the event these loans do not perform. Additional problems with asset quality could cause our interest income and net interest margin to decrease and our provisions for loan losses to increase further, which could adversely affect our results of operations and financial condition.
Federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of management. Any increase in the amount of the provision or loans charged-off as required by these regulatory agencies could have a negative effect on our operating results.
Our loan concentrations could, as a result of adverse market conditions, increase credit losses which could adversely impact earnings.
We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Many of our loans are secured by real estate (both residential and commercial) in our market area, which could result in adverse consequences to us in the event of a prolonged economic downturn in our market. As of December 31, 2017,2022, approximately 80%74% of our loans had real estate as a primary or secondary component of collateral. A significant decline in real estate values in our market would mean that the collateral for many of our loans would provide less security.
As a result, we would be more likely to suffer losses on defaulted loans because our ability to fully recover on defaulted loans by selling the real estate collateral would be diminished. In addition, our consumer loans (such as automobile loans) are collateralized, if at all, with assets that may not provide an adequate source of repayment of the loan due to depreciation, damage or loss.
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Our small-to-medium sized business target market may have fewer financial resources to weather a continued downturn in the economy.
We target our commercial development and marketing strategy primarily to serve the banking and financial services needs of small and medium sized businesses. These businesses generally have less capital or borrowing capacity than larger entities. If general economic conditions negatively impact this major economic sector in the markets in which we operate, our results of operations and financial condition may be adversely affected.
Moreover, a portion of these loans have been made by the Company in recent years, and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers’ business may hinder their ability to repay their loans with the Company, which could have a material adverse effect on the Company’s financial condition and results of operations.
The economic impact of the COVID-19 pandemic and measures intended to prevent its spread could adversely affect the Company’s business, financial condition, and operations.
Global health and economic concerns relating to the COVID-19 pandemic and government actions taken to reduce the spread of the virus have significantly disrupted the macroeconomic environment in the United States. Although the domestic and global economies have largely recovered from the COVID-19 pandemic, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains. The growth in economic activity and in the demand for goods and services, coupled with labor shortages and supply chain disruptions, has also contributed to rising inflationary pressures and the risk of recession. Further, the COVID-19 pandemic could have long-lasting impacts on consumer behavior and business practices, including on remote work and business travel.
The COVID-19 pandemic and related adverse economic consequences could cause adverse effects on the Company due to a number of operational factors impacting it or its customers or business partners, including but not limited to:
· | loan losses resulting from financial stress experienced by the Company’s customers; | |
· | collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; | |
· | operational failures, disruptions, or inefficiencies due to changes in the Company’s normal business practices; business disruptions experienced by the Company’s vendors and business partners in carrying out critical services that support the Company’s operations; | |
· | decreased demand for the Company’s products and services; potential financial liability, loan losses, litigation costs, or reputational damage resulting from the Company’s origination of loans as a participating lender in the PPP administered by the SBA; and heightened levels of cybersecurity risks and payment fraud due to disruption brought about by the pandemic, remote work and increased online activity. |
The extent to which the COVID-19 pandemic and related economic consequences impact the Company’s business, liquidity, financial condition, and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, if and when the virus can be fully controlled and abated and the extent of its lasting impacts on economic and operating conditions. The impact of the removal of most pandemic related economic stimulus programs is also unknown. To the extent any of the foregoing risks or other factors that develop as a result of COVID-19 and related economic consequences materialize, it could exacerbate the other risk factors discussed in this section, or otherwise materially and adversely affect the Company’s business, liquidity, financial condition, and results of operations.
Changes in market interest rates could affect our cash flows and our ability to successfully manage our interest rate risk.
Our profitability and financial condition depend to a great extent on our ability to manage the net interest margin, which is the difference between the interest income earned on loans and investments and the interest expense paid for deposits and borrowings. The amounts of interest income and interest expense are principally driven by two factors; the market levels of interest rates and the volumes of earning assets or interest bearing liabilities. The management of the net interest margin is accomplished by our Asset Liability Management Committee. Short term interest rates are highly sensitive to factors beyond our control and are effectively set and managed by the Federal Reserve, while longer term rates are generally determined by the market based on investors’ inflationary expectations.
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Thus, changes in monetary and or fiscal policy will affect both short term and long-term interest rate, which in turn will influence the origination of loans, the prepayment speed of loans, the purchase of investments, the generation of deposits, the rates received on loans and investment securities and the rates paid on deposits or other sources of funding. The impact of these changes may be magnified if we do not effectively manage the relative sensitivity of our earning assets and interest-bearing liabilities to changes in market interest rates.
Generally, our earnings will be more sensitive to fluctuations in interest rates the greater the difference between the volume of earning assets and interest-bearing liabilities that mature or are subject to re-pricing in any period. The extent and duration of this sensitivity will depend on the cumulative difference over time, the velocity and direction of interest rate changes, and whether we are more asset sensitive or liability sensitive. Additionally, the Asset Liability Management Committee may desire to move our position to more asset sensitive or more liability sensitive depending upon their expectation of the direction and velocity of future changes in interest rates in an effort to maximize the net interest margin. Should we not be successful in maintaining the desired position, or should interest rates not move as anticipated, our net interest margin may be negatively impacted.
In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. As we experienced due to rising interest rates in 2022, interest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions. These occurrences could have a material adverse effect on our net interest income or our results of operations.
Risks Related to Liquidity and Capital
Our inability to maintain adequate sources of funding and liquidity may negatively impact our current financial condition or our ability to grow.
Liquidity is essential to our business, and we monitor our liquidity and manage our liquidity risk at the holding company level and the bank level. We require sufficient liquidity to fund asset growth, meet customer loan requests, customer deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. Our access to funding and liquidity sources in amounts adequate to finance our activities on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. general, including an over-reliance on a particular source of funding, changes in the liquidity needs of our depositors, an increase in borrowing by our customers, adverse regulatory actions against us, or a downturn in the markets in which our loans are concentrated.
In managing our balance sheet, a primary source of funding asset growth and liquidity historically has been deposits, including both local customer deposits and brokered deposits. Deposit levels may be affected by a number of factors, including, but not limited to, rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions. If theour level of deposits were to materially decrease, we would have to raise additional funds by increasing the interest that we pay on certificates of deposit or other depository accounts, seek other debt or equity financing, or draw upon our available lines of credit. Our access to these funding and liquidity sources could be detrimentally impacted by a number of factors, including operating losses, rising levels of non-performing assets, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans or deposits are concentrated or regulatory restrictions. In addition, our ability to continue to attract deposits and other funding or liquidity sources is subject to variability based upon additional factors including volume and volatility in the securities markets and the relative interest rates that we are prepared to pay for these liabilities. While we believe that our funding and liquidity sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if we continue to grow, experience increasing loan demand or are unable to maintain our deposit base. We domay be required to slow or discontinue loan growth, capital expenditures or other investments, pay higher rates on deposits, or liquidate assets should such sources not maintain significant additional sources of liquidity through potential sales in our investment portfolio or liquid assets at the holding company level.be adequate. Our potential inability to maintain adequate sources of funding or liquidity may, among other things, inhibit our ability to fund asset growth or negatively impact our financial condition, including our ability to pay dividends or satisfy our obligations.
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If we do not maintain our capital requirements and our status as a “well-capitalized” bank, there could an adverse effect on our liquidity and our ability to fund our loan portfolio.
We are subject to regulatory capital adequacy guidelines. If we fail to meet the capital adequacy guidelines for a “well-capitalized” bank, it could increase the regulatory scrutiny for the Bank and the Company.
In addition, if we failed to be “well capitalized” for regulatory capital purposes, we would not be able to renew or accept brokered deposits without prior regulatory approval and we would not be able to offer interest rates on our deposit accounts that are significantly higher than the average rates in our market area.
As a result, it would be more difficult for us to attract new deposits as our existing brokered deposits mature and do not roll over and to retain or increase existing, non-brokered deposits. If we are prohibited from renewing or accepting brokered deposits and are unable to attract new deposits, our liquidity and our ability to fund our loan portfolio may be adversely affected. In addition, we would be required to pay higher insurance premiums to the FDIC,Federal Deposit Insurance Corporation (“FDIC”), which would reduce our earnings.
We are subject to more stringent capital requirements, as a result of the Basel III regulatory capital reforms and the Dodd-Frank Act which could adversely affect our results of operations and future growth.
The Bank is subject to capital adequacy guidelines under Basel III and other regulatory requirements specifying minimum amounts and types of capital that the Bank must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. If the Company fails to meet these minimum capital guidelines and/or other regulatory requirements, its financial condition would be materially and adversely affected. The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Reserve, the FDIC and the OCC approved a new rule that substantially amends the regulatory risk-based capital rules applicable to us. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-FrankDeposit Insurance Act. The final rule includes new minimum risk-based capital and leverage ratios which were effective for us on January 1, 2015 and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 (“CET1”) capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%, which is increased from 4%; (iii) a total capital ratio of 8%, which is unchanged from the previous rules; and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and when fully effective in 2019, will result in the following minimum ratios: (a) a common equity Tier 1 capital ratio of 7.0%; (b) a Tier 1 to risk-based assets capital ratio of 8.5%; and (c) a total capital ratio of 10.5%.
We may need to raise additional capital in the future and regulationsmay not be able to do so on acceptable terms, or at all.
Access to sufficient capital is critical to enable us to implement our business plan, support our business, expand our operations, and meet applicable capital requirements. The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact our earnings dueability to support and to grow our operations. If we grow our operations faster than we generate capital internally, we will need to access the capital markets. We may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all. Our ability to raise additional capital, if needed, will depend on, among other things, increased compliance costs or costs due to noncompliance.
Risks Related to Our Operations and Technology
Our future success is dependent on our ability to effectively compete in the face of substantial competition from other financial institutions in our primary markets.
We encounter significant competition for deposits, loans and other financial services from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, mortgage companies and credit unions in our market area. A number of these banks and other financial institutions are significantly larger than us and have substantially greater access to capital and other resources, larger lending limits, more extensive branch systems, and may offer a wider array of banking services. To a limited extent we compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, financial technology companies, insurance companies and governmental organizations, any of which may offer more favorable financing rates and terms than us. ManyMost of these non-bank competitors are not subject to the same extensive regulations that govern us. As a result, these non-bank competitors may have advantages in providing certain services. This competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.
Consumers may increasingly decide not to use banks to complete their financial transactions, which would have a material adverse impact on the Company’s financial condition and operations.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations.
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Our inability to successfully manage growth or implement our growth strategy may adversely affect our results of operations and financial condition.
We may not be able to successfully implement our growth strategy if we are unable to identify attractive markets, locations or opportunities to expand in the future. Our ability to manage growth successfully also depends on whether we can maintain capital levels adequate to support our growth, effective cost controls and adequate asset quality and successfully integrate any businesses acquired into the organization.
As we continue to implement our growth strategy, we may incur increased personnel, occupancy and other operating expenses. We must absorb those higher expenses while we begin to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding earning assets. Thus, our plans to branch could depress earnings in the short run, even if we efficiently execute a branching strategy leading to long term financial benefits.
Our exposure to operational risk may adversely affect us.
Similar to other financial institutions, we are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
Reputational risk, or the risk to our earnings and capitalus from negative public opinion, could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance or the occurrence of any of the events or instances mentioned below, orand from actions taken by government regulators orand community organizations in response to that conduct.those activities. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally.
Further, if any of our financial, accounting, or other data processing systems fail or have other significant shortcomings,issues, we could be adversely affected. We depend on internal systems and outsourced technology to support these data storage and processing operations. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. We could be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are also at risk of the impact of natural disasters, terrorism, and international hostilities on our systems or forand from the effects of outages or other failures involving power or communications systems operated by others.
Our operations rely on certain external vendors.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.operations such as data processing, recording, and monitoring transactions, online banking interfaces and services, internet connections, and network access. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service agreements.
Any problem caused by these third-party vendors, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business, and may harm our reputation.
Although we maintain a system of comprehensive policies and a control framework designed to monitor vendor risks, the failure of an external vendor to perform in accordance with the contracted arrangements under service agreements could be disruptive to our operations, which could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
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Our operations may be adversely affected by cyber security risks.
In the ordinary course of business, we collect and store sensitive data, including proprietary business information and personally identifiable information of itsour customers and employees in systems and on networks. The secure processing, maintenance and use of this information is critical to operations and our business strategy. We have invested in accepted technologies and review processes and practices that are designed to protect our networks, computers and data from damage or unauthorized access. Despite these security measures, our computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to our reputation, which could adversely affect our business.
Furthermore, as cyber threats continue to evolve and increase, we may be required to expend significant additional financial and operational resources to modify or regulatory changesenhance our protective measures, or actions,to investigate and remediate any identified information security vulnerabilities. Multiple major U.S. companies have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information, and other financial or privileged data. These incursions affect cards issued and deposit accounts maintained by many banks.
Although our systems are not breached in these incursions, these events can cause us to reissue a significant litigation, could adversely impact usnumber of cards and take other costly steps to avoid significant theft loss to the Company and our customers. In some cases, we may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within our control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
Our ability to operate profitably may be dependent on our ability to integrate or introduce various technologies into our operations.
The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, online banking, and tele-banking. Our ability to compete successfully in our market may depend on the businesses inextent to which we are engaged.
We will be required to transition from the use of the LIBOR index in the future.
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one-week and two-month LIBOR offered rates will cease after December 31, 2022, but the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, federal bank regulators have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2022 would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2022.
Regulators, industry groups, and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., SOFR, as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.
At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of any such alternatives may be on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, subordinated notes, trust preferred securities, or other securities or financial arrangements. For example, SOFR is a relatively new reference rate, has a very limited history, and differs fundamentally from U.S. Dollar LIBOR.
SOFR is a broad U.S. Treasury repo financing rate that represents overnight secured funding transactions, whereas U.S. Dollar LIBOR is an unsecured rate that represents interbank funding over different maturities.
As a result, there can be no assurance that SOFR will perform in the same way as U.S. Dollar LIBOR would have done at any time, and there is no guarantee that it is a comparable substitute for U.S. Dollar LIBOR.
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The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with borrowers or other financial arrangements may cause us to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices, any of which could have a material adverse effect on our results of operations.
Risks Related to Regulation of the Company
We operate in a highly regulated industry, and the laws and regulations that govern our operations, including changes in them or our failure to comply with them, may adversely affect the Company.
We are subject to extensive stateregulation and federal regulation, supervision and legislation that govern almost all aspects of our operations. LawsThese laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities, limit the dividends or distributions that we can pay, and impose certain specific accounting requirements that may change from timebe more restrictive and may result in greater or earlier charges to timeearnings or reductions in our capital than GAAP. Compliance with laws and are primarily intended for the protection of consumers, depositorsregulations can be difficult and the deposit insurance funds. The impact of anycostly, and changes to laws and regulations often impose additional compliance costs.
We also face increasing regulation and supervision of our industry. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations, or other actions by regulatory agenciespolicies, or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect the Company in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may negatively impact us orcontinue to increase, our costs and limit our ability to increasepursue business opportunities. Further, our failure to comply with these laws and regulations, even if the valuefailure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our business. Additionally, actionssecurities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.
Regulations issued by regulatory agenciesthe CFPB could adversely impact earnings due to, among other things, increased compliance costs or significant litigation against uscosts due to noncompliance.
The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive, or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. For example, the CFPB has issued a final rule, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms, pricing and fees. The rule also contains additional disclosure requirements at mortgage loan origination and in monthly statements. The requirements under the CFPB’s regulations and policies could cause uslimit our ability to devote significantmake certain types of loans or loans to certain borrowers or could make it more expensive and/or time and resourcesconsuming to defending ourselves and may lead to penalties that materially affect us. Future changes in the laws or regulations or their interpretations or enforcementmake these loans, which could be materially adverse us andadversely our shareholders.
Changes in accounting standards could impact reported earnings.
The accounting standard setters, including the Financial Accounting Standards Board, (FASB), SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficulthard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.
For information regarding recent accounting pronouncements and their financial transactions.
We are a holding company and depend on our subsidiaries for dividends, distributions and other payments.
We are a legal entity separate and distinct from our banking and other subsidiaries. Our principal source of cash flow, including cash flow to pay dividends to our stockholders and principal and interest on our outstanding debt, is dividends from the Bank.
There are statutory and regulatory limitations on the payment of dividends by the Bank to us, as well as by us to our stockholders. Regulations of both the Federal Reserve and the Virginia State Corporation Commission affect the ability of the Bank to pay dividends and other distributions to us and to make loans to us. If the Bank is unable to make dividend payments to us and sufficient capital is not otherwise available, we may not be able to make dividend payments to holders of our Common Stock.
In addition, our right to participate in any distribution of assets of any of our subsidiaries upon the subsidiary’s liquidation or otherwise, and thus your ability as a holder of our Common Stock to benefit indirectly from such distribution, will be subject to the prior claims of creditors of that subsidiary, except to the extent that any of our claims as a creditor of such subsidiary may be recognized. As a result, shares of our Common Stock are effectively subordinated to all existing and future liabilities and obligations of our subsidiaries, including the Bank.
Risks Related to Our Common Stock
Future issuances of our securities could adversely affect the market price of our Common Stock and could be dilutive.
Our board of directors, without the approval of shareholders, could from time to time decide to issue additional shares of Common Stock or shares of preferred stock, which may adversely affect the market price of the shares of Common Stock and could be dilutive to our shareholders. Any sale of additional shares of our Common Stock may be at prices lower than the current market value of the Company’s shares.
In addition, new investors may have rights, preferences, and privileges that are senior to, and that could adversely affect, our existing shareholders. For example, preferred stock would be senior to Common Stock in right of dividends and as to distributions in liquidation. We cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities. Thus, our shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their rights as shareholders, and/or reducing the market price of our Common Stock.
The trading volume in our Common Stock is lower than that of other financial services companies.
The trading volume in our Common Stock is lower than that of other financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our Common Stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our Common Stock, significant sales of our Common Stock, or the expectation of these sales, could cause our stock price to fall.
The market for our Common Stock historically has experienced significant price and volume fluctuations.
The market for our Common Stock historically has experienced and may continue to experience significant price and volume fluctuations similar to those experienced by the broader stock market in recent years. Generally, the fluctuations experienced by the broader stock market have affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our Common Stock. In addition, our announcements of our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting us, our affiliates or our competitors could cause the market price of our Common Stock to fluctuate substantially.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The Company, through its subsidiaries, owns or leases buildings that are used in the normal course of business. The Company’s corporate headquarters, and that of the Bank, are located at 205 South Main Street, Timberville, Virginia 22853.
At December 31, 2022, the Bank operated thirteen full-service branches and a dealer finance division in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. See Note 1 “Nature of Banking Activities and Significant Accounting Policies” and Note 6 “Bank Premises and Equipment” and Note 24 "Leases" in the “Notes to the Consolidated Financial Statements” of this Form 10-K for information with respect to the amounts at which bank premises and equipment are carried and commitments under long-term leases.
PART II
Item 3. Legal Proceedings
In the normal course of business, the Company may become involved in litigation arising from banking, financial, or other activities of the Company. Management after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Company’s financial condition, operating results or liquidity.
Item 4. Mine Safety Disclosures
None.
Item 5
. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesTrading Market
The Company’s Common Stock is quoted on the OTC Markets Group’s OTCQX Market under the symbol “FMBM” on the OTCQX Market.“FMBM.” The bid and ask price isare quoted at www.OTCMARKETS.com/Stock/FMBM/quote. With its inclusion onAny over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of March 3, 2023, the OTCQX Markets, there are now several active market makers for FMBM stock.
Transfer Agent and Registrar
Broadridge FinancialCorporate Issuer Solutions
PO Box 1342
Brentwood, NY 11717
Stock Performance
The following graph compares the cumulative total return to the shareholders of the Company for the last five fiscal years with the total return of the Russell 2000 Index and the SNL Bank Index, as reported by SNL Financial, LC, assuming an investment of $100 in the Company’s common stock on December 31, 2012,2017, and the reinvestment of dividends.
Period Ending | ||||||
| Index | 12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 |
| F & M Bank Corp. | 100.00 | 126.23 | 138.04 | 166.31 | 197.11 | 258.36 |
| Russell 2000 Index | 100.00 | 138.82 | 145.62 | 139.19 | 168.85 | 193.58 |
| SNL Bank Index | 100.00 | 137.30 | 153.48 | 156.10 | 197.23 | 232.91 |
Dividends to common shareholders totaled $2,972,000$3.6 million and $2,628,000$3.4 million in 20172022 and 2016,2021, respectively. For 2022 and 2021, the regular dividends totaled $1.04 per share. Preferred stock dividends were $415,000 and $487,000$196,000 in 2017 and 2016, respectively. Regular quarterly dividends have been declared for at least 25 years.2021. All shares of the Company’s Series A Preferred Stock was redeemed on October 29, 2021. The Company’s Board of Directors determines the payment of dividends dependsbased on the earnings of the Company and its subsidiaries, the financial condition of the Company and other factors including capital adequacy, regulatory requirements, general economic conditions and shareholder returns. The ratio of dividends per common share to net income per common share was 35.67%43.15% in 2017,2022 compared to 28.88%32.00% in 2016.
See Note 18 “Dividend Limitations on Subsidiary Bank” of Dividends
Stock Repurchases
There were no repurchases of the Company’s Board of Directors approved an increase in the number of shares ofCompany's common stock that the Company can repurchase under the share repurchase program from 150,000 to 200,000 shares. On October 20, 2016, the Company’s Board of Directors approved a plan to repurchase up to an additional 150,000 shares of common stock. Shares repurchased through the end of 2017 totaled 221,976 shares; of this amount, 21,984 were repurchased in 2017 at an average price of $32.39 per share.
2017 | 2016 | |||||
Stock Price Range | Per Share | Stock Price Range | Per Share | |||
| Quarter | Low | High | Dividends Declared | Low | High | Dividends Declared |
1st | $26.50 | $28.45 | $.22 | $21.75 | $23.55 | $.19 |
2nd | 27.50 | 29.35 | .23 | 23.02 | 25.00 | .19 |
3rd | 29.20 | 32.00 | .24 | 23.50 | 26.25 | .20 |
4th | 30.02 | 34.50 | .25 | 24.82 | 27.00 | .22 |
| Total | $.94 | $.80 | ||||
| (Dollars and shares in thousands, except per share data) | 2017 | 20166 | 20156 | 2014 | 2013 |
| Income Statement Data: | |||||
| Interest and Dividend Income | $34,095 | $32,150 | $29,404 | $26,772 | $25,966 |
| Interest Expense | 3,897 | 3,599 | 2,876 | 3,648 | 4,773 |
| Net Interest Income | 30,198 | 28,551 | 26,528 | 23,124 | 21,193 |
| Provision for Loan Losses | - | - | 300 | 2,250 | 3,775 |
| Net Interest Income After Provision for Loan Losses | 30,198 | 28,551 | 26,228 | 20,874 | 17,418 |
Noninterest Income6 | 8,517 | 6,313 | 5,412 | 3,530 | 4,032 |
| Low income housing partnership losses | (625) | (731) | (619) | (608) | (856) |
Noninterest Expenses6 | 24,719 | 21,272 | 19,554 | 15,656 | 14,720 |
| Income before income taxes | 13,371 | 12,861 | 11,467 | 8,140 | 5,874 |
| Income Tax Expense | 4,330 | 3,099 | 2,886 | 2,293 | 1,051 |
| Net income attributable to noncontrolling interest | (31) | (194) | (164) | (45) | (107) |
| Net Income attributable to F & M Bank Corp. | $9,010 | $9,568 | $8,417 | $5,802 | $4,716 |
| Per Common Share Data: | |||||
| Net Income – basic | $2.63 | $2.77 | $2.40 | $1.82 | $1.88 |
| Net Income - diluted | $2.48 | $2.57 | $2.25 | $1.80 | $1.88 |
| Dividends Declared | .94 | .80 | .73 | .68 | .68 |
| Book Value per Common Share | 25.73 | 24.18 | 22.38 | 20.77 | 21.56 |
| Balance Sheet Data: | |||||
| Assets | $753,270 | $744,889 | $665,357 | $605,308 | $552,788 |
| Loans Held for Investment | 616,974 | 591,636 | 544,053 | 518,202 | 478,453 |
| Loans Held for Sale | 39,775 | 62,735 | 57,806 | 13,382 | 3,804 |
| Securities | 41,243 | 39,475 | 25,329 | 22,305 | 38,486 |
| Deposits | 569,177 | 537,085 | 494,670 | 491,505 | 464,149 |
| Short-Term Debt | 25,296 | 40,000 | 24,954 | 14,358 | 3,423 |
| Long-Term Debt | 49,733 | 64,237 | 48,161 | 9,875 | 21,691 |
| Stockholders’ Equity | 91,275 | 86,682 | 82,950 | 77,798 | 54,141 |
| Average Common Shares Outstanding – basic | 3,270 | 3,282 | 3,291 | 3,119 | 2,504 |
| Average Common Shares Outstanding – diluted | 3,632 | 3,717 | 3,735 | 3,230 | 2,504 |
| Financial Ratios: | |||||
Return on Average Assets1 | 1.21% | 1.34% | 1.31% | 1.00% | .82% |
Return on Average Equity1 | 10.01% | 11.18% | 10.46% | 8.65% | 9.11% |
| Net Interest Margin | 4.53% | 4.34% | 4.43% | 4.30% | 4.02% |
Efficiency Ratio 2 | 63.54% | 60.78% | 60.97% | 58.51% | 58.15% |
| Dividend Payout Ratio - Common | 35.74% | 28.88% | 30.42% | 37.36% | 36.17% |
| Capital and Credit Quality Ratios: | |||||
Average Equity to Average Assets1 | 12.10% | 11.97% | 12.49% | 11.59% | 9.00% |
Allowance for Loan Losses to Loans3 | .98% | 1.27% | 1.61% | 1.68% | 1.71% |
Nonperforming Loans to Total Assets4 | .94% | .65% | .98% | 1.15% | 2.28% |
Nonperforming Assets to Total Assets5 | 1.21% | .94% | 1.34% | 1.73% | 2.75% |
Net Charge-offs to Total Loans3 | .24% | .21% | .04% | .33% | .78% |
| 19 |
| Table of Contents |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain information contained in this report may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements are generally identified by phrases such as “we expect,” “we believe” or words of similar import. Such forward-looking statements are subject to known and unknown risks including, but not limited to:
· | Changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries, declines in real estate values in our markets, or in the repayment ability of individual borrowers or issuers; |
· | The strength of the economy in our market area, as well as general economic, market, or business conditions; |
· | An insufficient allowance for loan losses as a result of inaccurate assumptions; |
· | Our ability to maintain our “well-capitalized” regulatory status; |
· | Changes in the interest rates affecting our deposits, loans and investment portfolio; |
· | Changes in our competitive position, competitive actions by other financial institutions, financial technology firms and others, the competitive nature of the financial services industry and our ability to compete effectively in our banking markets; |
· | Our ability to manage growth; |
· | Our potential growth, including our entrance or expansion into new markets, the need for sufficient capital to support that growth, difficulties or disruptions expanding into new markets or integrating the operations of acquired branches or business, and the inability to obtain the expected benefits of such growth; |
· | Our exposure to operational risk; |
· | Our ability to raise capital as needed by our business; |
· | Changes in laws, regulations and the policies of federal or state regulators and agencies; |
· | The effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setting bodies; |
· | Geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; |
· | The Company’s potential exposure to fraud, negligence, computer theft, and cyber-crime; |
· | Other factors identified in reports the Company files with the SEC from time to time; and |
· | Other circumstances, many of which are beyond our control. |
Although the Company believes that our expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that our actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
The following discussion provides information about the major components of the results of operations and financial condition, liquidity and capital resources of F & M Bank Corp. and its subsidiaries. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Information, of this Form 10-K.
Lending Activities
Credit Policies
The principal risk associated with each of the categoriessegments of loans in our portfolio is the creditworthiness of our borrowers. Within each category,segment, such risk is increased or decreased, depending on prevailing economic conditions. In an effort toTo manage the risk, ourthe Bank Credit Administration Department supervises that the underwriting process follows the written policies and procedures approved by the Board of Directors. The loan policy gives loan amount approval limits to individual loan officers based on their position and level of experience and to our loan committees based on the size of the lending relationship. The risk associated with real estate and construction loans, commercial loans and consumer loans varies, based on market employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay indebtedness. The risk associated with real estate construction loans varies, based on the supply and demand for the type of real estate under construction.
| 20 |
| Table of Contents |
The Bank has a loan review policy that includes regularprocess to monitor and manage the portfolio, reviews toidentify concentrations and credit deterioration, establish loss exposure and to ascertainassess compliance with ourthe loan policy.
The Bank uses a management loan committee and a directors’ loan committee to approve loans. The management loan committee is comprised of members of senior management, credit administration and senior lenders; the directors’ loan committee is comprised of any six directors. Both committees approve new, renewed and or modified loans that exceed officer loan authorities. The directors’ loan committee also reviews any changes to ourthe lending policies, which are then approved by our boardthe Board of directors.
Loans Held for Sale
The Bank makes fixed rate mortgage loans with terms of typically fifteen or thirty years through its subsidiary F&M Mortgage. These loans are funded by F&M Mortgage utilizing a line of credit at the Bank until sold to investors in the secondary market or transferred to the Bank and held in the loan portfolio.
Construction and Development Lending
The Bank makes construction loans, primarily residential, and land acquisition and development loans. The residential construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The land acquisition and development loans are secured by the land for which the loan was obtained. The average life of a construction loan is approximately 12 months, and it is typically re-priced as the prime rate of interest changes. The majority of the interest rates charged on these loans float with the market. Construction lending entails significant additional risks, compared with residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Another risk involved in construction lending is attributable to the fact that loan funds are advanced upon the security of the land or home under construction, which value is estimated prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios. To mitigate the risks associated with construction lending, we generally limit loan amounts are limited to 75% to 90% of appraised value, in addition to analyzing the creditworthiness of our borrowers. We also obtainthe borrower. In addition, a first lien on the property is obtained as security for our construction loans and typically require personal guarantees from the borrower’s principal owners.
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in our market area, including multi-family residential buildings, commercial buildings and offices, shopping centers and churches. Commercial real estate lending entails significant additional risks, compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the payment experience on loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or in the economy in general. OurThe Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios and the borrower’s creditworthiness, prior credit history and reputation. We also evaluatereputation; as well as an evaluation of the location of the security property securing the loan and typically require personal guarantees or endorsements of the borrower’s principal owners.
Commercial & Industry – Non-Real Estate
Business loans generally have a higher degree of risk than residential mortgage loans but have higher yields. To manage these risks, we generally obtainthe Bank obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of our business borrowers. Residential mortgage loans generally are made based on the basis of the borrower’s ability to make repaymentrepay from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, business loans typically are made based on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
The Bank offers various consumer loans, including personal loans, and lines of credit, automobile loans, deposit account loans, installment and demand loans, and home equity lines of credit and loans. Such loans are generally made to clients with whom we have a pre-existing relationship. We currently originate all of our consumer loans in our geographic market area.
| 21 |
| Table of Contents |
The underwriting standards employed by us for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of their ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment and additionally from any verifiable secondary income. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount. For home equity lines of credit and loans we requirethe Bank requires title insurance, hazard insurance and, if required, flood insurance.
Residential Mortgage Lending
The Bank makes residential mortgage loans for the purchase or refinance of existing loans with loan to value limits generally ranging between 8080% and 90% depending on the age of the property, borrower’s income and credit worthiness. Loans that are retained in our portfolio generally carry adjustable rates that can change every one, three toor five years, based on amortization periods of twenty to thirty years.
Dealer Finance Division
The Bank startedopened a loan production office in Penn Laird, VASeptember 2012, which specializes in providing automobile financing through a network of automobile dealers. The Dealer Finance Division was originallyis staffed with three officers that have extensive experience in Dealer Finance. Based on the strong growth of this division the staff has been increased to six employees. This office is servingFinance and serves the automobile finance needs for customers of dealers throughout the existing geographic footprint of the Bank. Approximately fiftyfifty-three dealers have signedactive contracts to originate loans on behalf of the Bank. As of year end 2017, the division had total loans outstanding of $75.2 million.
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.
In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summary of the Company’s significant accounting policies that are highly dependent on estimates, assumptions and judgments.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 (formerly SFAS No. 5) “Contingencies”
| 22 |
| Table of Contents |
Allowances for loansloan losses are determined by applying estimated loss factors to the portfolio based on management’s evaluation and “risk grading” of the loan portfolio. Specific allowances, if required, are typically provided on all impaired loans in excess of a defined loan size threshold that are classified in the Substandard or Doubtful risk grades.grades and on all troubled debt restructurings. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of the Company’s exposure for each credit, given the current payment status of the loan, and the value of any underlying collateral.
While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuationschange or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.
Fair Value
The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques using significant assumptions that are observable in the market or (3) model-based techniques that use significant assumptions not observable in the market. When observable market prices and parameters are not fully available, management’s judgment is necessary to arrive at fair value including estimates of current market participant expectations of future cash flows, risk premiums, among other things. Additionally, significant judgment may be required to determine whether certain assets measured at fair value are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
Pension Plan Accounting
The accounting guidance for the measurement and recognition of obligations and expense related to pension plans generally applies the concept that the cost of benefits provided during retirement should be recognized over the employees’ active working life. Inherent in this concept is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Major actuarial assumptions that require significant management judgment and have a material impact on the measurement of benefits expense and accumulated benefit obligation include discount rates, expected return on assets, mortality rates, and projected salary increases, among others. Changes in assumptions or judgments related to any of these variables could result in significant volatility in the Company’s financial condition and results of operations. As a result, accounting for the Company’s pension expense and obligation is considered a significant estimate. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
| 23 |
| Table of Contents |
|
| Five Year Summary of Selected Financial Data (Dollars and shares in thousands, except per share data) |
| |||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
|
| 20186 |
| ||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and Dividend Income |
| $ | 42,184 |
|
| $ | 35,576 |
|
| $ | 36,792 |
|
| $ | 38,210 |
|
| $ | 36,377 |
|
Interest Expense |
|
| 7,245 |
|
|
| 4,302 |
|
|
| 5,728 |
|
|
| 6,818 |
|
|
| 4,832 |
|
Net Interest Income |
|
| 34,939 |
|
|
| 31,274 |
|
|
| 31,064 |
|
|
| 31,392 |
|
|
| 31,545 |
|
Provision for (Recovery of) Loan Losses |
|
| 866 |
|
|
| (2,821 | ) |
|
| 3,300 |
|
|
| 7,405 |
|
|
| 2,930 |
|
Net Interest Income After Provision for (Recovery of) Loan Losses |
|
| 34,073 |
|
|
| 34,095 |
|
|
| 27,764 |
|
|
| 23,987 |
|
|
| 28,615 |
|
Noninterest Income |
|
| 10,451 |
|
|
| 12,167 |
|
|
| 13,103 |
|
|
| 10,759 |
|
|
| 8,770 |
|
Low-income housing partnership losses |
|
| (817 | ) |
|
| (861 | ) |
|
| (893 | ) |
|
| (839 | ) |
|
| (767 | ) |
Noninterest Expenses |
|
| 34,909 |
|
|
| 33,340 |
|
|
| 29,939 |
|
|
| 29,518 |
|
|
| 26,744 |
|
Income before income taxes |
|
| 8,798 |
|
|
| 12,061 |
|
|
| 10,035 |
|
|
| 4,389 |
|
|
| 9,874 |
|
Income Tax Expense (Benefit) |
|
| 480 |
|
|
| 1,323 |
|
|
| 1,142 |
|
|
| (250 | ) |
|
| 1,041 |
|
Net income attributable to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| (105 | ) |
|
| (130 | ) |
|
| (10 | ) |
Net Income attributable to F & M Bank Corp. |
| $ | 8,318 |
|
| $ | 10,738 |
|
| $ | 8,788 |
|
| $ | 4,509 |
|
| $ | 8,823 |
|
Per Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income – basic |
| $ | 2.41 |
|
| $ | 3.25 |
|
| $ | 2.66 |
|
| $ | 1.32 |
|
| $ | 2.60 |
|
Net Income - diluted |
|
| 2.41 |
|
|
| 3.12 |
|
|
| 2.56 |
|
|
| 1.30 |
|
|
| 2.45 |
|
Dividends Declared |
|
| 1.04 |
|
|
| 1.04 |
|
|
| 1.04 |
|
|
| 1.02 |
|
|
| 1.20 |
|
Book Value per Common Share |
|
| 20.48 |
|
|
| 29.42 |
|
|
| 28.43 |
|
|
| 27.11 |
|
|
| 26.68 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 1,245,902 |
|
| $ | 1,219,342 |
|
| $ | 966,930 |
|
| $ | 813,999 |
|
| $ | 779,743 |
|
Loans Held for Investment |
|
| 743,604 |
|
|
| 662,421 |
|
|
| 661,329 |
|
|
| 603,425 |
|
|
| 638,799 |
|
Loans Held for Sale |
|
| 1,373 |
|
|
| 4,887 |
|
|
| 58,679 |
|
|
| 66,798 |
|
|
| 55,910 |
|
Securities |
|
| 403,537 |
|
|
| 413,217 |
|
|
| 117,898 |
|
|
| 18,015 |
|
|
| 21,844 |
|
Deposits |
|
| 1,083,377 |
|
|
| 1,080,295 |
|
|
| 818,582 |
|
|
| 641,709 |
|
|
| 591,325 |
|
Short-Term Debt |
|
| 70,000 |
|
|
| - |
|
|
| - |
|
|
| 10,000 |
|
|
| 40,116 |
|
Long-Term Debt |
|
| 6,890 |
|
|
| 21,772 |
|
|
| 33,202 |
|
|
| 53,201 |
|
|
| 40,218 |
|
Stockholders’ Equity |
|
| 70,792 |
|
|
| 100,456 |
|
|
| 95,629 |
|
|
| 91,575 |
|
|
| 91,401 |
|
Average Common Shares Outstanding – basic |
|
| 3,449 |
|
|
| 3,245 |
|
|
| 3,200 |
|
|
| 3,189 |
|
|
| 3,238 |
|
Average Common Shares Outstanding – diluted |
|
| 3,449 |
|
|
| 3,442 |
|
|
| 3,429 |
|
|
| 3,460 |
|
|
| 3,596 |
|
Financial Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets1 |
|
| 0.72 | % |
|
| 0.98 | % |
|
| 0.95 | % |
|
| 0.57 | % |
|
| 1.15 | % |
Return on Average Equity1 |
|
| 8.53 | % |
|
| 10.84 | % |
|
| 9.46 | % |
|
| 4.93 | % |
|
| 9.67 | % |
Net Interest Margin |
|
| 3.03 | % |
|
| 3.00 | % |
|
| 3.61 | % |
|
| 4.33 | % |
|
| 4.65 | % |
Efficiency Ratio 2 |
|
| 77.81 | % |
|
| 75.44 | % |
|
| 67.51 | % |
|
| 69.03 | % |
|
| 66.04 | % |
Dividend Payout Ratio - Common |
|
| 43.15 | % |
|
| 32.00 | % |
|
| 39.10 | % |
|
| 77.27 | % |
|
| 46.15 | % |
Capital and Credit Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Equity to Average Assets1 |
|
| 8.49 | % |
|
| 9.05 | % |
|
| 10.08 | % |
|
| 11.48 | % |
|
| 11.90 | % |
Allowance for Loan Losses to Loans3 |
|
| 1.07 | % |
|
| 1.17 | % |
|
| 1.58 | % |
|
| 1.39 | % |
|
| 0.82 | % |
Nonperforming Loans to Total Assets4 |
|
| 0.18 | % |
|
| 0.45 | % |
|
| 0.68 | % |
|
| 0.70 | % |
|
| 1.31 | % |
Nonperforming Assets to Total Assets5 |
|
| 0.18 | % |
|
| 0.45 | % |
|
| 0.68 | % |
|
| 0.89 | % |
|
| 1.62 | % |
Net Charge-offs to Total Loans3 |
|
| 0.09 | % |
|
| (.01 | )% |
|
| 0.18 | % |
|
| 0.71 | % |
|
| 0.58 | % |
1 | Ratios are primarily based on daily average balances. |
2 | The Efficiency Ratio equals noninterest expenses divided by the sum of tax equivalent net interest income and noninterest income. Noninterest income excludes gains (losses) on securities transactions and low-income housing partnership losses. Noninterest expense excludes amortization of intangibles. |
3 | Calculated based on Loans Held for Investment, excludes Loans Held for Sale. |
4 | Calculated based on 90 day past due loans and non-accrual loans to Total Assets. |
5 | Calculated based on 90 day past due loans, non-accrual loans and OREO to Total Assets. |
6 | The 2018 financial information has been adjusted to reflect the correction of a prior period error. |
| 24 |
| Table of Contents |
Overview
The Company’s net income for 2022 totaled $8.3 million or $2.41 per common share (basic), a decrease of 22.54% from $10.7 million, or $3.25 per share (basic), in 2021. Return on average equity decreased in 2022 to 8.53% from 10.84% in 2021, and the return on average assets decreased from 0.98% in 2021 to 0.72% in 2022. The Company’s net income per share (dilutive) totaled $2.41 in 2022, a decrease from $3.12 in 2021.
At year-end 2022, the Company had total assets of $1.25 billion, total loans of $743.6 million, and total deposits of $1.08 billion, compared to year-end balances for 2021 of total assets of $1.22 billion, total loans of $662.4 million, and total deposits of $1.08 billion.
Changes in Net Income per Common Share (Basic)
|
| 2022 |
|
| 2021 |
| ||
|
| to 2021 |
|
| to 2020 |
| ||
|
|
|
|
|
|
| ||
Prior Year Net Income Per Common Share (Basic) |
| $ | 3.25 |
|
| $ | 2.66 |
|
Change from differences in: |
|
|
|
|
|
|
|
|
Net interest income |
|
| 1.06 |
|
|
| 0.06 |
|
Provision for loan losses |
|
| (1.07 | ) |
|
| 1.89 |
|
Noninterest income, excluding securities gains |
|
| (0.91 | ) |
|
| (0.08 | ) |
Security gains |
|
| 0.42 |
|
|
| (0.16 | ) |
Noninterest expenses |
|
| (0.45 | ) |
|
| (1.05 | ) |
Income taxes |
|
| 0.24 |
|
|
| (0.06 | ) |
Effect of preferred stock dividend |
|
| 0.06 |
|
|
| 0.02 |
|
Change in average shares outstanding |
|
| (0.19 | ) |
|
| (0.03 | ) |
Total Change |
|
| (0.84 | ) |
|
| 0.59 |
|
Net Income Per Common Share (Basic) |
| $ | 2.41 |
|
| $ | 3.25 |
|
Net Interest Income
The largest source of operating revenue for the Company is net interest income, which is calculated as the difference between the interest earned on earning assets and the interest expense paid on interest bearing liabilities. Net interest income increased 11.72% from 2021 to 2022 following an increase of 0.68% from 2020 to 2021. The net interest margin is the net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest earning assets and interest-bearing liabilities, along with their yields and rates, have a significant impact on the level of net interest income. Tax-equivalent net interest income for 2022 was $35.1 million representing an increase of $3.7 million or 11.78% over the prior year. A 0.74% increase in 2021 versus 2020 resulted in total tax-equivalent net interest income of $31.4 million for 2021.
In this discussion and in the tabular analysis of net interest income performance, entitled “Consolidated Average Balances, Yields and Rates,” the interest earned on tax exempt loans and investment securities has been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxation. This is referred to as tax-equivalent net interest income. For a reconciliation of tax-equivalent net interest income to the most comparable GAAP measures, see the accompanying table.
Tax-equivalent income on earning assets increased $6.6 million in 2022 compared to 2021. Loans held for investment, expressed as a percentage of total earning assets, decreased in 2022 to 59.26% as compared to 63.77% in 2021. During 2022, yields on earning assets increased 24 basis points (BP) and the average cost of interest-bearing liabilities increased 26BP. Both are a result of the rising interest rate environment experienced in 2022.
| 25 |
| Table of Contents |
The following table provides detail on the components of tax-equivalent net interest income (dollars in thousands):
GAAP Financial Measurements: |
| 2022 |
|
| 2021 |
| ||
Interest Income – Loans |
| $ | 34,374 |
|
| $ | 32,560 |
|
Interest Income - Securities and Other Interest-Earnings Assets |
|
| 7,810 |
|
|
| 3,016 |
|
Interest Expense – Deposits |
|
| 5,735 |
|
|
| 3,336 |
|
Interest Expense - Other Borrowings |
|
| 1,510 |
|
|
| 966 |
|
Total Net Interest Income |
|
| 34,939 |
|
|
| 31,274 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
Add: Tax Benefit on Tax-Exempt Interest Income – Loans and Securities |
|
| 143 |
|
|
| 110 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
| 143 |
|
|
| 110 |
|
Tax-Equivalent Net Interest Income |
| $ | 35,082 |
|
| $ | 31,384 |
|
Interest Income
Tax-equivalent net interest income increased $3.7 million or 11.78% in 2022, after increasing 0.73% or $230 thousand in 2021. Overall, the yield on earning assets increased 0.24%, from 3.41% to 3.65%. Average loans held for investment increased during 2022, with average loans outstanding increasing $19.4 million to $686.5 million. Average commercial loans increased 3.25%, real estate loans decreased 1.16%, and consumer installment loans increased 12.25% on average. Average investment securities increased 88.59%, with average securities outstanding increasing from $236.3 million to $445.6 million. Interest income and fees on loans were $1.9 million higher and income from cash and securities was $4.8 million higher due to higher rates on variable rate loans, the $19.4 million in loan growth in 2022, and higher investment average balances due to purchases in 2021 and early 2022.
Interest Expense
Interest expense increased $2.9 million or 68.41% during 2022. Higher rates on interest bearing deposits, specifically money market accounts, coupled with interest paid on short-term borrowings increased the Bank’s interest expense. The average cost of funds of 0.86% increased 26 basis points compared to 2021, which followed a decrease of 34 basis points in 2021. Average interest-bearing liabilities increased $130.9 million or 18.28% in 2022. Interest expense on deposits increased 71.94% due to average interest-bearing deposits increasing 17.58% and a rising rate environment. Interest expense on borrowings increased 53.31% as average debt increased 32.04%. Changes in the cost of funds attributable to rate and volume variances are reflected in a following table.
The following analysis reveals an increase in the net interest margin to 3.03% in 2022 from 3.00% in 2021, due to changes in balance sheet mix during the year and increases in interest rates in earning assets and interest-bearing liabilities. The average balance of the investment portfolio has grown significantly as deposits were invested in securities in the beginning of 2022. Investment purchases stopped as the Federal Reserve began raising interest rates to flatten the economy and the overall rate environment increased considerably.
| 26 |
| Table of Contents |
Consolidated Average Balances, Yields and Rates (dollars in thousands)1
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| $ | 254,506 |
|
| $ | 12,437 |
|
|
| 4.89 | % |
| $ | 246,495 |
|
| $ | 11,667 |
|
|
| 4.73 | % |
Real estate |
|
| 295,524 |
|
|
| 13,733 |
|
|
| 4.65 | % |
|
| 298,983 |
|
|
| 13,506 |
|
|
| 4.52 | % |
Consumer |
|
| 136,495 |
|
|
| 8,149 |
|
|
| 5.97 | % |
|
| 121,604 |
|
|
| 7,277 |
|
|
| 5.98 | % |
Loans held for investment4 |
|
| 686,524 |
|
|
| 34,319 |
|
|
| 5.00 | % |
|
| 667,082 |
|
|
| 32,450 |
|
|
| 4.86 | % |
Loans held for sale |
|
| 3,130 |
|
|
| 106 |
|
|
| 3.39 | % |
|
| 3,844 |
|
|
| 186 |
|
|
| 4.84 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully taxable |
|
| 433,242 |
|
|
| 7,278 |
|
|
| 1.68 | % |
|
| 228,287 |
|
|
| 2,739 |
|
|
| 1.20 | % |
Partially taxable |
|
| - |
|
|
| - |
|
| -% |
|
|
| 125 |
|
|
| 1 |
|
|
| 0.80 | % | |
Tax exempt |
|
| 12,365 |
|
|
| 434 |
|
|
| 3.51 | % |
|
| 7,868 |
|
|
| 168 |
|
|
| 2.14 | % |
Total investment securities |
|
| 445,607 |
|
|
| 7,712 |
|
|
| 1.73 | % |
|
| 236,280 |
|
|
| 2,908 |
|
|
| 1.23 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks |
|
| 1,390 |
|
|
| 37 |
|
|
| 2.66 | % |
|
| 2,184 |
|
|
| 3 |
|
|
| 0.14 | % |
Federal funds sold |
|
| 21,763 |
|
|
| 153 |
|
|
| 0.70 | % |
|
| 136,705 |
|
|
| 139 |
|
|
| 0.10 | % |
Total Earning Assets |
|
| 1,158,414 |
|
|
| 42,327 |
|
|
| 3.65 | % |
|
| 1,046,095 |
|
|
| 35,686 |
|
|
| 3.41 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
| (7,677 | ) |
|
|
|
|
|
|
|
|
|
| (9,000 | ) |
|
|
|
|
|
|
|
|
Nonearning assets |
|
| 83,604 |
|
|
|
|
|
|
|
|
|
|
| 57,474 |
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 1,234,341 |
|
|
|
|
|
|
|
|
|
| $ | 1,094,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand –interest bearing |
| $ | 183,882 |
|
| $ | 868 |
|
|
| 0.47 | % |
| $ | 147,008 |
|
| $ | 280 |
|
|
| 0.19 | % |
Savings |
|
| 502,913 |
|
|
| 3,904 |
|
|
| 0.78 | % |
|
| 410,769 |
|
|
| 1,689 |
|
|
| 0.41 | % |
Time deposits |
|
| 121,585 |
|
|
| 963 |
|
|
| 0.79 | % |
|
| 129,760 |
|
|
| 1,367 |
|
|
| 1.05 | % |
Total interest-bearing deposits |
|
| 808,380 |
|
|
| 5,735 |
|
|
| 0.71 | % |
|
| 687,537 |
|
|
| 3,336 |
|
|
| 0.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
| 883 |
|
|
| 28 |
|
|
| 3.17 | % |
|
| - |
|
|
| - |
|
| -% |
| |
Short‑term debt |
|
| 25,241 |
|
|
| 732 |
|
|
| 2.90 | % |
|
| - |
|
|
| - |
|
| -% |
| |
Long-term debt |
|
| 12,748 |
|
|
| 750 |
|
|
| 5.88 | % |
|
| 28,770 |
|
|
| 966 |
|
|
| 3.36 | % |
Total interest-bearing liabilities |
|
| 847,252 |
|
|
| 7,245 |
|
|
| 0.86 | % |
|
| 716,307 |
|
|
| 4,302 |
|
|
| 0.60 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
|
| 292,252 |
|
|
|
|
|
|
|
|
|
|
| 263,911 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 15,457 |
|
|
|
|
|
|
|
|
|
|
| 15,258 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 1,154,960 |
|
|
|
|
|
|
|
|
|
|
| 995,476 |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
| 79,381 |
|
|
|
|
|
|
|
|
|
|
| 99,093 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 1,234,341 |
|
|
|
|
|
|
|
|
|
| $ | 1,094,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings |
|
|
|
|
| $ | 35,082 |
|
|
|
|
|
|
|
|
|
| $ | 31,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets (NIM) |
|
|
|
|
|
|
|
|
|
| 3.03 | % |
|
|
|
|
|
|
|
|
|
| 3.00 | % |
1 | Income and yields are presented on a tax-equivalent basis using the applicable federal income tax rate of 21%. |
2 | Interest income on loans includes loan fees. |
3 | Average balance information is reflective of historical cost and has not been adjusted for changes in market value. |
4 | Includes nonaccrual loans. |
| 27 |
| Table of Contents |
The following table (dollars in thousands) illustrates the effect of changes in interest income and interest expense, on a tax equivalent basis, and distinguishes between the changes resulting from the increases or decreases in the outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes resulting from increases or decreases in average interest rates on such assets and liabilities (rate). Changes related to both volume and rate have been allocated proportionally.
|
| 2022 Compared to 2021 |
| |||||||||
|
| Increase (Decrease) |
| |||||||||
|
| Due to Change |
|
| Increase |
| ||||||
|
| in Average: |
|
| Or |
| ||||||
|
| Volume |
|
| Rate |
|
| (Decrease) |
| |||
|
|
|
|
|
|
|
|
|
| |||
Interest income |
|
|
|
|
|
|
|
|
| |||
Loans held for investment |
| $ | 945 |
|
| $ | 924 |
|
| $ | 1,869 |
|
Loans held for sale |
|
| (35 | ) |
|
| (45 | ) |
|
| (80 | ) |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Fully taxable |
|
| 2,459 |
|
|
| 2,080 |
|
|
| 4,539 |
|
Partially taxable |
|
| (1 | ) |
|
| - |
|
|
| (1 | ) |
Tax exempt |
|
| 96 |
|
|
| 170 |
|
|
| 266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks |
|
| (1 | ) |
|
| 35 |
|
|
| 34 |
|
Federal funds sold |
|
| (115 | ) |
|
| 129 |
|
|
| 14 |
|
Total Interest Income |
|
| 3,348 |
|
|
| 3,293 |
|
|
| 6,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Demand - interest bearing |
|
| 70 |
|
|
| 518 |
|
|
| 588 |
|
Savings |
|
| 378 |
|
|
| 1,837 |
|
|
| 2,215 |
|
Time deposits |
|
| (86 | ) |
|
| (317 | ) |
|
| (403 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
| 28 |
|
|
| - |
|
|
| 28 |
|
Short-term debt |
|
| 731 |
|
|
| - |
|
|
| 731 |
|
Long-term debt |
|
| (538 | ) |
|
| 322 |
|
|
| (216 | ) |
Total Interest Expense |
|
| 583 |
|
| 2,360 |
|
|
| 2,943 |
| |
Net Interest Income |
| $ | 2,765 |
|
| $ | 933 |
|
| $ | 3,698 |
|
Noninterest Income
Noninterest income decreased 14.79%, or $1.7 million, in 2022. Noninterest income, excluding securities gains and losses, declined on a year-to-year basis from $11.8 million for 2021 to $8.7 million in 2022. As the mortgage industry slowed due to rising interest rates, mortgage banking income declined from $4.6 million in 2021 to $1.8 million for 2022. For 2023, the Bank is expanding the presence of mortgage loan originators in newer markets, offering variable rate products which are held in the loan portfolio rather than sold on the secondary market, and continuing to support the growth and utilization of our title and wealth management divisions.
Net investment securities losses increased from $525 thousand in 2021 to $2.9 million in 2022. In October 2022, Infinex Financial Holdings, Inc. (“Infinex”), the holding company for Infinex Investments, Inc., a broker dealer through which the Bank provides wealth management services to its customers, was acquired by Advisor Group, Inc. As a result, the Company recorded a one-time gain of $3.8 million with respect to the Company’s share of ownership in Infinex.
Noninterest Expense
Noninterest expenses increased from $33.3 million in 2021 to $34.9 million in 2022, a 4.71% increase. Expenses increased primarily in the areas of salaries and benefits ($1.5 million), telecommunication and data processing expense ($276 thousand), and ATM and check card fees ($195 thousand). The salary increase was due, in part, to a minimum wage increase implemented by the Company in August 2022.
| 28 |
| Table of Contents |
Total noninterest expense as a percentage of average assets totaled 2.83% and 3.05% in 2022 and 2021, respectively. Peer group averages (as reported in the most recent Uniform Bank Performance Report) were 2.35% for 2022 and 2.40% for 2021.
Balance Sheet
Total assets increased 2.18% during the year to $1.25 billion at December 31, 2022, an increase of $26.6 million from $1.22 billion at December 31, 2021. The increase was fueled by strong growth in net loans held for investment that increased $81.2 million. Cash and cash equivalents decreased $53.2 million as excess funds were used to fund loan growth. The AFS security portfolio had purchases of $108.1 million that were offset by sales and maturities of $47.7 million, amortization, accretion and paydowns of $23.2 million, and a decrease in the fair value of $48.9 million, which resulted in a decrease of $11.8 million.
Average earning assets increased $112.3 million or 10.74% to $1.16 billion for 2022, due largely to the growth in loans held for investment and investment securities. Average interest-bearing liabilities increased $130.9 million or 18.28%, as deposits and short-term debt increased. The Company continues to utilize its assets well, with 93.85% of average assets consisting of earning assets.
Investment Securities
Total securities decreased $9.7 million or 2.34% in 2022 to $403.4 million at December 31, 2022 from $413.2 million at December 31, 2021. Average balances in investment securities increased 88.59% in 2022 to $445.6 million. At year end, 38.47% of average earning assets of the Company were held as investment securities compared to 22.59% at year-end 2021. All of the investment securities are unpledged. Management strives to match the types and maturities of securities owned to balance projected liquidity needs, interest rate sensitivity and to maximize earnings through a portfolio bearing low credit risk. Portfolio yields averaged 1.73% for 2022, compared to 1.23% in 2021; this is due volume and rate increases in 2022.
There were no Other Than Temporary Impairments (“OTTI”) write-downs in 2022 or 2021. There were $525 thousand in realized security losses on sales of securities in 2021. In 2022, the Company recorded a one-time gain of $3.8 million on the acquisition of Infinex by Advisor Group, Inc and took the opportunity to sell low yielding securities for a realized loss of $2.9 million to offset the gain.
Maturities and weighted average yields of securities at December 31, 2022 are presented in the table below (dollars in thousands). Amounts are shown by contractual maturity; expected maturities will differ as issuers may have the right to call or prepay obligations. Maturities of other investments are not readily determinable due to the nature of the investment; see Note 2 to the Consolidated Financial Statements for a description of these investments.
|
| Less |
|
| One to |
|
| Five to |
|
| Over |
|
|
|
|
| ||||||||||||||||||||||||
|
| Than one Year |
|
| Five Years |
|
| Ten Years |
|
| Ten Years |
|
|
|
|
| ||||||||||||||||||||||||
|
| Amount |
|
| Yield1 |
|
| Amount |
|
| Yield1 |
|
| Amount |
|
| Yield1 |
|
| Amount |
|
| Yield1 |
|
| Total |
|
| Yield1 |
| ||||||||||
Debt Securities Available for Sale: |
| |||||||||||||||||||||||||||||||||||||||
U.S. Treasuries |
| $ | 4,821 |
|
|
| 0.50 | % |
| $ | 18,991 |
|
|
| 1.50 | % |
| $ | 12,831 |
|
|
| 0.99 | % |
| $ | - |
|
|
|
|
| $ | 36,643 |
|
|
| 1.19 | % | |
U.S. Government sponsored enterprises |
|
| 9,599 |
|
|
| 0.75 | % |
|
| 98,754 |
|
|
| 1.20 | % |
|
| 21,395 |
|
|
| 1.42 | % |
|
| - |
|
|
|
|
|
| 129,748 |
|
|
| 1.20 | % | |
Securities issued by States & political subdivisions of the U.S. |
|
| 4,783 |
|
|
| 0.88 | % |
|
| 17,466 |
|
|
| 1.49 | % |
|
| 6,169 |
|
|
| 2.42 | % |
|
| 13,780 |
|
|
| 3.11 | % |
|
| 42,198 |
|
|
| 2.09 | % |
Mortgage-backed obligations of federal agencies |
|
| - |
|
|
| - |
|
|
| 16,068 |
|
|
| 0.94 | % |
|
| 20,617 |
|
|
| 0.24 | % |
|
| 120,190 |
|
|
| 2.16 | % |
|
| 156,875 |
|
|
| 1.78 | % |
Corporate debt securities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,631 |
|
|
| 4.01 | % |
|
| - |
|
|
| - |
|
|
| 26,631 |
|
|
| 4.01 | % |
Total |
| $ | 19,203 |
|
|
| 0.72 | % |
| $ | 151,279 |
|
|
| 1.24 | % |
| $ | 87,643 |
|
|
| 1.94 | % |
| $ | 133,970 |
|
|
| 2.26 | % |
| $ | 392,095 |
|
|
| 1.72 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Held to Maturity: | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury & Agency |
| $ | 125 |
|
|
| 0.82 | % |
| $ | - |
|
|
|
|
|
| $ | - |
|
|
|
|
|
| $ | - |
|
|
|
|
|
| $ | 125 |
|
|
| 0.82 | % |
Total |
| $ | 125 |
|
|
| 0.82 | % |
| $ | - |
|
|
|
|
|
| $ | - |
|
|
|
|
|
| $ | - |
|
|
|
|
|
| $ | 125 |
|
|
| 0.82 | % |
1Tax equivalent yield to the lower of call or maturity date. On securities without a call date, it is the stated yield.
| 29 |
| Table of Contents |
Loan Portfolio
Loans held for investment, net of deferred fees and costs, totaled $743.6 million at December 31, 2022 compared with $662.4 million at December 31, 2021. Commercial and 1-to-4 family consumer real estate loans represent the Company’s largest categories at December 31, 2022. The largest areas of growth in 2022 occurred in the Commercial & Industrial -non-real estate, commercial real estate, farmland, and real estate portfolios. The Company is committed to solid growth by originating soundly underwritten loans to qualified borrowers. Nearly 70% of the commercial portfolio is comprised of adjustable interest rate loans. When interest rates fluctuate, these loans will reprice accordingly, giving customers an advantage when rates trend down and providing protection for the Bank if rates trend up.
The following table shows the maturity of loans and leases, outstanding as of December 31, 2022 (dollars in thousands):
|
| 1 Year or less |
|
| 1-5 Years |
|
| 5-15 Years |
|
| After 15 Years |
|
| Total |
| |||||
Construction/Land Development |
| $ | 32,736 |
|
| $ | 22,189 |
|
| $ | 12,519 |
|
| $ | 1,227 |
|
| $ | 68,671 |
|
Farmland |
|
| 30,043 |
|
|
| 14,333 |
|
|
| 28,556 |
|
|
| 1,390 |
|
|
| 74,322 |
|
Real Estate |
|
| 25,236 |
|
|
| 67,973 |
|
|
| 55,115 |
|
|
| 4,957 |
|
|
| 153,281 |
|
Multi-Family |
|
| 2,113 |
|
|
| 2,254 |
|
|
| 5,255 |
|
|
| - |
|
|
| 9,622 |
|
Commercial Real Estate |
|
| 72,663 |
|
|
| 70,312 |
|
|
| 52,099 |
|
|
| 89 |
|
|
| 195,163 |
|
Home Equity – closed end |
|
| 1,102 |
|
|
| 1,784 |
|
|
| 1,821 |
|
|
| - |
|
|
| 4,707 |
|
Home Equity – open end |
|
| 1,697 |
|
|
| 7,635 |
|
|
| 37,477 |
|
|
| 119 |
|
|
| 46,928 |
|
Commercial & Industrial – Non-Real Estate |
|
| 3,080 |
|
|
| 20,972 |
|
|
| 32,573 |
|
|
| - |
|
|
| 56,625 |
|
Consumer |
|
| 880 |
|
|
| 4,919 |
|
|
| 689 |
|
|
| - |
|
|
| 6,488 |
|
Dealer Finance |
|
| 2,212 |
|
|
| 42,798 |
|
|
| 80,115 |
|
|
| - |
|
|
| 125,125 |
|
Credit Cards |
|
| 3,242 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,242 |
|
Less: Deferred loan fees, net of costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (570 | ) |
Total |
| $ | 175,004 |
|
| $ | 255,169 |
|
| $ | 306,219 |
|
| $ | 7,782 |
|
| $ | 743,604 |
|
| 30 |
| Table of Contents |
At December 31, 2022, for loans and leases due after one year, interest rate information is as follows (dollars in thousands):
|
| 1-5 Years |
|
| 5-15 Years |
|
| After 15 Years |
|
| Total |
| ||||
Construction/Land Development |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding with fixed interest rates |
| $ | 5,719 |
|
| $ | 2,953 |
|
| $ | 380 |
|
| $ | 9,052 |
|
Outstanding with adjustable rates |
|
| 16,470 |
|
|
| 9,566 |
|
|
| 847 |
|
|
| 26,883 |
|
Total Construction/Land Development |
|
| 22,189 |
|
|
| 12,519 |
|
|
| 1,227 |
|
|
| 35,935 |
|
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 403 |
|
| $ | 6,747 |
|
| $ | 421 |
|
| $ | 7,571 |
|
Outstanding with adjustable rates |
|
| 13,930 |
|
|
| 21,809 |
|
|
| 969 |
|
|
| 36,708 |
|
Total Farmland |
|
| 14,333 |
|
|
| 28,556 |
|
|
| 1,390 |
|
|
| 44,279 |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 464 |
|
| $ | 1,316 |
|
| $ | 3,122 |
|
| $ | 4,902 |
|
Outstanding with adjustable rates |
|
| 67,509 |
|
|
| 53,799 |
|
|
| 1,835 |
|
|
| 123,143 |
|
Total Real Estate |
|
| 67,973 |
|
|
| 55,115 |
|
|
| 4,957 |
|
|
| 128,045 |
|
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 1,592 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,592 |
|
Outstanding with adjustable rates |
|
| 662 |
|
|
| 5,255 |
|
|
| - |
|
|
| 5,917 |
|
Total Multi-Family |
|
| 2,254 |
|
|
| 5,255 |
|
|
| - |
|
|
| 7,509 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 9,151 |
|
| $ | 6,441 |
|
| $ | - |
|
| $ | 15,592 |
|
Outstanding with adjustable rates |
|
| 61,161 |
|
|
| 45,658 |
|
|
| 89 |
|
|
| 106,908 |
|
Total Commercial Real Estate |
|
| 70,312 |
|
|
| 52,099 |
|
|
| 89 |
|
|
| 122,500 |
|
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 238 |
|
| $ | 1,579 |
|
| $ | - |
|
| $ | 1,817 |
|
Outstanding with adjustable rates |
|
| 1,546 |
|
|
| 242 |
|
|
| - |
|
|
| 1,788 |
|
Total Home Equity – closed end |
|
| 1,784 |
|
|
| 1,821 |
|
|
| - |
|
|
| 3,605 |
|
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Outstanding with adjustable rates |
|
| 7,635 |
|
|
| 37,477 |
|
|
| 119 |
|
|
| 45,231 |
|
Total Home Equity – open end |
|
| 7,635 |
|
|
| 37,477 |
|
|
| 119 |
|
|
| 45,231 |
|
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 6,460 |
|
| $ | 13,343 |
|
| $ | - |
|
| $ | 19,803 |
|
Outstanding with adjustable rates |
|
| 14,512 |
|
|
| 19,230 |
|
|
| - |
|
|
| 33,742 |
|
Total Commercial & Industrial – Non-Real Estate |
|
| 20,972 |
|
|
| 32,573 |
|
|
| - |
|
|
| 53,545 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 4,529 |
|
| $ | 680 |
|
| $ | - |
|
| $ | 5,209 |
|
Outstanding with adjustable rates |
|
| 390 |
|
|
| 9 |
|
|
| - |
|
|
| 399 |
|
Total Consumer |
|
| 4,919 |
|
|
| 689 |
|
|
| - |
|
|
| 5,608 |
|
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding with fixed interest rates |
| $ | 42,798 |
|
| $ | 80,115 |
|
| $ | - |
|
| $ | 122,913 |
|
Outstanding with adjustable rates |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total Dealer Finance |
|
| 42,798 |
|
|
| 80,115 |
|
|
| - |
|
|
| 122,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding with fixed interest rates |
| $ | 71,354 |
|
| $ | 113,174 |
|
| $ | 3,923 |
|
| $ | 188,451 |
|
Total outstanding with adjustable interest rates |
| $ | 183,815 |
|
| $ | 193,045 |
|
| $ | 3,859 |
|
| $ | 380,719 |
|
Total |
| $ | 255,169 |
|
| $ | 306,219 |
|
| $ | 7,782 |
|
| $ | 569,170 |
|
Asset Quality
Management evaluates the loan portfolio considering national and local economic trends, changes in the nature and volume of the portfolio, changes in underlying collateral values and trends in past due, nonperforming and criticized loans. During 2022, the Bank experienced strong overall growth in the loan portfolio with improvements in nonperforming and criticized loans. Loans past due 30-89 days and on accrual increased, while loans greater than 90 days and on accrual decreased.
| 31 |
| Table of Contents |
Nonperforming Loans and Past Due Loans
At December 31, 2022, the Company experienced a decrease of $3.2 million in nonperforming assets compared to December 31, 2021. Past due loans on accrual increased from $4.0 million at December 31, 2021 to $6.1 million at December 31, 2022. Of the $6.1 million total past due loans still accruing interest, $465 thousand or 0.06% of the total loans held for investment were loans past due 90 days or more at December 31, 2022, compared to $643 thousand or 0.10% at December 31, 2021.
Approximately 83.91% of the nonperforming assets are secured by real estate and were in the process of collection. The Bank believes that adequate specific reserves have been established on impaired loans and continues to actively work with its customers to effect payment. As of December 31, 2022 and 2021, the Company holds $0 of real estate acquired through foreclosure.
A summary of credit ratios for nonaccrual loans is as follows (dollars in thousands):
|
| 2022 |
|
| 2021 |
| ||
Allowance for loan losses |
| $ | 7,936 |
|
| $ | 7,748 |
|
Nonaccrual loans |
| $ | 2,224 |
|
| $ | 5,465 |
|
Nonperforming loans |
| $ | 2,262 |
|
| $ | 5,508 |
|
Total Loans |
| $ | 743,604 |
|
| $ | 662,421 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to Total Loans |
|
| 1.07 | % |
|
| 1.17 | % |
Nonaccrual Loans to Total Loans |
|
| 0.30 | % |
|
| 0.83 | % |
Allowance for loan losses to Nonaccrual loans |
|
| 356.83 | % |
|
| 141.77 | % |
Net Charge-offs
For the year ended December 31, 2022, net charge-offs of loans totaled $678 thousand or 0.09% of loans held for investment, compared to net loan recoveries of $94 thousand or (0.01%) for the year ended December 31, 2021. Charge-offs occur primarily in the dealer finance segment of the portfolio. As stated in the most recently available Uniform Bank Performance Report, peer group loss averages were 0.04% in both 2022 and 2021.
Allowance for Loan Losses
At December 31, 2022, the allowance for loan losses was $7.9 million or 1.07% of total loans held for investment, compared to an allowance of $7.7 million or 1.17% of total loans at December 31, 2021.
Provision for Loan Losses
The provision for loan losses totaled $866 thousand in 2022 compared to a recovery of provision of $2.8 million for 2021. The increased provision in 2022 reflected the $81.2 million growth in the loan portfolio and higher qualitative reserves due to the increase in prime rate over the course of the year and the potential for softening real estate collateral values. Management believes that the allowance for loan losses is sufficient to provide for the incurred losses in the loan portfolio.
| 32 |
| Table of Contents |
The following is a summary of the Allowance for loan losses by category at December 31, 2022 and 2021 (dollars in thousands):
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES | ||||||||||||||||
| ||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| Balance |
|
| Percentage of Loans in Each Category |
|
| Balance |
|
| Percentage of Loans in Each Category |
| ||||
Construction/Land Development |
| $ | 1,018 |
|
|
| 12.83 | % |
| $ | 977 |
|
|
| 12.61 | % |
Farmland |
|
| 570 |
|
|
| 7.18 | % |
|
| 448 |
|
|
| 5.78 | % |
Real Estate |
|
| 1,388 |
|
|
| 17.49 | % |
|
| 1,162 |
|
|
| 15.00 | % |
Multi-Family |
|
| 71 |
|
|
| 0.89 | % |
|
| 29 |
|
|
| 0.38 | % |
Commercial Real Estate |
|
| 2,015 |
|
|
| 25.39 | % |
|
| 2,205 |
|
|
| 28.46 | % |
Home Equity – closed end |
|
| 38 |
|
|
| 0.48 | % |
|
| 41 |
|
|
| 0.53 | % |
Home Equity – open end |
|
| 445 |
|
|
| 5.61 | % |
|
| 407 |
|
|
| 5.25 | % |
Commercial & Industrial – Non-Real Estate |
|
| 450 |
|
|
| 5.67 | % |
|
| 288 |
|
|
| 3.72 | % |
Consumer |
|
| 81 |
|
|
| 1.02 | % |
|
| 520 |
|
|
| 6.71 | % |
Dealer Finance |
|
| 1,792 |
|
|
| 22.58 | % |
|
| 1,601 |
|
|
| 20.66 | % |
Credit Cards |
|
| 68 |
|
|
| 0.86 | % |
|
| 70 |
|
|
| 0.90 | % |
Total |
| $ | 7,936 |
|
|
| 100.00 | % |
| $ | 7,748 |
|
|
| 100.00 | % |
A summary of the activity in the allowance for loan losses follows (dollars in thousands):
|
| 2022 |
|
| 2021 |
| ||
Allowance, beginning of period |
| $ | 7,748 |
|
| $ | 10,475 |
|
Provision (Recovery) charged to expenses |
|
| 866 |
|
|
| (2,821 | ) |
Charge-offs: |
|
|
|
|
|
|
|
|
Construction/land development |
|
| - |
|
|
| - |
|
Farmland |
|
| - |
|
|
| - |
|
Real Estate |
|
| (17 | ) |
|
| - |
|
Multi-family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| (84 | ) |
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| (46 | ) |
|
| (40 | ) |
Consumer |
|
| (153 | ) |
|
| (33 | ) |
Dealer Finance |
|
| (1,280 | ) |
|
| (1,038 | ) |
Credit Cards |
|
| (66 | ) |
|
| (54 | ) |
Total charge-offs |
|
| (1,646 | ) |
|
| (1,165 | ) |
Recoveries: |
|
|
|
|
|
|
|
|
Construction/land development |
|
| - |
|
|
| 307 |
|
Farmland |
|
| - |
|
|
| - |
|
Real Estate |
|
| - |
|
|
| 76 |
|
Multi-family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| 19 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| 130 |
|
|
| 13 |
|
Commercial & Industrial – Non-Real Estate |
|
| 49 |
|
|
| 37 |
|
Consumer |
|
| 84 |
|
|
| 24 |
|
Dealer Finance |
|
| 691 |
|
|
| 754 |
|
Credit Cards |
|
| 14 |
|
|
| 29 |
|
Total recoveries |
|
| 968 |
|
|
| 1,259 |
|
Net (charge-offs) recoveries |
|
| (678 | ) |
|
| 94 |
|
Allowance, end of period |
| $ | 7,936 |
|
| $ | 7,748 |
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs (recoveries) to loans held for investment: |
|
|
|
|
|
|
|
|
Construction/land development |
| -% |
|
|
| (0.05 | )% | |
Farmland |
| -% |
|
| -% |
| ||
Real Estate |
| -% |
|
|
| (0.01 | )% | |
Multi-family |
| -% |
|
| - | % | ||
Commercial Real Estate |
| -% |
|
| - | % | ||
Home Equity – closed end |
| -% |
|
| - | % | ||
Home Equity – open end |
|
| (0.01 | )% |
| - | % | |
Commercial & Industrial – Non-Real Estate |
| -% |
|
| - | % | ||
Consumer |
|
| 0.01 | % |
| - | % | |
Dealer Finance |
|
| 0.08 | % |
|
| 0.04 | % |
Credit Cards |
|
| 0.01 | % |
| - | % | |
Total |
|
| 0.09 | % |
|
| (0.01 | )% |
| 33 |
| Table of Contents |
Deposits
Core deposits are the Company’s primary source of funding. Demand deposits, money market accounts, savings accounts, and time deposits provide a source of fee income and opportunities to build customer relationships.
The following table shows the composition of deposits as of December 31, 2022 and 2021 (dollars in thousands):
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Balance |
|
| % of total deposits |
|
| Balance |
|
| % of total deposits |
| ||||
Noninterest-bearing demand |
| $ | 293,596 |
|
|
| 27.1 | % |
| $ | 280,993 |
|
|
| 26.0 | % |
Interest Checking |
|
| 176,677 |
|
|
| 16.3 | % |
|
| 191,969 |
|
|
| 17.8 | % |
Savings Accounts |
|
| 493,912 |
|
|
| 45.6 | % |
|
| 483,476 |
|
|
| 44.8 | % |
Time Deposits |
|
| 119,192 |
|
|
| 11.0 | % |
|
| 123,857 |
|
|
| 11.5 | % |
Total deposits |
| $ | 1,083,377 |
|
|
|
|
|
| $ | 1,080,295 |
|
|
|
|
|
As market rates and competition for deposits increased in 2022, total deposits increased by $3.1 million. Noninterest-bearing demand deposits increased by $12.6 million; these are generally viewed as the most favorable form of low-cost deposit for a financial institution. The Bank offers an attractive, competitive rate on their money market accounts.
The average deposit balances and average rates paid for 2022 and 2021 were as follows (dollars in thousands):
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Average Balance |
|
| Rate |
|
| Average Balance |
|
| Rate |
| ||||
Noninterest-bearing |
| $ | 292,252 |
|
|
| - |
|
| $ | 263,911 |
|
|
| - |
|
Interest-bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Checking |
| $ | 183,882 |
|
|
| 0.47 | % |
| $ | 147,008 |
|
|
| 0.19 | % |
Savings Accounts |
|
| 502,913 |
|
|
| 0.78 | % |
|
| 410,769 |
|
|
| 0.41 | % |
Time Deposits |
|
| 121,585 |
|
|
| 0.79 | % |
|
| 129,760 |
|
|
| 1.05 | % |
Total interest-bearing deposits |
|
| 808,380 |
|
|
| 0.71 | % |
|
| 687,537 |
|
|
| 0.49 | % |
Total average deposits |
| $ | 1,100,632 |
|
|
| 0.64 | % |
| $ | 951,448 |
|
|
| 0.35 | % |
The maturity distribution of time deposits of $250 thousand or greater outstanding at December 31, 2022 are summarized as follows (dollars in thousands):
|
| 2022 |
|
| 2021 |
| ||
Maturing in: |
|
|
|
|
|
| ||
3 months or less |
| $ | - |
|
| $ | - |
|
Over 3 months through 6 months |
|
| 592 |
|
|
| 3,206 |
|
Over 6 months through 12 months |
|
| 8,553 |
|
|
| 257 |
|
Over 12 months |
|
| 3,523 |
|
|
| 8,910 |
|
|
| $ | 12,668 |
|
| $ | 12,373 |
|
| 34 |
| Table of Contents |
Total uninsured deposits in excess of $250 thousand were $157.4 million and $173.4 million at December 31, 2022 and 2021, respectively.
Borrowings
Short-term debt totaled $70.0 million at December 31, 2022, and consisted of Federal Home Loan Bank (“FHLB”) advances which were used to fund loan growth. Long-term debt dropped from $21.8 million at December 31, 2021 to $6.9 million at December 31, 2022 due to the mid-year redemption of $5.0 million of its subordinated debt and maturity of a $10.0 million long-term FHLB advance. The balance of $6.9 million on December 31, 2022, consists solely of the remaining subordinated debt. See Note 9 “Short-Term Debt” and Note 10 “Long-Term Debt” to the Consolidated Financial Statements for a discussion of the rates, terms, and conversion features on these advances.
Stockholders’ Equity
Total Stockholders’ Equity declined by $29.7 million to $70.8 million due to higher Accumulated Other Comprehensive Loss (“AOCL”) resulting from the unrealized loss on the bond portfolio. This was partially offset by net income of $8.3 million and an annual pension adjustment to AOCL of $3.7 million. Excluding the change in AOCL, Stockholders’ Equity increased in 2022 by $5.3 million.
Market Risk Management
Market risk is the sensitivity of a financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, exchange rates, and equity prices. The Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations impact the amount of interest income and expense the Bank pays or receives on the majority of their assets. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest-bearing liabilities and interest earning assets.
The Company manages interest rate risk through an asset and liability committee (“ALCO”) composed of members of its Board of Directors and executive management. The ALCO is responsible for monitoring and managing the Company’s interest rate risk and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.
Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides an additional analysis of the sensitivity of the earnings to changes in interest rates to static gap analysis. Assumptions used in the model rates are derived from historical trends, peer analysis, and management’s outlook, and include loans and deposit growth rates and projected yields and rates. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different assets and liability accounts move differently when the prime rate changes and is reflected in different rate scenarios.
The following table represents interest rate sensitivity on the Company’s net interest income using different rate scenarios:
Change in Prime Rate | % Change in Net Interest Income | |||
+ 300 basis points | 17.8 | % | ||
+ 200 basis points | 12.6 | % | ||
+ 100 basis points | 6.6 | % | ||
- 100 basis points | -7.6 | % | ||
Market value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net market value is the market value of all assets minus the market value of all liabilities. The change in net market value over different rate environments is an indication of the longer term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation.
| 35 |
| Table of Contents |
The following table reflects the change in net market value over different rate environments:
Change in Prime Rate |
| % Change in Net Market Value (in thousands) |
| |
+ 300 basis points |
| - $ 7,477 |
| |
+ 200 basis points |
| - $ 5,992 |
| |
+ 100 basis points |
| - $ 4,366 |
| |
- 100 basis points |
| $ | 948 |
|
Prudent balance sheet management requires processes that monitor and protect the Company against unanticipated or significant changes in the level of market interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk is kept to an acceptable level. The ability to reprice our interest-sensitive assets and liabilities over various time intervals is of critical importance.
The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the “gap” between interest-sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect us from unanticipated rate movements, by understanding the dynamic nature of our balance sheet components.
An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At December 31, 2022, the Company had $399.9 million in assets repricing than liabilities subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.
Liquidity
Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, LHFS, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.
The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Beginning in 2020 and in much of 2021, the Company saw increased liquidity due to higher customer deposit balances related to government stimulus programs in response to the COVID-19 pandemic; however, in 2022, as expected, the Company saw these elevated levels of customer deposits begin to decline. The Company may use other means of borrowings or other liquidity sources to fund any liquidity needs based on declines in deposit balances. The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in fair value of the Company’s securities portfolio due to rising market interest rates.
As of December 31, 2022, liquid assets totaled $54.2 million or 4.3% of total assets, and liquid earning assets totaled $36.1 million or 2.9% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of December 31, 2022, approximately $36.8 million or 9.11% of total securities are scheduled to be paid down within one year based on contractual terms. The Bank has a Funding and Liquidity Risk Management policy that limits the amount of short-term and long-term alternative funding to no more than 25% of total assets.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
| 36 |
| Table of Contents |
Item 8. Financial Statements and Supplementary Data
F & M Bank Corp. and Subsidiaries
Consolidated Balance Sheets (dollars in thousands)
As of December 31, 2022 and 2021
|
| 2022 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and due from banks |
| $ | 17,926 |
|
| $ | 8,516 |
|
Money market funds and interest-bearing deposits in other banks |
|
| 687 |
|
|
| 2,938 |
|
Federal funds sold |
|
| 16,340 |
|
|
| 76,667 |
|
Cash and cash equivalents |
|
| 34,953 |
|
|
| 88,121 |
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
Held to maturity, at amortized cost - fair value of $125 in 2022 and 2021 |
|
| 125 |
|
|
| 125 |
|
Available for sale, at fair value |
|
| 392,095 |
|
|
| 403,882 |
|
Other investments |
|
| 11,317 |
|
|
| 9,210 |
|
Loans held for sale, at fair value |
|
| 1,373 |
|
|
| 4,887 |
|
Loans held for investment, net of deferred fees and costs |
|
| 743,604 |
|
|
| 662,421 |
|
Less: allowance for loan losses |
|
| (7,936 | ) |
|
| (7,748 | ) |
Net loans held for investment |
|
| 735,668 |
|
|
| 654,673 |
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net |
|
| 19,587 |
|
|
| 17,063 |
|
Bank premises held for sale |
|
| - |
|
|
| 300 |
|
Interest receivable |
|
| 3,995 |
|
|
| 3,117 |
|
Goodwill |
|
| 3,082 |
|
|
| 3,082 |
|
Bank owned life insurance |
|
| 23,554 |
|
|
| 22,878 |
|
Other assets |
|
| 20,153 |
|
|
| 12,004 |
|
Total Assets |
| $ | 1,245,902 |
|
| $ | 1,219,342 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest bearing |
| $ | 293,596 |
|
| $ | 280,993 |
|
Interest bearing |
|
| 789,781 |
|
|
| 799,302 |
|
Total deposits |
|
| 1,083,377 |
|
|
| 1,080,295 |
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
| 70,000 |
|
|
| - |
|
Long-term debt |
|
| 6,890 |
|
|
| 21,772 |
|
Other liabilities |
|
| 14,843 |
|
|
| 16,819 |
|
Total Liabilities |
|
| 1,175,110 |
|
|
| 1,118,886 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Common stock $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,456,237 and 3,414,306 shares issued and outstanding (26,456 and 15,859 unvested restricted shares) |
|
| 17,149 |
|
|
| 17,071 |
|
Additional paid in capital – common stock |
|
| 10,577 |
|
|
| 10,127 |
|
Retained earnings |
|
| 83,078 |
|
|
| 78,350 |
|
Accumulated other comprehensive loss |
|
| (40,012 | ) |
|
| (5,092 | ) |
Total Stockholders' Equity |
|
| 70,792 |
|
|
| 100,456 |
|
Total Liabilities and Stockholders' Equity |
| $ | 1,245,902 |
|
| $ | 1,219,342 |
|
See accompanying Notes to the Consolidated Financial Statements.
| 37 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Income (dollars in thousands, except per share data)
For the years ended 2022 and 2021
|
| 2022 |
|
| 2021 |
| ||
Interest and Dividend Income |
|
|
|
|
|
| ||
Interest and fees on loans held for investment |
| $ | 34,268 |
|
| $ | 32,374 |
|
Interest from loans held for sale |
|
| 106 |
|
|
| 186 |
|
Interest from money market funds and federal funds sold |
|
| 190 |
|
|
| 142 |
|
Interest from debt securities |
|
| 7,620 |
|
|
| 2,874 |
|
Total interest and dividend income |
|
| 42,184 |
|
|
| 35,576 |
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
Total interest on deposits |
|
| 5,735 |
|
|
| 3,336 |
|
Interest from short-term debt |
|
| 760 |
|
|
| - |
|
Interest from long-term debt |
|
| 750 |
|
|
| 966 |
|
Total interest expense |
|
| 7,245 |
|
|
| 4,302 |
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
| 34,939 |
|
|
| 31,274 |
|
|
|
|
|
|
|
|
|
|
Provision for (Recovery of) Loan Losses |
|
| 866 |
|
|
| (2,821 | ) |
Net Interest Income After Provision for (Recovery of) Loan Losses |
|
| 34,073 |
|
|
| 34,095 |
|
|
|
|
|
|
|
|
|
|
Noninterest Income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 1,062 |
|
|
| 1,133 |
|
Investment services and insurance income |
|
| 883 |
|
|
| 944 |
|
Mortgage banking income |
|
| 1,834 |
|
|
| 4,646 |
|
Title insurance income |
|
| 1,578 |
|
|
| 2,074 |
|
Income on bank owned life insurance |
|
| 701 |
|
|
| 671 |
|
Low-income housing partnership losses |
|
| (817 | ) |
|
| (861 | ) |
ATM and check card fees |
|
| 2,462 |
|
|
| 2,311 |
|
Net investment securities losses |
|
| (2,852 | ) |
|
| (525 | ) |
Gain on sale of limited partnership investment |
|
| 3,785 |
|
|
| - |
|
Other operating income |
|
| 998 |
|
|
| 913 |
|
Total noninterest income |
|
| 9,634 |
|
|
| 11,306 |
|
|
|
|
|
|
|
|
|
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
Salaries |
|
| 15,439 |
|
|
| 14,102 |
|
Employee benefits |
|
| 4,593 |
|
|
| 4,385 |
|
Occupancy expense |
|
| 1,412 |
|
|
| 1,262 |
|
Equipment expense |
|
| 1,174 |
|
|
| 1,200 |
|
FDIC insurance assessment |
|
| 563 |
|
|
| 414 |
|
Other real estate owned, net |
|
| 59 |
|
|
| - |
|
Marketing expense |
|
| 848 |
|
|
| 748 |
|
Legal and professional expense |
|
| 821 |
|
|
| 1,068 |
|
ATM and check card fees |
|
| 1,308 |
|
|
| 1,113 |
|
Telecommunication and data processing expense |
|
| 2,948 |
|
|
| 2,672 |
|
Directors’ fees |
|
| 560 |
|
|
| 493 |
|
Bank Franchise tax |
|
| 704 |
|
|
| 711 |
|
Impairment of long-lived assets |
|
| - |
|
|
| 171 |
|
Other operating expenses |
|
| 4,480 |
|
|
| 5,001 |
|
Total noninterest expenses |
|
| 34,909 |
|
|
| 33,340 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 8,798 |
|
|
| 12,061 |
|
Income tax expense |
|
| 480 |
|
|
| 1,323 |
|
Net Income attributable to F & M Bank Corp. |
|
| 8,318 |
|
|
| 10,738 |
|
Dividends paid/accumulated on preferred stock |
|
| - |
|
|
| (196 | ) |
Net income available to common stockholders |
| $ | 8,318 |
|
| $ | 10,542 |
|
|
|
|
|
|
|
|
|
|
Per Common Share Data |
|
|
|
|
|
|
|
|
Net income - basic |
| $ | 2.41 |
|
| $ | 3.25 |
|
Net income - diluted |
| $ | 2.41 |
|
| $ | 3.12 |
|
Cash dividends on common stock |
| $ | 1.04 |
|
| $ | 1.04 |
|
Weighted average common shares outstanding – basic |
|
| 3,449,343 |
|
|
| 3,245,086 |
|
Weighted average common shares outstanding – diluted |
|
| 3,449,343 |
|
|
| 3,442,173 |
|
See accompanying Notes to the Consolidated Financial Statements.
| 38 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income (dollars in thousands)
For the years ended 2022 and 2021
|
| Years Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Net Income attributable to F & M Bank Corp. |
| $ | 8,318 |
|
| $ | 10,738 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Pension plan adjustment |
|
| 4,722 |
|
|
| 671 |
|
Tax effect |
|
| 992 |
|
|
| 141 |
|
Pension plan adjustment, net of tax |
|
| 3,730 |
|
|
| 530 |
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on available-for-sale securities |
|
| (51,776 | ) |
|
| (3,823 | ) |
Tax effect |
|
| 10,873 |
|
|
| 803 |
|
Unrealized holding losses, net of tax |
|
| (40,903 | ) |
|
| (3,020 | ) |
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
Reclassifications adjustment for losses included in net income |
|
| 2,852 |
|
|
| 525 |
|
Tax effect |
|
| 599 |
|
|
| 110 |
|
Realized losses on sale of available-for-sale securities, net |
|
| 2,253 |
|
|
| 415 |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
| (34,920 | ) |
|
| (2,075 | ) |
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
| $ | (26,602 | ) |
| $ | 8,663 |
|
See accompanying Notes to the Consolidated Financial Statements.
| 39 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (dollars in thousands, except share and per share data)
For the years ended December 31, 2022 and 2021
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, December 31, 2020 |
| $ | 4,558 |
|
| $ | 16,017 |
|
| $ | 6,866 |
|
| $ | 71,205 |
|
| $ | (3,017 | ) |
| $ | 95,629 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,738 |
|
|
| - |
|
|
| 10,738 |
|
Other comprehensive (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,075 | ) |
|
| (2,075 | ) |
Dividends on preferred stock ($0.96 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (196 | ) |
|
| - |
|
|
| (196 | ) |
Dividends on common stock ($1.04 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,397 | ) |
|
| - |
|
|
| (3,397 | ) |
Common stock issued (9,332 shares) |
|
| - |
|
|
| 47 |
|
|
| 216 |
|
|
| - |
|
|
| - |
|
|
| 263 |
|
Preferred stock converted to common (180,261 shares) |
|
| (3,931 | ) |
|
| 1,001 |
|
|
| 2,930 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Preferred stock redeemed (25,066 shares) |
|
| (627 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (627 | ) |
Common stock issued for Stock-based Compensation (1,332 shares) |
|
| - |
|
|
| 6 |
|
|
| 29 |
|
|
| - |
|
|
| - |
|
|
| 35 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 86 |
|
|
| - |
|
|
| - |
|
|
| 86 |
|
Balance, December 31, 2021 |
| $ | - |
|
| $ | 17,071 |
|
| $ | 10,127 |
|
| $ | 78,350 |
|
| $ | (5,092 | ) |
| $ | 100,456 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,318 |
|
|
| - |
|
|
| 8,318 |
|
Other comprehensive (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (34,920 | ) |
|
| (34,920 | ) |
Dividends on common stock ($1.04 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,590 | ) |
|
| - |
|
|
| (3,590 | ) |
Common stock issued (10,410 shares) |
|
| - |
|
|
| 52 |
|
|
| 227 |
|
|
| - |
|
|
| - |
|
|
| 279 |
|
Common stock issued for Stock-based Compensation (5,265 shares) |
|
| - |
|
|
| 26 |
|
|
| 30 |
|
|
| - |
|
|
| - |
|
|
| 56 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 193 |
|
|
| - |
|
|
| - |
|
|
| 193 |
|
Balance, December 31, 2022 |
| $ | - |
|
| $ | 17,149 |
|
| $ | 10,577 |
|
| $ | 83,078 |
|
| $ | (40,012 | ) |
| $ | 70,792 |
|
See accompanying Notes to the Consolidated Financial Statements.
| 40 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Cash Flows (dollars in thousands)
For the years ended December 31, 2022 and 2021
|
| 2022 |
|
| 2021 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net income |
| $ | 8,318 |
|
| $ | 10,738 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 1,101 |
|
|
| 1,164 |
|
Amortization of intangibles |
|
| 37 |
|
|
| 71 |
|
Amortization of securities |
|
| 23,220 |
|
|
| 1,004 |
|
Proceeds from sale of loans held for sale originated |
|
| 147,053 |
|
|
| 203,681 |
|
Gain on sale of loans held for sale originated |
|
| (2,528 | ) |
|
| (4,679 | ) |
Loans held for sale originated |
|
| (141,011 | ) |
|
| (189,582 | ) |
Provision for (recovery of) loan losses |
|
| 866 |
|
|
| (2,821 | ) |
Deferred tax (benefit) expense |
|
| (91 | ) |
|
| 476 |
|
Increase in interest receivable |
|
| (878 | ) |
|
| (390 | ) |
Decrease in other assets |
|
| 1,495 |
|
|
| 2,560 |
|
Decrease in accrued liabilities |
|
| 2,763 |
|
|
| (2,076 | ) |
Loss on sale of investment securities |
|
| 2,852 |
|
|
| 525 |
|
Gain on sale of limited partnership investment |
|
| (3,785 | ) |
|
| - |
|
Amortization of limited partnership investments |
|
| 817 |
|
|
| 861 |
|
Amortization of debt issuance costs |
|
| 118 |
|
|
| - |
|
(Gain) loss on sale of fixed assets, net |
|
| (10 | ) |
|
| 114 |
|
Loss on sale and valuation adjustments of other real estate owned |
|
| 59 |
|
|
| - |
|
Income from life insurance investment |
|
| (701 | ) |
|
| (671 | ) |
Share based compensation expense |
|
| 193 |
|
|
| 86 |
|
Loss on sale of assets held for sale |
|
| - |
|
|
| 220 |
|
Net Cash Provided by Operating Activities |
|
| 39,888 |
|
|
| 21,281 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities of securities available for sale |
|
| 4,000 |
|
|
| 19,130 |
|
Proceeds from sales of securities available for sale |
|
| 40,847 |
|
|
| 25,917 |
|
Purchases of securities available for sale and other investments |
|
| (108,057 | ) |
|
| (346,857 | ) |
Proceeds from the redemption of restricted stock, net |
|
| - |
|
|
| 790 |
|
Purchases of restricted stock, net |
|
| (2,741 | ) |
|
| - |
|
Proceeds from sale of limited partnership investments |
|
| 3,823 |
|
|
| - |
|
Investment in limited partnership investment |
|
| (220 | ) |
|
| - |
|
Net increase in loans held for investment |
|
| (82,058 | ) |
|
| (998 | ) |
Net decrease in loans held for sale participations |
|
| - |
|
|
| 44,372 |
|
Net purchase of property and equipment |
|
| (3,642 | ) |
|
| (563 | ) |
Proceeds from sale of other real estate owned |
|
| 138 |
|
|
| - |
|
Proceeds from life insurance benefits |
|
| - |
|
|
| 421 |
|
Proceeds from the sale of property and equipment |
|
| 27 |
|
|
| 142 |
|
Cash received in branch acquisition (net of cash paid) |
|
| - |
|
|
| 13,946 |
|
Net Cash Used in Investing Activities |
|
| (147,883 | ) |
|
| (243,700 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
| 3,082 |
|
|
| 247,484 |
|
Net change in short-term debt |
|
| 70,000 |
|
|
| - |
|
Dividends paid in cash |
|
| (3,590 | ) |
|
| (3,593 | ) |
Proceeds from sale of common stock |
|
| 279 |
|
|
| 263 |
|
Proceeds from issuance of common stock |
|
| 56 |
|
|
| 35 |
|
Repurchase of preferred stock |
|
| - |
|
|
| (627 | ) |
Repayments of long-term debt |
|
| (15,000 | ) |
|
| (11,430 | ) |
Net Cash Provided by Financing Activities |
|
| 54,827 |
|
|
| 232,132 |
|
|
|
|
|
|
|
|
|
|
Net (Decrease) increase in Cash and Cash Equivalents |
|
| (53,168 | ) |
|
| 9,713 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Year |
|
| 88,121 |
|
|
| 78,408 |
|
Cash and Cash Equivalents, End of Year |
| $ | 34,953 |
|
| $ | 88,121 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow information: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 7,441 |
|
| $ | 4,071 |
|
Income taxes |
| $ | 32 |
|
| $ | 2,012 |
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash disclosures: |
|
|
|
|
|
|
|
|
Change in unrealized loss on securities available for sale, net |
| $ | (48,924 | ) |
| $ | (3,298 | ) |
Minimum pension liability adjustment, net |
| $ | 3,730 |
|
| $ | 530 |
|
Transfer from loans to other real estate owned |
| $ | 197 |
|
| $ | - |
|
Conversion of preferred stock to common stock |
| $ | - |
|
| $ | (3,931 | ) |
|
|
|
|
|
|
|
|
|
Assets held for sale: |
|
|
|
|
|
|
|
|
Donation of assets held for sale |
| $ | - |
|
| $ | 161 |
|
Write down of assets held for sale |
| $ | - |
|
| $ | 59 |
|
|
|
|
|
|
|
|
|
|
Branch purchase: |
|
|
|
|
|
|
|
|
Tangible assets acquired (net of cash received) |
| $ | - |
|
| $ | 61 |
|
Identifiable intangible assets acquired |
| $ | - |
|
| $ | 73 |
|
Liabilities assumed |
| $ | - |
|
| $ | 14,044 |
|
See accompanying Notes to the Consolidated Financial Statements.
| 41 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
F & M Bank Corp. (the “Company”), through its subsidiary Farmers & Merchants Bank (the “Bank”), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at thirteen branch offices and a Dealer Finance Division loan production office. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc, (“FMFS”), VBS Mortgage, LLC (dba “F&M Mortgage”) and VSTitle, LLC (“VST”).
The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles and to accepted practice within the banking industry. The following is a summary of significant policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, Bank, TEB, FMFS, F&M Mortgage, and VST. Significant inter-company accounts and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the determination of the allowance for loan losses, fair value, and pension accounting.
Business Segments
The Company primarily operates two business segments, commercial banking, through F&M Bank, and mortgage banking, through F&M Mortgage. The commercial banking segment includes both commercial and consumer lending and provides customers with products such as commercial loans, real estate loans, other business financing and consumer loans. In addition, this segment provides customers with several choice deposit products, including demand deposit accounts, savings accounts, and certificates of deposit. The mortgage banking segment engages primarily in the origination of residential mortgages for sale into the secondary market. Various other services are offered through TEB, FMFS and VST. For additional information, refer to Note 20,” Business Segments.”
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market funds whose initial maturity is ninety days or less and Federal funds sold.
Securities
At the time of purchase, debt securities are classified as held to maturity, available for sale or trading. Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as held to maturity. Held to maturity securities are stated at amortized cost adjusted for amortization of premiums and accretion of discounts on purchase using a method that approximates the effective interest method. Investments classified as trading or available for sale are stated at fair value. Changes in the fair value of available for sale investments are excluded from current earnings and reported, net of taxes, as a separate component of other comprehensive loss.
Amortization of premiums and accretion of discounts on securities are reported as adjustments to interest income using the effective interest method. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to stockholders’ equity, whereas realized gains and losses flow through the Company’s current earnings.
| 42 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Securities, continued
The fair value of investment securities available for sale is estimated based on quoted prices for similar assets determined by bid quotations received from independent pricing services. Declines in the fair value of securities below their amortized cost that are other than temporary are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost basis, the Company considers our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.
Other Investments
The Company has investments in low-income housing partnerships whose primary benefit is the distribution of federal income tax credits to partners. The Company recognizes these benefits and the cost of the investments over the life of the partnership. Amortization of these investments is prorated based on the amount of benefits received in each year to the total estimated benefits over the life of the projects.
Due to restrictions on the Company’s investments in the FHLB and the Federal Reserve Bank of Richmond (“FRB”), these securities are considered restricted and carried at cost. The FHLB requires the Bank to maintain stock in an amount equal to 3.75% of outstanding borrowings. The FRB requires the Company to maintain stock with a par value equal to 6% of its outstanding capital and surplus.
Loans Held for Investment
The Company, through its banking subsidiary, provides mortgage, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans, particularly commercial and residential mortgages. The ability of the Company’s debtors to honor their contracts is largely dependent upon the real estate and general economic conditions in the Company’s market area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off, generally are reported at their outstanding unpaid principal balance adjusted for the allowance for loan losses, and net of any deferred fees and origination costs. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.
Interest income is accrued on the unpaid principal balance. The accrual of interest on loans is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Loans are typically charged off when the loan is 120 days past due, unless well-secured and in process of collection. Past due status is based on the contractual terms of the loan. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company’s loans are grouped into eleven segments: construction/land development, farmland, real estate, multi-family, commercial real estate, home equity – closed end, home equity – open end, commercial & industrial – non-real estate, consumer, credit cards and dealer finance. Each segment is subject to certain risks that influence the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management. The Company does not segregate the portfolio further.
| 43 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Loans Held for Investment, continued
Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to value ratios for the collateral.
Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations.
Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property as well as the successful operation and management of the property.
Real estate loans are for consumer residential real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios.
The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.
The Company’s home-equity loan portfolios (closed end and open end) carry risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.
Commercial and industrial non-real estate loans are secured by collateral other than real estate or are unsecured. Credit risk for commercial non-real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).
Consumer non-real estate includes non-dealer financed automobile loans and other consumer loans. Certain consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.
Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores.
Dealer finance lending generally carries certain risks associated with the values of the collateral and borrower’s ability to repay the loan. The Company focuses its dealer finance lending on used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future.
| 44 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Loans Held for Sale
Loans held for sale consist of one-to-four family conforming residential real estate loans originated for sale in the secondary market by F&M Mortgage. Credit risk associated with these loans is mitigated by entering sales commitments with third party investors to purchase the loans after they are originated; the Company does not service these loans after they are sold.
The Company records loans held for sale via the fair value option; see Note 15 “Derivative Instruments and Hedging Activities, Mortgage Banking Derivatives” for additional information. The change in the fair value of loans held for sale is included in “Mortgage banking income” on the Company’s Consolidated Statements of Income.
Troubled Debt Restructuring
In situations where, for economic or legal reasons related to a borrower's financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a troubled debt restructuring ("TDR"). The restructured terms may include rate reductions, principal forgiveness, payment forbearance or other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. All TDRs are considered impaired loans and may be on accrual or nonaccrual status.
Allowance for Loan and Losses
The allowance for loan losses represents management’s estimate of probable losses inherent in the Company’s loan portfolio. A provision for estimated losses is charged to earnings to establish and maintain the allowance for loan losses at a level reflective of the estimated credit risk. When management determines that a loan balance or portion of a loan balance is not collectible, the loss is charged against the allowance. Subsequent recoveries, if any, are credited to the allowance.
Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors. Management evaluates the allowance each quarter through a methodology that estimates losses on individual impaired loans and evaluates the effect of numerous factors on the credit risk of each segment of loans.
The Company’s allowance for loan losses has two basic components: the general allowance and the specific allowance. Each of these components is determined based upon estimates and judgments. The general allowance uses historical loss experience as an indicator of future losses, along with various qualitative factors, including levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, trends in volume and terms of loans, effects of changes in underwriting standards, experience of lending staff, economic conditions, and portfolio concentrations.
Loans, other than dealer finance and credit cards, are assigned an internal risk rating based on certain credit quality indicators. The period-end balances for each loan segment are multiplied by the adjusted loss factor. Specific allowances are established for individually evaluated impaired loans based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
| 45 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Assets Held for Sale
Assets held for sale at December 31, 2021 included one branch building that was closed during 2020. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs. The branch building was sold during 2022 at carrying cost. There were no assets held for sale as of December 31, 2022.
Other Real Estate Owned (OREO)
OREO is held for sale and represents real estate acquired through or in lieu of foreclosure. OREO is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to carry OREO on its balance sheet at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
2017 | 2016 | |
to 2016 | to 2015 | |
| Prior Year Net Income Per Common Share (Basic) | $2.77 | $2.40 |
| Change from differences in: | ||
Net interest income 1 | .52 | .62 |
| Provision for loan losses | - | .09 |
| Noninterest income, excluding securities gains | 1.36 | (.08) |
| Security gains (losses), net | (.01) | - |
Noninterest expenses1 | (1.66) | (.40) |
| Income taxes | (.38) | .12 |
| Effect of preferred stock dividend | .02 | .01 |
| Change in average shares outstanding | .01 | .01 |
| Total Change | (.14) | .37 |
| Net Income Per Common Share (Basic) | $2.63 | $2.77 |
2017 | 2016 | 2015 | |||||||
Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | |
| ASSETS | |||||||||
Loans2 | |||||||||
| Commercial | $182,646 | $9,475 | 5.19% | $176,389 | $8,362 | 4.74% | $170,272 | $8,103 | 4.76% |
| Real estate | 330,828 | 16,678 | 5.04% | 312,435 | 15,781 | 5.05% | 295,892 | 14,976 | 5.07% |
| Installment | 90,787 | 6,470 | 7.13% | 78,524 | 5,805 | 7.39% | 65,870 | 4,981 | 7.56% |
Loans held for investment4 | 604,261 | 32,623 | 5.40% | 567,348 | 29,948 | 5.28% | 532,034 | 28,087 | 5.28% |
| Loans held for sale | 37,008 | 1,112 | 3.00% | 68,438 | 1,924 | 2.81% | 40,450 | 1,099 | 2.72% |
Investment securities3 | |||||||||
| Fully taxable | 10,886 | 338 | 3.10% | 15,714 | 372 | 2.37% | 17,372 | 327 | 1.88% |
| Partially taxable | 125 | - | - | 125 | - | - | 125 | - | - |
| Total investment securities | 11,011 | 338 | 3.07% | 15,839 | 372 | 2.37% | 17,497 | 327 | 1.88% |
| Interest bearing deposits in banks | 1,512 | 10 | .66% | 727 | 3 | .41% | 1,223 | - | - |
| Federal funds sold | 15,475 | 156 | 1.01% | 7,195 | 35 | .49% | 9,310 | 21 | .23% |
| Total Earning Assets | 669,267 | 34,239 | 5.12% | 659,547 | 32,282 | 4.89% | 600,514 | 29,534 | 4.92% |
| Allowance for loan losses | (6,793) | (8,162) | (8,933) | ||||||
| Nonearning assets | 81,552 | 63,205 | 52,378 | ||||||
| Total Assets | $744,026 | $714,590 | $643,959 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| Deposits | |||||||||
| Demand –interest bearing | $121,095 | $538 | .44% | $113,525 | $499 | .44% | $112,334 | $539 | .48% |
| Savings | 114,489 | 516 | .45% | 100,298 | 441 | .44% | 76,491 | 212 | .28% |
| Time deposits | 159,415 | 1,634 | 1.02% | 160,221 | 1,440 | .90% | 171,829 | 1,402 | .82% |
| Total interest bearing deposits | 394,999 | 2,688 | .68% | 374,044 | 2,380 | .64% | 360,654 | 2,153 | .60% |
| Short-term debt | 20,398 | 63 | .31% | 37,716 | 55 | .15% | 32,017 | 69 | .22% |
| Long-term debt | 53,004 | 1,146 | 2.16% | 56,253 | 1,164 | 2.07% | 31,856 | 654 | 2.05% |
| Total interest bearing liabilities | 468,401 | 3,897 | .83% | 468,013 | 3,599 | .77% | 424,527 | 2,876 | .68% |
| Noninterest bearing deposits | 153,640 | 141,180 | 125,665 | ||||||
| Other liabilities | 31,936 | 19,824 | 13,318 | ||||||
| Total liabilities | 653,977 | 629,017 | 563,510 | ||||||
| Stockholders’ equity | 90,049 | 85,572 | 80,449 | ||||||
| Total liabilities and stockholders’ equity | $744,026 | $714,590 | $643,959 | ||||||
| Net interest earnings | $30,342 | $28,683 | $26,658 | ||||||
| Net yield on interest earning assets (NIM) | 4.53% | �� 4.34% | 4.44% | ||||||
2017 Compared to 2016 | 2016 Compared to 2015 | |||||
Increase (Decrease) | Increase (Decrease) | |||||
Due to Change | Increase | Due to Change | Increase | |||
in Average: | Or | in Average: | or | |||
Volume | Rate | (Decrease) | Volume | Rate | (Decrease) | |
| Interest income | ||||||
| Loans held for investment | $1,949 | $726 | $2,675 | $1,865 | $(4) | $1,861 |
| Loans held for sale | (884) | 72 | (812) | 761 | 64 | 825 |
| Investment securities | ||||||
| Fully taxable | (114) | 80 | (34) | (31) | 76 | 45 |
| Partially taxable | - | - | - | - | - | - |
| Interest bearing deposits in banks | 3 | 4 | 7 | - | 3 | 3 |
| Federal funds sold | 40 | 81 | 121 | (5) | 19 | 14 |
| Total Interest Income | 994 | 963 | 1,957 | 2,590 | 158 | 2,748 |
| Interest expense | ||||||
| Deposits | ||||||
| Demand - interest bearing | 33 | 6 | 39 | 6 | (46) | (40) |
| Savings | 62 | 13 | 75 | 67 | 162 | 229 |
| Time deposits | (7) | 201 | 194 | (95) | 133 | 38 |
| Short-term debt | (25) | 33 | 8 | 13 | (27) | (14) |
| Long-term debt | (67) | 49 | (18) | 500 | 10 | 510 |
| Total Interest Expense | (4) | 302 | 298 | 491 | 232 | 723 |
| Net Interest Income | $998 | $661 | $1,659 | $2,099 | $(74) | $2,025 |
GAAP Financial Measurements: (Dollars in thousands). | 2017 | 2016 | 2015 |
| Interest Income – Loans | $33,591 | $31,740 | $29,056 |
| Interest Income - Securities and Other Interest-Earnings Assets | 504 | 410 | 348 |
| Interest Expense – Deposits | 2,688 | 2,380 | 2,153 |
| Interest Expense - Other Borrowings | 1,209 | 1,219 | 723 |
| Total Net Interest Income | 30,198 | 28,551 | 26,528 |
| Non-GAAP Financial Measurements: | |||
| Add: Tax Benefit on Tax-Exempt Interest Income – Loans | 144 | 132 | 130 |
| Add: Tax Benefit on Tax-Exempt Interest Income - Securities and Other Interest-Earnings Assets | - | - | - |
| Total Tax Benefit on Tax-Exempt Interest Income | 144 | 132 | 130 |
| Tax-Equivalent Net Interest Income | $30,342 | $28,683 | $26,658 |
| (Dollars in thousands) | 2017 | 2016 | 2015 |
Available for Sale1 | |||
| U.S. Treasury and Agency | $27,978 | $24,014 | $12,095 |
Mortgage-backed obligations of federal agencies2 | 502 | 634 | 817 |
| Equity securities | 135 | 135 | 135 |
| Total | 28,615 | 24,783 | 13,047 |
| Held to Maturity | |||
| U.S. Treasury and Agency | 125 | 125 | 125 |
| Total | 125 | 125 | 125 |
| Other Equity Investments | 12,503 | 14,567 | 12,157 |
| Total Securities | $41,243 | $39,475 | $25,329 |
Less | One to | Five to | Over | |||||||
Than one Year | Five Years | Ten Years | Ten Years | |||||||
| (Dollars in thousands) | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Total | Yield |
| Debt Securities Available for Sale | ||||||||||
| U.S. Treasury & Agency | $19,998 | 1.05% | $7,980 | 2.06% | $- | $- | $27,978 | 1.34% | ||
| Mortgage-backed obligations of federal agencies | 502 | 2.41% | - | 502 | 2.41% | |||||
| Equity securities | - | - | - | 135 | 135 | |||||
| Total | $19,978 | 1.05% | $7,980 | 2.06% | $502 | 2.41% | $135 | $28,615 | 1.36% | |
| Debt Securities Held to Maturity | ||||||||||
| U.S. Treasury & Agency | $125 | .75% | $125 | .75% | ||||||
| Total | $125 | .75% | $125 | .75% | ||||||
December 31 | |||||
| (Dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 |
| Real estate – mortgage | $250,891 | $238,631 | $232,321 | $223,824 | $212,630 |
| Real estate – construction | 71,620 | 76,172 | 69,759 | 67,180 | 68,512 |
| Consumer installment | 81,458 | 72,048 | 62,239 | 49,615 | 30,643 |
| Commercial | 182,360 | 178,392 | 153,691 | 147,599 | 135,835 |
| Agricultural | 17,064 | 15,876 | 15,672 | 15,374 | 16,265 |
| Multi-family residential | 10,298 | 7,605 | 7,559 | 11,775 | 11,797 |
| Credit cards | 2,939 | 2,822 | 2,745 | 2,705 | 2,680 |
| Other | 344 | 90 | 67 | 130 | 91 |
| Total Loans | $616,974 | $591,636 | $544,053 | $518,202 | $478,453 |
Less Than | 1-5 | Over | ||
| (Dollars in thousands) | 1 Year | Years | 5 Years | Total |
| Commercial and | ||||
| agricultural loans | $66,586 | $106,048 | $26,790 | $199,424 |
| Multi-family residential | 4,628 | 5,173 | 497 | 10,298 |
| Real Estate – mortgage | 104,699 | 141,572 | 4,620 | 250,891 |
| Real Estate – construction | 50,857 | 18,637 | 2,126 | 71,620 |
| Consumer – installment/credit cards/other | 9,027 | 61,600 | 14,114 | 84,741 |
| Total | $235,797 | $333,030 | $48,147 | $616,974 |
| Loans with predetermined rates | $28,101 | $79,748 | $30,378 | $138,227 |
| Loans with variable or | ||||
| adjustable rates | 207,696 | 253,282 | 17,769 | 478,747 |
| Total | $235,797 | $333,030 | $48,147 | $616,974 |
| (Dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 |
| Nonaccrual Loans: | |||||
| Real Estate | $5,628 | $4,204 | $5,698 | $5,481 | $9,963 |
| Commercial | 599 | 70 | 109 | 1,179 | 1,890 |
| Home Equity | 451 | 311 | 40 | 153 | 402 |
| Other | 226 | 178 | 108 | 161 | - |
| Loans past due 90 days or more: | |||||
| Real Estate | 143 | 81 | 272 | 0 | 246 |
| Commercial | - | - | 25 | 0 | 4 |
| Home Equity | - | - | 107 | 0 | 61 |
| Other | 55 | 26 | 67 | 1 | 16 |
| Total Nonperforming loans | $7,102 | $4,870 | $6,526 | $6,975 | $12,582 |
| Restructured Loans current and performing: | |||||
| Real Estate | 7,710 | 8,641 | 8,713 | 3,913 | 7,484 |
| Commercial | - | 1,121 | 1,463 | 518 | 3,989 |
| Home Equity | - | - | 1,414 | 290 | 727 |
| Other | 78 | 76 | 91 | 22 | - |
| Nonperforming loans as a percentage of loans held for investment | 1.15% | .82% | 1.20% | 1.35% | 2.63% |
| Net Charge Offs to Total Loans Held for Investment | .24% | .21% | .04% | .33% | .78% |
| Allowance for loan and lease losses to nonperforming loans | 85.10% | 154.89% | 134.55% | 125.09% | 65.04% |
| (Dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 |
| Balance at beginning of period | $7,543 | $8,781 | $8,725 | $8,184 | $8,154 |
| Provision charged to expenses | - | - | 300 | 2,250 | 3,775 |
| Loan losses: | |||||
| Construction/land development | 620 | 356 | 156 | 1,611 | 2,127 |
| Farmland | - | - | - | - | - |
| Real Estate | - | 23 | 25 | 208 | 173 |
| Multi-family | - | - | - | - | - |
| Commercial Real Estate | - | 19 | - | - | 201 |
| Home Equity – closed end | 7 | 8 | 26 | - | 159 |
| Home Equity – open end | 26 | 370 | 51 | 80 | 68 |
| Commercial & Industrial – Non Real Estate | 179 | 293 | - | 385 | 986 |
| Consumer | 136 | 37 | 32 | 33 | 173 |
| Dealer Finance | 1,806 | 1,081 | 251 | 107 | 17 |
| Credit Cards | 98 | 74 | 60 | 46 | 121 |
| Total loan losses | 2,872 | 2,261 | 601 | 2,470 | 4,025 |
| Recoveries: | |||||
| Construction/land development | - | 7 | 85 | 223 | 40 |
| Farmland | - | - | - | - | - |
| Real Estate | 2 | 4 | 37 | - | - |
| Multi-family | - | - | - | - | - |
| Commercial Real Estate | 13 | 135 | 65 | 108 | 42 |
| Home Equity – closed end | 25 | - | 6 | - | - |
| Home Equity – open end | 53 | 120 | - | - | 29 |
| Commercial & Industrial – Non Real Estate | 72 | 267 | 62 | 356 | 127 |
| Consumer | 28 | 19 | 32 | 33 | 14 |
| Dealer Finance | 1,143 | 417 | 24 | 6 | - |
| Credit Cards | 37 | 54 | 46 | 35 | 28 |
| Total recoveries | 1,373 | 1,023 | 357 | 761 | 280 |
| Net loan losses | (1,499) | (1,238) | (244) | (1,709) | (3,745) |
| Balance at end of period | $6,044 | $7,543 | $8,781 | $8,725 | $8,184 |
| Allowance for loan losses as a | |||||
| percentage of loans | .98% | 1.27% | 1.61% | 1.68% | 1.71% |
| Net loan losses to loans held for investment | .24% | .21% | .04% | .33% | .78% |
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES | ||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||
| Allowance for loan losses: (dollars in thousands) | Balance | Percentage of Loans in Each Category | Balance | Percentage of Loans in Each Category | Balance | Percentage of Loans in Each Category | Balance | Percentage of Loans in Each Category | Balance | Percentage of Loans in Each Category |
| Construction/Land Development | $2,547 | 42.14% | $3,381 | 44.82% | $4,442 | 50.59% | $4,738 | 54.30% | $4,007 | 48.96% |
| Real Estate | 719 | 11.90% | 843 | 11.18% | 806 | 9.18% | 623 | 7.14% | 400 | 4.89% |
| Commercial, Financial and Agricultural | 863 | 14.28% | 1,348 | 17.88% | 1,666 | 18.97% | 1,337 | 15.33% | 2,239 | 27.36% |
| Consumer | 1,640 | 27.13% | 1,426 | 18.90% | 1,059 | 12.06% | 1,685 | 19.31% | 905 | 11.06% |
| Home Equity | 275 | 4.55% | 545 | 7.22% | 808 | 9.20% | 342 | 3.92% | 633 | 7.73% |
| Total | $6,044 | 100.00% | $7,543 | 100.00% | $8,781 | 100.00% | $8,725 | 100.00% | $8,184 | 100.00% |
December 31, | ||||||
2017 | 2016 | 2015 | ||||
Average Balance | Rate | Average Balance | Rate | Average Balance | Rate | |
| Noninterest-bearing | $153,640 | $141,180 | $125,665 | |||
| Interest-bearing: | ||||||
| Interest Checking | $121,095 | .44% | $113,525 | .44% | $112,334 | .48% |
| Savings Accounts | 114,489 | .45% | 100,298 | .44% | 76,491 | .28% |
| Time Deposits: | ||||||
| CDARS | 1,247 | .56% | 1,253 | .88% | 11,247 | .18% |
| All other | 158,168 | 1.03% | 158,968 | .90% | 160,582 | .86% |
| Total interest-bearing | 394,999 | .68% | 374,044 | .64% | 360,654 | .60% |
| Total deposits | $548,639 | .49% | $515,224 | .46% | $486,319 | .44% |
| (Actual Dollars in thousands) | 2017 | 2016 |
| Less than 3 months | $4,392 | $2,379 |
| 3 to 6 months | 7,212 | 4,332 |
| 6 to 12 months | 11,410 | 7,624 |
| 1 year to 5 years | 37,606 | 36,534 |
| Total | $60,620 | $50,869 |
December 31, 2017 | |||||
Less than | One Year Through | Three Years Through | More than | ||
One Year | Three Years | Five Years | Five Years | Total | |
| Federal funds purchased | $5,296 | $- | $- | $- | $5,296 |
| FHLB Short term advances | 20,000 | - | - | - | 20,000 |
| FHLB long term advances | 9,429 | 21,357 | 8,643 | 10,125 | 49,554 |
| Total | $34,725 | $21,357 | $8,643 | $10,125 | $74,850 |
1-90 | 91-365 | 1-5 | Over 5 | Not | ||
| (Dollars in thousands) | Days | Days | Years | Years | Classified | Total |
| Rate Sensitive Assets: | ||||||
| Loans held for investment | $136,692 | $96,166 | $333,030 | $48,147 | $- | $614,035 |
| Loans held for sale | 39,775 | - | - | - | - | 39,775 |
| Federal funds sold | - | - | - | - | - | - |
| Investment securities | 20,123 | 7,980 | - | 502 | 135 | 28,740 |
| Credit cards | 2,939 | - | - | - | - | 2,939 |
| Interest bearing bank deposits | 1,285 | - | - | - | - | 1,285 |
| Total | 200,814 | 104,146 | 333,030 | 48,649 | 135 | 686,774 |
| Rate Sensitive Liabilities: | ||||||
| Interest bearing demand deposits | - | 32,473 | 69,810 | 18,668 | - | 120,951 |
| Savings deposits | - | 24,144 | 72,434 | 24,145 | - | 120,723 |
| Certificates of deposit $100,000 and over | 4,192 | 17,223 | 39,205 | - | - | 60,620 |
| Other certificates of deposit | 13,313 | 32,095 | 59,242 | - | - | 104,650 |
| Total Deposits | 17,505 | 105,935 | 240,691 | 42,813 | - | 406,944 |
| Short-term debt | 25,296 | - | - | - | - | 25,296 |
| Long-term debt | 1,192 | 8,322 | 30,094 | 10,125 | - | 49,733 |
| Total | 43,993 | 114,257 | 270,785 | 52,938 | - | 481,973 |
| Discrete Gap | 156,821 | (10,111) | 62,245 | (4,289) | 135 | 204,801 |
| Cumulative Gap | 156,821 | 146,710 | 208,955 | 204,666 | 204,801 | |
| As a % of Earning Assets | 22.83% | 21.36% | 30.43% | 29.80% | 29.82% |
2017 | |||||
| (Dollars in thousands) | Fourth | Third | Second | First | Total |
| Interest and Dividend Income | $9,141 | $8,688 | $8,256 | $8,010 | $34,095 |
| Interest Expense | 1,036 | 1,030 | 925 | 906 | 3,897 |
| Net Interest Income | 8,105 | 7,658 | 7,331 | 7,104 | 30,198 |
| Provision for Loan Losses | - | - | - | - | - |
| Net Interest Income after Provision | |||||
| for Loan Losses | 8,105 | 7,658 | 7,331 | 7,104 | 30,198 |
| Non-Interest Income | 1,820 | 2,145 | 1,882 | 2,045 | 7,892 |
| Non-Interest Expense | 6,489 | 6,259 | 6,017 | 5,954 | 24,719 |
| Income before income taxes | 3,436 | 3,544 | 3,196 | 3,195 | 13,371 |
| Income Tax Expense | 1,698 | 946 | 809 | 877 | 4,330 |
| Noncontrolling interest (income)/expense | 49 | (48) | (59) | (4) | (31) |
| Net Income | $1,787 | $2,602 | $2,328 | $2,090 | $9,010 |
| Net Income Per Average | |||||
| Common Share Basic | $.52 | $.75 | $.68 | $.68 | $2.63 |
2016 | |||||
| (Dollars in thousands) | Fourth | Third | Second | First | Total |
| Interest and Dividend Income | $8,387 | $8,198 | $7,931 | $7,634 | $32,150 |
| Interest Expense | 954 | 969 | 862 | 814 | 3,599 |
| Net Interest Income | 7,433 | 7,229 | 7,069 | 6,820 | 28,551 |
| Provision for Loan Losses | - | - | - | - | - |
| Net Interest Income after Provision | |||||
| for Loan Losses | 7,433 | 7,229 | 7,069 | 6,820 | 28,551 |
| Non-Interest Income | 2,843 | 1,054 | 986 | 699 | 5,582 |
| Non-Interest Expense | 6,806 | 4,962 | 4,772 | 4,732 | 21,272 |
| Income before income taxes | 3,470 | 3,321 | 3,283 | 2,787 | 12,861 |
| Income Tax Expense | 912 | 655 | 839 | 693 | 3,099 |
| Noncontrolling interest | (40) | (64) | (86) | (4) | (194) |
| Net Income | $2,518 | $2,602 | $2,358 | $2,090 | $9,568 |
| Net Income Per Average | |||||
| Common Share Basic | $.74 | $.75 | $.68 | $.60 | $2.77 |
Rate Shift (bp) | Net Income | Net Interest Income | Net Interest Margin | |||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
300 | 16,084 | 14,583 | 38,622 | 35,480 | 5.71% | 5.21% |
200 | 14,832 | 13,118 | 36,904 | 33,492 | 5.46% | 4.96% |
100 | 13,414 | 11,507 | 34,959 | 31,306 | 5.18% | 4.61% |
(-)100 | 12,291 | 10,458 | 33,418 | 29,883 | 4.96% | 4.41% |
(-)200 | 11,999 | 10,319 | 33,017 | 29,694 | 4.90% | 4.38% |
2017 | 2016 | |
| Assets | ||
| Cash and due from banks | $10,622 | $7,755 |
| Money market funds | 1,285 | 674 |
| Federal funds sold | - | 7,926 |
| Cash and cash equivalents | 11,907 | 16,355 |
| Securities: | ||
| Held to maturity - fair value of $125 in 2017 and 2016 | 125 | 125 |
| Available for sale | 28,615 | 24,783 |
| Other investments | 12,503 | 14,567 |
| Loans held for sale | 39,775 | 62,735 |
| Loans held for investment | 616,974 | 591,636 |
| Less: allowance for loan losses | (6,044) | (7,543) |
| Net loans held for investment | 610,930 | 584,093 |
| Other real estate owned | 1,984 | 2,076 |
| Bank premises and equipment, net | 15,894 | 10,340 |
| Interest receivable | 2,007 | 1,785 |
| Goodwill | 2,881 | 2,670 |
| Bank owned life insurance | 13,950 | 13,513 |
| Other assets | 12,699 | 11,847 |
| Total Assets | $753,270 | $744,889 |
| Liabilities | ||
| Deposits: | ||
| Noninterest bearing | $162,233 | $146,617 |
| Interest bearing | 406,944 | 390,468 |
| Total deposits | 569,177 | 537,085 |
| Short-term debt | 25,296 | 40,000 |
| Accrued liabilities | 17,789 | 16,885 |
| Long-term debt | 49,733 | 64,237 |
| Total Liabilities | 661,995 | 658,207 |
| Commitments and contingencies | ||
| Stockholders’ Equity | ||
| Preferred Stock $25 par value, 400,000 shares authorized, 324,150 and 327,350 shares | ||
| issued and outstanding at December 31, 2017 and 2016, respectively | 7,529 | 7,609 |
| Common stock $5 par value, 6,000,000 shares authorized, 3,255,036 and 3,270,315 | ||
| shares issued and outstanding at December 31, 2017 and 2016, respectively | 16,275 | 16,352 |
| Additional paid in capital – common stock | 10,225 | 10,684 |
| Retained earnings | 60,814 | 54,509 |
| Noncontrolling interest in consolidated subsidiaries | 574 | 693 |
| Accumulated other comprehensive loss | (4,142) | (3,165) |
| Total Stockholders' Equity | 91,275 | 86,682 |
| Total Liabilities and Stockholders' Equity | $753,270 | $744,889 |
2017 | 2016 | 2015 | |
| Interest and Dividend Income | |||
| Interest and fees on loans held for investment | $32,479 | $29,816 | $27,957 |
| Interest from loans held for sale | 1,112 | 1,924 | 1,099 |
| Interest from money market funds and federal funds sold | 166 | 38 | 21 |
| Interest from debt securities – taxable | 338 | 372 | 327 |
| Total interest and dividend income | 34,095 | 32,150 | 29,404 |
| Interest Expense | |||
| Total interest on deposits | 2,688 | 2,380 | 2,153 |
| Interest from short-term debt | 63 | 55 | 69 |
| Interest from long-term debt | 1,146 | 1,164 | 654 |
| Total interest expense | 3,897 | 3,599 | 2,876 |
| Net Interest Income | 30,198 | 28,551 | 26,528 |
| Provision for Loan Losses | - | - | 300 |
| Net Interest Income After Provision for Loan Losses | 30,198 | 28,551 | 26,228 |
| Noninterest Income | |||
| Service charges on deposit accounts | 1,360 | 1,174 | 963 |
| Insurance, other commissions and mortgage banking, net | 4,137 | 3,006 | 2,575 |
| Other operating income | 2,109 | 1,657 | 1,401 |
| Income from bank owned life insurance | 449 | 476 | 473 |
| Gain on prepayment of long term debt | 504 | - | - |
| Loss on sale of other investments | (42) | - | - |
| Low income housing partnership losses | (625) | (731) | (619) |
| Total noninterest income | 7,892 | 5,582 | 4,793 |
| Noninterest Expenses | |||
| Salaries | 11,482 | 9,986 | 9,018 |
| Employee benefits | 3,372 | 2,814 | 2,439 |
| Occupancy expense | 1,035 | 868 | 801 |
| Equipment expense | 836 | 735 | 715 |
| FDIC insurance assessment | 190 | 388 | 587 |
| Other real estate owned, net | 76 | 86 | 566 |
| Other operating expenses | 7,728 | 6,395 | 5,428 |
| Total noninterest expenses | 24,719 | 21,272 | 19,554 |
| Income before income taxes | 13,371 | 12,861 | 11,467 |
| Income Tax Expense | 4,330 | 3,099 | 2,886 |
| Net Income | 9,041 | 9,762 | 8,581 |
| Net Income attributable to noncontrolling interests | (31) | (194) | (164) |
| Net Income attributable to F & M Bank Corp. | $9,010 | $9,568 | $8,417 |
| Dividends paid/accumulated on preferred stock | 415 | 487 | 510 |
| Net income available to common stockholders | $8,595 | $9,081 | $7,907 |
| Per Common Share Data | |||
| Net income - basic | $2.63 | $2.77 | $2.40 |
| Net income - diluted | $2.48 | $2.57 | $2.25 |
| Cash dividends on common stock | $.94 | $.80 | $.73 |
| Weighted average common shares outstanding – basic | 3,269,713 | 3,282,335 | 3,290,812 |
| Weighted average common shares outstanding – diluted | 3,631,984 | 3,716,591 | 3,735,212 |
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
| Net Income | $9,041 | $9,762 | $8,581 |
| Other comprehensive income (loss): | |||
| Pension plan adjustment | (414) | (738) | (537) |
| Tax effect | 141 | 251 | 183 |
| Pension plan adjustment, net of tax | (273) | (487) | (354) |
| Unrealized holding gains | |||
| on available-for-sale securities | (34) | 3 | 2 |
| Tax effect | 12 | (1) | (1) |
| Unrealized holding gains, net of tax | (22) | 2 | 1 |
| Total other comprehensive income (loss) | (295) | (485) | (353) |
| Total comprehensive income | $8,746 | $9,277 | $8,228 |
| Comprehensive income attributable to noncontrolling interests | $(31) | $(194) | $(164) |
| Comprehensive income attributable to F&M Bank Corp. | $8,715 | $9,083 | $8,064 |
Accumulated | |||||||
Other | |||||||
Comprehensive | |||||||
Preferred | Common | Additional Paid in | Retained | Noncontrolling | Income | ||
Stock | Stock | Capital | Earnings | Interest | (Loss) | Total | |
| Balance December 31, 2014 | $9,425 | $16,459 | $11,260 | $42,554 | $426 | $(2,327) | $77,797 |
| Net income | 8,417 | 164 | 8,581 | ||||
| Other comprehensive loss | (353) | (353) | |||||
| Distributions to noncontrolling interest | (17) | (17) | |||||
| Dividends on preferred stock ($1.275 per share) | (510) | (510) | |||||
| Dividends on common stock ($.73 per share) | (2,405) | (2,405) | |||||
| Common stock repurchased (13,277 shares) | (67) | (223) | (290) | ||||
| Common stock issued (6,916 shares) | 35 | 112 | - | - | - | 147 | |
| Balance December 31, 2015 | $9,425 | $16,427 | $11,149 | $48,056 | $573 | $(2,680) | $82,950 |
| Net income | 9,568 | 194 | 9,762 | ||||
| Other comprehensive loss | (485) | (485) | |||||
| Distributions to noncontrolling interest | (74) | (74) | |||||
| Dividends on preferred stock ($1.488 per share) | (487) | (487) | |||||
| Dividends on common stock ($.80 per share) | (2,628) | (2,628) | |||||
| Common stock repurchased (22,583 shares) | (112) | (466) | (578) | ||||
| Common stock issued (7,494 shares) | 37 | 146 | 183 | ||||
| Preferred stock repurchased (72,650 shares) | (1,816) | (145) | (1,961) | ||||
| Balance, December 31, 2016 | $7,609 | $16,352 | $10,684 | $54,509 | $693 | $(3,165) | $86,682 |
| Net income | 9,010 | 31 | 9,041 | ||||
| Other comprehensive loss | (295) | (295) | |||||
| Distributions to noncontrolling interest | (150) | (150) | |||||
| Dividends on preferred stock ($1.28 per share) | (415) | (415) | |||||
| Dividends on common stock ($.94 per share) | (2,972) | (2,972) | |||||
| Common stock repurchased (21,984 shares) | (110) | (602) | (712) | ||||
| Common stock issued (6,705 shares) | 33 | 164 | 197 | ||||
| Preferred stock repurchased (3,200 shares) | (80) | (21) | (101) | ||||
| Stranded tax effect of Tax Cuts and Jobs Act | 682 | (682) | - | ||||
| Balance, December 31, 2017 | $7,529 | $16,275 | $10,225 | $60,814 | $574 | $(4,142) | $91,275 |
2017 | 2016 | 2015 | |
| Cash Flows from Operating Activities | |||
| Net income | $9,010 | $9,568 | $8,417 |
| Adjustments to reconcile net income to net cash | |||
| provided by operating activities: | |||
| Depreciation | 930 | 827 | 727 |
| Amortization of intangibles | 53 | - | - |
| Amortization of securities | - | 109 | 147 |
| Proceeds from sale of loans held for sale originated | 67,517 | 73,112 | 77,662 |
| Gain on sale of loans held for sale originated | (2,331) | (2,778) | (2,297) |
| Loans held for sale originated | (68,647) | (66,779) | (77,152) |
| Provision for loan losses | - | - | 300 |
| (Expense) benefit for deferred taxes | (222) | 9 | 341 |
| (Increase) in interest receivable | (222) | (76) | (34) |
| Increase in other assets | (1,693) | (444) | (457) |
| Increase in accrued liabilities | 1,498 | 1,690 | 1,480 |
| Amortization of limited partnership investments | 625 | 731 | 627 |
| Loss on sale of investments | 42 | - | - |
| Loss on sale and valuation adjustments of other real estate owned | 44 | 19 | 489 |
| Income from life insurance investment | (449) | (476) | (473) |
| Net Cash Provided by Operating Activities | 6,155 | 15,512 | 9,777 |
| Cash Flows from Investing Activities | |||
| Proceeds from maturities of securities available for sale | 86,741 | 32,218 | 8,243 |
| Proceeds from sales of other investments | 55 | - | - |
| Purchases of securities available for sale and other investments | (89,428) | (47,137) | (12,040) |
| Capital improvements to other real estate owned | (2) | (24) | - |
| Net increase in loans held for investment | (27, 068) | (49,386) | (25,892) |
| Net decrease (increase) in loans held for sale participations | 26 421 | (8,483) | (42,637) |
| Net purchase of property and equipment | (6,484) | (3,553) | (1,811) |
| Proceeds from sale of other real estate owned | 281 | 623 | 688 |
| Net Cash Used in Investing Activities | (9,484) | (75,742) | (73,449) |
| Cash Flows from Financing Activities | |||
| Net change in deposits | 32,092 | 42,415 | 3,165 |
| Net change in short-term debt | (14,704) | 15,046 | 10,596 |
| Dividends paid in cash | (3,387) | (3,115) | (2,915) |
| Proceeds from long-term debt | - | 20,000 | 40,000 |
| Proceeds from issuance of common stock | 197 | 183 | 147 |
| Repurchase of preferred stock | (712) | (1,961) | - |
| Repurchase of common stock | (101) | (578) | (290) |
| Repayments of long-term debt | (14,504) | (3,924) | (1,714) |
| Net Cash (Used in) Provided by Financing Activities | (1,119) | 68,066 | 48,989 |
| Net (Decrease) Increase in Cash and Cash Equivalents | (4,448) | 7,836) | (14,683) |
| Cash and Cash Equivalents, Beginning of Year | 16,355 | 8,519 | 23,202 |
| Cash and Cash Equivalents, End of Year | $11,907 | $16,355 | $8,519 |
| Supplemental Cash Flow information: | |||
| Cash paid for: | |||
| Interest | $3,866 | $3,573 | $2,854 |
| Income taxes | 4,460 | 2,300 | 1,500 |
| Supplemental non-cash disclosures: | |||
| Transfers from loans to other real estate owned | 231 | 566 | 125 |
| Loans originated for the sale of other real estate owned | - | - | (328) |
| Unrealized gain (loss) on securities available for sale | (26) | 2 | 1 |
| Minimum pension liability adjustment | (952) | (487) | (354) |
Bank Premises and Equipment
Land is carried at cost and bank premisescost. Buildings and equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over the estimated useful lives of the assets on a combination of the straight-line and accelerated methods. The ranges of theEstimated useful lives of the premisesrange from 10 to 39 years for buildings, and equipment are as follows:
Goodwill and Intangible Assets
Goodwill, the excess of purchase price over the fair value of the identifiable net assets under ASC 805, “Business Combinations” and ASC 350, “Intangibles”, respectively. Goodwillacquired, is subject to at least an annual assessmentevaluated for impairment by applyingcomparing the fair value of a fair value-based test. Additionally, acquiredreporting unit with its carrying amount. Impairment testing is performed annually as of December 31, as well as when an event triggering event may have occurred. The Company performed the internal evaluation of goodwill for December 31, 2022, and based on the results, no impairment was deemed necessary.
Acquired intangible assets are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful lives. The Company recorded goodwill and intangible assets in 2017 related to the purchase of VS Title which was valued by an independent third party. The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Impairment testing is performed annually, as well as when an event triggering impairment may have occurred. The Company performs its annual analysis as of December 31 each fiscal year. Accounting guidance permits preliminary assessment of qualitative factors to determine whether a more substantial impairment testing is required. The Company chose to bypass the preliminary assessment and utilized a two-step process for impairment testing of goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. No indicators of impairment were identified during the years ended December 31, 2017, 2016, and 2015.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Pension Plans
The Bank has a qualified noncontributory defined benefit pension plan which covers all full-time employees hired prior to April 1, 2012. The benefits are primarily based on years of service and earnings. The Company recognizes the over-funded or under‑funded status of pension and other postretirement benefit plans on the balance sheet. Gains and losses, prior service costs and credits, and any remaining transition amounts that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive loss, net of tax effects, until they are amortized as a component of net periodic cost. As of February 15, 2023, the Virginia Bankers Association Defined Benefit Plan for Farmers & Merchants Bank was amended to stop the accrual of future benefits.
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| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 2 SUMMARY1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED):
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the temporary differences between the book and tax bases of assets and liabilities and give current recognition to changes in tax rates and laws.
When the Company’s federal tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any, associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of income.
Advertising Costs
The Company follows the policy of charging the cost of advertising to expense as incurred.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity ormaturity.
Bank-Owned Life Insurance
The Company owns insurance on the abilitylives of a certain group of key employees. The policies were purchased to unilaterally causehelp offset the holder to return specific assets.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there now are any such matters that will have a material effect on the consolidated financial statements.
Reclassifications
Certain reclassifications have been made in the provisions of ASC Topic 820 “Fair Value Measurements2021 financial statements to conform to reporting for 2022. These reclassifications are not considered material and Disclosures,” for financial assets and financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 2
Earnings per Share
Basic earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing netrepresents income available to common stockholdersshareholders divided by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of the dividend participation and voting rights. Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to includeearnings per share includes the number of additional common shares that would have been outstanding if the dilutive common shares had been issued. The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per common share calculation.
Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared.
The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:
For the year ended | |||
| Dollars in thousands | December 31, 2017 | December 31, 2016 | December 31, 2015 |
| Earnings Available to Common Stockholders: | |||
| Net Income | $9,041 | $9,762 | $8,581 |
| Minority interest attributable to noncontrolling interest | 31 | 194 | 164 |
| Dividends paid/accumulated on preferred stock | 415 | 487 | 510 |
| Net Income Available to Common Stockholders | $8,595 | $9,081 | $7,907 |
|
| For the year ended |
| |||||
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Earnings Available to Common Stockholders: |
|
|
|
| ||||
Net Income |
| $ | 8,318 |
|
| $ | 10,738 |
|
Preferred stock dividends |
|
| - |
|
|
| 196 |
|
Net Income Available to Common Stockholders |
| $ | 8,318 |
|
| $ | 10,542 |
|
The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:
Year ended | |||||||||
December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||
| Dollars in thousands | Net Income Available to Common Stockholders | Weighted Average Shares | Per Share Amounts | Net Income Available to Common Stockholders | Weighted Average Shares | Per Share Amounts | Net Income Available to Common Stockholders | Weighted Average Shares | Per Share Amounts |
| Basic EPS | $8,595 | 3,269,713 | $2.63 | $9,081 | 3,282,335 | $2.77 | $7,907 | 3,290,812 | $2.40 |
| Effect of Dilutive Securities: | |||||||||
| Convertible Preferred Stock | 415 | 362,271 | (0.15) | 487 | 434,256 | (0.20) | 510 | 444,400 | (0.15) |
| Diluted EPS | $9,010 | 3,631,984 | $2.48 | $9,568 | 3,716,591 | $2.57 | $8,417 | 3,735,212 | $2.25 |
|
| For the year ended |
| |||||||||||||||||||||
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Net Income Available to Common Stockholders |
|
| Weighted Average Shares |
|
| Per Share Amounts |
|
| Net Income Available to Common Stockholders |
|
| Weighted Average Shares |
|
| Per Share Amounts |
| ||||||
Basic EPS |
| $ | 8,318 |
|
|
| 3,449,343 |
|
| $ | 2.41 |
|
| $ | 10,542 |
|
|
| 3,245,086 |
|
| $ | 3.25 |
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 196 |
|
|
| 197,087 |
|
|
| (0.13 | ) |
Diluted EPS |
| $ | 8,318 |
|
|
| 3,449,343 |
|
| $ | 2.41 |
|
| $ | 10,738 |
|
|
| 3,442,173 |
|
| $ | 3.12 |
|
Recent Accounting Pronouncements
During June 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASU No.Accounting Standards Update (ASU) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of allas amended, requires an entity to measure expected credit losses for financial assets heldcarried at the reporting dateamortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions andAmong other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition,things, the ASU amendsalso amended the accountingimpairment model for available for sale securities and addressed purchased financial assets with deterioration. The Company adopted ASU 2016-13 as of January 1, 2023, in accordance with the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required by the standard. The adjustment recorded at adoption was not significant to the overall allowance for credit losses or shareholders’ equity as compared to December 31, 2022, and consisted of adjustments to the allowance for credit losses on available-for-sale debt securitiesloans, as well as an adjustment to the Company’s reserve for unfunded loan commitments. Subsequent to adoption, the Company will record adjustments to its allowance(s) for credit losses and purchased financial assetsreserves for unfunded commitments through the provision for credit losses in the consolidated statements of income.
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Recent Accounting Pronouncements, continued
The Company is utilizing a third-party model to tabulate its estimate of current expected credit losses, using the remaining life methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics which included call report code. The Company primarily utilizes a qualitative scorecard for its reasonable and supportable forecasting of current expected credit deterioration.losses. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company will consider the nine qualitative adjustment factors outlined in the 2006 interagency policy statement on the ALLL. The amendmentsCompany’s CECL implementation process was overseen by the CECL Committee and included an assessment of data availability and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative factors and correlation analysis of multiple potential loss drivers and their impact on the Company’s historical loss experience. During 2022, the Company calculated its current expected credit losses model in thisparallel to its incurred loss model to further refine the methodology and model. In addition, the Company engaged a third-party to perform a comprehensive model validation.
Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.
In December 2022, the FASB issued ASU are2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.
To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for SEC filersall entities upon issuance. The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, andincluding interim periods within those fiscal years, beginning after December 15, 2019. For public companies that are not SEC filers, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements and has formed a Current Expected Credit Losses steering committee that is researching methods and models.
In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 2
Recent Accounting Pronouncements, continued
For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13.
An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.
In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, the FASB issued ASU 2017‐08, “Receivables—Nonrefundable Fees2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2022-01 to have a material impact on its consolidated financial statements.
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other CostsOptions (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in thisthe ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018,2021, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition,For all other entities, should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. Given the composition of our securities portfolio, the Company does not expect that adoption of ASU 2017‐08standard will have a material impact on its consolidated financial statements.
Recently Adopted Accounting Developments
In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in the periodEntity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of adoption or retrospectively to each period (or periods) in which the effectFreestanding Equity – Classified Written Call Options (a consensus of the change inFASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications, or an exchange of freestanding written call options classified as equity that is not within the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act in the consolidated financial statementsscope of another Topic. ASU 2021-04 was effective for the period ending December 31, 2017. The amountCompany on January 1, 2022. There was no material impact due to the adoption of this reclassification in 2017 was $811.
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 3
The amortized cost and fair value, with unrealized gains and losses, of securities held to maturity were as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
| December 31, 2017 | ||||
U. S. Treasuries | $125 | $- | $- | $125 |
| December 31, 2016 | ||||
U. S. Treasuries | $125 | $- | $- | $125 |
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasuries | �� | $ | 125 |
|
| $ | - |
|
| $ | 13 |
|
| $ | 112 |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasuries |
| $ | 125 |
|
| $ | - |
|
| $ | - |
|
| $ | 125 |
|
The amortized cost and fair value of securities available for sale are as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
| December 31, 2017 | ||||
| U. S. Treasuries | $19,998 | $- | $- | $19,998 |
| U. S. Government sponsored enterprises | 7,999 | - | 19 | 7,980 |
| Mortgage-backed obligations of federal agencies | 508 | - | 6 | 502 |
| Equity securities | 135 | - | - | 135 |
| Total Securities Available for Sale | $28,640 | $- | $25 | $28,615 |
| December 31, 2016 | ||||
| U. S. Treasuries | $24,005 | $9 | $- | $24,014 |
| Mortgage-backed obligations of federal agencies | 634 | - | - | 634 |
| Equity securities | 135 | - | - | 135 |
| Total Securities Available for Sale | $24,774 | $9 | $- | $24,783 |
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasuries |
| $ | 39,902 |
|
| $ | - |
|
| $ | 3,259 |
|
| $ | 36,643 |
|
U. S. Government sponsored enterprises |
|
| 143,473 |
|
|
| - |
|
|
| 13,725 |
|
|
| 129,748 |
|
Securities issued by States and political subdivisions of the U.S. |
|
| 46,331 |
|
|
| 27 |
|
|
| 4,160 |
|
|
| 42,198 |
|
Mortgage-backed obligations of federal agencies |
|
| 183,044 |
|
|
| 77 |
|
|
| 26,246 |
|
|
| 156,875 |
|
Corporate debt securities |
|
| 30,550 |
|
|
| - |
|
|
| 3,919 |
|
|
| 26,631 |
|
Total Securities Available for Sale |
| $ | 443,300 |
|
| $ | 104 |
|
| $ | 51,309 |
|
| $ | 392,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasuries |
| $ | 29,847 |
|
| $ | - |
|
| $ | 365 |
|
| $ | 29,482 |
|
U. S. Government sponsored enterprises |
|
| 134,466 |
|
|
| - |
|
|
| 752 |
|
|
| 133,714 |
|
Securities issued by States and political subdivisions of the U.S. |
|
| 34,078 |
|
|
| 406 |
|
|
| 147 |
|
|
| 34,337 |
|
Mortgage-backed obligations of federal agencies |
|
| 185,216 |
|
|
| 522 |
|
|
| 2,091 |
|
|
| 183,647 |
|
Corporate debt securities |
|
| 22,555 |
|
|
| 372 |
|
|
| 225 |
|
|
| 22,702 |
|
Total Securities Available for Sale |
| $ | 406,162 |
|
| $ | 1,300 |
|
| $ | 3,580 |
|
| $ | 403,882 |
|
The amortized cost and fair value of securities at December 31, 2017,2022, by contractual maturity are shown below.below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Held to Maturity | Securities Available for Sale | |||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |
| Due in one year or less | $125 | $125 | $19,998 | $19,998 |
| Due after one year through five years | - | - | 7,999 | 7,980 |
| Due after five years through ten years | - | - | 508 | 502 |
| Due after ten years | - | - | 135 | 135 |
| Total | $125 | $125 | $28,640 | $28,615 |
|
| Securities Held to Maturity |
|
| Securities Available for Sale |
| ||||||||||
|
| Amortized Cost |
|
| Fair Value |
|
| Amortized Cost |
|
| Fair Value |
| ||||
Due in one year or less |
| $ | 125 |
|
| $ | 112 |
|
| $ | 19,823 |
|
| $ | 19,203 |
|
Due after one year through five years |
|
| - |
|
|
| - |
|
|
| 164,328 |
|
|
| 151,279 |
|
Due after five years through ten years |
|
| - |
|
|
| - |
|
|
| 101,571 |
|
|
| 87,643 |
|
Due after ten years |
|
| - |
|
|
| - |
|
|
| 157,578 |
|
|
| 133,970 |
|
Total |
| $ | 125 |
|
| $ | 112 |
|
| $ | 443,300 |
|
| $ | 392,095 |
|
The following table presents the gross realized gains and losses on and the proceeds from the sale of debt or equity securities during 2017, 2016 or 2015.
|
| 2022 |
|
| 2021 |
| ||
Realized losses: |
|
|
|
| ||||
Gross realized losses |
| $ | (2,852 | ) |
| $ | (525 | ) |
Net realized losses |
| $ | (2,852 | ) |
| $ | (525 | ) |
Proceeds from sales of securities |
| $ | 40,847 |
|
| $ | 25,917 |
|
There were no pledged securities at December 31, 20172022 or 2016.
| 51 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 2 SECURITIES, CONTINUED
As of December 31, 2022, other investments consist of investments in twentytwelve low-income housing and historic equity partnerships (carrying basis of $7,406)$5.9 million), stock in the Federal Home Loan BankFHLB (carrying basis of $3,627)$3.6 million), and various other investments (carrying basis of $1,470)$1.2 million). The interests in the low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The market values of these securities are estimated to approximate their carrying values as of December 31, 2017.2022. At December 31, 2017,2022, the Company was committed to invest an additional $4,231$796 thousand in sixthree low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in accrued liabilities on the consolidated balance sheet.
The primary purpose of the investment portfolio is to generate income and meet liquidity needs of the Company through readily saleable financial instruments. The portfolio includes fixed rate bonds, whose prices move inversely with rates and variable rate bonds. At the end of any accounting period, the investment portfolio has unrealized gains and losses. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes and credit risk changes for other than temporary impairment. The primary concern in a loss situation is the credit quality of the businessissuer behind the instrument. Bonds deteriorate in value due to credit quality of the individual issuer and changes in market conditions.
A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of December 31, 20172022 and 2021 were as follows:
Less than 12 Months | More than 12 Months | Total | ||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |
| December 31, 2017 | ||||||
| U. S. Government sponsored enterprises | $3,981 | $(19) | $- | $- | $3,981 | $(19) |
| Mortgage-backed obligations of federal agencies | 502 | (6) | - | - | 502 | (6) |
| Total | $4,483 | $(25) | $- | $- | $4,483 | $(25) |
|
| Less than 12 Months |
|
| More than 12 Months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U. S. Government treasuries |
| $ | 9,657 |
|
| $ | 362 |
|
| $ | 26,987 |
|
| $ | 2,897 |
|
| $ | 36,644 |
|
| $ | 3,259 |
|
U. S. Government sponsored enterprises |
|
| 13,914 |
|
|
| 1,083 |
|
|
| 115,835 |
|
|
| 12,642 |
|
|
| 129,749 |
|
|
| 13,725 |
|
Securities issued by State and political subdivisions in the U.S. |
|
| 21,805 |
|
|
| 1,426 |
|
|
| 18,710 |
|
|
| 2,734 |
|
|
| 40,515 |
|
|
| 4,160 |
|
Mortgage-backed obligations of federal agencies |
|
| 32,823 |
|
|
| 2,429 |
|
|
| 119,892 |
|
|
| 23,817 |
|
|
| 152,715 |
|
|
| 26,246 |
|
Corporate debt securities |
|
| 16,252 |
|
|
| 2,198 |
|
|
| 10,379 |
|
|
| 1,721 |
|
|
| 26,631 |
|
|
| 3,919 |
|
Total |
| $ | 94,451 |
|
| $ | 7,498 |
|
| $ | 291,803 |
|
| $ | 43,811 |
|
| $ | 386,254 |
|
| $ | 51,309 |
|
|
| Less than 12 Months |
|
| More than 12 Months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| FairValue |
|
| Unrealized Losses |
|
| FairValue |
|
| Unrealized Losses |
| ||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U. S. Government treasuries |
| $ | 29,481 |
|
| $ | 365 |
|
| $ | - |
|
| $ | - |
|
| $ | 29,481 |
|
| $ | 365 |
|
U. S. Government sponsored enterprises |
|
| 93,714 |
|
|
| 752 |
|
|
| - |
|
|
| - |
|
|
| 93,714 |
|
|
| 752 |
|
Securities issued by State and political subdivisions in the U.S. |
|
| 13,308 |
|
|
| 147 |
|
|
| - |
|
|
| - |
|
|
| 13,308 |
|
|
| 147 |
|
Mortgage-backed obligations of federal agencies |
|
| 126,501 |
|
|
| 1,871 |
|
|
| 10,074 |
|
|
| 220 |
|
|
| 136,575 |
|
|
| 2,091 |
|
Corporate debt securities |
|
| 8,825 |
|
|
| 225 |
|
|
| - |
|
|
| - |
|
|
| 8,825 |
|
|
| 225 |
|
Total |
| $ | 271,829 |
|
| $ | 3,360 |
|
| $ | 10,074 |
|
| $ | 220 |
|
| $ | 281,903 |
|
| $ | 3,580 |
|
At December 31, 2016,2022 there were no$291.8 million or 74 instances of individual available for sale securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss position.
| 52 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 4
The Company has evaluated AFS securities in an unrealized loss position for other-than-temporarycredit related impairment at December 31, 2022 and 2021 and concluded no impairment existed based on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given toseveral factors which included: (1) the lengthmajority of time andthese securities are of high credit quality, (2) unrealized losses are primarily the extentresult of market volatility in increased interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to whichsettle the fair value has beensecurities at a price less than the cost (2)basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value. The Company does not intend to sell these securitiesany of the investments and it is morethe accounting standard of “more likely than not” has not thatbeen met for the Company will notto be required to sell these securitiesany of the investments before recovery of theirits amortized cost. As of December 31, 2017,cost basis.
Additionally, most the Company had two agenciesCompany’s mortgage-backed securities are issued by FNMA, FHLMC, and a mortgage backed security that were temporarily impaired due to rising interest ratesGNMA and do not have credit risk given the credit quality of the security. There were no securities that had been in an unrealized loss position for more than twelve months. The Company did not recognize any other-than-temporary impairment losses in 2017, 2016 or 2015.
NOTE 5
Loans held for investment as of December 31, 2017,2022, and 20162021 were as follows:
2017 | 2016 | |
| Construction/Land Development | $71,620 | $76,172 |
| Farmland | 13,606 | 12,901 |
| Real Estate | 184,546 | 172,758 |
| Multi-Family | 10,298 | 7,605 |
| Commercial Real Estate | 148,906 | 150,061 |
| Home Equity – closed end | 11,606 | 11,453 |
| Home Equity – open end | 54,739 | 54,420 |
| Commercial & Industrial – Non-Real Estate | 36,912 | 31,306 |
| Consumer | 6,633 | 6,643 |
| Dealer Finance | 75,169 | 65,495 |
| Credit Cards | 2,939 | 2,822 |
| Total | $616,974 | $591,636 |
|
| 2022 |
|
| 2021 |
| ||
Construction/Land Development |
| $ | 68,671 |
|
| $ | 75,236 |
|
Farmland |
|
| 74,322 |
|
|
| 66,344 |
|
Real Estate |
|
| 153,281 |
|
|
| 139,552 |
|
Multi-Family |
|
| 9,622 |
|
|
| 4,887 |
|
Commercial Real Estate |
|
| 195,163 |
|
|
| 163,564 |
|
Home Equity – closed end |
|
| 4,707 |
|
|
| 6,262 |
|
Home Equity – open end |
|
| 46,928 |
|
|
| 44,247 |
|
Commercial & Industrial – Non-Real Estate |
|
| 56,625 |
|
|
| 44,224 |
|
Consumer |
|
| 6,488 |
|
|
| 8,036 |
|
Dealer Finance |
|
| 125,125 |
|
|
| 107,346 |
|
Credit Cards |
|
| 3,242 |
|
|
| 3,000 |
|
Gross loans |
|
| 744,174 |
|
|
| 662,698 |
|
Less: Deferred loan fees, net of costs |
|
| (570 | ) |
|
| (277 | ) |
Total |
| $ | 743,604 |
|
| $ | 662,421 |
|
The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of AtlantaFHLB totaling $218,323$209.8 million and $199,401$163.3 million as of December 31, 2017,2022 and 2016,2021, respectively. The Company maintains a blanket lien on its entire residential real estate portfolio and certain commercial and home equity loans.
Loans held for sale consists of loans originated by VBSF&M Mortgage for sale in the secondary market, and the Bank’s commitment to purchase residential mortgage loan Participations from Northpointe Bank.market. The volume of loans purchased from Northpointe fluctuates due to a number of factors including changes in secondary market rates, which affects demand for mortgage loans; the number of participating banks involved in the program; the number of mortgage loan originators selling loans to the lead bank and the funding capabilities of the lead bank.loans. Loans held for sale as of December 31, 2017,2022 and 20162021 were $39,775$1.4 million and $62,735,$4.9 million, respectively.
| 53 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 5
The following is a summary of information pertaining totable shows the recorded investment in impaired loans (in thousands),by segment as of December 31, 20172022 and 2016:
December 31, 2017 | December 31, 2016 | |||||
Unpaid | Unpaid | |||||
Recorded | Principal | Related | Recorded | Principal | Related | |
Investment | Balance | Allowance | Investment | Balance | Allowance | |
| Impaired loans without a valuation allowance: | ||||||
| Construction/Land Development | $4,352 | $5,269 | $- | $3,296 | $3,652 | $- |
| Farmland | 1,984 | 1,984 | - | - | - | - |
| Real Estate | 1,273 | 1,273 | - | 768 | 768 | - |
| Multi-Family | - | - | - | - | - | - |
| Commercial Real Estate | 6,229 | 6,229 | - | 1,958 | 1,958 | - |
| Home Equity – closed end | - | - | - | - | - | - |
| Home Equity – open end | - | 347 | - | - | 347 | - |
| Commercial & Industrial – Non-Real Estate | - | - | - | 170 | 170 | - |
| Consumer | 8 | 8 | - | 13 | 13 | - |
| Credit cards | - | - | - | - | - | - |
| Dealer Finance | 31 | 31 | - | - | - | - |
13,877 | 15,141 | - | 6,205 | 6,908 | - | |
| Impaired loans with a valuation allowance | ||||||
| Construction/Land Development | 4,998 | 4,998 | 1,661 | 6,592 | 6,592 | 1,853 |
| Farmland | - | - | - | - | - | - |
| Real Estate | 1,188 | 1,188 | 209 | 1,206 | 1,206 | 221 |
| Multi-Family | - | - | - | - | - | - |
| Commercial Real Estate | - | - | - | 952 | 952 | 60 |
| Home Equity – closed end | - | - | - | - | - | - |
| Home Equity – open end | - | - | - | - | - | - |
| Commercial & Industrial – Non-Real Estate | - | - | - | - | - | - |
| Consumer | - | - | - | - | - | - |
| Credit cards | - | - | - | - | - | - |
| Dealer Finance | 47 | 47 | 12 | 87 | 87 | 20 |
6,233 | 6,233 | 1,882 | 8,837 | 8,837 | 2,154 | |
| Total impaired loans | $20,110 | $21,374 | $1,882 | $15,042 | $15,745 | $2,154 |
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
|
|
| Unpaid |
|
|
|
|
|
| Unpaid |
|
|
| ||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Principal |
|
| Related |
| ||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
| ||||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction/Land Development |
| $ | 332 |
|
| $ | 332 |
|
| $ | - |
|
| $ | 645 |
|
| $ | 645 |
|
| $ | - |
|
Farmland |
|
| 2,535 |
|
|
| 2,079 |
|
|
| - |
|
|
| 2,619 |
|
|
| 2,286 |
|
|
| - |
|
Real Estate |
|
| 1,882 |
|
|
| 1,882 |
|
|
| - |
|
|
| 2,748 |
|
|
| 2,748 |
|
|
| - |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 8,131 |
|
|
| 8,131 |
|
|
| - |
|
|
| 8,511 |
|
|
| 8,494 |
|
|
| - |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 148 |
|
|
| 147 |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 5 |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 7 |
|
|
| 7 |
|
|
| - |
|
|
| 12 |
|
|
| 12 |
|
|
| - |
|
|
|
| 12,887 |
|
|
| 12,431 |
|
|
| - |
|
|
| 14,688 |
|
|
| 14,337 |
|
|
| - |
|
Impaired loans with a valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
| 521 |
|
|
| 521 |
|
|
| 228 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Farmland |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Real Estate |
|
| 1,378 |
|
|
| 1,378 |
|
|
| 92 |
|
|
| 1,172 |
|
|
| 1,172 |
|
|
| 119 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 980 |
|
|
| 980 |
|
|
| 11 |
|
|
| 6,004 |
|
|
| 6,004 |
|
|
| 603 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 55 |
|
|
| 55 |
|
|
| 13 |
|
|
| 95 |
|
|
| 95 |
|
|
| 14 |
|
|
|
| 2,934 |
|
|
| 2,934 |
|
|
| 344 |
|
|
| 7,271 |
|
|
| 7,271 |
|
|
| 736 |
|
Total impaired loans |
| $ | 15,821 |
|
| $ | 15,365 |
|
| $ | 344 |
|
| $ | 21,959 |
|
| $ | 21,608 |
|
| $ | 736 |
|
| 54 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 5
The following is a summary oftable shows the average recorded investment and interest income recognized for the Company’s impaired loans (dollars in thousands):
December 31, 2017 | December 31, 2016 | |||
Average | Interest | Average | Interest | |
Recorded | Income | Recorded | Income | |
Investment | Recognized | Investment | Recognized | |
| Impaired loans without a valuation allowance: | ||||
| Construction/Land Development | $4,969 | $382 | $2,547 | $10 |
| Farmland | 1,921 | 62 | - | - |
| Real Estate | 878 | 57 | 778 | 10 |
| Multi-Family | - | - | - | - |
| Commercial Real Estate | 1,682 | 44 | 1,087 | 114 |
| Home Equity – closed end | - | - | - | - |
| Home Equity – open end | 347 | - | 964 | 2 |
| Commercial & Industrial – Non-Real Estate | 124 | - | 174 | 2 |
| Consumer | 10 | - | 11 | - |
| Credit cards | - | - | - | - |
| Dealer Finance | 24 | 3 | 14 | 1 |
9,955 | 548 | 5,575 | 139 | |
| Impaired loans with a valuation allowance | ||||
| Construction/Land Development | 5,911 | 258 | 8,525 | 291 |
| Farmland | - | - | - | - |
| Real Estate | 1,194 | 49 | 1,215 | 10 |
| Multi-Family | - | - | - | - |
| Commercial Real Estate | - | - | 959 | 57 |
| Home Equity – closed end | - | - | - | - |
| Home Equity – open end | - | - | 969 | - |
| Commercial & Industrial – Non-Real Estate | - | - | 14 | - |
| Consumer | - | - | - | - |
| Credit cards | - | - | - | - |
| Dealer Finance | 56 | 3 | 77 | 1 |
7,161 | 310 | 11,759 | 359 | |
| Total impaired loans | $17,116 | $858 | $17,334 | $498 |
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Average |
|
| Interest |
|
| Average |
|
| Interest |
| ||||
|
| Recorded |
|
| Income |
|
| Recorded |
|
| Income |
| ||||
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
| ||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ | 474 |
|
| $ | 19 |
|
| $ | 984 |
|
| $ | 29 |
|
Farmland |
|
| 2,137 |
|
|
| 161 |
|
|
| 1,760 |
|
|
| 126 |
|
Real Estate |
|
| 2,107 |
|
|
| 101 |
|
|
| 4,575 |
|
|
| 155 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 8,851 |
|
|
| 393 |
|
|
| 9,225 |
|
|
| 253 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| 414 |
|
|
| 18 |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 11 |
|
|
| 1 |
|
|
| 14 |
|
|
| 1 |
|
|
|
| 13,580 |
|
|
| 675 |
|
|
| 16,975 |
|
|
| 582 |
|
Impaired loans with a valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
| 261 |
|
|
| 24 |
|
|
| - |
|
|
| - |
|
Farmland |
|
| - |
|
|
| - |
|
|
| 420 |
|
|
| - |
|
Real Estate |
|
| 1,466 |
|
|
| 71 |
|
|
| 1,399 |
|
|
| 45 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 1,935 |
|
|
| 47 |
|
|
| 6,201 |
|
|
| 172 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 62 |
|
|
| 6 |
|
|
| 112 |
|
|
| 9 |
|
|
|
| 3,724 |
|
|
| 148 |
|
|
| 8,132 |
|
|
| 226 |
|
Total impaired loans |
| $ | 17,304 |
|
| $ | 823 |
|
| $ | 25,107 |
|
| $ | 808 |
|
| 55 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 5
The following table presents theis an aging analysis of the recorded investment of past duethe Company’s portfolio loans (in thousands) as ofheld for investment at December 31, 20172022 and 2016:
30-59 Days Past due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loan Receivable | Non-Accrual Loans | Recorded Investment >90 days & accruing | |
| December 31, 2017 | ||||||||
| Construction/Land Development | $167 | $5,459 | $3,908 | $9,534 | $62,086 | $71,620 | $3,908 | $- |
| Farmland | - | - | - | - | 13,606 | 13,606 | - | - |
| Real Estate | 2,858 | 1,954 | 560 | 5,372 | 179,174 | 184,546 | 1,720 | 143 |
| Multi-Family | 179 | - | - | 179 | 10,119 | 10,298 | - | - |
| Commercial Real Estate | 544 | - | - | 544 | 148,362 | 148,906 | - | - |
| Home Equity – closed end | - | 25 | - | 25 | 11,581 | 11,606 | 3 | - |
| Home Equity – open end | 454 | 165 | 268 | 887 | 53,852 | 54,739 | 448 | - |
| Commercial & Industrial – Non- Real Estate | 108 | 36 | 595 | 739 | 36,173 | 36,912 | 599 | - |
| Consumer | 43 | 5 | - | 48 | 6,585 | 6,633 | - | - |
| Dealer Finance | 1,300 | 252 | 189 | 1,741 | 73,428 | 75,169 | 226 | 54 |
| Credit Cards | 30 | 8 | 1 | 39 | 2,900 | 2,939 | - | 1 |
| Total | $5,683 | $7,904 | $5,521 | $19,108 | $597,866 | $616,974 | $6,904 | $198 |
30-59 Days Past due | 60-89 Days Past Due | Greater than 90 Days) | Total Past Due | Current | Total Loan Receivable | Non-Accrual Loans | Recorded Investment >90 days & accruing | |
| December 31, 2016 | ||||||||
| Construction/Land Development | $73 | $101 | $2,175 | $2,349 | $73,823 | $76,172 | $2,805 | $- |
| Farmland | - | - | - | - | 12,901 | 12,901 | - | - |
| Real Estate | 2,135 | 746 | 774 | 3,655 | 169,103 | 172,758 | 1,399 | 81 |
| Multi-Family | - | - | - | - | 7,605 | 7,605 | - | - |
| Commercial Real Estate | 139 | - | - | 139 | 149,922 | 150,061 | - | - |
| Home Equity – closed end | 101 | - | 32 | 133 | 11,320 | 11,453 | 32 | - |
| Home Equity – open end | 484 | - | 69 | 553 | 53,867 | 54,420 | 279 | - |
| Commercial & Industrial – Non- Real Estate | 313 | 5 | - | 318 | 30,988 | 31,306 | 70 | - |
| Consumer | 35 | 4 | 6 | 45 | 6,598 | 6,643 | - | - |
| Dealer Finance | 797 | 187 | 183 | 1,167 | 64,328 | 65,495 | 178 | 26 |
| Credit Cards | 18 | 4 | - | 22 | 2,800 | 2,822 | - | - |
| Total | $4,095 | $1,047 | $3,239 | $8,381 | $583,255 | $591,636 | $4,763 | $107 |
|
| 30-59 Days Past due |
|
| 60-89 Days Past due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loan Receivable |
|
| Non-Accrual Loans |
|
| Recorded Investment >90 days & accruing |
| ||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ | 477 |
|
| $ | 539 |
|
| $ | 21 |
|
| $ | 1,037 |
|
| $ | 67,634 |
|
| $ | 68,671 |
|
| $ | 21 |
|
| $ | - |
|
Farmland |
|
| 85 |
|
|
| 18 |
|
|
| - |
|
|
| 103 |
|
|
| 74,219 |
|
|
| 74,322 |
|
|
| 1,458 |
|
|
| - |
|
Real Estate |
|
| 1,825 |
|
|
| 282 |
|
|
| 86 |
|
|
| 2,193 |
|
|
| 151,088 |
|
|
| 153,281 |
|
|
| 419 |
|
|
| - |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,622 |
|
|
| 9,622 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 234 |
|
|
| 82 |
|
|
| - |
|
|
| 316 |
|
|
| 194,847 |
|
|
| 195,163 |
|
|
| - |
|
|
| - |
|
Home Equity – closed end |
|
| 3 |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| 4,704 |
|
|
| 4,707 |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| 385 |
|
|
| 177 |
|
|
| - |
|
|
| 562 |
|
|
| 46,366 |
|
|
| 46,928 |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non- Real Estate |
|
| 104 |
|
|
| - |
|
|
| 104 |
|
|
| 208 |
|
|
| 56,417 |
|
|
| 56,625 |
|
|
| 101 |
|
|
| 31 |
|
Consumer |
|
| 11 |
|
|
| 11 |
|
|
| 15 |
|
|
| 37 |
|
|
| 6,451 |
|
|
| 6,488 |
|
|
| 15 |
|
|
| - |
|
Dealer Finance |
|
| 1,117 |
|
|
| 228 |
|
|
| 199 |
|
|
| 1,544 |
|
|
| 123,581 |
|
|
| 125,125 |
|
|
| 210 |
|
|
| 5 |
|
Credit Cards |
|
| 51 |
|
|
| 9 |
|
|
| 2 |
|
|
| 62 |
|
|
| 3,180 |
|
|
| 3,242 |
|
|
| - |
|
|
| 2 |
|
Less: Deferred loan fees, net of costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (570 | ) |
|
| (570 | ) |
|
| - |
|
|
| - |
|
Total |
| $ | 4,292 |
|
| $ | 1,346 |
|
| $ | 427 |
|
| $ | 6,065 |
|
| $ | 737,539 |
|
| $ | 743,604 |
|
| $ | 2,224 |
|
| $ | 38 |
|
|
| 30-59 Days Past due |
|
| 60-89 Days Past due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loan Receivable |
|
| Non-Accrual Loans |
|
| Recorded Investment >90 days & accruing |
| ||||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ | 360 |
|
| $ | 41 |
|
| $ | 38 |
|
| $ | 439 |
|
| $ | 74,797 |
|
| $ | 75,236 |
|
| $ | 302 |
|
| $ | - |
|
Farmland |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 66,344 |
|
|
| 66,344 |
|
|
| 1,320 |
|
|
| - |
|
Real Estate |
|
| 1,254 |
|
|
| 89 |
|
|
| 395 |
|
|
| 1,738 |
|
|
| 137,814 |
|
|
| 139,552 |
|
|
| 827 |
|
|
| - |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,887 |
|
|
| 4,887 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| 108 |
|
|
| 108 |
|
|
| 163,456 |
|
|
| 163,564 |
|
|
| 2,975 |
|
|
| - |
|
Home Equity – closed end |
|
| 53 |
|
|
| - |
|
|
| - |
|
|
| 53 |
|
|
| 6,209 |
|
|
| 6,262 |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| 471 |
|
|
| 216 |
|
|
| - |
|
|
| 687 |
|
|
| 43,560 |
|
|
| 44,247 |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non- Real Estate |
|
| 35 |
|
|
| 1 |
|
|
| 43 |
|
|
| 79 |
|
|
| 44,145 |
|
|
| 44,224 |
|
|
| - |
|
|
| 43 |
|
Consumer |
|
| 9 |
|
|
| 67 |
|
|
| - |
|
|
| 76 |
|
|
| 7,960 |
|
|
| 8,036 |
|
|
| 1 |
|
|
| - |
|
Dealer Finance |
|
| 694 |
|
|
| 91 |
|
|
| 16 |
|
|
| 801 |
|
|
| 106,545 |
|
|
| 107,346 |
|
|
| 40 |
|
|
| - |
|
Credit Cards |
|
| 16 |
|
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| 2,984 |
|
|
| 3,000 |
|
|
| - |
|
|
| - |
|
Less: Deferred loan fees, net of costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (277 | ) |
|
| (277 | ) |
|
| - |
|
|
| - |
|
Total |
| $ | 2,892 |
|
| $ | 505 |
|
| $ | 600 |
|
| $ | 3,997 |
|
| $ | 658,424 |
|
| $ | 662,421 |
|
| $ | 5,465 |
|
| $ | 43 |
|
| 56 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 6
A summary of changes in the allowance for loan losses (in thousands) for the years ended December 31, 20172022 and 20162021 is as follows:
| December 31, 2017 | Beginning Balance | Charge-offs | Recoveries | Provision for Loan Losses | Ending Balance | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
| Allowance for loan losses: | |||||||
| Construction/Land Development | $3,381 | $620 | $- | $(214) | $2,547 | $1,661 | $886 |
| Farmland | 34 | - | - | (9) | 25 | - | 25 |
| Real Estate | 843 | - | 2 | (126) | 719 | 209 | 510 |
| Multi-Family | 23 | - | - | (6) | 19 | - | 19 |
| Commercial Real Estate | 705 | - | 13 | (236) | 482 | - | 482 |
| Home Equity – closed end | 75 | 7 | 25 | (27) | 66 | - | 66 |
| Home Equity – open end | 470 | 26 | 53 | (288) | 209 | - | 209 |
| Commercial & Industrial – Non-Real Estate | 586 | 179 | 72 | (142) | 337 | - | 337 |
| Consumer | 78 | 136 | 28 | 178 | 148 | - | 148 |
| Dealer Finance | 1,289 | 1,806 | 1,143 | 814 | 1,440 | 12 | 1,428 |
| Credit Cards | 59 | 98 | 37 | 54 | 52 | - | 52 |
| Total | $7,543 | $2,872 | $1,373 | $- | $6,044 | $1,882 | $4,162 |
| December 31, 2016 | Beginning Balance | Charge-offs | Recoveries | Provision for Loan Losses | Ending Balance | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
| Allowance for loan losses: | |||||||
| Construction/Land Development | $4,442 | $356 | $7 | $(712) | $3,381 | $1,853 | $1,528 |
| Farmland | 95 | - | - | (61) | 34 | - | 34 |
| Real Estate | 806 | 23 | 4 | 56 | 843 | 221 | 622 |
| Multi-Family | 71 | - | - | (48) | 23 | - | 23 |
| Commercial Real Estate | 445 | 19 | 135 | 144 | 705 | - | 705 |
| Home Equity – closed end | 174 | 8 | - | (91) | 75 | - | 75 |
| Home Equity – open end | 634 | 370 | 120 | 86 | 470 | 60 | 410 |
| Commercial & Industrial – Non-Real Estate | 1,055 | 293 | 267 | (443) | 586 | - | 586 |
| Consumer | 108 | 37 | 19 | (12) | 78 | - | 78 |
| Dealer Finance | 836 | 1,081 | 417 | 1,117 | 1,289 | 20 | 1,269 |
| Credit Cards | 115 | 74 | 54 | (36) | 59 | - | 59 |
| Total | $8,781 | $2,261 | $1,023 | $- | $7,543 | $2,154 | $5,389 |
December 31, 2022 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision for (Recovery of) Loan Losses |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Construction/Land Development |
| $ | 977 |
|
| $ | - |
|
| $ | - |
|
| $ | 41 |
|
| $ | 1,018 |
|
| $ | 228 |
|
| $ | 790 |
|
Farmland |
|
| 448 |
|
|
| - |
|
|
| - |
|
|
| 122 |
|
|
| 570 |
|
|
| - |
|
|
| 570 |
|
Real Estate |
|
| 1,162 |
|
|
| 17 |
|
|
| - |
|
|
| 243 |
|
|
| 1,388 |
|
|
| 92 |
|
|
| 1,296 |
|
Multi-Family |
|
| 29 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
|
| 71 |
|
|
| - |
|
|
| 71 |
|
Commercial Real Estate |
|
| 2,205 |
|
|
| - |
|
|
| - |
|
|
| (190 | ) |
|
| 2,015 |
|
|
| 11 |
|
|
| 2,004 |
|
Home Equity – closed end |
|
| 41 |
|
|
| - |
|
|
| - |
|
|
| (3 | ) |
|
| 38 |
|
|
| - |
|
|
| 38 |
|
Home Equity – open end |
|
| 407 |
|
|
| 84 |
|
|
| 130 |
|
|
| (8 | ) |
|
| 445 |
|
|
| - |
|
|
| 445 |
|
Commercial & Industrial – Non- Real Estate |
|
| 288 |
|
|
| 46 |
|
|
| 49 |
|
|
| 159 |
|
|
| 450 |
|
|
| - |
|
|
| 450 |
|
Consumer |
|
| 520 |
|
|
| 153 |
|
|
| 84 |
|
|
| (370 | ) |
|
| 81 |
|
|
| - |
|
|
| 81 |
|
Dealer Finance |
|
| 1,601 |
|
|
| 1,280 |
|
|
| 691 |
|
|
| 780 |
|
|
| 1,792 |
|
|
| 13 |
|
|
| 1,779 |
|
Credit Cards |
|
| 70 |
|
|
| 66 |
|
|
| 14 |
|
|
| 50 |
|
|
| 68 |
|
|
| - |
|
|
| 68 |
|
Total |
| $ | 7,748 |
|
| $ | 1,646 |
|
| $ | 968 |
|
| $ | 866 |
|
| $ | 7,936 |
|
| $ | 344 |
|
| $ | 7,592 |
|
December 31, 2021 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision for (Recovery of) Loan Losses |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Construction/Land Development |
| $ | 1,249 |
|
| $ | - |
|
| $ | 307 |
|
| $ | (579 | ) |
| $ | 977 |
|
| $ | - |
|
| $ | 977 |
|
Farmland |
|
| 731 |
|
|
| - |
|
|
| - |
|
|
| (283 | ) |
|
| 448 |
|
|
| - |
|
|
| 448 |
|
Real Estate |
|
| 1,624 |
|
|
| - |
|
|
| 76 |
|
|
| (538 | ) |
|
| 1,162 |
|
|
| 119 |
|
|
| 1,043 |
|
Multi-Family |
|
| 54 |
|
|
| - |
|
|
| - |
|
|
| (25 | ) |
|
| 29 |
|
|
| - |
|
|
| 29 |
|
Commercial Real Estate |
|
| 3,662 |
|
|
| - |
|
|
| 19 |
|
|
| (1,476 | ) |
|
| 2,205 |
|
|
| 603 |
|
|
| 1,602 |
|
Home Equity – closed end |
|
| 55 |
|
|
| - |
|
|
| - |
|
|
| (14 | ) |
|
| 41 |
|
|
| - |
|
|
| 41 |
|
Home Equity – open end |
|
| 463 |
|
|
| - |
|
|
| 13 |
|
|
| (69 | ) |
|
| 407 |
|
|
| - |
|
|
| 407 |
|
Commercial & Industrial – Non-Real Estate |
|
| 363 |
|
|
| 40 |
|
|
| 37 |
|
|
| (72 | ) |
|
| 288 |
|
|
| - |
|
|
| 288 |
|
Consumer |
|
| 521 |
|
|
| 33 |
|
|
| 24 |
|
|
| 8 |
|
|
| 520 |
|
|
| - |
|
|
| 520 |
|
Dealer Finance |
|
| 1,674 |
|
|
| 1,038 |
|
|
| 754 |
|
|
| 211 |
|
|
| 1,601 |
|
|
| 14 |
|
|
| 1,587 |
|
Credit Cards |
|
| 79 |
|
|
| 54 |
|
|
| 29 |
|
|
| 16 |
|
|
| 70 |
|
|
| - |
|
|
| 70 |
|
Total |
| $ | 10,475 |
|
| $ | 1,165 |
|
| $ | 1,259 |
|
| $ | (2,821 | ) |
| $ | 7,748 |
|
| $ | 736 |
|
| $ | 7,012 |
|
| 57 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 6
The following table presents the recorded investment in loans (in thousands) based on impairment method as of December 31, 20172022 and 2016:
| December 31, 2017 | Loan Receivable | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
| Construction/Land Development | $71,620 | $9,350 | $62,270 |
| Farmland | 13,606 | 1,984 | 11,622 |
| Real Estate | 184,546 | 2,461 | 182,085 |
| Multi-Family | 10,298 | - | 10,298 |
| Commercial Real Estate | 148,906 | 6,229 | 142,677 |
| Home Equity – closed end | 11,606 | - | 11,606 |
| Home Equity –open end | 54,739 | - | 54,739 |
| Commercial & Industrial – Non-Real Estate | 36,912 | - | 36,912 |
| Consumer | 6,633 | 8 | 6,625 |
| Dealer Finance | 75,169 | 78 | 75,091 |
| Credit Cards | 2,939 | - | 2,939 |
$616,974 | $20,110 | $596,864 | |
| Total |
| December 31, 2016 | Loan Receivable | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
| Construction/Land Development | $76,172 | $9,888 | $66,284 |
| Farmland | 12,901 | - | 12,901 |
| Real Estate | 172,758 | 1,974 | 170,784 |
| Multi-Family | 7,605 | - | 7,605 |
| Commercial Real Estate | 150,061 | 2,910 | 147,151 |
| Home Equity – closed end | 11,453 | - | 11,453 |
| Home Equity –open end | 54,420 | - | 54,420 |
| Commercial & Industrial – Non-Real Estate | 31,306 | 170 | 31,136 |
| Consumer | 6,643 | 13 | 6,630 |
| Dealer Finance | 65,495 | 87 | 65,408 |
| Credit Cards | 2,822 | - | 2,822 |
$591,636 | $15,042 | $576,594 |
December 31, 2022 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ | 68,671 |
|
| $ | 853 |
|
| $ | 67,818 |
|
Farmland |
|
| 74,322 |
|
|
| 2,079 |
|
|
| 72,243 |
|
Real Estate |
|
| 153,281 |
|
|
| 3,260 |
|
|
| 150,021 |
|
Multi-Family |
|
| 9,622 |
|
|
| - |
|
|
| 9,622 |
|
Commercial Real Estate |
|
| 195,163 |
|
|
| 9,111 |
|
|
| 186,052 |
|
Home Equity – closed end |
|
| 4,707 |
|
|
| - |
|
|
| 4,707 |
|
Home Equity –open end |
|
| 46,928 |
|
|
| - |
|
|
| 46,928 |
|
Commercial & Industrial – Non-Real Estate |
|
| 56,625 |
|
|
| - |
|
|
| 56,625 |
|
Consumer |
|
| 6,488 |
|
|
| - |
|
|
| 6,488 |
|
Dealer Finance |
|
| 125,125 |
|
|
| 62 |
|
|
| 125,063 |
|
Credit Cards |
|
| 3,242 |
|
|
| - |
|
|
| 3,242 |
|
Gross Loans |
|
| 744,174 |
|
|
| 15,365 |
|
|
| 728,809 |
|
Less: Deferred loan fees, net of costs |
|
| (570 | ) |
|
| - |
|
|
| (570 | ) |
Total |
| $ | 743,604 |
|
| $ | 15,365 |
|
| $ | 728,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ | 75,236 |
|
| $ | 645 |
|
| $ | 74,591 |
|
Farmland |
|
| 66,344 |
|
|
| 2,286 |
|
|
| 64,058 |
|
Real Estate |
|
| 139,552 |
|
|
| 3,920 |
|
|
| 135,632 |
|
Multi-Family |
|
| 4,887 |
|
|
| - |
|
|
| 4,887 |
|
Commercial Real Estate |
|
| 163,564 |
|
|
| 14,498 |
|
|
| 149,066 |
|
Home Equity – closed end |
|
| 6,262 |
|
|
| 147 |
|
|
| 6,115 |
|
Home Equity –open end |
|
| 44,247 |
|
|
| - |
|
|
| 44,247 |
|
Commercial & Industrial – Non-Real Estate |
|
| 44,224 |
|
|
| - |
|
|
| 44,224 |
|
Consumer |
|
| 8,036 |
|
|
| 5 |
|
|
| 8,031 |
|
Dealer Finance |
|
| 107,346 |
|
|
| 107 |
|
|
| 107,239 |
|
Credit Cards |
|
| 3,000 |
|
|
| - |
|
|
| 3,000 |
|
Gross Loans |
|
| 662,698 |
|
|
| 21,608 |
|
|
| 641,090 |
|
Less: Deferred loan fees, net of costs |
|
| (277 | ) |
|
| - |
|
|
| (277 | ) |
Total |
| $ | 662,421 |
|
| $ | 21,608 |
|
| $ | 640,813 |
|
| 58 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 6
The following table shows the Company’s loan portfolio broken down by internal loan grade (in thousands) as of December 31, 20172022 and 2016:
December 31, 2017 | Grade 1 Minimal Risk | Grade 2 Modest Risk | Grade 3 Average Risk | Grade 4 Acceptable Risk | Grade 5 Marginally Acceptable | Grade 6 Watch | Grade 7 Substandard | Grade 8 Doubtful | Total |
| Construction/Land Development | $- | $690 | $12,974 | $30,197 | $9,165 | $3,520 | $15,074 | $- | $71,620 |
| Farmland | 63 | - | 3,153 | 4,120 | 3,793 | 494 | 1,983 | - | 13,606 |
| Real Estate | - | 1,512 | 53,764 | 101,606 | 19,734 | 4,660 | 3,270 | - | 184,546 |
| Multi-Family | - | 228 | 4,780 | 5,111 | 179 | - | - | - | 10,298 |
| Commercial Real Estate | - | 3,525 | 45,384 | 89,195 | 9,012 | 634 | 1,156 | - | 148,906 |
| Home Equity – closed end | - | - | 3,535 | 5,410 | 1,279 | 1,379 | 3 | - | 11,606 |
| Home Equity – open end | 235 | 1,598 | 17,383 | 30,888 | 3,945 | 176 | 514 | - | 54,739 |
| Commercial & Industrial (Non-Real Estate) | 262 | 1,595 | 13,297 | 19,442 | 1,480 | 207 | 629 | - | 36,912 |
| Consumer (excluding dealer) | 34 | 490 | 2,226 | 88 | 1,065 | 2,254 | 476 | - | 6,633 |
| Total | $594 | $9,638 | $156,496 | $286,057 | $49,652 | $13,324 | $23,105 | $- | $538,866 |
Credit Cards | Dealer Finance | |
| Performing | $2,938 | $75,116 |
| Non performing | 1 | 53 |
| Total | $2,939 | $75,169 |
December 31, 2022 |
| Grade 1 Minimal Risk |
|
| Grade 2 Modest Risk |
|
| Grade 3 Average Risk |
|
| Grade 4 Acceptable Risk |
|
| Grade 5 Marginally Acceptable |
|
| Grade 6 Watch |
|
| Grade 7 Substandard |
|
| Grade 8 Doubtful |
|
| Total |
| |||||||||
Construction/Land Development |
| $ | - |
|
| $ | 4 |
|
| $ | 11,112 |
|
| $ | 42,684 |
|
| $ | 13,116 |
|
| $ | 1,213 |
|
| $ | 542 |
|
| $ | - |
|
| $ | 68,671 |
|
Farmland |
|
| 155 |
|
|
| 269 |
|
|
| 11,373 |
|
|
| 38,051 |
|
|
| 22,069 |
|
|
| 947 |
|
|
| 1,458 |
|
|
| - |
|
|
| 74,322 |
|
Real Estate |
|
| - |
|
|
| 553 |
|
|
| 27,003 |
|
|
| 86,269 |
|
|
| 28,560 |
|
|
| 6,950 |
|
|
| 3,946 |
|
|
| - |
|
|
| 153,281 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| 963 |
|
|
| 5,116 |
|
|
| 3,430 |
|
|
| 113 |
|
|
| - |
|
|
| - |
|
|
| 9,622 |
|
Commercial Real Estate |
|
| - |
|
|
| 3,097 |
|
|
| 55,662 |
|
|
| 72,779 |
|
|
| 41,749 |
|
|
| 13,878 |
|
|
| 7,998 |
|
|
| - |
|
|
| 195,163 |
|
Home Equity – closed end |
|
| - |
|
|
| 48 |
|
|
| 1,065 |
|
|
| 2,560 |
|
|
| 639 |
|
|
| 382 |
|
|
| 13 |
|
|
| - |
|
|
| 4,707 |
|
Home Equity – open end |
|
| 27 |
|
|
| 1,272 |
|
|
| 18,671 |
|
|
| 23,207 |
|
|
| 2,091 |
|
|
| 1,611 |
|
|
| 49 |
|
|
| - |
|
|
| 46,928 |
|
Commercial & Industrial - Non-Real Estate |
|
| 10 |
|
|
| 516 |
|
|
| 12,934 |
|
|
| 26,310 |
|
|
| 15,613 |
|
|
| 911 |
|
|
| 331 |
|
|
| - |
|
|
| 56,625 |
|
Consumer (excluding dealer) |
|
| 33 |
|
|
| 286 |
|
|
| 2,965 |
|
|
| 3,105 |
|
|
| 68 |
|
|
| 16 |
|
|
| 15 |
|
|
| - |
|
|
| 6,488 |
|
Gross loans |
| $ | 225 |
|
| $ | 6,045 |
|
| $ | 141,748 |
|
| $ | 300,081 |
|
| $ | 127,335 |
|
| $ | 26,021 |
|
| $ | 14,352 |
|
| $ | - |
|
| $ | 615,807 |
|
Less: Deferred loan fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (570 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 615,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,240 |
|
| $ | 124,910 |
|
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 |
|
| 215 |
| ||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,242 |
|
| $ | 125,125 |
|
| 59 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 6
December 31, 2016 | Grade 1 Minimal Risk | Grade 2 Modest Risk | Grade 3 Average Risk | Grade 4 Acceptable Risk | Grade 5 Marginally Acceptable | Grade 6 Watch | Grade 7 Substandard | Grade 8 Doubtful | Total |
| Construction/Land Development | $- | $1,478 | $10,870 | $43,863 | $8,399 | $2,473 | $9,089 | $- | $76,172 |
| Farmland | 65 | - | 3,073 | 3,456 | 4,446 | 1,861 | - | - | 12,901 |
| Real Estate | - | 1,149 | 62,168 | 74,242 | 28,266 | 4,680 | 2,253 | - | 172,758 |
| Multi-Family | - | 311 | 3,009 | 4,099 | 186 | - | - | - | 7,605 |
| Commercial Real Estate | - | 2,793 | 32,986 | 91,157 | 19,181 | 1,840 | 2,104 | - | 150,061 |
| Home Equity – closed end | - | 150 | 3,966 | 4,139 | 1,746 | 1,414 | 38 | - | 11,453 |
| Home Equity – open end | 124 | 1,724 | 16,415 | 30,974 | 4,547 | 125 | 511 | - | 54,420 |
| Commercial & Industrial (Non-Real Estate) | 1,375 | 1,267 | 6,827 | 19,530 | 2,198 | 39 | 70 | - | 31,306 |
| Consumer (excluding dealer) | 67 | 174 | 1,837 | 607 | 1,242 | 2,252 | 466 | - | 6,643 |
| Total | $1,631 | $9,046 | $141,151 | $272,065 | $70,211 | $14,684 | $14,531 | $- | $523,319 |
Credit Cards | Dealer Finance | |
| Performing | $2,822 | $65,291 |
| Non performing | - | 204 |
| Total | $2,822 | $65,495 |
December 31, 2021 |
| Grade 1 Minimal Risk |
|
| Grade 2 Modest Risk |
|
| Grade 3 Average Risk |
|
| Grade 4 Acceptable Risk |
|
| Grade 5 Marginally Acceptable |
|
| Grade 6 Watch |
|
| Grade 7 Substandard |
|
| Grade 8 Doubtful |
|
| Total |
| |||||||||
Construction/Land Development |
| $ | - |
|
| $ | 6 |
|
| $ | 9,952 |
|
| $ | 43,861 |
|
| $ | 19,457 |
|
| $ | 1,658 |
|
| $ | 302 |
|
| $ | - |
|
| $ | 75,236 |
|
Farmland |
|
| 56 |
|
|
| 291 |
|
|
| 6,804 |
|
|
| 42,615 |
|
|
| 13,620 |
|
|
| 1,638 |
|
|
| 1,320 |
|
|
| - |
|
|
| 66,344 |
|
Real Estate |
|
| - |
|
|
| 1,128 |
|
|
| 30,268 |
|
|
| 61,940 |
|
|
| 28,895 |
|
|
| 12,462 |
|
|
| 4,859 |
|
|
| - |
|
|
| 139,552 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| 1,021 |
|
|
| 2,586 |
|
|
| 1,154 |
|
|
| 126 |
|
|
| - |
|
|
| - |
|
|
| 4,887 |
|
Commercial Real Estate |
|
| - |
|
|
| 2,124 |
|
|
| 36,308 |
|
|
| 72,414 |
|
|
| 35,444 |
|
|
| 4,428 |
|
|
| 12,846 |
|
|
| - |
|
|
| 163,564 |
|
Home Equity – closed end |
|
| - |
|
|
| 61 |
|
|
| 1,268 |
|
|
| 3,103 |
|
|
| 762 |
|
|
| 1,068 |
|
|
| - |
|
|
| - |
|
|
| 6,262 |
|
Home Equity – open end |
|
| - |
|
|
| 1,293 |
|
|
| 17,333 |
|
|
| 21,296 |
|
|
| 2,477 |
|
|
| 1,632 |
|
|
| 216 |
|
|
| - |
|
|
| 44,247 |
|
Commercial & Industrial - Non-Real Estate |
|
| - |
|
|
| 1,001 |
|
|
| 7,562 |
|
|
| 21,527 |
|
|
| 13,538 |
|
|
| 533 |
|
|
| 63 |
|
|
| - |
|
|
| 44,224 |
|
Consumer (excluding dealer) |
|
| 10 |
|
|
| 522 |
|
|
| 2,919 |
|
|
| 3,526 |
|
|
| 980 |
|
|
| 79 |
|
|
| - |
|
|
| - |
|
|
| 8,036 |
|
Gross loans |
| $ | 66 |
|
| $ | 6,426 |
|
| $ | 113,435 |
|
| $ | 272,868 |
|
| $ | 116,327 |
|
| $ | 23,624 |
|
| $ | 19,606 |
|
| $ | - |
|
| $ | 552,352 |
|
Less: Deferred loan fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (277 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 552,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 107,330 |
|
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| 16 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 107,346 |
|
Description of internal loan grades:
Grade 1 – Minimal Risk
: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.Grade 2 – Modest Risk
: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.Grade 3 – Average Risk
: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.Grade 4 – Acceptable Risk
: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through additionalGrade 5 – Marginally acceptable
: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.| 60 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 6
Grade 6 – Watch
: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.Grade 7 – Substandard
: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.Grade 8 – Doubtful
: Loans having all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.
NOTE 7
Troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan gradesinclude modifications of such loans, which are considered in the qualitative factors within the allowance for loan loss methodology. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance calculation. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.
December 31, 2017 | |||
Pre-Modification | Post-Modification | ||
| (dollars in thousands) | Outstanding | Outstanding | |
| Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
| Consumer | 3 | $32 | $32 |
| Total | 3 | $32 | $32 |
December 31, 2017 | |||
Pre-Modification | Post-Modification | ||
| (dollars in thousands) | Outstanding | Outstanding | |
| Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
| Real Estate | 1 | $67 | $67 |
| Construction/Land Development | 2 | 1,502 | 1,502 |
| Total | 3 | $1,569 | $1,569 |
The following table shows, by modification type, TDRs that occurred during 2022 and 2021 (dollars in thousands):
|
| December 31, 2022 |
| |||||||||
|
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Extended maturity |
|
| 3 |
|
| $ | 44 |
|
| $ | 44 |
|
Change in terms |
|
| 1 |
|
| $ | 162 |
|
| $ | 162 |
|
Total |
|
| 4 |
|
| $ | 206 |
|
| $ | 206 |
|
|
| December 31, 2021 |
| |||||||||
|
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Change in terms |
|
| 3 |
|
| $ | 1,080 |
|
| $ | 1,080 |
|
Total |
|
| 3 |
|
| $ | 1,080 |
|
| $ | 1,080 |
|
| 61 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
Note 6 Bank modified 6 loans that were considered to be troubled debt restructurings. These modifications included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.
December 31, 2016 | |||
Pre-Modification | Post-Modification | ||
| (in thousands) | Outstanding | Outstanding | |
| Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
| Real Estate | 2 | $141 | $141 |
| Consumer | 4 | 39 | 39 |
| Total | 6 | $180 | $180 |
Bank premises and equipment as of December 31 are summarized as follows:
2017 | 2016 | |
| Land | $3,883 | $3,091 |
| Buildings and improvements | 12,384 | 7,877 |
| Furniture and equipment | 9,454 | 8,257 |
25,721 | 19,225 | |
| Less - accumulated depreciation | (9,827) | (8,885) |
| Net | $15,894 | $10,340 |
|
| 2022 |
|
| 2021 |
| ||
Land |
| $ | 4,115 |
|
| $ | 4,115 |
|
Buildings and improvements |
|
| 16,040 |
|
|
| 15,956 |
|
Furniture and equipment |
|
| 13,483 |
|
|
| 10,052 |
|
|
|
| 33,638 |
|
|
| 30,123 |
|
Less ‑ accumulated depreciation |
|
| (14,051 | ) |
|
| (13,060 | ) |
Net |
| $ | 19,587 |
|
| $ | 17,063 |
|
Depreciation of $930$1.1 million in 2017, $8272022 and $1.2 million in 2016, and $727 in 2015 were2021 was charged to operations.
NOTE 9
The table below reflects other real estate owned (OREO) activity for 20172022 (dollars in thousands). There was no OREO activity in 2021.
2022 | ||||
Balance as of January 1 | $ | - | ||
Loans transferred to OREO | 197 | |||
Sale of OREO | (138 | ) | ||
Write down of OREO and losses on sale | (59 | ) | ||
Balance as of December 31 | $ | - | ||
Activity in the valuation allowance was as follows: | 2022 | |||
Balance as of January 1 | $ | - | ||
Provision charged to expense | - | |||
Reductions from sales of real estate owned | - | |||
Balance as of December 31 | $ | - | ||
(Income) expenses related to foreclosed assets include:
|
| 2022 |
| |
Net loss on sales |
| $ | 59 |
|
(Income) expenses related to foreclosed assets |
| $ | 59 |
|
There were no real estate owned properties at December 31, 2022 and 2016:
Other Real Estate Owned | ||
2017 | 2016 | |
| Balance as of January 1 | $2,076 | $2,128 |
| Loans transferred to OREO | 231 | 566 |
| Capital improvements | 2 | 24 |
| Sale of OREO | (281) | (623) |
| Write down of OREO or losses on sale | (44) | (19) |
| Balance as of December 31 | $1,984 | $2,076 |
NOTE 10 DEPOSITS:
Time deposits that meet or exceed the FDIC insurance limit of $250 thousand at year end 20172022 and 20162021 were $13,637$12.7 million and $7,841.$12.4 million. At December 31, 2017,2022, the scheduled maturities of all time deposits are as follows:
| 2018 | $66,749 |
| 2019 | 51,434 |
| 2020 | 30,151 |
| 2021 | 9,296 |
| 2022 and after | 7,640 |
| Total | $165,270 |
2023 |
| $ | 67,295 |
|
2024 |
|
| 31,265 |
|
2025 |
|
| 12,979 |
|
2026 |
|
| 4,755 |
|
2027 |
|
| 2,898 |
|
Thereafter |
|
| - |
|
Total |
| $ | 119,192 |
|
| 62 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 11
Short-term debt, all maturing within 12 months, as of December 31, 2017 and 20162022 is summarized as follows:
Outstanding | Average | |||
Maximum Outstanding | At | Balance | ||
at any Month End | Year End | Outstanding | Yield | |
| 2017 | ||||
| Federal funds purchased | $8,964 | $5,296 | $97 | .17% |
| FHLB short term | 50,000 | 20,000 | 20,301 | .30% |
| Totals | $25,296 | $20,398 | .31% | |
| 2016 | ||||
| Federal funds purchased | $11,421 | $- | $637 | .98% |
| FHLB short term | 50,000 | 40,000 | 34,740 | .12% |
| Securities sold under agreements to repurchase | 4,272 | - | 2,133 | .25% |
| Totals | $40,000 | $37,510 | .15% |
|
| Highest Month- End Balance |
|
| Outstanding at Year End |
|
| Average Balance |
|
| Weighted Average Rate |
| ||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds purchased |
| $ | 1,989 |
|
| $ | - |
|
| $ | 883 |
|
|
| 2.99 | % |
FHLB short-term |
|
| 70,000 |
|
|
| 70,000 |
|
|
| 25,241 |
|
|
| 2.81 | % |
Totals |
|
|
|
|
| $ | 70,000 |
|
| $ | 26,124 |
|
|
| 2.82 | % |
The Company utilizes short-term debt such as Federal funds purchased and Federal Home Loan Bank of Atlanta (FHLB) short termFHLB short-term borrowings to support the loans held for sale participation programloan growth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short termshort-term debt which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the needneeds of the Company.
As of December 31, 2017,2022, the Company had unsecured lines of credit with correspondent banks totaling $41,000,$90.0 million which may be used in the management of short-term liquidity, inon which $5,296none was outstanding.
NOTE 12
At December 31, 2022 and December 31, 2021 long-term borrowings from the FHLB advance program to fund loan growthwere $0 and provide liquidity.$10.0 million, respectively. The interest rates on long-term debt are fixed at the time of the advance and range from 1.16% to 2.56%;advance; the weighted average interest rate was 1.86% and 1.80%.81% at December 31, 2017 and December 31, 2016, respectively.2021. The balance of these obligations at December 31, 2017 and 2016 were $49,554 and $63,982 respectively. The Company recognizedBank has a gain of $504 on prepayment of two FHLB advances totaling $10,000 during the first quarter of 2017 and there were no additional borrowings in 2017. FHLB advances include a $5,000 line$15.0 million letter of credit at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.
| 2018 | $9,428 |
| 2019 | 6,929 |
| 2020 | 14,429 |
| 2021 | 5,929 |
| 2022 | 2,714 |
| Thereafter | 10,125 |
| Total | $49,554 |
On July 29, 2020, the Company has a notesold and issued to certain institutional accredited investors $5.0 million in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”). The 2027 Notes bear interest at 5.75% per annum, payable semi-annually in arrears. On July 29, 2022 the Company redeemed the $5.0 million in 2027 notes.
The 2030 Notes bear interest at 6.00% per annum, beginning July 29, 2020 to purchase a lot adjacentbut excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to onean early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notes will mature on July 31, 2030. The subordinated notes, net of the Bank branches for $170issuance costs totaled $6.9 million and $11.8 million at December 31, 2017 that is payable in two remaining annual payments on January 1, 20182022 and 2019. There was $255 outstanding on this note at December 31, 2016.
| 63 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2017.
NOTE 13
The components of income tax expense were as follows:
2017 | 2016 | 2015 | |
| Current expense | $3,671 | $3,046 | $3,227 |
| Deferred expense (benefit) | (152) | 53 | (341) |
| Adjustments to deferred tax asset due to change in federal tax rate | 811 | - | - |
| Total deferred (benefit) expense | 659 | 53 | (341) |
| Total Income Tax Expense | $4,330 | $3,099 | $2,886 |
|
| 2022 |
|
| 2021 |
| ||
Current expense |
| $ | 571 |
|
| $ | 847 |
|
Deferred expense (benefit) |
|
| (91 | ) |
|
| 476 |
|
Total Income Tax Expense |
| $ | 480 |
|
| $ | 1,323 |
|
The components of deferred taxes as of December 31, were as follows:
2017 | 2016 | |
| Deferred Tax Assets: | ||
| Allowance for loan losses | $1,265 | $2,354 |
| Split Dollar Life Insurance | 3 | 4 |
| Nonqualified deferred compensation | 546 | 856 |
| Low income housing partnerships losses | 203 | 94 |
| Core deposit amortization | 108 | 165 |
| Other real estate owned | 173 | 280 |
| Unfunded pension benefit obligation | 1,096 | 1,633 |
| Total Assets | $3,394 | $5,386 |
2017 | 2016 | |
| Deferred Tax Liabilities: | ||
| Unearned low income housing credits | $180 | $307 |
| Depreciation | 340 | 437 |
| Prepaid pension | 1,010 | 1,840 |
| Goodwill tax amortization | 559 | 901 |
| Net unrealized gain (loss) on securities available for sale | (5) | 3 |
| Total Liabilities | 2 084 | 3,488 |
| Net Deferred Tax Asset (included in Other Assets on Balance Sheet) | $1,310 | $1,898 |
|
| 2022 |
|
| 2021 |
| ||
Deferred Tax Assets: |
|
|
|
|
|
| ||
Allowance for loan losses |
| $ | 1,667 |
|
| $ | 1,627 |
|
Split Dollar Life Insurance |
|
| 3 |
|
|
| 3 |
|
Nonqualified deferred compensation |
|
| 580 |
|
|
| 757 |
|
Low-income housing partnerships losses |
|
| 375 |
|
|
| 326 |
|
Core deposit amortization |
|
| 29 |
|
|
| 29 |
|
SBA fees |
|
| - |
|
|
| 47 |
|
Lease Liability |
|
| 170 |
|
|
| 172 |
|
Unfunded pension benefit obligation |
|
| - |
|
|
| 875 |
|
VST income |
|
| - |
|
|
| 2 |
|
Assets available for sale |
|
| - |
|
|
| 32 |
|
Prepaid pension |
|
| 45 |
|
|
| - |
|
Unvested restricted stock |
|
| 19 |
|
|
| - |
|
Net unrealized loss on securities available for sale |
|
| 10,753 |
|
|
| 479 |
|
Total Assets |
| $ | 13,641 |
|
| $ | 4,349 |
|
|
| 2022 |
|
| 2021 |
| ||
Deferred Tax Liabilities: |
|
|
|
|
|
| ||
Unearned low-income housing credits |
| $ | 34 |
|
| $ | 63 |
|
Depreciation |
|
| 506 |
|
|
| 567 |
|
Prepaid pension |
|
| - |
|
|
| 114 |
|
Unfunded pension benefit obligation |
|
| 117 |
|
|
| - |
|
Goodwill tax amortization |
|
| 583 |
|
|
| 576 |
|
Right of Use Asset |
|
| 165 |
|
|
| 149 |
|
Total Liabilities |
|
| 1,405 |
|
|
| 1,469 |
|
Net Deferred Tax Asset (included in Other Assets on Balance Sheet) |
| $ | 12,236 |
|
| $ | 2,880 |
|
The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rates:
2017 | 2016 | 2015 | |
| Tax expense at federal statutory rates | $4,511 | $4,307 | $3,843 |
| Increases (decreases) in taxes resulting from: | |||
| State income taxes, net of federal benefit | - | 6 | 8 |
| Partially tax-exempt income | (59) | (41) | (46) |
| Tax-exempt income | (212) | (217) | (223) |
| LIH and historic credits | (633) | (896) | (701) |
| Deferred Tax Asset rate change | 811 | ||
| Other | (88) | (60) | 5 |
| Total Income Tax Expense | $4,330 | $3,099 | $2,886 |
|
| 2022 |
|
| 2021 |
| ||
Tax expense at federal statutory rates |
| $ | 1,848 |
|
| $ | 2,533 |
|
Increases (decreases) in taxes resulting from: |
|
|
|
|
|
|
|
|
Tax-exempt income |
|
| (228 | ) |
|
| (172 | ) |
LIH and historic credits |
|
| (868 | ) |
|
| (913 | ) |
Other |
|
| (272 | ) |
|
| (125 | ) |
Total Income Tax Expense |
| $ | 480 |
|
| $ | 1,323 |
|
The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with accounting guidance related to income taxes.
| 64 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 14
Defined Benefit Pension Plan
The Company has a qualified noncontributory defined benefit pension plan which covers substantially all of its employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31st as the measurement date for the defined benefit pension plan.
The following table provides a reconciliation of the changes in the benefit obligations and fair value of plan assets for 2017, 20162022 and 2015:
2017 | 2016 | 2015 | |
| Change in Benefit Obligation | |||
| Benefit obligation, beginning | $12,475 | $10,944 | $10,777 |
| Service cost | 696 | 632 | 648 |
| Interest cost | 487 | 453 | 411 |
| Actuarial (gain) loss | 1,620 | 872 | (137) |
| Benefits paid | (175) | (426) | (754) |
| Benefit obligation, ending | $15,103 | $12,475 | $10,945 |
| Change in Plan Assets | |||
| Fair value of plan assets, beginning | $12,032 | $11,678 | $11,684 |
| Actual return on plan assets | 1,788 | 780 | (1) |
| Employer contribution | - | - | 750 |
| Benefits paid | (175) | (426) | (755) |
| Fair value of plan assets, ending | $13,645 | $12,032 | $11,678 |
| Funded status at the end of the year | $(1,458) | $(443) | $733 |
|
| 2022 |
|
| 2021 |
| ||
Change in Benefit Obligation |
|
|
|
|
|
| ||
Benefit obligation, beginning |
| $ | 15,557 |
|
| $ | 15,456 |
|
Service cost |
|
| 759 |
|
|
| 862 |
|
Interest cost |
|
| 415 |
|
|
| 379 |
|
Actuarial loss |
|
| (5,421 | ) |
|
| - |
|
Benefits paid |
|
| (1,145 | ) |
|
| (1,140 | ) |
Decrease in Obligation due to Curtailment |
|
| (2,154 | ) |
|
| - |
|
Benefit obligation, ending |
| $ | 8,011 |
|
| $ | 15,557 |
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning |
| $ | 11,235 |
|
| $ | 11,201 |
|
Actual return on plan assets |
|
| (2,303 | ) |
|
| 1,174 |
|
Benefits paid |
|
| (1,145 | ) |
|
| (1,140 | ) |
Fair value of plan assets, ending |
| $ | 7,787 |
|
| $ | 11,235 |
|
Funded status at the end of the year |
| $ | (224 | ) |
| $ | (4,322 | ) |
The fair value of plan assets is measured based on the fair value hierarchy as discussed in Note 20,17, “Fair Value Measurements” to the Consolidated Financial Statements. The valuations are based on third party data received as of the balance sheet date. All plan assets are considered Level 1 assets, as quoted prices exist in active markets for identical assets.
| 65 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 14
Defined Benefit Pension Plan, continued
2017 | 2016 | 2015 | |
| Amount recognized in the Consolidated Balance Sheet | |||
| Prepaid benefit cost | $3,760 | $4,361 | $4,799 |
| Unfunded pension benefit obligation under ASC 325-960 | (5,218) | (4,804) | (4,065) |
| Deferred taxes | 1,096 | 1,633 | 1,382 |
| Amount recognized in accumulated other | |||
| comprehensive income (loss) | |||
| Net loss | $(5,260) | $(4,861) | $(4,137) |
| Prior service cost | 42 | 57 | 72 |
| Amount recognized | (5,218) | (4,804) | (4,065) |
| Deferred taxes | 1,096 | 1,633 | 1,382 |
| Amount recognized in accumulated comprehensive income | $(4,122) | $(3,171) | $(2,683) |
| Prepaid benefit detail | |||
| Benefit obligation | $(15,103) | $(12,475) | $(10,945) |
| Fair value of assets | 13,645 | 12,032 | 11,678 |
| Unrecognized net actuarial loss | 5,260 | 4,861 | 4,138 |
| Unrecognized prior service cost | (42) | (57) | (72) |
| Prepaid (accrued) benefits | $3,760 | $4,361 | $4,799 |
| Components of net periodic benefit cost | |||
| Service cost | $696 | $632 | $648 |
| Interest cost | 487 | 452 | 411 |
| Expected return on plan assets | (851) | (854) | (839) |
| Amortization of prior service cost | (15) | (15) | (15) |
| Recognized net actuarial loss | 284 | 223 | 181 |
| Net periodic benefit cost | $601 | $438 | $386 |
| Other changes in plan assets and benefit obligations | |||
| recognized in other comprehensive income (loss) | |||
| Net loss | $399 | $724 | $522 |
| Amortization of prior service cost | 15 | 15 | 15 |
| Total recognized in other comprehensive income | $414 | $739 | $537 |
| Total recognized in net periodic benefit cost and other | |||
| comprehensive income (loss) | $1,015 | $1,177 | $923 |
| Additional disclosure information | |||
| Accumulated benefit obligation | $10,760 | $8,789 | $7,601 |
| Vested benefit obligation | $10,750 | $8,780 | $7,539 |
| Discount rate used for net pension cost | 4.00% | 4.25% | 4.00% |
| Discount rate used for disclosure | 3.50% | 4.00% | 4.25% |
| Expected return on plan assets | 7.25% | 7.50% | 7.50% |
| Rate of compensation increase | 3.00% | 3.00% | 3.00% |
| Average remaining service (years) | 12 | 13 | 13 |
|
| 2022 |
|
| 2021 |
| ||
Amount recognized in the Consolidated Balance Sheet |
|
|
|
|
|
| ||
(Accrued) prepaid benefit cost |
| $ | (780 | ) |
| $ | (156 | ) |
Over funded (unfunded) pension benefit obligation under ASC 325-960 |
|
| 556 |
|
|
| (4,166 | ) |
Deferred taxes |
|
| (995 | ) |
|
| 875 |
|
|
|
|
|
|
|
|
|
|
Amount recognized in accumulated other |
|
|
|
|
|
|
|
|
comprehensive income (loss) |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 556 |
|
| $ | (4,166 | ) |
Prior service cost |
|
| - |
|
|
| - |
|
Amount recognized |
|
| 556 |
|
|
| (4,166 | ) |
Deferred taxes |
|
| (117 | ) |
|
| 875 |
|
Amount recognized in accumulated comprehensive (loss) |
| $ | (439 | ) |
| $ | (3,291 | ) |
|
|
|
|
|
|
|
|
|
Accrued benefit detail |
|
|
|
|
|
|
|
|
Benefit obligation |
| $ | (8,011 | ) |
| $ | (15,557 | ) |
Fair value of assets |
|
| 7,787 |
|
|
| 11,235 |
|
Unrecognized net actuarial (income) loss |
|
| (556 | ) |
|
| 4,166 |
|
Accrued benefits |
| $ | (780 | ) |
| $ | (156 | ) |
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
Service cost |
| $ | 758 |
|
| $ | 862 |
|
Interest cost |
|
| 415 |
|
|
| 379 |
|
Expected return on plan assets |
|
| (781 | ) |
|
| (791 | ) |
Recognized net actuarial loss |
|
| 232 |
|
|
| 289 |
|
Net periodic benefit cost |
| $ | 624 |
|
| $ | 739 |
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations |
|
|
|
|
|
|
|
|
recognized in other comprehensive (income) loss |
|
|
|
|
|
|
|
|
Net gain |
| $ | (4,722 | ) |
| $ | (671 | ) |
Amortization of prior service cost |
|
| - |
|
|
| - |
|
Total recognized in other comprehensive income |
| $ | (4,722 | ) |
| $ | (671 | ) |
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other |
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
| $ | (4,098 | ) |
| $ | 67 |
|
|
|
|
|
|
|
|
|
|
Additional disclosure information |
|
|
|
|
|
|
|
|
Accumulated benefit obligation |
| $ | 8,011 |
|
| $ | 11,473 |
|
Vested benefit obligation |
| $ | 8,011 |
|
| $ | 11,473 |
|
Discount rate used for net pension cost |
|
| 2.75 | % |
|
| 2.50 | % |
Discount rate used for disclosure |
|
| 5.00 | % |
|
| 2.75 | % |
Expected return on plan assets |
|
| 7.25 | % |
|
| 7.25 | % |
Rate of compensation increase |
|
| 3.00 | % |
|
| 3.00 | % |
Average remaining service (years) |
|
| 10.89 |
|
|
| 11.26 |
|
| 66 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 20172022 and 2016
NOTE 14
Funding Policy
Due to the current funding status of the plan, the Company did not make a contribution in 20172022 or 2016. The Company’s contributions for 2015 was $750,000.2021. The net periodic pension cost of the plan for 20182023 will be approximately $629.
Long-Term Rate of Return
The Company, as plan sponsor, selects the expected long-term rate of return on assets assumption in consultation with investment advisors and the plan actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation) for the major asset classes held or anticipated to be held by the trust. Undue weight is not given to recent experience, which may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.
Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, and solely for this purpose, the plan is assumed to continue in force and not terminate during the period during which the assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).
Asset Allocation
The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of 39% fixed income and 61% equity. The Investment Manager selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the Plan’s investment strategy. The Investment Manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure. The pension plan’s allocations as of December 31, 2017,2022 and 20162021 were 61% equity38% fixed income and 39% fixed and 61% equity and 39% fixed, respectively.
Estimated Future Benefit Payments, which reflect expected future service, as appropriate, as of December 31, 2017,2022, are as follows:
| 2018 | $1,862 |
| 2019 | 698 |
| 2020 | 264 |
| 2021 | 179 |
| 2022 | 2,867 |
| 2023-2027 | 7,151 |
$13,021 |
2023 |
| $ | 1,252 |
|
2024 |
|
| 48 |
|
2025 |
|
| 548 |
|
2026 |
|
| 998 |
|
2027 |
|
| 1,223 |
|
2028-2032 |
|
| 2,587 |
|
|
| $ | 6,656 |
|
Employee Stock Ownership Plan (ESOP)
The Company sponsors an ESOP which provides stock ownership to substantially all employees of the Company. The Plan provides total vesting upon the attainment of five years of service. Contributions to the plan are made at the discretion of the Board of Directors and are allocated based on the compensation of each employee relative to total compensation paid by the Company. All shares issued and held by the Plan are considered outstanding in the computation of earnings per share. Dividends on Company stock are allocated and paid to participants at least annually. Shares of Company stock, when distributed, have restrictions on transferability. For the plan year ending September 30, 2017 theThe Company contributed $430$400 thousand in 2017, $4072022 and $472 thousand in 2016, and $270 in 20152021 to the Plan and charged this expense to operations. The shares held by the ESOP totaled 194,018170,905 and 190,271158,905 at December 31, 20172022 and 2016,2021, respectively.
| 67 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20162022 and 2015
NOTE 14
401(k) Plan
The Company sponsors a 401(k) savings plan under which eligible employees may choose to save up to 20 percent of their salary on a pretax basis, subject to certain IRS limits. Under the Federal Safe Harbor rules employees are automatically enrolled at 3% (in the third year this(this increases by 1% per year up to 6%) of their salary unless elected otherwise. The Company matches one hundred percent of the first 1% contributed by the employee and fifty percent from 2% to 6% of employee contributions. Vesting in the contributions made by the Company is 100% after two years of service. Contributions under the plan amounted to $263, $242$475 thousand and $212$444 thousand in 2017, 20162022 and 2015,2021, respectively.
Deferred Compensation Plan
The Company has a nonqualified deferred compensation plan for several of its key employees and directors. The Company may make annual contributions to the plan, and the employee or director has the option to defer a portion of their salary or bonus based on qualifying annual elections. Contributions to the plan totaled $187 thousand in 2022 and $125 thousand in 2017, $125 in 2016 and $110 in 2015.2021. A liability is accrued for the obligation under the plan and totaled $3,377$3.4 million and $2,767$3.9 million at December 31, 20172022 and 2016,2021, respectively.
Investments in Life Insurance Contracts
The Bank currently offers a variety of benefit plans to all full-time employees. While theThe costs of these plans are generally tax deductible to the Bank, the cost has been escalating greatly in recent years. ToBank; however, to help offset escalatingthe benefit costs and to attract and retain qualified employees, the Bank purchased Bank Owned Life Insurance (BOLI) contracts that will provide benefits to employees during their lifetime. Dividends received on these policies are tax-deferred and the death benefits under the policies are tax exempt. Rates of return on a tax-equivalent basis are very favorable when compared to other long-term investments which the Bank might make. The accrued liability related to the BOLI contracts was $443$729 thousand and $412$669 thousand for December 31, 20172022 and 2016,2021, respectively.
Stock Incentive Plan
The Company has a Stock Incentive Plan, which was designed to further the long-term stability and financial success of the Company by attracting and retaining personnel, including employees, directors, and consultants, using stock and stock-based incentives. The plan was adopted by the Company’s Board, effective upon shareholder approval on May 2, 2020 and will expire on March 18, 2030. The plan provides for the granting of an option, restricted stock, restricted stock unit, stock appreciation right, or stock award to employees, directors, and consultants. It authorizes the issuance of up to 200,000 shares of the Company’s common stock.
The Company’s Compensation Committee of the Board of Directors administers the plan including designating employees, directors, or other recipients to whom awards are to be granted, the amount of the award or equity to be granted, and the terms and conditions applicable to each award. On March 7, 2023, the Company’s Compensation Committee awarded 23,556 shares with a fair value of $526 thousand from this plan to selected employees. These shares vest 25% over each of the next four years. The Committee also awarded 1,309 shares with a fair value of $29 thousand to directors. These shares vested upon issuance. As of December 31, 2022 and 2021 the total unrecognized compensation cost related to the nonvested restricted stock awards were $580 thousand and $338 thousand, respectively.
The following table summarizes the status of the Company’s nonvested awards for the year ended December 31, 2022:
|
| Shares |
|
| Weighted-Average Grant Date Fair Value Per Share |
| ||
Nonvested at December 31, 2021 |
|
| 15,869 |
|
| $ | 26.78 |
|
Granted |
|
| 18,908 |
|
|
| 30.85 |
|
Vested |
|
| (5,265 | ) |
|
| 27.72 |
|
Forfeited |
|
| (3,056 | ) |
|
| 29.05 |
|
Nonvested at December 31, 2022 |
|
| 26,456 |
|
|
| 29.24 |
|
| 68 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 15
The Company had cash deposits in other commercial banks in excess of FDIC insurance limits totaling $1,798$4.6 million and $680$3.9 million at December 31, 20172022 and 2016,2021, respectively.
The Company grants commercial, residential real estate and consumer loans to customers located primarily in the northwestern portion of the StateShenandoah Valley of Virginia. There were no loan concentration areas greater than 25% of capital. Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the financial condition of the borrower. As of December 31, 2017,2022, approximately 80%74% of the loan portfolio was secured by real estate.
NOTE 16
The Company makes commitments to extend credit in the normal course of business and issues standby letters of credit to meet the financing needs of its customers. The amount of the commitments represents the Company's exposure to credit loss that is not included in the consolidated balance sheet. As of the December 31, 20172022 and 2016,2021, the Company had the following commitments outstanding:
2017 | 2016 | |
| Commitments to extend credit | $170,798 | $148,060 |
| Standby letters of credit | 1,533 | 1,089 |
|
| 2022 |
|
| 2021 |
| ||
Commitments to extend credit |
| $ | 265,976 |
|
| $ | 257,229 |
|
Standby letters of credit |
|
| 2,696 |
|
|
| 2,818 |
|
The Company uses the same credit policies in making commitments to extend credit and issue standby letters of credit as it does for the loans reflected in the consolidated balance sheet.
Commitments to extend credit are agreements to lend to a customer as long asif there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Collateral required, if any, upon extension of credit is based on management's credit evaluation of the borrower’s ability to pay. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment.
| 2018 | $177 |
| 2019 | 150 |
| 2020 | 128 |
| 2021 | 110 |
| 2022 | 105 |
NOTE 17
Mortgage Banking Derivatives
Loans Held for Sale
The Company, has stand alone derivative financial instrumentsthrough the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential mortgage loans for sale in the form of forward option contracts. These transactions involve both credit and market risk. The notional amountssecondary market. Residential mortgage loans held for sale are amounts on which calculations, payments, andsold to the permanent investor with the mortgage servicing rights released. Fair value of the derivativeCompany’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business total $1.4 million as of December 31, 2022 of which $1.4 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.
Interest Rate Lock Commitments and Forward Sales Commitments
The Company, through F&M Mortgage Company, enters commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limitedderivatives. Upon entering a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).
| 69 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the net difference betweenConsolidated Financial Statements
December 31, 2022 and 2021
NOTE 15 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, CONTINUED
The Company locks in the calculated amountsloan and rate with an investor and commits to be receiveddeliver the loan if settlement occurs on a best-efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and paid, if any. Such difference, which representsthe size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate loan commitments will close.
The fair value of these derivative instruments is reflectedreported in “Other liabilities” in the Consolidated Balance Sheet at December 31, 2022, and totaled $92 thousand, with a notional amount of $12.2 million and total positions of 38. The fair value of the IRLCs at December 31, 2021 totaled $258 thousand, with a notional amount of $18.8 million and total positions of 70. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended December 31, 2021. The Company’s IRLCs are classified as Level 2. At December 31, 2022 and 2021, each IRLC and all LHFS were subject to a forward sales commitment on the Company’s balance sheet as derivative assets and derivative liabilities.
The Company is exposeduses fair value accounting for its forward sales commitments related to credit-related lossesIRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the eventConsolidated Balance Sheet at December 31, 2022 totaled $186 thousand, with a notional amount of nonperformance by$13.6 million and total positions of 43. The fair value of forward sales commitments is reported in “Other Assets” in the counterparties to these agreements. TheConsolidated Balance Sheet at December 31, 2021, and totaled $112 thousand, with a notional amount of $23.7 million and total positions of 91.
Derivative Financial Instruments
In the past, the Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations. The Company deals only with primary dealers.
At December 31, the information pertaining to the forward option contracts, included in other assets and other liabilities on the balance sheet, is as follows:
2017 | 2016 | |
| Notional amount | $184 | $190 |
| Fair value of contracts, included in other assets | 59 | 26 |
|
| 2022 |
|
| 2021 |
| ||
Notional amount |
| $ | - |
|
| $ | 7 |
|
Fair value of contracts, included in other assets |
|
| - |
|
|
| 3 |
|
The last certificate of deposit matured in April 2022 and the secondary market and best efforts commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the practice of VBS to enter into best efforts commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated hedge relationships. The fair value of the mortgage banking derivatives were estimated based on changes in interest rates from the date of the commitments and were considered immaterial at December 31, 2017 and 2016, and were not recorded on the Company’s balance sheet.
NOTE 18
Executive officers, directors and their affiliates are customers of the year, executive officers and directors (and companies controlled by them) were customers ofBank and had transactions with the Company in the normal course of business. Management believes these transactions were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.
| 70 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 16 TRANSACTIONS WITH RELATED PARTIES, CONTINUED
Loan transactions with related parties are shown in the following schedule:
2017 | 2016 | |
| Total loans, beginning of year | $7,486 | $7,180 |
| New loans | 6,803 | 4,701 |
| Relationship change | 10,403 | 611 |
| Repayments | (4,315) | (5,006) |
| Total loans, end of year | $20,377 | $7,486 |
|
| 2022 |
|
| 2021 |
| ||
Total loans, beginning of year |
| $ | 23,379 |
|
| $ | 22,685 |
|
New loans |
|
| 5,073 |
|
|
| 6,506 |
|
Relationship changes |
|
| (75 | ) |
|
| (98 | ) |
Repayments |
|
| (5,950 | ) |
|
| (5,714 | ) |
Total loans, end of year |
| $ | 22,427 |
|
| $ | 23,379 |
|
Deposits of executive officers, and directors and their affiliates were $7,757$9.2 million and $4,524$8.8 million on December 31, 20172022 and 20162021, respectively. Management believes these deposits were made under the same terms available to other customers of the bank.
NOTE 19
Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
Level 1 – | Valuation is based on quoted prices in active markets for identical assets and liabilities. | ||
Level 2 – | Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. | ||
Level 3 – | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities, such as U. S. Treasuries.equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
The carrying value of restricted Federal Reserve BankFRB and Federal Home Loan BankFHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.
Loans Held for Sale
The Company uses the fair value accounting for its entire portfolio of originated loans held for sale in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s originated loans held for sale through F&M Mortgage is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale through F&M Mortgage is classified as Level 2. Gains and losses on the sale of loans are recorded within mortgage banking income on the Consolidated Statements of Income.
| 71 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 17 FAIR VALUE MEASUREMENTS, CONTINUED
Derivative assets – IRLCs
The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate lock commitments will close. The Company’s IRLCs are classified as Level 2.
Derivative Asset/Liability – Forward Sale Commitments
The Company uses the fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best-efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best-efforts commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale. The Company’s forward sale commitments are classified Level 2.
Derivative Asset/Liability – Indexed Certificate of Deposit
The Company’s derivatives, which are associated with the Indexed Certificate of Deposit (ICD) product once offered, are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs.
The following tables present the balances of financial assets measured at fair value on a recurring basis as of December 31, 2017,2022, and 20162021 (dollars in thousands):
| December 31, 2017 | Total | Level 1 | Level 2 | Level 3 |
| U. S. Treasuries | $19,998 | $19,998 | $- | $- |
| U.S. Government sponsored enterprises | 7,980 | - | 7,980 | - |
| Mortgage-backed obligations of federal agencies | 502 | - | 502 | - |
| Equity securities | 135 | - | 135 | - |
| Total securities available for sale | $28,615 | $19,998 | $8,617 | - |
| December 31, 2016 | Total | Level 1 | Level 2 | Level 3 |
| U. S. Treasuries | $24,014 | $24,014 | $- | $- |
| Mortgage-backed obligations of federal agencies | 634 | - | 634 | - |
| Equity securities | 135 | - | 135 | - |
| Total securities available for sale | $24,783 | $24,014 | $769 | - |
December 31, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
| ||||||||||
Loans held for sale, F&M Mortgage |
| $ | 1,373 |
|
| $ | - |
|
| $ | 1,373 |
|
| $ | - |
|
U. S. Treasury securities |
|
| 36,643 |
|
|
| - |
|
|
| 36,643 |
|
|
| - |
|
U.S. Government sponsored enterprises |
|
| 129,748 |
|
|
| - |
|
|
| 129,748 |
|
|
| - |
|
Securities issued by States and political subdivisions of the US |
|
| 42,198 |
|
|
| - |
|
|
| 42,198 |
|
|
| - |
|
Mortgage-backed obligations of federal agencies |
|
| 156,875 |
|
|
| - |
|
|
| 156,875 |
|
|
| - |
|
Corporate debt securities |
|
| 26,631 |
|
|
| - |
|
|
| 26,631 |
|
|
| - |
|
Forward sales commitments |
|
| 186 |
|
|
| - |
|
|
| 186 |
|
|
| - |
|
Assets at Fair Value |
| $ | 393,654 |
|
| $ | - |
|
| $ | 393,654 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLC |
| $ | 92 |
|
| $ | - |
|
| $ | 92 |
|
| $ | - |
|
Liabilities at Fair Value |
| $ | 92 |
|
| $ | - |
|
| $ | 92 |
|
| $ | - |
|
| 72 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 17 FAIR VALUE MEASUREMENTS, CONTINUED
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
| ||||||||||
Loans held for sale, F&M Mortgage |
| $ | 4,887 |
|
| $ | - |
|
| $ | 4,887 |
|
| $ | - |
|
IRLC |
|
| 258 |
|
|
| - |
|
|
| 258 |
|
|
| - |
|
U. S. Treasury securities |
|
| 29,482 |
|
|
| - |
|
|
| 29,482 |
|
|
| - |
|
U.S. Government sponsored enterprises |
|
| 133,714 |
|
|
| - |
|
|
| 133,714 |
|
|
| - |
|
Securities issued by States and political subdivisions of the US |
|
| 34,337 |
|
|
| - |
|
|
| 34,337 |
|
|
| - |
|
Mortgage-backed obligations of federal agencies |
|
| 183,647 |
|
|
| - |
|
|
| 183,647 |
|
|
| - |
|
Corporate debt securities |
|
| 22,702 |
|
|
| - |
|
|
| 22,702 |
|
|
| - |
|
Forward sales commitments |
|
| 112 |
|
|
| - |
|
|
| 112 |
|
|
| - |
|
Assets at Fair Value |
| $ | 409,139 |
|
| $ | - |
|
| $ | 409,139 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – ICD |
| $ | 3 |
|
| $ | - |
|
| $ | 3 |
|
| $ | - |
|
Liabilities at Fair Value |
| $ | 3 |
|
| $ | - |
|
| $ | 3 |
|
| $ | - |
|
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:
Assets Held for Sale
Assets held for sale were carriedtransferred from bank premises at cost. Becausethe lower of the short-term nature and fixed repurchase price, the book value of these loans approximatescost less accumulated depreciation or fair value at December 31, 2017,the date of transfer. The Company evaluates the value of assets held for sale and 2016.
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructuringsTDRs are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.
The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.
| 73 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 2017 FAIR VALUE MEASUREMENTS, (CONTINUED):
Impaired Loans, continued
Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Mostreceivable; most collateral is real estate.
The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach. The Company discounts the appraised value by estimated selling costs to arrive at net fair value. Appraisals conducted by an independent, licensed appraiser outside of the Company using observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of December 31, 2017,2022 and 2016,2021, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.
The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):
| December 31, 2017 | Total | Level 1 | Level 2 | Level 3 |
| Construction/Land Development | $3,337 | - | - | $3,337 |
| Real Estate | 979 | - | - | 979 |
| Dealer Finance | 35 | - | - | 35 |
| Impaired loans | $4,351 | - | - | $4,351 |
| December 31, 2016 | Total | Level 1 | Level 2 | Level 3 |
| Construction/Land Development | $4,739 | - | - | $4,739 |
| Real Estate | 985 | - | - | 985 |
| Commercial Real Estate | 892 | - | - | 892 |
| Dealer Finance | 67 | - | - | 67 |
| Impaired loans | $6,683 | - | - | $6,683 |
December 31, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Construction/Land Development |
| $ | 293 |
|
| $ | - |
|
| $ | - |
|
| $ | 293 |
|
Real Estate |
|
| 1,286 |
|
|
| - |
|
|
| - |
|
|
| 1,286 |
|
Commercial Real Estate |
|
| 969 |
|
|
| - |
|
|
| - |
|
|
| 969 |
|
Dealer Finance |
|
| 42 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
Impaired loans |
| $ | 2,590 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,590 |
|
Bank premises held for sale |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Real Estate |
| $ | 1,053 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,053 |
|
Commercial Real Estate |
|
| 5,401 |
|
|
| - |
|
|
| - |
|
|
| 5,401 |
|
Dealer Finance |
|
| 81 |
|
|
| - |
|
|
| - |
|
|
| 81 |
|
Impaired loans |
| $ | 6,535 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,535 |
|
Bank premises held for sale |
| $ | 300 |
|
| $ | - |
|
| $ | - |
|
| $ | 300 |
|
The following table presents information about Level 3 Fair Value Measurements for December 31, 20172022 and 2016:
Fair Value at December 31, | Valuation Technique | Significant Unobservable Inputs | |||||||||
Range | |||||||||||
Impaired Loans | $ | 2,590 thousand | Discounted appraised value | Discount for selling costs and marketability | 10.00%-33.00% (Average | ||||||
Fair Value at December 31, | Valuation Technique | Significant Unobservable Inputs | |||||||||
Range | |||||||||||
Impaired Loans | $ | 6,535 thousand | Discounted appraised value | Discount for selling costs and marketability | 11.76%-28.00% (Average | ||||||
| 74 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 2017 FAIR VALUE MEASUREMENTS, (CONTINUED):
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate ownedOREO is determined using current appraisals from independent parties, a level three input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.
The Company markets other real estate ownedOREO both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.
The Company did not have any OREO at December 31, 2022 and 2021.
The following table summarizespresents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s other real estate owned that were measured at fair value on a nonrecurring basis during the period.
| December 31, 2017 | Total | Level 1 | Level 2 | Level 3 |
| Other real estate owned | $1,984 | - | - | $1,984 |
| December 31, 2016 | Total | Level 1 | Level 2 | Level 3 |
| Other real estate owned | $2,076 | - | - | $2,076 |
Fair Value Measurements at December 31, 2017 Using | |||||
| (dollars in thousands) | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at December 31, 2016 |
| Assets: | |||||
| Cash and cash equivalents | $11,907 | $11,907 | $- | $- | $11,907 |
| Securities | 28,740 | 19,998 | 8,742 | - | 28,740 |
| Loans held for sale | 39,775 | - | 39,775 | - | 39,775 |
| Loans held for investment, net | 610,930 | - | - | 646,703 | 646,703 |
| Interest receivable | 2,007 | - | 2,007 | - | 2,007 |
| Bank owned life insurance | 13,950 | - | 13,950 | - | 13,950 |
| Total | $707,309 | $31,905 | $64,474 | $646,703 | $743,082 |
| Liabilities: | |||||
| Deposits | $569,177 | $- | $403,907 | $167,210 | $571,117 |
| Short-term debt | 25,296 | - | 25,296 | - | 25,296 |
| Long-term debt | 49,733 | - | - | 49,869 | 49, 869 |
| Interest payable | 260 | - | 260 | - | 260 |
| Total | $644,466 | $- | $429,463 | $217,079 | $646,542 |
The estimated fair values, and related carrying amounts, (in thousands), of the Company’s financial instruments are as follows:
Fair Value Measurements at December 31, 2016 Using | |||||
| (dollars in thousands) | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at December 31, 2016 |
| Assets: | |||||
| Cash and cash equivalents | $16,355 | $16,355 | $- | $- | $16,355 |
| Securities | 24,908 | 24,014 | 894 | - | 24,908 |
| Loans held for sale | 62,735 | - | 62,735 | - | 62,735 |
| Loans held for investment, net | 584,093 | - | - | 598,991 | 598,991 |
| Interest receivable | 1,785 | - | 1,785 | - | 1,785 |
| Bank owned life insurance | 13,513 | - | 13,513 | - | 13,513 |
| Total | $703,389 | $40,369 | $78,927 | $598,991 | $718,287 |
| Liabilities: | |||||
| Deposits | $537,085 | $- | $379,857 | $158,073 | $537,930 |
| Short-term debt | 40,000 | - | 40,000 | - | 40,000 |
| Long-term debt | 64,237 | - | - | 63,945 | 63,945 |
| Interest payable | 228 | - | 228 | - | 228 |
| Total | $641,550 | $- | $420,085 | $222,018 | $642,103 |
Fair Value Measurements at December 31, 2022 Using | ||||||||||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Fair Value at December 31, 2022 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 34,953 |
|
| $ | 34,953 |
|
| $ | - |
|
| $ | - |
|
| $ | 34,953 |
|
Securities |
|
| 392,220 |
|
|
| - |
|
|
| 392,220 |
|
|
| - |
|
|
| 392,220 |
|
Loans held for sale |
|
| 1,373 |
|
|
| - |
|
|
| 1,373 |
|
|
| - |
|
|
| 1,373 |
|
Loans held for investment, net |
|
| 743,604 |
|
|
| - |
|
|
| - |
|
|
| 720,806 |
|
|
| 720,806 |
|
Interest receivable |
|
| 3,995 |
|
|
| - |
|
|
| 3,995 |
|
|
| - |
|
|
| 3,995 |
|
Bank owned life insurance |
|
| 23,554 |
|
|
| - |
|
|
| 23,554 |
|
|
| - |
|
|
| 23,554 |
|
Forward sales commitments |
|
| 186 |
|
|
| - |
|
|
| 186 |
|
|
| - |
|
|
| 186 |
|
Total |
| $ | 1,199,885 |
|
| $ | 34,953 |
|
| $ | 421,328 |
|
| $ | 720,806 |
|
| $ | 1,177,087 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 1,083,377 |
|
| $ | - |
|
| $ | 1,080,909 |
|
| $ | - |
|
| $ | 1,080,909 |
|
Short-term debt |
|
| 70,000 |
|
|
| - |
|
|
| - |
|
|
| 70,000 |
|
|
| 70,000 |
|
Long-term debt |
|
| 6,890 |
|
|
| - |
|
|
| - |
|
|
| 6,778 |
|
|
| 6,778 |
|
IRLC |
|
| 92 |
|
|
| - |
|
|
| 92 |
|
|
| - |
|
|
| 92 |
|
Interest payable |
|
| 295 |
|
|
| - |
|
|
| 295 |
|
|
| - |
|
|
| 295 |
|
Total |
| $ | 1,160,654 |
|
| $ | - |
|
| $ | 1,081,296 |
|
| $ | 76,778 |
|
| $ | 1,158,074 |
|
| 75 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 21
Fair Value Measurements at December 31, 2021 Using | ||||||||||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Fair Value at December 31, 2021 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 88,121 |
|
| $ | 88,121 |
|
| $ | - |
|
| $ | - |
|
| $ | 88,121 |
|
Securities |
|
| 404,007 |
|
|
| - |
|
|
| 404,007 |
|
|
| - |
|
|
| 404,007 |
|
Loans held for sale |
|
| 4,887 |
|
|
| - |
|
|
| 4,887 |
|
|
| - |
|
|
| 4,887 |
|
IRLC |
|
| 258 |
|
|
| - |
|
|
| 258 |
|
|
| - |
|
|
| 258 |
|
Loans held for investment, net |
|
| 662,421 |
|
|
| - |
|
|
| - |
|
|
| 652,096 |
|
|
| 652,096 |
|
Interest receivable |
|
| 3,117 |
|
|
| - |
|
|
| 3,117 |
|
|
| - |
|
|
| 3,117 |
|
Bank owned life insurance |
|
| 22,878 |
|
|
| - |
|
|
| 22,878 |
|
|
| - |
|
|
| 22,878 |
|
Forward sales commitments |
|
| 112 |
|
|
| - |
|
|
| 112 |
|
|
| - |
|
|
| 112 |
|
Total |
| $ | 1,185,801 |
|
| $ | 88,121 |
|
| $ | 435,259 |
|
| $ | 652,096 |
|
| $ | 1,175,476 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 1,080,295 |
|
| $ | - |
|
| $ | 968,604 |
|
| $ | 123,718 |
|
| $ | 1,092,322 |
|
Long-term debt |
|
| 21,772 |
|
|
| - |
|
|
| - |
|
|
| 22,443 |
|
|
| 22,443 |
|
Interest payable |
|
| 491 |
|
|
| - |
|
|
| 491 |
|
|
| - |
|
|
| 491 |
|
Total |
| $ | 1,102,558 |
|
| $ | - |
|
| $ | 969,095 |
|
| $ | 146,161 |
|
| $ | 1,115,256 |
|
NOTE 18 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK
The Company meetsprincipal source of funds of F & M Bank Corp. is dividends paid by the eligibility criteriaBank. The Federal Reserve Act restricts the amount of a small bank holding company in accordance withdividends the Bank may pay. Approval by the Board of Governors of the Federal Reserve’s Small Bank Holding Company Policy Statement issuedReserve System is required if the dividends declared by a state member bank, in February 2015any year, exceed the sum of (1) net income of the current year and is no longer obligated to report consolidated regulatory capital. The Bank is subject to various regulatory capital requirements administered(2) income net of dividends for the preceding two years. As of January 1, 2023, approximately $18.9 million was available for dividend distribution without permission of the Board of Governors. Dividends paid by the federal banking agencies.Bank to the Company totaled $6.0 million in 2022 and $2.2 million in 2021.
NOTE 19 REGULATORY MATTERS
Banking regulators have established a uniform system to address the adequacy of capital for financial institutions. The rules require minimum capital levels based on risk-adjusted assets. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effectimpact on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer requirement is being phased in from 0.0%2.50%. The Company’s capital conservation buffer for 2015 to 2.50% by 2019.2022 was 5.64% and for 2021 was 7.00%. The capital conservation buffer for 2017 was 1.25% and for 2016 was 0.625%. The net unrealized gain on securities available for sale and the unfunded pension liabilityis designed to strengthen an institution’s financial resilience during economic cycles. Financial institutions are not included in computing regulatory capital.
| 76 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 19 REGULATORY MATTERS, CONTINUED
The minimum capital amounts and ratios. These ratios are defined in the regulations and the amounts are set forth in the table below. Management believes,below (dollars in thousands). The Bank has maintained capital levels far above the minimum requirements throughout the year, and as of December 31, 20172022 and 2016, that2021, the Bank meets all capital adequacy requirements to which they are subject.
Actual | Minimum Capital Requirement | Minimum to be Well Capitalized Under Prompt Corrective Action Provisions | ||||
| December 31, 2017 | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| Total risk-based ratio | $95,563 | 15.41% | $49,614 | 8.00% | $62,018 | 10.00% |
| Tier 1 risk-based ratio | 89,519 | 14.43% | 37,211 | 6.00% | 49,614 | 8.00% |
| Common equity tier 1 | 89,519 | 14.43% | 27,908 | 4.50% | 40,312 | 6.50% |
| Total assets leverage ratio | 89,519 | 12.07% | 29,656 | 4.00% | 37,070 | 5.00% |
Actual | Minimum Capital Requirement | Minimum to be Well Capitalized Under Prompt Corrective Action Provisions | ||||
| December 31, 2016 | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| Total risk-based ratio | $93,519 | 15.08% | $49,615 | 8.00% | $62,019 | 10.00% |
| Tier 1 risk-based ratio | 85,976 | 13.86% | 37,212 | 6.00% | 49,615 | 8.00% |
| Common equity tier 1 | 85,976 | 13.86% | 27,909 | 4.50% | 40,312 | 6.50% |
| Total assets leverage ratio | 85,976 | 11.83% | 29,065 | 4.00% | 36,331 | 5.00% |
|
| Actual |
|
| Minimum Capital Requirement |
|
| Minimum to be Well Capitalized Under Prompt Corrective Action Provisions |
| |||||||||||||||
December 31, 2022 |
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
Total risk-based ratio |
| $ | 114,455 |
|
|
| 13.64 | % |
| $ | 67,124 |
|
|
| 8.00 | % |
| $ | 83,905 |
|
|
| 10.00 | % |
Tier 1 risk-based ratio |
|
| 106,519 |
|
|
| 12.70 | % |
|
| 50,343 |
|
|
| 6.00 | % |
|
| 67,124 |
|
|
| 8.00 | % |
Common equity tier 1 |
|
| 106,519 |
|
|
| 12.70 | % |
|
| 37,757 |
|
|
| 4.50 | % |
|
| 54,538 |
|
|
| 6.50 | % |
Tier 1 leverage ratio |
|
| 106,519 |
|
|
| 8.22 | % |
|
| 51,842 |
|
|
| 4.00 | % |
|
| 64,802 |
|
|
| 5.00 | % |
|
| Actual |
|
| Minimum Capital Requirement |
|
| Minimum to be Well Capitalized Under Prompt Corrective Action Provisions |
| |||||||||||||||
December 31, 2021 |
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
Total risk-based ratio |
| $ | 111,389 |
|
|
| 15.00 | % |
| $ | 59,425 |
|
|
| 8.00 | % |
| $ | 74,282 |
|
|
| 10.00 | % |
Tier 1 risk-based ratio |
|
| 103,641 |
|
|
| 13.95 | % |
|
| 44,569 |
|
|
| 6.00 | % |
|
| 59,425 |
|
|
| 8.00 | % |
Common equity tier 1 |
|
| 103,641 |
|
|
| 13.95 | % |
|
| 33,427 |
|
|
| 4.50 | % |
|
| 48,283 |
|
|
| 6.50 | % |
Tier 1 leverage ratio |
|
| 103,641 |
|
|
| 8.62 | % |
|
| 48,100 |
|
|
| 4.00 | % |
|
| 60,125 |
|
|
| 5.00 | % |
| 77 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 20 BUSINESS SEGMENTS
The following tables show the statement of operations and assets by segment as of December 31, 2022 and 2021 (dollars in thousands)
December 31, 2017 | |||||||
F&M Bank | VBS Mortgage | TEB Life/FMFS | VS Title | Parent Only | Eliminations | F&M Bank Corp. Consolidated | |
| Revenues: | |||||||
| Interest Income | $33,904 | $125 | $148 | $- | $- | $(82) | $34,095 |
| Service charges on deposits | 1,360 | - | - | - | - | - | 1,360 |
| Investment services and insurance income | 1 | - | 772 | - | - | (18) | 755 |
| Mortgage banking income, net | - | 2,220 | - | - | - | - | 2,220 |
| Title insurance income | - | 279 | - | 883 | - | - | 1,162 |
| Gain on prepayment of long-term debt | 504 | - | - | - | - | - | 504 |
| Loss on sale of investments | - | (40) | (2) | - | - | - | (42) |
| Other operating income | 2,128 | - | - | - | 162 | (357) | 1,933 |
| Total income | 37,897 | 2,584 | 918 | 883 | 162 | (457) | 41,987 |
| Expenses: | |||||||
| Interest Expense | 3,904 | 75 | - | - | - | (82) | 3,897 |
| Provision for loan losses | - | - | - | - | - | - | - |
| Salaries and benefits | 12,092 | 1,733 | 474 | 555 | - | - | 14,854 |
| Other operating expenses | 8,942 | 672 | 51 | 172 | 46 | (18) | 9,865 |
| Total expense | 24,938 | 2,480 | 525 | 727 | 46 | (100) | 28,616 |
| Income before income taxes | 12,959 | 104 | 393 | 156 | 116 | (357) | 13,371 |
| Income tax expense (benefit) | 4,316 | - | 109 | - | (95) | - | 4,330 |
| Net income | $8,643 | $104 | $284 | $156 | $211 | $(357) | $9,041 |
| Net income attributable to noncontrolling interest | - | 31 | - | - | - | - | 31 |
| Net Income attributable to F & M Bank Corp. | $8,643 | $73 | $284 | $156 | $211 | $(357) | $9,010 |
| Total Assets | $754,375 | $7,018 | $6,749 | $811 | $90,964 | $(106,647) | $753,270 |
| Goodwill | $2,670 | $47 | $- | $- | $164 | $- | $2,881 |
|
| December 31, 2022 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ | 42,066 |
|
| $ | 106 |
|
| $ | 34 |
|
| $ | - |
|
| $ | 46 |
|
| $ | (68 | ) |
| $ | 42,184 |
|
Service charges on deposits |
|
| 1,062 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,062 |
|
Investment services and insurance income |
|
| - |
|
|
| - |
|
|
| 894 |
|
|
| - |
|
|
| - |
|
|
| (11 | ) |
|
| 883 |
|
Mortgage banking income, net |
|
| - |
|
|
| 2,595 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (761 | ) |
|
| 1,834 |
|
Title insurance income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,578 |
|
|
| - |
|
|
| - |
|
|
| 1,578 |
|
Net investment securities losses |
|
| (2,852 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,852 | ) |
Gain on sale of limited partnership investment |
|
| - |
|
|
| - |
|
|
| 3,785 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,785 |
|
Other operating income |
|
| 3,343 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,344 |
|
Total income (loss) |
|
| 43,619 |
|
|
| 2,702 |
|
|
| 4,713 |
|
|
| 1,578 |
|
|
| 46 |
|
|
| (840 | ) |
|
| 51,818 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 6,567 |
|
|
| 35 |
|
|
| - |
|
|
| - |
|
|
| 711 |
|
|
| (68 | ) |
|
| 7,245 |
|
Provision for loan losses |
|
| 866 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 866 |
|
Salary and benefit expense |
|
| 15,897 |
|
|
| 2,430 |
|
|
| 456 |
|
|
| 1,249 |
|
|
| - |
|
|
| - |
|
|
| 20,032 |
|
Other operating expenses |
|
| 14,375 |
|
|
| 884 |
|
|
| 66 |
|
|
| 326 |
|
|
| (2 | ) |
|
| (772 | ) |
|
| 14,877 |
|
Total expense |
|
| 37,705 |
|
|
| 3,349 |
|
|
| 522 |
|
|
| 1,575 |
|
|
| 709 |
|
|
| (840 | ) |
|
| 43,020 |
|
Net income (loss) before taxes |
|
| 5,914 |
|
|
| (647 | ) |
|
| 4,191 |
|
|
| 3 |
|
|
| (663 | ) |
|
| - |
|
|
| 8,798 |
|
Income tax expense (benefit) |
|
| (229 | ) |
|
| - |
|
|
| 881 |
|
|
| - |
|
|
| (172 | ) |
|
| - |
|
|
| 480 |
|
Net Income (Loss) |
| $ | 6,143 |
|
| $ | (647 | ) |
| $ | 3,310 |
|
| $ | 3 |
|
| $ | (491 | ) |
| $ | - |
|
| $ | 8,318 |
|
Total Assets |
| $ | 1,250,185 |
|
| $ | 9,878 |
|
| $ | 3,897 |
|
| $ | 3,298 |
|
| $ | 77,994 |
|
| $ | (99,350 | ) |
| $ | 1,245,902 |
|
Goodwill |
| $ | 2,868 |
|
| $ | - |
|
| $ | - |
|
| $ | 3 |
|
| $ | 211 |
|
| $ | - |
|
| $ | 3,082 |
|
| 78 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 22
December 31, 2016 | |||||||
F&M Bank | VBS Mortgage | TEB Life/FMFS | VS Title | Parent Only | Eliminations | F&M Bank Corp. Consolidated | |
| Revenues: | |||||||
| Interest Income | $31,949 | $55 | $152 | $- | $- | $(6) | $32,150 |
| Service charges on deposits | 1,174 | - | - | - | - | - | 1,174 |
| Investment services and insurance income | 1 | - | 470 | - | - | (30) | 441 |
| Mortgage banking income, net | - | 2,565 | - | - | - | - | 2,565 |
| Title insurance income | - | - | - | - | - | - | - |
| Gain on prepayment of long-term debt | - | - | - | - | - | - | - |
| Loss on investments | - | - | - | - | - | - | - |
| Other operating income | 2,353 | - | - | - | - | (951) | 1,402 |
| Total income | 35,477 | 2,620 | 622 | - | - | (987) | 37,732 |
| Expenses: | |||||||
| Interest Expense | 3,605 | - | - | - | - | (6) | 3,599 |
| Provision for loan losses | - | - | - | - | - | - | - |
| Salaries and benefits | 11,123 | 1,387 | 290 | - | - | - | 12,800 |
| Other operating expenses | 8,139 | 586 | 66 | - | 1 | (320) | 8,472 |
| Total expense | 22,867 | 1,973 | 356 | - | 1 | (326) | 24,871 |
| Income before income taxes | 12,610 | 647 | 266 | - | (1) | (661) | 12,861 |
| Income tax expense (benefit) | 3,290 | - | 58 | - | (249) | - | 3,099 |
| Net income | $9,320 | $647 | $208 | $- | $248 | $(661) | $9,762 |
| Net income attributable to noncontrolling interest | - | 194 | - | - | - | - | 194 |
| Net Income attributable to F & M Bank Corp. | $9,320 | $453 | $208 | $- | $248 | $(661) | $9,568 |
| Total Assets | $748,273 | $7,487 | $6,476 | $- | $87,449 | $(104,796) | $744,889 |
| Goodwill | $2,670 | $- | $- | $- | $- | $- | $2,670 |
|
| December 31, 2021 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VSTitle |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ | 35,414 |
|
| $ | 198 |
|
| $ | 107 |
|
| $ | - |
|
| $ | 1 |
|
| $ | (144 | ) |
| $ | 35,576 |
|
Service charges on deposits |
|
| 1,133 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,133 |
|
Investment services and insurance income |
|
| - |
|
|
| - |
|
|
| 953 |
|
|
| - |
|
|
| - |
|
|
| (9 | ) |
|
| 944 |
|
Mortgage banking income, net |
|
| - |
|
|
| 4,646 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,646 |
|
Title insurance income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,074 |
|
|
| - |
|
|
| - |
|
|
| 2,074 |
|
Other operating income |
|
| 2,499 |
|
|
| 134 |
|
|
| - |
|
|
| - |
|
|
| (124 | ) |
|
| - |
|
|
| 2,509 |
|
Total income |
|
| 39,046 |
|
|
| 4,978 |
|
|
| 1,060 |
|
|
| 2,074 |
|
|
| (123 | ) |
|
| (153 | ) |
|
| 46,882 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 3,591 |
|
|
| 123 |
|
|
| - |
|
|
| - |
|
|
| 732 |
|
|
| (144 | ) |
|
| 4,302 |
|
(Recovery of) Provision for loan losses |
|
| (2,800 | ) |
|
| - |
|
|
| (21 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,821 | ) |
Salaries and benefits |
|
| 14,392 |
|
|
| 2,501 |
|
|
| 369 |
|
|
| 1,225 |
|
|
| - |
|
|
| - |
|
|
| 18,487 |
|
Other operating expenses |
|
| 13,510 |
|
|
| 893 |
|
|
| 51 |
|
|
| 327 |
|
|
| 81 |
|
|
| (9 | ) |
|
| 14,853 |
|
Total expense |
|
| 28,693 |
|
|
| 3,517 |
|
|
| 399 |
|
|
| 1,552 |
|
|
| 813 |
|
|
| (153 | ) |
|
| 34,821 |
|
Income before income taxes |
|
| 10,353 |
|
|
| 1,461 |
|
|
| 661 |
|
|
| 522 |
|
|
| (936 | ) |
|
| - |
|
|
| 12,061 |
|
Income tax expense (benefit) |
|
| 1,266 |
|
|
| - |
|
|
| 134 |
|
|
| - |
|
|
| (77 | ) |
|
| - |
|
|
| 1,323 |
|
Net Income attributable to F & M Bank Corp. |
| $ | 9,087 |
|
| $ | 1,461 |
|
| $ | 527 |
|
| $ | 522 |
|
| $ | (859 | ) |
| $ | - |
|
| $ | 10,738 |
|
Total Assets |
| $ | 1,227,059 |
|
| $ | 10,334 |
|
| $ | 8,803 |
|
| $ | 3,135 |
|
| $ | 112,586 |
|
| $ | (142,575 | ) |
| $ | 1,219,342 |
|
Goodwill |
| $ | 2,868 |
|
| $ | 47 |
|
| $ | - |
|
| $ | 3 |
|
| $ | 164 |
|
| $ | - |
|
| $ | 3,082 |
|
| 79 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars
December 31, 2022 and 2021
NOTE 21 PARENT COMPANY ONLY FINANCIAL STATEMENTS
Balance Sheets
December 31, 2022 and 2021
(dollars in thousands)
|
| 2022 |
|
| 2021 |
| ||
Assets |
|
|
|
| ||||
Cash and cash equivalents |
| $ | 6,747 |
|
| $ | 8,824 |
|
Investment in subsidiaries |
|
| 71,093 |
|
|
| 102,808 |
|
Other investments |
|
| 355 |
|
|
| 135 |
|
Income tax receivable (including due from subsidiary) |
|
| - |
|
|
| 463 |
|
Goodwill and intangibles |
|
| 258 |
|
|
| 190 |
|
Receivable from subsidiary bank |
|
| - |
|
|
| 149 |
|
Total Assets |
| $ | 78,453 |
|
| $ | 112,569 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| 24 |
|
|
| 47 |
|
Income taxes payable |
|
| 54 |
|
|
| - |
|
Payable to subsidiary bank |
|
| 515 |
|
|
| - |
|
Accrued interest |
|
| 178 |
|
|
| 294 |
|
Long-term liability |
|
| 6,890 |
|
|
| 11,772 |
|
Total Liabilities |
| $ | 7,661 |
|
| $ | 12,113 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Common stock |
|
| 17,149 |
|
|
| 17,071 |
|
Additional paid in capital |
|
| 10,577 |
|
|
| 10,127 |
|
Retained earnings |
|
| 83,078 |
|
|
| 78,350 |
|
Accumulated other comprehensive loss |
|
| (40,012 | ) |
|
| (5,092 | ) |
Total Stockholders' Equity |
|
| 70,792 |
|
|
| 100,456 |
|
Total Liabilities and Stockholders' Equity |
| $ | 78,453 |
|
| $ | 112,569 |
|
Statements of Income
For the years ended December 31, 20172022 and 2016
December 31, 2015 | |||||||
F&M Bank | VBS Mortgage | TEB Life/FMFS | VS Title | Parent Only | Eliminations | F&M Bank Corp. Consolidated | |
| Revenues: | |||||||
| Interest Income | $29,206 | $51 | $152 | $- | $- | $(5) | $29,404 |
| Service charges on deposits | 963 | - | - | - | - | - | 963 |
| Investment services and insurance income | 2 | - | 522 | - | - | (14) | 510 |
| Mortgage banking income, net | - | 2,066 | - | - | - | - | 2,066 |
| Title insurance income | - | - | - | - | - | - | - |
| Gain on prepayment of long-term debt | - | - | - | - | - | - | - |
| Loss on investments | - | - | - | - | - | - | - |
| Other operating income | 2,142 | - | - | - | 5 | (893) | 1,254 |
| Total income | 32,313 | 2,117 | 674 | - | 5 | (912) | 34,197 |
| Expenses: | |||||||
| Interest Expense | 2,881 | - | - | - | - | (5) | 2,876 |
| Provision for loan losses | 300 | - | - | - | - | - | 300 |
| Salaries and benefits | 10,056 | 1,103 | 298 | - | - | - | 11,457 |
| Other operating expenses | 7,887 | 466 | 35 | - | 21 | (312) | 8,097 |
| Total expense | 21,124 | 1,569 | 333 | - | 21 | (317) | 22,730 |
| Income before income taxes | 11,189 | 548 | 341 | - | (16) | (595) | 11,467 |
| Income tax expense (benefit) | 2,948 | - | 129 | - | (191) | - | 2,886 |
| Net income | $8,241 | $548 | $212 | $- | $175 | $(595) | $8,581 |
| Net income attributable to noncontrolling interest | - | 164 | - | - | - | - | 164 |
| Net Income attributable to F & M Bank Corp. | $8,241 | $384 | $212 | $- | $175 | $(595) | $8,417 |
| Total Assets | $669,968 | $2,180 | $6,269 | $- | $84,897 | $(97,957) | $665,357 |
| Goodwill | $2,670 | $- | $- | $- | $- | $- | $2,670 |
(dollars in thousands)
|
| 2022 |
|
| 2021 |
| ||
Income |
|
|
|
|
|
| ||
Dividends from affiliate |
| $ | 6,000 |
|
| $ | 2,232 |
|
Other income |
|
| 49 |
|
|
| 1 |
|
Total Income |
|
| 6,049 |
|
|
| 2,233 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Total expenses |
|
| 711 |
|
|
| 812 |
|
|
|
|
|
|
|
|
|
|
Net income before income tax expense and undistributed subsidiary net income |
|
| 5,338 |
|
|
| 1,421 |
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
| (172 | ) |
|
| (77 | ) |
|
|
|
|
|
|
|
|
|
Income before undistributed subsidiary net income |
|
| 5,510 |
|
|
| 1,498 |
|
Undistributed subsidiary net income |
|
| 2,808 |
|
|
| 9,240 |
|
Net Income F&M Bank Corp. |
| $ | 8,318 |
|
| $ | 10,738 |
|
| 80 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 23PARENT21 PARENT COMPANY ONLY FINANCIAL STATEMENTS:
2017 | 2016 | |
| Assets | ||
| Cash and cash equivalents | $917 | $1,155 |
| Investment in subsidiaries | 88,967 | 85,481 |
| Securities available for sale | 135 | 135 |
| Income tax receivable (including due from subsidiary) | 565 | - |
| Goodwill and intangibles | 380 | - |
| Total Assets | $90,964 | $86,771 |
| Liabilities | ||
| Income tax payable (including due from subsidiary) | $- | $313 |
| Deferred income taxes | 177 | 307 |
| Accrued expenses | 86 | - |
| Demand obligations for low income housing investment | - | 162 |
| Total Liabilities | $263 | $782 |
| Stockholders’ Equity | ||
| Preferred stock par value $5 per share, 400,000 shares authorized, 324,150 and 327,350 issued and outstanding at December 31, 2017 and 2016, respectively. | $7,529 | $7,609 |
| Common stock par value $5 per share, 6,000,000 shares authorized, 3,255,036 and 3,270,315 shares issued and outstanding for 2016 and 2015, respectively | 16,275 | 16,352 |
| Additional paid in capital | 10,225 | 10,684 |
| Retained earnings | 60,814 | 54,509 |
| Accumulated other comprehensive income (loss) | (4,142) | (3,165) |
| Total Stockholders' Equity | 90,701 | 85,989 |
| Total Liabilities and Stockholders' Equity | $90,964 | $86,771 |
Statements of Income
For the years ended December 31, 2017, 20162022 and 2015
2017 | 2016 | 2015 | |
| Income | |||
| Dividends from affiliate | $5,000 | $5,000 | $2,500 |
| Net limited partnership income (loss) | 162 | - | 5 |
| Total Income | 5,162 | 5,000 | 2,505 |
| Expenses | |||
| Total Expenses | 47 | 1 | 21 |
| Net income before income tax expense (benefit) | |||
| and undistributed subsidiary net income | 5,115 | 4,999 | 2,484 |
| Income Tax Expense (Benefit) | (95) | (249) | (191) |
| Income before undistributed subsidiary | |||
| net income | 5,210 | 5,248 | 2,675 |
| Undistributed subsidiary net income | 3,800 | 4,320 | 5,742 |
| Net Income F&M Bank Corp. | $9,010 | $9,568 | $8,417 |
(dollars in thousands)
2022 | 2021 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 8,318 | $ | 10,738 | ||||
Adjustments to reconcile net income to net | ||||||||
cash provided by operating activities: | ||||||||
Undistributed subsidiary income | (2,808 | ) | (9,240 | ) | ||||
Deferred tax benefit | (420 | ) | (35 | ) | ||||
Decrease (increase) in other assets | 544 | (409 | ) | |||||
Increase in other liabilities | 453 | 19 | ||||||
Long-term debt fee amortization | 118 | 32 | ||||||
Share based compensation expense | 193 | 86 | ||||||
Net Cash Provided by Operating Activities | 6,398 | 1,191 | ||||||
Cash Flows from Investing Activities | ||||||||
Purchase limited liability interest | (220 | ) | - | |||||
Net Cash Used in Investing Activities | (220 | ) | - | |||||
Cash Flows from Financing Activities | ||||||||
Repayments of long-term debt | (5,000 | ) | - | |||||
Repurchase of preferred stock | - | (627 | ) | |||||
Proceeds from the sale of common stock | 279 | 263 | ||||||
Proceeds from issuance of common stock | 56 | 35 | ||||||
Dividends paid in cash | (3,590 | ) | (3,593 | ) | ||||
Net Cash Used in Financing Activities | (8,255 | ) | (3,922 | ) | ||||
Net decrease in Cash and Cash Equivalents | (2,077 | ) | (2,731 | ) | ||||
Cash and Cash Equivalents, Beginning of Year | 8,824 | 11,555 | ||||||
Cash and Cash Equivalents, End of Year | $ | 6,747 | $ | 8,824 | ||||
| 81 |
| Table of Contents |
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 20172022 and 2016
NOTE 23
2017 | 2016 | 2015 | |
| Cash Flows from Operating Activities | |||
| Net income | $9,010 | $9,568 | $8,417 |
| Adjustments to reconcile net income to net | |||
| cash provided by operating activities: | |||
| Undistributed subsidiary income | (3,800) | (4,320) | (5,742) |
| Deferred tax (benefit) expense | (112) | 5 | (81) |
| Decrease (increase) in other assets | (1,256) | - | 1,300 |
| Increase (decrease) in other liabilities | (77) | (535) | (143) |
| Net Cash Provided by Operating Activities | 3,765 | 4,718 | 3,751 |
| Cash Flows from Investing Activities | |||
| Net Cash Used in Investing Activities | - | - | - |
| Cash Flows from Financing Activities | |||
| Repurchase of preferred stock | (101) | (1,961) | |
| Repurchase of common stock | (712) | (577) | (289) |
| Proceeds from issuance of common stock | 197 | 183 | 146 |
| Dividends paid in cash | (3,387) | (3,115) | (2,915) |
| Net Cash Used in Financing Activities | (4,003) | (5,470) | (3,058) |
| Net (Decrease) increase in Cash and Cash Equivalents | (238) | (752) | 693 |
| Cash and Cash Equivalents, Beginning of Year | 1,155 | 1,907 | 1,214 |
| Cash and Cash Equivalents, End of Year | $917 | $1,155 | $1,907 |
The balances in accumulated other comprehensive loss are shown in the following table:
| dollars in thousands | Unrealized Securities Gains (Losses) | Adjustments Related to Pension Plan | Accumulated Other Comprehensive Loss |
| Balance at December, 31, 2014 | 3 | (2,330) | (2,327) |
| Change in unrealized securities gains (losses), net of tax | 1 | - | 1 |
| Change in unfunded pension liability, net of tax | - | (354) | (354) |
| Balance at December, 31, 2015 | 4 | (2,684) | (2,680) |
| Change in unrealized securities gains (losses), net of tax | 2 | - | 2 |
| Change in unfunded pension liability, net of tax | - | (487) | (487) |
| Balance at December, 31, 2016 | $6 | $(3,171) | $(3,165) |
| Change in unrealized securities gains (losses), net of tax | (26) | - | (26) |
| Change in unfunded pension liability, net of tax | - | (951) | (951) |
| Balance at December, 31, 2017 | $(20) | $(4,122) | $(4,142) |
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
| ||||||||||||
Balance at December, 31, 2020 |
| $ | 804 |
|
| $ | (3,821 | ) |
| $ | (3,017 | ) |
Change in unrealized securities gains (losses), net of tax benefit of $803 |
|
| (3,020 | ) |
|
| - |
|
|
| (3,020 | ) |
Change in unfunded pension liability, net of tax of $141 |
|
| - |
|
|
| 530 |
|
|
| 530 |
|
Reclassification for previously unrealized net losses realized in income, net of tax benefit of $110 |
|
| 415 |
|
|
| - |
|
|
| 415 |
|
Balance at December, 31, 2021 |
| $ | (1,801 | ) |
| $ | (3,291 | ) |
| $ | (5,092 | ) |
Change in unrealized securities gains (losses), net of tax benefit of $10,873 |
|
| (40,903 | ) |
|
| - |
|
|
| (40,903 | ) |
Change in unfunded pension liability, net of tax of $992 |
|
| - |
|
|
| 3,730 |
|
|
| 3,730 |
|
Reclassification for previously unrealized net losses realized in income, net of tax benefit of $599 |
|
| 2,253 |
|
|
| - |
|
|
| 2,253 |
|
Balance at December, 31, 2022 |
| $ | (40,451 | ) |
| $ | 439 |
|
| $ | (40,012 | ) |
During 2022 and 2021, respectively, there were no reclassifications adjustments reportedsecurity losses of $2.9 million, net of tax of $599 thousand and $525 thousand, net of tax of $110 thousand, that were reclassified out of unrealized gains on available for sale securities and reclassified into net investment security losses on the consolidated statements of income.
NOTE 23 REVENUE RECOGNITION
The majority of the Company’s noninterest income during 2015, 2016is generated from short-term contracts related to fees on deposit accounts, ATM and check cards, and annuity and insurance commissions that is within the scope of Topic 606, “Revenue from Contracts with Customers.” Typically, the duration of a contract does not extend beyond the services performed.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account maintenance charges and overdrawn account fees. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or 2017.
Investment Services and Insurance Income
Investment services and insurance income consists primarily of commissions received on mutual funds and other investment sales that are recognized on the trade date, which is when the Company has satisfied its performance obligation.
Title Insurance Income
VST provides title insurance and real estate settlement services; revenue is recognized at the time the real estate transaction is completed.
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 23 REVENUE RECOGNITION, CONTINUED
ATM and Check Card Fees
ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or by month-end. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for December 31, 2022 and 2021 (dollars in thousands).
|
| Twelve Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Noninterest Income |
|
|
|
|
|
| ||
In-scope of Topic 606: |
|
|
|
|
|
| ||
Service Charges on Deposits |
| $ | 1,062 |
|
| $ | 1,133 |
|
Investment Services and Insurance Income |
|
| 883 |
|
|
| 944 |
|
Title Insurance Income |
|
| 1,578 |
|
|
| 2,074 |
|
ATM and check card fees |
|
| 2,462 |
|
|
| 2,311 |
|
Other |
|
| 814 |
|
|
| 807 |
|
Noninterest Income (in-scope of Topic 606) |
|
| 6,799 |
|
|
| 7,269 |
|
Noninterest Income (out-of-scope of Topic 606) |
|
| 2,835 |
|
|
| 4,037 |
|
Total |
| $ | 9,634 |
|
| $ | 11,306 |
|
NOTE 24 LEASES
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. The Company has five operating leases for office properties.
The following tables present information about the Company’s leases (dollars in thousands):
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Lease Liabilities (included in other liabilities) |
| $ | 886 |
|
| $ | 957 |
|
Right-of-use assets (included in other assets) |
| $ | 861 |
|
| $ | 937 |
|
Weighted average remaining lease term |
| 2.54 years |
|
| 3.37 years |
| ||
Weighted average discount rate |
|
| 3.22 | % |
|
| 3.01 | % |
|
|
|
|
|
|
| ||
|
| 2022 |
|
| 2021 |
| ||
Lease cost |
|
|
|
|
|
|
|
|
Operating lease cost |
| $ | 151 |
|
| $ | 121 |
|
Total lease cost |
| $ | 151 |
|
| $ | 121 |
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 177 |
|
| $ | 145 |
|
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F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 24 LEASES, CONTINUED
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):
Lease payments due |
| As of December 31, 2022 |
| |
Twelve months ending December 31, 2023 |
| $ | 162 |
|
Twelve months ending December 31, 2024 |
|
| 177 |
|
Twelve months ending December 31, 2025 |
|
| 121 |
|
Twelve months ending December 31, 2026 |
|
| 70 |
|
Twelve months ending December 31, 2027 |
|
| 56 |
|
Thereafter |
|
| 463 |
|
Total undiscounted cash flows |
| $ | 1,049 |
|
Discount |
|
| (163 | ) |
Lease liabilities |
| $ | 886 |
|
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and The Board of Directors and Stockholders
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of F&M Bank Corp. and subsidiariesSubsidiaries (the Company) as of December 31, 20172022 and 2016,2021, the related consolidated statements of income, comprehensive (loss) income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company��sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Allowance for Loan Losses – Loans Collectively Evaluated for Impairment - Qualitative Factors
Description of the Matter
As described in Note 1 (Nature of Banking Activities and Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) to the consolidated financial statements, the Company maintains an allowance for loan losses that represents management’s estimate of the probable losses inherent in the Company’s loan portfolio.
The Company’s allowance for loan losses has two basic components: the general allowance and the specific allowance. At December 31, 2022, the general allowance represented $7,592,000 of the total allowance for loan losses of $7,936,000. The general allowance is applied to non-impaired loans and uses historical loss experience along with qualitative factors, including changes in lending policies and procedures, the nature and volume of the portfolio, experience of lending management, levels and trends in delinquencies, nonaccrual loans, charge-offs and adversely rated loans, the loan review system, portfolio concentrations, economic conditions, collateral values, and the competitive and legal environment. The qualitative adjustments to the historical loss rates are established by applying an additional loss factor to the loan segments identified by management based on their assessment of shared risk characteristics within similar groups of non-impaired loans. Qualitative factors are determined based on management’s continuing evaluation of inputs and assumptions underlying the quality of the loan portfolio and contribute significantly to the allowance for loan losses.
Management exercised significant judgment when assessing the qualitative factors in estimating the allowance for loan losses. We identified the assessment of the qualitative factors as a critical audit matter as auditing the qualitative factors involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.
How We Addressed the Matter in Our Audit
The primary audit procedures we performed to address this critical audit matter included:
· | Obtaining an understanding of controls over the evaluation of qualitative factors, including management's development and review of the data inputs used as the basis for the allocation factors and management's review and approval of the reasonableness of the assumptions used to develop the qualitative adjustments. | |
· | Substantively testing management’s process, including evaluating their judgments and assumptions for developing the qualitative factors, which included: |
o | Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors. | |
o | Evaluating the reasonableness of management’s judgments related to the determination of qualitative factors. | |
o | Evaluating the qualitative factors for directional consistency and for reasonableness. | |
o | Testing the mathematical accuracy of the allowance calculation, including the application of the qualitative factors. |
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company’s auditor since 2016.
Roanoke, Virginia
March 16, 2018
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| Table of Contents |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures.
The Company, under the supervision andCompany's management evaluated, with the participation of management, including the Company’s Chief Executive OfficerCompany's principal executive officer and Chief Financial Officer, has evaluatedprincipal financial officer, the effectiveness of the design and operation of itsCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Annual Report on Form 10-K.report. Based on that evaluation, the Chief Executive OfficerCompany's principal executive officer and Chief Financial Officer haveprincipal financial officer concluded that the Company’sCompany's disclosure controls and procedures wereare effective as of December 31, 20172022 to ensure that information required to be disclosed byin the Company in reports that itthe Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated toby the Company’sCompany's management, including its Chief Executive Officerthe Company's principal executive officer and Chief Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
There were no changes in the Company’sCompany's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the Company’sfourth quarter ended December 31, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.
Internal Control Over Financial Reporting
Management's Report on Internal Control overOver Financial Reporting.
To the F&M Bank Corp.:
Management is responsible for the preparation and fair presentation of the consolidated financial statements included in thethis annual report. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgementsmanagement's judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting includes those policies and procedures that pertain to the Company's ability to record, process, summarize and report reliable financial data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that the Company's internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2017.2022. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO, 2013) of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of December 31, 2017.
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| Table of Contents |
The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company's accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent registered public accounting firm and approves decisions regarding the appointment or removal of the Company Auditor. Company's internal auditors.
It meets periodically with management, the independent registered public accounting firm and the internal auditors to ensure that they are carrying out their responsibilities.
The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent registered public accounting firm and the internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee. The Company's independent registered public accounting firm has also issued an attestation report on the effectiveness of internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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| Table of Contents |
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding directors, executive officers and the audit committee financial expert is incorporated by reference from the Company’s definitive proxy statement for the Company’s 20182023 Annual Meeting of Shareholders to be held on May 12, 201825, 2023 (“Proxy Statement”), under the captions “Election“Corporate Governance and the Board of Directors” “Board – Committees of Directors and Committees,”the Board – Audit Committee” and “Executive Officers.Officers who are not Directors.”
Information on Section 16(a) beneficial ownership reporting compliance for the directors and executive officers of the Company is incorporated by reference from the Proxy Statement under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.”
The Company has adopted a broad basedbroad-based code of ethics for all employees and directors. The Company has also adopted a code of ethics tailored to senior officers who have financial responsibilities. A copy of the codes may be obtained without charge by request from the corporate secretary.
Item 11. Executive Compensation
This information is incorporated by reference from the Proxy Statement under the caption “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information is incorporated by reference from the Proxy Statement under the captions “Security Ownership of Directors and Executive Officers,” “Security Ownership of Certain Beneficial Owners” and “Executive Compensation.”
Item 13. Certain Relationships and Related Transactions, and Directors Independence
This information is incorporated by reference from the Proxy Statement under the caption “Ownership of Company Common Stock” and “Executive Compensation” and from Item 5 of this 10-K.
Item 14. Principal Accountant Fees and Services
This information is incorporated by reference from the Proxy Statement under the caption “Interest“Fees of Directors and Officers in Certain Transactions.”
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| Table of Contents |
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following financial statements are filed as a part of this report:
(a)(1) Financial Statements
The following consolidated financial statements and reports of independent auditors of the Company are in Part II, Item 8 on pages 3843 thru 89:
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| Table of Contents |
(a)(2) Financial Statement Schedules
All schedules are omitted since they are not required, are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits are filed as a part of this form 10-K:
Exhibit No. | ||
Amended and Restated Bylaws of F & M Bank Corp., incorporated herein by reference from F&M Bank Corp.’s Current Report on Form 8-K, filed March 24, 2020. | ||
10.7 | Form of Restricted Stock Award Agreement, incorporated herein by reference from Exhibit 10.7 from F&M Bank Corp.’s Form 10-K, filed March 22, 2023. | |
10.9 | Employment Agreement, dated December 30, 2020, by and between F&M Bank Corp. and F. Garth Knight, incorporated herein by reference from Exhibit 10.9 from F&M Bank Corp.’s Annual Report on Form 10-K, filed March 22, 2023. | |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
101 | The following materials from F&M Bank Corp.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (furnished herewith). | |
104 | The cover page from F&M Bank Corp.’s Annual Report or Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included with Exhibit 101) |
Item 16. Form 10-K filed March 8, 2002.
Not Required
Shareholders may obtain, free of charge, a copy of the exhibits to this Report on Form 10-K by writing Larry A. Caplinger,Stephanie E. Shillingburg, Corporate Secretary, at F & M Bank Corp., P.O. Box 1111, Timberville, VA 22853 or our website at www.fmbankva.com.
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| Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
F & M Bank Corp. (Registrant) | ||||||
By: | /s/ Mark C. Hanna | March 22, 2023 | ||||
| Mark C. Hanna | Date | |||||
| Director and Chief Executive Officer | ||||||
By: | /s/ Lisa F. Campbell | March 22, 2023 | ||||
Lisa F. Campbell | Date | |||||
Executive Vice President and Chief Financial Officer | ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated.
Signature | Title | Date | ||
| /s/ Michael W. Pugh | Director, Chair | March | ||
| Michael W. Pugh | ||||
| /s/ E. Ray Burkholder | Director | March 22, 2023 | ||
E. Ray Burkholder | ||||
| /s/ | Director | March | ||
Larry A. Caplinger | ||||
/s/ Daniel J. Harshman | Director | March 22, 2023 | ||
Daniel J. Harshman | ||||
/s/ Hannah Hutman | Director | March 22, 2023 | ||
Hannah Hutman | ||||
/s/ Anne Keeler | Director | March 22, 2023 | ||
Anne Keeler | ||||
/s/ Christopher S. Runion | Director | March 22, 2023 | ||
Christopher S. Runion | ||||
/s/ Daphyne Thomas | Director | March 22, 2023 | ||
Daphyne Thomas | ||||
/s/ John Willingham | Director | March 22, 2023 | ||
John Willingham | ||||
/s/ Dean W. Withers | Director | March 22, 2023 | ||
Dean W. Withers | ||||
/s/ Peter H. Wray | Director | March | ||
Peter H. Wray |
| 92 |
