UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| ☒ Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2022.2023
| ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-13273
F&M BANK |
Virginia | 54-1280811 | |
Incorporation or Organization) |
|
Identification No.) |
P. O. Box 1111
Timberville, Virginia 22853
(Address of Principal Executive Offices) (Zip Code)
(540) 896-8941
(Registrant’sRegistrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ 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 Filer | ☒ | 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at |
Common Stock, par value ‑ $5 per share |
|
|
F & M BANK CORP.
Index
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| Consolidated Balance Sheets – March 31, |
| 3 | ||
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| Consolidated Statements of Income – Three Months Ended March 31, |
| 4 | ||
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| 5 | |||
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| 6 | |||
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| Consolidated Statements of Cash Flows – Three Months Ended March 31, |
| 7 | ||
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| 8 | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| 40 | ||
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Certifications |
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2 |
Table of Contents |
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021* |
|
| 2023 |
|
| 2022* |
| ||||
|
| (Unaudited) |
|
|
| (Unaudited) |
|
|
| |||||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and due from banks |
| $ | 13,586 |
| $ | 8,516 |
|
| $ | 17,568 |
| $ | 17,926 |
| ||
Money market funds and interest-bearing deposits in other banks |
| 2,796 |
| 2,938 |
|
| 982 |
| 687 |
| ||||||
Federal funds sold |
|
| 31,994 |
|
|
| 76,667 |
|
|
| 12,723 |
|
|
| 16,340 |
|
Cash and cash equivalents |
| 48,376 |
| 88,121 |
|
| 31,273 |
| 34,953 |
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Securities: |
|
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| ||||||
Held to maturity, at amortized cost – fair value of $125 in 2022 and 2021, respectively |
| 125 |
| 125 |
| |||||||||||
Held to maturity, at amortized cost – fair value of $114 and $112 in 2023 and 2022, respectively |
| 125 |
| 125 |
| |||||||||||
Less: allowance for credit losses |
|
| - |
|
|
| - |
| ||||||||
Held to maturity, net |
| 125 |
| 125 |
| |||||||||||
Available for sale, at fair value |
| 461,822 |
| 403,882 |
|
| 388,248 |
| 392,095 |
| ||||||
Other investments |
| 9,142 |
| 9,210 |
|
| 10,587 |
| 11,317 |
| ||||||
Loans held for sale, at fair value |
| 2,479 |
| 4,887 |
|
| 1,242 |
| 1,373 |
| ||||||
Loans held for investment, net of deferred fees and costs |
| 659,560 |
| 662,421 |
|
| 756,920 |
| 743,604 |
| ||||||
Less: allowance for loan losses |
|
| (7,389 | ) |
|
| (7,748 | ) | ||||||||
Less: allowance for credit losses |
|
| (8,546 | ) |
|
| (7,936 | ) | ||||||||
Net loans held for investment |
| 652,171 |
| 654,673 |
|
| 748,374 |
| 735,668 |
| ||||||
|
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| ||||||
Bank premises and equipment, net |
| 18,684 |
| 17,063 |
|
| 19,971 |
| 19,587 |
| ||||||
Bank premises held for sale |
| 300 |
| 300 |
| |||||||||||
Interest receivable |
| 3,345 |
| 3,117 |
|
| 4,165 |
| 3,995 |
| ||||||
Goodwill |
| 3,082 |
| 3,082 |
|
| 3,082 |
| 3,082 |
| ||||||
Bank owned life insurance |
| 23,042 |
| 22,878 |
|
| 23,727 |
| 23,554 |
| ||||||
Other assets |
|
| 15,691 |
|
|
| 12,004 |
|
|
| 22,081 |
|
|
| 20,153 |
|
Total assets |
| $ | 1,238,259 |
|
| $ | 1,219,342 |
| ||||||||
Total Assets |
| $ | 1,252,875 |
|
| $ | 1,245,902 |
| ||||||||
Liabilities |
|
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| ||||||
Deposits: |
|
|
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| ||||||
Noninterest bearing |
| $ | 298,676 |
| $ | 280,993 |
|
| $ | 284,060 |
| $ | 293,596 |
| ||
Interest bearing |
|
| 813,619 |
|
|
| 799,302 |
|
|
| 821,175 |
|
|
| 789,781 |
|
Total deposits |
|
| 1,112,295 |
|
|
| 1,080,295 |
|
|
| 1,105,235 |
|
|
| 1,083,377 |
|
|
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|
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| ||||||
Short-term debt |
| 55,000 |
| 70,000 |
| |||||||||||
Long-term debt |
| 21,780 |
| 21,772 |
|
| 6,901 |
| 6,890 |
| ||||||
Other liabilities |
|
| 16,199 |
|
|
| 16,819 |
|
|
| 13,104 |
|
|
| 14,843 |
|
Total liabilities |
|
| 1,150,274 |
|
|
| 1,118,886 |
|
|
| 1,180,240 |
|
|
| 1,175,110 |
|
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Commitments and contingencies |
|
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Stockholders’ Equity |
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Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,451,208 and 3,430,175 shares issued and outstanding (29,238 and 15,869 unvested restricted shares) |
| 17,110 |
| 17,071 |
| |||||||||||
Additional paid in capital – common stock |
| 10,240 |
| 10,127 |
| |||||||||||
Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,482,745 and |
|
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3,456,237 shares issued and outstanding (41,192 and 26,456 unvested restricted shares) |
| 17,207 |
| 17,149 |
| |||||||||||
Additional paid in capital |
| 10,693 |
| 10,577 |
| |||||||||||
Retained earnings |
| 79,986 |
| 78,350 |
|
| 82,031 |
| 83,078 |
| ||||||
Accumulated other comprehensive loss |
|
| (19,351 | ) |
|
| (5,092 | ) |
|
| (37,296 | ) |
|
| (40,012 | ) |
Total stockholders’ equity |
|
| 87,985 |
|
|
| 100,456 |
|
|
| 72,635 |
|
|
| 70,792 |
|
Total liabilities and stockholders’ equity |
| $ | 1,238,259 |
|
| $ | 1,219,342 |
|
| $ | 1,252,875 |
|
| $ | 1,245,902 |
|
*20212022 derived from audited consolidated financial statements.
See Notes to Consolidated Financial Statements
3 |
Table of Contents |
F & M BANK CORP.
Consolidated Statements of Income
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
Interest and Dividend income |
| 2022 |
|
| 2021 |
| ||
Interest and fees on loans held for investment |
| $ | 7,510 |
|
| $ | 8,170 |
|
Interest and fees on loans held for sale |
|
| 29 |
|
|
| 100 |
|
Interest from money market funds and federal funds sold |
|
| 25 |
|
|
| 15 |
|
Interest on debt securities |
|
| 1,497 |
|
|
| 461 |
|
Total interest and dividend income |
|
| 9,061 |
|
|
| 8,746 |
|
|
|
|
|
|
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|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Total interest on deposits |
|
| 845 |
|
|
| 795 |
|
Interest from long-term debt |
|
| 159 |
|
|
| 273 |
|
Total interest expense |
|
| 1,004 |
|
|
| 1,068 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
| 8,057 |
|
|
| 7,678 |
|
|
|
|
|
|
|
|
|
|
(Recovery of) Loan Losses |
|
| (450 | ) |
|
| (725 | ) |
Net Interest Income After (Recovery of) Loan Losses |
|
| 8,507 |
|
|
| 8,403 |
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 307 |
|
|
| 285 |
|
Investment services and insurance income, net |
|
| 251 |
|
|
| 347 |
|
Mortgage banking income, net |
|
| 742 |
|
|
| 1,672 |
|
Title insurance income |
|
| 473 |
|
|
| 456 |
|
Income on bank owned life insurance |
|
| 171 |
|
|
| 168 |
|
Low income housing partnership losses |
|
| (204 | ) |
|
| (215 | ) |
ATM and check card fees |
|
| 563 |
|
|
| 520 |
|
Other operating income |
|
| 180 |
|
|
| 122 |
|
Total noninterest income |
|
| 2,483 |
|
|
| 3,355 |
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
Salaries |
|
| 3,637 |
|
|
| 3,296 |
|
Employee benefits |
|
| 1,288 |
|
|
| 1,216 |
|
Occupancy expense |
|
| 340 |
|
|
| 295 |
|
Equipment expense |
|
| 286 |
|
|
| 277 |
|
FDIC insurance assessment |
|
| 116 |
|
|
| 99 |
|
Advertising expense |
|
| 178 |
|
|
| 136 |
|
Legal and professional fees |
|
| 208 |
|
|
| 199 |
|
ATM and check card fees |
|
| 298 |
|
|
| 257 |
|
Telecommunication and data processing expense |
|
| 901 |
|
|
| 540 |
|
Directors fees |
|
| 164 |
|
|
| 146 |
|
Bank franchise tax |
|
| 174 |
|
|
| 173 |
|
Other operating expenses |
|
| 960 |
|
|
| 1,052 |
|
Total noninterest expense |
|
| 8,550 |
|
|
| 7,686 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 2,440 |
|
|
| 4,072 |
|
Income tax (benefit) expense |
|
| (88 | ) |
|
| 271 |
|
Net Income |
| $ | 2,528 |
|
| $ | 3,801 |
|
Dividends paid/accumulated on preferred stock |
|
| 0 |
|
|
| 65 |
|
Net income available to common stockholders |
| $ | 2,528 |
|
| $ | 3,736 |
|
Per Common Share Data |
|
|
|
|
|
| ||
Net income – basic |
| $ | 0.74 |
|
| $ | 1.17 |
|
Net income – diluted |
| $ | 0.74 |
|
| $ | 1.11 |
|
Cash dividends on common stock |
| $ | 0.26 |
|
| $ | 0.26 |
|
Weighted average common shares outstanding – basic |
|
| 3,434,892 |
|
|
| 3,205,074 |
|
Weighted average common shares outstanding – diluted |
|
| 3,434,892 |
|
|
| 3,433,192 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Interest and Dividend income |
|
|
|
|
|
|
|
|
Interest and fees on loans held for investment |
| $ | 10,854 |
|
| $ | 7,510 |
|
Interest and fees on loans held for sale |
|
| 22 |
|
|
| 29 |
|
Interest from money market funds and federal funds sold |
|
| 84 |
|
|
| 25 |
|
Interest on debt securities |
|
| 2,014 |
|
|
| 1,497 |
|
Total interest and dividend income |
|
| 12,974 |
|
|
| 9,061 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Total interest on deposits |
|
| 4,042 |
|
|
| 845 |
|
Interest from short-term debt |
|
| 992 |
|
|
| - |
|
Interest from long-term debt |
|
| 112 |
|
|
| 159 |
|
Total interest expense |
|
| 5,146 |
|
|
| 1,004 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
| 7,828 |
|
|
| 8,057 |
|
|
|
|
|
|
|
|
|
|
Provision for (Recovery of) Credit Losses |
|
| - |
|
|
| (450 | ) |
Net Interest Income After Provision for (Recovery of) Credit Losses |
|
| 7,828 |
|
|
| 8,507 |
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 225 |
|
|
| 307 |
|
Investment services and insurance income |
|
| 333 |
|
|
| 251 |
|
Mortgage banking income |
|
| 234 |
|
|
| 742 |
|
Title insurance income |
|
| 248 |
|
|
| 473 |
|
Income on bank owned life insurance |
|
| 179 |
|
|
| 171 |
|
Low income housing partnership losses |
|
| (205 | ) |
|
| (204 | ) |
ATM and check card fees |
|
| 627 |
|
|
| 563 |
|
Other operating income |
|
| 243 |
|
|
| 180 |
|
Total noninterest income |
|
| 1,884 |
|
|
| 2,483 |
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
Salaries |
|
| 3,861 |
|
|
| 3,637 |
|
Employee benefits |
|
| 1,043 |
|
|
| 1,288 |
|
Occupancy expense |
|
| 335 |
|
|
| 340 |
|
Equipment expense |
|
| 295 |
|
|
| 286 |
|
FDIC insurance assessment |
|
| 145 |
|
|
| 116 |
|
Advertising expense |
|
| 218 |
|
|
| 178 |
|
Legal and professional fees |
|
| 225 |
|
|
| 208 |
|
ATM and check card fees |
|
| 319 |
|
|
| 298 |
|
Telecommunication and data processing expense |
|
| 707 |
|
|
| 901 |
|
Directors fees |
|
| 157 |
|
|
| 164 |
|
Bank franchise tax |
|
| 168 |
|
|
| 174 |
|
Other operating expenses |
|
| 1,235 |
|
|
| 960 |
|
Total noninterest expense |
|
| 8,708 |
|
|
| 8,550 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 1,004 |
|
|
| 2,440 |
|
Income tax benefit |
|
| (51 | ) |
|
| (88 | ) |
Net Income |
| $ | 1,055 |
|
| $ | 2,528 |
|
Per Common Share Data |
|
|
|
|
|
|
|
|
Net income |
| $ | 0.30 |
|
| $ | 0.74 |
|
Cash dividends on common stock |
|
| 0.26 |
|
|
| 0.26 |
|
Weighted average common shares outstanding |
|
| 3,462,698 |
|
|
| 3,434,892 |
|
See Notes to Consolidated Financial Statements
4 |
Table of Contents |
F & M BANK CORP.
Consolidated Statements of Comprehensive Income (Loss) Income
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Net Income |
| $ | 2,528 |
|
| $ | 3,801 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Unrealized holding losses on available-for sale securities |
|
| (18,049 | ) |
|
| (1,411 | ) |
Tax effect |
|
| 3,790 |
|
|
| 297 |
|
Unrealized holding losses, net of tax |
|
| (14,259 | ) |
|
| (1,114 | ) |
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
| $ | (14,259 | ) |
| $ | (1,114 | ) |
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
| $ | (11,731 | ) |
| $ | 2,687 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net Income |
| $ | 1,055 |
|
| $ | 2,528 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for sale securities |
|
| 3,438 |
|
|
| (18,049 | ) |
Tax effect |
|
| (722 | ) |
|
| 3,790 |
|
Unrealized holding gains (losses), net of tax |
|
| 2,716 |
|
|
| (14,259 | ) |
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
| 2,716 |
|
| $ | (14,259 | ) |
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
| $ | 3,771 |
|
| $ | (11,731 | ) |
See Notes to Consolidated Financial Statements
5 |
Table of Contents |
F & M BANK CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, 20222023 and 2021.2022.
|
| 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 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,801 |
|
|
| 0 |
|
|
| 3,801 |
|
Other comprehensive loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,114 | ) |
|
| (1,114 | ) |
Dividends on preferred stock ($.32 per share) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (65 | ) |
|
| 0 |
|
|
| (65 | ) |
Dividends on common stock ($.26 per share) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (833 | ) |
|
| 0 |
|
|
| (833 | ) |
Common stock issued (2,450 shares) |
|
| 0 |
|
|
| 12 |
|
|
| 52 |
|
|
| 0 |
|
|
| 0 |
|
|
| 64 |
|
Common stock issued for Stock-based Compensation (1,332 shares) |
|
| 0 |
|
|
| 7 |
|
|
| 29 |
|
|
| 0 |
|
|
| 0 |
|
|
| 36 |
|
Stock-based compensation expense |
|
| 0 |
|
|
| 0 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9 |
|
Balance, March 31, 2021 |
| $ | 4,558 |
|
| $ | 16,036 |
|
| $ | 6,956 |
|
| $ | 74,108 |
|
| $ | (4,131 | ) |
| $ | 97,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021 |
| $ | 0 |
|
| $ | 17,071 |
|
| $ | 10,127 |
|
| $ | 78,350 |
|
| $ | (5,092 | ) |
| $ | 100,456 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,528 |
|
|
| 0 |
|
|
| 2,528 |
|
Other comprehensive loss |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (14,259 | ) |
|
| (14,259 | ) |
Dividends on common stock ($.26 per share) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (892 | ) |
|
| 0 |
|
|
| (892 | ) |
Common stock issued (2,599 shares) |
|
| 0 |
|
|
| 13 |
|
|
| 67 |
|
|
| 0 |
|
|
| 0 |
|
|
| 80 |
|
Common stock issued for Stock-based Compensation (5,065 shares) |
|
| 0 |
|
|
| 26 |
|
|
| 29 |
|
|
| 0 |
|
|
| 0 |
|
|
| 55 |
|
Stock-based compensation expense |
|
| 0 |
|
|
| 0 |
|
|
| 17 |
|
|
| 0 |
|
|
| 0 |
|
|
| 17 |
|
Balance, March 31, 2022 |
| $ | 0 |
|
| $ | 17,110 |
|
| $ | 10,240 |
|
| $ | 79,986 |
|
| $ | (19,351 | ) |
| $ | 87,985 |
|
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, December 31, 2021 |
| $ | 17,071 |
|
| $ | 10,127 |
|
| $ | 78,350 |
|
| $ | (5,092 | ) |
| $ | 100,456 |
|
Net income |
|
| - |
|
|
| - |
|
|
| 2,528 |
|
|
| - |
|
|
| 2,528 |
|
Other comprehensive (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (14,259 | ) |
|
| (14,259 | ) |
Dividends on common stock ($0.26 per share) |
|
| - |
|
|
| - |
|
|
| (892 | ) |
|
| - |
|
|
| (892 | ) |
Common stock issued |
|
| 13 |
|
|
| 67 |
|
|
| - |
|
|
| - |
|
|
| 80 |
|
Vesting of time based stock awards issued at date of grant |
|
| 26 |
|
|
| 29 |
|
|
| - |
|
|
| - |
|
|
| 55 |
|
Stock-based compensation expense |
|
| - |
|
|
| 17 |
|
|
| - |
|
|
| - |
|
|
| 17 |
|
Balance, March 31, 2022 |
| $ | 17,110 |
|
| $ | 10,240 |
|
| $ | 79,986 |
|
| $ | (19,351 | ) |
| $ | 87,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2022 |
| $ | 17,149 |
|
| $ | 10,577 |
|
| $ | 83,078 |
|
| $ | (40,012 | ) |
| $ | 70,792 |
|
Net income |
|
| - |
|
|
| - |
|
|
| 1,055 |
|
|
| - |
|
|
| 1,055 |
|
Cumulative effect adjustment due to the adoption of ASC 326, net of tax |
|
| - |
|
|
| - |
|
|
| (1,203 | ) |
|
| - |
|
|
| (1,203 | ) |
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,716 |
|
|
| 2,716 |
|
Dividends on common stock ($0.26 per share) |
|
| - |
|
|
| - |
|
|
| (899 | ) |
|
| - |
|
|
| (899 | ) |
Common stock issued |
|
| 18 |
|
|
| 63 |
|
|
| - |
|
|
| - |
|
|
| 81 |
|
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
|
| 40 |
|
|
| (11 | ) |
|
| - |
|
|
| - |
|
|
| 29 |
|
Stock-based compensation expense |
|
| - |
|
|
| 64 |
|
|
| - |
|
|
| - |
|
|
| 64 |
|
Balance, March 31, 2023 |
| $ | 17,207 |
|
| $ | 10,693 |
|
| $ | 82,031 |
|
| $ | (37,296 | ) |
| $ | 72,635 |
|
See Notes to Consolidated Financial Statements
6 |
Table of Contents |
F & M BANK CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 2,528 |
| $ | 3,801 |
|
| $ | 1,055 |
| $ | 2,528 |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| 283 |
| 293 |
|
| 276 |
| 283 |
| ||||||
Amortization of intangibles |
| 9 |
| 17 |
|
| 8 |
| 9 |
| ||||||
Amortization of securities |
| 6,174 |
| 239 |
|
| 3,461 |
| 6,174 |
| ||||||
Proceeds from loans held for sale originated |
| 39,724 |
| 63,032 |
| |||||||||||
Proceeds from loans held for sale |
| 31,451 |
| 39,724 |
| |||||||||||
Loans held for sale originated |
| (36,881 | ) |
| (56,331 | ) |
| (30,748 | ) |
| (36,881 | ) | ||||
Gain on sale of loans held for sale originated |
| (435 | ) |
| (1,606 | ) | ||||||||||
(Recovery of) loan losses |
| (450 | ) |
| (725 | ) | ||||||||||
(Increase) decrease in interest receivable |
| (228 | ) |
| 323 |
| ||||||||||
(Increase) in deferred taxes |
| (189 | ) |
| (189 | ) | ||||||||||
Gain on sale of loans held for sale |
| (572 | ) |
| (435 | ) | ||||||||||
Recovery of credit losses |
| - |
| (450 | ) | |||||||||||
Increase in interest receivable |
| (170 | ) |
| (228 | ) | ||||||||||
Decrease (increase) in deferred taxes |
| 9 |
| (189 | ) | |||||||||||
Decrease in taxes payable |
| - |
| 159 |
|
| (38 | ) |
| - |
| |||||
(Increase) decrease in other assets |
| (12 | ) |
| 1,433 |
| ||||||||||
(Decrease) in accrued expenses |
| (318 | ) |
| (842 | ) | ||||||||||
Decrease in other assets |
| (2,302 | ) |
| (12 | ) | ||||||||||
Decrease in accrued expenses |
| (2,486 | ) |
| (318 | ) | ||||||||||
Amortization of limited partnership investments |
| 204 |
| 215 |
|
| 205 |
| 204 |
| ||||||
Amortization of debt issuance costs |
| 11 |
| - |
| |||||||||||
Income from life insurance investment |
| (171 | ) |
| (168 | ) |
| (179 | ) |
| (171 | ) | ||||
(Gain) on the sale of fixed assets |
| (9 | ) |
| - |
| ||||||||||
Stock-based compensation expense |
|
| 17 |
|
|
| 9 |
|
|
| 64 |
|
|
| 17 |
|
Net cash provided by operating activities |
|
| 10,255 |
|
|
| 9,660 |
|
|
| 36 |
|
|
| 10,255 |
|
|
|
|
|
|
| |||||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
| ||||||
Purchase of investments available for sale and other investments |
| (85,163 | ) |
| (71,076 | ) |
| - |
| (85,163 | ) | |||||
Proceeds from maturity of investments available for sale |
| 3,000 |
| 4,623 |
|
| 3,825 |
| 3,000 |
| ||||||
(Purchase) of proceeds from the redemption of restricted stock, net |
| (136 | ) |
| 395 |
| ||||||||||
Net decrease in loans held for investment |
| 2,952 |
| 1,910 |
| |||||||||||
Net decrease in loans held for sale participations |
| - |
| 37,661 |
| |||||||||||
Proceeds from (investment in) the redemption of restricted stock, net |
| 624 |
| (136 | ) | |||||||||||
Investment in limited partnership |
| (100 | ) |
| - |
| ||||||||||
Net (increase) decrease in loans held for investment |
| (13,483 | ) |
| 2,952 |
| ||||||||||
Proceeds from the sale of fixed assets |
| 33 |
| - |
| |||||||||||
Net purchase of property and equipment |
|
| (1,904 | ) |
|
| (181 | ) |
|
| (684 | ) |
|
| (1,904 | ) |
Net cash (used in) investing activities |
|
| (81,251 | ) |
|
| (26,668 | ) |
|
| (9,785 | ) |
|
| (81,251 | ) |
|
|
|
|
|
| |||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
| ||||||
Net change in deposits |
| 32,000 |
| 44,170 |
|
| 21,858 |
| 32,000 |
| ||||||
Net change in short-term debt |
| (15,000 | ) |
| - |
| ||||||||||
Dividends paid in cash |
| (892 | ) |
| (898 | ) |
| (899 | ) |
| (892 | ) | ||||
Proceeds from issuance of common stock |
| 135 |
| 100 |
|
| 110 |
| 135 |
| ||||||
Amortization of debt issuance costs |
| 8 |
| 0 |
| |||||||||||
Repayments of long-term debt |
|
| - |
|
|
| (1,043 | ) |
|
| - |
|
|
| 8 |
|
Net cash provided by financing activities |
|
| 31,251 |
|
|
| 42,329 |
|
|
| 6,069 |
|
|
| 31,251 |
|
|
|
|
|
|
| |||||||||||
Net (decrease) increase in Cash and Cash Equivalents |
| (39,745 | ) |
| 25,321 |
| ||||||||||
Net decrease in Cash and Cash Equivalents |
| (3,680 | ) |
| (39,745 | ) | ||||||||||
Cash and cash equivalents, beginning of period |
|
| 88,121 |
|
|
| 78,408 |
|
|
| 34,953 |
|
|
| 88,121 |
|
Cash and cash equivalents, end of period |
| $ | 48,376 |
|
| $ | 103,729 |
|
| $ | 31,273 |
|
| $ | 48,376 |
|
|
|
|
|
|
| |||||||||||
Supplemental Cash Flow information: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for: Interest |
| $ | 1,244 |
| $ | 1,263 |
|
| $ | 4,765 |
| $ | 1,244 |
| ||
Cash paid for: Taxes |
| 0 |
| 0 |
| |||||||||||
|
|
|
|
|
| |||||||||||
Taxes |
| 360 |
| - |
| |||||||||||
Supplemental non-cash disclosures: |
|
|
|
|
|
|
|
|
|
| ||||||
Change in unrealized (loss) on securities available for sale, net of tax |
| $ | (14,259 | ) |
| $ | (1,411 | ) | ||||||||
Change in unrealized loss on securities available for sale |
| $ | 3,438 |
| $ | (18,049 | ) | |||||||||
Cumulative effect of the adoption of ASC 326 |
| 1,524 |
| - |
|
See Notes to Consolidated Financial Statements
7 |
Table of Contents |
Notes to the Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statementsConsolidated Financial Statements include the accounts of F&M Bank Corp. (the “Company”), Farmers & Merchants Bank (the “Bank”), TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc. (“FMFS”), VBS Mortgage, LLC (dba F“F&M Mortgage)Mortgage”), and VSTitle, LLC (“VST”), with all significant intercompany accounts and were prepared in accordance withtransactions eliminated.
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) forand to accepted practices within the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.banking industry.
NatureUse of Operations
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 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. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc. (“FMFS”), F&M Mortgage, and VSTitle, LLC (“VST”).
Basis of PresentationEstimates
The preparation of financial statements in conformity with U.S. 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 estimatesThe material estimate that areis particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and fair value. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.
Risk and Uncertainties
The coronavirus (“COVID-19”) pandemic spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our business operations in March 2020 with branch lobby closings, operations and administrative staff working remotely and the use of virtual meetings. Branch lobbies were only open by appointment from March 2020 to April 12, 2021 and from January 18, 2022 to March 7, 2022. The full impact of COVID-19 and its length and duration remains uncertain at this time. The Company is closely monitoring the effects of the pandemic on our customers and loan portfolio. The risks and uncertainties resulting from the pandemic may adversely affect our future earnings, cash flows and financial condition, including among others, credit losses resulting from financial stress on borrowers, decreased demand for products and operational failures. In addition, significant assumptions, judgments, and estimates used in the preparation of our financial statements, including those associated with evaluations of goodwill for impairment, and allowance for loan losses, may be subject to adjustments in future periods due to the rapidly changing, uncertain and unprecedented nature of the pandemic.
Note 1. Summary of Significant Accounting Policies, continuedlosses.
Reclassification
Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.
Nature of Operations
The Company, through its subsidiary Farmers & Merchants 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 Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, Frederick 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. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., F&M Mortgage, and VSTitle, LLC.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.
Accounting Standards Adopted in 2023
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments “ASC 326”. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.
In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.
8 |
Table of Contents |
The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $777 thousand, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $747 thousand, which is recorded within Other Liabilities. The Company recorded a net decrease to retained earnings of $1.2 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).
The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not deemed material.
The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.
Allowance for Credit Losses – Held to Maturity Securities
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities was immaterial at March 31, 2023 and was excluded from the estimate of credit losses.
The state and local governments securities held by the Company are highly rated by major rating agencies. As a result, no allowance for credit losses was recorded on held to maturity at March 31, 2023.
Allowance for Credit Losses – Available for Sale Securities
For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2023, there was no allowance for credit loss related to the available for sale portfolio.
Accrued interest receivable on available for sale debt securities totaled $1.4 million at March 31, 2023 and was excluded from the estimate of credit losses.
9 |
Table of Contents |
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $2.7 million at March 31, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.
The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.
All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.
Allowance for Credit Losses – Loans
The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The Company utilizes a Qualitative Scorecard (“scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Bank’s portfolio, in particular during the great financial crisis from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that in order to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses was the economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology:
1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates 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.
10 |
Table of Contents |
Other construction, land development and land. 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.
Secured by farmland. 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.
Home equity - open end. The home-equity loan portfolio carries 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.
Real estate. Real estate loans are for consumer residential 1-4 family 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.
Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to-value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.
Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property.
Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.
Other commercial real estate. The other commercial real estate segment includes loans secured by 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.
Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured).
Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).
Credit cards. 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.
Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles are subject to the risk of changing values in the availability of vehicles and the resale value.
Other consumer loans. Other consumer loans may be secured or unsecured. 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.
11 |
Table of Contents |
Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s trade area. Credit risk is based on the cash flow and management of the local town’s budgets.
Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.
Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.
Allowance for Credit Losses – Unfunded Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.
Earnings per Share
Accounting guidance specifies the computation, presentation and disclosure requirements for 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 net income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include 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. All of the Company’s outstanding preferred stock was redeemed by the Company for cash or converted to common stock during the fourth quarter of 2021. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends.
Net incomeRecent Accounting Pronouncements
Accounting Standards adopted in 2023:
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for 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 stockholderssale securities and addressed purchased financial assets with deterioration. ASU 2016-13 was effective for the periods presented (dollars in thousands):Company on January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $1.5 million. The adjustment net of tax recorded to stockholders’ equity totaled $1.2 million. See Note 1 for additional details of adoption of this standard.
|
| For the Three months ended |
|
| For the Three months ended |
| ||
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Earnings available to common stockholders: |
|
|
|
|
|
| ||
Net income |
| $ | 2,528 |
|
| $ | 3,801 |
|
Preferred stock dividends |
|
| - |
|
|
| 65 |
|
Net income available to common stockholders |
| $ | 2,528 |
|
| $ | 3,736 |
|
In March 2022, the 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 following table showsamendments in this ASU should be applied prospectively, except for the effecttransition method related to the recognition and measurement of dilutive preferred stock conversionTDRs, 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. ASU 2022-02 was effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s earnings per share for the periods indicated (dollars in thousands):
|
| Three months ended March 31, 2022 |
|
| Three months ended March 31, 2021 |
| ||||||||||||||||||
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
| ||||||
Basic EPS |
| $ | 2,528 |
|
|
| 3,434,892 |
|
| $ | 0.74 |
|
| $ | 3,736 |
|
|
| 3,205,074 |
|
| $ | 1.17 |
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 65 |
|
|
| 228,118 |
|
|
| (0.06 | ) |
Diluted EPS |
| $ | 2,528 |
|
|
| 3,434,892 |
|
| $ | 0.74 |
|
| $ | 3,801 |
|
|
| 3,433,192 |
|
| $ | 1.11 |
|
Note 2. Investment Securities
Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at March 31, 2022 and December 31, 2021 are as follows (dollars in thousands):financial statements.
|
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasuries |
| $ | 125 |
|
| $ | - |
|
| $ | - |
|
| $ | 125 |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasuries |
| $ | 125 |
|
| $ | - |
|
| $ | - |
|
| $ | 125 |
|
Table of Contents |
In March 2022, the FASB issued 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, FASB issued ASU 2017-12 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 adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Pending Adoption:
In March 2023, the FASB issued ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.
13 |
Table of Contents |
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 March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”. These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2023-01 to have a material impact on its consolidated financial statements.
In December 2022, the FASB issued ASU No. 2022-06, “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 LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of U.S. dollar 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 all 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 No. 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, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.
Note 2. Investment Securities continued
The amortized cost and estimated fair value of securities held to maturity along with gross unrealized gains and losses are summarized as follows (dollars in thousands):
|
|
|
| Gross |
|
| Gross |
|
|
| ||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasury |
| $ | 125 |
|
| $ | - |
|
| $ | 11 |
|
| $ | 114 |
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury |
| $ | 125 |
|
| $ | - |
|
| $ | 13 |
|
| $ | 112 |
|
There is no allowance for credit losses on held to maturity securities. At March 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the quarter ended March 31, 2023.
14 |
Table of Contents |
The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized as follows (dollars in thousands):
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government Treasuries |
| $ | 44,759 |
|
| $ | - |
|
| $ | 1,891 |
|
| $ | 42,868 |
|
U. S. Government sponsored enterprises |
|
| 163,460 |
|
|
| - |
|
|
| 4,920 |
|
|
| 158,540 |
|
Securities issued by States and political subdivisions in the U.S. |
|
| 34,570 |
|
|
| - |
|
|
| 1,896 |
|
|
| 32,674 |
|
Mortgage-backed obligations of federal agencies |
|
| 208,812 |
|
|
| 248 |
|
|
| 11,466 |
|
|
| 197,594 |
|
Corporate debt security |
|
| 30,550 |
|
|
| 318 |
|
|
| 722 |
|
|
| 30,146 |
|
Total Securities Available for Sale |
| $ | 482,151 |
|
| $ | 566 |
|
| $ | 20,895 |
|
| $ | 461,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government 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 |
|
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
March 31, 2023 | ||||||||||||||||
U.S. Treasury | $ | 39,908 | $ | - | $ | 2,706 | $ | 37,202 | ||||||||
U.S. Agency | 143,477 | - | 11,978 | 131,499 | ||||||||||||
Municipal bonds | 42,463 | 93 | 3,577 | 38,979 | ||||||||||||
Mortgage-backed securities | 179,715 | 109 | 25,180 | 154,644 | ||||||||||||
Corporate | 30,550 | 1 | 4,627 | 25,924 | ||||||||||||
Total Securities Available for Sale | $ | 436,113 | $ | 203 | $ | 48,068 | $ | 388,248 |
|
| Amortized Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
| ||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
| $ | 39,902 |
|
| $ | - |
|
| $ | 3,259 |
|
| $ | 36,643 |
|
U.S. Agency |
|
| 143,473 |
|
|
| - |
|
|
| 13,725 |
|
|
| 129,748 |
|
Municipal bonds |
|
| 46,331 |
|
|
| 27 |
|
|
| 4,160 |
|
|
| 42,198 |
|
Mortgage-backed securities |
|
| 183,044 |
|
|
| 77 |
|
|
| 26,246 |
|
|
| 156,875 |
|
Corporate |
|
| 30,550 |
|
|
| - |
|
|
| 3,919 |
|
|
| 26,631 |
|
Total Securities Available for Sale |
| $ | 443,300 |
|
| $ | 104 |
|
| $ | 51,309 |
|
| $ | 392,095 |
|
There was no allowance for credit losses on available for sale securities.
The amortized cost and fair value of securities at March 31, 2022,2023, by contractual maturity are shown 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 |
| Securities Held to Maturity | Securities Available for Sale | ||||||||||||||||||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized | Fair | Amortized | Fair | |||||||||||||||||||
|
| Cost |
|
| Value |
|
| Cost |
|
| Value |
| Cost | Value | Cost | Value | ||||||||||||||||
Due in one year or less |
| $ | 125 |
| $ | 125 |
| $ | 4,835 |
| $ | 4,797 |
| $ | 125 | $ | 114 | $ | 21,010 | $ | 20,412 | |||||||||||
Due after one year through five years |
| - |
| - |
| 195,056 |
| 189,575 |
| - | - | 187,096 | 172,416 | |||||||||||||||||||
Due after five years |
| - |
| - |
| 105,218 |
| 100,754 |
| - | - | 78,775 | 67,580 | |||||||||||||||||||
Due after ten years |
|
| - |
|
|
| - |
|
|
| 177,042 |
|
|
| 166,696 |
| - | - | 149,232 | 127,840 | ||||||||||||
Total |
| $ | 125 |
|
| $ | 125 |
|
| $ | 482,151 |
|
| $ | 461,822 |
| $ | 125 | $ | 114 | $ | 436,113 | $ | 388,248 |
There were no sales of available for sale securities in the first quarter of 20222023 or 2021. Securities held2022.
The following table shows the gross unrealized losses and estimated fair value of available for sale securities for which an allowance for credit losses has not been recorded, aggregated by category and length of time that are U.S. Agency, Treasury, Government Sponsored Entities and Agency MBS carry an implicit government guarantee and are not subject to other than temporary impairment evaluation. Other securities were reviewed for impairment. The securities issued by States and political subdivisionshave been in the U.S. were in ana continuous unrealized loss position for less than 12 months. One bank subordinated debt offering wasat March 31, 2023 (dollars in a loss position for 12 consecutive monthsthousands):
Less than 12 Months | More than 12 Months | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
March 31, 2023 | ||||||||||||||||||||||||
U.S. Treasury | $ | 4,868 | $ | 134 | $ | 32,335 | $ | 2,572 | $ | 37,203 | $ | 2,706 | ||||||||||||
U.S. Agency | 4,762 | 238 | 126,737 | 11,740 | 131,499 | 11,978 | ||||||||||||||||||
Municipal bonds | 2,421 | 179 | 30,935 | 3,398 | 33,356 | 3,577 | ||||||||||||||||||
Mortgage-backed securities | 2,657 | 61 | 147,904 | 25,119 | 150,561 | 25,180 | ||||||||||||||||||
Corporate | 7,829 | 1,121 | 18,094 | 3,506 | 25,923 | 4,627 | ||||||||||||||||||
Total | $ | 22,537 | $ | 1,733 | $ | 356,005 | $ | 46,335 | $ | 378,542 | $ | 48,068 |
Unrealized losses at March 31, 2023 were generally attributable to changes in market interest rates and totaled $489 thousand. The pricing services tendinterest spread relationships since the investment securities were originally purchased, and not due to not be exactthe credit quality concerns on these offerings because of the marketability ofinvestment securities. Issuers continue to make timely principal and interest payments and the offering. The Company reviews the relevant ratios on each subordinated debt holding quarterly. Because management does not intendcurrently has no plans to sell the investments and it is more likely than not that managementthe Company will not be requiredhave to sell the securities prior to their anticipatedbefore recovery and the decline in fair value is largely due to changes in interest rates and other market conditions, no declines are currently deemed toof its amortized cost basis, which may be other than temporary.at maturity.
Table of Contents |
Note 2. Investment Securities, continued
A summary ofThe following table shows the gross unrealized losses (in thousands) and theestimated fair value of available sale securities and held to maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position by security type of Marchat December 31, 2022 and December 31, 2021 were as follows:(dollars in thousands):
|
| Less than 12 Months |
|
| More than 12 Months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U. S. Government treasuries |
| $ | 28,752 |
|
| $ | 1,074 |
|
| $ | 9,088 |
|
| $ | 817 |
|
| $ | 37,840 |
|
| $ | 1,891 |
|
U. S. Government sponsored enterprises |
|
| 135,152 |
|
|
| 3,315 |
|
|
| 23,388 |
|
|
| 1,605 |
|
|
| 158,540 |
|
|
| 4,920 |
|
Securities issued by States and political subdivisions in the U.S. |
|
| 32,674 |
|
|
| 1,896 |
|
|
| - |
|
|
| - |
|
|
| 32,674 |
|
|
| 1,896 |
|
Mortgage-backed obligations of federal agencies |
|
| 129,236 |
|
|
| 8,898 |
|
|
| 31,274 |
|
|
| 2,568 |
|
|
| 160,510 |
|
|
| 11,466 |
|
Corporate debt security |
|
| 15,339 |
|
|
| 711 |
|
|
| 489 |
|
|
| 11 |
|
|
| 15,828 |
|
|
| 722 |
|
Total |
| $ | 341,153 |
|
| $ | 15,894 |
|
| $ | 64,239 |
|
| $ | 5,001 |
|
| $ | 405,392 |
|
| $ | 20,895 |
|
|
| Less than 12 Months |
|
| More than 12 Months | Total |
| |||||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| 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 |
|
| $ | 3,850 |
|
|
| 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. Treasury |
| $ | 9,657 |
|
| $ | 362 |
|
| $ | 26,987 |
|
| $ | 2,897 |
|
| $ | 36,644 |
|
| $ | 3,259 |
|
U.S. Agency |
|
| 13,914 |
|
|
| 1,083 |
|
|
| 115,835 |
|
|
| 12,642 |
|
|
| 129,749 |
|
|
| 13,725 |
|
Municipal bonds |
|
| 21,805 |
|
|
| 1,426 |
|
|
| 18,710 |
|
|
| 2,734 |
|
|
| 40,515 |
|
|
| 4,160 |
|
Mortgage-backed securities |
|
| 32,823 |
|
|
| 2,429 |
|
|
| 119,892 |
|
|
| 23,817 |
|
|
| 152,715 |
|
|
| 26,246 |
|
Corporate |
|
| 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 |
|
As of March 31, 2022,2023, other investments consist of investments in thirteen low-income housing and historic equity partnerships (carrying basis of $6,558)$5.7 million), stock in the Federal Home Loan Bank of Atlanta (“FHLB’) (carrying basis $994)$2.97 million) and various other investments (carrying basis $1,590)$1.9 million). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The fair values of these securities are estimated to approximate their carrying value as of March 31, 2022.2023. At March 31, 2022,2023, the Company was committed to invest an additional $961$775 thousand in fourthree 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 other liabilities on the consolidated balance sheet. The Company does not have any pledged securities.
Note 3. Loans and Allowance for Credit Losses
Loans held for investment outstanding at March 31, 2022Under adoption of ASC 326, there were changes to certain loan segments to better differentiate credit characteristics and December 31, 2021 are summarized as follows (in thousands):
|
| 2022 |
|
| 2021 |
| ||
Construction/Land Development |
| $ | 72,248 |
|
| $ | 75,236 |
|
Farmland |
|
| 65,503 |
|
|
| 66,344 |
|
Real Estate |
|
| 138,620 |
|
|
| 139,552 |
|
Multi-Family |
|
| 5,667 |
|
|
| 4,887 |
|
Commercial Real Estate |
|
| 162,340 |
|
|
| 163,564 |
|
Home Equity – closed end |
|
| 5,732 |
|
|
| 6,262 |
|
Home Equity – open end |
|
| 45,415 |
|
|
| 44,247 |
|
Commercial & Industrial – Non-Real Estate |
|
| 42,720 |
|
|
| 44,224 |
|
Consumer |
|
| 7,529 |
|
|
| 8,036 |
|
Dealer Finance |
|
| 111,237 |
|
|
| 107,346 |
|
Credit Cards |
|
| 2,869 |
|
|
| 3,000 |
|
Gross loans | �� |
| 659,880 |
|
|
| 662,698 |
|
Less: Deferred loan fees, net of costs |
|
| (320 | ) |
|
| (277 | ) |
Total |
| $ | 659,560 |
|
| $ | 662,421 |
|
Note 3. Loans, continued
The Company has pledged loans held for investment as collateral for borrowingsalign with the Federal Home Loan Bank of Atlanta totaling $163,070our ACL model. Construction/land development was split into two segments: 1-4 family residential construction and $163,326 as of March 31, 2022other construction, land development and December 31, 2021, respectively. The Company maintains a blanket lien on certain loans in its residentialland. Commercial real estate was also split into two segments: owner-occupied commercial real estate and other commercial real estate. Commercial and industrial – non-real estate was divided into agricultural loans, commercial and home equity portfolios.
Loans held for sale, at fair value consists ofindustrial loans, originated by F&M Mortgage for sale in the secondary market. The volume of loans fluctuates due to changes in secondary market rates, which affects demand for mortgageand municipal loans. Loans held for sale as of March 31, 2022 and December 31, 2021 were $2,479 and $4,887, respectively.
The following is a summary of information pertaining to impaired loans (dollars in thousand):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
|
|
|
| Unpaid |
|
|
|
|
|
| Unpaid |
|
|
| |||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Principal |
|
| Related |
| ||||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
| ||||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction/Land Development |
| $ | 637 |
|
| $ | 637 |
|
| $ | - |
|
| $ | 645 |
|
| $ | 645 |
|
| $ | - |
|
Farmland |
|
| 2,215 |
|
|
| 2,215 |
|
|
| - |
|
|
| 2,286 |
|
|
| 2,286 |
|
|
| - |
|
Real Estate |
|
| 2,384 |
|
|
| 2,384 |
|
|
| - |
|
|
| 2,748 |
|
|
| 2,748 |
|
|
| - |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 11,032 |
|
|
| 11,032 |
|
|
| - |
|
|
| 8,494 |
|
|
| 8,494 |
|
|
| - |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 147 |
|
|
| 147 |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 5 |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 15 |
|
|
| 15 |
|
|
| - |
|
|
| 12 |
|
|
| 12 |
|
|
| - |
|
|
|
| 16,283 |
|
|
| 16,283 |
|
|
| - |
|
|
| 14,337 |
|
|
| 14,337 |
|
|
| - |
|
Impaired loans with a valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Farmland |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Real Estate |
|
| 1,495 |
|
|
| 1,495 |
|
|
| 113 |
|
|
| 1,172 |
|
|
| 1,172 |
|
|
| 119 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 3,243 |
|
|
| 3,243 |
|
|
| 456 |
|
|
| 6,004 |
|
|
| 6,004 |
|
|
| 603 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 54 |
|
|
| 54 |
|
|
| 13 |
|
|
| 95 |
|
|
| 95 |
|
|
| 14 |
|
|
|
| 4,792 |
|
|
| 4,792 |
|
|
| 582 |
|
|
| 7,271 |
|
|
| 7,271 |
|
|
| 736 |
|
Total impaired loans |
| $ | 21,075 |
|
| $ | 21,075 |
|
| $ | 582 |
|
| $ | 21,608 |
|
| $ | 21,608 |
|
| $ | 736 |
|
1The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.
Note 3. Loans, continuedDealer finance was consolidated with other automobile loans.
The following is a summary of the average investmentmajor categories of total loans outstanding at March 31, 2023 and interest income recognized for impaired loansDecember 31, 2022 (dollars in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Average Recorded |
|
| Interest Income |
|
| Average Recorded |
|
| Interest Income |
| ||||
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
| ||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ | 641 |
|
| $ | 6 |
|
| $ | 984 |
|
| $ | 29 |
|
Farmland |
|
| 2,251 |
|
|
| 70 |
|
|
| 1,760 |
|
|
| 126 |
|
Real Estate |
|
| 2,566 |
|
|
| 33 |
|
|
| 4,575 |
|
|
| 155 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 9,763 |
|
|
| 186 |
|
|
| 9,225 |
|
|
| 253 |
|
Home Equity – closed end |
|
| 74 |
|
|
| - |
|
|
| 414 |
|
|
| 18 |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| - |
|
Consumer |
|
| 3 |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
Credit Cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 14 |
|
|
| - |
|
|
| 14 |
|
|
| 1 |
|
|
|
| 15,312 |
|
|
| 295 |
|
|
| 16,975 |
|
|
| 582 |
|
Impaired loans with a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Farmland |
|
| - |
|
|
| - |
|
|
| 420 |
|
|
| - |
|
Real Estate |
|
| 1,334 |
|
|
| 16 |
|
|
| 1,399 |
|
|
| 45 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 4,624 |
|
|
| 42 |
|
|
| 6,201 |
|
|
| 172 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit Card |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 75 |
|
|
| 1 |
|
|
| 112 |
|
|
| 9 |
|
|
|
| 6,033 |
|
|
| 59 |
|
|
| 8,132 |
|
|
| 226 |
|
Total Impaired Loans |
| $ | 21,345 |
|
| $ | 354 |
|
| $ | 25,107 |
|
| $ | 808 |
|
Note 3. Loans, continued
The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of March 31, 2022 and December 31, 2021:
March 31, 2022 |
| 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 |
| ||||||||
Construction/Land Development |
| $ | 31 |
|
| $ | 55 |
|
| $ | - |
|
| $ | 86 |
|
| $ | 72,162 |
|
| $ | 72,248 |
|
| $ | 86 |
|
| $ | - |
|
Farmland |
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 20 |
|
|
| 65,483 |
|
|
| 65,503 |
|
|
| 1,259 |
|
|
| - |
|
Real Estate |
|
| 873 |
|
|
| 124 |
|
|
| 366 |
|
|
| 1,363 |
|
|
| 137,257 |
|
|
| 138,620 |
|
|
| 551 |
|
|
| - |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,667 |
|
|
| 5,667 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 244 |
|
|
| - |
|
|
| 108 |
|
|
| 352 |
|
|
| 161,988 |
|
|
| 162,340 |
|
|
| 2,798 |
|
|
| - |
|
Home Equity – closed end |
|
| 106 |
|
|
| - |
|
|
| - |
|
|
| 106 |
|
|
| 5,626 |
|
|
| 5,732 |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| 333 |
|
|
| - |
|
|
| 7 |
|
|
| 340 |
|
|
| 45,075 |
|
|
| 45,415 |
|
|
| - |
|
|
| 7 |
|
Commercial & Industrial – Non- Real Estate |
|
| 28 |
|
|
| - |
|
|
| 77 |
|
|
| 105 |
|
|
| 42,615 |
|
|
| 42,720 |
|
|
| 35 |
|
|
| 41 |
|
Consumer |
|
| 16 |
|
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| 7,513 |
|
|
| 7,529 |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 477 |
|
|
| 146 |
|
|
| - |
|
|
| 623 |
|
|
| 110,614 |
|
|
| 111,237 |
|
|
| 22 |
|
|
| - |
|
Credit Cards |
|
| 14 |
|
|
| 2 |
|
|
| 6 |
|
|
| 22 |
|
|
| 2,847 |
|
|
| 2,869 |
|
|
| - |
|
|
| 6 |
|
Less: Deferred loan fees, net of costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (320 | ) |
|
| (320 | ) |
|
| - |
|
|
| - |
|
Total |
| $ | 2,142 |
|
| $ | 327 |
|
| $ | 564 |
|
| $ | 3,033 |
|
| $ | 656,527 |
|
| $ | 659,560 |
|
| $ | 4,751 |
|
| $ | 54 |
|
December 31, 2021 |
| 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 |
| ||||||||
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 |
|
On March 31, 2022 and December 31, 2021, other real estate owned did not include any foreclosed residential real estate. The Company has $366 thousand of consumer mortgages for which foreclosure was in process on March 31, 2022.
Nonaccrual loans on March 31, 2022 would have earned approximately $54 thousand in interest income for the quarter had they been accruing loans.
Note 4. Allowance for Loan Losses
A summary of changes in the allowance for loan losses (dollars in thousands) for March 31, 2022 and December 31, 2021 is as follows:
March 31, 2022 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction/Land Development |
| $ | 977 |
|
| $ | - |
|
| $ | - |
|
| $ | (275 | ) |
| $ | 702 |
|
| $ | - |
|
| $ | 702 |
|
Farmland |
|
| 448 |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| 452 |
|
|
| - |
|
|
| 452 |
|
Real Estate |
|
| 1,162 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 1,164 |
|
|
| 113 |
|
|
| 1,051 |
|
Multi-Family |
|
| 29 |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| 35 |
|
|
| - |
|
|
| 35 |
|
Commercial Real Estate |
|
| 2,205 |
|
|
| - |
|
|
| - |
|
|
| (112 | ) |
|
| 2,093 |
|
|
| 456 |
|
|
| 1,637 |
|
Home Equity – closed end |
|
| 41 |
|
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| 39 |
|
|
| - |
|
|
| 39 |
|
Home Equity – open end |
|
| 407 |
|
|
| - |
|
|
| 129 |
|
|
| (162 | ) |
|
| 374 |
|
|
| - |
|
|
| 374 |
|
Commercial & Industrial – Non-Real Estate |
|
| 288 |
|
|
| 1 |
|
|
| 30 |
|
|
| (7 | ) |
|
| 310 |
|
|
| - |
|
|
| 310 |
|
Consumer |
|
| 520 |
|
|
| 21 |
|
|
| 11 |
|
|
| 13 |
|
|
| 523 |
|
|
| - |
|
|
| 523 |
|
Dealer Finance |
|
| 1,601 |
|
|
| 204 |
|
|
| 152 |
|
|
| 85 |
|
|
| 1,634 |
|
|
| 13 |
|
|
| 1,621 |
|
Credit Cards |
|
| 70 |
|
|
| 12 |
|
|
| 7 |
|
|
| (2 | ) |
|
| 63 |
|
|
| - |
|
|
| 63 |
|
Total |
| $ | 7,748 |
|
| $ | 238 |
|
| $ | 329 |
|
| $ | (450 | ) |
| $ | 7,389 |
|
| $ | 582 |
|
| $ | 6,807 |
|
December 31, 2021 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| 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 |
|
Note 4. Allowance for Loan Losses, continued
The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of March 31, 2022 and December 31, 2021:
March 31, 2022 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ | 72,248 |
|
| $ | 637 |
|
| $ | 71,611 |
|
Farmland |
|
| 65,503 |
|
|
| 2,215 |
|
|
| 63,288 |
|
Real Estate |
|
| 138,620 |
|
|
| 3,879 |
|
|
| 134,741 |
|
Multi-Family |
|
| 5,667 |
|
|
| - |
|
|
| 5,667 |
|
Commercial Real Estate |
|
| 162,340 |
|
|
| 14,275 |
|
|
| 148,065 |
|
Home Equity – closed end |
|
| 5,732 |
|
|
| - |
|
|
| 5,732 |
|
Home Equity –open end |
|
| 45,415 |
|
|
| - |
|
|
| 45,415 |
|
Commercial & Industrial – Non-Real Estate |
|
| 42,720 |
|
|
| - |
|
|
| 42,720 |
|
Consumer |
|
| 7,529 |
|
|
| - |
|
|
| 7,529 |
|
Dealer Finance |
|
| 111,237 |
|
|
| 69 |
|
|
| 111,168 |
|
Credit Cards |
|
| 2,869 |
|
|
| - |
|
|
| 2,869 |
|
Gross loans |
|
| 659,880 |
|
|
| 21,075 |
|
|
| 638,805 |
|
Less: Deferred loan fees, net of costs |
|
| (320 | ) |
|
| - |
|
|
| (320 | ) |
Total |
| $ | 659,560 |
|
| $ | 21,075 |
|
| $ | 638,485 |
|
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 |
|
|
| March 31, 2023 |
| |
1-4 Family residential construction |
| $ | 28,774 |
|
Other construction, land development and land |
|
| 40,472 |
|
Secured by farmland |
|
| 74,322 |
|
Home equity – open end |
|
| 46,434 |
|
Real estate |
|
| 161,022 |
|
Home Equity – closed end |
|
| 4,563 |
|
Multifamily |
|
| 10,042 |
|
Owner-occupied commercial real estate |
|
| 91,595 |
|
Other commercial real estate |
|
| 103,392 |
|
Agricultural loans |
|
| 11,849 |
|
Commercial and industrial |
|
| 45,307 |
|
Credit Cards |
|
| 3,256 |
|
Automobile loans |
|
| 114,549 |
|
Other consumer loans |
|
| 15,681 |
|
Municipal loans |
|
| 6,248 |
|
Gross loans |
|
| 757,506 |
|
Unamortized net deferred loan fees |
|
| (586 | ) |
Less allowance for credit losses |
|
| 8,546 |
|
Net loans |
| $ | 748,374 |
|
16 |
Table of Contents |
|
| December 31, 2022 |
| |
Construction/Land Development |
| $ | 68,671 |
|
Farmland |
|
| 74,322 |
|
Real Estate |
|
| 153,281 |
|
Multi-Family |
|
| 9,622 |
|
Commercial Real Estate |
|
| 195,163 |
|
Home Equity – closed end |
|
| 4,707 |
|
Home Equity – open end |
|
| 46,928 |
|
Commercial & Industrial – Non-Real Estate |
|
| 56,625 |
|
Consumer |
|
| 6,488 |
|
Dealer Finance |
|
| 125,125 |
|
Credit Cards |
|
| 3,242 |
|
Gross loans |
|
| 744,174 |
|
Unamortized net deferred loan fees |
|
| (570 | ) |
Less allowance for credit losses |
|
| 7,936 |
|
Net loans |
| $ | 735,668 |
|
Note 4. Allowance
The Company has pledged loans held for Loan Losses, continuedinvestment as collateral for borrowings with the FHLB totaling $248.8 million and $209.8 million as of March 31, 2023 and December 31, 2022, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios.
Nonaccrual and Past Due Loans
The following table shows the aging of the Company’s loan portfolio, broken down by internal loan gradeclass, at March 31, 2023 (dollars in thousands) as of:
|
| Accruing Loans 30-59 Days Past due |
|
| Accruing Loans 60-89 Days Past due |
|
| Accruing Loans 90 Days or More Past due |
|
| Nonaccrual Loans |
|
| Accruing Current Loans |
|
| Total Loans |
| ||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1-4 Family residential construction |
| $ | 589 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 28,185 |
|
| $ | 28,774 |
|
Other construction, land development and land |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 33 |
|
|
| 40,439 |
|
|
| 40,472 |
|
Secured by farmland |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 984 |
|
|
| 73,338 |
|
|
| 74,322 |
|
Home equity – open end |
|
| 204 |
|
|
| 331 |
|
|
| - |
|
|
| 24 |
|
|
| 45,875 |
|
|
| 46,434 |
|
Real estate |
|
| 1,880 |
|
|
| - |
|
|
| - |
|
|
| 421 |
|
|
| 158,721 |
|
|
| 161,022 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,563 |
|
|
| 4,563 |
|
Multifamily |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,042 |
|
|
| 10,042 |
|
Owner-occupied commercial real estate |
|
| 171 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 91,424 |
|
|
| 91,595 |
|
Other commercial real estate |
|
| 71 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 103,321 |
|
|
| 103,392 |
|
Agricultural loans |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 88 |
|
|
| 11,761 |
|
|
| 11,849 |
|
Commercial and industrial |
|
| 7 |
|
|
| 93 |
|
|
| 30 |
|
|
| - |
|
|
| 45,177 |
|
|
| 45,307 |
|
Credit Cards |
|
| 25 |
|
|
| 4 |
|
|
| 9 |
|
|
| - |
|
|
| 3,218 |
|
|
| 3,256 |
|
Automobile loans |
|
| 808 |
|
|
| 251 |
|
|
| - |
|
|
| 193 |
|
|
| 113,297 |
|
|
| 114,549 |
|
Other consumer loans |
|
| 67 |
|
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| 15,601 |
|
|
| 15,681 |
|
Municipal loans |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,248 |
|
|
| 6,248 |
|
Gross loans |
|
| 3,822 |
|
|
| 692 |
|
|
| 39 |
|
|
| 1,743 |
|
|
| 751,210 |
|
|
| 757,506 |
|
Less: Unamortized net deferred loan fees |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (586 | ) |
|
| (586 | ) |
Loans held for investment |
| $ | 3,822 |
|
| $ | 692 |
|
| $ | 39 |
|
| $ | 1,743 |
|
| $ | 750,654 |
|
| $ | 756,920 |
|
There were $1.7 million and $2.2 million in nonaccrual loans at March 31, 20222023 and December 31, 2021:2022, respectively. The Company would have earned $28 thousand in the first quarter of 2023 and $54 thousand in the first quarter of 2022, if interest on the nonaccrual loans had been accrued.
March 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 |
| $ | - |
|
| $ | 5 |
|
| $ | 10,237 |
|
| $ | 42,138 |
|
| $ | 18,116 |
|
| $ | 1,666 |
|
| $ | 86 |
|
| $ | - |
|
| $ | 72,248 |
|
Farmland |
|
| 56 |
|
|
| 284 |
|
|
| 6,541 |
|
|
| 42,425 |
|
|
| 13,409 |
|
|
| 1,529 |
|
|
| 1,259 |
|
|
| - |
|
|
| 65,503 |
|
Real Estate |
|
| - |
|
|
| 893 |
|
|
| 29,446 |
|
|
| 64,516 |
|
|
| 28,028 |
|
|
| 11,129 |
|
|
| 4,608 |
|
|
| - |
|
|
| 138,620 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| 1,007 |
|
|
| 2,838 |
|
|
| 1,700 |
|
|
| 122 |
|
|
| - |
|
|
| - |
|
|
| 5,667 |
|
Commercial Real Estate |
|
| - |
|
|
| 1,250 |
|
|
| 31,985 |
|
|
| 71,222 |
|
|
| 41,352 |
|
|
| 3,890 |
|
|
| 12,641 |
|
|
| - |
|
|
| 162,340 |
|
Home Equity – closed end |
|
| - |
|
|
| 58 |
|
|
| 1,051 |
|
|
| 2,968 |
|
|
| 685 |
|
|
| 970 |
|
|
| - |
|
|
| - |
|
|
| 5,732 |
|
Home Equity – open end |
|
| - |
|
|
| 1,336 |
|
|
| 17,138 |
|
|
| 22,957 |
|
|
| 2,278 |
|
|
| 1,484 |
|
|
| 222 |
|
|
| - |
|
|
| 45,415 |
|
Commercial & Industrial -Non-Real Estate |
|
| 14 |
|
|
| 996 |
|
|
| 9,704 |
|
|
| 23,440 |
|
|
| 7,927 |
|
|
| 543 |
|
|
| 96 |
|
|
| - |
|
|
| 42,720 |
|
Consumer (excluding dealer) |
|
| 18 |
|
|
| 276 |
|
|
| 3,420 |
|
|
| 3,598 |
|
|
| 149 |
|
|
| 68 |
|
|
| - |
|
|
| - |
|
|
| 7,529 |
|
Gross Loans |
| $ | 88 |
|
| $ | 5,098 |
|
| $ | 110,529 |
|
| $ | 276,102 |
|
| $ | 113,644 |
|
| $ | 21,401 |
|
| $ | 18,912 |
|
| $ | - |
|
| $ | 545,774 |
|
Less: Deferred loan fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (320 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 545,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Cards |
|
| Dealer Finance |
|
|
|
|
|
|
|
|
| ||
Performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,863 |
|
| $ | 111,215 |
|
|
|
|
|
|
|
|
|
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
| 22 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,869 |
|
| $ | 111,237 |
|
|
|
|
|
|
|
|
|
17 |
Table of Contents |
Note 4. Allowance for Loan Losses, continuedThe following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2022 (dollars in thousands):
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 |
|
|
|
|
|
|
|
|
|
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| 16 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 107,346 |
|
|
|
|
|
|
|
|
|
|
| Accruing Loans 30-59 Days Past due |
|
| Accruing Loans 60-89 Days Past due |
|
| Accruing Loans 90 Days or More Past Due |
|
| Nonaccrual Loans |
|
| Accruing Current Loans |
|
| Total Loans |
| ||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction/Land Development |
| $ | 477 |
|
| $ | 539 |
|
| $ | - |
|
| $ | 21 |
|
| $ | 67,634 |
|
| $ | 68,671 |
|
Farmland |
|
| 85 |
|
|
| 18 |
|
|
| - |
|
|
| 1,458 |
|
|
| 72,761 |
|
|
| 74,322 |
|
Real Estate |
|
| 1,807 |
|
|
| 226 |
|
|
| - |
|
|
| 419 |
|
|
| 150,829 |
|
|
| 153,281 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,622 |
|
|
| 9,622 |
|
Commercial Real Estate |
|
| 234 |
|
|
| 82 |
|
|
| - |
|
|
| - |
|
|
| 194,847 |
|
|
| 195,163 |
|
Home Equity – closed end |
|
| 3 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,704 |
|
|
| 4,707 |
|
Home Equity – open end |
|
| 385 |
|
|
| 177 |
|
|
| - |
|
|
| - |
|
|
| 46,366 |
|
|
| 46,928 |
|
Commercial & Industrial – Non- Real Estate |
|
| 104 |
|
|
| - |
|
|
| 31 |
|
|
| 101 |
|
|
| 56,389 |
|
|
| 56,625 |
|
Consumer |
|
| 11 |
|
|
| 11 |
|
|
| - |
|
|
| 15 |
|
|
| 6,451 |
|
|
| 6,488 |
|
Dealer Finance |
|
| 1,117 |
|
|
| 225 |
|
|
| 5 |
|
|
| 210 |
|
|
| 123,568 |
|
|
| 125,125 |
|
Credit Cards |
|
| 51 |
|
|
| 9 |
|
|
| 2 |
|
|
| - |
|
|
| 3,180 |
|
|
| 3,242 |
|
Less: Unamortized net deferred loan fees |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (570 | ) |
|
| (570 | ) |
Loans held for investment |
| $ | 4,274 |
|
| $ | 1,287 |
|
| $ | 38 |
|
| $ | 2,224 |
|
| $ | 735,781 |
|
| $ | 743,604 |
|
The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (dollars in thousands).
|
| CECL |
|
| Incurred Loss |
| ||||||||||
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Nonaccrual loans with No Allowance |
|
| Nonaccrual Loans with an Allowance |
|
| Total Nonaccrual Loans |
|
| Nonaccrual Loans |
| ||||
1-4 Family residential construction |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Other construction, land development and land |
|
| 33 |
|
|
| - |
|
|
| 33 |
|
|
| 21 |
|
Secured by farmland |
|
| 984 |
|
|
| - |
|
|
| 984 |
|
|
| 1,458 |
|
Home equity – open end |
|
| 24 |
|
|
| - |
|
|
| 24 |
|
|
| - |
|
Real estate |
|
| 421 |
|
|
| - |
|
|
| 421 |
|
|
| 419 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Multifamily |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Owner-occupied commercial real estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Other commercial real estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Agricultural loans |
|
| 88 |
|
|
| - |
|
|
| 88 |
|
|
| 88 |
|
Commercial and industrial |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13 |
|
Credit Cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Automobile loans |
|
| 193 |
|
|
| - |
|
|
| 193 |
|
|
| 210 |
|
Other consumer loans |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 15 |
|
Municipal loans |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total loans |
| $ | 1,743 |
|
| $ | - |
|
| $ | 1,743 |
|
| $ | 2,224 |
|
18 |
Table of Contents |
The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2023 (dollars in thousands):
|
| For the Three Months Ended March 31, 2023 |
| |
1-4 Family residential construction |
| $ | - |
|
Other construction, land development and land |
|
| - |
|
Secured by farmland |
|
| - |
|
Home equity – open end |
|
| - |
|
Real estate |
|
| - |
|
Home Equity – closed end |
|
| - |
|
Multifamily |
|
| - |
|
Owner-occupied commercial real estate |
|
| - |
|
Other commercial real estate |
|
| - |
|
Agricultural loans |
|
| - |
|
Commercial and industrial |
|
| - |
|
Credit Cards |
|
| - |
|
Automobile loans |
|
| 2 |
|
Other consumer loans |
|
| - |
|
Municipal loans |
|
| - |
|
Total loans |
| $ | 2 |
|
19 |
Table of Contents |
Credit Quality Indicators
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2023 (dollars in thousands):
|
| Term Loans by Year of Origination |
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Revolving |
|
| Total |
| ||||||||
1-4 Family residential construction |
|
| ||||||||||||||||||||||||||||||
Pass |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 27,443 |
|
| $ | 27,443 |
|
Watch |
|
| 642 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 250 |
|
|
| 892 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 439 |
|
|
| 439 |
|
Total 1-4 Family residential construction |
|
| 642 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,132 |
|
|
| 28,774 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other construction, land development and land | ||||||||||||||||||||||||||||||||
Pass |
|
| 3,375 |
|
|
| 5,312 |
|
|
| 6,194 |
|
|
| 1,917 |
|
|
| 3,006 |
|
|
| 5,823 |
|
|
| 13,853 |
|
|
| 39,480 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 268 |
|
|
| 170 |
|
|
| 438 |
|
Substandard |
|
| - |
|
|
| 521 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 33 |
|
|
| - |
|
|
| 554 |
|
Total Other construction, land development and land |
|
| 3,375 |
|
|
| 5,833 |
|
|
| 6,194 |
|
|
| 1,917 |
|
|
| 3,006 |
|
|
| 6,124 |
|
|
| 14,023 |
|
|
| 40,472 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by farmland | ||||||||||||||||||||||||||||||||
Pass |
|
| 890 |
|
|
| 13,597 |
|
|
| 14,991 |
|
|
| 28,307 |
|
|
| 3,387 |
|
|
| 7,090 |
|
|
| 4,157 |
|
|
| 72,419 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 919 |
|
|
| - |
|
|
| 919 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| 315 |
|
|
| - |
|
|
| - |
|
|
| 652 |
|
|
| 17 |
|
|
| 984 |
|
Total Secured by farmland |
|
| 890 |
|
|
| 13,597 |
|
|
| 15,306 |
|
|
| 28,307 |
|
|
| 3,387 |
|
|
| 8,661 |
|
|
| 4,174 |
|
|
| 74,322 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity – open end | ||||||||||||||||||||||||||||||||
Pass |
|
| 370 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 144 |
|
|
| 44,321 |
|
|
| 44,835 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,525 |
|
|
| 1,525 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 74 |
|
|
| 74 |
|
Total Home equity - open end |
|
| 370 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 144 |
|
|
| 45,920 |
|
|
| 46,434 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate | ||||||||||||||||||||||||||||||||
Pass |
|
| 12,125 |
|
|
| 43,827 |
|
|
| 15,316 |
|
|
| 12,515 |
|
|
| 6,850 |
|
|
| 59,446 |
|
|
| - |
|
|
| 150,079 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 507 |
|
|
| 156 |
|
|
| 6,217 |
|
|
| - |
|
|
| 6,880 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| 547 |
|
|
| - |
|
|
| 1,233 |
|
|
| 2,283 |
|
|
| - |
|
|
| 4,063 |
|
Total Real estate |
|
| 12,125 |
|
|
| 43,827 |
|
|
| 15,863 |
|
|
| 13,022 |
|
|
| 8,239 |
|
|
| 67,946 |
|
|
| - |
|
|
| 161,022 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity – closed end | ||||||||||||||||||||||||||||||||
Pass |
|
| 134 |
|
|
| 408 |
|
|
| 127 |
|
|
| 1,148 |
|
|
| 507 |
|
|
| 1,848 |
|
|
| - |
|
|
| 4,172 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 378 |
|
|
| - |
|
|
| 378 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| 13 |
|
Total Home Equity - closed end |
|
| 134 |
|
|
| 408 |
|
|
| 127 |
|
|
| 1,148 |
|
|
| 520 |
|
|
| 2,226 |
|
|
| - |
|
|
| 4,563 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily | ||||||||||||||||||||||||||||||||
Pass |
|
| - |
|
|
| 2,765 |
|
|
| 1,449 |
|
|
| 935 |
|
|
| - |
|
|
| 1,640 |
|
|
| 3,145 |
|
|
| 9,934 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 108 |
|
|
| - |
|
|
| 108 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total Multifamily |
|
| - |
|
|
| 2,765 |
|
|
| 1,449 |
|
|
| 935 |
|
|
| - |
|
|
| 1,748 |
|
|
| 3,145 |
|
|
| 10,042 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate | ||||||||||||||||||||||||||||||||
Pass |
|
| 1,228 |
|
|
| 18,761 |
|
|
| 18,693 |
|
|
| 7,405 |
|
|
| 3,720 |
|
|
| 24,781 |
|
|
| 6,921 |
|
|
| 81,509 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 41 |
|
|
| 2,135 |
|
|
| - |
|
|
| 2,176 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,398 |
|
|
| 1,214 |
|
|
| 298 |
|
|
| 7,910 |
|
Total Owner-occupied commercial real estate |
|
| 1,228 |
|
|
| 18,761 |
|
|
| 18,693 |
|
|
| 7,405 |
|
|
| 10,159 |
|
|
| 28,130 |
|
|
| 7,219 |
|
|
| 91,595 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial real estate | ||||||||||||||||||||||||||||||||
Pass |
|
| 2,642 |
|
|
| 31,221 |
|
|
| 13,182 |
|
|
| 5,194 |
|
|
| 3,942 |
|
|
| 36,496 |
|
|
| 1,840 |
|
|
| 94,517 |
|
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,539 |
|
|
| 249 |
|
|
| 8,788 |
|
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 87 |
|
|
| - |
|
|
| 87 |
|
Total Other commercial real estate |
|
| 2,642 |
|
|
| 31,221 |
|
|
| 13,182 |
|
|
| 5,194 |
|
|
| 3,942 |
|
|
| 45,122 |
|
|
| 2,089 |
|
|
| 103,392 |
|
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
20 |
Table of Contents |
|
| Term Loans by Year of Origination |
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Revolving |
|
| Total |
| |||||||||||
Agricultural loans |
|
| |||||||||||||||||||||||||||||||||
Pass |
|
| 914 |
|
|
| 3,595 |
|
|
| 678 |
|
|
| 653 |
|
|
| 13 |
|
|
| 103 |
|
|
| 5,641 |
|
|
| 11,597 |
| |||
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
Substandard |
|
| - |
|
|
| 62 |
|
|
| 44 |
|
|
| 11 |
|
|
| - |
|
|
| - |
|
|
| 135 |
|
|
| 252 |
| |||
Total Agricultural loans |
|
| 914 |
|
|
| 3,657 |
|
|
| 722 |
|
|
| 664 |
|
|
| 13 |
|
|
| 103 |
|
|
| 5,776 |
|
|
| 11,849 |
| |||
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Commercial and industrial | |||||||||||||||||||||||||||||||||||
Pass |
|
| 2,450 |
|
|
| 10,002 |
|
|
| 5,386 |
|
|
| 2,409 |
|
|
| 1,098 |
|
|
| 774 |
|
|
| 19,860 |
|
|
| 41,979 |
| |||
Watch |
|
| - |
|
|
| - |
|
|
| 66 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 3,212 |
|
|
| 3,280 |
| |||
Substandard |
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| 30 |
|
|
| - |
|
|
| 4 |
|
|
| - |
|
|
| 48 |
| |||
Total 1-4 Commercial and industrial |
|
| 2,450 |
|
|
| 10,002 |
|
|
| 5,466 |
|
|
| 2,439 |
|
|
| 1,098 |
|
|
| 780 |
|
|
| 23,072 |
|
|
| 45,307 |
| |||
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Credit Cards | |||||||||||||||||||||||||||||||||||
Pass |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,247 |
|
|
| 3,247 |
| |||
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9 |
|
|
| 9 |
| |||
Total Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,256 |
|
|
| 3,256 |
| |||
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 5 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Automobile loans | |||||||||||||||||||||||||||||||||||
Pass |
|
| 17,288 |
|
|
| 50,785 |
|
|
| 27,514 |
|
|
| 11,900 |
|
|
| 4,271 |
|
|
| 2,064 |
|
|
| - |
|
|
| 113,822 |
| |||
Watch |
|
| - |
|
|
| 151 |
|
|
| 165 |
|
|
| 76 |
|
|
| 55 |
|
|
| 72 |
|
|
| - |
|
|
| 519 |
| |||
Substandard |
|
| - |
|
|
| 79 |
|
|
| 93 |
|
|
| 17 |
|
|
| 6 |
|
|
| 13 |
|
|
| - |
|
|
| 208 |
| |||
Total Automobile loans |
|
| 17,288 |
|
|
| 51,015 |
|
|
| 27,772 |
|
|
| 11,993 |
|
|
| 4,332 |
|
|
| 2,149 |
|
|
| - |
|
|
| 114,549 |
| |||
Current period gross write-offs |
|
| - |
|
|
| 103 |
|
|
| 177 |
|
|
| 68 |
|
|
| 2 |
|
|
| 12 |
|
|
| - |
|
|
| 362 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other consumer loans | |||||||||||||||||||||||||||||||||||
Pass |
|
| 2,124 |
|
|
| 7,365 |
|
|
| 3,531 |
|
|
| 1,573 |
|
|
| 618 |
|
|
| 132 |
|
|
| 307 |
|
|
| 15,650 |
| |||
Watch |
|
| - |
|
|
| 14 |
|
|
| 5 |
|
|
| 1 |
|
|
| 5 |
|
|
| 6 |
|
|
| - |
|
|
| 31 |
| |||
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
Total Other consumer loans |
|
| 2,124 |
|
|
| 7,379 |
|
|
| 3,536 |
|
|
| 1,574 |
|
|
| 623 |
|
|
| 138 |
|
|
| 307 |
|
|
| 15,681 |
| |||
Current period gross write-offs |
|
| - |
|
|
| 16 |
|
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 18 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Municipal loans | |||||||||||||||||||||||||||||||||||
Pass |
|
| - |
|
|
| 236 |
|
|
| 1,070 |
|
|
| 1,158 |
|
|
| 1,285 |
|
|
| 2,499 |
|
|
| - |
|
|
| 6,248 |
| |||
Watch |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
Substandard |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
Total Municipal loans |
|
| - |
|
|
| 236 |
|
|
| 1,070 |
|
|
| 1,158 |
|
|
| 1,285 |
|
|
| 2,499 |
|
|
| - |
|
|
| 6,248 |
| |||
Current period gross write-offs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total loans |
|
| 44,182 |
|
|
| 188,701 |
|
|
| 109,380 |
|
|
| 75,756 |
|
|
| 36,604 |
|
|
| 165,770 |
|
|
| 137,113 |
|
|
| 757,506 |
| |||
Less: Unamortized net deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (586 | ) | |||
Loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 756,920 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Current period gross write-offs |
|
| - |
|
|
| 119 |
|
|
| 177 |
|
|
| 68 |
|
|
| 3 |
|
|
| 12 |
|
|
| 5 |
|
|
| 385 |
|
Under the adoption of ASC 326, the Company consolidated their internal risk ratings 1 through 5 into a pass category. Doubtful loans are charged off; dealer finance loans utilize the updated credit quality indicators. Credit cards are classified as pass or substandard. The credit quality indicators for watch and substandard remain unchanged.
Description of the Company’s credit quality indicators under CECL:
Pass: Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.
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.
21 |
Table of Contents |
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.
Credit cards are classified as pass or substandard. A credit card is substandard when payments of principal and interest are past due 90 days or more.
The following table shows the Company’s loan portfolio broken down by internal loan grade as of December 31, 2022 (dollars in thousands):
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: Unamortized net deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (570 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 615,237 |
|
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
| $ | 3,240 |
|
| $ | 124,910 |
|
Nonperforming |
|
| 2 |
|
|
| 215 |
|
Total |
| $ | 3,242 |
|
| $ | 125,125 |
|
Description of internal loan grades:grades under Incurred Loss:
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 beby covered through additional long-term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.
22 |
Table of Contents |
Grade 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.
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.
Note 4. Allowance for Loan Losses, continued
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: The loan hasLoans 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.
Collateral Dependent Disclosures
The Company designates individually evaluated loans as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
23 |
Table of Contents |
The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2023 (dollars in thousands):
|
| March 31, 2023 |
| |||||
|
| Real Estate |
|
| Business/Other Assets |
| ||
1-4 Family residential construction |
| $ | - |
|
| $ | - |
|
Other construction, land development and land |
|
| 520 |
|
|
| - |
|
Secured by farmland |
|
| - |
|
|
| - |
|
Home equity – open end |
|
| - |
|
|
| - |
|
Real estate |
|
| - |
|
|
| - |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
Multifamily |
|
| - |
|
|
| - |
|
Owner-occupied commercial real estate |
|
| - |
|
|
| - |
|
Other commercial real estate |
|
| - |
|
|
| - |
|
Agricultural loans |
|
| - |
|
|
| - |
|
Commercial and industrial |
|
| - |
|
|
| - |
|
Credit Cards |
|
| - |
|
|
| - |
|
Automobile loans |
|
| - |
|
|
| - |
|
Other consumer loans |
|
| - |
|
|
| - |
|
Municipal loans |
|
| - |
|
|
| - |
|
Total loans |
| $ | 520 |
|
| $ | - |
|
Allowance for Credit Losses
The following table (dollars in thousands) summarizes the activity related to the allowance for credit losses for the three months ended March 31, 2023 under the CECL methodology.
|
| December 31, 2022 |
|
| Adjustment for adoption of ASU 2016-13 |
|
| Charge-offs |
|
| Recoveries |
|
| Provision for credit losses |
|
| March 31, 2023 |
| ||||||
1-4 Family residential construction |
| $ | 324 |
|
| $ | 109 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 433 |
|
Other construction, land development and land |
|
| 694 |
|
|
| 602 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,296 |
|
Secured by farmland |
|
| 571 |
|
|
| 311 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 882 |
|
Home equity – open end |
|
| 446 |
|
|
| (189 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 257 |
|
Real estate |
|
| 1,389 |
|
|
| (184 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,205 |
|
Home Equity – closed end |
|
| 39 |
|
|
| 96 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 135 |
|
Multifamily |
|
| 71 |
|
|
| 182 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 253 |
|
Owner-occupied commercial real estate |
|
| 992 |
|
|
| 280 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,272 |
|
Other commercial real estate |
|
| 1,023 |
|
|
| (582 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 441 |
|
Agricultural loans |
|
| 80 |
|
|
| (58 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22 |
|
Commercial and industrial |
|
| 368 |
|
|
| 338 |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
|
| 707 |
|
Credit Cards |
|
| 68 |
|
|
| 26 |
|
|
| 5 |
|
|
| 1 |
|
|
| - |
|
|
| 90 |
|
Automobile loans |
|
| 1,790 |
|
|
| (257 | ) |
|
| 362 |
|
|
| 210 |
|
|
| - |
|
|
| 1,381 |
|
Other consumer loans |
|
| 81 |
|
|
| 103 |
|
|
| 18 |
|
|
| 6 |
|
|
| - |
|
|
| 172 |
|
Municipal loans |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total loans |
| $ | 7,936 |
|
| $ | 777 |
|
| $ | 385 |
|
| $ | 218 |
|
| $ | - |
|
| $ | 8,546 |
|
24 |
Table of Contents |
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods (dollars in thousands).
March 31, 2022 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction/Land Development |
| $ | 977 |
|
| $ | - |
|
| $ | - |
|
| $ | (275 | ) |
| $ | 702 |
|
| $ | - |
|
| $ | 702 |
|
Farmland |
|
| 448 |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| 452 |
|
|
| - |
|
|
| 452 |
|
Real Estate |
|
| 1,162 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 1,164 |
|
|
| 113 |
|
|
| 1,051 |
|
Multi-Family |
|
| 29 |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| 35 |
|
|
| - |
|
|
| 35 |
|
Commercial Real Estate |
|
| 2,205 |
|
|
| - |
|
|
| - |
|
|
| (112 | ) |
|
| 2,093 |
|
|
| 456 |
|
|
| 1,637 |
|
Home Equity – closed end |
|
| 41 |
|
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| 39 |
|
|
| - |
|
|
| 39 |
|
Home Equity – open end |
|
| 407 |
|
|
| - |
|
|
| 129 |
|
|
| (162 | ) |
|
| 374 |
|
|
| - |
|
|
| 374 |
|
Commercial & Industrial – Non-Real Estate |
|
| 288 |
|
|
| 1 |
|
|
| 30 |
|
|
| (7 | ) |
|
| 310 |
|
|
| - |
|
|
| 310 |
|
Consumer |
|
| 520 |
|
|
| 21 |
|
|
| 11 |
|
|
| 13 |
|
|
| 523 |
|
|
| - |
|
|
| 523 |
|
Dealer Finance |
|
| 1,601 |
|
|
| 204 |
|
|
| 152 |
|
|
| 85 |
|
|
| 1,634 |
|
|
| 13 |
|
|
| 1,621 |
|
Credit Cards |
|
| 70 |
|
|
| 12 |
|
|
| 7 |
|
|
| (2 | ) |
|
| 63 |
|
|
| - |
|
|
| 63 |
|
Total |
| $ | 7,748 |
|
| $ | 238 |
|
| $ | 329 |
|
| $ | (450 | ) |
| $ | 7,389 |
|
| $ | 582 |
|
| $ | 6,807 |
|
The following tables presents, as of March 31, 2023 and December 31, 2022 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above (dollars in thousands).
|
| March 31, 2023 |
| |||||||||||||||||||||
|
| Loan Balances |
|
| Allowance for Credit Losses - Loans |
| ||||||||||||||||||
|
| Loans Individually Evaluated |
|
| Loans Collectively Evaluated |
|
| Total |
|
| Loans Individually Evaluated |
|
| Loans Collectively Evaluated |
|
| Total |
| ||||||
1-4 Family residential construction |
| $ | - |
|
| $ | 28,774 |
|
| $ | 28,774 |
|
| $ | - |
|
| $ | 433 |
|
| $ | 433 |
|
Other construction, land development and land |
|
| 520 |
|
|
| 39,952 |
|
|
| 40,472 |
|
|
| 228 |
|
|
| 1,068 |
|
|
| 1,296 |
|
Secured by farmland |
|
| - |
|
|
| 74,322 |
|
|
| 74,322 |
|
|
| - |
|
|
| 882 |
|
|
| 882 |
|
Home equity – open end |
|
| - |
|
|
| 46,434 |
|
|
| 46,434 |
|
|
| - |
|
|
| 257 |
|
|
| 257 |
|
Real estate |
|
| - |
|
|
| 161,022 |
|
|
| 161,022 |
|
|
| - |
|
|
| 1,205 |
|
|
| 1,205 |
|
Home Equity – closed end |
|
| - |
|
|
| 4,563 |
|
|
| 4,563 |
|
|
| - |
|
|
| 135 |
|
|
| 135 |
|
Multifamily |
|
| - |
|
|
| 10,042 |
|
|
| 10,042 |
|
|
| - |
|
|
| 253 |
|
|
| 253 |
|
Owner-occupied commercial real estate |
|
| - |
|
|
| 91,595 |
|
|
| 91,595 |
|
|
| - |
|
|
| 1,272 |
|
|
| 1,272 |
|
Other commercial real estate |
|
| - |
|
|
| 103,392 |
|
|
| 103,392 |
|
|
| - |
|
|
| 441 |
|
|
| 441 |
|
Agricultural loans |
|
| - |
|
|
| 11,849 |
|
|
| 11,849 |
|
|
| - |
|
|
| 22 |
|
|
| 22 |
|
Commercial and industrial |
|
| - |
|
|
| 45,307 |
|
|
| 45,307 |
|
|
| - |
|
|
| 707 |
|
|
| 707 |
|
Credit Cards |
|
| - |
|
|
| 3,256 |
|
|
| 3,256 |
|
|
| - |
|
|
| 90 |
|
|
| 90 |
|
Automobile loans |
|
| - |
|
|
| 114,549 |
|
|
| 114,549 |
|
|
| - |
|
|
| 1,381 |
|
|
| 1,381 |
|
Other consumer loans |
|
| - |
|
|
| 15,681 |
|
|
| 15,681 |
|
|
| - |
|
|
| 172 |
|
|
| 172 |
|
Municipal loans |
|
| - |
|
|
| 6,248 |
|
|
| 6,248 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total loans |
| $ | 520 |
|
| $ | 756,986 |
|
| $ | 757,506 |
|
| $ | 228 |
|
| $ | 8,318 |
|
| $ | 8,546 |
|
25 |
Table of Contents |
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: Unamortized net deferred loan fees |
|
| (570 | ) |
|
| - |
|
|
| (570 | ) |
Total |
| $ | 743,604 |
|
| $ | 15,365 |
|
| $ | 728,239 |
|
Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all substandard loans greater than $500 thousand and all troubled debt restructurings. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.
26 |
Table of Contents |
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022 (dollars in thousands):
|
| December 31, 2022 |
| |||||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| |||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
| ||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment |
| ||||
Impaired loans with no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ | 332 |
|
| $ | 332 |
|
| $ | - |
|
| $ | 474 |
|
Farmland |
|
| 2,535 |
|
|
| 2,079 |
|
|
| - |
|
|
| 2,137 |
|
Real Estate |
|
| 1,882 |
|
|
| 1,882 |
|
|
| - |
|
|
| 2,107 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 8,131 |
|
|
| 8,131 |
|
|
| - |
|
|
| 8,851 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 7 |
|
|
| 7 |
|
|
| - |
|
|
| 11 |
|
|
|
| 12,887 |
|
|
| 12,431 |
|
|
| - |
|
|
| 13,580 |
|
Impaired loans with an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
| 521 |
|
|
| 521 |
|
|
| 228 |
|
|
| 261 |
|
Farmland |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Real Estate |
|
| 1,378 |
|
|
| 1,378 |
|
|
| 92 |
|
|
| 1,466 |
|
Multi-Family |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 980 |
|
|
| 980 |
|
|
| 11 |
|
|
| 1,935 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Credit cards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 55 |
|
|
| 55 |
|
|
| 13 |
|
|
| 62 |
|
|
|
| 2,934 |
|
|
| 2,934 |
|
|
| 344 |
|
|
| 3,724 |
|
Total impaired loans |
| $ | 15,821 |
|
| $ | 15,365 |
|
| $ | 344 |
|
| $ | 17,304 |
|
1The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.
27 |
Table of Contents |
The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the three-month periods ended March 31, 2022 (dollars in thousands):
|
| March 31, 2022 |
| |||||
|
| Average Recorded |
|
| Interest Income |
| ||
|
| Investment |
|
| Recognized |
| ||
Impaired loans with no related allowance recorded: |
|
|
|
|
|
| ||
Construction/Land Development |
| $ | 641 |
|
| $ | 6 |
|
Farmland |
|
| 2,251 |
|
|
| 70 |
|
Real Estate |
|
| 2,566 |
|
|
| 33 |
|
Multi-Family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 9,763 |
|
|
| 186 |
|
Home Equity – closed end |
|
| 74 |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
Consumer |
|
| 3 |
|
|
| - |
|
Credit Cards |
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 14 |
|
|
| - |
|
|
|
| 15,312 |
|
|
| 295 |
|
Impaired loans with an allowance recorded: |
|
|
|
|
|
|
|
|
Construction/Land Development |
| $ | - |
|
| $ | - |
|
Farmland |
|
| - |
|
|
| - |
|
Real Estate |
|
| 1,334 |
|
|
| 16 |
|
Multi-Family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 4,624 |
|
|
| 42 |
|
Home Equity – closed end |
|
| - |
|
|
| - |
|
Home Equity – open end |
|
| - |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
Credit Card |
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 75 |
|
|
| 1 |
|
|
|
| 6,033 |
|
|
| 59 |
|
Total Impaired Loans |
| $ | 21,345 |
|
| $ | 354 |
|
Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the real estate loans included in the “combination” tables, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction.
There were no loans modified to borrowers experiencing financial difficulty in the three months ended March 31, 2023. Additionally, there were no loans that had a payment default during the quarter that were modified in the previous 12 months.
28 |
Table of Contents |
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (dollars in thousands):
Payment Status (Amortized Cost Basis) | ||||||||||||
Current | 30-89 Days Past Due | 90+ Days Past Due | ||||||||||
1-4 Family residential construction | $ | - | $ | - | $ | - | ||||||
Other construction, land development and land | - | - | - | |||||||||
Secured by farmland | - | - | - | |||||||||
Home equity – open end | - | - | - | |||||||||
Real estate | 180 | - | - | |||||||||
Home Equity – closed end | - | - | - | |||||||||
Multifamily | - | - | - | |||||||||
Owner-occupied commercial real estate | - | - | - | |||||||||
Other commercial real estate | - | - | - | |||||||||
Agricultural loans | - | - | - | |||||||||
Commercial and industrial | - | - | - | |||||||||
Credit Cards | - | - | - | |||||||||
Automobile loans | 23 | - | - | |||||||||
Other consumer loans | - | - | - | |||||||||
Municipal loans | - | - | - | |||||||||
Total loans | $ | 203 | $ | - | $ | - |
The following table shows, by modification type, TDRs that occurred during 2022 (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 |
Unfunded Commitments
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans and are discussed above. The allowance for credit losses for unfunded loan commitments of $747 thousand at March 31, 2023 is separately classified on the balance sheet within Other Liabilities.
29 |
Table of Contents |
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023 (dollars in thousands).
Total Allowance for Credit Losses – Unfunded Commitments | ||||
Balance, December 31, 2022 | $ | - | ||
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13 | 747 | |||
Provision for unfunded commitments | - | |||
Balance, March 31, 2023 | $ | 747 |
Note 4. Mortgage Banking and Derivatives
Loans Held for Sale
The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. The Company uses fair value accounting for its entire portfolio of loans held for sale (“LHFS”) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’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 totaled $1.2 million as of March 31, 2023 of which $1.2 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, enters into 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 considered to be derivatives. Upon entering into 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).
The Company locks in the loan and rate with an investor and commits to deliver 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 the 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 reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2023, and totaled $99 thousand, with a notional amount of $13.1 million and total positions of 40. The fair value of the IRLCs were reported in the “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. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended March 31, 2023 and 2022. The Company’s IRLCs are classified as Level 2. At March 31, 2023 and December 31, 2022, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.
The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2023 and totaled $43 thousand, with a notional amount of $14.5 million and total positions of 45. The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2022 and totaled $186 thousand, with a notional amount of $13.6 million and total positions of 43.
30 |
Table of Contents |
Note 5. Employee Benefit Plan
The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time 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 Bank does not expectplan was amended on February 15, 2023 to contribute tostop the pension plan in 2022.
accrual of future benefits. The following is a summary of net periodic pension costs for the three month periods ended March 31, 20222023 and 20212022 (dollars in thousands):
|
| Three Months Ended |
| Three Months Ended | ||||||||||||
|
| March 31, 2022 |
|
| March 31, 2021 |
| March 31, 2023 | March 31, 2022 | ||||||||
Service cost |
| $ | 190 |
| $ | 216 |
| $ | - | $ | 190 | |||||
Interest cost |
| 104 |
| 95 |
| 92 | 104 | |||||||||
Expected return on plan assets |
| (195 | ) |
| (198 | ) | (130 | ) | (195 | ) | ||||||
Amortization of net loss |
|
| 58 |
|
|
| 72 |
| - | 58 | ||||||
Net periodic pension cost |
| $ | 157 |
|
| $ | 185 |
| $ | (38 | ) | $ | 157 |
Note 6. Stock-Based Compensation
The Company granted stock awards to directors and employees under the Company’s 2020 Stock Incentive Plan. On March 7, 2023 the Bank’s Compensation Committee awarded 23,556 shares with a fair value of $526 thousand 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 that vested upon issuance. There were 6,974 shares vested, less 96 shares netted for taxes, during the three months ended March 31, 2023. Unrecognized compensation expense related to the nonvested restricted stock as of March 31, 2023 totaled $980 thousand.
Note 7. Fair Value
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. 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.
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.
Note 6. Fair Value, continued
The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
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. |
31 |
Table of Contents |
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. 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 Bank of Richmond 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, net on the Consolidated Statements of Income.
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. All of 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 counter-party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All 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. This product is no longer offered, however there are a few certificates of deposits that have not matured.
Note 6. Fair Value, continued
The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 20222023 and December 31, 20212022 (dollars in thousands):
March 31, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans held for sale, F&M Mortgage |
| $ | 2,479 |
|
| $ | 0 |
|
| $ | 2,479 |
|
| $ | 0 |
|
U. S. Treasury securities |
|
| 42,868 |
|
|
| 0 |
|
|
| 42,868 |
|
|
| 0 |
|
U. S. Government sponsored enterprises |
|
| 158,540 |
|
|
| 0 |
|
|
| 158,540 |
|
|
| 0 |
|
Securities issued by States and political subdivisions in the U. S. |
|
| 32,674 |
|
|
| 0 |
|
|
| 32,674 |
|
|
| 0 |
|
Mortgage-backed obligations of federal agencies |
|
| 197,594 |
|
|
| 0 |
|
|
| 197,594 |
|
|
| 0 |
|
Corporate debt securities |
|
| 30,146 |
|
|
| 0 |
|
|
| 30,146 |
|
|
| 0 |
|
Forward Sales Commitments |
|
| 637 |
|
|
| 0 |
|
|
| 637 |
|
|
| 0 |
|
Assets at Fair Value |
| $ | 464,938 |
|
| $ | 0 |
|
| $ | 464,938 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - ICD |
| $ | 3 |
|
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
IRLC |
|
| 262 |
|
|
| 0 |
|
|
| 262 |
|
|
| 0 |
|
Liabilities at Fair Value |
| $ | 265 |
|
| $ | 0 |
|
| $ | 265 |
|
| $ | 0 |
|
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans held for sale, F&M Mortgage |
| $ | 4,887 |
|
| $ | 0 |
|
| $ | 4,887 |
|
| $ | 0 |
|
IRLC |
|
| 258 |
|
|
| 0 |
|
|
| 258 |
|
|
| 0 |
|
U. S. Treasury securities |
|
| 29,482 |
|
|
| 0 |
|
|
| 29,482 |
|
|
| 0 |
|
U.S. Government sponsored enterprises |
|
| 133,714 |
|
|
| 0 |
|
|
| 133,714 |
|
|
| 0 |
|
Securities issued by States and political subdivisions of the US |
|
| 34,337 |
|
|
| 0 |
|
|
| 34,337 |
|
|
| 0 |
|
Mortgage-backed obligations of federal agencies |
|
| 183,647 |
|
|
| 0 |
|
|
| 183,647 |
|
|
| 0 |
|
Corporate debt securities |
|
| 22,702 |
|
|
| 0 |
|
|
| 22,702 |
|
|
| 0 |
|
Forward sales commitments |
|
| 112 |
|
|
| 0 |
|
|
| 112 |
|
|
| 0 |
|
Assets at Fair Value |
| $ | 409,139 |
|
| $ | 0 |
|
| $ | 409,139 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – ICD |
| $ | 3 |
|
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
Liabilities at Fair Value |
| $ | 3 |
|
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
|
|
|
| Fair Value Measurements Using: |
| |||||||||||
|
| Balance at March 31, 2023 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans held for sale, F&M Mortgage |
| $ | 1,242 |
|
| $ | - |
|
| $ | 1,242 |
|
| $ | - |
|
U.S. Treasury |
|
| 37,202 |
|
|
| - |
|
|
| 37,202 |
|
|
| - |
|
U.S. Agency |
|
| 131,499 |
|
|
| - |
|
|
| 131,499 |
|
|
| - |
|
Municipal bonds |
|
| 38,979 |
|
|
| - |
|
|
| 38,979 |
|
|
| - |
|
Mortgage-backed securities |
|
| 154,644 |
|
|
| - |
|
|
| 154,644 |
|
|
| - |
|
Corporate |
|
| 25,924 |
|
|
| - |
|
|
| 25,924 |
|
|
| - |
|
IRLC |
|
| 99 |
|
|
| - |
|
|
| 99 |
|
|
| - |
|
Forward Sales Commitments |
|
| 43 |
|
|
| - |
|
|
| 43 |
|
|
| - |
|
Assets at Fair Value |
| $ | 389,632 |
|
| $ | - |
|
| $ | 389,632 |
|
| $ | - |
|
32 |
Table of Contents |
Fair Value Measurements Using: | ||||||||||||||||
Balance at December 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Loans held for sale, F&M Mortgage | $ | 1,373 | $ | - | $ | 1,373 | $ | - | ||||||||
U.S. Treasury | 36,643 | - | 36,643 | - | ||||||||||||
U.S. Agency | 129,748 | - | 129,748 | - | ||||||||||||
Municipal bonds | 42,198 | - | 42,198 | - | ||||||||||||
Mortgage-backed securities | 156,875 | - | 156,875 | - | ||||||||||||
Corporate | 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 | $ | - |
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 SaleCollateral Dependent Loans with an ACL
Assets heldIn accordance with ASC 326, we maydetermine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for sale were transferredexpected credit losses on an individual basis and excluded from bank premises at the lowercollective evaluation. Specific allocations of cost less accumulated depreciation or fair value at the dateallowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of transfer. The Company periodically evaluates the value of assets held for saleloan and records an impairment charge for any subsequent declines in fair value less selling costs. Fair valueeconomic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon independent market prices, appraised values ofmanagement's assessment, the collateralborrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or management’s estimation of the valuesale of the collateral. WhenIn such cases, expected credit losses are based on the fair value of the collateral is based on an observable market price or a current appraised value,at the Company records the assets heldmeasurement date, adjusted for sale as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the asset held for sale as nonrecurring Level 3.
Note 6. Fair Value, continued
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 termsestimated selling costs if satisfaction of the loan agreement. Troubled debt restructurings 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 lossesdepends 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 valuesale 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.
Loans measured usingWe reevaluate 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. Mostsupporting collateral is real estate.dependent loans on a quarterly basis. The Company bases collateral method fair valuation upon the “liquidation” value of independent appraisals or evaluations. The value of real estate collateral supporting collateral dependent loans is determinedevaluated by an independent appraisal utilizing an income or market valuation approach. The Company discounts appraised value by estimated selling costs to arrive at net fair value. Appraisals conducted by an independent, licensed appraiser outsideservices using a methodology that is consistent with the Uniform Standards of the Company as 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 March 31, 2022 and December 31, 2021, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.Professional Appraisal Practice.
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):
March 31, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Real Estate |
| $ | 1,382 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,382 |
|
Commercial Real Estate |
|
| 2,787 |
|
|
| - |
|
|
| - |
|
|
| 2,787 |
|
Dealer Finance |
|
| 41 |
|
|
| - |
|
|
| - |
|
|
| 41 |
|
Impaired loans |
| $ | 4,210 |
|
| $ | - |
|
| $ | - |
|
| $ | 4,210 |
|
Bank premises held for sale |
| $ | 300 |
|
| $ | - |
|
| $ | - |
|
| $ | 300 |
|
|
|
|
|
| Fair Value Measurements Using: |
| ||||||||||
Collateral dependent loans with an ACL |
| Balance at March 31, 2023 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Other construction, land development and land |
| $ | 292 |
|
| $ | - |
|
| $ | - |
|
| $ | 292 |
|
Total collateral dependent loans with an ACL |
| $ | 292 |
|
| $ | - |
|
| $ | - |
|
| $ | 292 |
|
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||||||||||||
|
|
|
| Fair Value Measurements Using: |
| |||||||||||||||||||||||||||
Impaired Loans |
| Balance at December 31, 2022 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||||||||||||
Construction/Land Development |
| $ | 293 |
| $ | - |
| $ | - |
| $ | 293 |
| |||||||||||||||||||
Real Estate |
| $ | 1,053 |
| $ | - |
| $ | - |
| $ | 1,053 |
|
| 1,286 |
| - |
| - |
| 1,286 |
| ||||||||||
Commercial Real Estate |
| 5,401 |
| - |
| - |
| 5,401 |
|
| 969 |
| - |
| - |
| 969 |
| ||||||||||||||
Dealer Finance |
|
| 81 |
|
|
| - |
|
|
| - |
|
|
| 81 |
|
|
| 42 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
Impaired loans |
| $ | 6,535 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,535 |
| ||||||||||||||||
Bank premises held for sale |
| $ | 300 |
|
| $ | - |
|
| $ | - |
|
| $ | 300 |
| ||||||||||||||||
Total Impaired loans |
| $ | 2,590 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,590 |
|
33 |
Table of Contents |
The following table presents information about Level 3 Fair Value Measurements for March 31, 2023 and December 31, 2022 (dollars in thousands):
|
| Fair Value at March 31, 2022 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
Impaired Loans |
| $ | 4,210 |
|
| Discounted appraised value |
| Discount for selling costs and marketability |
| 14.00%-32.92% (Average 22.97%) |
Fair Value at March 31, 2023 | Valuation Technique | Significant Unobservable Inputs | Range | |||||
Collateral Dependent Loans | $ | 292 thousand | Discounted appraised value | Discount for selling costs and marketability | 62% | |||
Fair Value at December 31, 2022 | 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 19.00%) |
Note 6. Fair Value, continued
Impaired Loans, continued
The following table presents information about Level 3 Fair Value Measurements for December 31, 2021 (dollars in thousands):
|
| Fair Value at December 31, 2021 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
Impaired Loans |
| $ | 6,535 |
|
| Discounted appraised value |
| Discount for selling costs and marketability |
| 11.76%-28.00% (Average 17.31%) |
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 owned is determined using current appraisals from independent parties, a Level 2level two 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 owned and assets held for sale 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 other real estate owned as of March 31, 2022 and2023 or December 31, 2021.2022.
Note 7.8. Disclosures about Fair Value of Financial Instruments
The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 20222023 and December 31, 2021.2022. Fair values for March 31, 20222023 and December 31, 20212022 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.
34 |
Table of Contents |
The estimated fair values, and related carrying amounts, (dollars in thousands), of the Company’s financial instruments are as follows (dollars in thousands):
|
|
|
| Fair Value Measurements at March 31, 2022 Using |
|
|
|
|
| Fair Value Measurements at March 31, 2023 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 March 31, 2022 |
|
| 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 March 31, 2023 |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Cash and cash equivalents |
| $ | 48,376 |
| $ | 48,376 |
| $ | - |
| $ | - |
| $ | 48,376 |
|
| $ | 31,273 |
| $ | 31,273 |
| $ | - |
| $ | - |
| $ | 31,273 |
| ||||||||
Securities |
| 461,947 |
| - |
| 461,947 |
| - |
| 461,947 |
| |||||||||||||||||||||||||||||
Securities available for sale |
| 388,248 |
| - |
| 388,248 |
| - |
| 388,248 |
| |||||||||||||||||||||||||||||
Securities held to maturity |
| 125 |
| - |
| 114 |
| - |
| 114 |
| |||||||||||||||||||||||||||||
Loans held for sale |
| 2,479 |
| - |
| 2,479 |
| - |
| 2,479 |
|
| 1,242 |
| - |
| 1,242 |
| - |
| 1,242 |
| ||||||||||||||||||
Loans held for investment, net |
| 659,560 |
| - |
| - |
| 646,369 |
| 646,369 |
|
| 756,920 |
| - |
| - |
| 737,427 |
| 737,427 |
| ||||||||||||||||||
Interest receivable |
| 3,345 |
| - |
| 3,345 |
| - |
| 3,345 |
|
| 4,165 |
| - |
| 4,165 |
| - |
| 4,165 |
| ||||||||||||||||||
Bank owned life insurance |
| 23,042 |
| - |
| 23,042 |
| - |
| 23,042 |
|
| 23,727 |
| - |
| 23,727 |
| - |
| 23,727 |
| ||||||||||||||||||
IRLC |
| 99 |
| - |
| 99 |
| - |
| 99 |
| |||||||||||||||||||||||||||||
Forward sales commitments |
|
| 637 |
|
|
| - |
|
|
| 637 |
|
|
| - |
|
|
| 637 |
|
|
| 43 |
|
|
| - |
|
|
| 43 |
|
|
| - |
|
|
| 43 |
|
Total |
| $ | 1,199,386 |
|
| $ | 48,376 |
|
| $ | 491,450 |
|
| $ | 646,369 |
|
| $ | 1,186,195 |
|
| $ | 1,205,842 |
|
| $ | 31,273 |
|
| $ | 417,638 |
|
| $ | 737,427 |
|
| $ | 1,186,338 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Deposits |
| $ | 1,112,295 |
| $ | - |
| $ | 1,004,305 |
| $ | 117,811 |
| $ | 1,122,116 |
|
| $ | 1,105,235 |
| $ | - |
| $ | 1,103,119 |
| $ | - |
| $ | 1,103,119 |
| ||||||||
Short-term debt |
| 55,000 |
| - |
| - |
| 55,000 |
| 55,000 |
| |||||||||||||||||||||||||||||
Long-term debt |
| 21,780 |
| - |
| - |
| 22,105 |
| 22,105 |
|
| 6,901 |
| - |
| - |
| 6,755 |
| 6,755 |
| ||||||||||||||||||
IRLC |
| 262 |
| - |
| 262 |
| - |
| 262 |
| |||||||||||||||||||||||||||||
Interest payable |
|
| 251 |
|
|
| - |
|
|
| 251 |
|
|
| - |
|
|
| 251 |
|
|
| 676 |
|
|
| - |
|
|
| 676 |
|
|
| - |
|
|
| 676 |
|
Total |
| $ | 1,134,588 |
|
| $ | - |
|
| $ | 1,004,818 |
|
| $ | 139,916 |
|
| $ | 1,144,734 |
|
| $ | 1,167,812 |
|
| $ | - |
|
| $ | 1,103,795 |
|
| $ | 61,755 |
|
| $ | 1,165,550 |
|
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 |
Note 7. Disclosures about Fair Value of Financial Instruments, continued
|
|
|
|
| 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 8. Troubled Debt Restructuring
In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which are considered in the qualitative factors within the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance for loan loss methodology. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.
During the three months ended March 31, 2022, there was one loan modification that was considered to be troubled debt restructurings. The modification was due to a revision to the amortization schedule.
Three months ended March 31, 2022 (dollars in thousands): |
|
|
|
|
| |||||||
Troubled Debt Restructurings |
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Real Estate |
|
| 1 |
|
| $ | 164 |
|
| $ | 164 |
|
On March 31, 2022, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.
During the three months ended March 31, 2021, there was one loan modification that was considered to be troubled debt restructurings. The modifications included a partial release of the collateral.
Three months ended March 31, 2021 (dollars in thousands): |
|
|
|
|
| |||||||
Troubled Debt Restructurings |
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Real Estate |
|
| 1 |
|
| $ | 110 |
|
| $ | 110 |
|
On March 31, 2021, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.
Table of Contents |
Note 9. Accumulated Other Comprehensive Loss
The balances infollowing tables present components of accumulated other comprehensive loss are shown infor the following tables for March 31, 2022 and 2021periods stated (dollars in thousands):.
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2021 |
| $ | (1,801 | ) |
| $ | (3,291 | ) |
| $ | (5,092 | ) |
Change in unrealized securities gains (losses), net of tax |
|
| (14,259 | ) |
|
| - |
|
|
| (14,259 | ) |
Balance at March 31, 2022 |
| $ | (16,060 | ) |
| $ | (3,291 | ) |
| $ | (19,351 | ) |
|
| 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 |
|
| (1,114 | ) |
|
| - |
|
|
| (1,114 | ) |
Balance at March 13, 2021 |
| $ | (310 | ) |
| $ | (3,821 | ) |
| $ | (4,131 | ) |
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2022 |
| $ | (40,452 | ) |
| $ | 439 |
|
| $ | (40,012 | ) |
Change in unrealized securities gains, net of tax expense of $722 |
|
| 2,716 |
|
|
| - |
|
|
| 2,716 |
|
Balance at March 31, 2023 |
| $ | (37,736 | ) |
| $ | 439 |
|
| $ | (37,296 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2021 |
| $ | (1,801 | ) |
| $ | (3,291 | ) |
| $ | (5,092 | ) |
Change in unrealized securities losses, net of tax benefit of $3,790 |
|
| (14,259 | ) |
|
| - |
|
|
| (14,259 | ) |
Balance at March 31, 2022 |
| $ | (16,060 | ) |
| $ | (3,291 | ) |
| $ | (19,351 | ) |
There were no reclassifications adjustments reported on the consolidated statements of income during the three months ended March 31, 20222023 or 2021.2022.
Note 10. Business Segments
The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided.
The following tables represent revenues and expenses by segment for the three months ended March 31, 2022 and 2021 (dollars in thousands).
Note 10. Business Segments, continued
|
| Three Months Ended March 31, 2022 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ | 9,037 |
|
| $ | 29 |
|
| $ | 8 |
|
| $ | - |
|
| $ | - |
|
| $ | (13 | ) |
| $ | 9,061 |
|
Service charges on deposits |
|
| 307 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 307 |
|
Investment services and insurance income |
|
| - |
|
|
| - |
|
|
| 253 |
|
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| 251 |
|
Mortgage banking income, net |
|
| - |
|
|
| 742 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 742 |
|
Title insurance income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 473 |
|
|
| - |
|
|
| - |
|
|
| 473 |
|
Other operating income |
|
| 708 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 710 |
|
Total income (loss) |
|
| 10,052 |
|
|
| 773 |
|
|
| 261 |
|
|
| 473 |
|
|
| - |
|
|
| (15 | ) |
|
| 11,544 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 874 |
|
|
| 6 |
|
|
| - |
|
|
| - |
|
|
| 137 |
|
|
| (13 | ) |
|
| 1,004 |
|
(Recovery of) loan losses |
|
| (450 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (450 | ) |
Salary and benefit expense |
|
| 3,947 |
|
|
| 573 |
|
|
| 104 |
|
|
| 301 |
|
|
| - |
|
|
| - |
|
|
| 4,925 |
|
Other operating expenses |
|
| 3,328 |
|
|
| 214 |
|
|
| 21 |
|
|
| 83 |
|
|
| (19 | ) |
|
| (2 | ) |
|
| 3,625 |
|
Total expense |
|
| 7,699 |
|
|
| 793 |
|
|
| 125 |
|
|
| 384 |
|
|
| 118 |
|
|
| (15 | ) |
|
| 9,104 |
|
Net income (loss) before taxes |
|
| 2,353 |
|
|
| (20 | ) |
|
| 136 |
|
|
| 89 |
|
|
| (118 | ) |
|
| - |
|
|
| 2,440 |
|
Income tax expense (benefit) |
|
| 386 |
|
|
| - |
|
|
| 31 |
|
|
| - |
|
|
| (505 | ) |
|
| - |
|
|
| (88 | ) |
Net Income attributable to F & M Bank Corp. |
| $ | 1,967 |
|
| $ | (20 | ) |
| $ | 105 |
|
| $ | 89 |
|
| $ | 387 |
|
| $ | - |
|
| $ | 2,528 |
|
Total Assets |
| $ | 1,242,957 |
|
| $ | 9,012 |
|
| $ | 8,532 |
|
| $ | 2,967 |
|
| $ | 99,890 |
|
| $ | (125,099 | ) |
| $ | 1,238,259 |
|
Goodwill |
| $ | 2,868 |
|
| $ | - |
|
| $ | - |
|
| $ | 3 |
|
| $ | 211 |
|
| $ | - |
|
| $ | 3,082 |
|
|
| Three months ended March 31, 2021 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ | 8,716 |
|
| $ | 72 |
|
| $ | 30 |
|
| $ | - |
|
| $ | - |
|
| $ | (72 | ) |
| $ | 8,746 |
|
Service charges on deposits |
|
| 285 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 285 |
|
Investment services and insurance income |
|
| - |
|
|
| - |
|
|
| 348 |
|
|
| - |
|
|
| - |
|
|
| (1 | ) |
|
| 347 |
|
Mortgage banking income, net |
|
| - |
|
|
| 1,672 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,672 |
|
Title insurance income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 456 |
|
|
| - |
|
|
| - |
|
|
| 456 |
|
Other operating income (loss) |
|
| 593 |
|
|
| 23 |
|
|
| - |
|
|
| - |
|
|
| (21 | ) |
|
| - |
|
|
| 595 |
|
Total income (loss) |
|
| 9,594 |
|
|
| 1,767 |
|
|
| 378 |
|
|
| 456 |
|
|
| (21 | ) |
|
| (73 | ) |
|
| 12,101 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 876 |
|
|
| 66 |
|
|
| - |
|
|
| - |
|
|
| 198 |
|
|
| (72 | ) |
|
| 1,068 |
|
(Recovery of) loan losses |
|
| (725 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (725 | ) |
Salary and benefit expense |
|
| 3,514 |
|
|
| 615 |
|
|
| 97 |
|
|
| 286 |
|
|
| - |
|
|
| - |
|
|
| 4,512 |
|
Other operating expenses |
|
| 2,834 |
|
|
| 233 |
|
|
| 6 |
|
|
| 82 |
|
|
| 20 |
|
|
| (1 | ) |
|
| 3,174 |
|
Total expense |
|
| 6,499 |
|
|
| 914 |
|
|
| 103 |
|
|
| 368 |
|
|
| 218 |
|
|
| (73 | ) |
|
| 8,029 |
|
Net income (loss) before taxes |
|
| 3,095 |
|
|
| 853 |
|
|
| 275 |
|
|
| 88 |
|
|
| (239 | ) |
|
| - |
|
|
| 4,072 |
|
Income tax expense (benefit) |
|
| 521 |
|
|
| - |
|
|
| 57 |
|
|
| - |
|
|
| (307 | ) |
|
| - |
|
|
| 271 |
|
Net Income attributable to F & M Bank Corp. |
| $ | 2,574 |
|
| $ | 853 |
|
| $ | 218 |
|
| $ | 88 |
|
| $ | 68 |
|
| $ | - |
|
| $ | 3,801 |
|
Total Assets |
| $ | 1,016,023 |
|
| $ | 14,340 |
|
| $ | 8,519 |
|
| $ | 2,559 |
|
| $ | 109,474 |
|
| $ | (139,938 | ) |
| $ | 1,010,977 |
|
Goodwill |
| $ | 2,670 |
|
| $ | 47 |
|
| $ | - |
|
| $ | 3 |
|
| $ | 164 |
|
| $ | - |
|
| $ | 2,884 |
|
Note 11. Debt
Short-term Debt
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 programgrowth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short 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 need of the Company. There was no$55.0 million in short-term debt at March 31, 20222023 and $70.0 million short-term debt at December 31, 2021. 2022.
Long-term Debt
The Company utilizes the FHLB advance program to fund loan growth and provide liquidity. The interest rates on long-term debt are fixed at the time of the advance; the weighted average interest rate was .81% at March 31, 2022 and at December 31, 2021. The balance of these obligations at March 31, 2022 and December 31, 2021 was $10,000. FHLB advances include a $10,000 letter of credit at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.
On July 29, 2020, the Company sold and issued to certainan institutional accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000investor $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”).2030. The 2027 Notes will bear interest at 5.75% per annum, payable semi-annually in arrears. Beginning on July 31, 2022 through maturity, the 2027 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2027 Notes will mature on July 31, 2027. The 2030 Notesnote will initially bear interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate shallwill 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 Notesnote may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notesnote will mature on July 31, 2030. The subordinated notes,note, net of issuance costs totaled $11,780$6.9 million at March 31, 2022.2023.
Note 12.11. Revenue Recognition
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
36 |
Table of Contents |
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Investment Services and Insurance Income
Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.
Title Insurance Income
VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.
Note 12. 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. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.
Other
Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Gains/Losses on sale of OREO
The Company records a gain or loss from the sale of OREO when the control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. The Company recorded no losses on the sale of OREO property in the three months ended March 31, 2022 and 2021, which is presented on the consolidated income statement as a noninterest expense and therefore, not reflected in the table below.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 20222023 and 20212022 (dollars in thousands).
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Noninterest Income |
|
|
|
|
|
|
|
|
|
| ||||||
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
| ||||||
Service Charges on Deposits |
| $ | 307 |
| $ | 285 |
|
| $ | 225 |
| $ | 307 |
| ||
Investment Services and Insurance Income |
| 251 |
| 347 |
|
| 333 |
| 251 |
| ||||||
Title Insurance Income |
| 473 |
| 456 |
|
| 248 |
| 473 |
| ||||||
ATM and check card fees |
| 563 |
| 520 |
|
| 627 |
| 563 |
| ||||||
Other |
|
| 157 |
|
|
| 63 |
|
|
| 74 |
|
|
| 157 |
|
Noninterest Income (in-scope of Topic 606) |
| 1,751 |
| 1,671 |
|
| 1,507 |
| 1,751 |
| ||||||
Noninterest Income (out-of-scope of Topic 606) |
|
| 732 |
|
|
| 1,684 |
|
|
| 377 |
|
|
| 732 |
|
Total Noninterest Income |
| $ | 2,483 |
|
| $ | 3,355 |
|
| $ | 1,884 |
|
| $ | 2,483 |
|
37 |
Table of Contents |
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 20222023 and December 31, 2021,2022, the Company did not have any significant contract balances.
Note 12. Revenue Recognition, continued
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.
Note 13.12. Leases
The Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.
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 following tables present information about the Company’s leases (dollars in thousands):
|
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2023 |
| |||
Lease Liabilities |
| $ | 911 |
| $ | 839 |
|
| $ | 851 |
| |
Right-of-use assets |
| $ | 889 |
| $ | 814 |
|
| $ | 837 |
| |
Weighted average remaining lease term |
| 3.17 years |
| 3.89 years |
| |||||||
Weighted average remaining lease term (years) |
| 2.27 years |
| |||||||||
Weighted average discount rate |
| 3.05 | % |
| 3.50 | % |
| 3.28 | % |
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
| 2022 |
| |||||
Lease cost |
|
|
|
|
| |||||||||||
Operating lease cost |
| $ | 153 |
|
| $ | 26 |
|
| $ | 40 |
|
| $ | 153 |
|
Total lease cost |
| $ | 153 |
|
| $ | 26 |
|
| $ | 40 |
|
| $ | 153 |
|
|
|
|
|
|
| |||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 181 |
|
| $ | 31 |
|
| $ | 58 |
|
| $ | 181 |
|
38 |
Table of Contents |
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):
|
| March 31, 2022 |
| |
Nine months ending December 31, 2022 |
| $ | 132 |
|
Twelve months ending December 31, 2023 |
|
| 135 |
|
Twelve months ending December 31, 2024 |
|
| 136 |
|
Twelve months ending December 31, 2025 |
|
| 98 |
|
Twelve months ending December 31, 2026 |
|
| 70 |
|
Thereafter |
|
| 518 |
|
Total undiscounted cash flows |
| $ | 1,089 |
|
Discount |
|
| 178 |
|
Lease liabilities |
| $ | 911 |
|
|
| March 31, 2023 |
| |
Nine months ending December 31, 2023 |
| $ | 131 |
|
Twelve months ending December 31, 2024 |
|
| 166 |
|
Twelve months ending December 31, 2025 |
|
| 122 |
|
Twelve months ending December 31, 2026 |
|
| 69 |
|
Twelve months ending December 31, 2027 |
|
| 56 |
|
Thereafter |
|
| 462 |
|
Total undiscounted cash flows |
| $ | 1,006 |
|
Discount |
|
| 155 |
|
Lease liabilities |
| $ | 851 |
|
|
|
|
|
|
Note 13. Subsequent Events
On April 10, 2023, the Board of Directors of the Company appointed Aubrey Michael (Mike) Wilkerson as Chief Executive Officer of the Company and the Bank and Barton E. Black as President of the Company and the Bank, both effective April 10, 2023. Mr. Wilkerson also has been appointed to the Board of Directors of the Company and the Bank, effective April 10, 2023. Mr. Wilkerson previously served as Executive Vice President/Chief Lending Officer, and Mr. Black previously served as Executive Vice President/Chief Operating Officer of the Company and the Bank. They succeed Mark C. Hanna, whose separation from the Company and resignation as a director was effective April 10, 2023. Mr. Hanna served as President and Chief Executive Officer of the Company and the Bank.
On April 26, 2023, the Board of Directors declared a first quarter dividend of $0.26 per share, payable on May 30, 2023, to stockholders of record as of May 15, 2023.
On April 27, 2023 the Bank purchased property at 141 East Market Street in Harrisonburg, Virginia. This location will expand the Bank’s service offerings and customer support and accommodate future growth. The property has banking history, serving as the location of the headquarters of the former Rockingham Bank and as a branch or office location for its successors.
Table of Contents |
Note 14. Mortgage Banking and Derivatives
Loans Held for Sale
The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. The Company uses fair value accounting for its entire portfolio of loans held for sale (LHFS) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’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 $2,479 as of March 31, 2022 of which $2,544 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 into 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 considered to be derivatives. Upon entering into 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).
The Company locks in the loan and rate with an investor and commits to deliver 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 the 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 reported in “Other Liabilities” in the Consolidated Balance Sheet at March 31, 2022, and totaled $262, with a notional amount of $25,542 and total positions of 82. The fair value of the IRLCs at December 31, 2021 totaled $258, with a notional amount of $18,801 and total positions of 70. Changes in fair value are recorded as a component of “Mortgage banking income, net” in the Consolidated Income Statement for the period ended March 31, 2022. The Company’s IRLCs are classified as Level 2. At March 31, 2022 and December 31, 2021, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.
The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2022 totaled $637, with a notional amount of $28,085 and total positions of $96. The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2021 totaled $112, with a notional amount of $23,721 and total positions of 91.
Note 15. Stock-Based Compensation
The Company maintains the F & M Bank Corp. 2020 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, through the use of stock and stock-based incentives. It 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 Stock Plan Committee administers the plan, identifies which participants will be granted awards, and determines the terms and conditions applicable to the awards. On March 7, 2022 the Company’s Stock Plan Committee awarded 17,763 shares with a fair value of $547,989 from this plan to selected employees. These shares vest 25% over each of the next four years. The Committee also awarded 1,145 shares with a fair value of $35,323 to directors that vested upon issuance. As of March 31, 2022, there was $837 thousand of unrecognized compensation cost related to nonvested restricted stock.
Note 15. Stock-Based Compensation, continued
The following table summarizes the status of the Company’s nonvested awards for the three months ended March 31, 2022 and 2021:
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||
Nonvested, beginning of period |
|
| 15,869 |
|
| $ | 26.78 |
|
|
| - |
|
| $ | - |
|
Granted |
|
| 17,763 |
|
|
| 30.85 |
|
|
| 16,140 |
|
|
| 26.75 |
|
Vested |
|
| (3,920 | ) |
|
| 30.85 |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| (474 | ) |
|
| 29.10 |
|
|
| - |
|
|
| - |
|
Nonvested, end of period |
|
| 29,238 |
|
| $ | 29.20 |
|
|
| 16,140 |
|
| $ | 26.75 |
|
Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands)
F & M Bank Corp. (“Company”), incorporated in Virginia in 1983, is a financial holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (“Bank”). TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba F“F&M Mortgage)Mortgage”) are wholly owned subsidiaries of the Bank. F & M Bank Corp.Bank.The Company held a majority ownership in VSTitle LLC (“VST”), with the remaining minority interest owned by F&M Mortgage, until the Company purchased F&M Mortgage’s minority interest in VST on January 3, 2022.
The Bank is a full-service commercial bank offering a wide range of banking and financial services through its thirteen branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Fishersville, Woodstock, and Winchester, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg, Fishersville, and Charlottesville, Virginia.
The Company’s primary trade area services customers in the counties of Rockingham, Shenandoah, Frederick and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester.
Management’s discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. 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 1, Part 1 of this Form 10-Q and in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 (the “2022 Form 10-K.10-K”).
40 |
Table of Contents |
Forward-Looking Statements
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning opinions or judgment of the Company and its management about future events.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: changing uncertainties related to the COVID-19 pandemic, general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, the financial strength of borrowers, consumer spending and savings habits, geopolitical conditions, and exposure to fraud, negligence, computer theft and cyber-crime.
We do not update any forward-looking statements that may be made from time to time by or on behalf ofcyber-crime, and other factors described in Item 1A., “Risk Factors,” in the Company.Company’s 2022 Form 10-K.
Critical Accounting Policies
General
The Company’s financial statementsaccounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial information containedGAAP and conform to general practices 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.banking industry. 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. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.
In addition, GAAP itself may change from one previously acceptable method to another method. AlthoughThe Company’s critical accounting policies used in the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summarypreparation of the Company’s significant accountingConsolidated Financial Statements as of March 31, 2023 were unchanged from the policies that are highly dependent on estimates, assumptionsdisclosed in the 2022 Form 10-K within the section “Management’s Discussion and judgments.Analysis of Financial Condition and Results of Operations” except for the adoption of ASC 326. See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.
Allowance for Loan LossesOverview
TheNet income for the first quarter of 2023 was $1.1 million or $0.30 per share, compared to $2.5 million or $0.74 per share for first quarter 2022. Interest income for the three months ended March 31, 2023, increased $3.9 million over the prior year first quarter, due to higher loan volume and higher interest rates. Higher rates on interest bearing deposits, specifically money market accounts, coupled with interest paid on short-term borrowings, increased the Bank’s interest expense to $5.1 million for the first quarter, up $4.1 million over first quarter 2022.
During first quarter 2023, there was no provision for credit losses while a recovery of loan losses of $450 thousand was recorded in first quarter 2022. Effective January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)” which changed the methodology used in the calculation of allowance for loan losses is an estimatefrom the incurred loss method to the current expected credit loss model (“CECL”). As a result of the losses that may be sustained inadoption, the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 “Receivables”, which requires that losses be accrued based onCompany recorded a one-time adjustment to increase 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. The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either ASC 450 or ASC 310. Management’s estimate of each ASC 450 component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borroweron loans (“ACLL”) of $777 thousand and industry concentrations; seasoningestablished a reserve for unfunded commitments of $749 thousand. The accounting standard requires the dealer loan portfolio; maturityone-time adoption adjustment to be offset against retained earnings and any future adjustments to be charged to provision expense. At March 31, 2023, the ACLL totaled $8.5 million or 1.13% of lending staff; the findings of internal credit quality assessments, results from external bank regulatory examinations and third-party loan reviews. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.
Allowances for loans 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 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.gross loans.
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Critical Accounting Policies, continuedNet Interest Income
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 substantiallyFor first quarter 2023, net interest income totaled $7.8 million, a decrease of $229 thousand from the assumptions used in making the valuations 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 Obligations
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.
COVID-19
The World Health Organization declared a global pandemic in the first quarter of 20202022, resulting in a decrease in our net interest margin by 0.06%. Interest income and fees on loans were $3.3 million higher due to higher rates on variable rate loans and $97.4 million in loan growth since first quarter 2022. Income from cash and securities was $576 thousand higher due to increased interest rates.
Interest expense increased by $4.1 million to $5.1 million mostly due to higher market interest rates and an increase in the spreadaverage balances of short-term debt. During the coronavirus (“COVID-19”) aroundfourth quarter of 2022 and first quarter of 2023, rates paid on money market and time deposits increased significantly resulting in $3.2 million more in interest expense on deposits. The increase in market interest rate also caused a shift in the world. The Company was considered an essential business and implemented proceduresdeposit mix to protect its employees, customers andhigher-cost accounts. Short-term borrowings were used to augment deposits to fund loan growth in the community and still serve their banking needs. Branch lobbies were closed in 2021 and again brieflyfourth quarter which increased short-term borrowings expense to $992 thousand from January 18, 2022 to March 7, 2022. During this time the Company utilized drive through windows and courier service to handle transactions, new accounts were opened electronically with limited in person contact for document signing and verification of identification, and lenders accepted applications by appointment with limited in person contact.$0 last year.
The SBA implementednet interest margin was 2.76% and 2.82% for the Paycheck Protection Program (“PPP”) to support small business operations with loans during the shutdown and into the following months. The Company worked diligently to support both our customers and noncustomers within our footprint with these loans, originating a total of 1,080 PPP loans totaling $87,061 and associated fees of $3,824 through the SBA program. As ofthree months ended March 31, 2023 and 2022, there are 25 loans outstanding with a balancerespectively. The lower net interest margin was due to higher cost of $2,061 and unamortized fees of $56.funds, partially offset by higher yields on interest-earning assets.
BasedThe following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the Company’s capital levels, current underwriting policies, low loan-to-deposit ratio,three months ended March 31, 2023 and 2022 (dollars in thousands):
|
| Three Months Ended March 31, 2023 |
|
| Three Months Ended March 31, 2022 |
| ||||||||||||||||||
|
| Average Balance5 |
|
| Income/Expense |
|
| Average Rates1 |
|
| Average Balance5 |
|
| Income/ Expense |
|
| Average Rates1 |
| ||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans held for investment2,3 |
| $ | 749,790 |
|
| $ | 10,866 |
|
|
| 5.88 | % |
| $ | 656,099 |
|
| $ | 7,522 |
|
|
| 4.65 | % |
Loans held for sale |
|
| 1,308 |
|
|
| 22 |
|
|
| 6.82 | % |
|
| 3,683 |
|
|
| 29 |
|
|
| 3.19 | % |
Federal funds sold |
|
| 6,376 |
|
|
| 74 |
|
|
| 4.71 | % |
|
| 64,813 |
|
|
| 24 |
|
|
| 0.15 | % |
Interest bearing deposits |
|
| 748 |
|
|
| 10 |
|
|
| 5.42 | % |
|
| 2,845 |
|
|
| 1 |
|
|
| 0.14 | % |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 381,915 |
|
|
| 1,908 |
|
|
| 2.03 | % |
|
| 423,751 |
|
|
| 1,444 |
|
|
| 1.38 | % |
Partially taxable |
|
| - |
|
|
| - |
|
|
|
|
|
|
| 125 |
|
|
| 1 |
|
|
| 1.62 | % |
Tax exempt4 |
|
| 15,052 |
|
|
| 134 |
|
|
| 3.61 | % |
|
| 10,250 |
|
|
| 67 |
|
|
| 2.65 | % |
Total earning assets |
| $ | 1,155,189 |
|
| $ | 13,014 |
|
|
| 4.57 | % |
| $ | 1,161,566 |
|
| $ | 9,088 |
|
|
| 3.17 | % |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 168,781 |
|
|
| 674 |
|
|
| 1.62 | % |
|
| 188,344 |
|
|
| 103 |
|
|
| 0.22 | % |
Savings |
|
| 500,988 |
|
|
| 2,977 |
|
|
| 2.41 | % |
|
| 492,458 |
|
|
| 503 |
|
|
| 0.41 | % |
Time deposits |
|
| 121,600 |
|
|
| 391 |
|
|
| 1.30 | % |
|
| 122,471 |
|
|
| 239 |
|
|
| 0.79 | % |
Federal funds purchased |
|
| 354 |
|
|
| 5 |
|
|
| 5.73 | % |
|
| - |
|
|
| - |
|
|
|
|
|
Short-term debt |
|
| 71,111 |
|
|
| 987 |
|
|
| 5.63 | % |
|
| - |
|
|
| - |
|
|
|
|
|
Long-term debt |
|
| 6,895 |
|
|
| 112 |
|
|
| 6.59 | % |
|
| 21,776 |
|
|
| 159 |
|
|
| 2.96 | % |
Total interest bearing liabilities |
| $ | 869,729 |
|
| $ | 5,146 |
|
|
| 2.40 | % |
| $ | 825,049 |
|
| $ | 1,004 |
|
|
| 0.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income |
|
|
|
|
| $ | 7,868 |
|
|
|
|
|
|
|
|
|
| $ | 8,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 2.76 | % |
|
|
|
|
|
|
|
|
|
| 2.82 | % |
________________________
1 Annualized.
2 Interest income on loans includes loan concentration diversificationfees.
3 Loans held for investment include nonaccrual loans.
4 Income tax rate of 21% was used to calculate the tax equivalent income on nontaxable and rural operating environment, management believes that itpartially taxable investments and loans.
5 Average balance information is well positioned to support its customersreflective of historical cost and communities and to manage the economic risks and uncertainties associated with COVID-19 pandemic and remain adequately capitalized.has not been adjusted for changes in market value annualized.
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Overview (Dollars in thousands)
Net income for the three months ended March 31, 2022 was $2,528 or $0.74 per share, compared to $3,801 or $1.17 in the same period in 2021, a decrease of 33.49%. During the three months ended March 31, 2022, noninterest income decreased 25.99% and noninterest expense increased 11.24% during the same period.
Results of Operations
As shown in Table I, the 2022 year to dateThe following table reconciles tax equivalent net interest income, increased $377 or 4.89% comparedwhich is not a measurement under GAAP, to the same period in 2021. The tax equivalent adjustment to net interest income totaled $27 for the first three months of 2022. The yield on earning assets decreased .75%, while the cost of funds decreased .21% compared to the same period in 2021.
The combination of the decrease in yield on assets and the decrease in cost of funds coupled with changes in balance sheet leverage resulted in the net interest margin decreasing to 2.82% for the three months ended March 31, 2022, a decrease of 62 basis points when compared to the same period in 2021. A schedule of the net interest margin for the three-month periods ended March 31, 2022 and 2021 can be found in Table I.
The following table provides detail on the components of tax equivalent net interest income (dollars in thousands):
GAAP Financial Measurements: |
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||||
Interest Income – Loans |
| $ | 7,539 |
| $ | 8,270 |
|
| $ | 10,876 |
| $ | 7,539 |
| ||
Interest Income - Securities and Other Interest-Earnings Assets |
| 1,522 |
| 476 |
|
| 2,098 |
| 1,522 |
| ||||||
Interest Expense – Deposits |
| 845 |
| 795 |
|
| 4,042 |
| 845 |
| ||||||
Interest Expense - Other Borrowings |
|
| 159 |
|
|
| 273 |
|
|
| 1,104 |
|
|
| 159 |
|
Total Net Interest Income |
| $ | 8,057 |
| $ | 7,678 |
|
| $ | 7,828 |
| $ | 8,057 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
|
| ||||||
Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities |
|
| 27 |
|
|
| 29 |
|
|
| 40 |
|
|
| 27 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
| 27 |
|
|
| 29 |
|
|
| 40 |
|
|
| 27 |
|
Tax-Equivalent Net Interest Income |
| $ | 8,084 |
|
| $ | 7,707 |
|
| $ | 7,868 |
|
| $ | 8,084 |
|
Noninterest Income
Noninterest income totaled $1.9 million for first quarter 2023, which was a decrease of $599 thousand from the first three months of 2022. The primary reason for the decrease in noninterest income from 2022 was a reduction of $872 for$508 thousand in mortgage banking income. There were fewer mortgage loans sold on the three-month period March 31,secondary market due to an overall decrease in volume and, a shift in production from the 30-year fixed rate product to variable rate products which were retained in the Bank’s loan portfolio. The overall decline in mortgage banking activity also negatively impacted VSTitle income which declined by $225 thousand from the first quarter of 2022 compared to the same periodquarter in 2021 is2023. Service charges on deposit accounts decreased by $82 thousand due primarily to a decreasechange in mortgage banking income ($930)the method used to charge NSF and Overdraft fees. These decreases were partially offset by increases of $82 thousand in investment and insurance income ($96) dueand $64 thousand in ATM and debit card interchange income.
Noninterest Expense
Noninterest expenses totaled $8.7 million in first quarter 2023, compared to a slowdown$8.6 million in refinance activity. This was offset bythe first quarter of 2022. The year-over-year increases were spread over several categories of noninterest expenses including salary and employee benefits expense, professional fees, and data processing fees. The increase in salary expense resulted from an increase in ATMthe minimum wage paid by the Bank in August 2022 and check card fees ($43) and other income ($58).a one-time severance accrual made during the quarter. These amounts were partially offset by a decrease in pension expense of $195 thousand.
Noninterest expense forIncome Taxes
For the three months ended March 31, 2023 and March 31, 2022, increased $864 as compared to 2021. Expenses increased primarily inincome tax benefit was $51 thousand and $88 thousand, respectively, and the areas of salarieseffective income tax rate was 5.1% and benefits ($413)3.6%, occupancy expenses ($45), advertising ($42) and telecommunication and data processing expense ($361). Expansion intorespectively. Our effective tax rate differs from the Winchester and Waynesboro markets led to increased salary, benefits, and occupancy expenses. Advertising increased as a result of increased marketing efforts in markets where larger banks were leaving. Telecommunications and data processing increased21% federal statutory rate due to a focus on infrastructure improvements, digital enhancements,the impact of various permanent tax differences, including tax-exempt income from municipal securities, BOLI income, tax credits from low-income housing tax credit investments, and online capabilities.the vesting of other stock-based compensation.
Balance Sheet
Federal Funds Sold and Interest Bearing Bank DepositsOverview
TheOn March 31, 2023, assets totaled $1.25 billion, an increase of $7.0 million from December 31, 2022. Total loans increased by $13.3 million during the quarter to $756.9 million, including increases of $7.6 million in 1-to-4 family variable rate mortgage loans and $6.1 million in dealer financing loans. Investment securities decreased by $4.6 million due to paydowns on U.S. Agency mortgage-backed securities and the maturity of a $3.8 million municipal security. During the quarter, the unrealized loss on the bond portfolio improved by $3.4 million, improving the Company’s subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest-bearing bank deposits. Federal funds sold offer daily liquidity and pay market rates of interest thattangible common equity ratio from 5.13% at quarter end were benchmarked at 0.50%December 31, 2022, to 2.25% by the Federal Reserve. Actual rates received vary slightly based upon money supply and demand among banks. Interest bearing bank deposits are held either in money market accounts or as short-term certificates of deposits. The Company held $31,994 and $76,667 in federal funds sold5.26% at March 31, 2022 and December 31, 2021, respectively. Growth in excess funds has been due to strong deposit growth, and the decrease from December 31, 2021 to March 31, 2022 was due to the Company deploying these funds into the investment portfolio. Interest bearing bank deposits have decreased by $142 since year end from $2,938 to $2,796.2023.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)Securities Available for Sale (“AFS”)
Securities
The Company’sOur AFS securities portfolio serves to assist the Company with asset liability management. With the growth in deposits, the Company has worked to strategically invest the excess funds into the investment portfolio. This has resulted in an increase in the investmentsis reported at fair value, which is determined based on market prices of similar instruments. Total securities available for sale of $57,940 sincewere $388.2 million at March 31, 2023, compared to $392.1 million at December 31, 2021.2022. This represents a decrease of $3.8 million or 1.0%. The average balance during the first quarter of 2023 was $397.0 million, compared to $434.1 million during the first quarter of 2022. The average AFS securities portfolio represented 34.4% and 37.4% of average earning assets in first quarters 2023 and 2022, respectively. The year-over-year decrease in average AFS securities is primarily due to the decline in the market value of the securities of $27.4 million coupled with normal paydowns of mortgage-backed securities and municipal bond maturities.
The securities portfolio consists of investment securities commonly referredNet unrealized losses related to as securities held to maturity and securities available for sale. Securities are classified as Held to Maturity investment securities when management has the intent and ability to hold the securities to maturity. Held to Maturity Investment securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, liquidity needs and other similar factors. Securities available for sale are recorded at fair value. Unrealized holding gains and losses on available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of stockholders’ equity. The low-income housing projects included in other investments are held for the tax losses and credits that they provide.
As of March 31, 2022, the fair value of securities available for sale was below their cost by $20,329.AFS decreased $3.4 million in the first quarter of 2023 to $47.9 million, from $51.2 million at December 31, 2022 . The portfolio is made up of primarily treasuries, agenciesU.S. Treasury, U.S Agency and mortgage-backed obligations ofsecurities issued by federal agencies, as well as Securitiessecurities issued by Statesmunicipal bonds and political subdivisions in the U.S. and Corporatecorporate debt securities. The unrealized loss is driven by the increase in market interest rates, not credit quality. The average maturity of the portfolio is 5.145.08 years. Efforts to deploy excess funds in an uncertain rate environment has resulted in a mixture of maturities.
In reviewing investments as of March 31, 2022, there were no securities which met the definition for other than temporary impairment. Management continues to re-evaluate the portfolio for impairment on a quarterly basis.
Loan Portfolio
The local economy that the Company operates primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in western Virginia. The local economy benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid-size businesses and farms within its primary service area. There are no loan concentrations as defined by regulatory guidelines.The Bank also makes automobile and recreational vehicle loans through its Dealer Finance division.
Loans Held for Investment of $659,560 decreased $2,861 on$756.9 million increased $13.3 million during the three months ended March 31, 20222023 compared to $662,421$743.6 million at December 31, 2021. Net2022. As a percentage of PPP,average earning assets, average loans grew $3,014 or 0.46% since Decemberwere 64.9% for the quarter ended March 31, 2021. Loan growth in2023, compared with 56.5% for the home equity – open end and dealer finance segments of the portfolio were offset by declines in construction, commercial real estate and PPP segments.quarter ended March 31, 2022.
Loans Held for Sale totaled $2,479$1.2 million on March 31, 2022,2023, a decrease of $2,408$131 thousand compared to $4,887$1.4 million at December 31, 2021. At March 31, 2022 this balance was2022. Loans Held for Sale consists of F&M mortgageMortgage loans, which are typically subject to changes in interest rates, seasonal fluctuations, and refinance activity. Most of the mortgage loans held for sale have been precommitted to investors, which minimizes the interest rate risk.
Provision for Credit Losses
The provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses and the reserve for unfunded commitments. The amount of the allowance for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses based on internal and peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. The amount of the reserve for unfunded commitments considers the probability that those commitment will fund.
Management has developed a comprehensive analytical process to monitor the adequacy of the allowance for credit losses. The process and guidelines were developed utilizing, among other factors, the guidance from federal banking regulatory agencies, relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. Refer to additional detail regarding these forecasts in the “Allowance for Credit Losses - Loans" section of Note 1 to the Consolidated Financial Statements.
The results of this process, in combination with conclusions of the Bank’s outside consultants’ review of the risk inherent in the loan portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date. Please refer to the discussion under “Critical Accounting Policies” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table on page 25 which reflects activity in the allowance for credit losses.
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At March 31, 2023, the allowance for credit losses on loans (“ACLL”) reflected a day one CECL impact of $777 thousand which was charged to retained earnings, and $167 thousand in net charge-offs during the first quarter. The provision for credit losses was $0 for the first quarter of 2023, compared to a recovery of loan losses of $450 thousand for first quarter last year. There was no provision for credit losses in the first quarter 2023 because the growth in the portfolio was offset by a decrease in the quantitative factors. Collateral values are stable in the Company’s market, so the factor for real estate values on collateral dependent loans was decreased. Additionally, the avian flu cases in the fourth quarter did not spread through our market area and affect our agricultural loans and loans secured by farmland.
Nonperforming Assets
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $4,751$1.8 million on March 31, 20222023 compared to $5,465$2.3 million at December 31, 2021. The decrease in nonperforming loans from year end is primarily due to one loan paying off, one loan moving to accrual status, and amortization. Although the potential exists for loan losses beyond what is currently provided for in the allowance for loan losses, management believes the Bank is generally well secured and continues to actively work with its customers to effect payment.2022.
A summary of credit ratios for nonaccrual loans is as follows (in(dollars in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Allowance for loan losses |
| $ | 7,389 |
|
| $ | 7,748 |
|
Nonaccrual loans |
| $ | 4,751 |
|
| $ | 5,465 |
|
Total Loans |
| $ | 659,560 |
|
| $ | 662,421 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to Total Loans |
|
| 1.12 | % |
|
| 1.17 | % |
Nonaccrual Loans to Total Loans |
|
| 0.72 | % |
|
| 0.83 | % |
Allowance for loan losses to Nonaccrual loans |
|
| 155.53 | % |
|
| 141.77 | % |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Allowance for credit losses on loans |
| $ | 8,546 |
|
| $ | 7,936 |
|
Nonperforming loans |
| $ | 1,782 |
|
| $ | 2,262 |
|
Total loans |
| $ | 756,920 |
|
| $ | 743,604 |
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses to total loans |
|
| 1.13 | % |
|
| 1.07 | % |
Nonperforming loans to total loans |
|
| 0.24 | % |
|
| 0.30 | % |
Coverage ratio, allowance for credit losses to nonperforming loans |
|
| 479.57 | % |
|
| 350.84 | % |
Item 2. Management’s DiscussionDeposits and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Allowance for Loan LossesOther Borrowings
The allowance for loan losses provides for the risk that borrowers will be unable to repay their obligations. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies and consumer confidence, and the value of the underlying collateral. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies.
Management evaluates the allowance for loan losses on a quarterly basis in light of national and local economic trends, changes in the nature and volume of the loan portfolio and trends in past due and criticized loans. Specific factors evaluated include loan review reports, past due reports, historical loan loss experience and changes in the financial strength of individual borrowers that have been included on the Bank’s watch list or schedule of classified loans.
In evaluating the portfolio, loans are segregated by segment with identified potential losses, pools of loans by type, with separate weighting for past dues and a general allowance based on a variety of criteria. Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of $500,000 and loans identified as troubled debt restructurings are reviewed individually for impairment under ASC 310. A variety of factors are considered when reviewing these credits, including borrower cash flow, payment history, fair value of collateral, company management, industry, and economic factors. Loans that are not reviewed for impairment are categorized by call report code and an estimate is calculated based on actual loss experience over the last three years.
A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio. The general allowance is calculated using nine qualitative factors identified in the 2006 Interagency Policy Statement on the allowance for loan losses. The general allowance assists in managing recent changes in portfolio risk that may not be captured in individually impaired loans, or in the homogeneous pools based on loss histories. The Board approves the loan loss provision for each quarter based on this evaluation.
The allowance for loan losses of $7,389 at March 31, 2022 is equal to 1.12% of loans held for investment. This compares to an allowance of $7,748, or 1.17% at December 31, 2021.
Due to increasing interest rates, loan portfolio growth over the last 12 months, and deteriorating economic conditions, the qualitative reserve increased. This was offset by improvements in the unemployment rate, a decrease in historical loss rates and paydowns on individually impaired loans. The Company is monitoring the economic effects of increased inflation, building costs, and used car prices, as well as a rising interest rate environment. The Company continues to manage the classified, past due and non-performing loans, which are all at lower levels than December 31, 2021, Classified loans (internally rated substandard or watch) decreased from a total of $43,230 at December 31, 2021 to $40,313 at March 31, 2022, past due loans on accrual decreased from $3,226 at December 31, 2021 to $2,414 at March 31, 2022, and non-performing loans decreased from $5,508 at December 31, 2021 to $4,805 at March 31, 2022. Management is closely monitoring the effects of economic conditions on the loan portfolio and makes adjustments to specific reserves, the environmental factors and the provision for loan losses as necessary.
Deposits and Other Borrowings
The Company’sCompany's main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company’sCompany's service area. Deposit accounts include demand deposits, savings, money market, and certificates of deposit. Total deposits were $1.11 billion and $1.08 billion at March 31, 2022 have increased $32,000 since2023 and December 31, 2021.2022 respectively. Noninterest bearing deposits increased $17,683decreased $9.5 million while interest bearing deposits increased $14,317. The increase in$31.4 million. Total deposits is dueincreased $21.9 million from the end of 2022, as the Bank was able to a focusattract deposits by offering higher rates on money market and time deposit growth as an organization as well as excess funds that customers are holding due to the pandemic. accounts and opening insured cash sweep (“ICS”) accounts for new and existing customers.
The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. At March 31, 20222023 and December 31, 20212022 the Company had a total of $257$241 thousand in CDARS accounts; and, $95,976$97.1 million and $94,948$77.6 million in ICS accounts, respectively.
Item 2. Management’s Discussion and Analysis At March 31, 2023, 11.45% of Financial Condition and Results of Operations (dollars in thousands) (Continued)the Company’s total deposits were uninsured deposits.
Short-term borrowings
The Company utilizes short-term debt such as Federal funds purchased and FHLB short termshort-term borrowings to 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 needs of the Company. With the growth in depositsThere were $55.0 million and excess liquidity, the Company has not utilized the short-term debt facilities for 2021 or 2022.
Long-term borrowings
The Company’s subsidiary bank borrows funds on a fixed rate basis as needed. These borrowings are used to support the Bank’s lending program and allow the Bank to manage interest rate risk by laddering maturities and matching funding terms to the terms$70.0 million of various types in the loan portfolio. FHLB long term advances totaled $10,000 onat March 31, 2022,2023 and December 31, 2021.2022, respectively. The increase in deposits allowed us to reduce the FHLB advances during the first quarter of 2023.
Long-term borrowings
On July 29, 2020, the Company sold and issued to certainan institutional accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000investor $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”).2030. The 2027 Notes will bear interest at 5.75% per annum, payable semi-annually in arrears. Beginning on July 31, 2022 through maturity, the 2027 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2027 Notes will mature on July 31, 2027. The 2030 Notesnote will initially bear interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate shallwill 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 Notesnote may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notesnote will mature on July 31, 2030. The subordinated notes,note, net of issuance costs totaled $11,780$6.9 million at March 31, 2022.2023.
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Capital
The Company seeksand the Bank are subject to maintainvarious regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a strongdirect material effect on the Company’s and the Bank’s financial statements. Under capital baseadequacy 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 expand facilities, promote public confidence, support current operationsqualitative judgments by the regulators about components, risk weightings, and grow at a manageable level.other factors.
At March 31, 2022, the Bank had Common Equity Tier IQuantitative measures established by regulation to ensure capital of 13.72% of risked weighted assets, Tier I capital of 13.72% of risk weighted assets and combined Tier I and II capital of 14.70% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. At December 31, 2021, the Bank had Common Equity Tier I capital of 13.95% of risk weighted assets, Tier I capital of 13.95% of risk weighted assets and combined Tier I and II capital of 15.00% of risk weighted assets. The Bank has maintained capital levels far above the minimum requirements. In the unlikely event that such capital levels are not met, regulatory agencies are empowered toadequacy require the Bank to raise additionalmaintain capital and/in order to meet certain capital ratios to be considered adequately capitalized or reallocate present capital.well capitalized under the regulatory framework for prompt corrective action. As of the most recent formal notification from the Federal Reserve, the Bank was categorized as “well capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s categorization.
In addition,Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the regulatory agencies have issued guidelines requiringcapital framework of the maintenanceBasel Committee on Banking Supervision, generally referred to as “Basel III,” became effective for the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions. Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by average total assets. The regulators have established a minimumconservation buffer of 4% for this ratio but can increase2.5% above the minimum requirement based upon an institution’s overall financial condition.risk-based capital requirements, which fully phased in by January 1, 2019, in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At March 31, 2022,2023, the Bank reported a leverageis in compliance with the capital conservation buffer requirement and exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of 8.47%the fully phased-in capital conservation buffer, of 7.00%, compared to 8.62% at December 31, 2021. 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations.
The Bank’s leverage ratio was substantially above8.28%, its common equity Tier 1 and Tier 1 capital ratios were both 12.21%, its total capital ratio was 13.18% and the minimum. The Bank also reported a capital conservation buffer of 6.70%was 5.18% at March 31, 2022 and 7.00% at December 31, 2021. The capital conservation buffer is designed to strengthen an institution’s financial resilience during economic cycles. Financial institutions are required to maintain a minimum buffer as required by the Basel III final rules in order to avoid restrictions on capital distributions and other payments.2023.
In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023, and elected not to phase in the effect of CECL on regulatory capital.
Liquidity
Liquidity is therepresents 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. LiquidThe Company’s most liquid assets includeare unrestricted cash interest-bearing deposits with banks,and cash equivalents, federal funds sold, investmentsloans held for sale, and loans maturing withinunpledged available for sale investment securities. Our primary source of funding is deposits. If additional liquidity is needed or otherwise desired as part of our liquidity management strategy, we have additional sources of liquidity that can be accessed, including FHLB advances, federal fund lines, the Federal Reserve’s lending programs and brokered deposits, as well as loan and investment securities sales.
As of March 31, 2023, the Bank had total credit availability with the FHLB of $373.5 million, or 30% of total assets, and $161.1 million in lendable collateral. At March 31, 2023, we had $55.0 million in FHLB term borrowings and a $15.0 million letter of credit to provide collateral for our public deposits, which leaves $91.1 million in available lendable collateral. In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) to provide any U.S. federally insured depository institution, including the Bank, with a line a credit equal to the par value of securities pledged to the BTFP. Advances from the BTFP may be requested by the Bank for up to one year.year until March 31, 2024. The Company’s abilityBank did not pledge securities to, obtain deposits and purchase funds at favorable rates determines its liquidity exposure. or borrow from, the BTFP during the first quarter 2023.
As a result of the Company’s management ofMarch 31, 2023, liquid assets totaled $420.8 million or 33.6% of total assets. When combined with our unused borrowing capacity, the combined readily available liquidity was approximately $511.8 million, with a coverage ratio of 405% to uninsured and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.uncollateralized deposits.
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Item 2. Management’s DiscussionThe Bank has a Funding and AnalysisLiquidity Risk Management policy that limits the amount of Financial Conditionshort-term and Resultslong-term alternative funding to no more than 25% of Operationstotal assets. At March 31, 2023, total wholesale funding was $71.3 million or 5.69% of total assets.
Interest Rate Sensitivity
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 | 24.8 | % | ||
+ 200 basis points | 16.9 | % | ||
+ 100 basis points | 8.7 | % | ||
- 100 basis points | -2.8 | % | ||
- 200 basis points | -6.6 | % | ||
- 300 basis points | -11.0 | % | ||
- 400 basis points | -20.9 | % |
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.
The following table reflects the change in net market value over different rate environments (dollars in thousands) (Continued):
Liquidity, continued
Change in Prime Rate | $ Change in Net Market Value | |
+ 300 basis points | $702 | |
+ 200 basis points | -$633 | |
+ 100 basis points | -$1,153 | |
- 100 basis points | -$6,711 | |
- 200 basis points | -$14,548 | |
- 300 basis points | -$22,402 | |
- 400 basis points | -$35,100 |
Additional sources of liquidity available toPrudent balance sheet management requires processes that monitor and protect the Company include, but are not limited to, loan repayments,against unanticipated or significant changes in the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds. To further meet its liquidity needs, the Company’s subsidiary bank also maintains a line of credit with its primary correspondent financial institution and with Pacific Coast Bankers Bank, Zions Bank, and FNBB. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings. Additionally, the Bank can utilize the Federal Reserve Discount Window.
Interest Rate Sensitivity
In conjunction with maintaining a satisfactory level of liquidity, management must also control the degree ofmarket interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of interest sensitiveis kept to an acceptable level. The ability to reprice our interest-sensitive assets relative to interest sensitiveand liabilities over specificvarious time intervals. The Company monitors its interest rate sensitivity periodically and makes adjustments as needed. There are no off-balance sheet items that will impair future liquidity.
Effectintervals is of Newly Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 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 all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and 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, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements and has created a CECL model to run parallel for 2022. All data has been archived under the current model.
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 March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.critical importance.
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Item 2. Management’s DiscussionThe Company uses a variety of traditional and Analysison-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 Financial Conditionrising, stable, and Resultsfalling interest rate scenarios, the Company can position itself to take advantage of Operations (dollars in thousands) (Continued)anticipated interest rate movement, and protect us from unanticipated rate movements, by understanding the dynamic nature of our balance sheet components.
Effect of Newly Issued Accounting Standards, continued
The Company is preparing loan agreements, otherAn asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than SWAP loans, to transition from LIBOR by the end of second quarter 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation to transition from LIBOR by the swap holder.
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contractsliabilities; consequently, net interest income should be positively affected 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 instrumentsincreasing 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 reported aspositively affected in a single liability instrument and more convertible preferred stock asdecreasing interest rate environment. At March 31, 2023, the Company had $XX.X million in assets repricing than liabilities subject to repricing in one year. This is 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 the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial statements.
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 Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equityone-day position that is continually changing and is not within the scopenecessarily indicative of another Topic. Early adoption is permitted. ASU 2021-04 was effective for the Company on January 1, 2022. The adoption of ASU 2021-04 did not have a material impact on its consolidated financial statements.
Other accounting standards that have been issued by the FASB orour position at any other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.time.
Existence of Securities and Exchange Commission Web Site
The Securities and Exchange Commission (“SEC”) maintains a Web site that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission, including F & M Bank Corp.SEC and the address is (http:http: //www.sec.gov).www.sec.gov.
TABLE I
F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
(Dollar Amounts in Thousands)
|
| Three Months Ended March 31, 2022 |
|
| Three Months Ended March 31, 2021 |
| ||||||||||||||||||
|
| Average Balance |
|
| Income/ Expense |
|
| Average Rates1 |
|
| Average Balance |
|
| Income/ Expense |
|
| Average Rates1 |
| ||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans held for investment2,3 |
| $ | 656,099 |
|
| $ | 7,522 |
|
|
| 4.65 | % |
| $ | 673,744 |
|
| $ | 8,196 |
|
|
| 4.93 | % |
Loans held for sale |
|
| 3,683 |
|
|
| 29 |
|
|
| 3.19 | % |
|
| 13,221 |
|
|
| 94 |
|
|
| 2.88 | % |
Federal funds sold |
|
| 64,813 |
|
|
| 24 |
|
|
| 0.15 | % |
|
| 87,157 |
|
|
| 15 |
|
|
| 0.07 | % |
Interest bearing deposits |
|
| 2,845 |
|
|
| 1 |
|
|
| 0.14 | % |
|
| 884 |
|
|
| - |
|
|
| 0.11 | % |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 423,751 |
|
|
| 1,444 |
|
|
| 1.38 | % |
|
| 126,973 |
|
|
| 427 |
|
|
| 1.37 | % |
Partially taxable4 |
|
| 125 |
|
|
| 1 |
|
|
| 1.62 | % |
|
| 125 |
|
|
| 1 |
|
|
| 1.62 | % |
Tax exempt4 |
|
| 10,250 |
|
|
| 67 |
|
|
| 2.65 | % |
|
| 6,237 |
|
|
| 42 |
|
|
| 2.73 | % |
Total earning assets |
| $ | 1,161,566 |
|
| $ | 9,088 |
|
|
| 3.17 | % |
| $ | 908,341 |
|
| $ | 8,775 |
|
|
| 3.92 | % |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 188,344 |
|
|
| 103 |
|
|
| 0.22 | % |
|
| 114,699 |
|
|
| 44 |
|
|
| 0.16 | % |
Savings |
|
| 492,458 |
|
|
| 503 |
|
|
| 0.41 | % |
|
| 347,332 |
|
|
| 351 |
|
|
| 0.41 | % |
Time deposits |
|
| 122,471 |
|
|
| 239 |
|
|
| 0.79 | % |
|
| 129,142 |
|
|
| 400 |
|
|
| 1.26 | % |
Long-term debt |
|
| 21,776 |
|
|
| 159 |
|
|
| 2.96 | % |
|
| 32,531 |
|
|
| 273 |
|
|
| 3.40 | % |
Total interest bearing liabilities |
| $ | 825,049 |
|
| $ | 1,004 |
|
|
| 0.49 | % |
| $ | 623,704 |
|
| $ | 1,068 |
|
|
| 0.70 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income |
|
|
|
|
| $ | 8,084 |
|
|
|
|
|
|
|
|
|
| $ | 7,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 2.82 | % |
|
|
|
|
|
|
|
|
|
| 3.44 | % |
____________
| |
| |
| |
| |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required
Item 4. Controls and Procedures
The Company’sCompany's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company’sCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), as of March 31, 2022.2023. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’sCompany's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC and that such information is accumulated and communicated to management including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company adopted Financial Accounting Standards Board Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and related updates, as described further in SEC rulesNote 2 to the consolidated interim financial statements, effective January 1, 2023. Related to the adoption of these new accounting standards, the Company modified certain internal controls and forms.designed and implemented certain new internal controls over the measurement of the allowance for credit losses on loans and the reserve for unfunded commitments and related disclosures. New internal controls related primarily to the modeling of expected credit losses on loans, including controls over critical data and other inputs and model results. There were no significantother changes in the Company’s internal controlscontrol over financial reporting that occurred during the quarterthree months ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
48 |
Table of Contents |
Part II Other Information
Item 1. | Legal Proceedings | |
There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject. |
| |
|
|
|
Item 1a. | Risk Factors For information regarding factors that could affect the Company's results of operations, financial condition, or liquidity, see the risk factors discussed in Part I, Item 1A, of the Company’s 2022 Form 10-K. See also "Forward-Looking Statements," included in Part I, Item 2, of this Quarterly Report on Form 10-Q. There have been no material changes from the risk factors previously disclosed in the Company’s 2022 Form 10-K. |
|
|
|
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | None |
|
|
|
Item 3. | Defaults Upon Senior Securities | None |
|
|
|
Item 4. | Mine Safety Disclosures | None |
|
|
|
Item 5. | Other Information | None |
49 |
Table of Contents |
Item 6. Exhibits
(a) | Exhibits | ||
|
| ||
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith). | |||
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). | ||
| |||
|
| 101 | The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, |
|
| 104 | The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, |
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Signatures
Pursuant to the requirements 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. | |||
By: | /s/ | ||
|
| Chief Executive Officer |
By: | |||
|
|
| |
| |||
Lisa F. Campbell Executive Vice President and Chief Financial Officer | |||
May |
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