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F&M BANK CORP - Quarter Report: 2022 June (Form 10-Q)

 

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 June 30, 2022.

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 000-13273

 

 F&M BANK CORP.

 

Virginia

 

54-1280811

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

P. O. Box 1111

Timberville, Virginia 22853

(Address of Principal Executive Offices) (Zip Code)

 

(540) 896-8941

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

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 August 4, 2022

Common Stock, par value ‑ $5

 

3,453,393 shares

 

 

 

 

F & M BANK CORP.

 

Index

 

 

 

 

 

Page

 

 

 

 

 

 

Part I

Financial Information

 

3

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets – June 30, 2022 and December 31, 2021

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income – Three Months Ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

Consolidated Statements of Income – Six Months Ended June 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income – Three and Six Months Ended June 30, 2022 and 2021

 

6

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity – Three and Six Months Ended June 30, 2022 and 2021

 

7

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2022 and 2021

 

9

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

10

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

46

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

46

 

 

 

 

 

 

Part II

Other Information

 

47

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

47

 

 

 

 

 

 

Item 1a.

Risk Factors

 

47

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

 

 

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

47

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

47

 

 

 

 

 

 

Item 5.

Other Information

 

47

 

 

 

 

 

 

Item 6.

Exhibits

 

47

 

 

 

 

 

 

Signatures

 

48

 

 

 

 

 

 

Certifications

 

 

 

 

 
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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021*

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$13,556

 

 

$8,516

 

Money market funds and interest-bearing deposits in other banks

 

 

268

 

 

 

2,938

 

Federal funds sold

 

 

3,430

 

 

 

76,667

 

Cash and cash equivalents

 

 

17,254

 

 

 

88,121

 

 

 

 

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

 

 

Held to maturity, at amortized cost – fair value of $125 in 2022 and 2021, respectively

 

 

125

 

 

 

125

 

Available for sale, at fair value

 

 

446,823

 

 

 

403,882

 

Other investments

 

 

9,688

 

 

 

9,210

 

Loans held for sale, at fair value

 

 

5,449

 

 

 

4,887

 

Loans held for investment, net of deferred fees and costs

 

 

690,497

 

 

 

662,421

 

Less: allowance for loan losses

 

 

(7,798)

 

 

(7,748)

Net loans held for investment

 

 

682,699

 

 

 

654,673

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

18,901

 

 

 

17,063

 

Bank premises held for sale

 

 

300

 

 

 

300

 

Interest receivable

 

 

3,567

 

 

 

3,117

 

Goodwill

 

 

3,082

 

 

 

3,082

 

Bank owned life insurance

 

 

23,210

 

 

 

22,878

 

Other real estate owned

 

 

197

 

 

 

-

 

Other assets         

 

 

20,257

 

 

 

12,004

 

Total Assets

 

$1,231,552

 

 

$1,219,342

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest bearing

 

$291,728

 

 

$280,993

 

Interest bearing

 

 

808,482

 

 

 

799,302

 

Total deposits

 

 

1,100,210

 

 

 

1,080,295

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

30,000

 

 

 

-

 

Long-term debt

 

 

11,788

 

 

 

21,772

 

Other liabilities

 

 

17,604

 

 

 

16,819

 

Total liabilities

 

 

1,159,602

 

 

 

1,118,886

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,453,393 and 3,430,175 shares issued and outstanding (29,238 and 15,869 unvested restricted shares)

 

 

17,121

 

 

 

17,071

 

Additional paid in capital – common stock

 

 

10,351

 

 

 

10,127

 

Retained earnings

 

 

80,878

 

 

 

78,350

 

Accumulated other comprehensive loss

 

 

(36,400)

 

 

(5,092)

Total stockholders’ equity

 

 

71,950

 

 

 

100,456

 

Total liabilities and stockholders’ equity

 

$1,231,552

 

 

$1,219,342

 

 

*2021 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

 

 

 

June 30,

 

Interest and Dividend income

 

2022

 

 

2021

 

Interest and fees on loans held for investment

 

$7,993

 

 

$8,217

 

Interest and fees on loans held for sale

 

 

32

 

 

 

37

 

Interest from money market funds and federal funds sold

 

 

14

 

 

 

29

 

Interest on debt securities

 

 

1,970

 

 

 

536

 

Total interest and dividend income

 

 

10,009

 

 

 

8,819

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

Total interest on deposits

 

 

837

 

 

 

818

 

Interest from short-term debt

 

 

46

 

 

 

-

 

Interest from long-term debt

 

 

124

 

 

 

251

 

Total interest expense

 

 

1,007

 

 

 

1,069

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

9,002

 

 

 

7,750

 

 

 

 

 

 

 

 

 

 

Provision for (Recovery of) Loan Losses

 

 

600

 

 

 

(1,250)

Net Interest Income After Provision for (Recovery of) Loan Losses

 

 

8,402

 

 

 

9,000

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

274

 

 

 

254

 

Investment services and insurance income, net

 

 

198

 

 

 

180

 

Mortgage banking income, net

 

 

637

 

 

 

1,027

 

Title insurance income

 

 

366

 

 

 

595

 

Income on bank owned life insurance

 

 

173

 

 

 

165

 

Low income housing partnership losses

 

 

(204)

 

 

(216)

ATM and check card fees

 

 

632

 

 

 

600

 

Net investment securities (losses)

 

 

(97)

 

 

-

 

Other operating income

 

 

292

 

 

 

481

 

Total noninterest income

 

 

2,271

 

 

 

3,086

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

 

 

 

 

 

 

 

Salaries

 

 

3,965

 

 

 

3,589

 

Employee benefits

 

 

1,137

 

 

 

1,056

 

Occupancy expense

 

 

346

 

 

 

343

 

Equipment expense

 

 

314

 

 

 

319

 

FDIC insurance assessment

 

 

165

 

 

 

105

 

Advertising expense

 

 

228

 

 

 

197

 

Legal and professional fees

 

 

215

 

 

 

246

 

ATM and check card fees

 

 

335

 

 

 

294

 

Telecommunication and data processing expense

 

 

685

 

 

 

582

 

Directors fees

 

 

129

 

 

 

112

 

Bank franchise tax

 

 

158

 

 

 

179

 

Impairment on long lived assets

 

 

-

 

 

 

171

 

Other operating expenses

 

 

1,076

 

 

 

1,251

 

Total noninterest expense

 

 

8,753

 

 

 

8,444

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

1,920

 

 

 

3,642

 

Income tax expense

 

 

131

 

 

 

422

 

Net Income

 

$1,789

 

 

$3,220

 

Dividends paid/accumulated on preferred stock

 

 

-

 

 

 

66

 

Net income available to common stockholders

 

$1,789

 

 

$3,154

 

 

 

 

 

 

 

 

Per Common Share Data

 

 

 

 

 

 

Net income – basic

 

$0.51

 

 

$0.98

 

Net income – diluted

 

$0.51

 

 

$0.93

 

Cash dividends on common stock

 

 

0.26

 

 

 

0.26

 

Weighted average common shares outstanding – basic

 

 

3,452,711

 

 

 

3,207,978

 

Weighted average common shares outstanding – diluted

 

 

3,452,711

 

 

 

3,413,305

 

 

See Notes to Consolidated Financial Statements

 

 
4

Table of Contents

 

F & M BANK CORP.

Consolidated Statements of Income

(Dollars in thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

Interest and Dividend income

 

2022

 

 

2021

 

Interest and fees on loans held for investment

 

$15,503

 

 

$16,387

 

Interest and fees on loans held for sale

 

 

61

 

 

 

137

 

Interest from money market funds and federal funds sold

 

 

39

 

 

 

44

 

Interest on debt securities

 

 

3,467

 

 

 

997

 

Total interest and dividend income

 

 

19,070

 

 

 

17,565

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

Total interest on deposits

 

 

1,682

 

 

 

1,613

 

Interest from short-term debt

 

 

46

 

 

 

-

 

Interest from long-term debt

 

 

283

 

 

 

524

 

Total interest expense

 

 

2,011

 

 

 

2,137

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

17,059

 

 

 

15,428

 

 

 

 

 

 

 

 

 

 

Provision for (Recovery of) Loan Losses

 

 

150

 

 

 

(1,975)

Net Interest Income After Provision for (Recovery of) Loan Losses

 

 

16,909

 

 

 

17,403

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

581

 

 

 

539

 

Investment services and insurance income, net

 

 

449

 

 

 

527

 

Mortgage banking income, net

 

 

1,379

 

 

 

2,699

 

Title insurance income

 

 

839

 

 

 

1,051

 

Income on bank owned life insurance

 

 

344

 

 

 

333

 

Low-income housing partnership losses

 

 

(408)

 

 

(431)

ATM and check card fees

 

 

1,195

 

 

 

1,120

 

Net investment securities (losses)

 

 

(97)

 

 

-

 

Other operating income

 

 

472

 

 

 

603

 

Total noninterest income

 

 

4,754

 

 

 

6,441

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

 

 

 

 

 

 

 

Salaries

 

 

7,602

 

 

 

6,885

 

Employee benefits

 

 

2,425

 

 

 

2,272

 

Occupancy expense

 

 

686

 

 

 

638

 

Equipment expense

 

 

600

 

 

 

596

 

FDIC insurance assessment

 

 

281

 

 

 

204

 

Advertising expense

 

 

406

 

 

 

333

 

Legal and professional fees

 

 

423

 

 

 

445

 

ATM and check card fees

 

 

633

 

 

 

551

 

Telecommunication and data processing expense

 

 

1,586

 

 

 

1,122

 

Directors fees

 

 

293

 

 

 

258

 

Bank franchise tax

 

 

332

 

 

 

352

 

Impairment of long-lived assets

 

 

-

 

 

 

171

 

Other operating expenses

 

 

2,036

 

 

 

2,303

 

Total noninterest expense

 

 

17,303

 

 

 

16,130

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

4,360

 

 

 

7,714

 

Income tax expense

 

 

43

 

 

 

693

 

Net Income

 

$4,317

 

 

$7,021

 

Dividends paid/accumulated on preferred stock

 

 

-

 

 

 

131

 

Net income available to common stockholders

 

$4,317

 

 

$6,890

 

 

 

 

 

 

 

 

 

 

Per Common Share Data

 

 

 

 

 

 

 

 

Net income – basic

 

$1.25

 

 

$2.15

 

Net income – diluted

 

$1.25

 

 

$2.04

 

Cash dividends on common stock

 

 

0.52

 

 

 

0.52

 

Weighted average common shares outstanding – basic

 

 

3,443,850

 

 

 

3,206,534

 

Weighted average common shares outstanding – diluted

 

 

3,443,850

 

 

 

3,434,652

 

 

See Notes to Consolidated Financial Statements

 

 
5

Table of Contents

  

F & M BANK CORP.

Consolidated Statements of Comprehensive (Loss) Income

(Dollars in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$4,317

 

 

$7,021

 

 

$1,789

 

 

$3,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains on available-for sale securities

 

 

(39,727)

 

 

(1,057)

 

 

(21,678)

 

 

353

 

Tax effect

 

 

8,342

 

 

 

222

 

 

 

4,552

 

 

 

(74)

Unrealized holding (losses) gains, net of tax

 

 

(31,385)

 

 

(835)

 

 

(17,126)

 

 

279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications adjustment for losses included in net income

 

 

97

 

 

 

-

 

 

 

97

 

 

 

-

 

Tax effect

 

 

20

 

 

 

-

 

 

 

20

 

 

 

-

 

Realized losses on sale of available-for sale securities, net

 

 

77

 

 

 

-

 

 

 

77

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income

 

 

(31,308)

 

 

(835)

 

 

(17,049)

 

 

279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$(26,991)

 

$6,186

 

 

$(15,260)

 

$3,499

 

 

See Notes to Consolidated Financial Statements

 

 
6

Table of Contents

  

F & M BANK CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

 

Three Months Ended June 30, 2022 and 2021.

 

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2021

 

$4,558

 

 

$16,036

 

 

$6,956

 

 

$74,108

 

 

$(4,131)

 

$97,527

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,220

 

 

 

-

 

 

 

3,220

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

279

 

 

 

279

 

Dividends on preferred stock ($.32 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(66)

 

 

-

 

 

 

(66)

Dividends on common stock ($.26 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(837)

 

 

-

 

 

 

(837)

Common stock issued (2,185 shares)

 

 

-

 

 

 

11

 

 

 

52

 

 

 

-

 

 

 

-

 

 

 

63

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

26

 

 

 

-

 

 

 

-

 

 

 

26

 

Balance, June 30, 2021

 

$4,558

 

 

$16,047

 

 

$7,034

 

 

$76,425

 

 

$(3,852)

 

$100,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2022

 

$-

 

 

$17,110

 

 

$10,240

 

 

$79,986

 

 

$(19,351)

 

$87,985

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,789

 

 

 

-

 

 

 

1,789

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,049)

 

 

(17,049)

Dividends on common stock ($.26 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(897)

 

 

-

 

 

 

(897)

Common stock issued (2,185 shares)

 

 

-

 

 

 

11

 

 

 

53

 

 

 

-

 

 

 

-

 

 

 

64

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

58

 

 

 

-

 

 

 

-

 

 

 

58

 

Balance, June 30, 2022

 

$-

 

 

$17,121

 

 

$10,351

 

 

$80,878

 

 

$(36,400)

 

$71,950

 

 

See Notes to Consolidated Financial Statements

 

 
7

Table of Contents

  

F & M BANK CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

 

Six Months Ended June 30, 2022 and 2021.

 

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

$4,558

 

 

$16,017

 

 

$6,866

 

 

$71,205

 

 

$(3,017)

 

$95,629

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,021

 

 

 

-

 

 

 

7,021

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(835)

 

 

(835)

Dividends on preferred stock ($.64 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(131)

 

 

-

 

 

 

(131)

Dividends on common stock ($.52 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,670)

 

 

-

 

 

 

(1,670)

Common stock issued (4,635 shares)

 

 

-

 

 

 

23

 

 

 

104

 

 

 

-

 

 

 

-

 

 

 

127

 

Common stock issued for Stock-based Compensation (1,332 shares)

 

 

-

 

 

 

7

 

 

 

29

 

 

 

-

 

 

 

-

 

 

 

36

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

35

 

 

 

-

 

 

 

-

 

 

 

35

 

Balance, June 30, 2021

 

$4,558

 

 

$16,047

 

 

$7,034

 

 

$76,425

 

 

$(3,852)

 

$100,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

$-

 

 

$17,071

 

 

$10,127

 

 

$78,350

 

 

$(5,092)

 

$100,456

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,317

 

 

 

-

 

 

 

4,317

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31,308)

 

 

(31,308)

Dividends on common stock ($.52 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,789)

 

 

-

 

 

 

(1,789)

Common stock issued (4,784 shares)

 

 

-

 

 

 

24

 

 

 

120

 

 

 

-

 

 

 

-

 

 

 

144

 

Common stock issued for Stock-based Compensation (1,145 shares)

 

 

-

 

 

 

26

 

 

 

30

 

 

 

-

 

 

 

-

 

 

 

56

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

74

 

 

 

-

 

 

 

-

 

 

 

74

 

Balance, June 30, 2022

 

$-

 

 

$17,121

 

 

$10,351

 

 

$80,878

 

 

$(36,400)

 

$71,950

 

 

See Notes to Consolidated Financial Statements

 

 
8

Table of Contents

  

F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$4,317

 

 

$7,021

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

562

 

 

 

595

 

Amortization of intangibles

 

 

19

 

 

 

33

 

Amortization of securities

 

 

13,690

 

 

 

495

 

Proceeds from loans held for sale originated

 

 

76,909

 

 

 

121,553

 

Loans held for sale originated

 

 

(76,266)

 

 

(112,965)

Gain on sale of loans held for sale originated

 

 

(1,205)

 

 

(3,136)

Provision for (Recovery of) loan losses

 

 

150

 

 

 

(1,975)

(Increase) decrease in interest receivable

 

 

(450)

 

 

250

 

(Increase) in deferred taxes

 

 

(253)

 

 

(189)

(Decrease) in taxes payable

 

 

-

 

 

 

(469)

Decrease in other assets

 

 

42

 

 

 

1,159

 

Increase (decrease) in accrued expenses

 

 

1,059

 

 

 

(505)

Amortization of limited partnership investments

 

 

408

 

 

 

443

 

Income from life insurance investment

 

 

(345)

 

 

(333)

Loss on the sale of investment securities

 

 

97

 

 

 

-

 

(Gain) on the sale of fixed assets

 

 

(10)

 

 

-

 

Stock-based compensation expense

 

 

74

 

 

 

35

 

Loss on sale and valuation adjustments for other real estate owned and bank premises held for sale

 

 

-

 

 

 

171

 

Net cash provided by operating activities

 

 

18,798

 

 

 

12,183

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of investments available for sale and other investments

 

 

(108,057)

 

 

(92,006)

Proceeds from maturity of investments available for sale

 

 

3,000

 

 

 

8,699

 

Proceeds from the sale of investments available for sale

 

 

8,699

 

 

 

-

 

(Investment in) proceeds from the redemption of restricted stock, net

 

 

(886)

 

 

395

 

Net (increase) decrease in loans held for investment

 

 

(28,373)

 

 

600

 

Net decrease in loans held for sale participations

 

 

-

 

 

 

44,372

 

Proceeds from the sale of fixed assets

 

 

27

 

 

 

-

 

Net purchase of property and equipment

 

 

(2,417)

 

 

(288)

Proceeds from life insurance benefits

 

 

-

 

 

 

421

 

Cash received in branch acquisition (net of cash paid)

 

 

-

 

 

 

13,946

 

Net cash (used in) investing activities

 

 

(128,007)

 

 

(23,861)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net change in deposits

 

 

19,915

 

 

 

122,816

 

Net change in short-term debt

 

 

30,000

 

 

 

-

 

Dividends paid in cash

 

 

(1,789)

 

 

(1,801)

Proceeds from issuance of common stock

 

 

200

 

 

 

198

 

Amortization of debt issuance costs

 

 

16

 

 

 

16

 

Repayments of long-term debt

 

 

(10,000)

 

 

(1,909)

Net cash provided by financing activities

 

 

38,342

 

 

 

119,285

 

Net (decrease) increase in Cash and Cash Equivalents

 

 

(70,867)

 

 

107,607

 

Cash and cash equivalents, beginning of period

 

 

88,121

 

 

 

78,408

 

Cash and cash equivalents, end of period

 

$17,254

 

 

$186,015

 

Supplemental Cash Flow information:

 

 

 

 

 

 

 

 

Cash paid for: Interest

 

$2,162

 

 

$2,187

 

 Taxes

 

$-

 

 

$1,537

 

Supplemental non-cash disclosures:

 

 

 

 

 

 

 

 

Change in unrealized (loss) on securities available for sale

 

$(39,630)

 

$(1,057)

Transfer from loans to other real estate owned

 

$197

 

 

$-

 

 

 

 

 

 

 

 

 

 

Branch purchase:

 

 

 

 

 

 

 

 

Tangible assets acquired (net of cash received)

 

$-

 

 

$61

 

Identifiable intangible assets acquired

 

$-

 

 

$73

 

Liabilities assumed

 

$-

 

 

$14,044

 

 

See Notes to Consolidated Financial Statements

 

 
9

Table of Contents

 

Notes to the Consolidated Financial Statements

 

Note 1. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying unaudited consolidated financial statements include the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), and VSTitle, LLC and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for 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 and six months ended June 30, 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.

 

Nature 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 Presentation

 

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 estimates that are 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 COVID-19 pandemic has had a disruptive impact on the U.S. and global economy since the first quarter of 2020. Since the pandemic is ongoing and dynamic, there are many uncertainties on the potential impacts to our customers, employees and vendors; as well as the economy as a whole. The Company carefully monitors economic impacts attributable to the COVID-19 pandemic and the potential impacts on the Company’s loan portfolio and their borrowers ability to repay their loans.

 

As the COVID-19 pandemic continues, its magnitude and duration remain uncertain. The risks and uncertainties resulting from the pandemic may adversely the Company’s future operational and financial performance; however, these remain highly uncertain and cannot be predicted.

 

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.

 

 
10

Table of Contents

 

Note 1. Summary of Significant Accounting Policies, continued

 

 

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 income available to common stockholders represents consolidated net income adjusted for preferred dividends declared. The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented (dollars in thousands):

 

 

 

For the Six

months ended

 

 

For the Three

months ended

 

 

For the Six

months ended

 

 

For the Three

months ended

 

 

 

June 30, 2022

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2021

 

Earnings available to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$4,317

 

 

$1,789

 

 

$7,021

 

 

$3,220

 

Preferred stock dividends

 

 

-

 

 

 

-

 

 

 

131

 

 

 

66

 

Net income available to common stockholders

 

$4,317

 

 

$1,789

 

 

$6,890

 

 

$3,154

 

 

The following table shows the effect of dilutive preferred stock conversion on the Company’s earnings per share for the periods indicated (dollars in thousands):

 

 

 

Six months ended June 30, 2022

 

 

Six months ended June 30, 2021

 

 

 

Income

 

 

Weighted Average Shares

 

 

Per Share Amounts

 

 

Income

 

 

Weighted Average Shares

 

 

Per Share Amounts

 

Basic EPS

 

$4,317

 

 

 

3,443,850

 

 

$1.25

 

 

$6,890

 

 

 

3,206,534

 

 

$2.15

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

131

 

 

 

228,118

 

 

 

(0.11)

Diluted EPS

 

$4,317

 

 

 

3,443,850

 

 

$1.25

 

 

$7,021

 

 

 

3,434,652

 

 

$2.04

 

 

 

 

Three months ended June 30, 2022

 

 

Three months ended June 30, 2021

 

 

 

Income

 

 

Weighted Average Shares

 

 

Per Share Amounts

 

 

Income

 

 

Weighted Average Shares

 

 

Per Share Amounts

 

Basic EPS

 

$1,789

 

 

 

3,452,711

 

 

$0.51

 

 

$3,154

 

 

 

3,207,978

 

 

$0.98

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

66

 

 

 

205,327

 

 

 

(0.05)

Diluted EPS

 

$1,789

 

 

 

3,452,711

 

 

$0.51

 

 

$3,220

 

 

 

3,413,305

 

 

$0.93

 

 

 
11

Table of Contents

 

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 June 30, 2022 and December 31, 2021 are as follows (dollars in thousands):

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Treasuries

 

$125

 

 

$-

 

 

$-

 

 

$125

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Treasuries

 

$125

 

 

$-

 

 

$-

 

 

$125

 

 

The amortized cost and fair value of securities available for sale are as follows (dollars in thousands):

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government treasuries

 

$49,778

 

 

$-

 

 

$3,041

 

 

$46,737

 

U.S. Government sponsored enterprises

 

 

168,464

 

 

 

-

 

 

 

12,315

 

 

 

156,149

 

Securities issued by States and political subdivisions in the U.S.

 

 

47,416

 

 

 

-

 

 

 

3,730

 

 

 

43,686

 

Mortgage-backed obligations of federal agencies

 

 

192,525

 

 

 

106

 

 

 

21,601

 

 

 

171,030

 

Corporate debt security

 

 

30,550

 

 

 

640

 

 

 

1,969

 

 

 

29,221

 

Total Securities Available for Sale

 

$488,733

 

 

$746

 

 

$42,656

 

 

$446,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

The amortized cost and fair value of securities at June 30, 2022, 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

 

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

Due in one year or less

 

$125

 

 

$125

 

 

$4,833

 

 

$4,789

 

Due after one year through five years

 

 

-

 

 

 

-

 

 

 

210,477

 

 

 

198,311

 

Due after five years

 

 

-

 

 

 

-

 

 

 

107,718

 

 

 

97,741

 

Due after ten years

 

 

-

 

 

 

-

 

 

 

165,705

 

 

 

145,982

 

Total

 

$125

 

 

$125

 

 

$488,733

 

 

$446,823

 

 

 
12

Table of Contents

 

Note 2. Investment Securities, continued

 

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and six months ended June 30, 2022 and 2021 (dollars in thousands):

 

 

 

Three Months

Ended June 30,

2022

 

 

Six Month

Ended June 30,

2022

 

Realized gains (losses):

 

 

 

 

 

 

Gross realized gains

 

$-

 

 

$-

 

Gross realized losses

 

 

(97)

 

 

-

 

Net realized (losses)

 

$(97)

 

$-

 

Proceeds from sales of securities

 

$8,699

 

 

$-

 

 

 

 

Three Months

Ended June 30,

2021

 

 

Six Months

Ended June 30,

2021

 

Realized gains (losses):

 

 

 

 

 

 

Gross realized gains

 

$-

 

 

$-

 

Gross realized (losses)

 

 

-

 

 

 

-

 

Net realized (losses)

 

$-

 

 

$-

 

Proceeds from sales of securities

 

$-

 

 

$-

 

 

Securities held 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 subdivisions in the U.S. were in an unrealized loss position for less than 12 months. Two bank subordinated debt offerings were in a loss position for 12 consecutive months and totaled $1,132 thousand. The pricing services tend to not be exact on these offerings because of the marketability of the offering. The Company reviews the relevant ratios on each subordinated debt holding quarterly. Because management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions, no declines are currently deemed to be other than temporary.

 

A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of June 30, 2022 and December 31, 2021 were as follows:

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Fair

Value

 

 

Unrealized Losses

 

 

Fair

Value

 

 

Unrealized Losses

 

 

Fair

Value

 

 

Unrealized Losses

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government treasuries

 

$38,025

 

 

$1,843

 

 

$8,711

 

 

$1,198

 

 

$46,736

 

 

$3,041

 

U.S. Government sponsored enterprises

 

 

134,269

 

 

 

9,201

 

 

 

21,880

 

 

 

3,114

 

 

 

156,149

 

 

 

12,315

 

Securities issued by States and political subdivisions in the U.S.

 

 

43,686

 

 

 

3,730

 

 

 

-

 

 

 

-

 

 

 

43,686

 

 

 

3,730

 

Mortgage-backed obligations of federal agencies

 

 

131,930

 

 

 

17,112

 

 

 

34,388

 

 

 

4,489

 

 

 

166,318

 

 

 

21,601

 

Corporate debt security

 

 

19,749

 

 

 

1,851

 

 

 

1,132

 

 

 

118

 

 

 

20,881

 

 

 

1,969

 

Total

 

$367,659

 

 

$33,737

 

 

$66,111

 

 

$8,919

 

 

$433,770

 

 

$42,656

 

 

 

 

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 security

 

 

8,825

 

 

 

225

 

 

 

-

 

 

 

-

 

 

 

8,825

 

 

 

225

 

Total

 

$271,829

 

 

$3,360

 

 

$10,074

 

 

$220

 

 

$281,903

 

 

$3,850

 

 

 
13

Table of Contents

 

Note 2. Investment Securities, continued

 

 

As of June 30, 2022, other investments consist of investments in thirteen low-income housing and historic equity partnerships (carrying basis of $6,354), stock in the Federal Home Loan Bank (carrying basis $1,744) and various other investments (carrying basis $1,590). 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 June 30, 2022. At June 30, 2022, the Company was committed to invest an additional $961 in four 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

 

Loans held for investment outstanding at June 30, 2022 and December 31, 2021 are summarized as follows (in thousands):

 

 

 

2022

 

 

2021

 

Construction/Land Development

 

$71,212

 

 

$75,236

 

Farmland

 

 

72,573

 

 

 

66,344

 

Real Estate

 

 

133,747

 

 

 

139,552

 

Multi-Family

 

 

8,548

 

 

 

4,887

 

Commercial Real Estate

 

 

172,680

 

 

 

163,564

 

Home Equity – closed end

 

 

5,524

 

 

 

6,262

 

Home Equity – open end

 

 

44,267

 

 

 

44,247

 

Commercial & Industrial – Non-Real Estate

 

 

50,689

 

 

 

44,224

 

Consumer

 

 

8,852

 

 

 

8,036

 

Dealer Finance

 

 

119,758

 

 

 

107,346

 

Credit Cards

 

 

3,051

 

 

 

3,000

 

Gross loans

 

 

690,901

 

 

 

662,698

 

Less: Deferred loan fees, net of costs

 

 

(404)

 

 

(277)

Total

 

$690,497

 

 

$662,421

 

 

The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $161,729 and $163,326 as of June 30, 2022 and December 31, 2021, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial and home equity portfolios.

 

Loans held for sale, at fair value consists of 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 mortgage loans. Loans held for sale as of June 30, 2022 and December 31, 2021 were $5,449 and $4,887, respectively.

 

 
14

Table of Contents

 

Note 3. Loans, continued

 

 

The following is a summary of information pertaining to impaired loans (dollars in thousand):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

 

 

 

Unpaid

 

 

 

 

 

 

Unpaid

 

 

 

 

 

Recorded

 

 

Principal

 

 

Related

 

 

Recorded

 

 

Principal

 

 

Related

 

 

 

Investment(1)

 

 

Balance

 

 

Allowance

 

 

Investment(1)

 

 

Balance

 

 

Allowance

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

$468

 

 

$468

 

 

$-

 

 

$645

 

 

$645

 

 

$-

 

Farmland

 

 

2,165

 

 

 

2,165

 

 

 

-

 

 

 

2,286

 

 

 

2,286

 

 

 

-

 

Real Estate

 

 

2,331

 

 

 

2,331

 

 

 

-

 

 

 

2,748

 

 

 

2,748

 

 

 

-

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

8,058

 

 

 

8,058

 

 

 

-

 

 

 

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

 

 

12

 

 

 

12

 

 

 

-

 

 

 

12

 

 

 

12

 

 

 

-

 

 

 

 

13,034

 

 

 

13,034

 

 

 

-

 

 

 

14,337

 

 

 

14,337

 

 

 

-

 

Impaired loans with a valuation allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Farmland

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Real Estate

 

 

1,546

 

 

 

1,546

 

 

 

34

 

 

 

1,172

 

 

 

1,172

 

 

 

119

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

2,527

 

 

 

2,527

 

 

 

446

 

 

 

6,004

 

 

 

6,004

 

 

 

603

 

Home Equity – closed end

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home Equity – open end

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial & Industrial – Non-Real Estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit cards

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dealer Finance

 

 

77

 

 

 

77

 

 

 

3

 

 

 

95

 

 

 

95

 

 

 

14

 

 

 

 

4,150

 

 

 

4,150

 

 

 

483

 

 

 

7,271

 

 

 

7,271

 

 

 

736

 

Total impaired loans

 

$17,184

 

 

$17,184

 

 

$483

 

 

$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.

 

 
15

Table of Contents

 

Note 3. Loans Held for Investment, continued

 

 

The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

Average Recorded

 

 

Interest Income

 

 

Average Recorded

 

 

Interest Income

 

 

Average Recorded

 

 

Interest Income

 

 

Average Recorded

 

 

Interest Income

 

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

$553

 

 

$4

 

 

$1,280

 

 

$3

 

 

$601

 

 

$10

 

 

$1,222

 

 

$16

 

Farmland

 

 

2,190

 

 

 

10

 

 

 

1,191

 

 

 

108

 

 

 

2,268

 

 

 

80

 

 

 

1,191

 

 

 

108

 

Real Estate

 

 

2,358

 

 

 

32

 

 

 

6,287

 

 

 

(52)

 

 

2,654

 

 

 

65

 

 

 

3,985

 

 

 

87

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

9,545

 

 

 

(31)

 

 

9,940

 

 

 

102

 

 

 

8,291

 

 

 

155

 

 

 

5,558

 

 

 

123

 

Home Equity – closed end

 

 

-

 

 

 

-

 

 

 

674

 

 

 

6

 

 

 

81

 

 

 

-

 

 

 

684

 

 

 

11

 

Home Equity – open end

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial & Industrial – Non-Real Estate

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit Cards

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dealer Finance

 

 

14

 

 

 

1

 

 

 

15

 

 

 

1

 

 

 

14

 

 

 

1

 

 

 

17

 

 

 

1

 

 

 

 

14,660

 

 

 

16

 

 

 

19,391

 

 

 

168

 

 

 

13,909

 

 

 

311

 

 

 

12,664

 

 

 

346

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$131

 

 

$-

 

Farmland

 

 

-

 

 

 

-

 

 

 

839

 

 

 

(59)

 

 

-

 

 

 

-

 

 

 

876

 

 

 

-

 

Real Estate

 

 

1,521

 

 

 

18

 

 

 

1,621

 

 

 

22

 

 

 

1,363

 

 

 

34

 

 

 

5,456

 

 

 

32

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

2,885

 

 

 

25

 

 

 

6,382

 

 

 

25

 

 

 

4,281

 

 

 

67

 

 

 

4,973

 

 

 

91

 

Home Equity – closed end

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home Equity – open end

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

76

 

 

 

-

 

Commercial & Industrial – Non-Real Estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

Credit Card

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dealer Finance

 

 

66

 

 

 

3

 

 

 

124

 

 

 

2

 

 

 

90

 

 

 

4

 

 

 

135

 

 

 

5

 

 

 

 

4,472

 

 

 

46

 

 

 

8,966

 

 

 

(10)

 

 

5,734

 

 

 

105

 

 

 

11,648

 

 

 

128

 

Total Impaired Loans

 

$19,132

 

 

$62

 

 

$28,357

 

 

$158

 

 

$19,643

 

 

$416

 

 

$24,312

 

 

$474

 

 

 
16

Table of Contents

 

Note 3. Loans, continued

 

 

The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of June 30, 2022 and December 31, 2021:

 

June 30, 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

 

$521

 

 

$28

 

 

$-

 

 

$549

 

 

$70,663

 

 

$71,212

 

 

$28

 

 

$-

 

Farmland

 

 

-

 

 

 

332

 

 

 

-

 

 

 

332

 

 

 

72,241

 

 

 

72,573

 

 

 

1,218

 

 

 

-

 

Real Estate

 

 

1,636

 

 

 

34

 

 

 

142

 

 

 

1,812

 

 

 

131,935

 

 

 

133,747

 

 

 

402

 

 

 

-

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,548

 

 

 

8,548

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

-

 

 

 

-

 

 

 

108

 

 

 

108

 

 

 

172,572

 

 

 

172,680

 

 

 

108

 

 

 

-

 

Home Equity – closed end

 

 

-

 

 

 

105

 

 

 

-

 

 

 

105

 

 

 

5,419

 

 

 

5,524

 

 

 

-

 

 

 

-

 

Home Equity – open end

 

 

431

 

 

 

167

 

 

 

-

 

 

 

598

 

 

 

43,669

 

 

 

44,267

 

 

 

-

 

 

 

-

 

Commercial & Industrial – Non- Real Estate

 

 

180

 

 

 

22

 

 

 

41

 

 

 

243

 

 

 

50,446

 

 

 

50,689

 

 

 

-

 

 

 

41

 

Consumer

 

 

23

 

 

 

-

 

 

 

-

 

 

 

23

 

 

 

8,829

 

 

 

8,852

 

 

 

-

 

 

 

-

 

Dealer Finance

 

 

572

 

 

 

125

 

 

 

95

 

 

 

792

 

 

 

118,966

 

 

 

119,758

 

 

 

95

 

 

 

-

 

Credit Cards

 

 

12

 

 

 

20

 

 

 

13

 

 

 

45

 

 

 

3,006

 

 

 

3,051

 

 

 

-

 

 

 

13

 

Less: Deferred loan fees, net of costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(404)

 

 

(404)

 

 

-

 

 

 

-

 

Total

 

$3,375

 

 

$833

 

 

$399

 

 

$4,584

 

 

$685,890

 

 

$690,497

 

 

$1,851

 

 

$55

 

 

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 June 30, 2022, other real estate owned included $197 of foreclosed residential real estate and on December 31, 2021, other real estate owned did not include any foreclosed residential real estate. The Company has $122 thousand of consumer mortgages for which foreclosure was in process on June 30, 2022.

 

Nonaccrual loans on June 30, 2022 would have earned approximately $28 thousand in interest income for the quarter had they been accruing loans.

 

 
17

Table of Contents

 

Note 4. Allowance for Loan Losses

 

A summary of changes in the allowance for loan losses (dollars in thousands) for June 30, 2022 and December 31, 2021 is as follows:

 

June 30, 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

 

 

$-

 

 

$-

 

 

$(97)

 

$880

 

 

$-

 

 

$880

 

Farmland

 

 

448

 

 

 

-

 

 

 

-

 

 

 

71

 

 

 

519

 

 

 

-

 

 

 

519

 

Real Estate

 

 

1,162

 

 

 

17

 

 

 

-

 

 

 

(14)

 

 

1,131

 

 

 

34

 

 

 

1,097

 

Multi-Family

 

 

29

 

 

 

-

 

 

 

-

 

 

 

25

 

 

 

54

 

 

 

-

 

 

 

54

 

Commercial Real Estate

 

 

2,205

 

 

 

-

 

 

 

-

 

 

 

98

 

 

 

2,303

 

 

 

446

 

 

 

1,857

 

Home Equity – closed end

 

 

41

 

 

 

-

 

 

 

-

 

 

 

(2)

 

 

39

 

 

 

-

 

 

 

39

 

Home Equity – open end

 

 

407

 

 

 

-

 

 

 

130

 

 

 

(162)

 

 

375

 

 

 

-

 

 

 

375

 

Commercial & Industrial – Non-Real Estate

 

 

288

 

 

 

36

 

 

 

32

 

 

 

100

 

 

 

384

 

 

 

-

 

 

 

384

 

Consumer

 

 

520

 

 

 

24

 

 

 

14

 

 

 

(148)

 

 

362

 

 

 

-

 

 

 

362

 

Dealer Finance

 

 

1,601

 

 

 

523

 

 

 

337

 

 

 

272

 

 

 

1,687

 

 

 

3

 

 

 

1,684

 

Credit Cards

 

 

70

 

 

 

21

 

 

 

8

 

 

 

7

 

 

 

64

 

 

 

-

 

 

 

64

 

Total

 

$7,748

 

 

$621

 

 

$521

 

 

$150

 

 

$7,798

 

 

$483

 

 

$7,315

 

 

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

 

 

 
18

Table of Contents

 

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 June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

Loan

Receivable

 

 

Individually Evaluated for Impairment

 

 

Collectively Evaluated for Impairment

 

Construction/Land Development

 

$71,212

 

 

$468

 

 

$70,744

 

Farmland

 

 

72,573

 

 

 

2,165

 

 

 

70,408

 

Real Estate

 

 

133,747

 

 

 

3,877

 

 

 

129,870

 

Multi-Family

 

 

8,548

 

 

 

-

 

 

 

8,548

 

Commercial Real Estate

 

 

172,680

 

 

 

10,585

 

 

 

162,095

 

Home Equity – closed end

 

 

5,524

 

 

 

-

 

 

 

5,524

 

Home Equity –open end

 

 

44,267

 

 

 

-

 

 

 

44,267

 

Commercial & Industrial – Non-Real Estate

 

 

50,689

 

 

 

-

 

 

 

50,689

 

Consumer

 

 

8,852

 

 

 

-

 

 

 

8,852

 

Dealer Finance

 

 

119,758

 

 

 

89

 

 

 

119,669

 

Credit Cards

 

 

3,051

 

 

 

-

 

 

 

3,051

 

Gross loans

 

 

690,901

 

 

 

17,184

 

 

 

673,717

 

Less: Deferred loan fees, net of costs

 

 

(404)

 

 

-

 

 

 

(404)

Total

 

$690,497

 

 

$17,184

 

 

$673,313

 

 

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

 

 

 
19

Table of Contents

 

Note 4. Allowance for Loan Losses, continued

 

 

The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of June 30, 2022 and December 31, 2021:

 

June 30, 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

 

 

$11,182

 

 

$39,977

 

 

$18,463

 

 

$1,557

 

 

$28

 

 

$-

 

 

$71,212

 

Farmland

 

 

55

 

 

 

283

 

 

 

9,519

 

 

 

42,734

 

 

 

16,916

 

 

 

1,848

 

 

 

1,218

 

 

 

-

 

 

 

72,573

 

Real Estate

 

 

-

 

 

 

694

 

 

 

26,840

 

 

 

65,846

 

 

 

27,333

 

 

 

8,598

 

 

 

4,436

 

 

 

-

 

 

 

133,747

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

992

 

 

 

5,315

 

 

 

2,120

 

 

 

121

 

 

 

-

 

 

 

-

 

 

 

8,548

 

Commercial Real Estate

 

 

-

 

 

 

1,350

 

 

 

37,964

 

 

 

77,168

 

 

 

31,341

 

 

 

15,199

 

 

 

9,658

 

 

 

-

 

 

 

172,680

 

Home Equity – closed end

 

 

-

 

 

 

55

 

 

 

983

 

 

 

2,804

 

 

 

672

 

 

 

1,010

 

 

 

-

 

 

 

-

 

 

 

5,524

 

Home Equity – open end

 

 

-

 

 

 

1,346

 

 

 

17,430

 

 

 

21,853

 

 

 

1,927

 

 

 

1,494

 

 

 

217

 

 

 

-

 

 

 

44,267

 

Commercial & Industrial -Non-Real Estate

 

 

25

 

 

 

1,186

 

 

 

12,133

 

 

 

29,606

 

 

 

6,350

 

 

 

1,330

 

 

 

59

 

 

 

-

 

 

 

50,689

 

Consumer

 

 

26

 

 

 

368

 

 

 

3,451

 

 

 

4,769

 

 

 

171

 

 

 

67

 

 

 

-

 

 

 

-

 

 

 

8,852

 

Gross Loans

 

$106

 

 

$5,287

 

 

$120,494

 

 

$290,072

 

 

$105,293

 

 

$31,224

 

 

$15,616

 

 

$-

 

 

$568,092

 

Less: Deferred loan fees, net of costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(404)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$567,688

 

 

 

 

Credit Cards

 

 

Dealer Finance

 

Performing

 

$3,038

 

 

$119,663

 

Non-performing

 

 

13

 

 

 

95

 

Total

 

$3,051

 

 

$119,758

 

 

 
20

Table of Contents

 

Note 4. Allowance for Loan Losses, continued

 

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

 

 

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

 

 

Description of internal loan grades:

 

Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

 

Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

 

Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

 

Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be 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.

 

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.

 

 
21

Table of Contents

  

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 has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.

 

Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.

 

Note 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 expect to contribute to the pension plan in 2022.

 

The following is a summary of net periodic pension costs for the three and six month periods ended June 30, 2022 and 2021 (dollars in thousands):

 

 

 

Six Months Ended

 

 

Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Service cost

 

$380

 

 

$606

 

 

$190

 

 

$216

 

Interest cost

 

 

208

 

 

 

314

 

 

 

104

 

 

 

95

 

Expected return on plan assets

 

 

-

 

 

 

(55)

 

 

-

 

 

 

(198)

Amortization of prior service cost

 

 

(390)

 

 

(9)

 

 

(195)

 

 

-

 

Amortization of net loss

 

 

116

 

 

 

166

 

 

 

58

 

 

 

72

 

Net periodic pension cost

 

$314

 

 

$1,022

 

 

$157

 

 

$185

 

 

Note 6. 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.

 

 
22

Table of Contents

 

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.

 

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 and Federal Home Loan Bank 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 and the remaining certificates of deposits matured in the three months ending June 30, 2022.

 

 
23

Table of Contents

 

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 June 30, 2022 and December 31, 2021 (dollars in thousands):

 

June 30, 2022

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale, F&M Mortgage

 

$5,449

 

 

$-

 

 

$5,449

 

 

$-

 

U. S. Treasury securities

 

 

46,737

 

 

 

-

 

 

 

46,737

 

 

 

-

 

U. S. Government sponsored enterprises

 

 

156,149

 

 

 

-

 

 

 

156,149

 

 

 

-

 

Securities issued by States and political subdivisions in the U. S.

 

 

43,686

 

 

 

-

 

 

 

43,686

 

 

 

-

 

Mortgage-backed obligations of federal agencies

 

 

171,030

 

 

 

-

 

 

 

171,030

 

 

 

-

 

Corporate debt securities

 

 

29,221

 

 

 

-

 

 

 

29,221

 

 

 

-

 

Forward Sales Commitments

 

 

535

 

 

 

-

 

 

 

535

 

 

 

-

 

Assets at Fair Value

 

$452,807

 

 

$-

 

 

$452,807

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IRLC

 

$273

 

 

$-

 

 

$273

 

 

$-

 

Liabilities at Fair Value

 

$273

 

 

$-

 

 

$273

 

 

$-

 

 

December 31, 2021

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale, F&M Mortgage

 

$4,887

 

 

$-

 

 

$4,887

 

 

$-

 

IRLC

 

 

258

 

 

 

-

 

 

 

258

 

 

 

-

 

U.S. Government treasuries

 

 

29,482

 

 

 

-

 

 

 

29,482

 

 

 

-

 

U.S. Government sponsored enterprises

 

 

133,714

 

 

 

-

 

 

 

133,714

 

 

 

-

 

Securities issued by States and political subdivisions of the US

 

 

34,337

 

 

 

-

 

 

 

34,337

 

 

 

-

 

Mortgage-backed obligations of federal agencies

 

 

183,647

 

 

 

-

 

 

 

183,647

 

 

 

-

 

Corporate debt securities

 

 

22,702

 

 

 

-

 

 

 

22,702

 

 

 

-

 

Forward sales commitments

 

 

112

 

 

 

-

 

 

 

112

 

 

 

-

 

Assets at Fair Value

 

$409,139

 

 

$-

 

 

$409,139

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives – ICD

 

$3

 

 

$-

 

 

$3

 

 

$-

 

Liabilities at Fair Value

 

$3

 

 

$-

 

 

$3

 

 

$-

 

 

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

 

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

 

Assets Held for Sale

 

Assets held for sale were transferred from bank premises at the lower of cost less accumulated depreciation or fair value at the date of transfer. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the assets held 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.

 

 
24

Table of Contents

 

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 terms 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 losses on the Consolidated Statements of Income.

 

The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.

 

Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “liquidation” value of independent appraisals or evaluations. The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach. Appraisals conducted by an independent, licensed appraiser outside 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 June 30, 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.

 

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 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 following table summarizes the Company’s other real estate owned and assets held for sale that were measured at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2021 (dollars in thousands).

 

 
25

Table of Contents

 

Note 6. Fair Value, continued

 

 

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):

 

June 30, 2022

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Real Estate

 

$1,512

 

 

$-

 

 

$-

 

 

$1,512

 

Commercial Real Estate

 

 

2,081

 

 

 

-

 

 

 

-

 

 

 

2,081

 

Dealer Finance

 

 

74

 

 

 

-

 

 

 

-

 

 

 

74

 

Impaired loans

 

$3,667

 

 

$-

 

 

$-

 

 

$3,667

 

Bank premises held for sale

 

$300

 

 

$-

 

 

$-

 

 

$300

 

Other real estate owned

 

$197

 

 

$-

 

 

$-

 

 

$197

 

 

December 31, 2021

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Real Estate

 

$1,053

 

 

$-

 

 

$-

 

 

$1,053

 

Commercial Real Estate

 

 

5,401

 

 

 

-

 

 

 

-

 

 

 

5,401

 

Dealer Finance

 

 

81

 

 

 

-

 

 

 

-

 

 

 

81

 

Impaired loans

 

$6,535

 

 

$-

 

 

$-

 

 

$6,535

 

Bank premises held for sale

 

$300

 

 

$-

 

 

$-

 

 

$300

 

Other real estate owned

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

The following table presents information about Level 3 Fair Value Measurements for June 30, 2022 and December 31, 2021 (dollars in thousands):

 

 

 

 

 

Fair Value at

June 30, 2022

 

Valuation Technique

 

Significant Unobservable Inputs

 

Range

Impaired Loans

 

$

3,667

 

Discounted appraised value

 

Discount for selling costs and marketability

 

14.00%-32.92% (Average 22.97%)

Bank premises held for sale

 

 

300

 

Contract value

 

Discount for selling costs and marketability

 

n/a

Other real estate owned

 

 

197

 

Discounted appraised value

 

Discount for selling costs and marketability

 

6.00% (Average 6.00%)

 

 

 

 

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%)

Bank premises held for sale

 

 

300

 

Contract value

 

Discount for selling costs and marketability

 

n/a

Other real estate owned

 

 

-

 

-

 

-

 

-

 

Note 7. 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 June 30, 2022 and December 31, 2021. Fair values for June 30, 2022 and December 31, 2021 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.

 

 
26

Table of Contents

 

Note 7. Disclosures about Fair Value of Financial Instruments, continued

 

 

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 June 30, 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

June 30, 2022

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$17,254

 

 

$17,254

 

 

$-

 

 

$-

 

 

$17,254

 

Securities

 

 

446,948

 

 

 

-

 

 

 

446,948

 

 

 

-

 

 

 

446,948

 

Loans held for sale

 

 

5,449

 

 

 

-

 

 

 

5,449

 

 

 

-

 

 

 

5,449

 

Loans held for investment, net

 

 

690,497

 

 

 

-

 

 

 

-

 

 

 

676,687

 

 

 

676,687

 

Interest receivable

 

 

3,567

 

 

 

-

 

 

 

3,567

 

 

 

-

 

 

 

3,567

 

Bank owned life insurance

 

 

23,210

 

 

 

-

 

 

 

23,210

 

 

 

-

 

 

 

23,210

 

Forward sales commitments

 

 

535

 

 

 

-

 

 

 

535

 

 

 

-

 

 

 

535

 

Total

 

$1,187,460

 

 

$17,254

 

 

$479,709

 

 

$676,687

 

 

$1,173,650

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$1,100,210

 

 

$-

 

 

$980,822

 

 

$116,563

 

 

$1,097,385

 

Short-term debt

 

 

30,000

 

 

 

-

 

 

 

 

 

 

 

30,015

 

 

 

30,015

 

Long-term debt

 

 

11,788

 

 

 

-

 

 

 

-

 

 

 

11,890

 

 

 

11,890

 

IRLC

 

 

273

 

 

 

-

 

 

 

273

 

 

 

 

 

 

 

273

 

Interest payable

 

 

341

 

 

 

-

 

 

 

341

 

 

 

-

 

 

 

341

 

Total

 

$1,142,612

 

 

$-

 

 

$981,436

 

 

$158,468

 

 

$1,139,904

 

 

 

 

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

 

 

$-

 

 

$956,439

 

 

$123,718

 

 

$1,080,157

 

Long-term debt

 

 

21,772

 

 

 

-

 

 

 

-

 

 

 

22,443

 

 

 

22,443

 

Interest payable

 

 

491

 

 

 

-

 

 

 

491

 

 

 

-

 

 

 

491

 

Total

 

$1,102,558

 

 

$-

 

 

$956,930

 

 

$146,161

 

 

$1,103,091

 

 

Note 8. Troubled Debt Restructuring

 

As of June 30, 2022, the Company had TDRs totaling $4,205 with an estimated allowance of $124. As of December 31, 2021, the Company had TRDs totaling $5,138 with an estimated allowance of $167.

 

 
27

Table of Contents

 

Note 8. Troubled Debt Restructuring, continued

 

 

Troubled debt restructurings include modifications of interest rates, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof. All loans that are considered to be TDRs are reviewed for impairment in accordance with the Company’s ALLL methodology. The Company considers loans placed on nonaccrual status or 90 days past due to be nonperforming. There were no nonperforming TDRs at June 30, 2022 and December 31, 2021.

 

The following table shows, by modification type, TDRs that occurred during the three and six months ended June 30, 2022 and 2021 (dollars in thousands):

 

 

 

Three Months Ended June 30, 2022

 

 

Six Months Ended June 30, 2022

 

 

 

No. of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post- Modification Outstanding Recorded Investment

 

 

No. of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post- Modification Outstanding Recorded Investment

 

Change in terms

 

 

-

 

 

$-

 

 

$-

 

 

 

1

 

 

$164

 

 

$164

 

Extended maturity

 

 

3

 

 

 

50

 

 

 

50

 

 

 

3

 

 

 

50

 

 

 

50

 

Total

 

 

3

 

 

$50

 

 

$50

 

 

 

4

 

 

$214

 

 

$214

 

 

 

 

Three Months Ended June 30, 2021

 

 

Six Months Ended June 30, 2021

 

 

 

No. of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post- Modification Outstanding Recorded Investment

 

 

No. of Contracts

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post- Modification Outstanding Recorded Investment

 

Change in terms

 

 

1

 

 

$986

 

 

$986

 

 

 

2

 

 

$1,096

 

 

$1,096

 

Total

 

 

1

 

 

$986

 

 

$986

 

 

 

2

 

 

$1,096

 

 

$1,096

 

 

Note 9. Accumulated Other Comprehensive Loss

 

The following tables present components of accumulated other comprehensive loss for the periods stated (dollars in thousands).

 

 

 

For the three months ended June 30, 2022

 

 

 

Unrealized Securities Gains (Losses)

 

 

Adjustments Related to Pension Plan

 

 

Accumulated Other Comprehensive Loss

 

Balance at March 31, 2022

 

$(16,060)

 

$(3,291)

 

$(19,351)

Change in unrealized securities gains (losses), net of tax benefit of $4,512

 

 

(16,972)

 

 

-

 

 

 

(16,972)

Reclassification for previously unrealized net losses recognized in net income, net of tax benefit of $20

 

 

(77)

 

 

-

 

 

 

(77)

Balance at June 30, 2022

 

$(33,109)

 

$(3,291)

 

$(36,400)

 

 

 

For the three months ended June 30, 2021

 

 

 

Unrealized Securities Gains (Losses)

 

 

Adjustments Related to Pension Plan

 

 

Accumulated Other Comprehensive Loss

 

Balance at March 31, 2021

 

$(310)

 

$(3,821)

 

$(4,131)

Change in unrealized securities gains (losses), net of tax expense of $74

 

 

279

 

 

 

-

 

 

 

279

 

Balance at June 30, 2021

 

$(31)

 

$(3,821)

 

$(3,852)

 

 
28

Table of Contents

 

Note 9. Accumulated Other Comprehensive Loss, continued

 

 

 

For the six months ended June 30, 2022

 

 

 

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 benefit of $8,301

 

 

(31,231)

 

 

-

 

 

 

(31,231)

Reclassification for previously unrealized net losses recognized in net income, net of tax benefit of $20

 

 

(77)

 

 

-

 

 

 

(77)

Balance at June 30, 2022

 

$(33,109)

 

$(3,291)

 

$(36,400)

 

 

 

For the six months ended June 30, 2021

 

 

 

Unrealized Securities Gains (Losses)

 

 

Adjustments Related to Pension Plan

 

 

Accumulated Other Comprehensive Loss

 

Balance at December 31, 2020

 

$804

 

 

$(3,821)

 

$(3,017)

Change in unrealized securities gains (losses), net of tax benefit of $222

 

 

(835)

 

 

-

 

 

 

(835)

Balance at June 30, 2021

 

$(31)

 

$(3,821)

 

$(3,852)

 

During the three months ended June 30, 2022 there were security losses of $97, net of tax of $20, that were reclassified out of unrealized gains on available for sale securities and reclassified into net investment security losses on the consolidated statements of income. There were no reclassifications adjustments reported on the consolidated statements of income during the three or six months ended June 30, 2021.

 

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 and six months ended June 30, 2022 and 2021 (dollars in thousands).

 

 
29

Table of Contents

 

Note 10. Business Segments, continued

 

 

 

Six Months Ended June 30, 2022

 

 

 

F&M Bank

 

 

F&M Mortgage

 

 

TEB Life/FMFS

 

 

VS Title

 

 

Parent Only

 

 

Eliminations

 

 

F&M Bank Corp. Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

$19,019

 

 

$61

 

 

$15

 

 

$-

 

 

$1

 

 

$(26)

 

$19,070

 

Service charges on deposits

 

 

581

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

581

 

Investment services and insurance income

 

 

-

 

 

 

-

 

 

 

454

 

 

 

-

 

 

 

-

 

 

 

(5)

 

 

449

 

Mortgage banking income, net

 

 

-

 

 

 

1,379

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,379

 

Title insurance income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

839

 

 

 

-

 

 

 

-

 

 

 

839

 

Other operating income

 

 

1,504

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,506

 

Total income (loss)

 

 

21,104

 

 

 

1,442

 

 

 

469

 

 

 

839

 

 

 

1

 

 

 

(31)

 

 

23,824

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

1,774

 

 

 

12

 

 

 

-

 

 

 

-

 

 

 

251

 

 

 

(26)

 

 

2,011

 

Provision for loan losses

 

 

150

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150

 

Salary and benefit expense

 

 

8,003

 

 

 

1,196

 

 

 

218

 

 

 

610

 

 

 

-

 

 

 

-

 

 

 

10,027

 

Other operating expenses

 

 

6,636

 

 

 

464

 

 

 

32

 

 

 

162

 

 

 

(13)

 

 

(5)

 

 

7,276

 

Total expense

 

 

16,563

 

 

 

1,672

 

 

 

250

 

 

 

772

 

 

 

238

 

 

 

(31)

 

 

19,464

 

Net income (loss) before taxes

 

 

4,541

 

 

 

(230)

 

 

219

 

 

 

67

 

 

 

(237)

 

 

-

 

 

 

4,360

 

Income tax expense (benefit)

 

 

469

 

 

 

-

 

 

 

47

 

 

 

-

 

 

 

(473)

 

 

-

 

 

 

43

 

Net Income (Loss) attributable to F&M Bank Corp.

 

$4,072

 

 

$(230)

 

$172

 

 

$67

 

 

$236

 

 

$-

 

 

$4,317

 

Total Assets

 

$1,230,308

 

 

$9,499

 

 

$8,863

 

 

$4,635

 

 

$83,962

 

 

$(105,715)

 

$1,231,552

 

Goodwill

 

$2,868

 

 

$-

 

 

$-

 

 

$3

 

 

$211

 

 

$-

 

 

$3,082

 

 

 

 

Three months ended June 30, 2022

 

 

 

F&M Bank

 

 

F&M Mortgage

 

 

TEB Life/FMFS

 

 

VS Title

 

 

Parent Only

 

 

Eliminations

 

 

F&M Bank Corp. Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

$9,982

 

 

$32

 

 

$7

 

 

$-

 

 

$1

 

 

$(13)

 

$10,009

 

Service charges on deposits

 

 

274

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

274

 

Investment services and insurance income

 

 

-

 

 

 

-

 

 

 

201

 

 

 

-

 

 

 

-

 

 

 

(3)

 

 

198

 

Mortgage banking income, net

 

 

-

 

 

 

637

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

637

 

Title insurance income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

366

 

 

 

-

 

 

 

-

 

 

 

366

 

Other operating income

 

 

796

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

796

 

Total income (loss)

 

 

11,052

 

 

 

669

 

 

 

208

 

 

 

366

 

 

 

1

 

 

 

(16)

 

 

12,280

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

900

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

114

 

 

 

(13)

 

 

1,007

 

Provision for loan losses

 

 

600

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

600

 

Salary and benefit expense

 

 

4,056

 

 

 

623

 

 

 

114

 

 

 

309

 

 

 

-

 

 

 

-

 

 

 

5,102

 

Other operating expenses

 

 

3,308

 

 

 

250

 

 

 

11

 

 

 

79

 

 

 

6

 

 

 

(3)

 

 

3,651

 

Total expense

 

 

8,864

 

 

 

879

 

 

 

125

 

 

 

388

 

 

 

120

 

 

 

(16)

 

 

10,360

 

Net income (loss) before taxes

 

 

2,188

 

 

 

(210)

 

 

83

 

 

 

(22)

 

 

(119)

 

 

-

 

 

 

1,920

 

Income tax expense

 

 

83

 

 

 

-

 

 

 

16

 

 

 

-

 

 

 

32

 

 

 

-

 

 

 

131

 

Net Income (Loss) attributable to F&M Bank Corp.

 

$2,105

 

 

$(210)

 

$67

 

 

$(22)

 

$(151)

 

$-

 

 

$1,789

 

 

 
30

Table of Contents

 

Note 10. Business Segments, continued

 

 

 

Six Months Ended June 30, 2021

 

 

 

F&M Bank

 

 

VBS Mortgage

 

 

TEB Life/FMFS

 

 

VS Title

 

 

Parent Only

 

 

Eliminations

 

 

F&M Bank Corp. Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

$17,489

 

 

$124

 

 

$59

 

 

$-

 

 

$1

 

 

$(108)

 

$17,565

 

Service charges on deposits

 

 

539

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

539

 

Investment services and insurance income

 

 

-

 

 

 

-

 

 

 

530

 

 

 

-

 

 

 

-

 

 

 

(3)

 

 

527

 

Mortgage banking income, net

 

 

-

 

 

 

2,699

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,699

 

Title insurance income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,051

 

 

 

-

 

 

 

-

 

 

 

1,051

 

Other operating income (loss)

 

 

1,621

 

 

 

80

 

 

 

-

 

 

 

-

 

 

 

(76)

 

 

-

 

 

 

1,625

 

Total income (loss)

 

 

19,649

 

 

 

2,903

 

 

 

589

 

 

 

1,051

 

 

 

(75)

 

 

(111)

 

 

24,006

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

1,771

 

 

 

98

 

 

 

-

 

 

 

-

 

 

 

376

 

 

 

(108)

 

 

2,137

 

(Recovery of) loan losses

 

 

(1,975)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,975)

Salary and benefit expense

 

 

7,112

 

 

 

1,282

 

 

 

181

 

 

 

582

 

 

 

-

 

 

 

-

 

 

 

9,157

 

Other operating expenses

 

 

6,300

 

 

 

464

 

 

 

19

 

 

 

154

 

 

 

39

 

 

 

(3)

 

 

6,973

 

Total expense

 

 

13,208

 

 

 

1,844

 

 

 

200

 

 

 

736

 

 

 

415

 

 

 

(111)

 

 

16,292

 

Net income (loss) before taxes

 

 

6,441

 

 

 

1,059

 

 

 

389

 

 

 

315

 

 

 

(490)

 

 

-

 

 

 

7,714

 

Income tax expense (benefit)

 

 

922

 

 

 

-

 

 

 

81

 

 

 

-

 

 

 

(310)

 

 

-

 

 

 

693

 

Net Income (Loss) attributable to F&M Bank Corp.

 

$5,519

 

 

$1,059

 

 

$308

 

 

$315

 

 

$(180)

 

$-

 

 

$7,021

 

Total Assets

 

$1,110,211

 

 

$13,969

 

 

$8,367

 

 

$3,049

 

 

$112,338

 

 

$(142,959)

 

$1,104,975

 

Goodwill

 

$2,868

 

 

$47

 

 

$-

 

 

$3

 

 

$164

 

 

$-

 

 

$3,082

 

 

 

 

Three Months Ended June 30, 2021

 

 

 

F&M Bank

 

 

VBS Mortgage

 

 

TEB Life/FMFS

 

 

VS Title

 

 

Parent Only

 

 

Eliminations

 

 

F&M Bank Corp. Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

$8,773

 

 

$52

 

 

$29

 

 

$-

 

 

$1

 

 

$(36)

 

$8,819

 

Service charges on deposits

 

 

254

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

254

 

Investment services and insurance income

 

 

-

 

 

 

-

 

 

 

182

 

 

 

-

 

 

 

-

 

 

 

(2)

 

 

180

 

Mortgage banking income, net

 

 

-

 

 

 

1,027

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,027

 

Title insurance income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

595

 

 

 

-

 

 

 

-

 

 

 

595

 

Other operating income (loss)

 

 

1,028

 

 

 

57

 

 

 

-

 

 

 

-

 

 

 

(55)

 

 

-

 

 

 

1,030

 

Total income (loss)

 

 

10,055

 

 

 

1,136

 

 

 

211

 

 

 

595

 

 

 

(54)

 

 

(38)

 

 

11,905

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

895

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

178

 

 

 

(36)

 

 

1,069

 

(Recovery of) loan losses

 

 

(1,250)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,250)

Salary and benefit expense

 

 

3,598

 

 

 

667

 

 

 

84

 

 

 

296

 

 

 

-

 

 

 

-

 

 

 

4,645

 

Other operating expenses

 

 

3,466

 

 

 

231

 

 

 

13

 

 

 

72

 

 

 

19

 

 

 

(2)

 

 

3,799

 

Total expense

 

 

6,709

 

 

 

930

 

 

 

97

 

 

 

368

 

 

 

197

 

 

 

(38)

 

 

8,263

 

Net income (loss) before taxes

 

 

3,346

 

 

 

206

 

 

 

114

 

 

 

227

 

 

 

(251)

 

 

-

 

 

 

3,642

 

Income tax expense (benefit)

 

 

401

 

 

 

-

 

 

 

24

 

 

 

-

 

 

 

(3)

 

 

-

 

 

 

422

 

Net Income (Loss) attributable to F&M Bank Corp.

 

$2,945

 

 

$206

 

 

$90

 

 

$227

 

 

$(248)

 

$-

 

 

$3,220

 

 

 
31

Table of Contents

 

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-term borrowings to support loans growth 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 $30,000 in short-term debt at June 30, 2022 and no short-term debt at December 31, 2021.

 

Long-term Debt

 

The Company also utilizes the FHLB advance program to fund loan growth and provide liquidity. The balance of these obligations at June 30, 2022 and December 31, 2021 were $0 and $10,000, respectively. The interest rates on long-term debt are fixed at the time of the advance; the weighted average interest rate was .81% at at December 31, 2021. 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 certain institutional accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000 in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”). 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 Notes 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 shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notes will mature on July 31, 2030. The subordinated notes, net of issuance costs totaled $11,788 at June 30, 2022.

 

Note 12. 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 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.

 

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.

 

 
32

Table of Contents

 

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 June 30, 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 and six months ended June 30, 2022 and 2021 (dollars in thousands).

 

 

 

Six Months Ended

June 30,

 

 

Three Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

In-scope of Topic 606:

 

 

 

 

 

 

 

 

 

 

 

 

Service Charges on Deposits

 

$581

 

 

$539

 

 

$274

 

 

$254

 

Investment Services and Insurance Income

 

 

449

 

 

 

527

 

 

 

198

 

 

 

180

 

Title Insurance Income

 

 

839

 

 

 

1,051

 

 

 

366

 

 

 

595

 

ATM and check card fees

 

 

1,195

 

 

 

1,120

 

 

 

632

 

 

 

600

 

Other

 

 

399

 

 

 

514

 

 

 

242

 

 

 

448

 

Noninterest Income (in-scope of Topic 606)

 

 

3,463

 

 

 

3,751

 

 

 

1,712

 

 

 

2,077

 

Noninterest Income (out-of-scope of Topic 606)

 

 

1,291

 

 

 

2,690

 

 

 

559

 

 

 

1,009

 

Total Noninterest Income

 

$4,754

 

 

$6,441

 

 

$2,271

 

 

$3,086

 

 

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 June 30, 2022 and December 31, 2021, the Company did not have any significant contract balances.

 

 
33

Table of Contents

 

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. 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):

 

 

 

June 30, 2022

 

Lease Liabilities

 

$865

 

Right-of-use assets

 

$842

 

Weighted average remaining lease term (years)

 

2.97 years

 

Weighted average discount rate

 

 

3.10%

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating lease cost

 

$47

 

 

$15

 

 

$94

 

 

$51

 

Total lease cost

 

$47

 

 

$15

 

 

$94

 

 

$51

 

Cash paid for amounts included in the measurement of lease liabilities

 

$53

 

 

$35

 

 

$105

 

 

$66

 

 

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):

 

 

 

June 30, 2022  

 

Six months ending December 31, 2022

 

$79

 

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

 

$1,036

 

Discount

 

 

171

 

Lease liabilities

 

$865

 

 

 
34

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, 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 $5,449 as of June 30, 2022 of which $5,509 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 Liabilities” in the Consolidated Balance Sheet at June 30, 2022, and totaled $273, with a notional amount of $24,826 and total positions of 78. 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 June 30, 2022 and 2021. The Company’s IRLCs are classified as Level 2. At June 30, 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 June 30, 2022 totaled $535, with a notional amount of $30,335 and total positions of 95. 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 granted stock awards to directors and employees under the Company’s 2020 Stock Incentive Plan. On March 7, 2022 the Company’s Stock Plan Committee awarded 17,763 shares with a fair value of $547,989 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. There were no restricted stock awards granted, vested or forfeited during the three months ending June 30, 2022. Unrecognized compensation expense related to the nonvested restricted stock as of June 30, 2022 totaled $780 thousand.

 

Note 16. Subsequent Events

 

On July 29, 2022 the Company redeemed the $5,000 in subordinated notes described in Note 11 as the “2027 Notes.”

 

 
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Item 2. Management’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&M Mortgage) are wholly owned subsidiaries of the Bank. F & M Bank Corp. 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, 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 December 31, 2021 Form 10-K.

 

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.

 

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 of the Company.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Critical Accounting Policies

 

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the 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.

 

The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of June 30, 2022 were unchanged from the policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Overview (Dollars in thousands)

 

Net income for the six months ended June 30, 2022 was $4,317 or $1.25 per share, compared to $6,890 or $2.04 in the same period in 2021, a decrease of 37.34%. During the six months ended June 30, 2022, noninterest income decreased 26.19% and noninterest expense increased 7.27% during the same period.

 

During the three months ended June 30, 2022, net income was $1,789 or $0.51 per share, compared to $3,154 or $0.93 in the same period in 2021, a decrease of 43.28%.

 

Results of Operations

 

As shown in Table I, the 2022 year to date tax equivalent net interest income increased $1,692 or 10.93% compared to the same period in 2021. The tax equivalent adjustment to net interest income totaled $118 for the first six months of 2022. The yield on earning assets decreased .40%, while the cost of funds decreased .17% compared to the same period in 2021.

 

The three months ended June 30, 2022 tax equivalent net interest income increased $1,316 or 16.92% compared to the same period in 2021. The tax equivalent adjustment to net interest income totaled $91 for the three months ended June 30, 2022.

 

Year to date, 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 2.97% for the six months ended June 30, 2022, a decrease of 30 basis points when compared to the same period in 2021. For the three months ended June 30, 2022, the net interest margin increased 3 basis points when compared to the same period in 2021 which reflects rate increases in the loan portfolio due to prime rate increases. A schedule of the net interest margin for the three- and six-month periods ended June 30, 2022 and 2021 can be found in Table I.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Results of Operations, continued

 

The following table provides detail on the components of tax equivalent net interest income (dollars in thousands):

 

GAAP Financial Measurements:

 

June 30, 2022

 

 

June 30, 2021

 

 

 

Six

Months

 

 

Three

Months

 

 

Six

Months

 

 

Three

Months

 

Interest Income – Loans

 

$15,564

 

 

$8,025

 

 

$16,524

 

 

$8,254

 

Interest Income - Securities and Other Interest-Earnings Assets

 

 

3,506

 

 

 

1,984

 

 

 

1,041

 

 

 

565

 

Interest Expense – Deposits

 

 

1,682

 

 

 

837

 

 

 

1,613

 

 

 

818

 

Interest Expense - Other Borrowings

 

 

329

 

 

 

170

 

 

 

524

 

 

 

251

 

Total Net Interest Income

 

$17,059

 

 

$9,002

 

 

$15,428

 

 

$7,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities

 

 

118

 

 

 

91

 

 

 

57

 

 

 

27

 

Total Tax Benefit on Tax-Exempt Interest Income

 

 

118

 

 

 

91

 

 

 

57

 

 

 

27

 

Tax-Equivalent Net Interest Income

 

$17,177

 

 

$9,093

 

 

$15,485

 

 

$7,777

 

 

The decrease in noninterest income of $1,687 for the six-month period ending June 30, 2022 compared to the same period in 2021 is due primarily to decreases in mortgage banking income ($1,320), title insurance income ($212), and other income ($131). The decrease in noninterest income of $815 for the three months ended June 30, 2022 is primarily due to decreases in mortgage banking income ($390), title insurance income ($229), and other income ($189). Mortgage banking income decreased in both the three and six-month periods due to a decrease in refinance and purchase activity at F&M Mortgage as the Federal Reserve increased interest rates. For both the six-month and three-month periods in 2021, other income included a gain on bank owned life insurance.

 

Noninterest expense for the six months ended June 30, 2022 increased $1,173 as compared to 2021. Increases in the areas of salaries and benefits ($870) and telecommunication and data processing ($464) were offset by decreases in impairment of long-lived assets ($171) and other expenses ($267). Expansion into the Winchester and Waynesboro markets, higher overall salaries, staff additions, and stock grant expense led to increased salary, benefits and data processing expenses. Other operating expenses for the six months ended June 30, 2021 included one-time expenses: loss on the sale of bank property ($112), donation of bank property ($162) and prepayment penalties on FHLB debt repayments ($228), that were not incurred in 2022. The increase in noninterest expense of $309 for the three months ended June 30, 2022 is primarily due to increases in salaries ($457) and telecommunications and data processing expense ($103), that were offset by decreases in impairment of long-lived assets ($171) and other expenses ($175).

 

Balance Sheet

 

Federal Funds Sold and Interest Bearing Bank Deposits

 

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 that at quarter end were benchmarked at 2.25% to 2.50% 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 $3,430 and $76,667 in federal funds sold at June 30, 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 June 30, 2022 was due to the Company deploying these funds into the investment portfolio. Interest bearing bank deposits have decreased by $2,670 since year end from $2,938 to $268 due to the maturity of certificates of deposit held at other banks.

 

Securities

 

The Company’s 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 investments available for sale of $42,941 since December 31, 2021.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Securities, continued

 

The securities portfolio consists of investment securities commonly referred 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 June 30, 2022, the fair value of securities available for sale was below their cost by $41,910. The portfolio is made up of primarily treasuries, agencies and mortgage-backed obligations of federal agencies, as well as securities issued by States and political subdivisions in the U.S. and Corporate debt securities. The average maturity is 5.19 years. Efforts to deploy excess funds in an uncertain rate environment has resulted in a mixture of maturities.

 

In reviewing investments as of June 30, 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 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. The Bank has a concentration in real estate loans secured by poultry farms as defined by regulatory guidelines.

 

Loans Held for Investment of $690,497 increased $28,076 on June 30, 2022 compared to $662,421 at December 31, 2021. Net of PPP, loans grew $29,465 or 4.46% since December 31, 2021. Loan growth occurred in the multi-family, commercial real estate, commercial and industrial – non real estate, and dealer finance segments of the portfolio; while declines occurred in the construction, real estate and PPP segments.

 

Loans Held for Sale totaled $5,449 on June 30, 2022, an increase of $562 compared to $4,887 at December 31, 2021. At June 30, 2022 this balance was F&M mortgage loans, which are typically subject to changes in interest rates, seasonal fluctuations, and refinance activity.

 

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 $1,906 on June 30, 2022 compared to $5,508 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.

 

A summary of credit ratios for nonaccrual loans is as follows (in thousands):

 

 

 

June 30,

2022

 

 

December 31,

2021

 

Allowance for loan losses

 

$7,798

 

 

$7,748

 

Nonaccrual loans

 

$1,851

 

 

$5,465

 

Total Loans

 

$690,497

 

 

$662,421

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses to Total Loans

 

 

1.13%

 

 

1.17%

Nonaccrual Loans to Total Loans

 

 

0.27%

 

 

0.83%

Allowance for loan losses to Nonaccrual loans

 

 

421.29%

 

 

141.77%

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Allowance for Loan Losses

 

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 $7,798 at June 30, 2022 is equal to 1.13% 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 since December 31, 2021. This was offset by improvements in the unemployment rate, a decrease in historical loss rates, paydowns on individually impaired loans, and non-accrual loans returning to accruing status. 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. Classified loans (internally rated substandard or watch) increased from a total of $43,230 at December 31, 2021 to $46,840 at June 30, 2022, past due loans on accrual increased from $3,226 at December 31, 2021 to $4,107 at June 30, 2022, and non-performing loans decreased from $5,508 at December 31, 2021 to $1,906 at June 30, 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’s main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company’s service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. Total deposits at June 30, 2022 have increased $19,915 since December 31, 2021. Noninterest bearing deposits increased $10,735 while interest bearing increased $9,180. The increase in deposits is due to a focus on deposit growth as an organization as well as excess funds that customers are holding due to the pandemic. 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 June 30, 2022 and December 31, 2021 the Company had a total of $257 in CDARS accounts; and, $99,957 and $94,948 in ICS accounts, respectively.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Short-term borrowings

 

The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to 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 needs of the Company. The Company utilized the short-term debt facilities at the FHLB beginning in the first six months of 2022; the balance at June 30, 2022 totaled $30,000; there were no short-term borrowings at December 31, 2021.

 

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 of various types in the loan portfolio. FHLB long term advances totaled $10,000 on December 31, 2021; there were no long-term borrowings at June 30, 2022.

 

On July 29, 2020, the Company sold and issued to certain institutional accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000 in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”). 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 Notes 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 shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notes will mature on July 31, 2030. The subordinated notes, net of issuance costs totaled $11,788 at June 30, 2022.

 

Capital

 

The Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and grow at a manageable level.

 

At June 30, 2022, the Bank had Common Equity Tier I capital of 13.00% of risked weighted assets, Tier I capital of 13.00% of risk weighted assets and combined Tier I and II capital of 13.97% 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 to require the Bank to raise additional capital and/or reallocate present capital.

 

In addition, the regulatory agencies have issued guidelines requiring the maintenance of a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by average total assets. The regulators have established a minimum of 4% for this ratio but can increase the minimum requirement based upon an institution’s overall financial condition. At June 30, 2022, the Bank reported a leverage ratio of 8.41%, compared to 8.62% at December 31, 2021. The Bank’s leverage ratio was substantially above the minimum. The Bank also reported a capital conservation buffer of 5.97% at June 30, 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.

 

Liquidity

 

Liquidity is the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments and loans maturing within one year. The Company’s ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Liquidity, continued

 

As a result of the Company’s management of liquid assets 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.

 

Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, 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 of interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of interest sensitive assets relative to interest sensitive liabilities over specific 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.

 

Effect 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 is running a parallel CECL calculation. 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 June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, 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.

 

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Effect of Newly Issued Accounting Standards, continued

 

The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.

 

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, 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 Company does not expect the adoption of ASU 2022-01 to have a material impact on its consolidated financial statements.

 

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. The Company is in the process of transitioning away from LIBOR for its loan and other financial instruments.

 

In October 2021, the FASB issued ASU 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 Company does not expect the adoption of ASU 2021-08 to have a material impact on its consolidated financial statements.

 

 
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Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

 

Effect of Newly Issued Accounting Standards, continued

 

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 Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in 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 equity that is not within the scope of another Topic. Early adoption is permitted. ASU 2021-04 was effective for the Company on January 1, 2022. The adoption of ASU 201-04 did not have a material impact on the Company’s 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.

 

Existence of Securities and Exchange Commission Web Site

 

The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including F & M Bank Corp. and the address is (http: //www.sec.gov).

 

 
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Table of Contents

  

TABLE I

F & M BANK CORP.

Net Interest Margin Analysis

(on a fully taxable equivalent basis)

(Dollar Amounts in Thousands)

 

 

 

Six Months Ended

June 30, 2022

 

 

Six Months Ended

June 30, 2021

 

 

Three Months Ended

June 30, 2022

 

 

Three Months Ended

June 30, 2021

 

 

 

Average Balance

 

 

Income/

Expense

 

 

Average Rates1

 

 

Average Balance

 

 

Income/ Expense

 

 

Average Rates1

 

 

Average Balance

 

 

Income/ Expense

 

 

Average Rates1

 

 

Average Balance

 

 

Income/ Expense

 

 

Average Rates1

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment2,3

 

$666,748

 

 

$15,529

 

 

 

4.70%

 

$662,319

 

 

$16,328

 

 

 

4.97%

 

$666,957

 

 

$8,007

 

 

 

4.82%

 

$663,810

 

 

$8,204

 

 

 

4.96%

Loans held for sale

 

 

5,056

 

 

 

61

 

 

 

2.43%

 

 

18,206

 

 

 

235

 

 

 

2.60%

 

 

3,964

 

 

 

32

 

 

 

3.24%

 

 

12,491

 

 

 

69

 

 

 

2.22%

Federal funds sold

 

 

35,832

 

 

 

35

 

 

 

0.20%

 

 

116,077

 

 

 

44

 

 

 

.08%

 

 

7,170

 

 

 

11

 

 

 

0.62%

 

 

144,680

 

 

 

29

 

 

 

.08%

Interest bearing deposits

 

 

2,603

 

 

 

4

 

 

 

0.31%

 

 

1,302

 

 

 

-

 

 

 

-

 

 

 

1,731

 

 

 

3

 

 

 

0.70%

 

 

1,716

 

 

 

-

 

 

 

-

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable 4

 

 

444,939

 

 

 

3,122

 

 

 

1.41%

 

 

149,934

 

 

 

929

 

 

 

1.25%

 

 

464,506

 

 

 

1,678

 

 

 

1.45%

 

 

169,864

 

 

 

501

 

 

 

1.18%

Partially taxable

 

 

125

 

 

 

1

 

 

 

1.61%

 

 

125

 

 

 

1

 

 

 

1.61%

 

 

125

 

 

 

-

 

 

 

-

 

 

 

125

 

 

 

-

 

 

 

-

 

Tax exempt

 

 

9,877

 

 

 

436

 

 

 

8.90%

 

 

6,216

 

 

 

85

 

 

 

2.76%

 

 

13,753

 

 

 

369

 

 

 

10.76%

 

 

6,216

 

 

 

43

 

 

 

2.77%

Total earning assets

 

$1,165,180

 

 

$19,188

 

 

 

3.32%

 

$954,179

 

 

$17,622

 

 

 

3.72%

 

$1,158,206

 

 

$10,100

 

 

 

3.50%

 

$998,902

 

 

$8,846

 

 

 

3.55%

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

183,235

 

 

 

206

 

 

 

0.23%

 

 

123,994

 

 

 

107

 

 

 

.17%

 

 

181,766

 

 

 

103

 

 

 

0.23%

 

 

136,236

 

 

 

63

 

 

 

.19%

Savings

 

 

502,376

 

 

 

1,020

 

 

 

0.41%

 

 

368,743

 

 

 

738

 

 

 

.40%

 

 

507,341

 

 

 

517

 

 

 

0.41%

 

 

386,857

 

 

 

386

 

 

 

.40%

Time deposits

 

 

120,501

 

 

 

456

 

 

 

0.76%

 

 

130,268

 

 

 

768

 

 

 

1.19%

 

 

118,552

 

 

 

217

 

 

 

0.73%

 

 

131,383

 

 

 

369

 

 

 

1.13%

Short-term debt

 

 

9,451

 

 

 

46

 

 

 

0.98%

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,798

 

 

 

46

 

 

 

0.98%

 

 

-

 

 

 

-

 

 

 

-

 

Long-term debt

 

 

18,678

 

 

 

283

 

 

 

3.06%

 

 

32,009

 

 

 

524

 

 

 

3.30%

 

 

15,630

 

 

 

124

 

 

 

3.18%

 

 

31,580

 

 

 

251

 

 

 

3.19%

Total interest bearing liabilities

 

$834,241

 

 

$2,011

 

 

 

0.49%

 

$655,014

 

 

$2,137

 

 

 

.66%

 

$842,087

 

 

$1,007

 

 

 

0.48%

 

$686,056

 

 

$1,069

 

 

 

.62%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax equivalent net interest income

 

 

 

 

 

$17,177

 

 

 

 

 

 

 

 

 

 

$15,485

 

 

 

 

 

 

 

 

 

 

$9,093

 

 

 

 

 

 

 

 

 

 

$7,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.97%

 

 

 

 

 

 

 

 

 

 

3.27%

 

 

 

 

 

 

 

 

 

 

3.15%

 

 

 

 

 

 

 

 

 

 

3.12%

_____________  

1

 Annualized.

2

Interest income on loans includes loan fees.

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 partially taxable investments and loans.

 

Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

 

 
45

Table of Contents

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required

 

Item 4. Controls and Procedures

 

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2022. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’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 in SEC rules and forms. There were no significant changes in the Company’s internal controls over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 
46

 

 

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

 

Not required

 

 

 

 

 

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

 

 

 

 

 

Item 6.

 

Exhibits

 

 

 

 

 

(a) 

Exhibits

 

 

 

 

 

4.1

 

Form of 2027 Subordinated Note (included as Exhibit 4.1 to the Current Report on Form 8-K filed July 31, 2020 and incorporated herein by reference).

 

 

 

4.2

 

Form of 2030 Subordinated Note (included as Exhibit 4.2 to the Current Report on Form 8-K filed July 31, 2020 and incorporated herein by reference).

 

 

 

10.1

 

Form of Subordinated Note Purchase Agreement (included as Exhibit 10.1 to the Current Report on Form 8-K filed July 31, 2020 and incorporated herein by reference).

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).

 

 

 

32

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

101

 

The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).

 

 

 

104

 

The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, formatted in Inline XBRL (included with Exhibit 101)

 

 
47

Table of Contents

 

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.

    
/s/ Mark C. Hanna

 

 

Mark C. Hanna 
  President and Chief Executive Officer 
    

 

 

/s/ Carrie A. Comer

 

 

 

Carrie A. Comer

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

August 15, 2022

 

 

 

 

 
48