UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒	☒ Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2021.~~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~~ (State or Other Jurisdiction of

Incorporation or Organization)

~~(I.R.S.~~ (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~~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~~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 May ~~5, 2021~~6, 2022
Common Stock, par value -‑ $5		~~3,207,461~~3,451,612 shares

F & M BANK CORP.

Index

~~Part I~~	~~Financial Information~~	Page
Part I	Financial Information	3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets – March 31, ~~2021~~2022 and December 31, ~~2020~~2021	3

	Consolidated Statements of Income – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	4

	Consolidated Statements of Comprehensive (Loss) Income – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	5

	Consolidated Statements of Changes in Stockholders’ Equity – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	6

	Consolidated Statements of Cash Flows – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3231

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4641

Item 4.	Controls and Procedures	4641

Part II	Other Information	4741

Item 1.	Legal Proceedings	4741

Item 1a.	Risk Factors	4741

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4741

Item 3.	Defaults upon Senior Securities	4741

Item 4.	Mine Safety Disclosures	4741

Item 5.	Other Information	4741

Item 6.	Exhibits	4741

Signatures		4842

Certifications

Table of Contents

Part I Financial Information

Item 1 Financial Statements

F & M BANK CORP.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	March 31,			December 31,			March 31,			December 31,
	2021			2020*			2022			2021*
	*(Unaudited)*						*(Unaudited)*
*Assets*
Cash and due from banks	$	12,051		$	11,181		$	13,586		$	8,516
Money market funds and interest-bearing deposits in other banks		1,579			1,244			2,796			2,938
Federal funds sold		90,099			65,983			31,994			76,667
Cash and cash equivalents		103,729			78,408			48,376			88,121

Securities:
Held to maturity, at amortized cost – fair value of $125 in 2021 and 2020, respectively		125			125
Held to maturity, at amortized cost – fair value of $125 in 2022 and 2021, respectively								125			125
Available for sale, at fair value		171,703			106,899			461,822			403,882
Other investments		10,263			10,874			9,142			9,210
Loans held for sale, at fair value		8,943			14,307			2,479			4,887
Loans held for sale, participations		6,711			44,372
Loans held for investment		659,373			661,329
Loans held for investment, net of deferred fees and costs								659,560			662,421
Less: allowance for loan losses		(9,704	)		(10,475	)		(7,389	)		(7,748	)
Net loans held for investment		649,669			650,854			652,171			654,673

Bank premises and equipment, net		17,797			17,909			18,684			17,063
Bank premises held for sale		520			520			300			300
Interest receivable		2,404			2,727			3,345			3,117
Goodwill		2,884			2,884			3,082			3,082
Bank owned life insurance		22,811			22,647			23,042			22,878
Other assets		13,418			14,404			15,691			12,004
Total assets	$	1,010,977		$	966,930		$	1,238,259		$	1,219,342
*Liabilities*
Deposits:
Noninterest bearing	$	252,265		$	236,915		$	298,676		$	280,993
Interest bearing		610,487			581,667			813,619			799,302
Total deposits		862,752			818,582			1,112,295			1,080,295

Long-term debt		32,159			33,202			21,780			21,772
Other liabilities		18,539			19,517			16,199			16,819
Total liabilities		913,450			871,301			1,150,274			1,118,886

*Commitments and contingencies*		-			-

*Stockholders’ Equity*
Series A Preferred Stock, $25 liquidation preference, 400,000 shares authorized, 205,327 shares issued and outstanding at March 31, 2021 and December 31, 2020		4,558			4,558
Common stock $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,207,154 and 3,203,372 shares issued and outstanding at March 31, 2021 and December 31, 2020		16,036			16,017
Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,451,208 and 3,430,175 shares issued and outstanding (29,238 and 15,869 unvested restricted shares)								17,110			17,071
Additional paid in capital – common stock		6,956			6,866			10,240			10,127
Retained earnings		74,108			71,205			79,986			78,350
Accumulated other comprehensive loss		(4,131	)		(3,017	)		(19,351	)		(5,092	)
Total stockholders’ equity		97,527			95,629			87,985			100,456
Total liabilities and stockholders’ equity	$	1,010,977		$	966,930		$	1,238,259		$	1,219,342

~~________~~

*~~2020~~2021 derived from audited consolidated financial statements.

See Notes ofto Consolidated Financial Statements

Table of Contents

F & M BANK CORP.

Consolidated Statements of Income

(Dollars in ~~thousands, except per share data)~~thousands)

(Unaudited)

	Three Months Ended						Three Months Ended
	March 31,						March 31,
*Interest and Dividend income*	2021			2020			2022			2021
Interest and fees on loans held for investment	$	8,170		$	8,452		$	7,510		$	8,170
Interest and fees on loans held for sale		100			270			29			100
Interest from money market funds and federal funds sold		15			297			25			15
Interest on debt securities		461			91			1,497			461
Total interest and dividend income		8,746			9,110			9,061			8,746

*Interest expense*
Total interest on deposits		795			1,452			845			795
Interest from short-term debt		0			41
Interest from long-term debt		273			213			159			273
Total interest expense		1,068			1,706			1,004			1,068

*Net interest income*		7,678			7,404			8,057			7,678

*(Recovery of) Provision for Loan Losses*		(725	)		1,500
*Net Interest Income After (Recovery of) Provision for Loan Losses*		8,403			5,904
*(Recovery of) Loan Losses*								(450	)		(725	)
*Net Interest Income After (Recovery of) Loan Losses*								8,507			8,403

*Noninterest income*
Service charges on deposit accounts		285			361			307			285
Investment services and insurance income, net		347			184			251			347
Mortgage banking income, net		1,672			930			742			1,672
Title insurance income		456			371			473			456
Income on bank owned life insurance		168			151			171			168
Low-income housing partnership losses		(215	)		(223	)
Low income housing partnership losses								(204	)		(215	)
ATM and check card fees		520			433			563			520
Other operating income		122			222			180			122
Total noninterest income		3,355			2,429			2,483			3,355

*Noninterest expense*
Salaries		3,296			3,012			3,637			3,296
Employee benefits		1,216			1,022			1,288			1,216
Occupancy expense		295			267			340			295
Equipment expense		277			306			286			277
FDIC insurance assessment		99			95			116			99
Other real estate owned, net		0			19
Advertising expense		136			133			178			136
Legal and professional fees		199			149			208			199
ATM and check card fees		257			244			298			257
Telecommunication and data processing expense		540			536			901			540
Directors fees		146			110			164			146
Bank franchise tax		173			195			174			173
Other operating expenses		1,052			1,032			960			1,052
Total noninterest expense		7,686			7,120			8,550			7,686

*Income before income taxes*		4,072			1,213			2,440			4,072
Income tax expense (benefit)		271			(38	)
Income tax (benefit) expense								(88	)		271
*Net Income*		3,801			1,251		$	2,528		$	3,801
Net (income) attributable to noncontrolling interest		0			(62	)
*Net Income attributable to F & M Bank Corp.*	$	3,801		$	1,189
Dividends paid/accumulated on preferred stock		65			66			0			65
*Net income available to common stockholders*	$	3,736		$	1,123		$	2,528		$	3,736
*Per Common Share Data*
Net income – basic	$	1.17		$	.35
Net income – diluted	$	1.11		$	.35
Cash dividends on common stock	$	.26		$	.26
Weighted average common shares outstanding – basic		3,205,074			3,204,084
Weighted average common shares outstanding – diluted		3,433,192			3,433,683

Per Common Share Data

Net income – basic

$ 0.74

$ 1.17

Net income – diluted

$
0.74

$ 1.11

Cash dividends on common stock

$
0.26

$ 0.26

Weighted average common shares outstanding – basic

3,434,892

3,205,074

Weighted average common shares outstanding – diluted

3,434,892

3,433,192

See Notes ofto Consolidated Financial Statements
4
Table of Contents

F & M BANK CORP.
Consolidated Statements of Comprehensive (Loss) Income
(Dollars in thousands)
(Unaudited)

Three Months Ended March 31,

2021

2020

Net Income attributable to F & M Bank Corp.

$ 3,801

$ 1,189

Other comprehensive loss:

Unrealized holding losses on available-for sale securities

(1,411 )

(49 )
Tax effect

297

10

Unrealized holding losses, net of tax

(1,114 )

(39 )

Total other comprehensive (loss)

$ (1,114 )

$ (39 )

Comprehensive income attributable to F&M Bank Corp.

$ 2,687

$ 1,150

Comprehensive income attributable to noncontrolling interests

$ 0

$ 62

Total comprehensive income

$ 2,687

$ 1,212

Three Months Ended March 31,

2022

2021

Net Income

$ 2,528

$ 3,801

Other comprehensive loss:

Unrealized holding losses on available-for sale securities

(18,049 )

(1,411 )
Tax effect

3,790

297

Unrealized holding losses, net of tax

(14,259 )

(1,114 )

Total other comprehensive loss

$
(14,259 )

$ (1,114 )

Total comprehensive (loss) income

$ (11,731 )

$ 2,687

See Notes ofto Consolidated Financial Statements
5
Table of Contents

F & M BANK CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021.

Accumulated

Preferred
Stock

Common
Stock

Additional Paid in Capital

Retained
Earnings

Accumulated Other Comprehensive Loss

Total

Additional

Non

Other

Preferred

Common

Paid in

Retained

controlling

Comprehensive

Stock

Stock

Capital

Earnings

Interest

Loss

Total

Balance December 31, 2019

$ 4,592

$ 16,042

$ 7,510

$ 66,008

$ 634

$ (3,211 )

$ 91,575

Net income

0

0

0

1,189

62

0

1,251

Other comprehensive loss

0

0

0

0

0

(39 )

(39 )
Distributions to noncontrolling interest

-

-

-

-

(47 )

-

(47 )
Dividends on preferred stock ($.32 per share)

0

0

0

(66 )

0

0

(66 )
Dividends on common stock ($.26 per share)

0

0

0

(834 )

0

0

(834 )
Common stock repurchased (18,472 shares)

0

(92 )

(381 )

0

0

0

(473 )
Common stock issued (2,438 shares)

0

12

55

0

0

0

67

Balance, March 31, 2020

$ 4,592

$ 15,962

$ 7,184

$ 66,297

$ 649

$ (3,250 )

$ 91,434

Balance December 31, 2020

$ 4,558

$ 16,017

$ 6,866

$ 71,205

$ 0

$ (3,017 )

$ 95,629

Balance, December 31, 2020

$ 4,558

$ 16,017

$ 6,866

$ 71,205

$ (3,017 )

$ 95,629

Net income

0

0

0

3,801

0

0

3,801

0

0

0

3,801

0

3,801

Other comprehensive loss

0

0

0

0

0

(1,114 )

(1,114 )

0

0

0

0

(1,114 )

(1,114 )
Dividends on preferred stock ($.32 per share)

0

0

0

(65 )

0

0

(65 )

0

0

0

(65 )

0

(65 )
Dividends on common stock ($.26 per share)

0

0

0

(833 )

0

0

(833 )

0

0

0

(833 )

0

(833 )
Common stock issued (2,450 shares)

0

12

52

0

0

0

64

0

12

52

0

0

64

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

0

7

29

0

0

0

36

0

7

29

0

0

36

Common stock to vest for Stock-based Compensation (3,270 shares)

0

0

9

0

0

0

9

Stock-based compensation expense

0

0

9

0

0

9

Balance, March 31, 2021

$ 4,558

$ 16,036

$ 6,956

$ 74,108

$ 0

$ (4,131 )

$ 97,527

$ 4,558

$ 16,036

$ 6,956

$ 74,108

$ (4,131 )

$ 97,527

Balance, December 31, 2021

$ 0

$ 17,071

$ 10,127

$ 78,350

$ (5,092 )

$ 100,456

Net income

0

0

0

2,528

0

2,528

Other comprehensive loss

0

0

0

0

(14,259 )

(14,259 )
Dividends on common stock ($.26 per share)

0

0

0

(892 )

0

(892 )
Common stock issued (2,599 shares)

0

13

67

0

0

80

Common stock issued for Stock-based Compensation (5,065 shares)

0

26

29

0

0

55

Stock-based compensation expense

0

0

17

0

0

17

Balance, March 31, 2022

$ 0

$ 17,110

$ 10,240

$ 79,986

$ (19,351 )

$ 87,985

See Notes ofto Consolidated Financial Statements
6
Table of Contents

F & M BANK CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

Three Months Ended March 31,

Three Months Ended March 31,

2021

2020

2022

2021

Cash flows from operating activities

Net income

$ 3,801

$ 1,189

$ 2,528

$ 3,801

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

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

Depreciation and amortization

293

320

283

293

Amortization of intangibles

17

17

9

17

Amortization of securities

239

(4 )

6,174

239

Proceeds from loans held for sale originated

63,032

31,210

39,724

63,032

Loans held for sale originated

(56,331 )

(38,694 )

(36,881 )

(56,331 )
Gain on sale of loans held for sale originated

(1,606 )

(917 )

(435 )

(1,606 )
(Recovery of) Provision for loan losses

(725 )

1,500

Decrease in interest receivable

323

39

(Recovery of) loan losses

(450 )

(725 )
(Increase) decrease in interest receivable

(228 )

323

(Increase) in deferred taxes

(189 )

(331 )

(189 )

(189 )
Increase in taxes payable

159

0

Decrease in other assets

1,433

1,061

Decrease in accrued expenses

(842 )

(1,872 )
Decrease in taxes payable

-

159

(Increase) decrease in other assets

(12 )

1,433

(Decrease) in accrued expenses

(318 )

(842 )
Amortization of limited partnership investments

215

223

204

215

Income from life insurance investment

(168 )

(151 )

(171 )

(168 )
Loss on sale of fixed assets

0

1

Impairment of long-lived assets

0

19

Net cash provided by (used in) operating activities

9,651

(6,390 )
Stock-based compensation expense

17

9

Net cash provided by operating activities

10,255

9,660

Cash flows from investing activities

Purchase of investments available for sale and other investments

(71,076 )

(2,978 )

(85,163 )

(71,076 )
Proceeds from maturity of investments available for sale

4,623

21

3,000

4,623

Proceeds from the redemption of restricted stock, net

395

866

Net decrease (increase) in loans held for investment

1,910

(6,613 )
(Purchase) of proceeds from the redemption of restricted stock, net

(136 )

395

Net decrease in loans held for investment

2,952

1,910

Net decrease in loans held for sale participations

37,661

14,434

-

37,661

Proceeds from the sale of other real estate owned

0

134

Net purchase of property and equipment

(181 )

(343 )

(1,904 )

(181 )
Net cash (used in) provided by investing activities

(26,668 )

5,521

Net cash (used in) investing activities

(81,251 )

(26,668 )

Cash flows from financing activities

Net change in deposits

44,170

37,601

32,000

44,170

Net change in short-term debt

0

(10,000 )
Dividends paid in cash

(898 )

(900 )

(892 )

(898 )
Proceeds from issuance of common stock

109

67

135

100

Repurchase of common stock

0

(473 )
Amortization of debt issuance costs

8

0

Repayments of long-term debt

(1,043 )

(11,112 )

-

(1,043 )
Net cash provided by financing activities

42,338

15,183

31,251

42,329

Net increase in Cash and Cash Equivalents

25,321

14,314

Net (decrease) increase in Cash and Cash Equivalents

(39,745 )

25,321

Cash and cash equivalents, beginning of period

78,408

75,804

88,121

78,408

Cash and cash equivalents, end of period

$
103,729

$
90,118

$ 48,376

$ 103,729

Supplemental Cash Flow information:

Cash paid for: Interest

1,263

1,694

$ 1,244

$ 1,263

Cash paid for: Taxes

0

0

Supplemental non-cash disclosures:

Change in unrealized (loss) gain on securities available for sale

(1,411 )

(49 )
Change in unrealized (loss) on securities available for sale, net of tax

$ (14,259 )

$ (1,411 )

See Notes ofto Consolidated Financial Statements
7
Table of Contents

~~DOLLARS ARE REPORTED IN THOUSANDS THROUGHOUT THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.~~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”). ~~On May 1, 2020 the Bank purchased the noncontrolling interest of VBS Mortgage, LLC and VSTitle, the minority interest for 2020 covers January 1 through March 31, 2020.~~ Accordingly, these financial statements do not include all of the information and footnotes required by ~~U. S.~~U.S. GAAP for complete financial statements. Operating results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~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, ~~2020~~2021 (the ~~“2020~~“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 ~~twelve~~thirteen branch offices and a Dealer Finance Division. ~~A loan production office in Winchester is slated to open during second quarter 2021.~~ 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 ~~effect~~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 coronavirus (“COVID-19”) pandemic spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our ~~operating businesses~~business operations in March 2020 with branch lobby closings, operations and administrative staff working remotely and the use of virtual meetings. ~~Branches reopened on~~Branch lobbies were only open by appointment from March 2020 to April 12, 2021 ~~for regular business hours~~ and ~~staff returned~~from January 18, 2022 to ~~their normal office locations.~~March 7, 2022. The ~~continuing~~full impact of COVID-19 and its length and duration remains uncertain at this time. The Company is closely monitoring the effects of ~~COVID-19 will likely affect~~the pandemic on our ~~operations throughout the remainder of 2021, although the extent~~customers and ~~significance remain unknown. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time.~~loan portfolio. The risks and uncertainties resulting from the pandemic may adversely affect our future earnings, cash flows and financial condition, including among others, credit losses resulting from financial stress on borrowers, decreased demand for products and operational failures. In addition, significant assumptions, judgments, and estimates used in the preparation of our financial statements, including those associated with evaluations of goodwill for impairment, and allowance for loan losses, may be subject to adjustments in future periods due to the rapidly changing, uncertain and unprecedented nature of the pandemic.

8
Table of Contents

Note 1. Summary of Significant Accounting Policies, continued

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.

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. ~~In calculating diluted~~Diluted EPS ~~net income available~~is similar to ~~common stockholders is used as~~ the ~~numerator and~~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~~calculation. All of the Company’s outstanding preferred stock was redeemed by the Company for cash or converted to common stock during the ~~three-month periods ended March 31, 2021~~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 ~~2020.~~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:~~presented (dollars in thousands):

For the Three months ended

For the Three months ended

For the Three months ended

(dollars in thousands)

March 31,
2021

March 31,
2020

March 31, 2022

March 31, 2021

Earnings available to common stockholders:

Net income

$ 3,801

$ 1,251

$ 2,528

$ 3,801

Non-controlling interest income

0

62

Preferred stock dividends

65

66

-

65

Net income available to common stockholders

$ 3,736

$ 1,123

$ 2,528

$ 3,736

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

Three months ended March 31, 2021

Three months ended March 31, 2020

Three months ended March 31, 2022

Three months ended March 31, 2021

(dollars in thousands)

Income

Weighted Average Shares

Per Share Amounts

Income

Weighted Average Shares

Per Share Amounts

Income

Weighted Average Shares

Per Share Amounts

Income

Weighted Average Shares

Per Share Amounts

Basic EPS

$ 3,736

3,205,074

$ 1.17

$ 1,123

3,204,084

$ .35

$ 2,528

3,434,892

$ 0.74

$ 3,736

3,205,074

$ 1.17

Effect of Dilutive Securities:

Convertible Preferred Stock

65

228,118

(.06 )

66

229,599

0

-

-

-

65

228,118

(0.06 )
Diluted EPS

$ 3,801

3,433,192

$ 1.11

$ 1,189

3,433,683

$ .35

$ 2,528

3,434,892

$ 0.74

$ 3,801

3,433,192

$ 1.11

Note 2.   Investment Securities

Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are as ~~follows:~~follows (dollars in thousands):

(dollars in thousands)

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

March 31, 2021

U. S. Treasuries

$ 125

$ 0

$ 0

$ 125

December 31, 2020

U. S. Treasuries

$ 125

$ 0

$ 0

$ 125

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

March 31, 2022

U. S. Treasuries

$ 125

$ -

$ -

$ 125

December 31, 2021

U. S. Treasuries

$ 125

$ -

$ -

$ 125

9
Table of Contents

Note 2. Investment Securities, continued

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

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

March 31, 2021

U. S. Government treasuries

$ 29,749

$ 0

$ 328

$ 29,421

Amortized
Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair
Value

March 31, 2022

U. S. Government Treasuries

$ 44,759

$ -

$ 1,891

$ 42,868

U. S. Government sponsored enterprises

24,992

0

115

24,877

163,460

-

4,920

158,540

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

20,370

351

29

20,692

34,570

-

1,896

32,674

Mortgage-backed obligations of federal agencies

85,910

574

1,078

85,406

208,812

248

11,466

197,594

Corporate debt security

11,075

259

27

11,307

30,550

318

722

30,146

Total Securities Available for Sale

$ 172,096

$ 1,184

$ 1,577

$ 171,703

$ 482,151

$ 566

$ 20,895

$ 461,822

December 31, 2020

December 31, 2021

U. S. Government Treasuries

$ 29,847

$ -

$ 365

$ 29,482

U. S. Government sponsored enterprises

$ 6,000

$ 47

$ 0

$ 6,047

134,466

-

752

133,714

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

17,177

515

0

17,692

34,078

406

147

34,337

Mortgage-backed obligations of federal agencies

73,422

502

153

73,771

185,216

522

2,091

183,647

Corporate debt securities

9,282

121

14

9,389

22,555

372

225

22,702

Total Securities Available for Sale

$ 105,881

$ 1,185

$ 167

$ 106,899

$ 406,162

$ 1,300

$ 3,580

$ 403,882

The amortized cost and fair value of securities at March 31, ~~2021,~~2022, by contractual maturity are shown ~~below.~~below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands)

Securities Held to Maturity

Securities Available for Sale

Securities Held to Maturity

Securities Available for Sale

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

Cost

Value

Cost

Value

Due in one year or less

$ 125

$ 125

$ 2,025

$ 2,059

$ 125

$ 125

$ 4,835

$ 4,797

Due after one year through five years

0

0

98,524

97,596

-

-

195,056

189,575

Due after five years

0

0

62,192

62,464

-

-

105,218

100,754

Due after ten years

0

0

9,355

9,584

-

-

177,042

166,696

Total

$ 125

$ 125

$ 172,096

$ 171,703

$ 125

$ 125

$ 482,151

$ 461,822

There were no sales of available for sale securities in the ~~period ended March 31, 2021~~first quarter of 2022 or ~~2020.~~2021. Securities held that are U.S. Agency, ~~and~~Treasury, Government Sponsored Entities and Agency MBS ~~which~~ carry an implicit government guarantee and are not subject to other than temporary impairment evaluation. Other securities were reviewed for ~~impairment, the majority of the twenty-four~~impairment. The securities ~~that are in an unrealized loss positions are U.S. Government sponsored enterprises or mortgage-backed obligations of federal agencies. One Security~~ issued by States and political subdivisions in the U.S. ~~was~~were in an unrealized loss position for less than 12 months. One bank subordinated debt offering was in a loss position for 12 consecutive months ~~with minimal loss. Therefore,~~and totaled $489 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 ~~securities were determined~~declines are currently deemed to be other than ~~temporarily impaired.~~temporary.
10
Table of Contents
Note 2. Investment Securities, continued

A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:

(dollars in thousands)

Less than 12 Months

More than 12 Months

Total

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Less than 12 Months

More than 12 Months

Total

March 31, 2021

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

March 31, 2022

U. S. Government treasuries

$ 29,421

$ 328

$ 0

$ 0

$ 29,421

$ 328

$ 28,752

$ 1,074

$ 9,088

$ 817

$ 37,840

$ 1,891

U. S. Government sponsored enterprises

19,877

115

0

0

19,877

115

135,152

3,315

23,388

1,605

158,540

4,920

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

2,216

29

0

0

2,216

29

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

32,674

1,896

-

-

32,674

1,896

Mortgage-backed obligations of federal agencies

45,108

1,078

0

0

45,108

1,078

129,236

8,898

31,274

2,568

160,510

11,466

Corporate debt security

1,473

27

0

0

1,473

27

15,339

711

489

11

15,828

722

Total

$ 98,095

$ 1,577

$ 0

$ 0

$ 98,095

$ 1,577

$ 341,153

$ 15,894

$ 64,239

$ 5,001

$ 405,392

$ 20,895

10
~~Table of Contents~~
~~Note 2. Investment Securities, continued~~

Less than 12 Months

More than 12 Months

Total

Less than 12 Months

More than 12 Months
Total

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

December 31, 2020

December 31, 2021

U. S. Government treasuries

$ 29,481

$ 365

$ -

$ -

$ 29,481

$ 365

U. S. Government sponsored enterprises

$ 73,771

$ 153

$ 0

$ 0

$ 73,771

$ 153

93,714

752

-

-

93,714

752

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

13,308

147

-

-

13,308

147

Mortgage-backed obligations of federal agencies

126,501

1,871

10,074

220

136,575

2,091

Corporate debt securities

9,389

14

0

0

9,389

14

8,825

225

-

-

8,825

225

Total

$ 83,160

$ 167

$ 0

$ 0

$ 83,160

$ 167

$ 271,829

$ 3,360

$ 10,074

$ 220

$ 281,903

$ 3,850

As of March 31, ~~2021,~~2022, other investments consist of investments in ~~fourteen~~thirteen low-income housing and historic equity partnerships (carrying basis of ~~$7,420)~~$6,558), stock in the Federal Home Loan Bank (carrying basis ~~$1,139)~~$994) and various other investments (carrying basis ~~$1,704)~~$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 March 31, ~~2021.~~2022. At March 31, ~~2021,~~2022, the Company was committed to invest an additional ~~$1,484~~$961 in ~~five~~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

During the first three months of 2021, we executed 35 modifications allowing principal and interest deferrals in connection with COVID-19 relief to our customers, for a total of 1,266 deferrals since COVID began. Of those modifications, 52 remain in deferral as of March 31, 2021 with balances of $11,756. These modifications and deferrals were not considered troubled debt restructurings pursuant to interagency guidance issued in March 2020 and the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.
Loans held for investment outstanding at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are summarized as ~~follows:~~follows (in thousands):

(dollars in thousands)

2021

2020

2022

2021

Construction/Land Development

$ 69,292

$ 71,467

$ 72,248

$ 75,236

Farmland

58,384

53,728

65,503

66,344

Real Estate

154,879

163,018

138,620

139,552

Multi-Family

4,203

5,918

5,667

4,887

Commercial Real Estate

137,259

142,516

162,340

163,564

Home Equity – closed end

7,640

8,476

5,732

6,262

Home Equity – open end

45,215

46,613

45,415

44,247

Commercial & Industrial – Non-Real Estate

75,495

65,470

42,720

44,224

Consumer

8,002

9,405

7,529

8,036

Dealer Finance

96,370

91,861

111,237

107,346

Credit Cards

2,634

2,857

2,869

3,000

Gross loans
��

659,880

662,698

Less: Deferred loan fees, net of costs

(320 )

(277 )
Total

$ 659,373

$ 661,329

$ 659,560

$ 662,421

11
Table of Contents
Note 3. Loans, continued

The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling ~~$165,307~~$163,070 and ~~$173,029~~$163,326 as of March 31, ~~2021~~2022 and December 31, ~~2020,~~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, and the Bank’s commitment to purchase residential mortgage loan participations from Northpointe Bank.~~market. The volume of loans ~~purchased from Northpointe~~ fluctuates due to ~~a number of factors including~~ changes in secondary market rates, which affects demand for mortgage ~~loans; the number of participating banks involved in the program; the number of mortgage loan originators selling loans to the lead bank and the funding capabilities of the lead bank.~~loans. Loans held for sale as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$15,654~~$2,479 and ~~$58,679,~~$4,887, respectively.
The following is a summary of information pertaining to impaired loans (dollars in thousand):

March 31, 2022

December 31, 2021

Unpaid

Unpaid

Recorded

Principal

Related

Recorded

Principal

Related

Investment(1)

Balance

Allowance

Investment

Balance

Allowance

Impaired loans without a valuation allowance:

Construction/Land Development

$ 637

$ 637

$ -

$ 645

$ 645

$ -

Farmland

2,215

2,215

-

2,286

2,286

-

Real Estate

2,384

2,384

-

2,748

2,748

-

Multi-Family

-

-

-

-

-

-

Commercial Real Estate

11,032

11,032

-

8,494

8,494

-

Home Equity – closed end

-

-

-

147

147

-

Home Equity – open end

-

-

-

-

-

-

Commercial & Industrial – Non-Real Estate

-

-

-

-

-

-

Consumer

-

-

-

5

5

-

Credit cards

-

-

-

-

-

-

Dealer Finance

15

15

-

12

12

-

16,283

16,283

-

14,337

14,337

-

Impaired loans with a valuation allowance

Construction/Land Development

-

-

-

-

-

-

Farmland

-

-

-

-

-

-

Real Estate

1,495

1,495

113

1,172

1,172

119

Multi-Family

-

-

-

-

-

-

Commercial Real Estate

3,243

3,243

456

6,004

6,004

603

Home Equity – closed end

-

-

-

-

-

-

Home Equity – open end

-

-

-

-

-

-

Commercial & Industrial – Non-Real Estate

-

-

-

-

-

-

Consumer

-

-

-

-

-

-

Credit cards

-

-

-

-

-

-

Dealer Finance

54

54

13

95

95

14

4,792

4,792

582

7,271

7,271

736

Total impaired loans

$ 21,075

$ 21,075

$ 582

$ 21,608

$ 21,608

$ 736

¹The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.

1112
Table of Contents

Note 3. Loans, continued

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

March 31, 2021

December 31, 2020

Unpaid

Unpaid

Recorded

Principal

Related

Recorded

Principal

Related

Investment(1)

Balance

Allowance

Investment

Balance

Allowance

Impaired loans without a valuation allowance:

Construction/Land Development

$ 1,779

$ 1,779

$ 0

$ 1,693

$ 1,693

$ 0

Farmland

0

0

0

0

0

0

Real Estate

9,519

9,519

0

6,648

6,648

0

Multi-Family

0

0

0

0

0

0

Commercial Real Estate

9,588

9,588

0

8,592

8,656

0

Home Equity – closed end

678

678

0

687

687

0

Home Equity – open end

0

0

0

151

151

0

Commercial & Industrial – Non-Real Estate

5

5

0

8

8

0

Consumer

0

0

0

0

0

0

Credit cards

0

0

0

0

0

0

Dealer Finance

13

13

0

8

8

0

21,582

21,582

0

17,787

17,851

0

Impaired loans with a valuation allowance

Construction/Land Development

0

0

0

0

0

0

Farmland

1,678

1,678

1

1,737

1,737

370

Real Estate

1,624

1,624

339

7,143

7,143

365

Multi-Family

0

0

0

0

0

0

Commercial Real Estate

7,110

7,110

1,884

7,464

7,464

1,833

Home Equity – closed end

0

0

0

0

0

0

Home Equity – open end

0

0

0

0

0

0

Commercial & Industrial – Non-Real Estate

0

0

0

0

0

0

Consumer

0

0

0

1

1

1

Credit cards

0

0

0

0

0

0

Dealer Finance

132

132

14

147

147

15

10,544

10,544

2,238

16,492

16,492

2,584

Total impaired loans

$ 32,126

$ 32,126

$ 2,238

$ 34,279

$ 34,343

$ 2,584

~~________~~
¹~~The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.~~
12
~~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):

March 31, 2021

December 31, 2020

March 31, 2022

December 31, 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

$ 1,736

$ 13

$ 1,598

$ 103

$ 641

$ 6

$ 984

$ 29

Farmland

0

0

0

0

2,251

70

1,760

126

Real Estate

8,084

139

5,520

356

2,566

33

4,575

155

Multi-Family

0

0

0

0

-

-

-

-

Commercial Real Estate

9,429

21

3,296

229

9,763

186

9,225

253

Home Equity – closed end

344

0

522

34

74

-

414

18

Home Equity – open end

76

0

38

7

-

-

-

-

Commercial & Industrial – Non-Real Estate

7

0

55

1

-

-

2

-

Consumer

0

0

0

0

3

-

1

-

Credit cards

0

0

0

0

Credit Cards

-

-

-

-

Dealer Finance

11

0

24

1

14

-

14

1

19,687

173

11,053

731

15,312

295

16,975

582

Impaired loans with a valuation allowance:

Construction/Land Development

$ 0

$ 0

$ 243

$ 0

$ -

$ -

$
-

$
-

Farmland

1,708

59

1,797

233

-

-

420

-

Real Estate

4,384

10

8,956

413

1,334

16

1,399

45

Multi-Family

0

0

0

0

-

-

-

-

Commercial Real Estate

7,287

66

4,108

237

4,624

42

6,201

172

Home Equity – closed end

0

5

177

0

-

-

-

-

Home Equity – open end

0

0

113

0

-

-

-

-

Commercial & Industrial – Non-Real Estate

0

0

17

0

-

-

-

-

Consumer

1

0

2

0

-

-

-

-

Credit card

0

0

0

0

Credit Card

-

-

-

-

Dealer Finance

140

3

146

13

75

1

112

9

13,520

143

15,559

896

6,033

59

8,132

226

Total Impaired Loans

$ 33,207

$ 316

$ 26,612

$ 1,627

$ 21,345

$ 354

$ 25,107

$ 808

13
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 March 31, ~~2021~~2022 and December 31, ~~2020:~~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

March 31, 2021

March 31, 2022

30-59 Days Past due

60-89 Days Past Due

Greater than 90 Days

Total Past Due

Current

Total Loan Receivable

Non-Accrual Loans

Recorded Investment >90 days & accruing

Construction/Land Development

$ 415

$ 0

$ 0

$ 415

$ 68,877

$ 69,292

$ 168

$ 0

$ 31

$ 55

$ -

$ 86

$ 72,162

$ 72,248

$ 86

$ -

Farmland

0

0

0

0

58,384

58,384

1,678

0

20

-

-

20

65,483

65,503

1,259

-

Real Estate

1,091

384

681

2,156

152,723

154,879

801

0

873

124

366

1,363

137,257

138,620

551

-

Multi-Family

0

0

0

0

4,203

4,203

0

0

-

-

-

-

5,667

5,667

-

-

Commercial Real Estate

0

0

0

0

137,259

137,259

2,890

0

244

-

108

352

161,988

162,340

2,798

-

Home Equity – closed end

3

0

30

33

7,607

7,640

30

0

106

-

-

106

5,626

5,732

-

-

Home Equity – open end

324

26

168

518

44,697

45,215

143

25

333

-

7

340

45,075

45,415

-

7

Commercial & Industrial – Non- Real Estate

163

0

0

163

75,332

75,495

1

0

28

-

77

105

42,615

42,720

35

41

Consumer

16

0

0

16

7,986

8,002

0

0

16

-

-

16

7,513

7,529

-

-

Dealer Finance

696

89

0

785

95,585

96,370

44

0

477

146

-

623

110,614

111,237

22

-

Credit Cards

25

0

3

28

2,606

2,634

0

3

14

2

6

22

2,847

2,869

-

6

Less: Deferred loan fees, net of costs

-

-

-

-

(320 )

(320 )

-

-

Total

$ 2,733

$ 499

$ 882

$ 4,114

$ 655,259

$ 659,373

$ 5,755

$ 28

$ 2,142

$ 327

$ 564

$ 3,033

$ 656,527

$ 659,560

$ 4,751

$ 54

30-59 Days Past due

60-89 Days Past Due

Greater than 90 Days

Total Past Due

Current

Total Loan Receivable

Non-Accrual Loans

Recorded Investment >90 days & accruing

December 31, 2020

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

$ 2,557

$ 0

$ 0

$ 2,557

$ 68,910

$ 71,467

$ 251

$ 0

$ 360

$ 41

$ 38

$ 439

$ 74,797

$ 75,236

$ 302

$ -

Farmland

0

0

0

0

53,728

53,728

1,737

0

-

-

-

-

66,344

66,344

1,320

-

Real Estate

1,724

512

304

2,540

160,478

163,018

368

102

1,254

89

395

1,738

137,814

139,552

827

-

Multi-Family

0

0

0

0

5,918

5,918

0

0

-

-

-

-

4,887

4,887

-

-

Commercial Real Estate

554

0

920

1,474

141,042

142,516

3,820

0

-

-

108

108

163,456

163,564

2,975

-

Home Equity – closed end

3

30

0

33

8,443

8,476

0

0

53

-

-

53

6,209

6,262

-

-

Home Equity – open end

716

0

212

928

45,685

46,613

212

0

471

216

-

687

43,560

44,247

-

-

Commercial & Industrial – Non- Real Estate

95

44

0

139

65,331

65,470

3

0

35

1

43

79

44,145

44,224

-

43

Consumer

39

0

0

39

9,366

9,405

0

0

9

67

-

76

7,960

8,036

1

-

Dealer Finance

694

157

0

851

91,010

91,861

44

0

694

91

16

801

106,545

107,346

40

-

Credit Cards

45

0

0

45

2,812

2,857

0

0

16

-

-

16

2,984

3,000

-

-

Less: Deferred loan fees, net of costs

-

-

-

-

(277 )

(277 )

-

-

Total

$ 6,427

$ 743

$ 1,436

$ 8,606

$ 652,723

$ 661,329

$ 6,435

$ 102

$ 2,892

$ 505

$ 600

$ 3,997

$ 658,424

$ 662,421

$ 5,465

$ 43

On March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, other real estate owned did not include any foreclosed residential real estate. The Company ~~had $878~~has $366 thousand of consumer mortgages for which foreclosure was in process on March 31, ~~2021.~~2022.

Nonaccrual loans on March 31, ~~2021~~2022 would have earned approximately ~~$52~~$54 thousand in interest income for the quarter had they been accruing loans.

14
Table of Contents

Note 4. Allowance for Loan Losses

A summary of changes in the allowance for loan losses (dollars in thousands) for March 31, ~~2021~~2022 and December 31, ~~2020~~2021 is as follows:

March 31, 2021

Beginning Balance

Charge-offs

Recoveries

Provision

Ending Balance

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

March 31, 2022

Beginning Balance

Charge-offs

Recoveries

Provision

Ending Balance

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

Allowance for loan losses:

Construction/Land Development

$ 1,249

$ 0

$ 0

$ (578 )

$ 671

$ 0

$ 671

$ 977

$ -

$ -

$ (275 )

$ 702

$ -

$ 702

Farmland

731

0

0

(312 )

419

1

418

448

-

-

4

452

-

452

Real Estate

1,624

0

24

(77 )

1,571

339

1,232

1,162

-

-

2

1,164

113

1,051

Multi-Family

54

0

0

(27 )

27

0

27

29

-

-

6

35

-

35

Commercial Real Estate

3,662

0

19

(217 )

3,464

1,884

1,580

2,205

-

-

(112 )

2,093

456

1,637

Home Equity – closed end

55

0

0

(4 )

51

0

51

41

-

-

(2 )

39

-

39

Home Equity – open end

463

0

13

(32 )

444

0

444

407

-

129

(162 )

374

-

374

Commercial & Industrial – Non-Real Estate

363

0

6

7

376

0

376

288

1

30

(7 )

310

-

310

Consumer

521

5

3

443

962

0

962

520

21

11

13

523

-

523

Dealer Finance

1,674

296

189

89

1,656

14

1,642

1,601

204

152

85

1,634

13

1,621

Credit Cards

79

8

9

(17 )

63

0

63

70

12

7

(2 )

63

-

63

Total

$ 10,475

$ 309

$ 263

$ (725 )

$ 9,704

$ 2,238

$ 7,466

$ 7,748

$ 238

$ 329

$ (450 )

$ 7,389

$ 582

$ 6,807

December 31, 2020

Beginning Balance

Charge-offs

Recoveries

Provision

Ending Balance

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

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

$ 1,190

$ 7

$ 0

$ 66

$ 1,249

$ 0

$ 1,249

$ 1,249

$ -

$ 307

$ (579 )

$ 977

$ -

$ 977

Farmland

668

0

0

63

731

370

361

731

-

-

(283 )

448

-

448

Real Estate

1,573

158

7

202

1,624

365

1,259

1,624

-

76

(538 )

1,162

119

1,043

Multi-Family

20

0

0

34

54

0

54

54

-

-

(25 )

29

-

29

Commercial Real Estate

1,815

64

11

1,900

3,662

1,833

1,829

3,662

-

19

(1,476 )

2,205

603

1,602

Home Equity – closed end

42

0

0

13

55

0

55

55

-

-

(14 )

41

-

41

Home Equity – open end

457

34

3

37

463

0

463

463

-

13

(69 )

407

-

407

Commercial & Industrial – Non-Real Estate

585

138

19

(103 )

363

0

363

Commercial & Industrial – Non- Real Estate

363

40

37

(72 )

288

-

288

Consumer

186

89

50

374

521

1

520

521

33

24

8

520

-

520

Dealer Finance

1,786

1,551

784

655

1,674

15

1,659

1,674

1,038

754

211

1,601

14

1,587

Credit Cards

68

123

75

59

79

0

79

79

54

29

16

70

-

70

Total

$ 8,390

$ 2,164

$ 949

$ 3,300

$ 10,475

$ 2,584

$ 7,891

$ 10,475

$ 1,165

$ 1,259

$ (2,821 )

$ 7,748

$ 736

$ 7,012

15
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 March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:

March 31, 2021

Loan Receivable

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

March 31, 2022

Loan
Receivable

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

Construction/Land Development

$ 69,292

$ 1,779

$ 67,513

$ 72,248

$ 637

$ 71,611

Farmland

58,384

1,678

56,706

65,503

2,215

63,288

Real Estate

154,879

11,143

143,736

138,620

3,879

134,741

Multi-Family

4,203

0

4,203

5,667

-

5,667

Commercial Real Estate

137,259

16,698

120,561

162,340

14,275

148,065

Home Equity – closed end

7,640

678

6,962

5,732

-

5,732

Home Equity – open end

45,215

0

45,215

Home Equity –open end

45,415

-

45,415

Commercial & Industrial – Non-Real Estate

75,495

5

75,490

42,720

-

42,720

Consumer

8,002

0

8,002

7,529

-

7,529

Dealer Finance

96,370

145

96,225

111,237

69

111,168

Credit Cards

2,634

0

2,634

2,869

-

2,869

Gross loans

659,880

21,075

638,805

Less: Deferred loan fees, net of costs

(320 )

-

(320 )
Total

$ 659,373

$ 32,126

$ 627,247

$ 659,560

$ 21,075

$ 638,485

December 31, 2020

Loan Receivable

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

December 31, 2021

Loan
Receivable

Individually Evaluated for Impairment

Collectively Evaluated for Impairment

Construction/Land Development

$ 71,467

$ 1,693

$ 69,774

$ 75,236

$ 645

$ 74,591

Farmland

53,728

1,737

51,991

66,344

2,286

64,058

Real Estate

163,018

13,791

149,227

139,552

3,920

135,632

Multi-Family

5,918

0

5,918

4,887

-

4,887

Commercial Real Estate

142,516

16,056

126,460

163,564

14,498

149,066

Home Equity – closed end

8,476

687

7,789

6,262

147

6,115

Home Equity –open end

46,613

151

46,462

44,247

-

44,247

Commercial & Industrial – Non-Real Estate

65,470

8

65,462

44,224

-

44,224

Consumer

9,405

1

9,404

8,036

5

8,031

Dealer Finance

91,861

155

91,706

107,346

107

107,239

Credit Cards

2,857

0

2,857

3,000

-

3,000

Gross Loans

662,698

21,608

641,090

Less: Deferred loan fees, net of costs

(277 )

-

(277 )
Total

$ 661,329

$ 34,279

$ 627,050

$ 662,421

$ 21,608

$ 640,813

16
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 March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:

March 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

$ 0

$ 7

$ 9,119

$ 39,444

$ 16,749

$ 3,805

$ 168

$ 0

$ 69,292

Farmland

58

440

9,769

33,760

11,660

1,019

1,678

0

58,384

Real Estate

0

1,639

36,549

63,703

33,826

6,575

12,587

0

154,879

Multi-Family

0

0

1,063

1,819

1,183

138

0

0

4,203

Commercial Real Estate

0

4,886

27,478

48,022

27,328

14,652

14,893

0

137,259

Home Equity – closed end

0

69

2,208

2,977

735

1,621

30

0

7,640

Home Equity – open end

0

1,688

16,574

21,849

3,220

1,575

309

0

45,215

Commercial & Industrial (Non-Real Estate)

79

1,364

8,539

23,337

41,348

504

324

0

75,495

Consumer (excluding dealer)

0

169

3,088

3,565

1,173

7

0

0

8,002

Total

$ 137

$ 10,262

$ 114,387

$ 238,476

$ 137,222

$ 29,896

$ 29,989

$ 0

$ 560,369

March 31, 2022

Grade 1 Minimal Risk

Grade 2 Modest Risk

Grade 3 Average Risk

Grade 4 Acceptable Risk

Grade 5 Marginally Acceptable

Grade 6 Watch

Grade 7 Substandard

Grade 8 Doubtful

Total

Construction/Land Development

$ -

$ 5

$ 10,237

$ 42,138

$ 18,116

$ 1,666

$ 86

$ -

$ 72,248

Farmland

56

284

6,541

42,425

13,409

1,529

1,259

-

65,503

Real Estate

-

893

29,446

64,516

28,028

11,129

4,608

-

138,620

Multi-Family

-

-

1,007

2,838

1,700

122

-

-

5,667

Commercial Real Estate

-

1,250

31,985

71,222

41,352

3,890

12,641

-

162,340

Home Equity – closed end

-

58

1,051

2,968

685

970

-

-

5,732

Home Equity – open end

-

1,336

17,138

22,957

2,278

1,484

222

-

45,415

Commercial & Industrial -Non-Real Estate

14

996

9,704

23,440

7,927

543

96

-

42,720

Consumer (excluding dealer)

18

276

3,420

3,598

149

68

-

-

7,529

Gross Loans

$ 88

$ 5,098

$ 110,529

$ 276,102

$ 113,644

$ 21,401

$ 18,912

$ -

$ 545,774

Less: Deferred loan fees, net of costs

(320 )
Total

$ 545,454

Credit
Cards

Dealer
Finance

Credit Cards

Dealer Finance

Performing

$ 2,631

$ 96,326

$ 2,863

$ 111,215

Non-performing

3

44

6

22

Total

$ 2,634

$ 96,370

$ 2,869

$ 111,237

17
Table of Contents

Note 4. Allowance for Loan Losses, continued

December 31, 2020

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

$ 0

$ 142

$ 8,448

$ 40,126

$ 18,226

$ 4,274

$ 251

$ 0

$ 71,467

Farmland

58

459

11,707

26,899

11,846

1,022

1,737

0

53,728

Real Estate

0

2,283

39,223

66,698

32,302

6,977

15,535

0

163,018

Multi-Family

0

0

1,075

3,509

1,334

0

0

0

5,918

Commercial Real Estate

0

4,114

31,205

47,477

26,677

18,637

14,406

0

142,516

Home Equity – closed end

0

124

2,479

3,289

759

1,795

30

0

8,476

Home Equity – open end

0

1,705

17,716

22,014

3,171

1,477

530

0

46,613

Commercial & Industrial (Non-Real Estate)

90

1,524

7,601

17,050

38,290

913

2

0

65,470

Consumer (excluding dealer)

0

173

3,461

3,975

1,790

6

0

0

9,405

Total

$ 148

$ 10,524

$ 122,915

$ 231,037

$ 134,395

$ 35,101

$ 32,491

$ 0

$ 566,611

December 31, 2021

Grade 1 Minimal Risk

Grade 2 Modest Risk

Grade 3 Average Risk

Grade 4 Acceptable Risk

Grade 5 Marginally Acceptable

Grade 6 Watch

Grade 7 Substandard

Grade 8 Doubtful

Total

Construction/Land Development

$ -

$ 6

$ 9,952

$ 43,861

$ 19,457

$ 1,658

$ 302

$ -

$ 75,236

Farmland

56

291

6,804

42,615

13,620

1,638

1,320

-

66,344

Real Estate

-

1,128

30,268

61,940

28,895

12,462

4,859

-

139,552

Multi-Family

-

-

1,021

2,586

1,154

126

-

-

4,887

Commercial Real Estate

-

2,124

36,308

72,414

35,444

4,428

12,846

-

163,564

Home Equity – closed end

-

61

1,268

3,103

762

1,068

-

-

6,262

Home Equity – open end

-

1,293

17,333

21,296

2,477

1,632

216

-

44,247

Commercial & Industrial - Non-Real Estate

-

1,001

7,562

21,527

13,538

533

63

-

44,224

Consumer (excluding dealer)

10

522

2,919

3,526

980

79

-

-

8,036

Gross loans

$ 66

$ 6,426

$ 113,435

$ 272,868

$ 116,327

$ 23,624

$ 19,606

$ -

$ 552,352

Less: Deferred loan fees, net of costs

(277 )
Total

$ 552,075

Credit
Cards

Dealer
Finance

Credit Cards

Dealer Finance

Performing

$ 2,857

$ 91,817

$ 3,000

$ 107,330

Non-performing

0

44

-

16

Total

$ 2,857

$ 91,861

$ 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.

18
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. ~~Loans rated substandard and in aggregate relationships of $500,000 or more are reviewed for impairment and a specific reserve is established when needed.~~

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 31^st as the measurement date for the defined benefit pension plan. The Bank does not expect to contribute to the pension plan in ~~2021.~~2022.

The following is a summary of net periodic pension costs for the three month periods ended March 31, 2022 and 2021 ~~and 2020:~~(dollars in thousands):

Three Months Ended

Three Months Ended

(dollars in thousands)

March 31,
2021

March 31,
2020

March 31, 2022

March 31, 2021

Service cost

$ 216

$ 202

$ 190

$ 216

Interest cost

95

105

104

95

Expected return on plan assets

(198 )

(183 )

(195 )

(198 )
Amortization of prior service cost

0

(3 )
Amortization of net loss

72

55

58

72

Net periodic pension cost

$ 185

$ 176

$ 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.

19
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

~~During~~The Company uses the ~~second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using~~ 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

~~Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the~~The Company ~~elected to recognize~~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~~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

~~Beginning with~~The Company uses the ~~second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using~~ 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~~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.
20
~~Table of Contents~~
~~Note 6. Fair Value, continued~~

Derivative Asset/Liability – Indexed Certificate of Deposit

The Company’s derivatives, which are associated with the Indexed Certificate of Deposit (ICD) product once offered, are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs. This product is no longer offered, however there are a few certificates of deposits that have not matured.

20
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 March 31, ~~2021~~2022 and December 31, ~~2020~~2021 (dollars in thousands):
March 31, 2022

Total

Level 1

Level 2

Level 3

Assets:

Loans held for sale, F&M Mortgage

$ 2,479

$ 0

$ 2,479

$ 0

U. S. Treasury securities

42,868

0

42,868

0

U. S. Government sponsored enterprises

158,540

0

158,540

0

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

32,674

0

32,674

0

Mortgage-backed obligations of federal agencies

197,594

0

197,594

0

Corporate debt securities

30,146

0

30,146

0

Forward Sales Commitments

637

0

637

0

Assets at Fair Value

$ 464,938

$ 0

$ 464,938

$ 0

Liabilities:

Derivatives - ICD

$ 3

$ 0

$ 3

$ 0

IRLC

262

0

262

0

Liabilities at Fair Value

$ 265

$ 0

$ 265

$ 0

March 31, 2021

Total

Level 1

Level 2

Level 3

December 31, 2021

Total

Level 1

Level 2

Level 3

Assets:

Loans held for sale, F&M Mortgage

$ 8,943

$ 0

$ 8,943

$ 0

$ 4,887

$ 0

$ 4,887

$ 0

IRLC

334

0

334

0

258

0

258

0

U. S. Government treasuries

29,421

29,421

U. S. Government sponsored enterprises

24,877

0

24,877

0

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

20,692

0

20,692

0

U. S. Treasury securities

29,482

0

29,482

0

U.S. Government sponsored enterprises

133,714

0

133,714

0

Securities issued by States and political subdivisions of the US

34,337

0

34,337

0

Mortgage-backed obligations of federal agencies

85,406

0

85,406

0

183,647

0

183,647

0

Corporate debt securities

11,307

0

11,307

0

22,702

0

22,702

0

Forward sales commitments

747

0

747

0

112

0

112

0

Assets at Fair Value

$ 181,727

$ 0

$ 181,727

$ 0

$ 409,139

$ 0

$ 409,139

$ 0

Liabilities:

Derivatives - ICD

$ 3

$ 0

$ 3

$ 0

Derivatives – ICD

$ 3

$ 0

$ 3

$ 0

Liabilities at Fair Value

$ 3

$ 0

$ 3

$ 0

$ 3

$ 0

$ 3

$ 0

December 31, 2020

Total

Level 1

Level 2

Level 3

Assets:

Loans held for sale, F&M Mortgage

$ 14,307

$ 0
��

$ 14,307

$ 0

IRLC

816

0

816

0

U.S. Government sponsored enterprises

6,047

0

6,047

0

Securities issued by States and political subdivisions of the US

17,692

0

17,692

0

Mortgage-backed obligations of federal agencies

73,771

0

73,771

0

Corporate debt securities

9,389

0

9,389

0

Assets at Fair Value

$ 122,022

$ 0

$ 122,022

$ 0

Liabilities:

Derivatives – ICD

$ 2

$ 0

$ 2

$ 0

Forward Sales Commitments

60

0

60

0

Liabilities at Fair Value

$ 62

$ 0

$ 62

$ 0

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.
21
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. The Company discounts appraised value by estimated selling costs to arrive at net fair value. 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 March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

March 31, 2021

Total

Level 1

Level 2

Level 3

Farmland

$ 1,677

0

0

$ 1,677

March 31, 2022

Total

Level 1

Level 2

Level 3

Real Estate

1,285

0

0

1,285

$ 1,382

$ -

$ -

$ 1,382

Commercial Real Estate

5,226

0

0

5,226

2,787

-

-

2,787

Dealer Finance

118

0

0

118

41

-

-

41

Impaired loans

$ 8,306

$ 0

$ 0

$ 8,306

$ 4,210

$ -

$ -

$ 4,210

December 31, 2020

Total

Level 1

Level 2

Level 3

Farmland

$ 1,367

0

0

$ 1,367

Real Estate

6,778

0

0

6,778

Commercial Real Estate

5,631

0

0

5,631

Dealer Finance

132

0

0

132

Impaired loans

$ 13,908

0

0

$ 13,908

Bank premises held for sale

$ 300

$ -

$ -

$ 300

December 31, 2021

Total

Level 1

Level 2

Level 3

Real Estate

$ 1,053

$ -

$ -

$ 1,053

Commercial Real Estate

5,401

-

-

5,401

Dealer Finance

81

-

-

81

Impaired loans

$ 6,535

$ -

$ -

$ 6,535

Bank premises held for sale

$ 300

$ -

$ -

$ 300

The following table presents information about Level 3 Fair Value Measurements for March 31, 2022 (dollars in thousands):

Fair Value at March 31, 2022

Valuation
Technique

Significant
Unobservable Inputs

Range

Impaired Loans

$ 4,210

Discounted appraised value

Discount for selling costs and marketability

14.00%-32.92% (Average 22.97%)

22
Table of Contents

Note 6. Fair Value, continued

~~The following table presents information about Level 3 Fair Value Measurements for March 31, 2021:~~Impaired Loans, continued

Fair Value at
March 31, 2021

Valuation Technique

Significant Unobservable Inputs

Range

(dollars in thousands)

Impaired Loans

$ 8,306

Discounted appraised value

Discount for selling costs and marketability

9.26%-60.00% (Average 22.05%)

The following table presents information about Level 3 Fair Value Measurements for December 31, ~~2020:~~2021 (dollars in thousands):

Fair Value at December 31, 2020

Valuation Technique

Significant Unobservable Inputs

Range

(dollars in thousands)

Impaired Loans

$ 13,908

Discounted appraised value

Discount for selling costs and marketability

9.25%-62.00% (Average 24.39%)

~~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.
March 31, 2021

Total

Level 1

Level 2

Level 3

Assets held for sale

$ 520

$ 0

$ 520

$ 0

December 31, 2020

Total

Level 1

Level 2

Level 3

Assets held for sale

$ 520

$ 0

$ 520

$ 0

Fair Value at
December 31, 2021

Valuation
Technique

Significant
Unobservable Inputs

Range

Impaired Loans

$ 6,535

Discounted appraised value

Discount for selling costs and marketability

11.76%-28.00% (Average 17.31%)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a ~~level~~Level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.

The Company markets other real estate owned and assets held for sale both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The Company did not have any other real estate owned as of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

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 March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. Fair values for March 31, ~~2021~~2022 and December 31, ~~2020~~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."
The estimated fair values, and related carrying amounts (dollars in thousands), of the Company’s financial instruments are as follows (dollars in thousands):

Fair Value Measurements at March 31, 2022 Using

Carrying Amount

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Fair Value at March 31, 2022

Assets:

Cash and cash equivalents

$ 48,376

$ 48,376

$ -

$ -

$ 48,376

Securities

461,947

-

461,947

-

461,947

Loans held for sale

2,479

-

2,479

-

2,479

Loans held for investment, net

659,560

-

-

646,369

646,369

Interest receivable

3,345

-

3,345

-

3,345

Bank owned life insurance

23,042

-

23,042

-

23,042

Forward sales commitments

637

-

637

-

637

Total

$ 1,199,386

$ 48,376

$ 491,450

$ 646,369

$ 1,186,195

Liabilities:

Deposits

$ 1,112,295

$ -

$ 1,004,305

$ 117,811

$ 1,122,116

Long-term debt

21,780

-

-

22,105

22,105

IRLC

262

-

262

-

262

Interest payable

251

-

251

-

251

Total

$ 1,134,588

$ -

$ 1,004,818

$ 139,916

$ 1,144,734

23
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:~~

Fair Value Measurements at March 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
March 31, 2021

Assets:

Cash and cash equivalents

$ 103,729

$ 103,729

$ 0

$ 0

$ 103,729

Securities

171,828

0

171,828

0

171,828

Loans held for sale

15,654

0

15,654

0

15,654

Loans held for investment, net

649,669

0

0

639,152

639,152

Interest receivable

2,404

0

2,404

0

2,404

Bank owned life insurance

22,811

0

22,811

0

22,811

Total

$ 966,095

$ 103,729

$ 212,697

$ 639,152

$ 955,578

Liabilities:

Deposits

$ 862,752

$ 0

$ 747,714

$ 128,450

$ 876,164

Long-term debt

32,159

0

0

34,179

34,179

Interest payable

342

0

342

0

342

Total

$ 895,253

$ 0

$ 748,056

$ 162,629

$ 910,685

Fair Value Measurements at December 31, 2020 Using

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, 2020

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

$ 78,408

$ 78,408

$ 0

$ 0

$ 78,408

$ 88,121

$ 88,121

$ -

$ -

$ 88,121

Securities

107,024

0

107,024

0

107,024

404,007

-

404,007

-

404,007

Loans held for sale

58,679

0

58,679

0

58,679

4,887

-

4,887

-

4,887

IRLC

258

-

258

-

258

Loans held for investment, net

650,854

0

0

639,472

639,472

662,421

-

-

652,096

652,096

Interest receivable

2,727

0

2,727

0

2,727

3,117

-

3,117

-

3,117

Bank owned life insurance

22,647

0

22,647

0

22,647

22,878

-

22,878

-

22,878

Forward sales commitments

112

-

112

-

112

Total

$ 920,339

$ 78,408

$ 191,077

$ 639,472

$ 908,957

$ 1,185,801

$ 88,121

$ 435,259

$ 652,096

$ 1,175,476

Liabilities:

Deposits

$ 818,582

$ 0

$ 702,940

$ 131,917

$ 834,857

$ 1,080,295

$ -

$ 968,604

$ 123,718

$ 1,092,322

Long-term debt

33,202

0

0

33,834

33,834

21,772

-

-

22,443

22,443

Interest payable

261

0

261

0

261

491

-

491

-

491

Total

$ 852,045

$ 0

$ 703,201

$ 165,751

$ 868,951

$ 1,102,558

$ -

$ 969,095

$ 146,161

$ 1,115,256

Note 8. Troubled Debt Restructuring

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which are considered in the qualitative factors within the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance for loan loss methodology. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.

During the three months ended March 31, ~~2021,~~2022, there was one loan modification that ~~were~~was considered to be a troubled debt ~~restructuring. Modifications may have included rate adjustments, revisions~~restructurings. The modification was due to a revision to the 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.~~schedule.

24
~~Table of Contents~~
~~Note 8. Troubled Debt Restructuring, continued~~

March 31, 2021

(dollars in thousands)

Pre-Modification

Post-Modification

Outstanding

Outstanding

Three months ended March 31, 2022 (dollars in thousands):
Three months ended March 31, 2022 (dollars in thousands):

Troubled Debt Restructurings

Number of
Contracts

Recorded
Investment

Recorded
Investment

Number of Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Real Estate

1

$ 110

$ 110

1

$
164

$
164

Total

1

$ 110

$ 110

On March 31, ~~2021,~~2022, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

During the three months ended March 31, ~~2020,~~2021, there was one loan modification that was considered to be a troubled debt ~~restructuring. Modifications may have~~restructurings. The modifications included ~~rate adjustments, revisions to amortization schedules, suspension~~a partial release 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.~~collateral.

March 31, 2020

(dollars in thousands)

Pre-Modification

Post-Modification

Outstanding

Outstanding

Troubled Debt Restructurings

Number of Contracts

Recorded
Investment

Recorded
Investment

Consumer

1

$
4

$
4

Total

1

$ 4

$ 4

Three months ended March 31, 2021 (dollars in thousands):

Troubled Debt Restructurings

Number of Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Real Estate

1

$ 110

$ 110

AtOn March 31, ~~2020,~~2021, there were ~~one loan~~no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

March 31, 2020

(dollars in thousands)

Pre-Modification

Post-Modification

Outstanding

Outstanding

Troubled Debt Restructurings

Number of Contracts

Recorded
Investment

Recorded
Investment

Consumer

1

$
30

$
30

Total

1

$ 30

$ 30

24
Table of Contents

Note 9. Accumulated Other Comprehensive Loss

The balances in accumulated other comprehensive loss ~~(dollars in thousands)~~ are shown in the following tables for March 31, 2022 and 2021 ~~and 2020:~~(dollars in thousands):

Unrealized Securities Gains (Losses)

Adjustments Related to Pension Plan

Accumulated Other Comprehensive Loss

Balance at December 31, 2021

$ (1,801 )

$ (3,291 )

$ (5,092 )
Change in unrealized securities gains (losses), net of tax

(14,259 )

-

(14,259 )
Balance at March 31, 2022

$ (16,060 )

$ (3,291 )

$ (19,351 )

Unrealized Securities Gains (Losses)

Adjustments
Related to
Pension Plan

Accumulated
Other Comprehensive
Loss

Balance at December 31, 2020

$ 804

$ (3,821 )

$ (3,017 )
Change in unrealized securities gains, net of tax

(1,114 )

0

(1,114 )
Balance at March 31, 2021

$ (310 )

$ (3,821 )

$ (4,131 )

Unrealized Securities Gains (Losses)

Adjustments
Related to
Pension Plan

Accumulated
Other Comprehensive
Loss

Balance at December 31, 2019

$ (7 )

$ (3,204 )

$ (3,211 )
Change in unrealized securities gains (losses), net of tax

(39 )

0

(39 )
Balance at March 31, 2020

$ (46 )

$ (3,204 )

$ (3,250 )

Unrealized Securities Gains (Losses)

Adjustments Related to Pension Plan

Accumulated Other Comprehensive Loss

Balance at December 31, 2020

$ 804

$ (3,821 )

$ (3,017 )
Change in unrealized securities gains (losses), net of tax

(1,114 )

-

(1,114 )
Balance at March 13, 2021

$ (310 )

$ (3,821 )

$ (4,131 )

There were no reclassifications ~~adjustment~~adjustments reported on the consolidated statements of income during the three months ended March 31, ~~2021~~2022 or ~~2020.~~2021.
25
~~Table of Contents~~

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 Company purchased the noncontrolling interest of F&M Mortgage and VSTitle during the second quarter of 2020.~~

The following tables ~~(dollars in thousands)~~ represent revenues and expenses by segment for the three months ended March 31, 2022 and 2021 ~~and 2020.~~(dollars in thousands).

Three Months Ended March 31, 2021

F&M Bank

F&M Mortgage

TEB Life/FMFS

VS Title

Parent Only

Eliminations

F&M Bank Corp. Consolidated

Revenues:

Interest Income

$ 8,716

$ 72

$ 30

$ 0

$ 0

$ (72 )

$ 8,746

Service charges on deposits

285

0

0

0

0

0

285

Investment services and insurance income

0

0

348

0

0

(1 )

347

Mortgage banking income, net

0

1,672

0

0

0

0

1,672

Title insurance income

0

0

0

456

0

0

456

Other operating income (loss)

593

23

0

0

(21 )

0

595

Total income (loss)

9,594

1,767

378

456

(21 )

(73 )

12,101

Expenses:

Interest Expense

876

66

0

0

198

(72 )

1,068

(Recovery of) Provision for loan losses

(725 )

0

0

0

0

0

(725 )
Salary and benefit expense

3,514

615

97

286

0

0

4,512

Other operating expenses

2,834

233

6

82

20

(1 )

3,174

Total expense

6,499

914

103

368

218

(73 )

8,029

Net income (loss) before taxes

3,095

853

275

88

(239 )

0

4,072

Income tax expense (benefit)

521

0

57

0

(307 )

0

271

Net Income attributable to F & M Bank Corp.

$ 2,574

$ 853

$ 218

$ 88

$ 68

$ 0

$ 3,801

Total Assets

$ 1,016,023

$ 14,340

$ 8,519

$ 2,559

$ 109,474

$ (139,938 )

$ 1,010,977

Goodwill

$ 2,670

$ 47

$ 0

$ 3

$ 164

$ 0

$ 2,884

2625
Table of Contents

Note 10. Business Segments, continued

Three Months Ended March 31, 2020

F&M Bank

VBS Mortgage

TEB Life/FMFS

VS Title

Parent Only

Eliminations

F&M Bank Corp. Consolidated

Revenues:

Interest Income

$ 9,071

$ 36

$ 44

$ 0

$ 0

$ (41 )

$ 9,110

Service charges on deposits

361

0

0

0

0

0

361

Investment services and insurance income

0

0

188

0

0

(4 )

184

Mortgage banking income, net

0

930

0

0

0

0

930

Title insurance income

0

0

0

371

0

0

371

Other operating income

581

2

0

0

0

0

583

Total income

10,013

968

232

371

0

(45 )

11,539

Expenses:

Interest Expense

1,719

28

0

0

0

(41 )

1,706

Provision for loan losses

1,500

0

0

0

0

0

1,500

Salary and benefit expense

3,167

525

85

257

0

0

4,034

Other operating expenses

2,785

218

10

66

11

(4 )

3,086

Total expense

9,171

771

95

323

11

(45 )

10,326

Income (loss) before income taxes

842

197

137

48

(11 )

0

1,213

Income tax expense (benefit)

(71 )

0

19

0

14

0

(38 )
Net income (loss)

913

197

118

48

(25 )

0

1,251

Net (income) loss attributable to noncontrolling interest

0

62

0

11

(11 )

0

62

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

$ 913

$ 135

$ 118

$ 37

$ (14 )

0

$ 1,189

Total Assets

$ 831,071

$ 15,566

$ 7,915

$ 1,039

$ 90,908

$ (118,032 )

$ 828,467

Goodwill

$ 2,670

$ 47

$ 0

$ 3

$ 164

$ 0

$ 2,884

Three Months Ended March 31, 2022

F&M Bank

F&M Mortgage

TEB Life/FMFS

VS Title

Parent Only

Eliminations

F&M Bank Corp. Consolidated

Revenues:

Interest Income

$ 9,037

$ 29

$ 8

$ -

$ -

$ (13 )

$ 9,061

Service charges on deposits

307

-

-

-

-

-

307

Investment services and insurance income

-

-

253

-

-

(2 )

251

Mortgage banking income, net

-

742

-

-

-

-

742

Title insurance income

-

-

-

473

-

-

473

Other operating income

708

2

-

-

-

-

710

Total income (loss)

10,052

773

261

473

-

(15 )

11,544

Expenses:

Interest Expense

874

6

-

-

137

(13 )

1,004

(Recovery of) loan losses

(450 )

-

-

-

-

-

(450 )
Salary and benefit expense

3,947

573

104

301

-

-

4,925

Other operating expenses

3,328

214

21

83

(19 )

(2 )

3,625

Total expense

7,699

793

125

384

118

(15 )

9,104

Net income (loss) before taxes

2,353

(20 )

136

89

(118 )

-

2,440

Income tax expense (benefit)

386

-

31

-

(505 )

-

(88 )
Net Income attributable to F & M Bank Corp.

$ 1,967

$ (20 )

$ 105

$ 89

$ 387

$ -

$ 2,528

Total Assets

$ 1,242,957

$ 9,012

$ 8,532

$ 2,967

$ 99,890

$ (125,099 )

$ 1,238,259

Goodwill

$ 2,868

$ -

$ -

$ 3

$ 211

$ -

$ 3,082

Three months ended March 31, 2021

F&M Bank

F&M Mortgage

TEB Life/FMFS

VS Title

Parent Only

Eliminations

F&M Bank Corp. Consolidated

Revenues:

Interest Income

$ 8,716

$ 72

$ 30

$ -

$ -

$ (72 )

$ 8,746

Service charges on deposits

285

-

-

-

-

-

285

Investment services and insurance income

-

-

348

-

-

(1 )

347

Mortgage banking income, net

-

1,672

-

-

-

-

1,672

Title insurance income

-

-

-

456

-

-

456

Other operating income (loss)

593

23

-

-

(21 )

-

595

Total income (loss)

9,594

1,767

378

456

(21 )

(73 )

12,101

Expenses:

Interest Expense

876

66

-

-

198

(72 )

1,068

(Recovery of) loan losses

(725 )

-

-

-

-

-

(725 )
Salary and benefit expense

3,514

615

97

286

-

-

4,512

Other operating expenses

2,834

233

6

82

20

(1 )

3,174

Total expense

6,499

914

103

368

218

(73 )

8,029

Net income (loss) before taxes

3,095

853

275

88

(239 )

-

4,072

Income tax expense (benefit)

521

-

57

-

(307 )

-

271

Net Income attributable to F & M Bank Corp.

$ 2,574

$ 853

$ 218

$ 88

$ 68

$ -

$ 3,801

Total Assets

$ 1,016,023

$ 14,340

$ 8,519

$ 2,559

$ 109,474

$ (139,938 )

$ 1,010,977

Goodwill

$ 2,670

$ 47

$ -

$ 3

$ 164

$ -

$ 2,884

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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”)~~(FHLB) short term borrowings to support the loans held for sale participation program and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the need of the Company. There was no ~~short term~~short-term debt at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

Long-term Debt

The Company utilizes the FHLB advance program to fund loan growth and provide liquidity. The interest rates on long-term debt are fixed at the time of the ~~advance and range from .81% to 2.39%;~~advance; the weighted average interest rate was ~~1.44%~~.81% at March 31, ~~2021~~2022 and ~~1.47%~~ at December 31, ~~2020.~~2021. The balance of these obligations at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$20,411 and $21,268, respectively.~~$10,000. FHLB advances include a ~~$6,000~~$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 ~~$11,748~~$11,780 at March 31, ~~2021.~~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 new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

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.

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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 ~~as of~~in the three months ended March 31, ~~2021~~2022 and ~~$19 in losses as of March 31, 2020,~~2021, which is presented on the consolidated income statement as a noninterest expense and therefore, not reflected in the table below.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2022 and 2021 ~~and 2020.~~(dollars in thousands).

Three Months Ended March 31,

Three Months Ended March 31,

2021

2020

2022

2021

Noninterest Income (in thousands)

Noninterest Income

In-scope of Topic 606:

Service Charges on Deposits

$ 285

$ 361

$ 307

$ 285

Investment Services and Insurance Income

347

1,114

251

347

Title Insurance Income

456

371

473

456

ATM and check card fees

520

433

563

520

Other

63

161

157

63

Noninterest Income (in-scope of Topic 606)

1,671

2,440

1,751

1,671

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

1,684

(11 )

732

1,684

Total Noninterest Income

$ 3,355

$ 2,429

$ 2,483

$ 3,355

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did not have any significant contract balances.

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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

~~On January 1, 2019, the~~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:~~leases (dollars in thousands):

(Dollars in thousands)

March 31,
2021

March 31,
2020

Lease Liabilities

$ 839

$ 956

Right-of-use assets

$ 814

$ 949

Weighted average remaining lease term

3.89 years

4.75 years

Weighted average discount rate

3.50 %

3.47 %

Lease cost

Operating lease cost

$ 26

$ 33

Total lease cost

$ 26

$ 33

Cash paid for amounts included in the measurement of lease liabilities

$ 31

$ 38

March 31, 2022

March 31, 2021

Lease Liabilities

$ 911

$ 839

Right-of-use assets

$ 889

$ 814

Weighted average remaining lease term

3.17 years

3.89 years

Weighted average discount rate

3.05 %

3.50 %

For the Three Months Ended
March 31,

2022

2021

Lease cost

Operating lease cost

$ 153

$ 26

Total lease cost

$ 153

$ 26

Cash paid for amounts included in the measurement of lease liabilities

$ 181

$ 31

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):


As of

March 31, 2022

March 31,
2021

Nine months ending December 31, 2021

$ 99

Twelve months ending December 31, 2022

130

Nine months ending December 31, 2022

$ 132

Twelve months ending December 31, 2023

93

135

Twelve months ending December 31, 2024

92

136

Twelve months ending December 31, 2025

53

98

Twelve months ending December 31, 2026

70

Thereafter

573

518

Total undiscounted cash flows

$ 1,040

$ 1,089

Discount

201

178

Lease liabilities

$ 839

$ 911

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Table of Contents

Note 14. Mortgage Banking and Derivatives

Loans Held for Sale

The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. ~~During the second quarter of 2020, the~~The Company ~~elected to begin using~~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 ~~$8,943~~$2,479 as of March 31, ~~2021~~2022 of which ~~$8,943~~$2,544 is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.

Interest Rate Lock Commitments and Forward Sales Commitments

The Company, through F&M Mortgage Company, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).
The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate loan commitments will close.
The fair value of these derivative instruments is reported in “Other ~~Assets”~~Liabilities” in the Consolidated Balance Sheet at March 31, ~~2021,~~2022, and totaled ~~$334,~~$262, with a notional amount of ~~$41,285~~$25,542 and total positions of ~~178.~~82. The fair value of the IRLCs at December 31, ~~2020~~2021 totaled ~~$816,~~$258, with a notional amount of ~~$31,000~~$18,801 and total positions of ~~134.~~70. Changes in fair value are recorded as a component of “Mortgage banking income, net” in the Consolidated Income Statement for the period ended March 31, ~~2021.~~2022. The Company’s IRLCs are classified as Level 2. At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.

~~During the second quarter of 2020, the~~The Company ~~elected to begin using~~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 iswas reported in “Other Assets” in the Consolidated Balance Sheet at March 31, ~~2021, and~~2022 totaled ~~$747,~~$637, with a notional amount of ~~$50,497~~$28,085 and total positions of ~~225.~~$96. The fair value of forward sales commitments was reported in “Other ~~Liabilities”~~Assets” in the Consolidated Balance Sheet at December 31, ~~2020~~2021 totaled ~~$60,~~$112, with a notional amount of ~~$46,000~~$23,721 and total positions of ~~205.~~91.

Note 15. Stock-Based Compensation

The Company maintains the F & M Bank Corp. 2020 Stock Incentive Plan, which was designed to further the long-term stability and financial success of the Company by attracting and retaining personnel, including employees, directors, and consultants, through the use of stock and stock-based incentives. It was adopted by the Company’s Board, effective upon shareholder approval on May 2, 2020 and will expire on March 18, 2030. The plan provides for the granting of an option, restricted stock, restricted stock unit, stock appreciation right, or stock award to employees, directors, and consultants. It authorizes the issuance of up to 200,000 shares of the Company’s common stock.

The Company’s Stock Plan Committee administers the plan, identifies which participants will be granted awards, and determines the terms and conditions applicable to the awards. ~~No shares were awarded during 2020.~~ On March ~~5, 2021~~7, 2022 the Company’s Stock Plan Committee awarded ~~15,832~~17,763 shares with a fair value of ~~$423,506~~$547,989 from this plan to selected employees. These shares vest 25% over each of the next four years. The Committee also awarded ~~1,332~~1,145 shares with a fair value of ~~$35,631~~$35,323 to ~~directors. These shares will vest~~directors that vested upon issuance. As of March 31, 2022, there was $837 thousand of unrecognized compensation cost related to nonvested restricted stock.

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Note 15. Stock-Based Compensation, continued
The following table summarizes the status of the Company’s nonvested awards for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

2022

2021

Shares

Weighted Average Grant Date Fair Value

Shares

Weighted Average Grant Date Fair Value

Nonvested, beginning of period

15,869

$ 26.78

-

$ -

Granted

17,763

30.85

16,140

26.75

Vested

(3,920 )

30.85

-

-

Forfeited

(474 )

29.10

-

-

Nonvested, end of period

29,238

$ 29.20

16,140

$ 26.75

Item 2. Management’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. ~~holds~~held a majority ownership in VSTitle LLC (“VST”), with the remaining minority interest owned by F&M ~~Mortgage.~~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 ~~twelve~~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). ~~A loan production office will open in Winchester, Virginia in the second quarter of 2021.~~ 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 ~~Woodstock,~~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, ~~2020~~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.

31
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: ~~rapidly~~ 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, ~~and~~ consumer spending and savings ~~habits.~~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.
32
~~Table of Contents~~
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)~~

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.

In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summary of the Company’s significant accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 “Receivables”, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either ASC 450 or ASC 310. Management’s estimate of each ASC 450 component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the dealer loan portfolio; maturity of lending staff; the findings of internal credit quality assessments, results from external bank regulatory examinations and third-party loan reviews. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.

Allowances for loans are determined by applying estimated loss factors to the portfolio based on management’s evaluation and “risk grading” of the loan portfolio. Specific allowances, if required are typically provided on all impaired loans in excess of a defined loan size threshold that are classified in the Substandard or Doubtful risk grades and on all troubled debt restructurings. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of the Company’s exposure for each credit, given the current payment status of the loan and the value of any underlying collateral.

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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, continued
While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.
33
~~Table of Contents~~
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)~~
~~Critical Accounting Policies (continued)~~

Fair Value

The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques using significant assumptions that are observable in the market or (3) model-based techniques that use significant assumptions not observable in the market. When observable market prices and parameters are not fully available, management’s judgment is necessary to arrive at fair value including estimates of current market participant expectations of future cash flows, risk premiums, among other things. Additionally, significant judgment may be required to determine whether certain assets measured at fair value are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.

Pension Obligations
The accounting guidance for the measurement and recognition of obligations and expense related to pension plans generally applies the concept that the cost of benefits provided during retirement should be recognized over the employees’ active working life. Inherent in this concept is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Major actuarial assumptions that require significant management judgment and have a material impact on the measurement of benefits expense and accumulated benefit obligation include discount rates, expected return on assets, mortality rates, and projected salary increases, among others. Changes in assumptions or judgments related to any of these variables could result in significant volatility in the Company’s financial condition and results of operations. As a result, accounting for the Company’s pension expense and obligation is considered a significant estimate. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
COVID-19

The World Health Organization declared a global pandemic in the first quarter of 2020 due to the spread of the coronavirus (“COVID-19”) around the ~~globe. As a result, the state of Virginia issued a stay-at-home order in March requiring all nonessential businesses to shut down and nonessential workers to stay home.~~world. The Company ~~while~~was considered an essential business and implemented procedures to protect its employees, customers and the community and still serve their banking needs. Branch lobbies were closed ~~until April 12, 2021. The~~in 2021 and again briefly from January 18, 2022 to March 7, 2022. During this time the Company ~~continues to utilize~~utilized drive through windows and courier service to handle transactions, new accounts ~~can be~~were opened electronically with limited in person contact for document signing and verification of identification, and lenders ~~are taking~~accepted applications by ~~appointment.~~appointment with limited in person contact.

The ~~Small Business Administration (“SBA”)~~SBA implemented the Paycheck Protection Program (“PPP”) to support small business operations with loans during the ~~pandemic.~~shutdown and into the following months. The Company worked diligently to support both our customers and noncustomers within our footprint with these ~~loans.~~loans, originating a total of 1,080 PPP loans totaling $87,061 and associated fees of $3,824 through the SBA program. As of March 31, ~~2021,~~2022, there ~~were 437 PPP~~are 25 loans outstanding for a total of $37,000. The Company has recognized a total of $2,169 in fee income from the SBA for PPP loans with $684 recorded in first quarter 2021 and $1,506 recorded in 2020. These fees are recognized over the life of the associated loans; unamortized fees at March 31, 2021 totaled $1,531.
COVID-19 continues to impact local, national, and foreign economies. Many foreign countries and states in the United States continue to be under restrictions for employment, recreation and gatherings. The unemployment rate has declined from the recent high in April 2020 but is still higher than the pre-pandemic level in February 2020.
The Company is closely monitoring the effects of the pandemic on our customers. Management is focused on assessing the risks in our loan portfolio and working with our customers to minimize losses. At the beginning of the pandemic, additional resources were allocated to analyze higher risk segments in our loan portfolio, monitor and track loan payment deferrals and customer status. As of March 31, 2021 the Company has identified customers impacted by the pandemic and incorporated them into the bank’s normal monitoring and tracking procedures.
As of April 29, 2021, the Company has executed 37 modifications allowing principal and interest deferrals in 2021 related to COVID-19; the Company has granted 1,268 total modifications under the CARES Act. These modifications, 77% of which were short-term dealer loan modifications, were consistent with regulatory guidance and the CARES Act. As of April 29, 2021, 21 loans remain in deferral with a balance of ~~$9,782.~~$2,061 and unamortized fees of $56.

Based on the Company’s capital levels, ~~conservative~~current underwriting policies, low loan-to-deposit ratio, loan concentration diversification and rural operating environment, management believes that it is well positioned to support its customers and communities and to manage the economic risks and uncertainties associated with COVID-19 pandemic and remain adequately capitalized.

Given the rapidly changing and unprecedented nature of the pandemic, however, the Company could experience material and adverse effects on its business, including as a result of credit deterioration, operational disruptions, decreased demand for products and services, or other reasons. Further, our loan deferral program could delay or make it difficult to identify the extent of current credit quality deterioration during the deferral period. The extent to which the pandemic impacts the Company will depend on future developments, which are uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
3433
Table of Contents

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

Overview (Dollars in thousands)

Net income for the three months ended March 31, ~~2021~~2022 was ~~$3,801~~$2,528 or ~~$1.11~~$0.74 per ~~diluted~~ share, compared to ~~$1,189~~$3,801 or ~~$0.35~~$1.17 in the same period in ~~2020, an increase~~2021, a decrease of ~~219.68%~~33.49%. During the three months ended March 31, ~~2021,~~2022, noninterest income ~~increased 38.12%~~decreased 25.99% and noninterest expense increased ~~7.95%~~11.24% during the same period.

Results of Operations

As shown in Table I, the ~~2021~~2022 year to date tax equivalent net interest income increased ~~$285~~$377 or ~~3.83%~~4.89% compared to the same period in ~~2020.~~2021. The tax equivalent adjustment to net interest income totaled ~~$29~~$27 for the first three months of ~~2021.~~2022. The yield on earning assets decreased ~~.96%~~.75%, while the cost of funds decreased ~~.57%~~.21% compared to the same period in ~~2020.~~2021.

~~Year to date, the~~The combination of the decrease in yield on assets and the decrease in cost of funds coupled with changes in balance sheet ~~structure, including PPP loans which were at a rate of 1.00% and building an investment portfolio that has an average yield of .89%,~~leverage resulted in the net interest margin decreasing to ~~3.44%~~2.82% for the three months ended March 31, ~~2021,~~2022, a decrease of 5362 basis points when compared to the same period in ~~2020.~~2021. A schedule of the net interest margin for the three-month periods ended March 31, ~~2021~~2022 and ~~2020~~2021 can be found in Table I.

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

GAAP Financial Measurements:

March 31,
2021

March 31,
2020

March 31, 2022

March 31, 2021

Interest Income – Loans

$ 8,270

$ 8,722

$ 7,539

$ 8,270

Interest Income - Securities and Other Interest-Earnings Assets

476

388

1,522

476

Interest Expense – Deposits

795

1,452

845

795

Interest Expense - Other Borrowings

273

254

159

273

Total Net Interest Income

7,678

7,404

$ 8,057

$ 7,678

Non-GAAP Financial Measurements:

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

29

18

27

29

Total Tax Benefit on Tax-Exempt Interest Income

29

18

27

29

Tax-Equivalent Net Interest Income

$ 7,707

$ 7,422

$ 8,084

$ 7,707

The Interest Sensitivity Analysis contained in Table II indicates the Company is in an asset sensitive position in the one-year time horizon. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. Approximately 35.50% of rate sensitive assets and 34.22% of rate sensitive liabilities are subject to repricing within one year. Due to the relatively low-rate environment, management has continued to decrease ~~deposit rates. The growth in earning assets and the growth in noninterest bearing accounts has resulted in an increase in the positive GAP position in the one-year time period.~~
~~The increase~~ in noninterest income of ~~$926~~$872 for the three-month period March 31, ~~2021~~2022 compared to the same period in ~~2020~~2021 is due primarily to ~~growth~~a decrease in mortgage banking income ($~~742),~~930) and ~~investment and insurance income ($163). Increase in mortgage banking income was primarily due to increased business due to the low-rate environment. Increase~~ in investment and insurance income ~~was primarily~~($96) due to a ~~dividend received from the Company’s investment~~slowdown in ~~Bankers Insurance LLC.~~refinance activity. This was offset by an increase in ATM and check card fees ($43) and other income ($58).

Noninterest expense for the three months ended March 31, ~~2021~~2022 increased ~~$566~~$864 as compared to ~~2020.~~2021. Expenses increased primarily in the areas of salaries ~~($284), employee~~and benefits ($~~194)~~413), ~~legal~~occupancy expenses ($45), advertising ($42) and ~~professional fees~~telecommunication and data processing expense ($~~50), and directors fees ($36)~~361). ~~Salary and benefit increases were due to expansion~~Expansion into the Winchester and Waynesboro ~~markets.~~markets led to increased salary, benefits, and occupancy expenses. Advertising increased as a result of increased marketing efforts in markets where larger banks were leaving. Telecommunications and data processing increased due to a focus on infrastructure improvements, digital enhancements, and online capabilities.
35
~~Table of Contents~~

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

Federal Funds Sold and ~~Interest-Bearing~~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 ~~0.00%~~0.50% to ~~0.25%~~2.25% by the Federal Reserve. Actual rates received vary slightly based upon money supply and demand among banks. Interest bearing bank deposits are held either in money market accounts or as short-term certificates of deposits. The Company held ~~$90,099~~$31,994 and ~~$65,983~~$76,667 in federal funds sold at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Growth in excess funds ishas been due to strong deposit growth, and the decrease from December 31, 2021 to March 31, 2022 was due to the Company is deploying these funds into the investment portfolio. Interest bearing bank deposits have ~~increased~~decreased by ~~$335~~$142 since year end from ~~$1,244~~$2,938 to ~~$1,579.~~$2,796.
34
Table of Contents

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

Securities

The Company’s securities portfolio serves to assist the Company with asset liability management. With the ~~tremendous~~ growth in deposits, ~~during the past twelve months,~~ the Company has worked to strategically invest the excess funds into anthe investment portfolio. This has resulted in an increase in the investments available for sale of ~~$64,804.~~$57,940 since December 31, 2021.

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 March 31, ~~2021,~~2022, the fair value of securities available for sale was below their cost by ~~$393.~~$20,329. 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 ~~4.90~~5.14 years. Efforts to deploy excess funds in an uncertain rate environment has resulted in a mixture of maturities.

In reviewing investments as of March 31, ~~2021,~~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. There are no loan concentrations as defined by regulatory guidelines.

Loans Held for Investment of ~~$659,373~~$659,560 decreased ~~$1,956~~$2,861 on March 31, ~~2021~~2022 compared to $662,421 at December 31, ~~2020.~~2021. Net of PPP, loans grew $3,014 or 0.46% since December 31, 2021. Loan growth in the ~~commercial non-real estate (PPP loans), farmland~~home equity – open end and dealer finance segments of the portfolio ~~was~~were offset by declines in ~~residential and~~construction, commercial real ~~estate.~~estate and PPP segments.

Loans Held for Sale totaled ~~$15,654~~$2,479 on March 31, ~~2021,~~2022, a decrease of ~~$43,025~~$2,408 compared to $4,887 at December 31, ~~2020. The Northpointe participation loan program, as well as~~2021. At March 31, 2022 this balance was F&M mortgage loans, which are typically subject to seasonal ~~fluctuations. Both experienced tremendous volume at year end with the largest portion being Northpointe.~~
36
~~Table of Contents~~
~~Item 2. Management’s Discussion~~fluctuations and ~~Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)~~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 ~~$5,783~~$4,751 on March 31, ~~2021~~2022 compared to ~~$6,537~~$5,465 at December 31, ~~2020.~~2021. The decrease in nonperforming loans from year end is primarily due to one ~~commercial relationship which was paid~~loan paying off, ~~due~~one loan moving to ~~the sale of the collateral.~~accrual status, and amortization. Although the potential exists for loan losses beyond what is currently provided for in the allowance for loan losses, ~~and what has previously been charged off,~~ management believes the Bank is generally well secured and continues to actively work with its customers to effect payment.

~~As of March 31, 2021 and December 31, 2020, the Company did not hold any real estate which was acquired through foreclosure.~~
~~The following is a~~A summary of ~~information pertaining to risk elements and nonperforming~~credit ratios for nonaccrual loans is as follows (in thousands):

March 31,
2021

December 31,
2020

Nonaccrual Loans:

Construction/Land Development

$ 168

$ 251

Farmland

1,678

1,737

Real Estate

801

368

Multi-Family

-

-

Commercial Real Estate

2,890

3,820

Home Equity – Closed-end

30

-

Home Equity – Open-end

143

212

Commercial & Industrial – Non-Real Estate

1

3

Consumer

-

-

Dealer Finance

44

44

Credit Cards

-

-

Loans past due 90 days or more:

Construction/Land Development

$ -

$ -

Farmland

-

-

Real Estate

-

102

Multi-Family

-

-

Commercial Real Estate

-

-

Home Equity – Closed-End

-

-

Home Equity – Open-End

25

-

Commercial & Industrial – Non-Real Estate

-

-

Consumer

-

-

Dealer Finance

-

-

Credit Cards

3

-

Total Nonperforming loans

$ 5,783

$ 6,537

Restructured Loans current and performing:

Real Estate

$ 3,040

$ 2,989

Home Equity

678

687

Commercial

1,909

1,922

Consumer

126

150

Nonperforming loans as a percentage of loans held for investment

.88 %

.99 %
Net charge offs to total loans held for investment¹

.03 %

.18 %
Allowance for loan and lease losses to nonperforming loans

167.80 %

160.24 %
¹ ~~– Annualized for three-month period ended March 31, 2021~~

March 31, 2022

December 31, 2021

Allowance for loan losses

$ 7,389

$ 7,748

Nonaccrual loans

$ 4,751

$ 5,465

Total Loans

$ 659,560

$ 662,421

Allowance for loan losses to Total Loans

1.12 %

1.17 %
Nonaccrual Loans to Total Loans

0.72 %

0.83 %
Allowance for loan losses to Nonaccrual loans

155.53 %

141.77 %

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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)

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 ~~internally generated~~ 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 ~~into unimpaired~~ and ~~classified loans. For both unimpaired and classified loans~~ an estimate is calculated based on actual loss experience over the last ~~two~~three years. ~~The classified Dealer finance loans are given a higher risk factor for past due and adverse risk ratings based on back testing of the risk factors.~~

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 ~~$9,704~~$7,389 at March 31, ~~2021~~2022 is equal to ~~1.47%~~1.12% of loans held for ~~investment, or 1.56% of loans held for investment excluding PPP loans.~~investment. This compares to an allowance of ~~$10,475 (1.58%)~~$7,748, or 1.17% at December 31, 2020. During the first quarter 2021, one new relationship was individually reviewed for impairment with no reserve required. Another relationship paid off due to the sale of the collateral at a foreclosure sale; two relationships previously reviewed recognized improvements in their collateral position, which resulted in decreased reserves. The Company’s two-year loss history improved as there have been less charge-offs in the most recent 24 months.2021.

Due to ~~COVID-19,~~increasing interest rates, loan portfolio growth over the ~~Company had added or increased~~last 12 months, and deteriorating economic conditions, the qualitative ~~factors for the economy and concentrations in industries specifically affected~~reserve increased. This was offset by ~~the virus. The Company was able to decrease these factors~~improvements in the first quarter due to a low number of CARES Act payment deferrals, improvements in industries most likely to be affected by the pandemic, and improvements in past dues and nonperforming loans. Past due loans have decreased $4,494 since December 31, 2020 and as stated previously, the Company experiencedunemployment rate, a decrease in ~~nonperforming~~historical loss rates and paydowns on individually impaired loans. The Company is monitoring the economic effects of increased inflation, building costs, and used car prices, as well as a rising interest rate environment. The Company continues to manage the classified, past due and non-performing loans, ~~during 2021. As~~which are all at lower levels than December 31, 2021, Classified loans (internally rated substandard or watch) decreased from a ~~result,~~total of $43,230 at December 31, 2021 to $40,313 at March 31, 2022, past due loans on accrual decreased from $3,226 at December 31, 2021 to $2,414 at March 31, 2022, and non-performing loans decreased from $5,508 at December 31, 2021 to $4,805 at March 31, 2022. Management is closely monitoring the ~~Bank recorded a negative~~effects of economic conditions on the loan portfolio and makes adjustments to specific reserves, the environmental factors and the provision for loan losses of $725 in the first three months of 2021. Management will continue to monitor nonperforming and past due loans and will make necessary adjustments to specific reserves and provision for loan losses should conditions change regarding collateral values or cash flow expectations.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 March 31, ~~2021~~2022 have increased ~~$44,170~~$32,000 since December 31, ~~2020.~~2021. Noninterest bearing deposits increased ~~$15,350~~$17,683 while interest bearing increased ~~$28,820.~~$14,317. The increase in deposits ~~in the first three months~~ is due to a focus on deposit growth as an organization ~~and general savings of~~as well as excess funds that customers are holding due to the ~~economic uncertainty.~~pandemic. The Bank participates in the CDARS (Certificate of Deposit Account Registry Service)
38
~~Table of Contents~~
~~Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)~~
~~Deposits and Other Borrowings, continued~~
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 ~~$50,000~~$50 million in deposits. At March 31, ~~2021~~2022 and December 31, ~~2020~~2021 the Company had a total of ~~$256 and $256~~$257 in CDARS ~~funding~~accounts; and, ~~$34,546~~$95,976 and ~~$35,943~~$94,948 in ICS ~~funding,~~accounts, respectively.
36
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

Short-term borrowings

~~Short-term~~The Company utilizes short-term debt ~~consists of federal~~such as Federal funds purchased ~~daily rate credit obtained from the Federal Home Loan Bank (“FHLB”),~~ and ~~short-term fixed rate~~ FHLB ~~borrowings.~~short term borrowings to provide liquidity. Federal funds purchased are unsecured overnight borrowings ~~obtained~~ from other financial institutions. FHLB short term debt, which is secured by the Bank’s primary correspondent bank to manage short-term liquidity needs. Borrowings from the FHLB have been used to finance loans held for sale. As of March 31, 2021, there were no short-term borrowings. There were no balances in FHLBloan portfolio, can be a daily rate variable loan that acts as a line of credit ~~at March 31,~~or a fixed rate advance, depending on the needs of the Company. With the growth in deposits and excess liquidity, the Company has not utilized the short-term debt facilities for 2021 or ~~December 31, 2020.~~2022.

Long-term borrowings

~~Borrowings from the FHLB have been an important source of funding.~~ The Company’s subsidiary bank borrows funds on a fixed rate ~~basis.~~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 ~~$20,411 and $21,268~~$10,000 on March 31, ~~2021~~2022, and December 31, ~~2020, respectively.~~2021.

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 ~~$11,748~~$11,780 at March 31, ~~2021.~~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.

In March 2015, the Bank implemented the Basel III capital requirements, which introduced the Common Equity Tier I ratio in addition to the two previous capital guidelines of Tier I capital (referred to as core capital) and Tier II capital (referred to as supplementary capital). At March 31, ~~2021,~~2022, the Bank had Common Equity Tier I capital of ~~14.80%~~13.72% of risked weighted assets, Tier I capital of ~~14.80%~~13.72% of risk weighted assets and combined Tier I and II capital of ~~16.05%~~14.70% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. At December 31, ~~2020,~~2021, the Bank had Common Equity Tier I capital of ~~13.55%~~13.95% of risk weighted assets, Tier I capital of ~~13.55%~~13.95% of risk weighted assets and combined Tier I and II capital of ~~14.81%~~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 March 31, ~~2021,~~2022, the Bank reported a leverage ratio of ~~10.13%~~8.47%, compared to ~~9.93%~~8.62% at December 31, ~~2020.~~2021. The Bank’s leverage ratio was substantially above the minimum. The Bank also reported a capital conservation buffer of ~~8.05%~~6.70% at March 31, ~~2021~~2022 and ~~6.81%~~7.00% at December 31, ~~2020.~~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.
39
~~Table of Contents~~
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)~~
~~Community Bank Leverage Ratio~~
On September 17, 2019, the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital.
~~The CBLR framework was temporarily modified under the CARES Act to provide relief to banks.~~
~~The CBLR framework was made available for banks to use beginning in their March 31, 2020, Call Report; to date, the Company has elected not to adopt the CBLR framework.~~

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. 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.

37
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Liquidity, continued
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.~~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.
As of March 31, 2021, the Company had a cumulative Gap Rate Sensitivity Ratio of 12.06% for the one year repricing period. This generally indicates that earnings would increase in an increasing interest rate environment as assets reprice more quickly than liabilities. However, in actual practice, this may not be the case as balance sheet leverage, funding needs and competitive factors within the market could dictate the need to raise deposit rates more quickly. Management constantly monitors the Company’s interest rate risk and has decided the current position is acceptable for a well-capitalized community bank.
~~A summary of asset and liability repricing opportunities is shown in Table II.~~
40
~~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

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 in the set-up stage with expectations of running~~has created a CECL model to run parallel ~~in 2021.~~for 2022. All data has been archived under the current model.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. ~~The Company is in the process of transitioning away from LIBOR for its loan and other financial instruments.~~

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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 Company is preparing loan agreements, other than SWAP loans, to transition from LIBOR by the end of second quarter 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation to transition from LIBOR by the swap holder.
In August 2020,the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and 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 ~~August 2018,~~May 2021, the FASB issued ASU ~~2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General~~2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic ~~715-20)~~470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): ~~Disclosure Framework—Changes to the Disclosure Requirements~~Issuer’s Accounting for ~~Defined Benefit Plans.” These amendments modify the disclosure requirements for employers that sponsor defined benefit pension~~Certain Modifications or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanationExchanges of Freestanding Equity – Classified Written Call Options (a consensus of the ~~reasons~~FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for ~~significant gains and losses related to changes in~~modifications or an exchange of freestanding written call options classified as equity that is not within the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: The projected benefit obligation (PBO) and fair valuescope of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020.another Topic. Early adoption is permitted. ~~The~~ASU 2021-04 was effective for the Company ~~does not expect the~~on January 1, 2022. The adoption of ASU ~~2018-14 to~~2021-04 did not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, ”Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. ASU 2019-12 was effective for the Company on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.
42
~~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 January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 was effective for the Company on January 1, 2021. The adoption of ASU 2020-01 did not have a material impact on the Company’s consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company does not expect the adoption of ASU 2020-08 to have a material impact on its consolidated financial statements.
In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. The COVID-19 discussion following the Critical Accounting Policies at the beginning of the Management’s Discussion and Analysis and note 3 provide more details on what the Company is doing to prepare for the impact.

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)

Three Months Ended

Three Months Ended

March 31, 2021

March 31, 2020

Average

Income/

Average

Average

Income/

Average

Three Months Ended
March 31, 2022

Three Months Ended
March 31, 2021

Balance^2,4

Expense

Rates

Balance^2,4

Expense

Rates

Average Balance

Income/ Expense

Average Rates¹

Average Balance

Income/ Expense

Average Rates¹

Interest income

Loans held for investment^1,2

$ 673,744

$ 8,196

4.93 %

$ 610,174

$ 8,469

5.58 %
Loans held for investment^2,3

$ 656,099

$ 7,522

4.65 %

$ 673,744

$ 8,196

4.93 %
Loans held for sale

13,221

94

2.88 %

33,490

270

3.24 %

3,683

29

3.19 %

13,221

94

2.88 %
Federal funds sold

87,157

15

0.07 %

94,964

294

1.25 %

64,813

24

0.15 %

87,157

15

0.07 %
Interest bearing deposits

884

0

0.11 %

1,278

3

.94 %

2,845

1

0.14 %

884

-

0.11 %
Investments

Taxable ³

126,973

427

1.37 %

11,637

91

3.15 %
Partially taxable

125

1

1.62 %

125

1

3.22 %
Tax exempt

6,237

42

2.73 %

-

-

-

Taxable

423,751

1,444

1.38 %

126,973

427

1.37 %
Partially taxable⁴

125

1

1.62 %

125

1

1.62 %
Tax exempt⁴

10,250

67

2.65 %

6,237

42

2.73 %
Total earning assets

$ 908,341

$ 8,775

3.92 %

$ 751,668

$ 9,128

4.88 %

$ 1,161,566

$ 9,088

3.17 %

$ 908,341

$ 8,775

3.92 %
Interest Expense

Demand deposits

114,699

44

0.16 %

96,060

63

.26 %

188,344

103

0.22 %

114,699

44

0.16 %
Savings

347,332

351

0.41 %

254,053

794

1.26 %

492,458

503

0.41 %

347,332

351

0.41 %
Time deposits

129,142

400

1.26 %

136,502

595

1.75 %

122,471

239

0.79 %

129,142

400

1.26 %
Short-term debt

-

-

-

7,143

41

2.31 %
Long-term debt

32,531

273

3.40 %

45,570

213

1.88 %

21,776

159

2.96 %

32,531

273

3.40 %
Total interest bearing liabilities

$ 623,704

$ 1,068

0.70 %

$ 539,328

$ 1,706

1.27 %

$ 825,049

$ 1,004

0.49 %

$ 623,704

$ 1,068

0.70 %

Tax equivalent net interest income

$ 7,707

$ 7,422

$ 8,084

$ 7,707

Net interest margin

3.44 %

3.97 %

2.82 %

3.44 %
~~___________~~
____________
¹
Annualized.
²
Interest income on loans includes loan fees.
²³
Loans held for investment include nonaccrual loans.
³⁴
Income tax rate of 21% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans.
⁴
Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

44
~~Table of Contents~~
~~TABLE II~~
~~F & M BANK CORP.~~
~~Interest Sensitivity Analysis~~
~~March 31, 2021~~
~~(Dollars In Thousands)~~
~~The following table presents the Company’s interest sensitivity.~~

0 – 3

4 – 12

1 – 5

Over 5

Not

Months

Months

Years

Years

Classified

Total

Uses of funds

Loans

Commercial

$ 69,836

$ 27,547

$ 107,083

$ 70,856

$ -

$ 275,322

Installment

771

1,374

77,700

24,546

-

104,391

Real estate

75,460

46,025

139,966

15,575

-

277,026

Loans held for sale

15,654

-

-

-

-

15,654

Credit cards

2,634

-

-

-

-

2,634

Interest bearing bank deposits

1,580

-

-

-

-

1,580

Federal funds sold

90,099

-

-

-

-

90,099

Investment securities

125

2,059

97,596

72,048

-

171,828

Total

256,159

77,005

422,345

183,025

-

938,534

Sources of funds

Interest bearing demand deposits

-

23,815

71,446

23,815

-

119,076

Savings deposits

-

144,202

194,184

24,991

-

363,377

Certificates of deposit

13,285

35,207

79,542

-

-

128,034

Short-term borrowings

-

-

-

-

-

-

Long-term borrowings

857

2,572

18,605

10,125

-

32,159

Total

14,142

205,796

363,777

58,931

-

642,646

Discrete Gap

242,017

(128,791 )

58,568

124,094

-

295,888

Cumulative Gap

$ 242,017

$ 113,226

$ 171,794

$ 295,888

$ 295,888

Ratio of Cumulative Gap to Total Earning Assets

25.79 %

12.06 %

18.30 %

31.53 %

31.53 %

Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of March 31, 2021. In preparing the above table, no assumptions were made with respect to loan prepayments. Loan principal payments are included in the earliest period in which the loan matures or can reprice. Investment securities included in the table consist of securities held to maturity and securities available for sale. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities of deposits, which have no stated maturity dates, were derived from regulatory guidance.
4540
Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates. Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes. There have not been any changes which would significantly alter the results disclosed as of December 31, 2020 in the Company’s 2020 Form 10-K, Item 7A or Part II.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 March 31, ~~2021.~~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 March 31, ~~2021~~2022 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

46
~~Table of Contents~~
Part II Other Information

Item 1.
Legal Proceedings

There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject.

Item 1a.
Risk Factors
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
~~101~~
The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, ~~2021,~~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
~~104~~
The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, ~~2021,~~2022, formatted in Inline XBRL (included with Exhibit 101)

4741
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.

~~May 11, 2021~~
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

May 13, 2022

4842

*Per Common Share Data*
Net income – basic	$	0.74	$	1.17
Net income – diluted	$	0.74	$	1.11
Cash dividends on common stock	$	0.26	$	0.26
Weighted average common shares outstanding – basic		3,434,892		3,205,074
Weighted average common shares outstanding – diluted		3,434,892		3,433,192

	Three Months Ended March 31,
	2021			2020

Net Income attributable to F & M Bank Corp.	$	3,801		$	1,189

Other comprehensive loss:
Unrealized holding losses on available-for sale securities		(1,411	)		(49	)
Tax effect		297			10
Unrealized holding losses, net of tax		(1,114	)		(39	)

Total other comprehensive (loss)	$	(1,114	)	$	(39	)

Comprehensive income attributable to F&M Bank Corp.	$	2,687		$	1,150

Comprehensive income attributable to noncontrolling interests	$	0		$	62

Total comprehensive income	$	2,687		$	1,212

															Accumulated						Preferred Stock		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
						Additional						Non			Other
	Preferred		Common			Paid in			Retained			controlling			Comprehensive
	Stock		Stock			Capital			Earnings			Interest			Loss			Total
*Balance December 31, 2019*	$	4,592	$	16,042		$	7,510		$	66,008		$	634		$	(3,211	)	$	91,575
Net income		0		0			0			1,189			62			0			1,251
Other comprehensive loss		0		0			0			0			0			(39	)		(39	)
Distributions to noncontrolling interest		-		-			-			-			(47	)		-			(47	)
Dividends on preferred stock ($.32 per share)		0		0			0			(66	)		0			0			(66	)
Dividends on common stock ($.26 per share)		0		0			0			(834	)		0			0			(834	)
Common stock repurchased (18,472 shares)		0		(92	)		(381	)		0			0			0			(473	)
Common stock issued (2,438 shares)		0		12			55			0			0			0			67
*Balance, March 31, 2020*	$	4,592	$	15,962		$	7,184		$	66,297		$	649		$	(3,250	)	$	91,434

*Balance December 31, 2020*	$	4,558	$	16,017		$	6,866		$	71,205		$	0		$	(3,017	)	$	95,629
*Balance, December 31, 2020*																					$	4,558	$	16,017	$	6,866	$	71,205		$	(3,017	)	$	95,629
Net income		0		0			0			3,801			0			0			3,801			0		0		0		3,801			0			3,801
Other comprehensive loss		0		0			0			0			0			(1,114	)		(1,114	)		0		0		0		0			(1,114	)		(1,114	)
Dividends on preferred stock ($.32 per share)		0		0			0			(65	)		0			0			(65	)		0		0		0		(65	)		0			(65	)
Dividends on common stock ($.26 per share)		0		0			0			(833	)		0			0			(833	)		0		0		0		(833	)		0			(833	)
Common stock issued (2,450 shares)		0		12			52			0			0			0			64			0		12		52		0			0			64
Common stock issued for Stock-based Compensation (1,332 shares)		0		7			29			0			0			0			36			0		7		29		0			0			36
Common stock to vest for Stock-based Compensation (3,270 shares)		0		0			9			0			0			0			9
Stock-based compensation expense																						0		0		9		0			0			9
*Balance, March 31, 2021*	$	4,558	$	16,036		$	6,956		$	74,108		$	0		$	(4,131	)	$	97,527		$	4,558	$	16,036	$	6,956	$	74,108		$	(4,131	)	$	97,527

*Balance, December 31, 2021*																					$	0	$	17,071	$	10,127	$	78,350		$	(5,092	)	$	100,456
Net income																						0		0		0		2,528			0			2,528
Other comprehensive loss																						0		0		0		0			(14,259	)		(14,259	)
Dividends on common stock ($.26 per share)																						0		0		0		(892	)		0			(892	)
Common stock issued (2,599 shares)																						0		13		67		0			0			80
Common stock issued for Stock-based Compensation (5,065 shares)																						0		26		29		0			0			55
Stock-based compensation expense																						0		0		17		0			0			17
*Balance, March 31, 2022*																					$	0	$	17,110	$	10,240	$	79,986		$	(19,351	)	$	87,985

	For the Three months ended				For the Three months ended		For the Three months ended
(dollars in thousands)	March 31, 2021		March 31, 2020
					March 31, 2022		March 31, 2021
Earnings available to common stockholders:
Net income	$	3,801	$	1,251	$	2,528	$	3,801
Non-controlling interest income		0		62
Preferred stock dividends		65		66		-		65
Net income available to common stockholders	$	3,736	$	1,123	$	2,528	$	3,736

	Three months ended March 31, 2021							Three months ended March 31, 2020						Three months ended March 31, 2022						Three months ended March 31, 2021
(dollars in thousands)	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
														Income		Weighted Average Shares		Per Share Amounts		Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	3,736		3,205,074	$	1.17		$	1,123		3,204,084	$	.35	$	2,528		3,434,892	$	0.74	$	3,736		3,205,074	$	1.17
Effect of Dilutive Securities:
Convertible Preferred Stock		65		228,118		(.06	)		66		229,599		0		-		-		-		65		228,118		(0.06	)
Diluted EPS	$	3,801		3,433,192	$	1.11		$	1,189		3,433,683	$	.35	$	2,528		3,434,892	$	0.74	$	3,801		3,433,192	$	1.11

(dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2021
U. S. Treasuries	$	125	$	0	$	0	$	125
December 31, 2020
U. S. Treasuries	$	125	$	0	$	0	$	125

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021
U. S. Government treasuries	$	29,749	$	0	$	328	$	29,421
									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2022
U. S. Government Treasuries									$	44,759	$	-	$	1,891	$	42,868
U. S. Government sponsored enterprises		24,992		0		115		24,877		163,460		-		4,920		158,540
Securities issued by States and political subdivisions in the U.S.		20,370		351		29		20,692		34,570		-		1,896		32,674
Mortgage-backed obligations of federal agencies		85,910		574		1,078		85,406		208,812		248		11,466		197,594
Corporate debt security		11,075		259		27		11,307		30,550		318		722		30,146
Total Securities Available for Sale	$	172,096	$	1,184	$	1,577	$	171,703	$	482,151	$	566	$	20,895	$	461,822

December 31, 2020
December 31, 2021
U. S. Government Treasuries									$	29,847	$	-	$	365	$	29,482
U. S. Government sponsored enterprises	$	6,000	$	47	$	0	$	6,047		134,466		-		752		133,714
Securities issued by States and political subdivisions of the U.S.		17,177		515		0		17,692		34,078		406		147		34,337
Mortgage-backed obligations of federal agencies		73,422		502		153		73,771		185,216		522		2,091		183,647
Corporate debt securities		9,282		121		14		9,389		22,555		372		225		22,702
Total Securities Available for Sale	$	105,881	$	1,185	$	167	$	106,899	$	406,162	$	1,300	$	3,580	$	403,882

(dollars in thousands)	Securities Held to Maturity				Securities Available for Sale
									Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Due in one year or less	$	125	$	125	$	2,025	$	2,059	$	125	$	125	$	4,835	$	4,797
Due after one year through five years		0		0		98,524		97,596		-		-		195,056		189,575
Due after five years		0		0		62,192		62,464		-		-		105,218		100,754
Due after ten years		0		0		9,355		9,584		-		-		177,042		166,696
Total	$	125	$	125	$	172,096	$	171,703	$	125	$	125	$	482,151	$	461,822

(dollars in thousands)	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Less than 12 Months				More than 12 Months				Total
March 31, 2021
													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2022
U. S. Government treasuries	$	29,421	$	328	$	0	$	0	$	29,421	$	328	$	28,752	$	1,074	$	9,088	$	817	$	37,840	$	1,891
U. S. Government sponsored enterprises		19,877		115		0		0		19,877		115		135,152		3,315		23,388		1,605		158,540		4,920
Securities issued by States and political subdivisions of the U.S.		2,216		29		0		0		2,216		29
Securities issued by States and political subdivisions in the U.S.														32,674		1,896		-		-		32,674		1,896
Mortgage-backed obligations of federal agencies		45,108		1,078		0		0		45,108		1,078		129,236		8,898		31,274		2,568		160,510		11,466
Corporate debt security		1,473		27		0		0		1,473		27		15,339		711		489		11		15,828		722
Total	$	98,095	$	1,577	$	0	$	0	$	98,095	$	1,577	$	341,153	$	15,894	$	64,239	$	5,001	$	405,392	$	20,895

	March 31, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment(1)		Balance		Allowance		Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Construction/Land Development	$	637	$	637	$	-	$	645	$	645	$	-
Farmland		2,215		2,215		-		2,286		2,286		-
Real Estate		2,384		2,384		-		2,748		2,748		-
Multi-Family		-		-		-		-		-		-
Commercial Real Estate		11,032		11,032		-		8,494		8,494		-
Home Equity – closed end		-		-		-		147		147		-
Home Equity – open end		-		-		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-		-
Consumer		-		-		-		5		5		-
Credit cards		-		-		-		-		-		-
Dealer Finance		15		15		-		12		12		-
		16,283		16,283		-		14,337		14,337		-
Impaired loans with a valuation allowance
Construction/Land Development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
Real Estate		1,495		1,495		113		1,172		1,172		119
Multi-Family		-		-		-		-		-		-
Commercial Real Estate		3,243		3,243		456		6,004		6,004		603
Home Equity – closed end		-		-		-		-		-		-
Home Equity – open end		-		-		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Credit cards		-		-		-		-		-		-
Dealer Finance		54		54		13		95		95		14
		4,792		4,792		582		7,271		7,271		736
Total impaired loans	$	21,075	$	21,075	$	582	$	21,608	$	21,608	$	736

	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
March 31, 2021
March 31, 2022																	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current			Total Loan Receivable			Non-Accrual Loans		Recorded Investment >90 days & accruing
Construction/Land Development	$	415	$	0	$	0	$	415	$	68,877	$	69,292	$	168	$	0	$	31	$	55	$	-	$	86	$	72,162		$	72,248		$	86	$	-
Farmland		0		0		0		0		58,384		58,384		1,678		0		20		-		-		20		65,483			65,503			1,259		-
Real Estate		1,091		384		681		2,156		152,723		154,879		801		0		873		124		366		1,363		137,257			138,620			551		-
Multi-Family		0		0		0		0		4,203		4,203		0		0		-		-		-		-		5,667			5,667			-		-
Commercial Real Estate		0		0		0		0		137,259		137,259		2,890		0		244		-		108		352		161,988			162,340			2,798		-
Home Equity – closed end		3		0		30		33		7,607		7,640		30		0		106		-		-		106		5,626			5,732			-		-
Home Equity – open end		324		26		168		518		44,697		45,215		143		25		333		-		7		340		45,075			45,415			-		7
Commercial & Industrial – Non- Real Estate		163		0		0		163		75,332		75,495		1		0		28		-		77		105		42,615			42,720			35		41
Consumer		16		0		0		16		7,986		8,002		0		0		16		-		-		16		7,513			7,529			-		-
Dealer Finance		696		89		0		785		95,585		96,370		44		0		477		146		-		623		110,614			111,237			22		-
Credit Cards		25		0		3		28		2,606		2,634		0		3		14		2		6		22		2,847			2,869			-		6
Less: Deferred loan fees, net of costs																		-		-		-		-		(320	)		(320	)		-		-
Total	$	2,733	$	499	$	882	$	4,114	$	655,259	$	659,373	$	5,755	$	28	$	2,142	$	327	$	564	$	3,033	$	656,527		$	659,560		$	4,751	$	54

March 31, 2021	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
March 31, 2022																Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	1,249	$	0	$	0	$	(578	)	$	671	$	0	$	671	$	977	$	-	$	-	$	(275	)	$	702	$	-	$	702
Farmland		731		0		0		(312	)		419		1		418		448		-		-		4			452		-		452
Real Estate		1,624		0		24		(77	)		1,571		339		1,232		1,162		-		-		2			1,164		113		1,051
Multi-Family		54		0		0		(27	)		27		0		27		29		-		-		6			35		-		35
Commercial Real Estate		3,662		0		19		(217	)		3,464		1,884		1,580		2,205		-		-		(112	)		2,093		456		1,637
Home Equity – closed end		55		0		0		(4	)		51		0		51		41		-		-		(2	)		39		-		39
Home Equity – open end		463		0		13		(32	)		444		0		444		407		-		129		(162	)		374		-		374
Commercial & Industrial – Non-Real Estate		363		0		6		7			376		0		376		288		1		30		(7	)		310		-		310
Consumer		521		5		3		443			962		0		962		520		21		11		13			523		-		523
Dealer Finance		1,674		296		189		89			1,656		14		1,642		1,601		204		152		85			1,634		13		1,621
Credit Cards		79		8		9		(17	)		63		0		63		70		12		7		(2	)		63		-		63
Total	$	10,475	$	309	$	263	$	(725	)	$	9,704	$	2,238	$	7,466	$	7,748	$	238	$	329	$	(450	)	$	7,389	$	582	$	6,807

March 31, 2021	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
March 31, 2022							Loan Receivable			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	69,292	$	1,779	$	67,513	$	72,248		$	637	$	71,611
Farmland		58,384		1,678		56,706		65,503			2,215		63,288
Real Estate		154,879		11,143		143,736		138,620			3,879		134,741
Multi-Family		4,203		0		4,203		5,667			-		5,667
Commercial Real Estate		137,259		16,698		120,561		162,340			14,275		148,065
Home Equity – closed end		7,640		678		6,962		5,732			-		5,732
Home Equity – open end		45,215		0		45,215
Home Equity –open end								45,415			-		45,415
Commercial & Industrial – Non-Real Estate		75,495		5		75,490		42,720			-		42,720
Consumer		8,002		0		8,002		7,529			-		7,529
Dealer Finance		96,370		145		96,225		111,237			69		111,168
Credit Cards		2,634		0		2,634		2,869			-		2,869
Gross loans								659,880			21,075		638,805
Less: Deferred loan fees, net of costs								(320	)		-		(320	)
Total	$	659,373	$	32,126	$	627,247	$	659,560		$	21,075	$	638,485

March 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	$	0	$	7	$	9,119	$	39,444	$	16,749	$	3,805	$	168	$	0	$	69,292
Farmland		58		440		9,769		33,760		11,660		1,019		1,678		0		58,384
Real Estate		0		1,639		36,549		63,703		33,826		6,575		12,587		0		154,879
Multi-Family		0		0		1,063		1,819		1,183		138		0		0		4,203
Commercial Real Estate		0		4,886		27,478		48,022		27,328		14,652		14,893		0		137,259
Home Equity – closed end		0		69		2,208		2,977		735		1,621		30		0		7,640
Home Equity – open end		0		1,688		16,574		21,849		3,220		1,575		309		0		45,215
Commercial & Industrial (Non-Real Estate)		79		1,364		8,539		23,337		41,348		504		324		0		75,495
Consumer (excluding dealer)		0		169		3,088		3,565		1,173		7		0		0		8,002
Total	$	137	$	10,262	$	114,387	$	238,476	$	137,222	$	29,896	$	29,989	$	0	$	560,369

	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.

March 31, 2022	Total		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	2,479	$	0	$	2,479	$	0
U. S. Treasury securities		42,868		0		42,868		0
U. S. Government sponsored enterprises		158,540		0		158,540		0
Securities issued by States and political subdivisions in the U. S.		32,674		0		32,674		0
Mortgage-backed obligations of federal agencies		197,594		0		197,594		0
Corporate debt securities		30,146		0		30,146		0
Forward Sales Commitments		637		0		637		0
Assets at Fair Value	$	464,938	$	0	$	464,938	$	0

Liabilities:
Derivatives - ICD	$	3	$	0	$	3	$	0
IRLC		262		0		262		0
Liabilities at Fair Value	$	265	$	0	$	265	$	0

	Fair Value at December 31, 2020		Valuation Technique	Significant Unobservable Inputs	Range
(dollars in thousands)
Impaired Loans	$	13,908	Discounted appraised value	Discount for selling costs and marketability	9.25%-62.00% (Average 24.39%)

			Fair Value Measurements at March 31, 2022 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at March 31, 2022
Assets:
Cash and cash equivalents	$	48,376	$	48,376	$	-	$	-	$	48,376
Securities		461,947		-		461,947		-		461,947
Loans held for sale		2,479		-		2,479		-		2,479
Loans held for investment, net		659,560		-		-		646,369		646,369
Interest receivable		3,345		-		3,345		-		3,345
Bank owned life insurance		23,042		-		23,042		-		23,042
Forward sales commitments		637		-		637		-		637
Total	$	1,199,386	$	48,376	$	491,450	$	646,369	$	1,186,195
Liabilities:
Deposits	$	1,112,295	$	-	$	1,004,305	$	117,811	$	1,122,116
Long-term debt		21,780		-		-		22,105		22,105
IRLC		262		-		262		-		262
Interest payable		251		-		251		-		251
Total	$	1,134,588	$	-	$	1,004,818	$	139,916	$	1,144,734

			Fair Value Measurements at March 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 March 31, 2021
Assets:
Cash and cash equivalents	$	103,729	$	103,729	$	0	$	0	$	103,729
Securities		171,828		0		171,828		0		171,828
Loans held for sale		15,654		0		15,654		0		15,654
Loans held for investment, net		649,669		0		0		639,152		639,152
Interest receivable		2,404		0		2,404		0		2,404
Bank owned life insurance		22,811		0		22,811		0		22,811
Total	$	966,095	$	103,729	$	212,697	$	639,152	$	955,578
Liabilities:
Deposits	$	862,752	$	0	$	747,714	$	128,450	$	876,164
Long-term debt		32,159		0		0		34,179		34,179
Interest payable		342		0		342		0		342
Total	$	895,253	$	0	$	748,056	$	162,629	$	910,685

			Fair Value Measurements at December 31, 2020 Using										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, 2020		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	$	78,408	$	78,408	$	0	$	0	$	78,408	$	88,121	$	88,121	$	-	$	-	$	88,121
Securities		107,024		0		107,024		0		107,024		404,007		-		404,007		-		404,007
Loans held for sale		58,679		0		58,679		0		58,679		4,887		-		4,887		-		4,887
IRLC												258		-		258		-		258
Loans held for investment, net		650,854		0		0		639,472		639,472		662,421		-		-		652,096		652,096
Interest receivable		2,727		0		2,727		0		2,727		3,117		-		3,117		-		3,117
Bank owned life insurance		22,647		0		22,647		0		22,647		22,878		-		22,878		-		22,878
Forward sales commitments												112		-		112		-		112
Total	$	920,339	$	78,408	$	191,077	$	639,472	$	908,957	$	1,185,801	$	88,121	$	435,259	$	652,096	$	1,175,476
Liabilities:
Deposits	$	818,582	$	0	$	702,940	$	131,917	$	834,857	$	1,080,295	$	-	$	968,604	$	123,718	$	1,092,322
Long-term debt		33,202		0		0		33,834		33,834		21,772		-		-		22,443		22,443
Interest payable		261		0		261		0		261		491		-		491		-		491
Total	$	852,045	$	0	$	703,201	$	165,751	$	868,951	$	1,102,558	$	-	$	969,095	$	146,161	$	1,115,256

	March 31, 2021
(dollars in thousands)			Pre-Modification		Post-Modification
			Outstanding		Outstanding
Three months ended March 31, 2022 (dollars in thousands):							Three months ended March 31, 2022 (dollars in thousands):
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment			Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real Estate		1	$	110	$	110			1	$	164	$	164
Total		1	$	110	$	110

	March 31, 2020
(dollars in thousands)			Pre-Modification		Post-Modification
			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Consumer		1	$	4	$	4
Total		1	$	4	$	4

	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(1,801	)	$	(3,291	)	$	(5,092	)
Change in unrealized securities gains (losses), net of tax		(14,259	)		-			(14,259	)
Balance at March 31, 2022	$	(16,060	)	$	(3,291	)	$	(19,351	)

	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2020	$	804		$	(3,821	)	$	(3,017	)
Change in unrealized securities gains, net of tax		(1,114	)		0			(1,114	)
Balance at March 31, 2021	$	(310	)	$	(3,821	)	$	(4,131	)

	Three Months Ended March 31, 2021
	F&M Bank			F&M Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	8,716		$	72	$	30	$	0	$	0		$	(72	)	$	8,746
Service charges on deposits		285			0		0		0		0			0			285
Investment services and insurance income		0			0		348		0		0			(1	)		347
Mortgage banking income, net		0			1,672		0		0		0			0			1,672
Title insurance income		0			0		0		456		0			0			456
Other operating income (loss)		593			23		0		0		(21	)		0			595
Total income (loss)		9,594			1,767		378		456		(21	)		(73	)		12,101
Expenses:
Interest Expense		876			66		0		0		198			(72	)		1,068
(Recovery of) Provision for loan losses		(725	)		0		0		0		0			0			(725	)
Salary and benefit expense		3,514			615		97		286		0			0			4,512
Other operating expenses		2,834			233		6		82		20			(1	)		3,174
Total expense		6,499			914		103		368		218			(73	)		8,029
Net income (loss) before taxes		3,095			853		275		88		(239	)		0			4,072
Income tax expense (benefit)		521			0		57		0		(307	)		0			271
Net Income attributable to F & M Bank Corp.	$	2,574		$	853	$	218	$	88	$	68		$	0		$	3,801
Total Assets	$	1,016,023		$	14,340	$	8,519	$	2,559	$	109,474		$	(139,938	)	$	1,010,977
Goodwill	$	2,670		$	47	$	0	$	3	$	164		$	0		$	2,884

	Three Months Ended March 31, 2020
	F&M Bank			VBS Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	9,071		$	36	$	44	$	0	$	0		$	(41	)	$	9,110
Service charges on deposits		361			0		0		0		0			0			361
Investment services and insurance income		0			0		188		0		0			(4	)		184
Mortgage banking income, net		0			930		0		0		0			0			930
Title insurance income		0			0		0		371		0			0			371
Other operating income		581			2		0		0		0			0			583
Total income		10,013			968		232		371		0			(45	)		11,539
Expenses:
Interest Expense		1,719			28		0		0		0			(41	)		1,706
Provision for loan losses		1,500			0		0		0		0			0			1,500
Salary and benefit expense		3,167			525		85		257		0			0			4,034
Other operating expenses		2,785			218		10		66		11			(4	)		3,086
Total expense		9,171			771		95		323		11			(45	)		10,326
Income (loss) before income taxes		842			197		137		48		(11	)		0			1,213
Income tax expense (benefit)		(71	)		0		19		0		14			0			(38	)
Net income (loss)		913			197		118		48		(25	)		0			1,251
Net (income) loss attributable to noncontrolling interest		0			62		0		11		(11	)		0			62
Net Income (loss) attributable to F & M Bank Corp.	$	913		$	135	$	118	$	37	$	(14	)		0		$	1,189
Total Assets	$	831,071		$	15,566	$	7,915	$	1,039	$	90,908		$	(118,032	)	$	828,467
Goodwill	$	2,670		$	47	$	0	$	3	$	164		$	0		$	2,884

	March 31, 2022			March 31, 2021
Lease Liabilities	$	911		$	839
Right-of-use assets	$	889		$	814
Weighted average remaining lease term	3.17 years			3.89 years
Weighted average discount rate		3.05	%		3.50	%

	For the Three Months Ended March 31,
	2022		2021
Lease cost
Operating lease cost	$	153	$	26
Total lease cost	$	153	$	26

Cash paid for amounts included in the measurement of lease liabilities	$	181	$	31

	As of		March 31, 2022
	March 31, 2021
Nine months ending December 31, 2021	$	99
Twelve months ending December 31, 2022		130
Nine months ending December 31, 2022			$	132
Twelve months ending December 31, 2023		93		135
Twelve months ending December 31, 2024		92		136
Twelve months ending December 31, 2025		53		98
Twelve months ending December 31, 2026				70
Thereafter		573		518
Total undiscounted cash flows	$	1,040	$	1,089
Discount		201		178
Lease liabilities	$	839	$	911

GAAP Financial Measurements:	March 31, 2021		March 31, 2020		March 31, 2022		March 31, 2021
Interest Income – Loans	$	8,270	$	8,722	$	7,539	$	8,270
Interest Income - Securities and Other Interest-Earnings Assets		476		388		1,522		476
Interest Expense – Deposits		795		1,452		845		795
Interest Expense - Other Borrowings		273		254		159		273
Total Net Interest Income		7,678		7,404	$	8,057	$	7,678

Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities		29		18		27		29
Total Tax Benefit on Tax-Exempt Interest Income		29		18		27		29
Tax-Equivalent Net Interest Income	$	7,707	$	7,422	$	8,084	$	7,707