UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X]
Quarterly report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 000-13273
F & M BANK CORP.
Virginia | 54-1280811 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
P. O. Box 1111
Timberville, Virginia | 22853 | |
(Address of Principal Executive Offices) | (Zip Code) |
(540) 896-8941
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | 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 [X] 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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated 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 [X]
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 8, 2019 | |
Common Stock, par value $5 - | 3,192,816 shares |
F & M BANK CORP.
Index
PART I FINANCIAL INFORMATION
PART II OTHER INFORMATION | ||
50 | ||
50 | ||
50 | ||
50 | ||
50 | ||
50 | ||
50 | ||
Certifications |
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
March 31, | December 31, | |
2020 | 2019* | |
(Unaudited) | ||
Assets | ||
Cash and due from banks | $9,528 | $8,119 |
Money market funds and interest-bearing deposits in other banks | 1,646 | 1,126 |
Federal funds sold | 78,944 | 66,559 |
Cash and cash equivalents | 90,118 | 75,804 |
Securities: | ||
Held to maturity, at amortized cost – fair value of $125 and $124 in 2020 and 2019, respectively | 125 | 124 |
Available for sale, at fair value | 7,278 | 4,366 |
Other investments | 12,436 | 13,525 |
Loans held for sale | 60,765 | 66,798 |
Loans held for investment | 609,585 | 603,425 |
Less: allowance for loan losses | (9,437) | (8,390) |
Net loans held for investment | 600,148 | 595,035 |
Other real estate owned, net | 1,336 | 1,489 |
Bank premises and equipment, net | 18,953 | 18,931 |
Interest receivable | 2,006 | 2,044 |
Goodwill | 2,884 | 2,884 |
Bank owned life insurance | 20,197 | 20,050 |
Other assets | 12,221 | 12,949 |
Total assets | $828,467 | $813,999 |
Liabilities | ||
Deposits: | ||
Noninterest bearing | $180,118 | $168,715 |
Interest bearing | 499,192 | 472,994 |
Total deposits | 679,310 | 641,709 |
Short-term debt | - | 10,000 |
Accrued liabilities | 15,634 | 17,514 |
Long-term debt | 42,089 | 53,201 |
Total liabilities | 737,033 | 722,424 |
Commitments and contingencies | - | |
Stockholders’ Equity | ||
Preferred Stock $25 par value, 400,000 shares authorized, 206,660 and 206,660 | ||
issued and outstanding at March 31, 2020 and December 31, 2019, respectively | 4,592 | 4,592 |
Common stock, $5 par value, 6,000,000 shares authorized, 3,192,464 and 3,208,498 | ||
shares issued and outstanding for March 31, 2020 and December 31, 2019, respectively | 15,962 | 16,042 |
Additional paid in capital – common stock | 7,184 | 7,510 |
Retained earnings | 66,297 | 66,008 |
Noncontrolling interest in consolidated subsidiaries | 649 | 634 |
Accumulated other comprehensive loss | (3,250) | (3,211) |
Total stockholders’ equity | 91,434 | 91,575 |
Total liabilities and stockholders’ equity | $828,467 | $813,999 |
*Derived from audit consolidated financial statements.
3
F & M BANK CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended | ||
March 31, | ||
Interest and Dividend income | 2020 | 2019 |
Interest and fees on loans held for investment | 8,452 | $9,087 |
Interest and fees on loans held for sale | 270 | 326 |
Interest from money market funds, federal funds sold, and deposits in other banks | 297 | 14 |
Interest on debt securities – taxable | 91 | 105 |
Total interest and dividend income | 9,110 | 9,532 |
Interest expense | ||
Total interest on deposits | 1,452 | 1,101 |
Interest from short-term debt | 41 | 203 |
Interest from long-term debt | 213 | 194 |
Total interest expense | 1,706 | 1,498 |
Net interest income | 7,404 | 8,034 |
Provision for Loan Losses | 1,500 | 1,450 |
Net Interest Income After Provision for Loan Losses | 5,904 | 6,584 |
Noninterest income | ||
Service charges on deposit accounts | 361 | 386 |
Insurance, other commissions and mortgage banking, net | 1,485 | 957 |
Other operating income | 655 | 513 |
Income from bank owned life insurance | 151 | 147 |
Low income housing partnership losses | (223) | (214) |
Total noninterest income | 2,429 | 1,789 |
Noninterest expense | ||
Salaries | 3,012 | 2,833 |
Employee benefits | 1,022 | 1,190 |
Occupancy expense | 267 | 279 |
Equipment expense | 306 | 269 |
FDIC insurance assessment | 95 | 82 |
Other real estate owned, net | 19 | 274 |
Advertising expense | 130 | 148 |
Legal and professional fees | 149 | 155 |
Data processing expense | 749 | 555 |
Directors fees | 116 | 102 |
Bank franchise tax | 195 | 131 |
Other operating expenses | 1,060 | 1,012 |
Total noninterest expense | 7.120 | 7,030 |
Income before income taxes | 1,213 | 1,343 |
Income tax expense (benefit) | (38) | 79 |
Net Income | 1,251 | 1,264 |
Net (income) loss attributable to noncontrolling interest | (62) | 22 |
Net Income attributable to F & M Bank Corp. | 1,189 | $1,286 |
Dividends paid/accumulated on preferred stock | 66 | 79 |
Net income available to common stockholders | $1,123 | $1,207 |
Per Common Share Data | ||
Net income – basic | $.35 | $.38 |
Net income – diluted | $.35 | $.37 |
Cash dividends on common stock | $.26 | $.25 |
Weighted average common shares outstanding – basic | 3,204,084 | 3,210,042 |
Weighted average common shares outstanding – diluted | 3,433,683 | 3,484,906 |
4
F & M BANK CORP.
Consolidated Statements of Comprehensive Income
(dollars in thousands)
(Unaudited)
Three Months Ended March 31, | ||
2020 | 2019 | |
Net Income | $1,189 | $1,286 |
Other comprehensive income (loss): | ||
Unrealized holding gains (losses) on available-for-sale securities | (49) | 33 |
Tax effect | 10 | (7) |
Unrealized holding gains (losses), net of tax | (39) | 26 |
Total other comprehensive income | $(39) | $26 |
Comprehensive income attributable to F&M Bank Corp. | $1,150 | $1,312 |
Comprehensive income (loss) attributable to noncontrolling interests | $62 | $(22) |
Total comprehensive income | $1,212 | $1,290 |
See Notes to Consolidated Financial Statements
5
F & M BANK CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands)
(Unaudited)
Three months ended March 31, 2020 and 2019.
Additional | Accumulated | ||||||
Paid | Other | ||||||
Preferred | Common | in | Retained | Noncontrolling | Comprehensive | ||
Stock | Stock | Capital | Earnings | Interest | Loss | Total | |
Balance December 31, 2018 | $5,672 | $16,066 | $7,987 | $65,596 | $559 | $(3,969) | $91,911 |
Net income (loss) | - | - | - | 1,286 | (22) | - | 1,264 |
Other comprehensive income | - | - | - | - | - | 26 | 26 |
Dividends on common stock ($.25 per share) | - | - | - | (819) | - | - | (819) |
Preferred stock repurchased (1,200 shares) | (30) | (11) | (41) | ||||
Preferred stock converted to Common (2,000 shares) | (50) | 11 | 39 | - | |||
Common stock repurchased (13,327 shares) | - | (66) | (356) | - | - | - | (422) |
Common stock issued (3,900 shares) | - | 8 | 48 | - | - | - | 56 |
Balance, March 31, 2019 | $5,592 | $16,019 | $7,707 | $66,063 | $537 | $(3,943) | $91,975 |
Balance December 31, 2019 | $4,592 | $16,042 | $7,510 | $66,008 | $634 | $(3,211) | $91,575 |
Net income (loss) | - | - | - | 1,189 | 62 | - | 1,251 |
Other comprehensive income | - | - | - | - | - | (39) | (39) |
Distributions to noncontrolling interest | (47) | (47) | |||||
Dividends on preferred stock ($1.28per share) | - | - | - | (66) | - | - | (66) |
Dividends on common stock ($.26 per share) | - | - | - | (834) | - | - | (834) |
Common stock repurchased (18,472 shares) | - | (92) | (381) | - | - | - | (473) |
Common stock issued (2,438 shares) | - | 12 | 55 | - | - | - | 67 |
Balance, March 31, 2020 | $4,592 | $15,962 | $7,184 | $66,297 | $649 | $(3,250) | $91,434 |
See Notes to Consolidated Financial Statements
6
F & M BANK CORP.
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended March 31, | ||
2020 | 2019 | |
Cash flows from operating activities | ||
Net income | $1,189 | $1,286 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 320 | 300 |
Amortization of intangibles | 17 | 10 |
Amortization of securities | (4) | 1 |
Proceeds from loans held for sale originated | 31,210 | 22,356 |
Gain on sale of loans held for sale originated | (917) | (753) |
Loans held for sale originated | (38,694) | (21,602) |
Provision for loan losses | 1,500 | 1,450 |
Deferred taxes | (331) | 55 |
Decrease (increase) in interest receivable | 38 | (125) |
Decrease (increase) in other assets | 1,061 | (18) |
(Decrease) increase in accrued liabilities | (1,872) | 584 |
Amortization of limited partnership investments | 223 | 214 |
Income from life insurance investment | (151) | (147) |
Loss on sale of fixed assets | 1 | 10 |
Loss on sale and valuation adjustments for other real estate owned | 19 | 269 |
Net cash (used in) provided by operating activities | (6,391) | 3,890 |
Cash flows from investing activities | ||
Proceeds from maturity of investments available for sale | 21 | 16 |
Proceeds from the sale of other real estate owned | 134 | - |
Purchases of investments available for sale and other investments | (2,978) | - |
Proceeds from the redemption of restricted stock, net | 866 | 12 |
Net increase in loans held for investment | (6,613) | (7,172) |
Net decrease in loans held for sale participations | 14,434 | 11,381 |
Net purchase of property and equipment | (343) | (655) |
Net cash provided by investing activities | 5,521 | 3,582 |
Cash flows from financing activities | ||
Net change in deposits | 37,601 | 9,511 |
Net change in short-term debt | (10,000) | (10,116) |
Dividends paid in cash | (900) | (819) |
Proceeds from issuance of common stock | 67 | 56 |
Repurchase of common stock | (473) | (422) |
Repurchase of preferred stock | - | (41) |
Repayments of long-term debt | (11,112) | (1,193) |
Net cash provided by (used in) financing activities | 15,183 | (3,024) |
Net increase in Cash and Cash Equivalents | 14,314 | 4,448 |
Cash and cash equivalents, beginning of period | 75,804 | 10,912 |
Cash and cash equivalents, end of period | $90,118 | $15,360 |
Supplemental Cash Flow information: | ||
Cash paid for: | ||
Interest | $1,694 | $1,498 |
Supplemental non-cash disclosures: | ||
Right of Use Asset and lease liability, upon adoption | - | 1,034 |
Change in unrealized (loss) gain on securities available for sale | (49) | 33 |
See Notes to Consolidated Financial Statements
7
DOLLARS ARE REPORTED IN THOUSANDS THROUGHOUT THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Note 1.
Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statements of F&M Bank Corp. (the “Company”) include the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), (net of noncontrolling interest) and VSTitle, LLC (net of noncontrolling interest) and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the quarter ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019 (the “2019 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 located in Rockingham, Shenandoah, Page and Augusta Counties in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance, Inc. (“TEB”), Farmers & Merchants Financial Services, Inc (“FMFS”), F&M Mortgage and VSTitle, LLC.
Basis of Presentation
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect 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, goodwill and intangibles, fair value, the valuation of deferred tax assets and liabilities, pension accounting and valuation of foreclosed real estate. 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”) 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 in March with branch lobby closings, operations and administrative staff working remotely and the use of virtual meetings. These changes will likely affect our operations throughout the remainder of 2020, although the extent and significance are unknown. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic that may affect our future earnings, cash flows and financial condition include the nature and duration of the long-term effect on our borrowers’ ability to repay. Accordingly, significant 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.
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.
8
Note 1.
Summary of Significant Accounting Policies, continued
Earnings per Share
Accounting guidance specifies the computation, presentation and disclosure requirements for earnings (loss) 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 EPS net income (loss) available to common stockholders is used as the numerator and 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 share calculation for the three month periods ended March 31, 2020 and 2019. Convertible preferred stock was not included in the diluted earnings per share calculation for the three months ended March 31, 2020 and 2019, as the effects were antidilutive.
Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared.
The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:
For the Three months ended | ||
March 31, 2020 | March 31, 2019 | |
Earnings available to common stockholders: | ||
Net income | $1,251 | $1,264 |
Noncontrolling interest income (loss) | 62 | (22) |
Preferred stock dividends | 66 | 79 |
Net income available to common stockholders | $1,123 | $1,207 |
The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:
Three months ended | ||||||
March 31, 2020 | March 31, 2019 | |||||
Income | Shares | Per Share Amounts | Income | Shares | Per Share Amounts | |
Basic EPS | $1,123 | 3,204,084 | $.35 | $1,207 | 3,210,042 | $0.38 |
Effect of Dilutive Securities: | ||||||
Convertible Preferred Stock | 66 | 229,599 | - | 79 | 274,864 | (0.01) |
Diluted EPS | $1,189 | 3,433,683 | $.35 | $1,286 | 3,484,906 | $0.37 |
9
Note 2.
Investment Securities
Investment securities available for sale are carried in the consolidated balance sheets at their fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at March 31, 2020 and December 31, 2019 are as follows:
Gross | Gross | |||
Amortized | Unrealized | Unrealized | Fair | |
Cost | Gains | Losses | Value | |
March 31, 2020 | ||||
U. S. Treasuries | $125 | $- | $- | $125 |
December 31, 2019 | ||||
U. S. Treasuries | $124 | $- | $- | $124 |
The amortized cost and fair value of securities available for sale are as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
March 31, 2020 | ||||
U. S. Treasuries | $2,988 | $10 | $- | $2,988 |
U. S. Government sponsored enterprises | 2,000 | 1 | - | 2,001 |
Mortgage-backed obligations of federal agencies | 296 | 11 | - | 307 |
Corporate debt security | 2,052 | - | 80�� | 1,972 |
Total Securities Available for Sale | $7,336 | $2 | $80 | $7,278 |
December 31, 2019 | ||||
U. S. Government sponsored enterprises | $2,000 | $- | $11 | $1,989 |
Mortgage-backed obligations of federal agencies | 317 | 2 | - | 319 |
Corporate debt security | 2,059 | - | 1 | 2,058 |
Total Securities Available for Sale | $4,376 | $2 | $12 | $4,366 |
The amortized cost and fair value of securities at March 31, 2020, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Held to Maturity | Securities Available for Sale | |||
Amortized | Fair | Amortized | Fair | |
(dollars in thousands) | Cost | Value | Cost | Value |
Due in one year or less | $125 | $125 | $2,988 | $2,998 |
Due after one year through five years | - | - | 4,052 | 3,973 |
Due after five years | - | - | - | - |
Due after ten years | - | - | 296 | 307 |
Total | $125 | $125 | $7,336 | $7,278 |
10
Note 2.
Investment Securities, continued
There were no sales of available for sale securities in the first quarter of 2020 or 2019. The securities held are U.S. Agency and Government Sponsored Entities and Agency MBS which carry an implicit government guarantee and are not subject to other than temporary impairment evaluation. There were no securities with other than temporary impairment.
A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type at March 31, 2020 and December 31, 2019 were as follows:
Less than 12 Months | More than 12 Months | Total | ||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |
March 31, 2020 | ||||||
Corporate debt security | $1,972 | $80 | $ - | $ - | $1,972 | $80 |
Total | $1,972 | $80 | $ - | $ - | $1 972 | $80 |
Less than 12 Months | More than 12 Months | Total | ||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |
December 31, 2019 | ||||||
U. S. Government sponsored enterprises | $1,989 | $11 | $- | $- | $1,989 | $11 |
Corporate debt security | 2,058 | 1 | - | - | 2,058 | 1 |
Total | $4,047 | $12 | $- | $- | $4,047 | $12 |
As of March 31, 2020, other investments consist of investments in twenty-one low-income housing and historic equity partnerships (carrying basis of $8,305), stock in the Federal Home Loan Bank (carrying basis $2,526) and various other investments (carrying basis $1,605). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted to sales. The fair values of these securities are estimated to approximate their carrying value as of March 31, 2020. At March 31, 2020, the Company was committed to invest an additional $2,944 in five low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in accrued liabilities on the balance sheet. The Company does not have any pledged securities.
Note 3.
Loans
As of April 28, 2020, we had executed 733 modifications allowing principal and interest deferrals of no more than 6 months on outstanding loan balances of $73.9 million in connection with COVID-19 relief. 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, 2020 and December 31, 2019 are summarized as follows:
(dollars in thousands) | 2020 | 2019 |
Construction/Land Development | $75,221 | $77,131 |
Farmland | 32,130 | 29,718 |
Real Estate | 176,068 | 178,267 |
Multi-Family | 6,335 | 5,364 |
Commercial Real Estate | 135,364 | 129,850 |
Home Equity – closed end | 9,232 | 9,523 |
Home Equity – open end | 47,663 | 47,774 |
Commercial & Industrial – Non-Real Estate | 32,699 | 33,535 |
Consumer | 10,731 | 10,165 |
Dealer Finance | 81,225 | 78,976 |
Credit Cards | 2,917 | 3,122 |
Total | $609,585 | $603,425 |
11
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 $177,000 and $178,253 as of March 31, 2020 and December 31, 2019, respectively. The Company maintains a blanket lien on its certain residential real estate, commercial and home equity loans.
Loans held for sale 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. 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 held for sale as of March 31, 2020 and December 31, 2019 were $60,765 and $66,798, respectively.
The following is a summary of information pertaining to impaired loans (in thousands):
March 31, 2020 | December 31, 2019 | |||||
Unpaid | Unpaid | |||||
Recorded | Principal | Related | Recorded | Principal | Related | |
Investment1 | Balance | Allowance | Investment | Balance | Allowance | |
Impaired loans without a valuation allowance: | ||||||
Construction/Land Development | $1,606 | $1,606 | $- | $2,042 | $2,042 | $- |
Farmland | - | - | - | - | - | - |
Real Estate | 5,617 | 5,617 | - | 5,131 | 5,131 | - |
Multi-Family | - | - | - | - | - | - |
Commercial Real Estate | 1,468 | 1,468 | - | 1,302 | 1,302 | - |
Home Equity – closed end | - | - | - | 716 | 716 | - |
Home Equity – open end | - | - | - | - | - | - |
Commercial & Industrial – Non-Real Estate | 188 | 188 | - | 17 | 17 | - |
Consumer | - | - | - | - | - | - |
Credit cards | - | - | - | - | - | |
Dealer Finance | 29 | 29 | - | 79 | 79 | - |
8,908 | 8,908 | - | 9,287 | 9,287 | - | |
Impaired loans with a valuation allowance | ||||||
Construction/Land Development | 356 | 356 | 3 | 1,036 | 2,061 | 85 |
Farmland | 1,927 | 1,927 | 527 | 1,933 | 1,933 | 537 |
Real Estate | 9,770 | 9,770 | 672 | 10,404 | 10,404 | 569 |
Multi-Family | - | - | - | - | - | - |
Commercial Real Estate | 1,835 | 1,835 | 302 | 638 | 638 | 213 |
Home Equity – closed end | 707 | 707 | - | - | - | - |
Home Equity – open end | 152 | 152 | 15 | 151 | 151 | 151 |
Commercial & Industrial – Non-Real Estate | 70 | 70 | 70 | 192 | 192 | 192 |
Consumer | 3 | 3 | 1 | 4 | 4 | 1 |
Credit cards | - | - | - | - | - | |
Dealer Finance | 154 | 154 | 12 | 136 | 136 | 7 |
14,974 | 14,974 | 1,602 | 14,494 | 15,519 | 1,755 | |
Total impaired loans | $23,882 | $23,882 | $1,602 | $23,781 | $24,806 | $1,755 |
1The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.
12
Note 3.
Loans, continued
The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):
March 31, 2020 | December 31, 2019 | |||
Average | Interest | Average | Interest | |
Recorded | Income | Recorded | Income | |
Investment | Recognized | Investment | Recognized | |
Impaired loans without a valuation allowance: | ||||
Construction/Land Development | $1,824 | $25 | $1,957 | $130 |
Farmland | - | - | 971 | - |
Real Estate | 5,374 | 76 | 5,965 | 312 |
Multi-Family | - | - | - | - |
Commercial Real Estate | 1,385 | 20 | 1,605 | 72 |
Home Equity – closed end | 358 | - | 539 | 57 |
Home Equity – open end | - | - | 40 | - |
Commercial & Industrial – Non-Real Estate | 102 | - | 15 | 2 |
Consumer | - | - | - | - |
Credit cards | - | - | - | - |
Dealer Finance | 54 | - | 55 | 5 |
9,097 | 121 | 11,147 | 578 | |
Impaired loans with a valuation allowance | ||||
Construction/Land Development | 696 | - | 2,248 | 68 |
Farmland | 1,930 | 6 | 967 | 16 |
Real Estate | 10,087 | 140 | 3,121 | 589 |
Multi-Family | - | - | - | - |
Commercial Real Estate | 1,237 | 28 | 2,542 | 36 |
Home Equity – closed end | 353 | 10 | - | - |
Home Equity – open end | 151 | 2 | 38 | 10 |
Commercial & Industrial – Non-Real Estate | 131 | 1 | 97 | 13 |
Consumer | 4 | - | 4 | - |
Credit cards | - | - | - | - |
Dealer Finance | 145 | 4 | 166 | 11 |
14,734 | 191 | 9,183 | 743 | |
Total impaired loans | $23,831 | $312 | $20,330 | $1,321 |
13
Note 3.
Loans, continued
The following table presents the aging of the recorded investment of past due loans (in thousands) as of March 31, 2020 and December 31, 2019:
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, 2020 | ||||||||
Construction/Land Development | $189 | $- | $400 | $589 | $74,632 | $75,221 | $400 | $- |
Farmland | - | - | 1,927 | 1,927 | 30,203 | 32,130 | 1,927 | - |
Real Estate | 1,378 | 225 | 667 | 2,270 | 173,798 | 176,068 | 855 | 34 |
Multi-Family | - | - | - | - | 6,335 | 6,335 | - | - |
Commercial Real Estate | 305 | - | - | 305 | 135,059 | 135,364 | 120 | - |
Home Equity – closed end | - | - | - | - | 9,232 | 9,232 | - | - |
Home Equity – open end | 562 | 51 | 383 | 996 | 46,667 | 47,663 | 215 | 169 |
Commercial & Industrial – Non- Real Estate | 99 | 197 | 243 | 539 | 32,160 | 32,699 | 252 | - |
Consumer | 125 | 56 | - | 181 | 10,550 | 10,731 | - | - |
Dealer Finance | 1,202 | 214 | 64 | 1,480 | 79,745 | 81,225 | 191 | |
Credit Cards | 21 | 31 | 5 | 57 | 2,860 | 2,917 | - | 5 |
Total | $3,881 | $774 | $3,689 | $8,344 | $601,241 | $609,585 | $3,960 | $208 |
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, 2019 | ||||||||
Construction/Land Development | $117 | $45 | $1,255 | $1,417 | $75,714 | $77,131 | $1,301 | $- |
Farmland | 27 | - | 1,933 | 1,960 | 27,758 | 29,718 | 1,933 | - |
Real Estate | 2,440 | 1,035 | 837 | 4,312 | 173,955 | 178,267 | 420 | 619 |
Multi-Family | - | - | - | - | 5,364 | 5,364 | - | - |
Commercial Real Estate | 563 | - | 137 | 700 | 129,150 | 129,850 | 900 | - |
Home Equity – closed end | - | - | - | - | 9,523 | 9,523 | - | - |
Home Equity – open end | 429 | 296 | 15 | 740 | 47,034 | 47,774 | - | 15 |
Commercial & Industrial – Non- Real Estate | 726 | 4 | - | 730 | 32,805 | 33,535 | 203 | - |
Consumer | 89 | 14 | - | 103 | 10,062 | 10,165 | 1 | - |
Dealer Finance | 1,943 | 400 | 198 | 2,541 | 76,435 | 78,976 | 249 | 84 |
Credit Cards | 31 | - | 4 | 35 | 3,087 | 3,122 | - | 4 |
Total | $6,365 | $1,794 | $4,379 | $12,538 | $590,887 | $603,425 | $5,007 | $722 |
At March 31, 2020 and December 31, 2019, other real estate owned included $60 and $133 of foreclosed residential real estate, respectively. The Company has $751 of consumer mortgages for which foreclosure is in process at March 31, 2020.
Nonaccrual loans at March 31, 2020 would have earned approximately $59 in interest income for the quarter had they been accruing loans.
14
Note 4.
Allowance for Loan Losses
A summary of changes in the allowance for loan losses (in thousands) for March 31, 2020 and December 31, 2019 is as follows:
March 31, 2020 | 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 | $- | $114 | $1,297 | $3 | $1,294 |
Farmland | 668 | - | - | 40 | 708 | 527 | 181 |
Real Estate | 1,573 | 36 | 2 | 290 | 1,829 | 672 | 1,157 |
Multi-Family | 20 | - | - | 22 | 42 | - | 42 |
Commercial Real Estate | 1,815 | - | - | 698 | 2,513 | 302 | 2,211 |
Home Equity – closed end | 42 | - | - | 9 | 51 | - | 51 |
Home Equity – open end | 457 | - | 1 | (81) | 377 | 15 | 362 |
Commercial & Industrial – Non-Real Estate | 585 | 35 | 2 | 65 | 617 | 70 | 547 |
Consumer | 186 | 18 | 16 | 28 | 212 | 1 | 211 |
Dealer Finance | 1,786 | 580 | 212 | 304 | 1,722 | 12 | 1,710 |
Credit Cards | 68 | 17 | 7 | 11 | 69 | - | 69 |
Total | $8,390 | $693 | $240 | $1,500 | $9,437 | $1,602 | $7,835 |
December 31, 2019 | Beginning Balance | Charge-offs | Recoveries | Provision | Ending Balance | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
Allowance for loan losses: | |||||||
Construction/Land Development | $2,094 | $2,319 | $50 | $1,365 | $1,190 | $85 | $1,105 |
Farmland | 15 | - | - | 653 | 668 | 537 | 131 |
Real Estate | 292 | 32 | 4 | 1,309 | 1,573 | 569 | 1,004 |
Multi-Family | 10 | - | - | 10 | 20 | - | 20 |
Commercial Real Estate | 416 | 677 | 16 | 2,060 | 1,815 | 213 | 1,602 |
Home Equity – closed end | 13 | 1 | 2 | 28 | 42 | - | 42 |
Home Equity – open end | 126 | 126 | 1 | 456 | 457 | 151 | 306 |
Commercial & Industrial – Non-Real Estate | 192 | 127 | 81 | 439 | 585 | 192 | 393 |
Consumer | 70 | 116 | 44 | 188 | 186 | 1 | 185 |
Dealer Finance | 1,974 | 2,118 | 1,144 | 786 | 1,786 | 7 | 1,779 |
Credit Cards | 38 | 110 | 29 | 111 | 68 | - | 68 |
Total | $5,240 | $5,626 | $1,371 | $7,405 | $8,390 | $1,755 | $6,635 |
15
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, 2020 and December 31, 2019:
March 31, 2020 | Loan Receivable | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
Construction/Land Development | $75,221 | $1,962 | $73,259 |
Farmland | 32,130 | 1,927 | 30,203 |
Real Estate | 176,068 | 15,387 | 160,681 |
Multi-Family | 6,335 | - | 6,335 |
Commercial Real Estate | 135,364 | 3,303 | 132,061 |
Home Equity – closed end | 9,232 | 707 | 8,525 |
Home Equity –open end | 47,663 | 152 | 47,511 |
Commercial & Industrial – Non-Real Estate | 32,699 | 258 | 32,441 |
Consumer | 10,731 | 3 | 10,728 |
Dealer Finance | 81,225 | 183 | 81,042 |
Credit Cards | 2,917 | - | 2,917 |
Total | $609,585 | $23,882 | $585,703 |
December 31, 2019 | Loan Receivable | Individually Evaluated for Impairment | Collectively Evaluated for Impairment |
Construction/Land Development | $77,131 | $3,078 | $74,053 |
Farmland | 29,718 | 1,933 | 27,785 |
Real Estate | 178,267 | 15,535 | 162,732 |
Multi-Family | 5,364 | - | 5,364 |
Commercial Real Estate | 129,850 | 1,940 | 127,910 |
Home Equity – closed end | 9,523 | 716 | 8,807 |
Home Equity –open end | 47,774 | 151 | 47,623 |
Commercial & Industrial – Non-Real Estate | 33,535 | 209 | 33,326 |
Consumer | 10,165 | 4 | 10,161 |
Dealer Finance | 78,976 | 215 | 78,761 |
Credit Cards | 3,122 | - | 3,122 |
$603,425 | $23,781 | $579,644 | |
Total |
16
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, 2020, and December 31, 2019:
March 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 | $- | $179 | $12,899 | $49,365 | $8,895 | $2,729 | $1,154 | $- | $75,221 |
Farmland | 59 | 344 | 8,586 | 14,979 | 5,058 | 1,177 | 1,927 | - | 32,130 |
Real Estate | - | 1,944 | 46,852 | 81,815 | 23,346 | 5,078 | 17,033 | - | 176,068 |
Multi-Family | - | - | 2,353 | 3,659 | 149 | 174 | - | - | 6,335 |
Commercial Real Estate | - | 1,929 | 40,259 | 70,768 | 15,488 | 4,550 | 2,370 | - | 135,364 |
Home Equity – closed end | - | 183 | 2,781 | 3,728 | 1,284 | 1,256 | - | - | 9,232 |
Home Equity – open end | 34 | 1,708 | 18,272 | 22,388 | 3,735 | 812 | 714 | - | 47,663 |
Commercial & Industrial (Non-Real Estate) | 123 | 2,146 | 11,073 | 15,004 | 3,033 | 1,022 | 298 | - | 32,699 |
Consumer (excluding dealer) | 5 | 166 | 4,128 | 4,661 | 1,709 | 61 | 1 | - | 10,731 |
Total | $221 | $8,599 | $147,203 | $266,367 | $62,697 | $16,859 | 23,497 | $- | $525,443 |
Credit Cards | Dealer Finance | ||||||||
Performing | $2,912 | $81,033 | |||||||
Non-performing | 5 | 192 | |||||||
Total | $2,917 | $81,225 |
17
Note 4.
Allowance for Loan Losses, continued
December 31, 2019 | 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 | $- | $615 | $21,904 | $41,693 | $8,218 | $2,434 | $2,267 | $- | $77,131 |
Farmland | 60 | 363 | 9,479 | 13,754 | 2,942 | 1,188 | 1,932 | - | 29,718 |
Real Estate | - | 1,900 | 48,308 | 81,371 | 23,876 | 5,635 | 17,177 | - | 178,267 |
Multi-Family | - | - | 1,327 | 3,711 | 153 | 173 | - | - | 5,364 |
Commercial Real Estate | - | 2,465 | 40,227 | 67,626 | 14,139 | 4,397 | 996 | - | 129,850 |
Home Equity – closed end | - | 189 | 2,999 | 3,816 | 1,154 | 1,365 | - | - | 9,523 |
Home Equity – open end | 17 | 1,965 | 17,789 | 22,705 | 3,769 | 1,198 | 331 | - | 47,774 |
Commercial & Industrial (Non-Real Estate) | 142 | 2,042 | 12,818 | 15,035 | 2,877 | 373 | 248 | - | 33,535 |
Consumer (excluding dealer) | 6 | 170 | 3,476 | 4,726 | 1,729 | 56 | 2 | - | 10,165 |
Total | $225 | $9,709 | $158,327 | $254,437 | $58,857 | $16,819 | $22,953 | $- | $521,327 |
Credit Cards | Dealer Finance | ||||||||
Performing | $3,118 | $78,529 | |||||||
Non-performing | 4 | 447 | |||||||
Total | $3,122 | $78,976 |
Description of internal loan grades:
Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.
Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.
Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.
Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through 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.
18
Note 4.
Allowance for Loan Losses, continued
Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.
Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.
Grade 8 – Doubtful: The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.
Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.
Note 5.
Employee Benefit Plan
The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31st as the measurement date for the defined benefit pension plan. The Bank does not expect to contribute to the pension plan in 2020.
The following is a summary of net periodic pension costs for the three-month periods ended March 31, 2020 and 2019:
Three Months Ended | ||
March 31, 2020 | March 31, 2019 | |
Service cost | $202 | $185 |
Interest cost | 105 | 137 |
Expected return on plan assets | (183) | (202) |
Amortization of prior service cost | (3) | (4) |
Amortization of net loss | 55 | 70 |
Net periodic pension cost | $176 | $186 |
19
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.
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.
Derivatives
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
Note 6. Fair Value, continued
The following tables present the balances of financial assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (dollars in thousands):
March 31, 2020 | Total | Level 1 | Level 2 | Level 3 |
U. S. Treasury securities | $2,998 | $- | $2,998 | $- |
U. S. Government sponsored enterprises | 2,001 | - | 2,001 | - |
Mortgage-backed obligations of federal agencies | 307 | - | 307 | - |
Corporate debt securities | 1,972 | - | 1,972 | - |
Total securities available for sale | $7,278 | $- | $7,278 | - |
Derivatives – ICD | $55 | $- | $55 | $- |
December 31, 2019 | Total | Level 1 | Level 2 | Level 3 |
U. S. Government sponsored enterprises | $1,989 | - | $1,989 | - |
Mortgage-backed obligations of federal agencies | 319 | - | 319 | - |
Other debt securities | 2,058 | - | 2,058 | - |
Total securities available for sale | $4,366 | $- | $4,366 | $- |
Derivatives - ICD | $72 | $- | $72 | - |
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with U.S. 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:
Loans Held for Sale
Loans held for sale are short-term loans purchased at par for resale to investors at the par value of the loan and loans originated by F&M Mortgage for sale in the secondary market. Loan participations are generally repurchased within 15 days. Loans originated for sale by F&M Mortgage are recorded at lower of cost or market. No market adjustments were required at March 31, 2020 or December 31, 2019; therefore, loans held for sale were carried at cost. Because of the short-term nature and fixed purchase price, the book value of these loans approximates fair value at March 31, 2020 and December 31, 2019.
21
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 “as-is” value of independent appraisals or evaluations.
The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach. Appraisals conducted by an independent, licensed appraiser outside of the Company using observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of March 31, 2020, and December 31, 2019, 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, 2020 | Total | Level 1 | Level 2 | Level 3 |
Construction/Land Development | $353 | $- | $- | $353 |
Farmland | 1,400 | - | - | 1,400 |
Real Estate | 9,098 | - | - | 9,098 |
Commercial Real Estate | 1,533 | - | - | 1,533 |
Consumer | 2 | - | - | 2 |
Home Equity | 844 | - | - | 844 |
Dealer Finance | 142 | - | - | 142 |
Impaired loans | $13,372 | $- | $- | $13,372 |
December 31, 2019 | Total | Level 1 | Level 2 | Level 3 |
Construction/Land Development | $951 | - | - | $951 |
Farmland | 1,396 | - | - | 1,396 |
Real Estate | 9,835 | - | - | 9,835 |
Commercial Real Estate | 425 | - | - | 425 |
Consumer | 3 | - | - | 3 |
Dealer Finance | 129 | - | - | 129 |
Impaired loans | $12,739 | $- | $- | $12,739 |
22
Note 6.
Fair Value, continued
The following table presents information about Level 3 Fair Value Measurements for March 31, 2020 and December 31, 2019:
(dollars in thousands) | Fair Value at March 31, 2020 | Valuation Technique | Significant Unobservable Inputs | Range |
Impaired Loans | $13,372 | Discounted appraised value | Discount for selling costs and marketability | 0%-58.98% (Average 24.58%) |
Fair Value at December 31, 2019 | Valuation Technique | Significant Unobservable Inputs | Range | |
Impaired Loans | $12,739 | Discounted appraised value | Discount for selling costs and marketability | 0%-58.98% (Average 24.04%) |
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.
The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.
The following table summarizes the Company’s other real estate owned that were measured at fair value on a nonrecurring basis during the period.
March 31, 2020 | Total | Level 1 | Level 2 | Level 3 |
Other real estate owned | $1,336 | - | - | $1,336 |
December 31, 2019 | Total | Level 1 | Level 2 | Level 3 |
Other real estate owned | $1,489 | - | - | $1,489 |
The following table presents information about Level 3 Fair Value Measurements for March 31, 2020:
(dollars in thousands) | Fair Value at March 31, 2020 | Valuation Technique | Significant Unobservable Inputs | Range |
Other real estate owned | $1,336 | Discounted appraised value | Discount for selling costs | 0.5%-7% (Average 4%) |
The following table presents information about Level 3 Fair Value Measurements for December 31, 2019:
(dollars in thousands) | Fair Value at December 31, 2019 | Valuation Technique | Significant Unobservable Inputs | Range |
Other real estate owned | $1,489 | Discounted appraised value | Discount for selling costs | 5%-10% (Average 8%) |
23
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, 2020 and December 31, 2019. Fair values for March 31, 2020 and December 31, 2019 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 (in thousands), of the Company’s financial instruments are as follows:
Fair Value Measurements at March 31, 2020 Using | |||||
(dollars in thousands) | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at March 31, 2020 |
Assets: | |||||
Cash and cash equivalents | $90,118 | $90,118 | $- | $- | $90,118 |
Securities | 7,403 | - | 7,403 | - | 7,403 |
Loans held for sale | 60,765 | - | 60,765 | - | 60,765 |
Loans held for investment, net | 600,148 | - | - | 599,767 | 599,767 |
Interest receivable | 2,006 | - | 2,006 | - | 2,006 |
Bank owned life insurance | 20,197 | - | 20,197 | - | 20,197 |
Total | $780,637 | $90,118 | $90,371 | $599,767 | $780,256 |
Liabilities: | |||||
Deposits | $679,310 | $- | $548,263 | $136,477 | $684,740 |
Short-term debt | - | - | - | - | - |
Long-term debt | 42,089 | - | - | 43,162 | 43,162 |
Interest payable | 366 | - | 366 | - | 366 |
Total | $721,765 | $- | $548,629 | $179,639 | $728,268 |
24
Note 7.
Disclosures About Fair Value of Financial Instruments, continued
Fair Value Measurements at December 31, 2019 Using | |||||
(dollars in thousands) | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at December 31, 2019 |
Assets: | |||||
Cash and cash equivalents | $75,804 | $75,804 | $- | $- | $75,804 |
Securities | 4,490 | - | 4,490 | - | 4,490 |
Loans held for sale | 66,798 | - | 66,798 | - | 66,798 |
Loans held for investment, net | 595,035 | - | - | 580,903 | 580,903 |
Interest receivable | 2,044 | - | 2,044 | - | 2,044 |
Bank owned life insurance | 20,050 | - | 20,050 | - | 20,050 |
Total | $764,221 | $75,804 | $93,382 | $580,903 | $750,089 |
Liabilities: | |||||
Deposits | $641,709 | $- | $504,522 | $139,713 | $644,235 |
Short-term debt | 10,000 | - | 10,000 | - | 10,000 |
Long-term debt | 53,201 | - | - | 53,543 | 53,543 |
Interest payable | 354 | - | 354 | - | 354 |
Total | $705,264 | $- | $514,876 | $193,256 | $708,132 |
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, 2020, there was one loan modification that was considered to be a troubled debt restructuring. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.
March 31, 2020 | |||
Pre-Modification | Post-Modification | ||
(dollars in thousands) | Outstanding | Outstanding | |
Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
Consumer | 1 | $4 | $4 |
Total | 1 | $4 | $4 |
25
Note 8.
Troubled Debt Restructuring, continued
At March 31, 2020, there was one loan 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 | |||
Pre-Modification | Post-Modification | ||
(dollars in thousands) | Outstanding | Outstanding | |
Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
Consumer | 1 | $30 | $30 |
Total | 1 | $30 | $30 |
During the three months ended March 31, 2019, there were two loan modifications that were considered to be troubled debt restructurings. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.
March 31, 2019 | |||
Pre-Modification | Post-Modification | ||
(dollars in thousands) | Outstanding | Outstanding | |
Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
Consumer | 2 | $5 | $5 |
Total | 2 | $5 | $5 |
At March 31, 2019, there were three 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, 2019 | |||
Pre-Modification | Post-Modification | ||
(dollars in thousands) | Outstanding | Outstanding | |
Troubled Debt Restructurings | Number of Contracts | Recorded Investment | Recorded Investment |
Consumer | 3 | $10 | $10 |
Total | 3 | $10 | $10 |
Note 9.
Accumulated Other Comprehensive Loss
The balances in accumulated other comprehensive loss are shown in the following tables for March 31, 2020 and 2019:
(dollars in thousands) | 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) | - | (39) |
Balance at March 31, 2020 | $(46) | $(3,204) | $(3,250) |
(dollars in thousands) | Unrealized Securities Gains (Losses) | Adjustments Related to Pension Plan | Accumulated Other Comprehensive Loss |
Balance at December 31, 2018 | $(94) | $(3,875) | $(3,969) |
Change in unrealized securities gains (losses), net of tax | 26 | - | 26 |
Balance at March 31, 2019 | $(68) | $(3,875) | $(3,943) |
There were no reclassifications adjustments reported on the consolidated statements of income during the three months ended March 31, 2019 or 2020.
26
Note 10.
Business Segments
The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage Banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided.
The following tables represent revenues and expenses by segment for the three months ended March 31, 2020 and March 31, 2019.
Three Months Ended March 31, 2020 | |||||||
F&M Bank | F&M Mortgage | TEB Life/FMFS | VS Title | Parent Only | Eliminations | F&M Bank Corp. Consolidated | |
Revenues: | |||||||
Interest Income | $9,071 | $36 | $44 | $- | $- | $(41) | $9,110 |
Service charges on deposits | 361 | - | - | - | - | - | 361 |
Investment services and insurance income | - | - | 188 | - | - | (4) | 184 |
Mortgage banking income, net | - | 930 | - | - | - | - | 930 |
Title insurance income | - | - | - | 371 | - | - | 371 |
Other operating income | 581 | 2 | - | - | - | - | 583 |
Total income | 10,013 | 968 | 232 | 371 | - | (45) | 11,539 |
Expenses: | |||||||
Interest Expense | 1,719 | 28 | - | - | - | (41) | 1,706 |
Provision for loan losses | 1,500 | - | - | - | - | - | 1,500 |
Salary and benefit expense | 3,167 | 525 | 85 | 257 | - | - | 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) | - | 1,213 |
Income tax expense (benefit) | (71) | - | 19 | - | 14 | - | (38) |
Net income (loss) | 913 | 197 | 118 | 48 | (25) | - | 1,251 |
Net (income) loss attributable to noncontrolling interest | - | 62 | - | 11 | (11) | - | 62 |
Net Income (loss) attributable to F & M Bank Corp. | $913 | $135 | $118 | $37 | $(14) | - | $1,189 |
Total Assets | $831,071 | $15,566 | $7,915 | $1,039 | $90,908 | $(118,032) | $828,467 |
Goodwill | $2,670 | $47 | $- | $3 | $164 | $- | $2,884 |
27
Note 10.
Business Segments, continued
Three Months Ended March 31, 2019 | |||||||
F&M Bank | F&M Mortgage | TEB Life/FMFS | VS Title | Parent Only | Eliminations | F&M Bank Corp. Consolidated | |
Revenues: | |||||||
Interest Income | $9,501 | $25 | $34 | $- | $- | $(28) | $9,532 |
Service charges on deposits | 386 | - | - | - | - | - | 386 |
Investment services and insurance income | - | - | 152 | - | - | (1) | 151 |
Mortgage banking income, net | - | 530 | - | - | - | - | 530 |
Title insurance income | - | - | - | 276 | - | - | 276 |
Other operating income | 444 | - | - | - | 2 | - | 446 |
Total income | 10,331 | 555 | 186 | 276 | 2 | (29) | 11,321 |
Expenses: | |||||||
Interest Expense | 1,500 | 26 | - | - | - | (28) | 1,498 |
Provision for loan losses | 1,450 | - | - | - | - | - | 1,450 |
Salary and benefit expense | 3,290 | 430 | 81 | 222 | - | - | 4,023 |
Other operating expenses | 2,754 | 173 | 13 | 62 | 6 | (1) | 3,007 |
Total expense | 8,994 | 629 | 94 | 284 | 6 | (29) | 9,978 |
Income (loss) before income taxes | 1,337 | (74) | 92 | (8) | (4) | - | 1,343 |
Income tax expense | 47 | - | 13 | - | 19 | - | 79 |
Net income (loss) | 1,290 | (74) | 79 | (8) | (23) | - | 1,264 |
Net loss attributable to noncontrolling interest | - | (22) | - | (2) | 2 | - | (22) |
Net Income (loss) attributable to F & M Bank Corp. | $1,290 | $(52) | $79 | $(6) | $(25) | $- | $1,286 |
Total Assets | $763,585 | $6,744 | $7,487 | $769 | $91,635 | $(90,183) | $780,037 |
Goodwill | $2,670 | $47 | $- | $3 | $164 | $- | $2,884 |
28
Note 11.
Debt
Short-term Debt
The Company utilizes short-term debt such as Federal funds purchased and Federal Home Loan Bank of Atlanta (FHLB) short term borrowings to support 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. Short-term debt totaled $0 and $10,000 at March 31, 2020 and December 31, 2019, respectively.
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 .80% to 2.56%; the weighted average interest rate was 1.85% at March 31, 2020 and December 31, 2019. The balance of these obligations at March 31, 2020 and December 31, 2019 were $42,089 and $53,197 respectively. FHLB advances include a $6,000 letter of credit at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.
VSTitle, LLC has a note payable for vehicle purchases with a balance of $0 and $4 at March 31, 2020 and December 31, 2019, respectively.
Note 12.
Revenue Recognition
On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606.
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. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. 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
29
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.
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, 2020 and 2019.
Three Months Ended March 31, | ||
2020 | 2019 | |
Noninterest Income (in thousands) | ||
In-scope of Topic 606: | ||
Service Charges on Deposits | $361 | $386 |
Investment Services, Insurance and Mortgage Income | 1,114 | 681 |
Title Insurance Income | 371 | 276 |
ATM and check card fees | 433 | 369 |
Other | 161 | 127 |
Noninterest Income (in-scope of Topic 606) | 2,439 | 1,839 |
Noninterest Income (out-of-scope of Topic 606) | (10) | (50) |
Total Noninterest Income | $2,429 | $1,789 |
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, 2020, and December 31, 2019, the Company did not have any significant contract balances.
30
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 Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of a right-of-use asset and lease liability of $1.03 million at the date of adoption, which is related to the Company’s lease of premises used in operations. The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases:
(Dollars in thousands) | March 31, 2020 | March 31, 2019 |
Lease Liabilities (included in accrued and other liabilities) | $956 | $1,019 |
Right-of-use assets (included in other assets) | $949 | $1,033 |
Weighted average remaining lease term | 4.75 years | 8.51 years |
Weighted average discount rate | 3.47% | 3.51% |
Lease cost (in thousands) | ||
Operating lease cost | $33 | $32 |
Total lease cost | $33 | $32 |
Cash paid for amounts included in the measurement of lease liabilities | $38 | $38 |
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Note 13.
Leases, continued
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
Lease payments due (in thousands) | As of March 31, 2020 |
Twelve months ending December 31, 2020 | 101 |
Twelve months ending December 31, 2021 | 134 |
Twelve months ending December 31, 2022 | 129 |
Twelve months ending December 31, 2023 | 93 |
Twelve months ending December 31, 2024 | 123 |
Thereafter | 627 |
Total undiscounted cash flows | $1,207 |
Discount | (251) |
Lease liabilities | $956 |
Note 14.
Subsequent Events
On April 28, 2020, as part of itsstrategic efforts to reduce overhead, the Company announced that it will be consolidating three branch locations in Craigsville, Grottoes and Luray, Virginia. While these physical locations will close on July 31, 2020, impacted employees will be offered comparable positions within the organization. The regulators and customers of the effected branches were notified starting on April 28, 2020.
The Company has made the decision to purchase the minority interest (30%) in the subsidiary VBS Mortgage (DBA F&M Mortgage). The purchase is expected to close in the second quarter of 2020.
On May 5, 2020, the shareholders of F&M Bank Corp. approved a Stock Incentive Plan (“Plan”). The Plan is designed to further the long-term stability and financial success of the Company and its shareholders by attracting and retaining employees, directors and consultants upon whose judgment, interest and efforts the Company and its affiliates depend for the successful conduct of their businesses, and to further align those persons’ interests with the interests of the Company’s shareholders. A total of 200,000 shares of common stock will be reserved for issuance under the Plan. Prior to the adoption of the Plan, the Company has not made any grants of stock or stock-based incentives to employees or directors of the Company.
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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”) and Farmers & Merchants Financial Services (FMFS) are wholly-owned subsidiaries of the Bank. The Bank also holds a majority ownership in VBS Mortgage (DBA F&M Mortgage) and the Company holds a majority ownership in VSTitle LLC (VST), with the remaining minority interest owned by F&M Mortgage.
The Bank is a full service commercial bank offering a wide range of banking and financial services through its fourteen branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Woodstock and Fishersville, Virginia. VSTitle provides title insurance and real estate settlement services through their offices in Harrisonburg, Fishersville, and Charlottesville, Virginia.
The Company’s primary trade area services customers in Rockingham County, Shenandoah County, Page County and Augusta County.
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, 2019 Form 10-K.
Forward-Looking Statements
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning opinions or judgment of the Company and its management about future events.
Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: 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.
We do not update any forward-looking statements that may be made from time to time by or on behalf of the Company.
33
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (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, Watch 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.
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.
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
34
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies, continued
Fair Value, continued
are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
Pension Plan Accounting
The accounting guidance for the measurement and recognition of obligations and expense related to pension plans generally applies the concept that the cost of benefits provided during retirement should be recognized over the employees’ active working life. Inherent in this concept is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Major actuarial assumptions that require significant management judgment and have a material impact on the measurement of benefits expense and accumulated 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.
Other Real Estate Owned (OREO)
OREO is held for sale and represents real estate acquired through or in lieu of foreclosure. OREO is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to carry OREO on its balance sheet at fair value less estimated costs to sell; however, a property’s value will not be written up above its net fair value at foreclosure. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
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. The Company, while considered an essential business, implemented procedures to protect its employees, customers and the community and still serve their banking needs. Branch lobbies are closed , and the Company is utilizing drive through windows and courier service to handle transactions, new accounts are opened electronically with limited in person contact for document signing and verification of identification, and lenders are taking applications by appointment with limited in person contact as well.
The Small Business Administration (“SBA”) implemented the Paycheck Protection Program (“PPP”) to support small business operations with loans during the shutdown and into the following months. The Company has worked diligently to support both our customers and noncustomers within our footprint with these loans. As of April 29, 2020, we had processed 618 PPP loans for a total of $60 million through the SBA program, with expected fee income related to these loans of $2.3 million.
The Company is funding PPP loans through the Federal Reserve PPP loan facility (“PPPLF”); this facility allows Banks to borrow funds to support the PPP program at a rate of .35%, reduce the leverage ratio reported by the amount of the debt and maintain liquidity for core loan growth and investment opportunities. As of April 29, 2020, the Company had borrowed $40.1 million under the PPPLF program.
While the impact of COVID-19 is uncertain at this time, at the end of the quarter data indicated that the economy is trending into a recession. The countries of Italy, Spain and China shut down triggering international unemployment, and weekly unemployment claims in the United States were at a record high with future unemployment estimates as high as 20%.
35
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COVID-19, continued
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. Additional resources have been allocated to analyze higher risk segments in our loan portfolio, monitor and track loan payment deferrals and customer status.
The industries most likely to be affected by COVID-19, which include lodging, food service, assisted living facilities, recreation, multi-family, retail, childcare and education services, have been identified and reviewed. Management determined there is a concentration in low-end budget hotels that may not be in a competitive position when lodging and travel re-opens. There are also a couple of large recreational facilities that are closed and may miss the summer camp season. There were approximately $88 million in closed/restricted businesses that are considered non-essential and multi-family may struggled with collecting rents from tenants.
As of April 28, 2020, we had executed 733 modifications allowing principal and interest deferrals on outstanding loan balances of $73.9 million in connection with the COVID-19 related needs. These modifications and deferrals were no more than 6 months in duration and were consistent with regulatory guidance and the CARES Act.
The table below shows the impacted industries identified by management, the percent of the loan portfolio and the loan deferrals in those categories.
Loan Category | Loan Balance (in thousands) | Percent of Total Loans Held for Investment | Number of Extensions | Dollar amount of Extension |
Construction | $33,453 | 5.40% | 2 | $9,457 |
Land development | 9,886 | 1.60% | 1 | 219 |
Commercial owner occcupied | 24,464 | 3.95% | 5 | 1,267 |
Commercial owner occupied - office | 9,745 | 1.57% | - | - |
Commercial owner occupied - campgrounds | 5,317 | 0.86% | 1 | 640 |
Commercial owner occupied - restaruants | 5,395 | 0.87% | 7 | 4,423 |
Commercial owner occupied - school | 4,271 | 0.69% | - | - |
Commerical owner occupied - church | 6,199 | 1.00% | 1 | 1,146 |
Commercial nonowner occupied - other | 13,623 | 2.20% | 9 | 2,942 |
Commercial hotel/motel | 13,848 | 2.24% | 12 | 13,142 |
Commercial assisted living | 2,672 | 0.43% | - | - |
Commercial nonowner occupied - retail | 22,649 | 3.66% | 7 | 13,127 |
Consumer - auto, truck, motorcycle | 78,387 | 12.66% | 527 | 6,717 |
Consumer other | 7,349 | 1.19% | 28 | 214 |
Poultry Farm | 12,501 | 2.02% | - | - |
Raw Land | 11,952 | 1.93% | 1 | 1,017 |
Multifamily | 5,295 | 0.86% | - | - |
Farmland residential | 2,239 | 0.36% | - | - |
Municipals | 5,710 | 0.92% | - | - |
$274,955 | 44.40% | 601 | $54,311 |
Based on the Company’s capital levels, conservative 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. The extent to which the pandemic impacts the Company will depend on future developments, which are highly 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.
36
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Overview (Dollars in thousands)
Net income for the three months ended March 31, 2020 was $1,189 or $.35 per diluted share, compared to $1,286 or $.37 in the same period in 2019, a decrease of 7.5%. This is a $97 decrease compared to the first quarter of 2019. During the three months ended March 31, 2020, noninterest income increased 35.77% primarily due to an increase in mortgage banking income, net of commissions and noninterest expense increased 1.28% during the same period.
Results of Operations
As shown in Table I, the 2020 year to date tax equivalent net interest income decreased $630 or 7.82% compared to the same period in 2019. The tax equivalent adjustment to net interest income totaled $18 for the first quarter of 2020 and 2019. The yield on earning assets decreased .66%, while the cost of funds increased .06% compared to the same period in 2019. Cost of funds has increased due to the growth in core deposits.
Year to date, the combination of the decrease in yield on assets and the increase in cost of funds coupled with changes in balance sheet leverage resulted in the net interest margin decreasing to 3.97% at March 31, 2020, a decrease of 70 basis points when compared to the same period in 2019. A schedule of the net interest margin for the three-month periods ended March 31, 2020 and 2019 can be found in Table I.
The following table provides detail on the components of tax equivalent net interest income:
GAAP Financial Measurements: | 2020 | 2019 |
Interest Income – Loans | $8,722 | $9,413 |
Interest Income - Securities and Other Interest-Earnings Assets | 388 | 119 |
Interest Expense – Deposits | 1,452 | 1,101 |
Interest Expense - Other Borrowings | 254 | 397 |
Total Net Interest Income | 7,404 | 8,034 |
Non-GAAP Financial Measurements: | ||
Add: Tax Benefit on Tax-Exempt Interest Income – Loans | 18 | 18 |
Total Tax Benefit on Tax-Exempt Interest Income | 18 | 18 |
Tax-Equivalent Net Interest Income | $7,422 | $8,052 |
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 46.28% of rate sensitive assets and 36.26% of rate sensitive liabilities are subject to repricing within one year. The year over year growth in earning assets and the smaller increase in noninterest bearing accounts has resulted in the increase in the positive GAP position in the one-year time period.
Noninterest income for the quarter ended March 31, 2020 increased $640 or 35.77% over the same time period in 2019. Areas of increase include mortgage banking income ($399), title insurance income ($95), investment services ($37), and ATM and check card fees ($65). These areas increased due to deposit growth, mortgage banking and title company volume increases and production in the investment income subsidiary.
Noninterest expense for the quarter ended March 31, 2020 increased $90 as compared to 2019. Expenses increased in the areas of bank franchise tax ($64) and data processing ($194). Franchise tax increased primarily due to the increase in allowance for loan losses which contributes to the calculation of that tax. Telecommunications and data processing expenses increased due to new products, increased debit card processing, branch upgrades and technology improvements.
37
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Balance Sheet
Federal Funds Sold and Interest-Bearing Bank Deposits
The 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 to 0.25% 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 $78,944 and $66,559 in federal funds sold at March 31, 2020 and December 31, 2019, respectively. Growth in excess funds is due to strong deposit growth, the Company is looking to deploy these funds into the investment portfolio during 2020. Interest bearing bank deposits have increased by $520 since year end.
Securities
The Company’s securities portfolio serves to assist the Company with asset liability management.
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, 2020, the fair value of securities available for sale was below their cost by $58. The portfolio is made up of primarily agency securities with an average portfolio life of just under two years. This short average life results in less portfolio volatility and positions the Bank to redeploy assets in response to rising rates. There are $80 in expected paydowns on mortgage backed securities in 2020.
In reviewing investments as of March 31, 2020, 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 in a predominately rural area that includes the counties of Rockingham, Page, Shenandoah and Augusta in the western portion of Virginia. The local economy benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid-size businesses and farms within its primary service area. The Company operates an indirect dealer division that has grown to approximately 13% of loans held for investment. There are no loan concentrations as defined by regulatory guidelines.
Loans Held for Investment of $609,585 increased $6,160 at March 31, 2020 compared to December 31, 2019. Loan growth was concentrated in the commercial real estate, farmland and dealer finance segments of the portfolio.
Loans Held for Sale totaled $60,765 at March 31, 2020, a decrease of $6,033 compared to December 31, 2019. The NorthPointe participation loan program is typically subject to seasonal fluctuations.
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $4,168 at March 31, 2020 compared to $5,729 at December 31, 2019. The loans that were added to nonaccrual since December 31, 2019 were past due and were reviewed for impairment with appropriate specific reserves established when needed based on management’s impairment analyses. One large relationship was refinanced outside of the Company due to sale of the collateral and another relationship improved and was removed from nonaccrual at March, 31, 2020. These loans totaled $1,538.
38
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Loan Portfolio, continued
Although the potential exists for loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment. As of March 31, 2020, and December 31, 2019, the Company held $1,336 and $1,489 of real estate which was acquired through foreclosure, respectively.
The following is a summary of information pertaining to risk elements and nonperforming loans (in thousands):
March 31, 2020 | December 31, 2019 | |
Nonaccrual Loans | ||
Real Estate | $1,254 | $1,721 |
Commercial | 2,300 | 3,036 |
Home Equity | 215 | - |
Other | 191 | 250 |
$3,960 | $5,007 | |
Loans past due 90 days or more (excluding nonaccrual) | ||
Real Estate | 34 | 619 |
Commercial | - | - |
Home Equity | 169 | 15 |
Other | 5 | 88 |
208 | 722 | |
Total Nonperforming loans | $4,168 | $5,729 |
Restructured Loans current and performing: | ||
Real Estate | $3,661 | $3,644 |
Commercial | 1,209 | 1,223 |
Home Equity | 707 | 716 |
Other | 123 | 167 |
Nonperforming loans as a percentage of loans held for investment | .68% | .95% |
Net charge offs to total loans held for investment 1 | .30% | .71% |
Allowance for loan and lease losses to nonperforming loans | 226.42% | 146.45% |
1 – Annualized for three month period ended March 31, 2020
39
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (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 into loans 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 unimpaired loans an estimate is calculated based on actual loss experience over the last two years. For classified loans, loans are grouped by call code and past due or adverse risk rating. Loss rates are assigned based on actual loss experience over the last two years multiplied by a risk factor. The 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 $9,437 at March 31, 2020 is equal to 1.55% of loans held for investment. This compares to an allowance of $8,390 (1.39%) at December 31, 2019. The Company experienced a decrease in nonperforming loans during the first quarter of 2020. A previously identified impaired loan totaling $900 million was refinanced outside of the bank due to the sale of the collateral. Another loan moved from nonaccrual status to accrual status based on repayment history. One relationship totaling $1,545 million was added to the loans reviewed for impairment, with $0 required reserve. Past due loans decreased during first quarter 2020. Due to COVID-19, however the bank increased the qualitative factor for the economy and concentrations in industries specifically affected by the virus. The bank increased the environmental factor for COVID-19's negative impact on the economy, such as government shut-down of businesses, a state wide stay at home order, record high weekly unemployment filings, and supply chain disruptions due to the world wide shut-downs. Additionally, the bank analyzed the loan portfolio for industries most likely to be affected by COVID-19, such as hotels, restaurants, recreations facilities, assisted living facilities, retail establishments, child care and education facilities, and multi-family properties. Based on the bank’s loans in these industry segments, the environmental factor was increased for three segments of the loan portfolio. As a result, the Bank recorded a $1,500 provision for loan losses in the first quarter of 2020. 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.
40
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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, 2020 increased $37,601 compared to December 31, 2019. Noninterest bearing deposits increased $11,403 and interest bearing increased $26,198. The increase in deposits in the first quarter is due to a focus on deposit growth as an organization. The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. At March 31, 2020 and December 31, 2019, the Company had a total of $515 thousand and $514 thousand in CDARS funding and $22.4 million and $25.7 million in ICS funding, respectively.
Short-term borrowings
Short-term debt consists of federal funds purchased, daily rate credit obtained from the Federal Home Loan Bank (FHLB), and short-term fixed rate FHLB borrowings. Federal funds purchased are overnight borrowings obtained from 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 and to finance the increase in short-term residential and commercial construction loans. As of March 31, 2020, there were no short-term borrowings. This compared to short-term borrowings of $10,000 at December 31, 2019, all of which were FHLB short term advances. There were no balances in FHLB daily rate credit at March 31, 2020 or December 31, 2019.
Long-term borrowings
Borrowings from the FHLB continue to be an important source of funding. The Company’s subsidiary bank borrows funds on a fixed rate basis. 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 $42,089 and $53,196 on March 31, 2020 and December 31, 2019, respectively.
VS Title, LLC has a vehicle loan with a balance of $0 at March 31, 2020 and $4 at December 31, 2019.
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, 2020, the Bank had Common Equity Tier I capital of 13.26%, Tier I capital of 13.26% of risk weighted assets and combined Tier I and II capital of 14.51% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. At December 31, 2019, the Bank had Common Equity Tier I capital of 13.30%, Tier I capital of 13.30% of risk weighted assets and combined Tier I and II capital of 14.55% 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.
41
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Capital, continued
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, 2020, the Bank reported a leverage ratio of 10.79%, compared to 10.89% at December 31, 2019. The Bank's leverage ratio was substantially above the minimum. The Bank also reported a capital conservation buffer of 6.51% at March 31, 2020 and 6.55% at December 31, 2019. 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. The capital conservation buffer was fully phased in on January 1, 2019 at 2.5%.
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 made available for banks to use in their March 31, 2020, Call Report; the Company elected to not 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.
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, with Zions Bank and Pacific Coast Bankers Bank. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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, 2020, the Company had a cumulative Gap Rate Sensitivity Ratio of 20.40% 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.
Effect of Newly Issued Accounting Standards
During June 2016, the FASB issued 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 parallel in 2020 and all data has been archived under the current model.
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 Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.
43
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effect of Newly Issued Accounting Standards, continued
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” These amendments modify the disclosure requirements for employers that sponsor defined benefit pension 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 explanation of the reasons for significant gains and losses related to changes in 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 value 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. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-14 to have a material impact on its consolidated financial statements.
Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.
In December 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. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.
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. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 31, 2020, and interim periods within those fiscal years. Early adoption is permitted The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.
44
2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effect of Newly Issued Accounting Standards, continued
On March 12, 2020, the SEC finalized amendments to the definitions of its “accelerated filer” and “large accelerated filer” definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report filed with the SEC subsequent to the effective date The rule change expands the definition of “smaller reporting companies” to include entities with public float of less than $700 million and less than $100 million in annual revenues. If the Company’s annual revenues exceed $100 million, its category will change back to “accelerated filer”. The classifications of “accelerated filer” and “large accelerated filer” require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting (ICFR) and include the opinion on ICFR in its annual report on Form 10-K. Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of internal control over financial reporting, but the external auditor attestation of internal control over financial reporting is not required for smaller reporting companies.
In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grands a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time. The COVID-19 discussion following the Critical Accounting Policies at the beginning of the Management’s Discussion and Analysis and notes 1 and 3 provide more details on what the Company is doing to prepare for the impact.
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. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.
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).
45
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, 2020 | March 31, 2019 | |||||
Average | Income/ | Average | Income/ | Average | ||
Balance4 | Expense | Rates | Balance4 | Expense | Rates | |
Interest income | ||||||
Loans held for investment1,2 | $610,174 | $8,469 | 5.58% | $645,496 | $9,105 | 5.72% |
Loans held for sale | 33,490 | 270 | 3.24% | 37,477 | 326 | 3.53% |
Federal funds sold | 94,964 | 294 | 1.25% | 1,369 | 8 | 2.37% |
Interest bearing deposits | 1,278 | 3 | .94% | 845 | 6 | 2.40% |
Investments | ||||||
Taxable 3 | 11,637 | 91 | 3.15% | 13,538 | 104 | 3.12% |
Partially taxable | 125 | 1 | 3.22% | 123 | 1 | 3.30% |
Total earning assets | $751,668 | $9,128 | 4.88% | $698,848 | $9,550 | 5.54% |
Interest Expense | ||||||
Demand deposits | 96,060 | 63 | .26% | 90,159 | 47 | .21% |
Savings | 254,053 | 794 | 1.26% | 189,840 | 484 | 1.03% |
Time deposits | 136,502 | 595 | 1.75% | 153,124 | 570 | 1.51% |
Short-term debt | 7,143 | 41 | 2.31% | 31,684 | 203 | 2.60% |
Long-term debt | 45,570 | 213 | 1.88% | 39,332 | 194 | 2.00% |
Total interest bearing liabilities | $539,328 | $1,706 | 1.27% | $504,139 | $1,498 | 1.21% |
Tax equivalent net interest income 3 | $7,422 | $8,052 | ||||
Net interest margin | 3.97% | 4.67% |
1
Interest income on loans includes loan fees.
2
Loans held for investment include nonaccrual loans.
3
An incremental 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.
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TABLE II
F & M BANK CORP.
Interest Sensitivity Analysis
March 31, 2020
(In Thousands of Dollars)
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 | $44,248 | $22,779 | $115,325 | $24,176 | $- | $206,528 |
Installment | 1,933 | 1,588 | 72,052 | 16,383 | - | 91,956 |
Real estate loans for investments | 88,062 | 44,975 | 158,151 | 16,996 | - | 308,184 |
Loans held for sale | 60,765 | - | - | - | - | 60,765 |
Credit cards | 2,917 | - | - | - | - | 2,917 |
Interest bearing bank deposits | 1,646 | - | - | - | - | 1,646 |
Federal funds sold | 78,944 | - | - | - | - | 78,944 |
Investment securities | 124 | 2,998 | 3,974 | 307 | - | 7,403 |
Total | 278,639 | 72,340 | 349,502 | 57,862 | - | 758,343 |
Sources of funds | ||||||
Interest bearing demand deposits | - | 18,545 | 55,635 | 18,543 | - | 92,723 |
Savings deposits | - | 107,454 | 145,934 | 19,241 | - | 272,629 |
Other certificates of deposit | 11,762 | 49,321 | 72,543 | 214 | - | 133,840 |
Short-term borrowings | - | - | - | - | - | - |
Long-term borrowings | 1,107 | 8,072 | 22,035 | 10,875 | - | 42,089 |
Total | 12,869 | 183,392 | 296,147 | 48,873 | - | 541,281 |
Discrete Gap | 265,770 | (111,052) | 53,355 | 8,989 | - | |
Cumulative Gap | $265,770 | $154,718 | $208,073 | $217,062 | $217,062 | |
Ratio of Cumulative Gap to Total Earning Assets | 35.05% | 20.40% | 27.44% | 28.62% | 28.62% |
Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of March 31, 2020. 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.
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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, 2019 in the Company’s 2019 Form 10-K, Item 7A or Part II.
Item 4. Controls and Procedures
Management assessed the Company’s system of internal control over financial reporting as of March 31, 2020. This assessment was conducted based on the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission “Internal Control — Integrated Framework (2013).” Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of March 31, 2020. Management’s assessment concluded that there was no material weakness within the Company’s internal control structure as of March 31, 2020 and that the material weakness that existed as of December 31, 2019 has been fully remediated.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Remediation Procedure. Management, with oversight from our Audit Committee, implemented remediation procedures to address the control deficiency with respect to unamortized indirect dealer finance commissions that led to the material weakness as of December 31, 2019. The following procedures were implemented during the first quarter of 2020:
●
The Company analyzed all data inputs required by the core processing system in order to accurately amortize commissions paid to dealers for indirect auto loans.
●
System inputs have been verified for all active loans to ensure amortization is being calculated and recorded appropriately.
Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.
Other than as set forth above, there have been no changes to the Company’s internal controls over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonable likely to material affect, on the Company’s internal control over financial reporting.
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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
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith) | |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). | |
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
101 | The following materials from F&M Bank Corp.’s Quarterly Report on Form 10Q for the period ended March 31, 2020, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith). |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
F & M BANK CORP. | |||
Date: May 11, 2020 | By: | /s/ Mark C. Hanna | |
Mark C. Hanna | |||
Chief Executive Officer |
By: | /s/ Carrie A. Comer | ||
Carrie A. Comer | |||
Executive Vice President and Chief Financial Officer |
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