F&M Bank Corp 10-Q for FY2020 Q2
F&M Bank Corp (FMBM)
About this 10-Q
F&M Bank Corp filed this 10-Q on August 11, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $2.67M
- up 58.4% from net income of $1.69M a year earlier
- Diluted EPS
- $0.77
- up 63.8% from $0.47 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
| Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number:
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(State or other jurisdiction of |
| (I.R.S. Employer |
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(Address of Principal Executive Offices) |
| (Zip Code) |
(
(Registrant's Telephone Number, Including Area Code)
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.
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.
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 | ☐ | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at August 4, 2020 |
|
F & M BANK CORP.
Index
See Notes to Consolidated Financial Statements
| 2 |
| Table of Contents |
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
|
| June 30, |
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| December 31, |
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| 2020 |
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| 2019* |
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Assets |
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Cash and due from banks |
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Money market funds and interest-bearing deposits in other banks |
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Federal funds sold |
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Cash and cash equivalents |
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Securities: |
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Held to maturity, at amortized cost – fair value of $ |
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Available for sale, at fair value |
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Other investments |
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Loans held for sale, at fair value |
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Loans held for investment |
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Less: allowance for loan losses |
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Net loans held for investment |
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Other real estate owned, net |
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Bank premises and equipment, net |
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Bank premises held for sale |
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Interest receivable |
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Goodwill |
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Bank owned life insurance |
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Other assets |
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Total assets |
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Liabilities |
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Deposits: |
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Noninterest bearing |
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Interest bearing |
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Total deposits |
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Short-term debt |
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Other liabilities |
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Long-term debt |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ Equity |
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| Preferred Stock $ |
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Common stock, $ |
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Additional paid in capital – common stock |
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Retained earnings |
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Non-controlling interest in consolidated subsidiaries |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
| $ |
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| $ |
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*2019 derived from audited consolidated financial statements.
See Notes to Consolidated Financial Statements
| 3 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Income
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended |
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|
| June 30, |
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Interest and Dividend income |
| 2020 |
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| 2019 |
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Interest and fees on loans held for investment |
| $ |
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| $ |
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Interest and fees on loans held for sale |
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Interest from money market funds and federal funds sold |
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Interest on debt securities – taxable |
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Total interest and dividend income |
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Interest expense |
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Total interest on deposits |
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Interest from short-term debt |
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Interest from long-term debt |
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Total interest expense |
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Net interest income |
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Provision for Loan Losses |
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Net Interest Income After Provision for Loan Losses |
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Noninterest income |
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Service charges on deposit accounts |
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Investment services and insurance income, net |
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Mortgage banking income, net |
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Title insurance income |
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Income on bank owned life insurance |
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Low income housing partnership losses |
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ATM and check card fees |
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Other operating income |
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Total noninterest income |
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Noninterest expense |
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Salaries |
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Employee benefits |
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Occupancy expense |
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Equipment expense |
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FDIC insurance assessment |
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Other real estate owned, net |
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Marketing expense |
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Legal and professional fees |
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ATM and check card fees |
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Telecommunication and data processing expense |
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Directors fees |
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Bank franchise tax |
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Impairment on long lived assets |
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Other operating expenses |
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Total noninterest expense |
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Income before income taxes |
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Income tax expense |
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Net Income |
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Net income attributable to non-controlling interest |
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Net Income attributable to F & M Bank Corp. |
| $ |
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| $ |
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Dividends paid/accumulated on preferred stock |
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Net income available to common stockholders |
| $ |
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| $ |
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Per Common Share Data |
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Net income – basic |
| $ |
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| $ |
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Net income – diluted |
| $ |
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| $ |
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Cash dividends on common stock |
| $ |
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| $ |
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Weighted average common shares outstanding – basic |
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Weighted average common shares outstanding – diluted |
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See Notes to Consolidated Financial Statements
| 4 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Income
(Dollars in thousands)
(Unaudited)
|
| Six Months Ended |
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|
| June 30, |
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Interest and Dividend income |
| 2020 |
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| 2019 |
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Interest and fees on loans held for investment |
| $ |
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| $ |
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Interest and fees on loans held for sale |
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Interest from money market funds and federal funds sold |
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Interest on debt securities – taxable |
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Total interest and dividend income |
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Interest expense |
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Total interest on deposits |
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Interest from short-term debt |
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Interest from long-term debt |
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Total interest expense |
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Net interest income |
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Provision for Loan Losses |
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Net Interest Income After Provision for Loan Losses |
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Noninterest income |
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Service charges on deposit accounts |
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Investment services and insurance income |
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Mortgage banking income, net |
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Title insurance income |
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Income on bank owned life insurance |
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Low income housing partnership losses |
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| ( | ) |
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| ( | ) |
ATM and check card fees |
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Other operating income |
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Total noninterest income |
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Noninterest expense |
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Salaries |
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Employee benefits |
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Occupancy expense |
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Equipment expense |
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FDIC insurance assessment |
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Other real estate owned, net |
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Marketing expense |
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Legal and professional fees |
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ATM and check card fees |
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Telecommunication and data processing expense |
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Directors fees |
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Bank franchise tax |
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Impairment of long-lived assets |
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Other operating expenses |
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Total noninterest expense |
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Income before income taxes |
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Income tax expense |
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Net Income |
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Net income attributable to non-controlling interest |
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Net Income attributable to F & M Bank Corp. |
| $ |
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| $ |
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Dividends paid/accumulated on preferred stock |
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Net income available to common stockholders |
| $ |
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| $ |
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Per Common Share Data |
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Net income – basic |
| $ |
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| $ |
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Net income – diluted |
| $ |
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| $ |
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Cash dividends on common stock |
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Weighted average common shares outstanding – basic |
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Weighted average common shares outstanding – diluted |
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See Notes to Consolidated Financial Statements
| 5 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
|
| Six Months Ended June 30, |
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| Three Months Ended June 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Net Income |
| $ |
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| $ |
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| $ |
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| $ |
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Other comprehensive (loss) income: |
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Unrealized holding (losses) gains on available-for sale securities |
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Tax effect |
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Unrealized holding (losses) gains, net of tax |
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Total other comprehensive (loss) income |
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Comprehensive income attributable to F&M Bank Corp. |
| $ |
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| $ |
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| $ |
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| $ |
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Comprehensive income (loss) attributable to noncontrolling interests |
| $ |
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| $ |
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| $ |
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| $ |
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Total comprehensive income |
| $ |
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| $ |
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| $ |
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| $ |
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See Notes to Consolidated Financial Statements
| 6 |
| Table of Contents |
F & M BANK CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
Three Months Ended June 30, 2020 and 2019.
|
| Preferred Stock |
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| Common Stock |
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| Additional Paid in Capital |
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| Retained Earnings |
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| Noncontrolling Interest |
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| Accumulated Other Comprehensive Loss |
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| Total |
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Balance March 31, 2019 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Net income |
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Other comprehensive income |
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Dividends on preferred stock ($1.488 per share) |
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Dividends on common stock ($.80 per share) |
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Common stock repurchased (22,583 shar |
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Common stock issued (7,494 shares) |
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Balance, June 30, 2019 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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|
| Preferred Stock |
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| Common Stock |
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| Additional Paid in Capital |
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| Retained Earnings |
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| Noncontrolling Interest |
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| Accumulated Other Comprehensive Loss |
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| Total |
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Balance March 31, 2020 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Net income |
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Other comprehensive income |
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Distributions to noncontrolling interest |
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| ( | ) |
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| ( | ) |
Dividends on preferred stock ($1.488 per share) |
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Dividends on common stock ($.26 per share) |
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| ( | ) |
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Purchase of noncontrolling interest |
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| ( | ) |
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Common stock issued (3,474 shares) |
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Balance, June 30, 2020 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||||
See Notes to Consolidated Financial Statements
| 7 |
| Table of Contents |
F & M BANK CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30, 2020 and 2019.
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in Capital |
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| Retained Earnings |
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| Noncontrolling Interest |
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| Accumulated Other Comprehensive Loss |
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| Total |
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Balance, December 31, 2018 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Net Income |
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Other comprehensive income |
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Dividends on preferred stock ($1.28 per share) |
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| ( | ) |
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| ( | ) | |||||
Dividends on common stock ($1.20 per share) |
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| ( | ) |
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| ( | ) | |||||
Preferred converted to Common (2,000 pfd shares) |
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| ( | ) |
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Common stock repurchased (49,446 shares) |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Common stock issued (7,542 shares) |
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Preferred stock repurchased (1,200 shares) |
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| ( | ) |
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| ( | ) |
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Balance, June 30, 2019 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance, December 31, 2019 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Net Income |
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Other comprehensive income |
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| ( | ) |
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| ( | ) | |||||
Distributions to noncontrolling interest |
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| ( | ) |
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| ( | ) |
Dividends on preferred stock ($1.28 per share) |
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| ( | ) |
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| ( | ) | |||||
Dividends on common stock ($.52 per share) |
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| ( | ) |
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| ( | ) | |||||
Purchase of noncontrolling interest |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Common stock repurchased (18,472 shares) |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Common stock issued (5,912 shares) |
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Preferred stock repurchased |
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Balance, June 30, 2020 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
See Notes to Consolidated Financial Statements
| 8 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities |
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| ||
Net income |
| $ | 3,816 |
|
| $ | 2,921 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Amortization of intangibles |
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Amortization of securities |
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Proceeds from loans held for sale originated |
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Loans held for sale originated |
|
| ( | ) |
|
| ( | ) |
Gain on sale of loans held for sale originated |
|
| ( | ) |
|
| ( | ) |
Provision for loan losses |
|
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| ||
(Increase) in interest receivable |
|
| ( | ) |
|
| ( | ) |
(Increase) in other assets |
|
| ( | ) |
|
| ( | ) |
Increase in other liabilities |
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Amortization of limited partnership investments |
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Income from life insurance investment |
|
| ( | ) |
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| ( | ) |
(Gain) loss on the sale of fixed assets |
|
| ( | ) |
|
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| |
Loss on sale and valuation adjustments for other real estate owned and bank premises held for sale |
|
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Net cash (used in) provided by operating activities |
|
| ( | ) |
|
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| |
Cash flows from investing activities |
|
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Purchase of investments available for sale and other investments |
|
| ( | ) |
|
| ( | ) |
Proceeds from maturity of investments available for sale |
|
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| ||
Proceeds from the redemption of restricted stock, net |
|
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Purchase of investments held to maturity |
|
| ( | ) |
|
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| |
Proceeds from maturity of investments held to maturity |
|
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| ||
Net (increase) decrease in loans held for investment |
|
| ( | ) |
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| |
Net (increase) in loans held for sale participations |
|
| ( | ) |
|
| ( | ) |
Proceeds from the sale of fixed assets |
|
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| ||
Proceeds from the sale of other real estate owned |
|
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Cash paid for noncontrolling interest |
|
| ( | ) |
|
|
| |
Net purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
Net cash (used) in investing activities |
|
| ( | ) |
|
| ( | ) |
Cash flows from financing activities |
|
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Net change in deposits |
|
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| ||
Net change in short-term debt |
|
| ( | ) |
|
| ( | ) |
Dividends paid in cash |
|
| ( | ) |
|
| ( | ) |
Proceeds from issuance of common stock |
|
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| ||
Repurchase of preferred stock |
|
|
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|
| ( | ) | |
Repurchase of common stock |
|
| ( | ) |
|
| ( | ) |
Issuance of long-term debt |
|
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| ||
Repayments of long-term debt |
|
| ( | ) |
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| ( | ) |
Net cash provided by financing activities |
|
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| ||
Net increase in Cash and Cash Equivalents |
|
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Cash and cash equivalents, beginning of period |
|
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| ||
Cash and cash equivalents, end of period |
| $ |
|
| $ |
| ||
Supplemental Cash Flow information: |
|
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Cash paid for: Interest |
| $ |
|
| $ |
| ||
Taxes |
|
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| ||
Supplemental non-cash disclosures: |
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Change in unrealized (loss) gain on securities available for sale |
|
| ( | ) |
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| |
Right of Use asset and lease liability, upon adoption |
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Bank premises and equipment transferred to held for sale |
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Liability to former noncontrolling interest for remainder of purchase price |
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| |
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See Notes to Consolidated Financial Statements
| 9 |
| Table of Contents |
Notes to the Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), (net of non-controlling interest) and VSTitle, LLC and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). On May 1, 2020 the Bank purchased the noncontrolling interest of VBS Mortgage, LLC. Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the three and six months ended June 30, 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”). During the second quarter of 2020, the Company purchased the minority interest in F&M Mortgage.
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 eleven (as of August 1, 2020) 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., Farmers & Merchants Financial Services, Inc. (FMFS), F&M Mortgage, and VSTitle, LLC (VST).
Basis of Presentation
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect 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, fair value, and pension accounting and the 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.
| 10 |
| Table of Contents |
Note 1. Summary of Significant Accounting Policies, continued
Earnings per Share
Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. In calculating diluted EPS, net income 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 and six month periods ended June 30, 2020 and 2019.
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 Six months ended |
|
| For the Three months ended |
|
| For the Six months ended |
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| For the Three months ended |
| ||||
|
| June 30, 2020 |
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| June 30, 2020 |
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| June 30, 2019 |
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| June 30, 2019 |
| ||||
Earnings available to com mon stockholders: |
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| ||||
Net income |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
Non-controlling interest income (loss) |
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| ||||
Preferred stock dividends |
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| ||||
Net income available to common stockholders |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:
|
| Six months ended June 30, 2020 |
|
| Six months ended June 30, 2019 |
| ||||||||||||||||||
|
| Income |
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| Weighted Average Shares |
|
| Per Share Amounts |
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
| ||||||
Basic EPS |
| $ |
|
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| $ |
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| $ |
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| $ |
| ||||||
Effect of Dilutive Securities: |
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Convertible Preferred Stock |
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| ( | ) |
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| ( | ) | ||||
Diluted EPS |
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||||
|
| Three months ended June 30, 2020 |
|
| Three months ended June 30, 2019 |
| ||||||||||||||||||
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
| ||||||
Basic EPS |
| $ |
|
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|
| $ |
|
| $ |
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| $ |
| ||||||
Effect of Dilutive Securities: |
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Convertible Preferred Stock |
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| ( | ) |
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| ( | ) | ||||
Diluted EPS |
| $ |
|
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| $ |
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| $ |
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| $ |
| ||||||
| 11 |
| Table of Contents |
Note 2. Investment Securities
Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at June 30, 2020 and December 31, 2019 are as follows:
|
|
|
| Gross |
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| Gross |
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| ||||||
|
| Amortized |
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| Unrealized |
|
| Unrealized |
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| Fair |
| ||||
|
| Cost |
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| Gains |
|
| Losses |
|
| Value |
| ||||
June 30, 2020 |
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|
| ||||
U. S. Treasuries |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
December 31, 2019 |
|
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U. S. Treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The amortized cost and fair value of securities available for sale are as follows:
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
June 30, 2020 |
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| ||||
U. S. Treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
U. S. Government sponsored enterprises |
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| ||||
Securities issued by States and political subdivisions in the U.S. |
|
|
|
|
|
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|
| ( | ) |
|
|
| |||
Mortgage-backed obligations of federal agencies |
|
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|
|
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|
| ( | ) |
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|
| |||
Corporate debt security |
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| ||||
Total Securities Available for Sale |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
|
|
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|
|
December 31, 2019 |
|
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|
|
|
U. S. Government sponsored enterprises |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt security |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Total Securities Available for Sale |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
The amortized cost and fair value of securities at June 30, 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Due after one year through five years |
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| ||||
Due after five years |
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| ||||
Due after ten years |
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|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
There were no sales of available for sale securities in the first or second quarters of 2020 or 2019. Securities held that 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. Other securities were reviewed for impairment and there were no securities with other than temporary impairment.
| 12 |
| Table of Contents |
Note 2. Investment Securities, continued
A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of June 30, 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 |
| ||||||
June 30, 2020 |
|
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|
|
|
|
|
|
|
|
|
| ||||||
Securities issued by States and political subdivisions in the U.S. |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Total |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | ||||
|
| 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 |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | ||||
Corporate debt security |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Total |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | ||||
As of June 30, 2020, other investments consist of investments in twenty low-income housing and historic equity partnerships (carrying basis of $
Note 3. Loans
As of June 30, 2020, we had executed 922 modifications allowing principal and interest deferrals of no more than 6 months in connection with COVID-19 relief. Of those, 155 of those modifications remain in deferral as of June 30, 2020 with balances of $24.5 million. 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 June 30, 2020 and December 31, 2019 are summarized as follows:
(dollars in thousands) |
| 2020 |
|
| 2019 |
| ||
Construction/Land Development |
| $ |
|
| $ |
| ||
Farmland |
|
|
|
|
|
| ||
Real Estate |
|
|
|
|
|
| ||
Multi-Family |
|
|
|
|
|
| ||
Commercial Real Estate |
|
|
|
|
|
| ||
Home Equity – closed end |
|
|
|
|
|
| ||
Home Equity – open end |
|
|
|
|
|
| ||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
| ||
Consumer |
|
|
|
|
|
| ||
Dealer Finance |
|
|
|
|
|
| ||
Credit Cards |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $
| 13 |
| Table of Contents |
Note 3. Loans, continued
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 June 30, 2020 and December 31, 2019 were $
The following is a summary of information pertaining to impaired loans (dollars in thousand):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
|
|
| Unpaid |
|
|
|
|
|
| Unpaid |
|
|
| ||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Principal |
|
| Related |
| ||||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
| ||||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
| ||||||
Impaired loans with a valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
| 356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Multi-Family |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
| 136 |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total impaired loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
______________
1The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.
| 14 |
| Table of Contents |
Note 3. Loans Held for Investment, continued
The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
|
| Average Recorded |
|
| Interest Income |
|
| Average Recorded |
|
| Interest Income |
|
| Average Recorded |
|
| Interest Income |
|
| Average Recorded |
|
| Interest Income |
| ||||||||
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
| ||||||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – open end |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||||||
Consumer and credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Impaired loans with a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
| $ |
|
| $ | - |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – closed end |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 76 |
|
|
|
|
|
|
|
|
|
| |||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Consumer and credit card |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total Impaired Loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| 15 |
| Table of Contents |
Note 3. Loans, continued
The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of June 30, 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 |
| ||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial & Industrial – Non- Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
| 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial & Industrial – Non- Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
On June 30, 2020 other real estate owned did not include any foreclosed residential real estate and December 31, 2019 included $
Nonaccrual loans on June 30, 2020 would have earned approximately $
| 16 |
| Table of Contents |
Note 4. Allowance for Loan Losses
A summary of changes in the allowance for loan losses (dollars in thousands) for June 30, 2020 and December 31, 2019 is as follows:
June 30, 2020 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 17 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of June 30, 2020 and December 31, 2019:
June 30, 2020 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
| |||
Farmland |
|
|
|
|
|
|
|
|
| |||
Real Estate |
|
|
|
|
|
|
|
|
| |||
Multi-Family |
|
|
|
|
|
|
|
|
| |||
Commercial Real Estate |
|
|
|
|
|
|
|
|
| |||
Home Equity – closed end |
|
|
|
|
|
|
|
|
| |||
Home Equity –open end |
|
|
|
|
|
|
|
|
| |||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
|
|
|
|
|
| |||
Dealer Finance |
|
|
|
|
|
|
|
|
| |||
Credit Cards |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
|
| $ |
| |||
December 31, 2019 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
| |||
Farmland |
|
|
|
|
|
|
|
|
| |||
Real Estate |
|
|
|
|
|
|
|
|
| |||
Multi-Family |
|
|
|
|
|
|
|
|
| |||
Commercial Real Estate |
|
|
|
|
|
|
|
|
| |||
Home Equity – closed end |
|
|
|
|
|
|
|
|
| |||
Home Equity –open end |
|
|
|
|
|
|
|
|
| |||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
|
|
|
|
|
| |||
Dealer Finance |
|
|
|
|
|
|
|
|
| |||
Credit Cards |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
|
| $ |
| |||
| 18 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of June 30, 2020 and December 31, 2019:
June 30, 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial & Industrial (Non-Real Estate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer (excluding dealer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
| $ |
|
| $ |
| ||
Non-performing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| 19 |
| Table of Contents |
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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial & Industrial (Non-Real Estate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer (excluding dealer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
| $ |
|
| $ |
| ||
Non-performing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Description of internal loan grades:
Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.
Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.
Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.
Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long-term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.
Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.
| 20 |
| Table of Contents |
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 and six month periods ended June 30, 2020 and 2019:
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Service cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected return on plan assets |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of prior service cost |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of net loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net periodic pension cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
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.
| 21 |
| Table of Contents |
Note 6. Fair Value, continued
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.
Loans Held for Sale
During the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using fair value accounting for its entire portfolio of loans held for sale in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s loans held for sale is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale is classified as Level 2. At December 31, 2019, these loans were carried at the lower of cost or estimated fair value on an aggregate basis as determined by outstanding commitments from investors. Gains and losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of Income.
Derivative assets – IRLCs
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to recognize IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 2. The fair value of interest rate lock commitments was considered immaterial at December 31, 2019.
| 22 |
| Table of Contents |
Note 6. Fair Value, continued
Derivative Asset/Liability – Forward Sale Commitments
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best efforts commitments are valued using the committed price to the counter-party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All the Company’s forward sale commitments are classified Level 2.
Derivative Asset/Liability – Indexed Certificate of Deposit
The Company’s derivatives, which are associated with the Indexed Certificate of Deposit (ICD) product once offered, are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs. This product is no longer offered, however there are a few certificates of deposits that have not matured.
The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (dollars in thousands):
June 30, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
IRLC |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Securities issued by States and political subdivisions in the U. S. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - ICD |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Forward sales commitments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
December 31, 2019 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government sponsored enterprises |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - ICD |
| $ |
|
| $ |
|
| $ |
|
| $ | - |
| |||
Liabilities at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:
| 23 |
| Table of Contents |
Note 6. Fair Value, continued
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.
The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.
Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “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 as observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of June 30, 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):
June 30, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
December 31, 2019 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 24 |
| Table of Contents |
Note 6. Fair Value, continued
The following table presents information about Level 3 Fair Value Measurements for June 30, 2020:
|
| Fair Value at June 30, 2020 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
|
|
|
|
|
| ||
Impaired Loans |
| $ |
|
|
|
| |||||
|
| Fair Value at December 31, 2019 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
|
|
|
|
|
| ||
Impaired Loans |
| $ |
|
|
|
| |||||
Assets Held for Sale
Assets held for sale were transferred from bank premises at the lower of cost less accumulated depreciation or fair value at the date of transfer. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the assets held for sale as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the asset held for sale a s nonrecurring Level 3.
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.
The Company markets other real estate owned and assets held for sale both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.
The following table summarizes the Company’s other real estate owned and assets held for sale that were measured at fair value on a nonrecurring basis as of June 30, 2020 and December 31, 2019 (dollars in thousands).
June 30, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other real estate owned |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Assets held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
December 31, 2019 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other real estate owned |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The following table presents information about Level 3 Fair Value Measurements for June 30, 2020:
|
| Fair Value at June 30, 2020 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
|
|
|
|
|
| ||
Other real estate owned |
| $ | 1,160 |
|
|
|
| ||||
| 25 |
| Table of Contents |
Note 6. Fair Value, continued
The following table presents information about Level 3 Fair Value Measurements for December 31, 2019:
|
| Fair Value at December 31, 2019 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
|
|
|
|
|
| ||
Other real estate owned |
| $ | 1,489 |
|
|
|
| ||||
Note 7. Disclosures about Fair Value of Financial Instruments
The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2020 and December 31, 2019. Fair values for June 30, 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 (dollars in thousands), of the Company’s financial instruments are as follows:
|
| Fair Value Measurements at June 30, 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 June 30, 2020 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ |
|
| $ |
|
| $ |
|
|
|
| $ |
| ||||||
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for investment, net |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| ||||
Interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
| 26 |
| Table of Contents |
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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for investment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
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 six months ended June 30, 2020, there were two loan modifications that were considered to be troubled debt restructurings. One of these loans was modified during the three months ended June 30, 2020 and one loan modification that would be considered a troubled debt restructuring was modified during the first quarter of 2020. 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.
|
| June 30, 2020 |
| |||||||||
|
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
|
| Outstanding |
|
| Outstanding |
| ||||
(dollars in thousands) Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
| $ |
|
| $ |
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
| 27 |
| Table of Contents |
Note 8. Troubled Debt Restructuring, continued
On June 30, 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.
|
| June 30, 2020 |
| |||||||||
|
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
| Outstanding |
|
| Outstanding |
| |||||
(dollars in thousands) Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
| $ |
|
| $ |
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
During the six months ended June 30, 2019, there were nine loan modifications that were considered to be troubled debt restructurings. Seven of these loans were modified during the three months ended June 30, 2019 and two loan modifications that would be considered a troubled debt restructuring were modified during the first quarter of 2019. 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.
|
| Six months ended June 30, 2019 |
| |||||||||
|
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
| Outstanding |
|
| Outstanding |
| |||||
(dollars in thousands) Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Commercial Real Estate |
|
|
|
| $ |
|
| $ |
| |||
Real Estate |
|
|
|
|
|
|
|
|
| |||
Home Equity |
|
|
|
|
|
|
|
|
| |||
Commercial and Industrial |
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
On June 30, 2019, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.
Note 9. Accumulated Other Comprehensive Loss
The balances in accumulated other comprehensive loss are shown in the following tables for June 30, 2020 and 2019:
(dollars in thousands) |
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2019 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Change in unrealized securities gains (losses), net of tax |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance at June 30, 2020 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
(dollars in thousands) |
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2018 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Change in unrealized securities gains (losses), net of tax |
|
|
|
|
|
|
|
|
| |||
Balance at June 30, 2019 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
There were no reclassifications adjustments reported on the consolidated statements of income during the three or six months ended June 30, 2020 or 2019.
| 28 |
| Table of Contents |
Note 10. Business Segments
The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending.Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided. The Company purchased the noncontrolling interest of F&M Mortgage and VSTitle during the second quarter of 2020.
The following tables represent revenues and expenses by segment for the three and six months ended June 30, 2020 and June 30, 2019.
|
| Six Months Ended June 30, 2020 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Other operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Total income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net income attributable to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net Income attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Total Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Goodwill |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 29 |
| Table of Contents |
|
| Three months ended June 30, 2020 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Total income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
| $ |
| ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income attributable to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Net Income attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | - |
|
| $ |
| ||||||
| 30 |
| Table of Contents |
Note 10. Business Segments, continued
|
| Six Months Ended June 30, 2019 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| VBS Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Total income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Net income attributable to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net Income attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Total Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Goodwill |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 31 |
| Table of Contents |
Note 10. Business Segments, continued
|
| Three Months Ended June 30, 2019 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| VBS Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Total income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Net income attributable to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net Income attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
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. There was no short term debt at June 30, 2020 and $
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
The Company utilized the Federal Reserve Paycheck Protection Program Liquidity Facility to fund the Paycheck Protection Program (“PPP”) loans funded in the second quarter. This funding facility is secured by the PPP loans and interest is set at a fixed rate of .35%.On June 30, 2020 the balances totaled $
VSTitle, LLC had a note payable to purchase vehicles that totaled $
| 32 |
| Table of Contents |
Note 12. Revenue Recognition
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Investment Services and Insurance Income
Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales.Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.
Title Insurance Income
VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed
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.
| 33 |
| Table of Contents |
Note 12. Revenue Recognition, continued
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2020 and 2019.
|
| Six Months Ended June 30, |
|
| Three Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest Income (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service Charges on Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Investment Services and Insurance Income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Title Insurance Income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
ATM and check card fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest Income (in-scope of Topic 606) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest Income (out-of-scope of Topic 606) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Noninterest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of June 30, 2020 and December 31, 2019, the Company did not have any significant contract balances.
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.
| 34 |
| Table of Contents |
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 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 $
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases:
(Dollars in thousands) |
| June 30, 2020 |
| |
Lease Liabilities |
| $ |
| |
Right-of-use assets |
|
|
| |
Weighted average remaining lease term |
|
|
| |
Weighted average discount rate |
|
| % | |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Lease cost (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total lease cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
|
| As of |
| |
|
| June 30, 2020 |
| |
Six months ending December 31, 2020 |
| $ |
| |
Twelve months ending December 31, 2021 |
|
|
| |
Twelve months ending December 31, 2022 |
|
|
| |
Twelve months ending December 31, 2023 |
|
|
| |
Twelve months ending December 31, 2024 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted cash flows |
| $ |
| |
Discount |
|
|
| |
Lease liabilities |
| $ |
| |
| 35 |
| Table of Contents |
Note 14. Mortgage Banking and Derivatives
Loans Held for Sale
The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. During the second quarter of 2020, the Company elected to begin using fair value accounting for its entire portfolio of loans held for sale (LHFS) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business total $
Interest Rate Lock Commitments and Forward Sales Commitments
The Company, through F&M Mortgage Company, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment). The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate loan commitments will close. The fair value of these derivative instruments is reported in “Other Assets” in the Consolidated Balance Sheet at June 30, 2020, and totaled $
During the second quarter of 2020, the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments is reported in “Other Liabilities” in the Consolidated Balance Sheet at June 30, 2020, and totaled $
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| Table of Contents |
Note 15. Subsequent Events
On July 29, 2020, the Company entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreement”) with certain institutional accredited investors pursuant to which the Company sold and issued $
The 2030 Notes will initially bear interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notes will mature on July 31, 2030.
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| Table of Contents |
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”), Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba F&M Mortgage) are wholly owned subsidiaries of the Bank. F & M Bank Corp. holds 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 eleven (as of August 1, 2020) branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers).TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides, brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Fishersville, and Woodstock, Virginia. VSTitle provides title insurance 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.
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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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies (continued)
Fair Value
The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques using significant assumptions that are observable in the market or (3) model-based techniques that use significant assumptions not observable in the market. When observable market prices and parameters are not fully available, management’s judgment is necessary to arrive at fair value including estimates of current market participant expectations of future cash flows, risk premiums, among other things. Additionally, significant judgment may be required to determine whether certain assets measured at fair value are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
Pension 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 August 3, 2020, we had processed 704 PPP loans for a total of $62.8 million through the SBA program, with expected fee income related to these loans of $2.4 million. These fees will be recognized over the life of the associated loans.
The Company is funding PPP loans through the Federal Reserve’s PPP liquidity 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 August 3, 2020, the Company had borrowed $59.9 million under the PPPLF program.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COVID-19, continued
While the impact of COVID-19 is uncertain at this time, at the end of the quarter data indicated that the economy is in a recession. Many foreign countries and states in the United States continue to be under restriction as far as employment, recreation and gatherings. Unemployment claims remain at record highs with estimates to go higher.
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 will miss the summer camp season.There were approximately $87 million in closed/restricted businesses that are considered non-essential and multi-family may struggle with collecting rents from tenants.
As of August 3, 2020, we had executed 1,001 modifications allowing principal and interest deferrals on outstanding loan balances of $108.3 million in connection with the COVID-19 related needs. These modifications, 70% of which were short-term dealer loan modifications, were no more than 6 months in duration and were consistent with regulatory guidance and the CARES Act. As of August 3, 2020, 138 loans remain in deferral with a balance of $24.4 million, all other modified loans have made payment.
The table below shows the impacted industries identified by management, the percent of the loan portfolio and the loan deferrals in those categories as of June 30, 2020:
Loan Category |
| Loan Balance (in thousands) |
|
| Percent of Total Loans Held for Investment |
|
| Number of Extensions |
|
| Dollar amount of Extension |
| ||||
Construction |
| $ | 32,103 |
|
|
| 4.85 | % |
|
| 2 |
|
| $ | 9,457 |
|
Land development |
|
| 9,941 |
|
|
| 1.50 | % |
|
| 1 |
|
|
| 219 |
|
Commercial owner occupied |
|
| 23,753 |
|
|
| 3.59 | % |
|
| 8 |
|
|
| 3,428 |
|
Commercial owner occupied -office |
|
| 8,226 |
|
|
| 1.24 | % |
|
| - |
|
|
| - |
|
Commercial owner occupied -campgrounds |
|
| 5,266 |
|
|
| 0.80 | % |
|
| 3 |
|
|
| 3,428 |
|
Commercial owner occupied -restaurants |
|
| 4,934 |
|
|
| 0.75 | % |
|
| 5 |
|
|
| 2,857 |
|
Commercial owner occupied -school |
|
| 973 |
|
|
| 0.15 | % |
|
| - |
|
|
| - |
|
Commercial owner occupied - church |
|
| 5,996 |
|
|
| 0.91 | % |
|
| 1 |
|
|
| 1,121 |
|
Commercial nonowner occupied - other |
|
| 16,039 |
|
|
| 2.42 | % |
|
| 9 |
|
|
| 2,587 |
|
Commercial hotel/motel |
|
| 14,623 |
|
|
| 2.21 | % |
|
| 13 |
|
|
| 13,020 |
|
Commercial assisted living |
|
| 2,656 |
|
|
| 0.40 | % |
|
| - |
|
|
| - |
|
Commercial nonowner occupied -retail |
|
| 22,397 |
|
|
| 3.39 | % |
|
| 8 |
|
|
| 13,208 |
|
Consumer - auto, truck, motorcycle |
|
| 82,702 |
|
|
| 12.50 | % |
|
| 731 |
|
|
| 8,630 |
|
Consumer other |
|
| 6,646 |
|
|
| 1.00 | % |
|
| 40 |
|
|
| 227 |
|
Poultry Farm |
|
| 14,166 |
|
|
| 2.14 | % |
|
| 2 |
|
|
| 295 |
|
Raw Farm Land |
|
| 11,102 |
|
|
| 1.68 | % |
|
| 2 |
|
|
| 1,355 |
|
Multifamily |
|
| 6,065 |
|
|
| 0.92 | % |
|
| 2 |
|
|
| 982 |
|
Farmland residential |
|
| 2,271 |
|
|
| 0.34 | % |
|
| - |
|
|
| - |
|
Municipals |
|
| 5,623 |
|
|
| 0.85 | % |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 275,482 |
|
|
| 41.64 | % |
|
| 827 |
|
| $ | 60,814 |
|
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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COVID-19, continued
Given the rapidly changing and unprecedented nature of the pandemic, however, the Company could experience material and adverse effects on its business, including as a result of credit deterioration, operational disruptions, decreased demand for products and services, or other reasons. Further, our loan deferral program could delay or make it difficult to identify the extent of current credit quality deterioration during the deferral period.The extent to which the pandemic impacts the Company will depend on future developments, which are 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.
Overview (Dollars in thousands)
Net income for the six months ended June 30, 2020 was $3,816 or $1.11 per diluted share, compared to $2,921 or $0.84 in the same period in 2019, an increase of 30.64%. This is a $895 increase compared to the first six months of 2019. During the six months ended June 30, 2020, noninterest income increased 33.22% and noninterest expense increased 2.00% during the same period.
During the three months ended June 30, 2020, net income was $2,627 or $0.76 per diluted share, compared to $1,635 or $.47 in the same period in 2019, an increase of 60.67%.
Results of Operations
As shown in Table I, the 2020 year to date tax equivalent net interest income decreased $1,074 or 6.66% compared to the same period in 2019.The tax equivalent adjustment to net interest income totaled $42 for the first six months of 2020.The yield on earning assets decreased .96%, while the cost of funds decreased .17% compared to the same period in 2019.
The three months ended June 30, 2020 tax equivalent net interest income decreased $444 or 5.50% compared to the same period in 2019.The tax equivalent adjustment to net interest income totaled $24 for the three months ended June 30, 2019.
Year to date, the combination of the decrease in yield on assets and the decrease in cost of funds coupled with changes in balance sheet leverage resulted in the net interest margin decreasing to 3.75% for the six months ended June 30, 2020, a decrease of 82 basis points when compared to the same period in 2019.For the three months ended June 30, 2020, the net interest margin decreased 91 basis points when compared to the same period in 2019.A schedule of the net interest margin for the three and six month periods ended June 30, 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: (Dollars in thousands). |
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||||
|
| Six Months |
|
| Three Months |
|
| Six Months |
|
| Three Months |
| ||||
Interest Income – Loans |
| $ | 17,589 |
|
| $ | 8,867 |
|
| $ | 19,017 |
|
| $ | 9,604 |
|
Interest Income - Securities and Other Interest-Earnings Assets |
|
| 513 |
|
|
| 125 |
|
|
| 296 |
|
|
| 178 |
|
Interest Expense – Deposits |
|
| 2,611 |
|
|
| 1,159 |
|
|
| 2,359 |
|
|
| 1,258 |
|
Interest Expense - Other Borrowings |
|
| 480 |
|
|
| 226 |
|
|
| 865 |
|
|
| 468 |
|
Total Net Interest Income |
|
| 15,011 |
|
|
| 7,607 |
|
|
| 16,089 |
|
|
| 8,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Tax Benefit on Tax-Exempt Interest Income – Loans |
|
| 42 |
|
|
| 24 |
|
|
| 38 |
|
|
| 19 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
| 42 |
|
|
| 24 |
|
|
| 38 |
|
|
| 19 |
|
Tax-Equivalent Net Interest Income |
| $ | 15,053 |
|
| $ | 7,631 |
|
| $ | 16,127 |
|
| $ | 8,075 |
|
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| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations, continued
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 41.27% of rate sensitive assets and 32.26% of rate sensitive liabilities are subject to repricing within one year. Due to the relatively low rate environment, Management has continued to decrease deposit rates. The growth in earning assets and the growth in noninterest bearing accounts has resulted in an increase in the positive GAP position in the one year time period.
The increase in noninterest income of $1,522 for the six-month period June 30, 2020 compared to the same period in 2019 is due primarily to growth in mortgage banking income ($1,555), and title insurance income ($161). The increase in noninterest income of $883 for the three months ended June 30, 2020 is primarily due to growth in mortgage banking income ($1,156). Increase in mortgage banking income was primarily due to the purchase of noncontrolling interest and increased business due to the low rate environment.
Noninterest expense for the six months ended June 30, 2020 increased $282 as compared to 2020.Expenses increased in the areas of ATM and card processing ($107), telecommunication and data processing expense ($291) and Bank franchise tax ($101) and were offset by savings in other real estate owned ($159) and legal and professional expense ($69).For the three months ended June 30, 2020 noninterest expense increased $192.Areas of increase were salary and benefits ($57), other real estate owned ($96) and telecommunication and data processing expense ($116).Increases in ATM and card processing are due to change in vendor and increased card usage. Telecommunication and data processing relate to new lending product and increase in remote processing. Bank franchise tax is due to growth.
Balance Sheet
Federal Funds Sold and Interest Bearing Bank Deposits
The Company’s subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest bearing bank deposits. Federal funds sold offer daily liquidity and pay market rates of interest that at quarter end were benchmarked at 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 $68,548 and $66,559 in federal funds sold at June 30, 2020 and December 31, 2019, respectively.Growth in excess funds is due to strong deposit growth, the Company is deploying these funds into the investment portfolio during 2020.Interest bearing bank deposits have increased by $77 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 June 30, 2020, the fair value of securities available for sale was below their cost by $91. The portfolio is made up of primarily agencies and mortgage backed obligations of federal agencies, as well as Securities issued by States and political subdivisions in the U.S. and Corporate debt securities. The average maturity is 5.56 years. Efforts to deploy excess funds in an uncertain rate environment has resulted in a mixture of maturities. There are $3 of securities that will mature in 2020.
In reviewing investments as of June 30, 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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. There are no loan concentrations as defined by regulatory guidelines.
Loans Held for Investment of $661,529 increased $58,104 at June 30, 2020 compared to December 31, 2019.Loan growth was concentrated in the commercial non-real estate (PPP loans), farmland and dealer finance segments of the portfolio.
Loans Held for Sale totaled $90,602 at June 30, 2020, an increase of $23,804 compared to December 31, 2019.The Northpointe participation loan program as well as F&M mortgage loans are typically subject to seasonal fluctuations, both have increased since year end with the largest portion being Northpointe. June also reflects the adoption of fair value accounting for the entire loans held for sale portfolio.
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 $4,466 at June 30, 2020 compared to $5,729 at December 31, 2019.The decrease in nonperforming loans from year end is primarily due to one commercial relationship which was refinanced outside of the Company due to the sale of the collateral, another relationship improved and was removed from nonaccrual during the first quarter. The balance also decreased due to payments received on the loan on nonaccrual basis during the second quarter. Although the potential exists for loan losses beyond what is currently provided for in the allowance for loan losses and what has previously been charged off, management believes the Bank is generally well secured and continues to actively work with its customers to effect payment.
As of June 30, 2020 and December 31, 2019, the Company held $1,160 and $1,489 of real estate which was acquired through foreclosure, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Loan Portfolio, continued
The following is a summary of information pertaining to risk elements and nonperforming loans (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Nonaccrual Loans |
|
|
|
|
|
| ||
Real Estate |
| $ | 1,148 |
|
| $ | 1,721 |
|
Commercial |
|
| 2,906 |
|
|
| 3,036 |
|
Home Equity |
|
| 240 |
|
|
| - |
|
Other |
|
| 135 |
|
|
| 250 |
|
|
| $ | 4,429 |
|
| $ | 5,007 |
|
Loans past due 90 days or more (excluding nonaccrual) |
|
|
|
|
|
|
|
|
Real Estate |
|
| - |
|
|
| 619 |
|
Commercial |
|
| - |
|
|
| - |
|
Home Equity |
|
| 31 |
|
|
| 15 |
|
Other |
|
| 6 |
|
|
| 88 |
|
|
|
| 37 |
|
|
| 722 |
|
Total Nonperforming loans |
| $ | 4,466 |
|
| $ | 5,729 |
|
|
|
|
|
|
|
|
|
|
Restructured Loans current and performing: |
|
|
|
|
|
|
|
|
Real Estate |
| $ | 2,999 |
|
| $ | 3,644 |
|
Commercial |
|
| 1,935 |
|
|
| 1,223 |
|
Home Equity |
|
| 703 |
|
|
| 716 |
|
Other |
|
| 128 |
|
|
| 167 |
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans held for investment |
|
| .68 | % |
|
| .95 | % |
Net charge offs to total loans held for investment1 |
|
| .20 | % |
|
| .71 | % |
Allowance for loan and lease losses to nonperforming loans |
|
| 224.65 | % |
|
| 146.45 | % |
1 – Annualized for six month period ended June 30, 2020
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.
| 45 |
| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Allowance for Loan Losses, continued
Loans that are not reviewed for impairment are categorized by call report code into unimpaired and classified loans. For both unimpaired and classified loans an estimate is calculated based on actual loss experience over the last two years. The classified Dealer finance loans are given a higher risk factor for past due and adverse risk ratings based on back testing of the risk factors.
A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio. The general allowance is calculated using nine qualitative factors identified in the 2006 Interagency Policy Statement on the allowance for loan losses. The general allowance assists in managing recent changes in portfolio risk that may not be captured in individually impaired loans, or in the homogeneous pools based on loss histories. The Board approves the loan loss provision for each quarter based on this evaluation.
The allowance for loan losses of $10,033 at June 30, 2020 is equal to 1.52% of loans held for investment, or 1.67% of loans held for investment excluding PPP loans. 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 half 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 was added to the loans reviewed for impairment, with $0 required reserve. Past due loans decreased during first half 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, childcare and education facilities, and multi-family properties. Based on the Bank’s loans in these industry segments, the environmental factor was increased for four segments of the loan portfolio. As a result, the Bank recorded a $2,300 provision for loan losses in the first six months 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.
Deposits and Other Borrowings
The Company's main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. Total deposits at June 30, 2020 have increased $124,943 since December 31, 2019.Noninterest bearing deposits increased $56,415 while interest bearing increased $68,528.The increase in deposits in the first six months is due to a focus on deposit growth as an organization as well as proceeds from PPP loans that are in deposit accounts of the Bank. The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. At June 30, 2020 and December 31, 2019 the Company had a total of $515 and $514 in CDARS funding and $39,346 and $25.714 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 also to finance the increase in short-term residential and commercial construction loans. As of June 30, 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 June 30, 2020 or December 31, 2019.
| 46 |
| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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 $40,982 and $53,196 on June 30, 2020 and December 31, 2019, respectively.
Borrowings from the Federal Reserve Paycheck Protection Program Liquidity Facility were utilized to fund the Paycheck Protection Program (“PPP”) loans originated in the second quarter. The Company’s subsidiary bank borrows funds on a fixed rate basis and secured by PPP loans; the maturity of the borrowings matches the maturity of the PPP loans. On June 30, 2020, the balances totaled $59,603; there were no borrowings under this program on December 31, 2019.
VS Title, LLC has a vehicle loan with a balance of $0 at June 30, 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 June 30, 2020, the Bank had Common Equity Tier I capital of 12.79%, Tier I capital of 12.79% of risk weighted assets and combined Tier I and II capital of 14.04% 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.
In addition, the regulatory agencies have issued guidelines requiring the maintenance of a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by average total assets. The regulators have established a minimum of 4% for this ratio but can increase the minimum requirement based upon an institution's overall financial condition. At June 30, 2020, the Bank reported a leverage ratio of 10.09%, 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 6.04% at June 30, 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 not to adopt the CBLR framework.
| 47 |
| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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. Additionally, the Bank can utilize the Federal Reserve Paycheck Protection Program Loan Facility.
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 June 30, 2020, the Company had a cumulative Gap Rate Sensitivity Ratio of 18.33% 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 Financial Accounting Standards Board (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, such as the Company 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.
| 48 |
| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effect of Newly Issued Accounting Standards, continued
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
In 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 adoption of ASU 2018-13 did not have a material impact on the Company’s 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.
| 49 |
| Table of Contents |
2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effect of Newly Issued Accounting Standards, continued
In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.”The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. 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 2020-01 will have on its consolidated financial statements.
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 excludes from the definition of “accelerated filer” 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.Nonaccelerated filers 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 nonaccelerated filers.
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 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.
| 50 |
| Table of Contents |
2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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).
TABLE I
F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
(Dollar Amounts in Thousands)
|
| Six Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
|
| Income/ |
|
| Average |
|
|
|
| Income/ |
|
| Average |
|
|
|
| Income/ |
|
| Average |
|
|
|
| Income/ |
|
| Average |
| |||||||||||||||||
Average |
| Balance2,4 |
|
| Expense |
|
| Rates |
|
| Balance2,4 |
|
| Expense |
|
| Rates |
|
| Balance2,4 |
|
| Expense |
|
| Rates |
|
| Balance2,4 |
|
| Expense |
|
| Rates |
| ||||||||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Loans held for investment1,2 |
| $ | 634,715 |
|
| $ | 17,039 |
|
|
| 5.40 | % |
| $ | 646,045 |
|
| $ | 18,232 |
|
|
| 5.69 | % |
| $ | 659,875 |
|
| $ | 8,570 |
|
|
| 5.22 | % |
| $ | 646,880 |
|
| $ | 9,126 |
|
|
| 5.66 | % |
Loans held for sale |
|
| 43,308 |
|
|
| 588 |
|
|
| 2.93 | % |
|
| 47,421 |
|
|
| 823 |
|
|
| 3.50 | % |
|
| 47,045 |
|
|
| 318 |
|
|
| 2.72 | % |
|
| 57,257 |
|
|
| 497 |
|
|
| 3.48 | % |
Federal funds sold |
|
| 114,477 |
|
|
| 317 |
|
|
| .56 | % |
|
| 3,697 |
|
|
| 43 |
|
|
| 2.35 | % |
|
| 134,335 |
|
|
| 23 |
|
|
| .07 | % |
|
| 6,000 |
|
|
| 25 |
|
|
| 1.67 | % |
Interest bearing deposits |
|
| 1,032 |
|
|
| 3 |
|
|
| .58 | % |
|
| 831 |
|
|
| 9 |
|
|
| 2.18 | % |
|
| 785 |
|
|
| - |
|
|
| - |
|
|
| 816 |
|
|
| 4 |
|
|
| 1.97 | % |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable 3 |
|
| 14,843 |
|
|
| 174 |
|
|
| 2.36 | % |
|
| 13,788 |
|
|
| 243 |
|
|
| 3.55 | % |
|
| 19,740 |
|
|
| 83 |
|
|
| 1.69 | % |
|
| 14,034 |
|
|
| 139 |
|
|
| 3.97 | % |
Partially taxable |
|
| 123 |
|
|
| 1 |
|
|
| 1.63 | % |
|
| 123 |
|
|
| 1 |
|
|
| 1.64 | % |
|
| 125 |
|
|
| - |
|
|
| - |
|
|
| 124 |
|
|
| - |
|
|
| - |
|
Tax exempt |
|
| 1,114 |
|
|
| 22 |
|
|
| 3.97 | % |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,228 |
|
|
| 22 |
|
|
| 3.97 | % |
|
| - |
|
|
| - |
|
|
| - |
|
Total earning assets |
| $ | 806,612 |
|
| $ | 18,144 |
|
|
| 4.52 | % |
| $ | 711,905 |
|
| $ | 19,351 |
|
|
| 5.48 | % |
| $ | 864,133 |
|
| $ | 9,016 |
|
|
| 4.20 | % |
| $ | 725,111 |
|
| $ | 9,791 |
|
|
| 5.42 | % |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 98,507 |
|
|
| 134 |
|
|
| .27 | % |
|
| 88,981 |
|
|
| 101 |
|
|
| .23 | % |
|
| 103,312 |
|
|
| 71 |
|
|
| .28 | % |
|
| 90,194 |
|
|
| 54 |
|
|
| .24 | % |
Savings |
|
| 273,765 |
|
|
| 1,310 |
|
|
| .96 | % |
|
| 196,311 |
|
|
| 1,082 |
|
|
| 1.11 | % |
|
| 290,762 |
|
|
| 516 |
|
|
| .71 | % |
|
| 200,351 |
|
|
| 598 |
|
|
| 1.20 | % |
Time deposits |
|
| 134,579 |
|
|
| 1,167 |
|
|
| 1.74 | % |
|
| 151,431 |
|
|
| 1,176 |
|
|
| 1.57 | % |
|
| 132,656 |
|
|
| 572 |
|
|
| 1.73 | % |
|
| 149,866 |
|
|
| 606 |
|
|
| 1.62 | % |
Short-term debt |
|
| 3,571 |
|
|
| 41 |
|
|
| 2.31 | % |
|
| 32,953 |
|
|
| 419 |
|
|
| 2.56 | % |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 34,208 |
|
|
| 216 |
|
|
| 2.53 | % |
Long-term debt |
|
| 61,829 |
|
|
| 439 |
|
|
| 1.43 | % |
|
| 47,326 |
|
|
| 446 |
|
|
| 1.90 | % |
|
| 78,088 |
|
|
| 226 |
|
|
| 1.16 | % |
|
| 47,767 |
|
|
| 252 |
|
|
| 2.12 | % |
Total interest bearing liabilities |
| $ | 572,251 |
|
| $ | 3,091 |
|
|
| 1.09 | % |
| $ | 517,002 |
|
| $ | 3,224 |
|
|
| 1.26 | % |
| $ | 604,818 |
|
| $ | 1,385 |
|
|
| .92 | % |
| $ | 522,386 |
|
| $ | 1,726 |
|
|
| 1.33 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income |
|
|
|
|
| $ | 15,053 |
|
|
|
|
|
|
|
|
|
| $ | 16,127 |
|
|
|
|
|
|
|
|
|
| $ | 7,631 |
|
|
|
|
|
|
|
|
|
| $ | 8,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.75 | % |
|
|
|
|
|
|
|
|
|
| 4.57 | % |
|
|
|
|
|
|
|
|
|
| 3.55 | % |
|
|
|
|
|
|
|
|
|
| 4.47 | % |
____________
1 | Interest income on loans includes loan fees. |
2 | Loans held for investment include nonaccrual loans. |
3 | 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. |
| 51 |
| Table of Contents |
TABLE II
F & M BANK CORP.
Interest Sensitivity Analysis
June 30, 2020
(Dollars In Thousands)
The following table presents the Company’s interest sensitivity.
|
| 0 – 3 |
|
| 4 – 12 |
|
| 1 – 5 |
|
| Over 5 |
|
| Not |
|
|
| |||||||
|
| Months |
|
| Months |
|
| Years |
|
| Years |
|
| Classified |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Uses of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| $ | 51,703 |
|
| $ | 17,195 |
|
| $ | 160,847 |
|
| $ | 32,152 |
|
| $ | - |
|
| $ | 261,897 |
|
Installment |
|
| 1,624 |
|
|
| 1,324 |
|
|
| 73,065 |
|
|
| 19,316 |
|
|
| - |
|
|
| 95,329 |
|
Real estate loans for investments |
|
| 93,846 |
|
|
| 40,787 |
|
|
| 145,295 |
|
|
| 21,639 |
|
|
| - |
|
|
| 301,567 |
|
Loans held for sale |
|
| 90,602 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 90,602 |
|
Credit cards |
|
| 2,736 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,736 |
|
Interest bearing bank deposits |
|
| 1,203 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,203 |
|
Federal funds sold |
|
| 68,548 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 68,548 |
|
Investment securities |
|
| 3,000 |
|
|
| 125 |
|
|
| 59,001 |
|
|
| 19,043 |
|
|
| - |
|
|
| 81,169 |
|
Total |
|
| 313,262 |
|
|
| 59,431 |
|
|
| 438,208 |
|
|
| 92,150 |
|
|
| - |
|
|
| 903,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
| - |
|
|
| 22,622 |
|
|
| 67,868 |
|
|
| 22,622 |
|
|
| - |
|
|
| 113,112 |
|
Savings deposits |
|
| - |
|
|
| 117,485 |
|
|
| 160,864 |
|
|
| 21,688 |
|
|
| - |
|
|
| 300,037 |
|
Certificates of deposit |
|
| 14,094 |
|
|
| 44,016 |
|
|
| 69,412 |
|
|
| 851 |
|
|
| - |
|
|
| 128,373 |
|
Short-term borrowings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Long-term borrowings |
|
| 6,107 |
|
|
| 2,821 |
|
|
| 81,032 |
|
|
| 10,625 |
|
|
| - |
|
|
| 100,585 |
|
Total |
|
| 20,201 |
|
|
| 186,944 |
|
|
| 379,176 |
|
|
| 55,786 |
|
|
| - |
|
|
| 642,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete Gap |
|
| 293,061 |
|
|
| (127,513 | ) |
|
| 59,032 |
|
|
| 36,364 |
|
|
| - |
|
|
| 260,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap |
| $ | 293,061 |
|
| $ | 165,548 |
|
| $ | 224,580 |
|
| $ | 260,944 |
|
| $ | 260,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative Gap to Total Earning Assets |
|
| 32.45 | % |
|
| 18.33 | % |
|
| 24.87 | % |
|
| 28.90 | % |
|
| 28.90 | % |
|
|
|
|
Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of June 30, 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.
| 52 |
| Table of Contents |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates. Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes. There have not been any changes which would significantly alter the results disclosed as of December 31, 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 June 30, 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 June 30, 2020. Management’s assessment concluded that there was no material weakness within the Company’s internal control structure as of June 30, 2020.
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 June 30, 2020 that have materially affected, or are reasonable likely to material affect, on the Company’s internal control over financial reporting.
| 53 |
| Table of Contents |
Part II Other Information
Item 1. | Legal Proceedings |
|
|
|
|
| There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject. | |
|
|
|
Item 1a. | Risk Factors | Not required |
|
|
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | None |
|
|
|
Item 3. | Defaults Upon Senior Securities | None |
|
|
|
Item 4. | Mine Safety Disclosures | None |
|
|
|
Item 5. | Other Information | None |
|
|
|
Item 6. | Exhibits |
|
| (a) | Exhibits |
|
| ||
|
|
|
|
|
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith). | |
|
|
|
|
|
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). | |
|
|
|
|
|
| ||
|
|
|
|
| 101 |
| The following materials from F&M Bank Corp.’s Quarterly Report on Form 10Q for the period ended June 30, 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). |
|
|
|
|
| 104 |
| The cover page from F&M Bank Corp.’s Quarterly Report on Form 10Q for the period ended June 30, 2020, formatted in Inline XBRL (included with Exhibit 101) |
| 54 |
| Table of Contents |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
F & M BANK CORP. | |||
|
|
| |
August 11, 2020 | /s/ Mark C. Hanna | ||
|
| Mark C. Hanna | |
President and Chief Executive Officer | |||
|
|
|
|
|
|
|
|
|
| /s/ Carrie A. Comer |
|
|
| Carrie A. Comer |
|
|
| Executive Vice President and Chief Financial Officer |
|
55 |
EXHIBIT 10.1
F & M BANK CORP.
2020 STOCK INCENTIVE PLAN
1. Purpose; Eligibility.
(a) General Purpose. The purpose of the F & M Bank Corp. 2020 Stock Incentive Plan is to further the long-term stability and financial success of the Company by attracting and retaining personnel, including employees, directors and Consultants, through the use of stock and stock-based incentives.The Company believes that ownership of Company Stock will stimulate the efforts of those persons upon whose judgment, interest and efforts the Company and its Affiliates depend for the successful conduct of their businesses and will further the alignment of those persons’ interests with the interests of the Company’s shareholders.
(b) Eligible Award Recipients. Any employee, director or Consultant of the Company or an Affiliate who, in the judgment of the Committee, has contributed or can be expected to contribute to the profits or growth of the Company or the Affiliate is eligible to become a Participant. The Committee shall have the power and complete discretion, as provided in Section 17, to select eligible Participants and to determine for each Participant the terms, conditions and nature of an Award and the number of shares to be allocated as part of the Award; provided, however, that any Award made to a member of the Committee must be approved by the Board.
(c) Available Awards. Awards of Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, and Stock Awards may be granted under the Plan.Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options.
(d) Date of Adoption, Effective Date. The Plan was adopted by the Board of Directors of the Company on March 19, 2020, and will become effective upon approval by the shareholders of the Company in accordance with applicable law at the annual meeting of shareholders on May 2, 2020, or on such other date of approval (the applicable approval date, the “Effective Date”).
2. Certain Definitions. The following terms have the meanings indicated:
(a) Act. The Securities Exchange Act of 1934, as amended.
(b) Affiliate. A corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.For purposes of an Incentive Stock Option, “Affiliate,” refers to a “parent corporation” or “subsidiary corporation” within the meaning of Treasury Regulations under Section 424 of the Code.
(c) Applicable Withholding Taxes. The aggregate amount of federal, state and local income and payroll taxes that the Company or an Affiliate is required to withhold (not in excess of the maximum applicable statutory withholding rate) in connection with any exercise of an Option, or the award, lapse of restrictions or payment with respect to any Award.
(d) Award. The award of an Option, Restricted Stock, Restricted Stock Unit, Stock Appreciation Right, or Stock Award under the Plan.
(e) Award Agreement. Any agreement, contract, certificate or other written instrument or document (which may be in electronic form) evidencing the terms and conditions of an Award granted under the Plan.Each Award Agreement shall be subject to the terms and conditions of the Plan.
(f) Board. The Board of Directors of the Company.
| 1 |
(g) Cause. With respect to any employee or Consultant: (1) if the employee or Consultant is a party to an employment agreement, change in control employment agreement, or other services agreement with the Company or its Affiliates and such agreement provides for a definition of Cause, the definition contained therein; or (2) if no such agreement exists, or if such agreement does not define Cause, the definition of Cause contained in the Award Agreement.In all other cases, Cause shall mean: the Participant’s personal dishonesty, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties of the Participant’s position, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, conviction of a felony or of a misdemeanor involving moral turpitude, misappropriation of the Company’s assets (determined on a reasonable basis) or those of its Affiliates, a material violation of the Company’s work rules or policies, in each case which is not remedied by Employee (if reasonably capable of remedy in the opinion of the Committee) within thirty (30) days after the date the Company provides written notice to Participant of the issue. The term “Cause” also shall include the Participant’s failure for any reason, within thirty (30) days after receipt by the Participant of written notice from the Company to correct, cease, or otherwise alter any action or omission that could materially or adversely affect the Company’s profits, reputation or operations.
The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause.Notwithstanding the foregoing, with respect to any director, a determination that the director has engaged in conduct that is covered by the definition of Cause shall be made by a majority of the disinterested Board members.
(h) Change in Control. A Change in Control shall be deemed to have occurred if one of the following has occurred at any time after the Award is granted: (i) any person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Company securities having 50% or more of the combined voting power of the then outstanding Company securities that may be cast for the election of the Company’s directors other than a result of an issuance of securities initiated by the Company, or open market purchases approved by the Board as long as the majority of the Board approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were members of the Board before such events cease to constitute a majority of the Board, or any successor’s board, within one year of the last of such transactions. A Change of Control occurs on the date on which an event described in (i) or (ii) occurs. If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events.
(i) Code. The Internal Revenue Code of 1986, as amended.Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
(j) Committee. The Committee appointed by the Board to administer the Plan pursuant to Section 17 of the Plan, or if no such Committee has been appointed, the Board.
(k) Company. F & M Bank Corp., a Virginia corporation.
(l) Company Stock. Common stock of the Company.If the par value of the Company Stock is changed, or in the event of a change in the capital structure of the Company (as provided in Section 14) the shares resulting from such a change shall be deemed to be Company Stock within the meaning of the Plan.
(m) Consultant. A person or entity rendering consulting or advisory services to the Company or an Affiliate who is not an “employee” for purposes of employment tax withholding under the Code or a director of the Company or an Affiliate.
(n) Date of Grant. The effective date of an Award granted by the Committee.
(o) Disability or Disabled. As to an Incentive Stock Option, a Disability within the meaning of Section 22(e)(3) of the Code.As to all other Awards, the Committee shall determine whether a Disability exists and such determination shall be conclusive.
| 2 |
(p) Fair Market Value.
(i) If the Company Stock is listed on any established stock exchange or quoted on any established stock market system (including the OTC Bulletin Board or OTC Markets Group), Fair Market Value shall be the closing price for the Company Stock on the date as of which Fair Market Value is determined for any purpose under this Plan (or if no trades were reported the closing price on the immediately preceding date on which the Company Stock was traded) as reported by such exchange or stock market system or such other source as the Committee deems reliable; provided, however, the Committee may elect to use, subject to applicable requirements of the Code and Treasury Regulations, the average closing price over a designated number of up to thirty (30) consecutive days to determine the Fair Market Value if the daily volume of trading in the Company Stock is not, in the sole discretion of the Committee, sufficient to be a reliable indicator of Fair Market Value.
(ii) If the Company Stock is not then listed on any established stock exchange or quoted on any established stock market system (including the OTC Bulletin Board or OTC Markets Group) or if, in the opinion of the Committee, the method set forth in (i) is otherwise inapplicable or inappropriate for any reason, Fair Market Value shall be the fair market value of a share of Company Stock as determined pursuant to a reasonable application of a reasonable method adopted by the Committee in good faith for such purpose, which shall be conclusive and binding on all persons; provided, however, that the Fair Market Value of Company Stock subject to an Incentive Stock Option shall be determined in good faith within the meaning of Treasury Regulation § 1.422-2(e)(2) and the Fair Market Value of Company Stock subject to a Nonstatutory Stock Option or a Stock Appreciation Right shall be determined in accordance with Treasury Regulation § 1.409A-1(b)(5)(iv).
(q) Good Reason. If the Participant is a party to an employment agreement,change in control employment agreement, or other services agreement with the Company or an Affiliate and such agreement provides for a definition of Good Reason, the definition contained in the agreement.If no such agreement exists or if such agreement does not define Good Reason, the definition of Good Reason contained in the Award Agreement.In all other cases, Good Reason shall mean the occurrence of one or more of the following without the Participant’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the Participant describing the applicable circumstances (which notice must be provided by the Participant within ninety (90) days of the Participant’s knowledge of the applicable circumstances): (i) any material, adverse change in the Participant’s duties, responsibilities, authority, title, status or reporting structure; (ii) a material reduction in the Participant’s base salary unless any such base salary or bonus opportunity reduction is proportionate to reductions in base salaries of other similarly situated employees of the Company or an Affiliate; or (iii) a geographical relocation of the Participant’s principal office location by more than seventy-five (75) miles.
(r) Incentive Stock Option. An Option intended to meet the requirements of, and qualify for, favorable federal income tax treatment under, Section 422 of the Code, and is so designated.
(s) Nonstatutory Stock Option. An Option that does not meet the requirements of Section 422 of the Code, or that is otherwise not intended to be an Incentive Stock Option.
(t) Option. A right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan.
(u) Participant. Any eligible Award recipient who is granted an Award under the Plan.
(v) Performance Award. An Award for which exercise, full enjoyment or receipt thereof by the Participant is contingent on satisfaction or achievement of a Performance Goal. The terms and conditions of each Performance Award, including the Performance Goal and performance period, shall be set forth in the applicable Award Agreement with the Participant or in a subplan of the Plan which is incorporated by reference into the Award Agreement.
| 3 |
(w) Performance Goal. Performance Goal means one or more performance measures or goals set by the Committee in its discretion for each grant of an Award subject to performance-based conditions.The extent to which such performance measures or goals are met will determine the amount or value of such Award that a Participant is entitled to exercise, receive or retain.For purposes of the Plan, a Performance Goal may be particular to a Participant, and may include, but is not limited to, any one or more of the following performance criteria, either individually, alternatively or in any combination, subset or component, applied to the performance of the Company as a whole or to the performance of an Affiliate, division, strategic business unit, line of business or business segment, measured either quarterly, annually or cumulatively over a period of years or partial years, in each case as specified by the Committee in the Award:(i) Company Stock value or increases therein, (ii) total shareholder return, (iii) operating revenue, (iv) earnings per share or earnings per share growth (before or after one or more of taxes, interest, depreciation and/or amortization), (v) net earnings, (vi) operating efficiency, (vii) return on equity, (viii) return on tangible equity or return on tangible common equity, (ix) return on assets, net assets, capital or investment (including return on total capital or return on invested capital), (x) return on operating revenue, (xi) deposits, loan and/or equity levels or growth thereof, (xii) working capital targets, (xiii) assets under management or growth thereof, (xiv) cost control measures, (xv) regulatory compliance, (xvi) income or net income, (xvii) operating income, (xviii) credit quality, achievement of strategic performance objectives, (xix) achievement of merger or acquisition objectives, or (xx) market share, (including, without limitation, determination thereof, in the Committee’s sole discretion, with or without the effect of discontinued operations and dispositions of business units or segments, non-recurring items, material extraordinary items that are both unusual and infrequent, non-budgeted items, special charges, accruals for acquisitions, reorganization and restructuring programs and/or changes in tax law, accounting principles or other such laws or provisions affecting the Company’s reported results). Performance Goals may include a threshold level of performance below which no payment or vesting may occur, levels of performance at which specified payments or specified vesting will occur, and a maximum level of performance above which no additional payment or vesting will occur.Performance Goals may be absolute in their terms or measured against or in relationship to a pre-established target, the Company’s budget or budgeted results, previous period results, a market index, a designated comparison group of other companies comparably, similarly or otherwise situated, or any combination thereof.The Committee shall determine the performance period during which a Performance Goal must be met, and attainment of Performance Goals shall be subject to certification by the Committee.
(x) Plan. The F & M Bank Corp. 2020 Stock Incentive Plan.
(y) Restricted Stock. Company Stock awarded upon the terms and subject to the restrictions set forth in Section 6.
(z) Restricted Stock Unit. An Award, designated as a Restricted Stock Unit under the Plan, that represents the right to receive Company Stock and/or cash in lieu thereof upon the terms and subject to the restrictions set forth in Section 7 and which, unless otherwise expressly provided, is valued by reference to the Fair Market Value of a share of Company Stock.
(aa) Rule 16b-3. Rule 16b-3 promulgated under the Act, including any corresponding subsequent rule or any amendments to Rule 16b-3 enacted after the effective date of the Plan.
(bb) Stock Appreciation Right or SAR. An Award granted under Section 9 under which a Participant may receive, upon exercise, an amount payable in cash or shares equal to the number of shares subject to the SAR that is being exercised, multiplied by the excess of (a) the Fair Market Value of a share of Company Stock on the date the SAR is exercised, over (b) the exercise price specified in the SAR.
(cc) Stock Award. Company Stock awarded to a non-employee member of the Board or the board of directors of an Affiliate as a fee or retainer for service, including annual or other grants made pursuant to a director compensation policy or arrangement, pursuant to Section 8.
(dd) 10% Shareholder. A person who owns, directly or indirectly and within the meaning of Section 422 or 424 of the Code, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company.Indirect ownership of stock shall be determined in accordance with Section 424(d) of the Code.
3. Shares Subject to the Plan.
(a) Number of Shares. Subject to adjustment as provided in Section 14, and subject to Section 3(b) and 3(c), a total of 200,000 shares of Company Stock may be issued pursuant to Awards under the Plan. All 200,000 shares of Company Stock issuable under the Plan may be issued pursuant to the exercise of Incentive Stock Options granted under the Plan (including shares issued pursuant to the exercise of Incentive Stock Options that are the subject to disqualifying dispositions within in the meaning of Sections 421 and 422 of the Code).
(b) Lapsed Awards or Forfeited Shares. Any shares of Company Stock subject to an Award (or portion of an Award) that is canceled, forfeited or expires prior to exercise, vesting or settlement, shall again become available for issuance under the Plan.
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(c) Use of Shares as Payment of Exercise Price or Taxes. Shares of Company Stock subject to an Award shall not again be made available for issuance or delivery under the Plan, and shall count against Shares available for future Awards, if such shares are tendered, withheld or otherwise used in payment of an Option or SAR exercise price or to satisfy any amount of tax withholding with respect to the Award.
(d) Per-Participant Annual Limits. The maximum number of shares of Company Stock with respect to which Awards may be granted in any calendar year to any Participant shall not exceed 10,000 shares in the aggregate; provided, that the maximum number of shares of Company Stock with respect to which Awards may be granted in any calendar year to any non-employee director of the Company or an Affiliate shall not exceed 2,000 shares. If an Award is to be settled in cash, the number of shares of Company Stock on which the Award is based shall count toward the individual share limit set forth in this Section 3(d).
4. Stock Options.
(a) Option Grant. Whenever the Committee deems it appropriate to grant Options, an Award Agreement shall be given to the Participant stating the number of shares for which Options are granted, the exercise price per share, whether the options are Incentive Stock Options or Nonstatutory Stock Options, and the conditions to which the grant and exercise of the Options are subject, including the minimum vesting provisions of Section 18.The Award Agreement shall set forth all restrictions on disposition and transfer applicable to the Option shares.Incentive Stock Options may be granted to employees of the Company or an Affiliate.Non-employee directors and Consultants shall not be eligible to receive Incentive Stock Options.No Option (or portion thereof) that is intended to be an Incentive Stock Option shall be invalid for failure to so qualify, but instead such Option (or portion thereof) shall constitute a Nonstatutory Stock Option.
(b) Exercise Price. The Committee shall establish the exercise price of Options.The exercise price of an Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant, provided that if the Participant is a 10% Shareholder, the exercise price of an Incentive Stock Option shall not be less than 110% of the Fair Market Value of such shares on the Date of Grant.
(c) Term. The Committee shall establish the term of each Option in the Participant’s Award Agreement.The term of an Option shall not be longer than ten (10) years from the Date of Grant, except that an Incentive Stock Option granted to a 10% Shareholder shall not have a term in excess of five (5) years.No Option may be exercised after the expiration of its term or, except as set forth in the Participant’s Award Agreement, after the termination of the Participant’s employment with the Company and/or its Affiliates.
(d) Time of Exercise.
(i) During Participant’s Employment or Service. Options may be exercised during their terms in whole or in part at such times as may be specified by the Committee in the Participant’s Award Agreement.The Committee may impose such vesting conditions and other requirements as the Committee deems appropriate.
(ii) After Participant’s Termination of Employment or Service. The Committee shall set forth in the Participant’s Award Agreement when, and under what circumstances, an Option may be exercised after termination of the Participant’s employment or period of service; provided that no Incentive Stock Option may be exercised after the earlier of (a) (i) three (3) months from the Participant’s termination of employment with the Company for reasons other than Disability or death, or (ii) one (1) year from the Participant’s termination of employment on account of Disability or death; or (b) the expiration of the Option’s term.The Award Agreement may provide for various conditions with respect to the exercise of the Option after termination of employment, including, but not limited to, compliance with noncompetition and confidentiality covenants.
(iii) After Participant’s Death. If a Participant dies and if the Participant’s Award Agreement provides that part or all of the Option may be exercised after the Participant’s death, then such portion may be exercised by the executor or administrator of the Participant’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Participant’s death during the time period specified in the Award Agreement, but not later than the expiration of the Option’s term.
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The Committee may, in its sole discretion, amend a previously granted Incentive Stock Option to provide for more liberal exercise provisions, provided, however, that if the Incentive Stock Option as amended no longer meets the requirements of Section 422 of the Code, and, as a result the Option no longer qualifies for favorable federal income tax treatment under Section 422 of the Code, the amendment shall not become effective without the written consent of the Participant.
(e) Limit on Exercise of Incentive Stock Options. An Incentive Stock Option, by its terms, shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock Options are exercisable by the Participant for the first time during the calendar year does not exceed $100,000 (the “Limitation Amount”).Incentive Stock Options granted under the Plan and all other plans of the Company and its Affiliates shall be aggregated for purposes of determining whether the Limitation Amount has been exceeded.The Board may impose such conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing requirement is met.If Incentive Stock Options that first become exercisable in a calendar year exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to the extent permitted by law.
5. Method of Exercise of Options.
(a) Exercise. Options may be exercised by giving written notice of the exercise to the Company, stating the Option being exercised and the number of shares the Participant has elected to purchase under the Option.
(b) Payment. In no event shall any shares be issued pursuant to the exercise of an Option until the Participant has made full payment for the shares of Company Stock (including payment of the exercise price and any Applicable Withholding Taxes).Company Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows, provided that the Committee may impose such limitations and restrictions on payments with shares of Company Stock (including without limitation by “net share exercise”) as the Committee, in its discretion, deems advisable:
(i) in cash or by check, payable to the order of the Company;
(ii) by delivery of Company Stock that the Participant has previously acquired and owned (valued at Fair Market Value on the date of exercise), provided that such method of payment is then permitted under applicable law and the Company Stock was owned by the Participant for such period of time, if any, required to avoid a charge to earnings for financial accounting purposes;
(iii) if provided in an Award Agreement, by withholding and retention by the Company of sufficient shares of Company Stock issuable in connection with the exercise to cover the exercise price (a “net share exercise”) for an option not intended to be an Incentive Stock Option and, if required by the Committee, Applicable Withholding Taxes;
(iv) by delivery of a properly executed exercise notice together with irrevocable instructions to a creditworthy broker to deliver promptly to the Company, from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the amount necessary to pay the exercise price and, if required by the Committee, Applicable Withholding Taxes; or
(v) by any combination of the above permitted forms of payment.
(c) Delivery of Shares. The Company may place on any certificate representing Company Stock issued upon the exercise of an Option (or equivalent book-entry share) any legend deemed desirable by the Company’s counsel to comply with federal or state securities laws.The Company may require of the Participant a customary indication of his or her investment intent.A Participant shall not possess shareholder rights with respect to shares acquired upon the exercise of an Option until the Participant has made any required payment, including payment of Applicable Withholding Taxes, and the Company has issued a certificate (or made an equivalent book-entry notation in the records of the Company’s stock transfer agent) for the shares of Company Stock acquired.
(d) Disqualifying Disposition. If a Participant disposes of shares acquired upon exercise of an Incentive Stock Option within two (2) years from the date the Option is granted or within one (1) year after the issuance of such shares to the Participant, the Participant shall notify the Company of such disposition and provide information regarding the date of disposition, sale price, number of shares disposed of, and any other information relating thereto that the Company may reasonably request.
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6. Restricted Stock Awards.
(a) Grant. Whenever the Committee deems it appropriate to grant a Restricted Stock Award, an Award Agreement shall be given to the Participant stating the number of shares of Restricted Stock for which the Award is granted, the Date of Grant, and the terms and conditions to which the Award is subject.Certificates representing the shares shall be issued (or an equivalent book-entry notation shall be made in the records of the Company’s transfer agent) in the name of the Participant, subject to the restrictions imposed by the Plan and the Committee.Alternatively, the Committee may determine that the Restricted Stock shall be held by the Company rather than delivered to the Participant pending the release of the applicable restrictions.A Restricted Stock Award may be made by the Committee in its discretion without cash consideration.
(b) Restrictions on Transferability and Vesting. The Committee may place such restrictions on the transferability and vesting of Restricted Stock as the Committee deems appropriate, including restrictions relating to continued service and/or achievement of Performance Goals.Restricted Stock may not be sold, assigned, transferred, disposed of, pledged, hypothecated or otherwise encumbered until the restrictions on such shares shall have lapsed or shall have been removed pursuant to subsection (c) below.
(c) Lapse of Restrictions on Transferability. The Committee shall establish as to each Restricted Stock Award the terms and conditions upon which the restrictions on transferability and vesting set forth in paragraph (b) above shall lapse, subject to the minimum vesting provisions of Section 18.Such terms and conditions may include, without limitation, the passage of time, the meeting of performance objectives, the lapsing of such restrictions as a result of the Disability or death of the Participant, the occurrence of a Change in Control, or certain terminations of employment in connection with a Change in Control or otherwise.
(d) Rights of the Participant and Restrictions. A Participant shall hold shares of Restricted Stock subject to the restrictions set forth in the Award Agreement and in the Plan.In other respects, unless otherwise provided in the Award Agreement, the Participant shall have all the rights of a shareholder with respect to the shares of Restricted Stock, including, but not limited to, the right to vote such shares and the right to receive all cash dividends and other distributions paid thereon; provided, that the Award Agreement shall provide that any cash dividends and stock dividends with respect to Restricted Stock shall be withheld by the Company for the Participant’s account unless and until the underlying shares of Restricted Stock vest. The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the discretion of the Committee, in shares of Company Stock having a Fair Market Value equal to the amount of such dividends, if applicable, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.To the extent stock certificates are delivered to the Participant, the certificates representing Restricted Stock shall bear a legend referring to the restrictions set forth in the Plan and the Participant’s Award Agreement.
7. Restricted Stock Unit Awards.
(a) Grant. Whenever the Committee deems it appropriate to grant a Restricted Stock Unit Award, an Award Agreement shall be given to the Participant stating the number of Restricted Stock Units in the Award, the Date of Grant, and the terms and conditions to which the Award is subject.No shares of Company Stock shall be issued at the time a Restricted Stock Unit is granted, and the Company will not be required to set aside a fund for the payment of any such award.A Restricted Stock Unit Award may be made by the Committee in its discretion without cash consideration.
(b) Restrictions on Vesting. The Committee may place such restrictions on the vesting and settlement of Restricted Stock Units as the Committee deems appropriate, including restrictions relating to continued employment or service and/or achievement of Performance Goals, subject to the minimum vesting provisions of Section 18.Restricted Stock Units may not be sold, assigned, transferred, disposed of, pledged, hypothecated or otherwise encumbered.
(c) Rights of the Participant. A Participant shall have no voting rights with respect to Restricted Stock Units.At the discretion of the Committee, to the extent set forth in the Award Agreement each Restricted Stock Unit (representing one share of Company Stock) may be credited with cash and stock dividends paid by the Company in respect of one share of Company Stock.Dividends credited to a Participant’s account and attributable to any particular Restricted Stock Unit shall be distributed in cash or, at the discretion of the Committee, in shares of Company Stock having a Fair Market Value equal to the amount of such accumulated dividends to the Participant upon settlement of such Restricted Stock Unit.If such Restricted Stock Unit is forfeited, the Participant shall have no right to such accumulated dividends.
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(d) Settlement. Unless otherwise provided in the Award Agreement, a Participant’s Restricted Stock Units which vest shall be immediately settled by the issuance and delivery to the Participant of one share of Company Stock for each vested Restricted Stock Unit or the payment of cash in an amount equal to the number of shares for which the Restricted Stock Unit vested multiplied by the Fair Market Value of a share of Company Stock on the vesting date, or a combination thereof as determined by the Committee.
8. Stock Awards. Whenever the Committee deems it appropriate to grant a Stock Award to a non-employee member of the Board or the board of directors of an Affiliate, such Stock Award may be granted and, if desired by the Committee, an Award Agreement shall be given to the Participant stating the number of shares of unrestricted Company Stock for which the Award is granted, the Date of Grant, and the terms and conditions to which the Award is subject, if any. Certificates representing the shares shall be issued (or an equivalent book-entry notation shall be made in the records of the Company’s transfer agent) in the name of the Participant, subject to any terms imposed by the Plan and the Committee, as soon as practicable after the Date of Grant.A Stock Award may be made by the Committee in its discretion without cash consideration.
9. Stock Appreciation Rights.
(a) Grant. Whenever the Committee deems it appropriate to grant Stock Appreciation Rights, an Award Agreement shall be given to the Participant stating the number of shares for which SARs are granted, the Date of Grant, the exercise price and terms and conditions to which the award is subject.Subject to the minimum vesting provisions of Section 18, SARs may be granted alone (“Stand-Alone SARs”) or in tandem with an Option granted under the Plan (“Tandem SARs”).
(b) Tandem SARs. Tandem SARs may be exercised with respect to all or part of the shares of Company Stock subject to the Option in connection with which it is granted (a “Related Option”).The exercise of Tandem SARs will cause a reduction in the number of shares of Company Stock subject to the Related Option equal to the number of shares with respect to which the Tandem SAR is exercised.Conversely, the exercise, in whole or part, of a Related Option, will cause a reduction in the number of shares subject to the Tandem SAR equal to the number of shares with respect to which the Related Option is exercised.Shares with respect to which the Tandem SAR shall have been exercised may not be subject again to an Award under the Plan.
(c) Exercise. In no event shall the term of any SAR granted under the Plan exceed ten (10) years from the Date of Grant.A SAR may be exercised only when the Fair Market Value of a share exceeds either (i) the Fair Market Value per share on the Date of Grant (typically denominated as the exercise price) in the case of a Stand-Alone SAR or (ii) the exercise price of the Related Option in the case of a Tandem SAR.Notwithstanding any other provision of the Plan to the contrary, a Tandem SAR will expire no later than the expiration of the Related Option, will be transferable only when and under the same conditions as the Related Option is transferable and will be exercisable only when the Related Option is eligible to be exercised.A SAR shall be exercised by delivery to the Committee of a notice of exercise in the form prescribed by the Committee.The exercise price of a SAR may not be less than the Fair Market Value on the Date of Grant.
(d) Payment. Upon the exercise of a SAR, the Participant is entitled to receive, without any payment to the Company (other than Applicable Withholding Tax), an amount equal to the product of multiplying (i) the number of shares with respect to which the SAR is exercised by (ii) an amount equal to the excess of (A) the Fair Market Value per share on the date of exercise of the SAR over (B) the exercise price specified in the Award Agreement for the SAR or in the related Stock Option Award Agreement in the case of a Tandem SAR.The Award Agreement for the SAR may provide for a payment of the SAR at the time of exercise or, on an elective or non-elective basis, for payment of the SAR at a later date, adjusted (if so provided in the Award Agreement) from the date of exercise based on an interest or other basis (including deemed investment of the SAR payment in shares of Company Stock) set forth in the Award Agreement.
(e) Transfer. No SAR granted under the Plan, and no right to receive payment in connection therewith, may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.Further, all SARs, and rights in connection therewith, granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant or his guardian or legal representative.
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10. Applicable Withholding Taxes. Each Participant shall agree, as a condition of receiving an Award, to pay to the Company or the Affiliate, or make arrangements satisfactory to the Company or the Affiliate regarding the payment of, all Applicable Withholding Taxes with respect to the Award.Until the Applicable Withholding Taxes have been paid or arrangements satisfactory to the Company or the Affiliate have been made, no stock certificates or book-entry shares (or, in the case of Restricted Stock, Restricted Stock Units and Stock Awards, no stock certificates or book-entry shares free of a restrictive legend) shall be issued to the Participant.As an alternative to making a cash payment to the Company or the Affiliate to satisfy Applicable Withholding Tax obligations, the Committee may establish procedures permitting the Participant to elect to (a) deliver shares of already owned Company Stock or (b) have the Company retain that number of shares of Company Stock from the shares otherwise deliverable under the Award, in either case with respect to which the Company has a statutory obligation to withhold taxes, up to the maximum tax rate applicable to the Participant, as determined by the Committee.Any such election shall be made only in accordance with procedures established by the Committee to avoid a charge to earnings for financial accounting purposes and in accordance with Rule 16b-3.
11. Nontransferability of Awards.
(a) General Rule. Awards, by their terms, shall not be transferable by the Participant except by will or by the laws of descent and distribution or except as described below.Incentive Stock Options shall be exercisable, during the Participant’s lifetime, only by the Participant.
(b) Limited Transferability. Notwithstanding the provisions of Section 11(a) and subject to federal and state securities laws, the Committee may on a case-by-case basis grant or amend Nonstatutory Stock Options that permit a Participant to transfer the Options to one or more immediate family members, to a trust for the benefit of immediate family members, or to a partnership, limited liability company, or other entity the only partners, members, or interest-holders of which are among the Participant’s immediate family members.Consideration may not be paid for the transfer of Options.The transferee of an Option shall be subject to all conditions applicable to the Option prior to its transfer.The Award Agreement granting the Option shall set forth the transfer conditions and restrictions.The Committee may impose on any transferable Option and on stock issued upon the exercise of an Option such limitations and conditions as the Committee deems appropriate in its sole discretion.
12. No Option or SAR Repricing. Notwithstanding any provision of the Plan to the contrary, neither the Committee nor the Board shall have the right or authority to amend or modify the exercise price of any outstanding Option or outstanding SAR, or to cancel an outstanding Option or SAR, at a time when the exercise price of the Option or SAR, as applicable, is greater than the Fair Market Value of a share of Company Stock in exchange for cash, another Award, or other securities, except in connection with a change in capital structure or corporate transaction involving the Company in accordance with Section 14 or Section 16.
13. Duration, Amendment or Modification of the Plan.
(a) Duration. If not sooner terminated by the Board, this Plan shall terminate at the close of business on March 18, 2030.Awards outstanding on the date of such termination shall remain valid in accordance with their terms.
(b) Amendment and Modification. The Board may at any time terminate, suspend, amend or modify the Plan.Any such amendment or modification may be without shareholder approval, except to the extent that such shareholder approval is required by the Code, pursuant to the rules under Section 16 of the Act, by any national securities exchange or stock market system on which shares of Company Stock is then listed or quoted, by any regulatory body having jurisdiction with respect thereto, or under any other applicable laws, rules or regulations.Awards outstanding on the date of such action shall remain valid in accordance with their terms.
(c) Amendments to Awards. Subject to the terms and provisions and within the limitations of the Plan, the Committee may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel or terminate, any outstanding Award on either aprospective or retroactive basis; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of any Participant or other holder of an outstanding Award shall not be effective without the consent of the affected Participant or holder.
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14. Change in Capital Structure.
(a) Effect of Change in Capital Structure. In the event of changes in the outstanding shares of Company Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, spin-off of a subsidiary, or other relevant change in capitalization occurring after the Date of Grant of any Award, the number and kind of shares of stock or securities of the Company to be issued under the Plan (under outstanding Awards and Awards to be granted in the future), the per Participant maximums provided for in Section 3, the exercise price of Options and SARs, and other relevant provisions shall be equitably adjusted by the Committee, whose determination shall be binding on all persons, as to the number, price or kind of consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award.If the adjustment would produce fractional shares with respect to any Award, the Committee may adjust appropriately the number of shares covered by the Award so as to eliminate the fractional shares.
(b) Authority. Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee’s determination shall be conclusive and binding on all persons for all purposes.The Committee shall make its determinations consistent with Rule 16b-3 and the applicable provisions of the Code.
15. Termination of Employment or Service. The Committee shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon the termination of employment or service of a Participant, and may provide such terms and conditions in the Award Agreement or in such rules and policies as it may prescribe.If the terms of an Award provide that the Award will be exercisable, or become vested, or that payment will be made thereunder only if the Participant completes a stated period of employment or service, the Committee may decide to what extent leaves of absence for governmental or military service, illness, temporary disability or other reasons shall not be deemed interruptions of continuous employment or service.
16. Change in Control.
(a) Effect of a Change in Control of the Company. In the event of a Change in Control of the Company, the Committee, as constituted before such Change in Control, may take such actions with respect to any outstanding Award, either at the time the Award is made or any time thereafter, as the Committee deems appropriate.These actions may include, but shall not be limited to, the following:
(i) Providing for the purchase or settlement of any such Award by the Company for an amount of cash equal to the amount which could have been obtained upon the exercise of such Award or realization of a Participant’s rights had such Award been currently exercisable or payable;
(ii) Making adjustments to Awards then outstanding as the Committee deems appropriate to reflect such Change in Control and to retain the economic value of the Award; or
(iii) Causing any such Award then outstanding to be assumed, or new rights substituted therefore, by the acquiring or surviving corporation in such Change in Control.
(b) Successors. The obligations of the Company under the Plan and any Award Agreements shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its Affiliates, taken as a whole.
17. Administration of the Plan.
(a) The Committee. The Plan shall be administered by the Committee, which shall be appointed by the Board. The Committee shall consist of “independent” directors for purposes of any relevant stock exchange listing standards.To the extent required by Rule 16b-3, all Awards shall be made by members of the Committee who are “Non-Employee Directors” as that term is defined in Rule 16b-3, or by the Board.In the event the Board determines that a member of the Committee (or any applicable subcommittee) was not an “independent director” under applicable stock exchange listing standards, and/or was not a “non-employee director” as defined in Rule 16b-3, as applicable, on the Date of Grant, such determination shall not invalidate the Award and the Award shall remain valid in accordance with its terms.Any authority granted to the Committee may also be exercised by the full Board.
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(b) Authority of the Committee. Subject to the express provisions of the Plan, the Committee shall have full and final authority to impose such limitations or conditions upon an Award as the Committee deems appropriate to achieve the objectives of the Award and the Plan.Without limiting the foregoing and in addition to the powers set forth elsewhere in the Plan, the Committee shall have the power and complete discretion to determine: (i) which eligible persons shall receive an Award and the nature of the Award; (ii) the number of shares of Company Stock to be covered by each Award; (iii) whether Options shall be Incentive Stock Options or Nonstatutory Stock Options; (iv) the Fair Market Value of Company Stock; (v) the time or times when an Award shall be granted; (vi) whether an Award shall become vested over a period of time, according to a performance-based vesting schedule or otherwise, and when it shall be fully vested; (vii) the terms and conditions under which restrictions imposed upon an Award shall lapse, including conditions relating to attainment of Performance Goals; (viii) whether a Change in Control has occurred; (ix) factors relevant to the lapse of restrictions, vesting, exercise and settlement of Awards; (x) when Options may be exercised; (xi) whether to approve a Participant’s election with respect to Applicable Withholding Taxes; (xii) conditions relating to the length of time before disposition of Company Stock received in connection with an Award is permitted; (xiii) notice provisions relating to the sale of Company Stock acquired under the Plan; (xiv) subject to the minimum vesting provisions of Section 18, whether to accelerate vesting of an Award; and (xiv) any additional requirements relating to Awards that the Committee deems appropriate.
(c) Action by the Committee. The Committee may adopt rules and regulations for carrying out the Plan.The Committee shall have the express discretionary authority to construe and interpret the Plan and the Award Agreements, to resolve any ambiguities, to define any terms, and to make any other determinations required by the Plan or an Award Agreement.The interpretation and construction of any provisions of the Plan or an Award Agreement by the Committee shall be final and conclusive.The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel.
(d) Delegation. The Committee, in its discretion, may delegate to one or more officers of the Company all or part of the Committee’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Act. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegate or delegates that were consistent with the terms of the Plan.
18. Minimum Vesting Period. Except as provided in the following sentence, Awards under this Plan will be subject to a minimum one-year vesting period from the Date of Grant, and the Committee shall not have the discretion to accelerate the vesting of such Awards except in the case of death, Disability, or a Change in Control.The foregoing minimum vesting period shall not be applicable to Awards granted to non-employee members of the Board of the board of directors of an Affiliate as a fee or retainer for service, including annual or other grants made pursuant to a director compensation policy or arrangement.
19. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally, electronically, or mailed first class, postage prepaid, as follows: (a) if to the Company - at its principal business address to the attention of the Secretary; (b) if to any Participant - at the last address of the Participant known to the sender at the time the notice or other communication is sent.
20. Section 409A. This Plan is intended to provide compensation that is exempt from or that complies with Code Section 409A and Treasury Regulations thereunder (“Section 409A”), and the Plan’s terms and the terms of any Award Agreement, including any definition contained in the Plan or an Award Agreement, shall be administered and construed in a manner that is compliant with or exempt from the application of Section 409A, as appropriate.For purposes of Section 409A, each payment under this Plan shall be deemed to be a separate payment.
Notwithstanding any provision of this Plan or an Award Agreement to the contrary, to the extent that any payment is subject to Section 409A, if the Participant is a “specified employee” within the meaning of Section 409A as of the date of the Participant’s termination of employment and the Company determines, in good faith, that immediate payment of any amounts or benefits under this Plan would cause a violation of Section 409A, then any amounts or benefits payable under this Plan upon the Participant’s “separation from service” within the meaning of Section 409A which (i) are subject to the provisions of Section 409A; (ii) are not otherwise exempt from Section 409A; and (iii) would otherwise be payable during the first six-month period following such separation from service, shall be paid on the first business day next following the earlier of (1) the date that is six (6) months and one day following the Participant’s separation from service or (2) the date of the Participant’s death.
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21. Tax Consequences. Nothing in this Plan or an Award Agreement shall constitute a representation by the Company to a Participant regarding the tax consequences of any Award received by a Participant under this Plan.Although the Company may endeavor to (i) qualify an Award for favorable federal tax treatment or (ii) avoid adverse tax treatment (e.g., under Section 409A), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable tax treatment.The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under this Plan.
22. Clawback. Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any law, government regulation or stock exchange listing requirement (including but not limited to Section 954 of the Dodd-Frank Act), will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company or any Affiliate pursuant to any such law, government regulation or stock exchange listing requirement).This Section 21 shall not limit the Company’s right to revoke or cancel an Award or take other action against a Participant for any other reason, including, but not limited to, misconduct.
23. Interpretation and Governing Law. The terms of this Plan and Awards granted pursuant to the Plan shall be governed, construed and administered in accordance with the laws of the Commonwealth of Virginia, excluding any choice of law rules or principles that might otherwise refer construction or interpretation of any provision of the Plan or an Agreement to the substantive law of another jurisdiction.The Plan and Awards are subject to all present and future applicable provisions of the Code and, to the extent applicable, they are subject to all present and future rulings of the Securities and Exchange Commission with respect to Rule 16b-3.If any provision of the Plan or an Award conflicts with any such Code provision or ruling, in the opinion of the Committee or of counsel selected by the Committee, the Committee shall cause the Plan to be amended, and shall modify the Award, so as to comply, or if for any reason amendments cannot be made, that provision of the Plan or the Award shall be void and of no effect and no shares of Company Stock shall be issued thereunder.
24. Banking, Statutory and Regulatory Provisions. The Plan and all Awards granted under the Plan, and the issuance of any Company Stock thereunder, shall be subject to any condition, limitation, or prohibition under any Virginia or federal statutory or regulatory policy or rule, or any requirement of any exchange or market on which Company Stock is listed or quoted, to which the Company or an Affiliate is subject.
25. No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Award granted under the Plan shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an employee with or without notice and with or without Cause, (ii) the service of a director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of Virginia in the case of the Company or the corporate law of the jurisdiction in which an Affiliate is incorporated, as the case may be, or (iii) the service of a Consultant for any reason at any time.Further, the grant of an Award shall not obligate the Company or any Affiliate to pay an employee any particular amount of remuneration or to make further grants to the employee at any time thereafter.
26. Forfeiture Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain events, in addition to applicable vesting conditions of an Award.Such events may include, without limitation, breach of non-competition, non-solicitation, confidentiality or other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant, termination of the Participant’s employment or service for Cause, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Affiliates.In addition, if a Participant’s employment or service is terminated for Cause, then as of the date of the misconduct, any Option or SAR held by the Participant shall terminate, and any unvested Restricted Stock and Restricted Stock Units held by the Participant shall be forfeited.
27. Deferral of Awards. The Committee may establish one or more programs under the Plan to permit selected Participants the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Participant to payment or receipt of shares of Company Stock or other consideration under an Award.The Committee may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Committee deems advisable for the administration of any such deferral program.
28. Non-Uniform Treatment. The Committee shall be entitled to make non-uniform and selective determinations, amendments and adjustments, and to enter into non-uniform and selective Award Agreements.
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29. Beneficiary Designation. A Participant may designate a beneficiary to receive any Options or SARs that may be exercised after death or to receive any other Award that may be paid after his death, as provided for in the Award Agreement.Such designation and any change or revocation of such designation shall be made in writing in the form and manner prescribed by the Committee (or its delegee).In the event that the designated beneficiary dies prior to the Participant, or in the event that no beneficiary has been designated, any Awards that may be exercised or paid following the Participant’s death shall be transferred or paid in accordance with the Participant’s will or the laws of descent and distribution.
30. Creditors. The interests of any Participant under the Plan or any Award Agreement are not subject to the claims of creditors and may not, in any way, be assigned, alienated or encumbered.
31. Unfunded Status of the Plan. The Plan, insofar as it provides for Awards, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by Awards under this Plan. Any liability of the Company to any person with respect to any Award shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.
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EXHIBIT 32
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
The undersigned, as the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual’s knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2020, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated.The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
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August 11, 2020 |
/s/ Mark C. Hanna |
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Mark C. Hanna |
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President and Chief Executive Officer |
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/s/ Carrie A. Comer |
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Carrie A. Comer |
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Executive Vice President and Chief Financial Officer |
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 USC Section 1350 (A) and (B)
I, Mark C. Hanna, certify that:
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I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Dated: August 11, 2020 |
/s/ Mark C. Hanna |
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Mark C. Hanna |
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President & Chief Executive Officer |
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 USC Section 1350 (A) and (B)
I, Carrie A. Comer, certify that:
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I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Dated: August 11, 2020 |
/s/ Carrie A. Comer |
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Carrie A. Comer |
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Executive Vice President & Chief Financial Officer |
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A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.