Equibles

10-Q

F&M BANK CORP (FMBM)

10-Q 2024-05-15 For: 2024-03-31
View Original
Added on April 06, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

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

Commission File Number: 000-13273

F&M BANK CORP.
Virginia 54-1280811
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(State or Other Jurisdiction of<br><br>Incorporation or Organization) (I.R.S. Employer<br><br>Identification No.)

P. O. Box 1111

Timberville, Virginia 22853

(Address of Principal Executive Offices) (Zip Code)

(540) 896-8941

(Registrant's Telephone Number, Including Area Code)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class Outstanding at May 5, 2024
Common Stock, par value ‑ $5 per share 3,516,091 shares

F & M BANK CORP.

Quarterly Report on Form 10-Q

For the quarterly period ended March 31, 2024

Table of Contents

Page
Part I Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets – March 31, 2024 and December 31, 2023 3
Consolidated Statements of Income – Three Months Ended March 31, 2024 and 2023 4
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2024 and 2023 5
Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2024 and 2023 6
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2024 and 2023 7
Notes to Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures about Market Risk 41
Item 4. Controls and Procedures 41
Part II Other Information 42
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Mine Safety Disclosures 42
Item 5. Other Information 42
Item 6. Exhibits 43
Signatures 44
Certifications 45
2
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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)

December 31,
2023*
Assets
Cash and due from banks 27,758 $ 19,790
Money market funds and interest-bearing deposits in other banks 543 178
Federal funds sold 24,185 3,749
Cash and cash equivalents 52,486 23,717
Securities Available for sale, at fair value 359,024 368,674
Other investments 10,720 10,883
Loans held for sale, at fair value 1,385 1,119
Loans held for investment, net of deferred fees and costs 825,872 822,092
Less: allowance for credit losses (8,408 ) (8,321 )
Net loans held for investment 817,464 813,771
Bank premises and equipment, net 23,369 23,655
Other real estate owned - 55
Interest receivable 5,094 5,034
Goodwill 3,082 3,082
Bank owned life insurance 23,055 22,878
Other assets 20,535 21,728
Total Assets 1,316,214 $ 1,294,596
Liabilities
Deposits:
Noninterest bearing 267,106 $ 264,254
Interest bearing 889,237 868,982
Total deposits 1,156,343 1,133,236
Short-term debt 60,000 60,000
Long-term debt 6,943 6,932
Other liabilities 15,194 16,105
Total Liabilities 1,238,480 1,216,273
Commitments and contingencies
Shareholders’ Equity
Common stock, 5 par value, 6,000,000 shares authorized, 3,516,013 (2024) and
3,485,570 (2023) shares issued and outstanding 17,318 17,263
Additional paid in capital 11,097 11,043
Retained earnings 81,346 81,034
Accumulated other comprehensive loss (32,027 ) (31,017 )
Total Shareholders’ Equity 77,734 78,323
Total Liabilities and Shareholders’ Equity 1,316,214 $ 1,294,596

All values are in US Dollars.

*2023 derived from audited consolidated financial statements.

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended
March 31,
Interest and Dividend income 2024 2023
Interest and fees on loans held for investment $ 13,352 $ 10,854
Interest and fees on loans held for sale 17 22
Interest from money market funds and federal funds sold 273 84
Interest on debt securities 1,878 2,013
Total interest and dividend income 15,520 12,973
Interest expense
Total interest on deposits 6,337 4,042
Interest from short-term debt 996 992
Interest from long-term debt 116 112
Total interest expense 7,449 5,146
Net interest income 8,071 7,827
Provision for Credit Losses 823 -
Net Interest Income After Provision for Credit Losses 7,248 7,827
Noninterest income
Service charges on deposit accounts 273 225
Investment services and insurance income 581 507
Mortgage banking income 388 540
Title insurance income 303 248
Income on bank owned life insurance 182 179
Low income housing partnership losses (197 ) (205 )
Card services and interchange income 726 690
Other operating income 135 182
Total noninterest income 2,391 2,366
Noninterest expense
Salaries 3,780 4,342
Employee benefits 866 1,043
Occupancy expense 377 335
Equipment expense 337 325
FDIC insurance assessment 258 145
Other real estate owned, net (21 ) -
Marketing expense 142 218
Legal and professional fees 485 371
ATM and check card fees 292 319
Telecommunication and data processing expense 705 766
Directors’ fees 102 157
Bank franchise tax 190 168
Other operating expenses 910 1,000
Total noninterest expense 8,423 9,189
Income before income taxes 1,216 1,004
Income tax benefit (1 ) (51 )
Net Income $ 1,217 $ 1,055
Per Common Share Data
Net income (basic and diluted) $ 0.35 $ 0.30
Cash dividends on common stock 0.26 0.26
Weighted average common shares outstanding (basic and diluted) 3,490,371 3,462,698

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

Three Months Ended March 31,
2024 2023
Net Income $ 1,217 $ 1,055
Other comprehensive (loss) income:
Unrealized holding (losses) gains on available-for sale securities (1,280 ) 3,438
Tax effect 270 (722 )
Unrealized holding (losses) gains, net of tax (1,010 ) 2,716
Total other comprehensive (loss) income (1,010 ) 2,716
Total comprehensive income $ 207 $ 3,771

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands)

(Unaudited)

Three Months Ended March 31, 2024 and 2023.

Common<br><br>Stock Additional<br><br>Paid in<br><br>Capital Retained<br><br>Earnings Accumulated<br><br>Other Comprehensive<br><br>Loss Total
Balance December 31, 2022 $ 17,149 $ 10,577 $ 83,078 $ (40,012 ) $ 70,792
Net income - - 1,055 - 1,055
Cumulative effect adjustment due to the adoption of ASC 326, net of tax - - (1,203 ) - (1,203 )
Other comprehensive income - - - 2,716 2,716
Dividends on common stock - - (899 ) - (899 )
Common stock issued 18 63 - - 81
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes 40 (11 ) - - 29
Stock-based compensation expense - 64 - - 64
Balance, March 31, 2023 $ 17,207 $ 10,693 $ 82,031 $ (37,296 ) $ 72,635
Balance December 31, 2023 $ 17,263 $ 11,043 $ 81,034 $ (31,017 ) $ 78,323
Net income - - 1,217 - 1,217
Other comprehensive loss - - - (1,010 ) (1,010 )
Dividends on common stock - - (905 ) - (905 )
Common stock issued 14 36 - - 50
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes 41 (41 ) - - -
Stock-based compensation expense - 59 - - 59
Balance, March 31, 2024 $ 17,318 $ 11,097 $ 81,346 $ (32,027 ) $ 77,734

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Three Months Ended March 31,
2024 2023
Cash flows from operating activities
Net income $ 1,217 $ 1,055
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 356 276
Amortization of intangibles 3 8
Amortization of securities 180 195
Proceeds from loans held for sale 18,481 31,451
Loans held for sale originated (18,664 ) (30,748 )
Gain on sale of loans held for sale (83 ) (572 )
Provision for credit losses 823 -
Increase in interest receivable (60 ) (170 )
(Increase) decrease in deferred taxes (2 ) 9
Decrease in taxes payable - (38 )
Decrease (increase) in other assets 1,467 (2,302 )
Decrease in other liabilities (840 ) (2,486 )
Amortization of limited partnership investments 197 205
Amortization of debt issuance costs 11 11
Income from life insurance investment (182 ) (179 )
(Gain) on the sale of fixed assets - (9 )
(Gain) on the sale of OREO (21 ) -
Stock-based compensation expense 59 64
Net cash provided by (used in) operating activities 2,942 (3,230 )
Cash flows from investing activities
Proceeds from maturity of investments available for sale 5,000 3,825
Proceeds from paydowns of mortgage-backed securities 3,189 3,266
(Investment in) proceeds from the redemption of restricted stock, net (33 ) 624
Investment in limited partnership - (100 )
Net increase loans held for investment (4,587 ) (13,483 )
Proceeds from the sale of fixed assets - 33
Proceeds from the sale of OREO 76 -
Net purchase of property and equipment (70 ) (684 )
Net cash provided by (used in) investing activities 3,575 (6,519 )
Cash flows from financing activities
Net change in deposits 23,107 21,858
Net change in short-term debt - (15,000 )
Dividends paid in cash (905 ) (899 )
Proceeds from issuance of common stock 50 110
Net cash provided by financing activities 22,252 6,069
Net increase (decrease) in Cash and Cash Equivalents 28,769 (3,680 )
Cash and cash equivalents, beginning of period 23,717 34,953
Cash and cash equivalents, end of period $ 52,486 $ 31,273
Supplemental Cash Flow information:
Cash paid for: Interest $ 7,248 $ 4,765
Taxes - 360
Supplemental non-cash disclosures:
Change in unrealized loss on securities available for sale $ (1,280 ) $ 3,438
Cumulative effect of the adoption of ASC 326 - 1,524

See Notes to Consolidated Financial Statements

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Notes to the Consolidated Financial Statements

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Consolidated Financial Statements include the accounts of F&M Bank Corp. (the “Company”), Farmers & Merchants Bank (the “Bank”), TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc. (“FMFS”), VBS Mortgage, LLC (dba “F&M Mortgage”), and VSTitle, LLC (“VST”), with all significant intercompany accounts and transactions eliminated. TEB was dissolved on November 8, 2023.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to accepted practices within the banking industry.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank, operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, Augusta, and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro, and Winchester in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries Farmers & Merchants Financial Services, Inc., F&M Mortgage, and VSTitle, LLC.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.

Allowance for Credit Losses – Available for Sale Securities

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

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Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2024, there was no allowance for credit loss related to the available for sale securities portfolio.

Accrued interest receivable on available for sale debt securities totaled $1.4 million at March 31, 2024 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.7 million at March 31, 2024 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company utilizes a Qualitative Scorecard (“scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Bank’s portfolio, in particular from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that in order to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses was economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology:

1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

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Other construction, land development and land. Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Secured by farmland. Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations.

Home equity - open end. The home-equity loan portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, and requiring standards for appraisers.

Real estate. Real estate loans are for consumer residential 1-4 family real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios.

Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to-value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, and requiring standards for appraisers.

Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property.

Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Other commercial real estate. The other commercial real estate segment includes loans secured by commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured).

Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).

Credit cards. Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores.

Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles is subject to the risk of changing values in the availability of vehicles and the resale value.

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Other consumer loans. Other consumer loans may be secured or unsecured. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks to the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.

Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s trade area. Credit risk is based on the cash flow and management of the local towns’ budgets.

Additionally, the allowance for credit losses calculation includes adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends. Diluted earnings per share includes all convertible securities, such as convertible preferred stock, convertible debt, equity options, and warrants. The Company does not have any convertible securities that would dilute the earnings per share.

Recent Accounting Pronouncements

Accounting Standards adopted in 2024:

In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. ASU 2023-02 was effective for the Company on January 1, 2024. The adoption of ASU 2023-02 did not have a material impact on the Company’s consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 was effective for the Company on January 1, 2024. The adoption of ASU 2023-01 did not have a material impact on the Company’s consolidated financial statements.

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In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 was effective for the Company on January 1, 2024. The adoption of ASU 2022-03 did not have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. ASU 2020-06 was effective for the Company on January 1, 2024. The adoption of ASU 2020-06 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Pending Adoption:

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.

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In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures about a reportable segment profit or loss and assets currently required by FASB ASU Topic 280 in interim periods, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718).” This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

NOTE 2 SECURITIES

The amortized cost and estimated fair value of securities available for sale, along with gross unrealized gains and losses are summarized as follows (dollars in thousands):

March 31, 2024 Amortized<br><br>Cost Unrealized<br><br>Gains Unrealized<br><br>Losses Fair Value
U. S. Treasuries $ 30,052 $ - $ 2,121 $ 27,931
U. S. Government sponsored enterprises 133,491 - 8,741 124,750
Securities issued by States and political subdivisions of the U.S. 41,300 87 2,737 38,650
Mortgage-backed obligations of federal agencies 165,131 237 24,931 140,437
Corporate debt securities 30,550 - 3,294 27,256
Total Securities Available for Sale $ 400,524 $ 324 $ 41,824 $ 359,024
December 31, 2023 Amortized<br><br>Cost Unrealized<br><br>Gains Unrealized<br><br>Losses Fair Value
--- --- --- --- --- --- --- --- ---
U. S. Treasuries $ 35,048 $ - $ 2,167 $ 32,881
U. S. Government sponsored enterprises 133,487 - 8,784 124,703
Securities issued by States and political subdivisions of the U.S. 41,341 145 2,725 38,761
Mortgage-backed obligations of federal agencies 168,468 173 23,568 145,073
Corporate debt securities 30,550 25 3,319 27,256
Total Securities Available for Sale $ 408,894 $ 343 $ 40,563 $ 368,674
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There was no allowance for credit losses on available for sale securities.

The amortized cost and fair value of securities at March 31, 2024, by contractual maturity are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities Available for Sale
Amortized Fair
Cost Value
Due in one year or less $ 92,330 $ 89,785
Due after one year through five years 103,331 94,064
Due after five years 66,528 58,331
Due after ten years 138,335 116,844
Total $ 400,524 $ 359,024

There were no sales of available for sale securities in the first quarter of 2024 or 2023.

The following table shows the gross unrealized losses and estimated fair value of available for sale securities for which an allowance for credit losses has not been recorded, aggregated by category and length of time that securities have been in a continuous unrealized loss position at March 31, 2024 (dollars in thousands):

Less than 12 Months More than 12 Months Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
March 31, 2024
U.S. Treasuries $ 116 $ 9 $ 27,815 $ 2,112 $ 27,931 $ 2,121
U.S. Government sponsored enterprises - - 124,750 8,741 124,750 8,741
Securities issued by States and political subdivisions in the U.S. - - 31,186 2,737 31,186 2,737
Mortgage-backed obligations of federal agencies - - 135,578 24,931 135,578 24,931
Corporate debt securities 2,190 310 25,066 2,984 27,256 3,294
Total $ 2,306 $ 319 $ 344,395 $ 41,505 $ 346,701 $ 41,824

Unrealized losses at March 31, 2024 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities. Issuers continue to make timely principal and interest payments and the Company currently has no plans to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The following table shows the gross unrealized losses and estimated fair value of available sale securities and held to maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2023 (dollars in thousands):

Less than 12 Months More than 12 Months Total
December 31, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U. S. Treasuries $ 125 $ - $ 32,756 $ 2,167 $ 32,881 $ 2,167
U. S. Government sponsored enterprises - - 124,703 8,784 124,703 8,784
Securities issued by States and political subdivisions in the U.S. 484 11 32,597 2,714 33,081 2,725
Mortgage-backed obligations of federal agencies - - 140,041 23,568 140,041 23,568
Corporate debt securities 1,729 271 25,002 3,048 26,731 3,319
Total $ 2,338 $ 282 $ 355,099 $ 40,281 $ 357,437 $ 40,563
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The Company had securities with a market value of $207.2 million pledged to the Federal Reserve Discount Window as of March 31, 2024. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during the first three months of 2024.

As of March 31, 2024, other investments consisted of investments in eleven low-income housing and historic equity partnerships (carrying basis of $4.9 million), stock in the Federal Home Loan Bank of Atlanta (“FHLB’) (carrying basis $3.8 million) and various other investments (carrying basis $2.0 million). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales.  The fair values of these securities are estimated to approximate their carrying value as of March 31, 2024. At March 31, 2024, the Company was committed to invest an additional $524 thousand in three low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in other liabilities on the consolidated balance sheet.

NOTE 3 LOANS AND CREDIT QUALITY

The following is a summary of the major categories of total loans outstanding at March 31, 2024 and December 31, 2023 (dollars in thousands):

March 31,<br><br>2024 December 31,<br><br>2023
1-4 Family residential construction $ 32,397 $ 30,488
Other construction, land development and land 52,812 47,749
Secured by farmland 82,048 81,657
Home equity – open end 46,087 45,749
Real estate 202,867 200,629
Home Equity – closed end 6,281 4,835
Multifamily 10,699 8,203
Owner-occupied commercial real estate 88,660 92,362
Other commercial real estate 101,237 106,181
Agricultural loans 14,869 14,405
Commercial and industrial 46,582 44,329
Credit Cards 3,290 3,252
Automobile loans 119,785 122,924
Other consumer loans 13,456 14,376
Municipal loans 5,480 5,625
Gross loans 826,550 822,764
Unamortized net deferred loan fees (678 ) (672 )
Less allowance for credit losses 8,408 8,321
Net loans $ 817,464 $ 813,771

The table above does not include loans held for sale of $1.4 million and $1.1 million at March 31, 2024 and December 31, 2023, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

Accrued interest receivable on loans held for investment totaled $3.7 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively. For the quarter ended March 31, 2024, and the year ended December 31, 2023, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements.

The Company had loans held for investment pledged as collateral for borrowings with the FHLB totaling $295.4 million and $289.1 million as of March 31, 2024, and December 31, 2023, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios.

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Nonaccrual and Past Due Loans

The following tables show the aging of the Company’s loan portfolio, by class, for the periods indicated (dollars in thousands):

Age Analysis of Past Due Loans and Leases<br><br>As of March 31, 2024
Accruing Loans 30-59 Days Past due Accruing Loans 60-89 Days Past due Accruing Loans 90 Days or More Past due Nonaccrual Loans Accruing Current Loans Total Loans
1-4 Family residential construction $ 382 $ - $ - $ 439 $ 31,576 $ 32,397
Other construction, land development and land - - - 517 52,295 52,812
Secured by farmland - - - 53 81,995 82,048
Home equity – open end 241 50 - 311 45,485 46,087
Real estate 2,751 199 - 674 199,243 202,867
Home Equity – closed end - - - - 6,281 6,281
Multifamily - - - - 10,699 10,699
Owner-occupied commercial real estate 1,305 - - 3,258 84,097 88,660
Other commercial real estate 89 - - - 101,148 101,237
Agricultural loans 92 - - - 14,777 14,869
Commercial and industrial 20 - - 605 45,957 46,582
Credit Cards 28 15 9 - 3,238 3,290
Automobile loans 1,610 308 - 380 117,487 119,785
Other consumer loans 101 34 - 1 13,320 13,456
Municipal loans - - - - 5,480 5,480
Gross loans 6,619 606 9 6,238 813,078 826,550
Less: Unamortized net deferred loan fees - - - - (678 ) (678 )
Loans held for investment $ 6,619 $ 606 $ 9 $ 6,238 $ 812,400 $ 825,872
Age Analysis of Past Due Loans and Leases<br><br>As of December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Accruing Loans 30-59 Days Past due Accruing Loans 60-89 Days Past due Accruing Loans 90 Days or More Past due Nonaccrual Loans Accruing Current Loans Total Loans
1-4 Family residential construction $ - $ - $ - $ 440 $ 30,048 $ 30,488
Other construction, land development and land - - - 528 47,221 47,749
Secured by farmland - - - 596 81,061 81,657
Home equity – open end 595 74 - 217 44,863 45,749
Real estate 2,125 425 - 701 197,378 200,629
Home Equity – closed end 41 - - - 4,794 4,835
Multifamily - - - - 8,203 8,203
Owner-occupied commercial real estate 1,482 - - 3,000 87,880 92,362
Other commercial real estate 92 887 - - 105,202 106,181
Agricultural loans 10 - - 73 14,322 14,405
Commercial and industrial 75 39 25 622 43,568 44,329
Credit Cards 35 7 6 - 3,204 3,252
Automobile loans 1,137 481 - 237 121,069 122,924
Other consumer loans 151 14 - 24 14,187 14,376
Municipal loans - - - - 5,625 5,625
Gross loans 5,743 1,927 31 6,438 808,625 822,764
Less: Unamortized net deferred loan fees - - - - (672 ) (672 )
Loans held for investment $ 5,743 $ 1,927 $ 31 $ 6,438 $ 807,953 $ 822,092

There were $6.2 million and $6.4 million in nonaccrual loans at March 31, 2024 and December 31, 2023, respectively.  There was no income recognized on nonaccrual loans during the three months ended March 31, 2024 and year ended December 31, 2023.

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The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (dollars in thousands).

March 31, 2024 December 31, 2023
Nonaccrual loans Nonaccrual loans
With no Allowance With an Allowance Total With no Allowance With an Allowance Total
1-4 Family residential construction $ - $ 439 $ 439 $ - $ 440 $ 440
Other construction, land development and land 517 - 517 528 - 528
Secured by farmland 53 - 53 596 - 596
Home equity – open end 311 - 311 217 - 217
Real estate 674 - 674 701 - 701
Owner-occupied commercial real estate - 3,258 3,258 - 3,000 3,000
Agricultural loans - - - 73 - 73
Commercial and industrial - 605 605 25 597 622
Automobile loans 380 - 380 237 - 237
Other consumer loans 1 - 1 24 - 24
Total loans $ 1,936 $ 4,302 $ 6,238 $ 2,401 $ 4,037 $ 6,438

Troubled Loan Modifications

Loan modifications where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, are defined by the Company as troubled loan modifications. The allowance for credit losses on loans (“ACLL”) on troubled loan modifications is measured using the same method as other loans held for investment.

The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan.

The following tables present the amortized cost of loans and leases to borrowers experiencing financial difficulty by class of financing receivable, type of modification, financial effect of the modification, and percentage of the amortized cost basis of modifications as compared to the amortized cost basis of each loan segment for the periods presented (dollars in thousands).

Amortized Cost of Basis of Loan Modifications Made to Borrowers Experiencing Financial Difficulty<br><br>For the Quarter Ended March 31, 2024
Term<br><br>Extension Weighted Average Term Extension (in months) % of Total<br><br>Loan Type
Owner-occupied commercial real estate 33 13.0 0.04 %
Automobile loans 64 4.5 0.05 %
Total Term Extension $ 97 7.4 0.05 %
Amortized Cost of Basis of Loan Modifications Made to Borrowers Experiencing Financial Difficulty<br><br>For the Year Ended December 31, 2023
--- --- --- --- --- --- --- ---
Term<br><br>Extension Weighted Average Term Extension (in months) % of Total<br><br>Loan Type
Owner-occupied commercial real estate 45 13.0 0.05 %
Automobile loans 68 4.5 0.06 %
Total Term Extension $ 113 7.9 0.05 %
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The Company monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company considers a default on a troubled loan modification to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. No loan or lease modifications to borrowers experiencing financial difficulty had a payment default at March 31, 2024 or December 31, 2023. Additionally, the Company did not have any troubled loan modifications that were past due as of the same time periods.

As of March 31, 2024, the Company did not have any unfunded commitments on loans modified and designated as troubled loan modifications.

Collateral Dependent Disclosures

The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit loss model, or CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following table presents an analysis of collateral-dependent loans of the Company as of the periods noted (dollars in thousands):

Collateral Dependent Loans
March 31, 2024
Real Estate Business/Other Assets
1-4 Family residential construction $ 439 $ -
Other construction, land development and land 500 -
Owner-occupied commercial real estate 3,258 -
Commercial and industrial - 605
Total loans $ 4,197 $ 605
Collateral Dependent Loans
--- --- --- --- ---
December 31, 2023
Real Estate Business/Other Assets
1-4 Family residential construction $ 440 $ -
Other construction, land development and land 511 -
Secured by farmland 596 -
Owner-occupied commercial real estate 3,000 -
Commercial and industrial - 597
Total loans $ 4,547 $ 597
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The following tables present the loan portfolio by segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above (dollars in thousands).

March 31, 2024
Loan Balances Allowance for Credit Losses - Loans
Loans Individually Evaluated Loans Collectively Evaluated Total Loans Individually Evaluated Loans Collectively Evaluated Total
1-4 Family residential construction $ 439 $ 31,958 $ 32,397 $ 362 $ 372 $ 734
Other construction, land development and land 500 52,312 52,812 - 1,345 1,345
Secured by farmland - 82,048 82,048 - 825 825
Home equity – open end - 46,087 46,087 - 181 181
Real estate - 202,867 202,867 - 815 815
Home Equity – closed end - 6,281 6,281 - 100 100
Multifamily - 10,699 10,699 - 243 243
Owner-occupied commercial real estate 3,258 85,402 88,660 513 801 1,314
Other commercial real estate - 101,237 101,237 - 178 178
Agricultural loans - 14,869 14,869 - 21 21
Commercial and industrial 605 45,977 46,582 95 712 807
Credit Cards - 3,290 3,290 - 84 84
Automobile loans - 119,785 119,785 - 1,459 1,459
Other consumer loans - 13,456 13,456 - 285 285
Municipal loans - 5,480 5,480 - 17 17
Gross loans 4,802 821,748 826,550 970 7,438 8,408
Less: Unamortized net deferred loan fees - - (678 ) - - -
Net loans held for investment $ 4,802 $ 821,748 $ 825,872 $ 970 $ 7,438 $ 8,408
December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Loan Balances Allowance for Credit Losses - Loans
Loans Individually Evaluated Loans Collectively Evaluated Total Loans Individually Evaluated Loans Collectively Evaluated Total
1-4 Family residential construction $ 440 $ 30,048 $ 30,488 $ 363 $ 351 $ 714
Other construction, land development and land 511 47,238 47,749 - 1,287 1,287
Secured by farmland 596 81,061 81,657 - 815 815
Home equity – open end - 45,749 45,749 - 180 180
Real estate - 200,629 200,629 - 810 810
Home Equity – closed end - 4,835 4,835 - 77 77
Multifamily - 8,203 8,203 - 181 181
Owner-occupied commercial real estate 3,000 89,362 92,362 263 958 1,221
Other commercial real estate - 106,181 106,181 - 166 166
Agricultural loans - 14,405 14,405 - 20 20
Commercial and industrial 597 43,732 44,329 351 683 1,034
Credit Cards - 3,252 3,252 - 81 81
Automobile loans - 122,924 122,924 - 1,443 1,443
Other consumer loans - 14,376 14,376 - 292 292
Municipal loans - 5,625 5,625 - - -
Gross loans 5,144 817,620 822,764 977 7,344 8,321
Less: Unamortized net deferred loan fees - - (672 ) - - -
Net loans held for investment $ 5,144 $ 817,620 $ 822,092 $ 977 $ 7,344 $ 8,321
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Credit Quality Indicators

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. The Company defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty which are presented in the original vintage.

Description of the Company’s credit quality indicators:

Pass: Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Grade 6 – Watch:  Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Credit cards are classified as pass or substandard. A credit card is substandard when payments of principal and interest are past due 90 days or more.

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The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2024 (dollars in thousands):

Term Loans by Year of Origination
2024 2023 2022 2021 2020 Prior Revolving Total
1-4 Family residential construction
Pass $ 268 $ - $ - $ - $ - $ 81 $ 31,609 $ 31,958
Watch - - - - - - - -
Substandard - - - - - - 439 439
Total 1-4 Family residential construction 268 - - - - 81 32,048 32,397
Current period gross write-offs - - - - - - - -
Other construction, land development and land
Pass 450 6,052 9,093 4,823 1,805 9,792 19,865 51,880
Watch - - - - - 65 348 413
Substandard - - - - - 519 - 519
Total Other construction, land development and land 450 6,052 9,093 4,823 1,805 10,376 20,213 52,812
Current period gross write-offs - - - - - - - -
Secured by farmland
Pass 2,113 10,407 15,846 13,478 26,650 9,551 3,179 81,224
Watch - - - - - 771 - 771
Substandard - - - - - 53 - 53
Total Secured by farmland 2,113 10,407 15,846 13,478 26,650 10,375 3,179 82,048
Current period gross write-offs - - - - - - - -
Home equity – open end
Pass - 370 - - - 141 44,370 44,881
Watch - - - - - - 845 845
Substandard - - - - - - 361 361
Total Home equity - open end - 370 - - - 141 45,576 46,087
Current period gross write-offs - - - - - - - -
Real estate
Pass 6,855 51,876 47,243 14,905 12,059 62,902 446 196,286
Watch - - 44 25 497 3,214 - 3,780
Substandard - - 85 538 - 2,178 - 2,801
Total Real estate 6,855 51,876 47,372 15,468 12,556 68,294 446 202,867
Current period gross write-offs - - - - - - - -
Home Equity – closed end
Pass 150 2,599 372 114 1,022 2,012 - 6,269
Watch - - - - - - - -
Substandard - - - - - 12 - 12
Total Home Equity - closed end 150 2,599 372 114 1,022 2,024 - 6,281
Current period gross write-offs - - - - - - - -
Multifamily
Pass 2,153 - 2,694 1,381 896 1,544 1,936 10,604
Watch - - - - - 95 - 95
Substandard - - - - - - - -
Total Multifamily 2,153 - 2,694 1,381 896 1,639 1,936 10,699
Current period gross write-offs - - - - - - - -
Owner-occupied commercial real estate
Pass 1,210 2,785 17,635 17,426 7,006 25,008 4,543 75,613
Watch - - - - - 771 - 771
Substandard - - - - - 8,720 3,556 12,276
Total Owner-occupied commercial real estate 1,210 2,785 17,635 17,426 7,006 34,499 8,099 88,660
Current period gross write-offs - - - - - - - -
Other commercial real estate
Pass 1,096 9,786 29,532 12,234 4,921 33,805 605 91,979
Watch - - - - - 9,171 - 9,171
Substandard - - - - - 87 - 87
Total Other commercial real estate 1,096 9,786 29,532 12,234 4,921 43,063 605 101,237
Current period gross write-offs - - - - - - - -
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Term Loans by Year of Origination
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2024 2023 2022 2021 2020 Prior Revolving Total
Agricultural loans
Pass 1,367 2,994 2,393 494 284 27 7,129 14,688
Watch - - - - 31 - 150 181
Substandard - - - - - - - -
Total Agricultural loans 1367 2,994 2,393 494 315 27 7,279 14,869
Current period gross write-offs - - - - - - - -
Commercial and industrial
Pass 612 7,286 8,786 4,968 1,491 751 18,776 42,670
Watch - - 41 47 - - 3,210 3,298
Substandard - - - 613 - 1 - 614
Total 1-4 Commercial and industrial 612 7,286 8,827 5,628 1,491 752 21,986 46,582
Current period gross write-offs - - 133 47 24 - - 204
Credit Cards
Pass - - - - - - 3,281 3,281
Substandard - - - - - - 9 9
Total Credit cards - - - - - - 3,290 3,290
Current period gross write-offs - - - - - - 9 9
Automobile loans
Pass 8,612 50,205 34,868 16,858 6,069 2,447 - 119,059
Watch - 42 180 35 48 41 - 346
Substandard - 235 62 69 9 5 - 380
Total Automobile loans 8,612 50,482 35,110 16,962 6,126 2,493 - 119,785
Current period gross write-offs - 284 245 139 62 27 - 757
Other consumer loans
Pass 985 4,683 4,384 1,886 653 489 352 13,432
Watch - 5 3 7 - 3 1 19
Substandard - - - - - 5 - 5
Total Other consumer loans 985 4,688 4,387 1,893 653 497 353 13,456
Current period gross write-offs - 19 15 6 - 1 - 41
Municipal loans
Pass - - 118 886 1,096 3,380 - 5,480
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - - 118 886 1,096 3,380 - 5,480
Current period gross write-offs - - - - - - - -
Total loans $ 25,871 $ 149,325 $ 173,379 $ 90,787 $ 64,537 $ 177,641 $ 145,010 $ 826,550
Less: Unamortized net deferred loan fees (678 )
Loans held for investment $ 825,872
Current period gross write-offs $ - $ 303 $ 393 $ 192 $ 86 $ 28 $ 9 $ 1,011
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The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2023 (dollars in thousands):

Term Loans by Year of Origination
2023 2022 2021 2020 2019 Prior Revolving Total
1-4 Family residential construction
Pass $ 162 $ - $ - $ - $ - $ 108 $ 29,214 $ 29,484
Watch - - - - - - 564 564
Substandard - - - - - - 440 440
Total 1-4 Family residential construction 162 - - - - 108 30,218 30,488
Current period gross write-offs - 70 - - - - - 70
Other construction, land development and land
Pass 5,123 9,138 4,983 1,831 2,847 5,456 17,770 47,148
Watch - - - - - 67 - 67
Substandard 511 - - - - 23 - 534
Total Other construction, land development and land 5,634 9,138 4,983 1,831 2,847 5,546 17,770 47,749
Current period gross write-offs - - - - - - - -
Secured by farmland
Pass 7,503 15,834 13,688 27,020 2,509 7,842 5,869 80,265
Watch - - - - 781 - - 781
Substandard - - 333 - - 263 15 611
Total Secured by farmland 7,503 15,834 14,021 27,020 3,290 8,105 5,884 81,657
Current period gross write-offs - - - - - - - -
Home equity – open end
Pass 370 - - - - 141 44,089 44,600
Watch - - - - - - 883 883
Substandard - - - - - - 266 266
Total Home equity - open end 370 - - - - 141 45,238 45,749
Current period gross write-offs - - - - - - - -
Real estate
Pass 53,413 47,785 15,211 12,192 6,490 55,665 386 191,142
Watch - 45 - 499 155 4,893 - 5,592
Substandard - 88 539 - 1,212 2,056 - 3,895
Total Real estate 53,413 47,918 15,750 12,691 7,857 62,614 386 200,629
Current period gross write-offs - - - - - 19 - 19
Home Equity – closed end
Pass 1,126 382 117 1,044 464 1,690 - 4,823
Watch - - - - - - - -
Substandard - - - - 12 - - 12
Total Home Equity - closed end 1,126 382 117 1,044 476 1,690 - 4,835
Current period gross write-offs - - - - - - - -
Multifamily
Pass - 2,712 1,395 906 - 1,567 1,524 8,104
Watch - - - - - 99 - 99
Substandard - - - - - - - -
Total Multifamily - 2,712 1,395 906 - 1,666 1,524 8,203
Current period gross write-offs - - - - - - - -
Owner-occupied commercial real estate
Pass 2,820 18,049 17,775 7,109 3,586 22,301 7,821 79,461
Watch - - - - 40 2,097 - 2,137
Substandard - - - - 6,283 1,183 3,298 10,764
Total Owner-occupied commercial real estate 2,820 18,049 17,775 7,109 9,909 25,581 11,119 92,362
Current period gross write-offs - - - - - - - -
Other commercial real estate
Pass 10,193 29,317 12,744 4,990 3,739 32,666 3,206 96,855
Watch - - - - - 9,239 - 9,239
Substandard - - - - - 87 - 87
Total Other commercial real estate 10,193 29,317 12,744 4,990 3,739 41,992 3,206 106,181
Current period gross write-offs - - - - - - - -
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Term Loans by Year of Origination
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2023 2022 2021 2020 2019 Prior Revolving Total
Agricultural loans
Pass 4,626 2,548 534 340 - 38 6,066 14,152
Watch - - - 31 - - 149 180
Substandard - 48 14 11 - - - 73
Total Agricultural loans 4,626 2,596 548 382 - 38 6,215 14,405
Current period gross write-offs - - - - - - - -
Commercial and industrial
Pass 7,396 9,373 5,359 1,691 674 272 17,408 42,173
Watch - 44 91 - - - 1,363 1,498
Substandard - - 632 25 - 1 - 658
Total Commercial and industrial 7,396 9,417 6,082 1,716 674 273 18,771 44,329
Current period gross write-offs - 31 - - - 2 - 33
Credit Cards
Pass - - - - - - 3,246 3,246
Substandard - - - - - - 6 6
Total Credit cards - - - - - - 3,252 3,252
Current period gross write-offs - - - - - - 69 69
Automobile loans
Pass 52,471 38,375 19,193 7,301 2,145 2,367 - 121,852
Watch 179 323 158 106 36 32 - 834
Substandard 98 48 63 6 18 5 - 238
Total Automobile loans 52,748 38,746 19,414 7,413 2,199 2,404 - 122,924
Current period gross write-offs 334 669 560 149 53 39 - 1,804
Other consumer loans
Pass 5,169 4,983 2,230 843 194 367 530 14,316
Watch 17 4 7 - 1 2 1 32
Substandard 12 7 2 - 6 1 - 28
Total Other consumer loans 5,198 4,994 2,239 843 201 370 531 14,376
Current period gross write-offs - 77 3 3 6 4 - 93
Municipal loans
Pass - 118 923 1,096 1,228 2,260 - 5,625
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - 118 923 1,096 1,228 2,260 - 5,625
Current period gross write-offs - - - - - - - -
Total loans $ 151,189 $ 179,221 $ 95,991 $ 67,041 $ 32,420 $ 152,788 $ 144,114 $ 822,764
Less: Unamortized net deferred loan fees (672 )
Loans held for investment $ 822,092
Current period gross write-offs $ 334 $ 847 $ 563 $ 152 $ 59 $ 64 $ 69 $ 2,088
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NOTE 4 ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses (“ACL”) consists of the allowance for credit losses on loans and the reserve for unfunded commitments. The Company’s ACL is governed by the Company’s ACL Committee, which reports to the Board of Directors and contains representatives from the Company’s finance, credit, and risk teams, and is responsible for calculating the Company’s estimate of expected credit losses and resulting ACL. The ACL Committee considers the quantitative model results and qualitative factors when finalizing the ACL. The Company’s ACL model is subject to the Company’s models risk management program, which is overseen by the Director of Risk Management that reports to the Company’s Board Risk Committee.

Allowance for Credit Losses on Loans

The following tables show the allowance for credit losses activity by loan segment for the periods indicated, (dollars in thousands).

Allowance for Credit Losses and Carrying Amount of Loans<br><br>For the Three Months Ended March 31, 2024
Beginning<br><br>Balance Charge-offs Recoveries Provision for loan credit losses Ending<br><br>Balance
1-4 Family residential construction $ 714 $ - $ - $ 20 $ 734
Other construction, land development and land 1,287 - - 58 1,345
Secured by farmland 815 - - 10 825
Home equity – open end 180 - 25 (24 ) 181
Real estate 810 - 1 4 815
Home Equity – closed end 77 - - 23 100
Multifamily 181 - - 62 243
Owner-occupied commercial real estate 1,221 - - 93 1,314
Other commercial real estate 166 - - 12 178
Agricultural loans 20 - - 1 21
Commercial and industrial 1,034 204 27 (50 ) 807
Credit Cards 81 9 10 2 84
Automobile loans 1,443 757 135 638 1,459
Other consumer loans 292 41 6 28 285
Municipal loans - - - 17 17
Total loans $ 8,321 $ 1,011 $ 204 $ 894 $ 8,408
Allowance for Credit Losses and Carrying Amount of Loans<br><br>For the Year Ended December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning Balance Adjustment for adoption of ASU 2016-13 Charge-offs Recoveries Provision for loan credit losses Ending<br><br>Balance
1-4 Family residential construction $ 324 $ 109 $ 70 $ 1 $ 350 $ 714
Other construction, land development and land 694 602 - - (9 ) 1,287
Secured by farmland 571 311 - - (67 ) 815
Home equity – open end 446 (189 ) - 3 (80 ) 180
Real estate 1,389 (184 ) 19 2 (378 ) 810
Home Equity – closed end 39 96 - - (58 ) 77
Multifamily 71 182 - - (72 ) 181
Owner-occupied commercial real estate 992 280 - - (51 ) 1,221
Other commercial real estate 1,023 (582 ) - - (275 ) 166
Agricultural loans 80 (58 ) - - (2 ) 20
Commercial and industrial 368 338 33 2 359 1,034
Credit Cards 68 26 69 37 19 81
Automobile loans 1,790 (257 ) 1,804 514 1,200 1,443
Other consumer loans 81 103 93 55 146 292
Municipal loans - - - - - -
Total loans $ 7,936 $ 777 $ 2,088 $ 614 $ 1,082 $ 8,321
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Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over  their estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans and are discussed above. The allowance for credit losses for unfunded loan commitments of $619 thousand at March 31, 2024 and $690 thousand at December 31, 2023 is separately classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the periods indicated (dollars in thousands).

2024 2023
Balance as of January 1 $ 690 $ -
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13 - 747
Recovery of credit losses – unfunded commitments (71 ) -
Balance as of March 31 $ 619 $ 747

NOTE 5 LEASES

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.  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 Company has five operating leases for office properties.

The following tables present information about the Company’s leases (dollars in thousands):

March 31, 2024
Lease Liabilities $ 713
Right-of-use assets $ 689
Weighted average remaining lease term (years) 1.27 years
Weighted average discount rate 3.39 %
For the Three Months Ended<br><br>March 31,
--- --- --- --- ---
2024 2023
Operating lease cost $ 52 $ 40
Total lease cost $ 52 $ 40
Cash paid for amounts included in the measurement of lease liabilities $ 58 $ 58

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

March 31, 2024
Nine months ending December 31, 2024 $ 134
Twelve months ending December 31, 2025 125
Twelve months ending December 31, 2026 70
Twelve months ending December 31, 2027 56
Twelve months ending December 31, 2028 57
Thereafter 406
Total undiscounted cash flows $ 848
Discount (135 )
Lease liabilities $ 713
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NOTE 6 OTHER REAL ESTATE OWNED

The table below reflects other real estate owned (“OREO”) activity for the three months ended March 31, 2024 and 2023 (dollars in thousands).

2024 2023
Balance as of January 1 $ 55 $ -
Purchase of foreclosed real estate - -
Loans transferred to OREO - -
Proceeds from sale of OREO (76 ) -
Gain on sales of OREO 21 -
Balance as of March 31 $ - $ -

The Company did not have any other real estate owned at March 31, 2024 or 2023.

NOTE 7 SHORT-TERM DEBT

The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to support loan growth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the need of the Company. There was $60.0 million in short-term debt at March 31, 2024 and December 31, 2023.

NOTE 8 LONG-TERM DEBT

On July 29, 2020, the Company sold and issued to an institutional accredited investor a 6.00% fixed to floating rate subordinated note due July 31, 2030 with an aggregate principal amount of $7.0 million. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 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 will 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 note may be redeemed, at the Company’s option, on any scheduled interest payment date. The note will mature on July 31, 2030. The subordinated note, net of issuance costs totaled $6.9 million at March 31, 2024 and December 31, 2023.

NOTE 9 MORTGAGE BANKING DERIVATIVES

Loans Held for Sale (“LHFS”)

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 a permanent investor with the mortgage servicing rights released. 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, totaling $1.4 million as of March 31, 2024, of which $1.4 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.

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Interest Rate Lock Commitments and Forward Sales Commitments (“IRLCs”)

The Company, through F&M Mortgage Company, enters 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 derivatives. Upon entering a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).

The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best-efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors, the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate loan commitments will close.

The fair value of these derivative instruments is reported in “Other assets” in the Consolidated Balance Sheet at March 31, 2024, and totaled $78 thousand, with a notional amount of $10.3 million and total positions of 40. The fair value of the IRLCs at December 31, 2023 totaled $81 thousand, with a notional amount of $6.2 million and total positions of 22. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended March 31, 2024. The Company’s IRLCs are classified as Level 2. At March 31, 2024 and 2023, each IRLC and all LHFS were subject to a forward sales commitment on a best- efforts basis.

The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2024 totaled $5 thousand, with a notational amount of $8.9 million and total positions of 35. The fair value of forward sales commitments reported in “Other Liabilities” in the Consolidated Balance Sheet at December 31, 2023 totaled $22 thousand, with a notional amount of $7.3 million and total positions of 27.

NOTE 10 ACCUMULATED OTHER COMPREHENSIVE LOSS

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

Adjustments Related<br><br>to Pension Plan Accumulated Other Comprehensive Loss
Balance at December 31, 2022 (40,452 ) $ 439 $ (40,012 )
Change in unrealized securities gains, net of tax expense of 722 2,716 - 2,716
Balance at March 31, 2023 (37,736 ) $ 439 $ (37,296 )
Adjustments Related<br><br>to Pension Plan Accumulated Other Comprehensive Loss
Balance at December 31, 2023 (31,774 ) $ 757 $ (31,017 )
Change in unrealized securities losses, net of tax  benefit of 270 (1,010 ) - (1,010 )
Balance at March 31, 2024 (32,784 ) $ 757 $ (32,027 )

All values are in US Dollars.

There were no reclassification adjustments reported on the consolidated statements of income during the three months ended March 31, 2024 or 2023.

NOTE 11 FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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.
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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:

Available for Sale Securities (“AFS Securities”) - AFS Securities are recorded at fair value on a recurring basis. The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company contracts annually with a third-party portfolio accounting service vendor for valuation of its securities portfolio. The carrying value of restricted FRB and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans Held for Sale - Residential loans originated for sale in the open market are carried at fair value. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within mortgage banking income on the Consolidated Statements of Income.

Derivative assets – IRLCs - The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate lock commitments will close. The Company’s IRLCs are classified as Level 2.

Derivative Asset/Liability – Forward Sale Commitments - The Company uses the fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best-efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best-efforts commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale. The Company’s forward sale commitments are classified as Level 2.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of the periods indicated (dollars in thousands):

March 31, 2024 Total Level 1 Level 2 Level 3
Assets:
Loans held for sale, F&M Mortgage $ 1,385 $ - $ 1,385 $ -
U. S. Treasury securities 27,931 - 27,931 -
U.S. Government sponsored enterprises 124,750 - 124,750 -
Securities issued by States and political subdivisions of the US 38,650 - 38,650 -
Mortgage-backed obligations of federal agencies 140,437 - 140,437 -
Corporate debt securities 27,256 - 27,256 -
IRLC 78 - 78 -
Forward sales commitments 5 - 5 -
Assets at Fair Value $ 360,492 $ - $ 360,492 $ -
December 31, 2023 Total Level 1 Level 2 Level 3
--- --- --- --- --- --- --- --- ---
Assets:
Loans held for sale, F&M Mortgage $ 1,119 $ - $ 1,119 $ -
U. S. Treasury securities 32,881 - 32,881 -
U.S. Government sponsored enterprises 124,703 - 124,703 -
Securities issued by States and political subdivisions of the US 38,761 - 38,761 -
Mortgage-backed obligations of federal agencies 145,073 - 145,073 -
Corporate debt securities 27,256 - 27,256 -
IRLC 81 - 81 -
Assets at Fair Value $ 369,874 $ - $ 369,874 $ -
Liabilities:
Forward sales commitments $ 22 $ - $ 22 $ -
Liabilities at Fair Value $ 22 $ - $ 22 $ -
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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:

Collateral Dependent Loans with an ACL - In accordance with ASC 326, we maydetermine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

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 had no OREO at March 31, 2024 and OREO with a carrying value of $55 thousand at December 31, 2023.

The Company markets OREO 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 presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2024 and December 31, 2023 (dollars in thousands). Fair values are estimated under the exit price notion in accordance with the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

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

March 31, 2024 Fair Value Measurements Using:
Collateral dependent loans with an ACL Balance Level 1 Level 2 Level 3
1-4 family residential construction $ 77 $ - $ - $ 77
Owner-occupied commercial real estate 2,745 - - 2,745
Commercial and industrial 510 - - 510
Total collateral dependent loans with an ACL $ 3,332 $ - $ - $ 3,332
OREO $ - $ - $ - $ -
December 31, 2023 Fair Value Measurements Using:
--- --- --- --- --- --- --- --- ---
Collateral dependent loans with an ACL Balance Level 1 Level 2 Level 3
1-4 family residential construction $ 77 $ - $ - $ 77
Owner-occupied commercial real estate 2,737 - - 2,737
Commercial and industrial 246 - - 246
Total collateral dependent loans with an ACL $ 3,060 $ - $ - $ 3,060
OREO $ 55 $ - $ - $ 55
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The following table presents information about Level 3 Fair Value Measurements for the periods indicated (dollars in thousands):

March 31, 2024 Fair Value Valuation Technique Significant Unobservable Inputs Range
Collateral Dependent Loans $ 3,332 Discounted appraised value Discount for selling costs and marketability 33%
December 31, 2023 Fair Value Valuation Technique Significant Unobservable Inputs Range
--- --- --- --- --- ---
Collateral Dependent Loans $ 3,060 Discounted appraised value Discount for selling costs and marketability 31% - 71% (Average 44%)
OREO $ 55 Discounted appraised value Discount for selling costs and marketability 29%
March 31, 2024 Fair Value Measurements using
--- --- --- --- --- --- --- --- --- --- ---
**** **** Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
**** Carrying Value Level 1 Level 2 Level 3 Balance
Assets:
Cash and cash equivalents $ 52,486 $ 52,486 $ - $ - $ 52,486
Securities 359,024 - 359,024 - 359,024
Loans held for sale 1,385 - 1,385 - 1,385
Loans held for investment, net 825,872 - - 796,122 796,122
Interest receivable 5,094 - 5,094 - 5,094
Bank owned life insurance 23,055 - 23,055 - 23,055
IRLC 78 - 78 - 78
Forward sales commitments 5 - 5 - 5
Liabilities:
Deposits $ 1,156,343 $ - $ 1,154,647 $ - $ 1,154,647
Short-term debt 60,000 - - 60,000 60,000
Long-term debt 6,943 - - 6,762 6,762
Interest payable 1,793 - 1,793 - 1,793
December 31, 2023 Fair Value Measurements using
Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
Carrying Value Level 1 Level 2 Level 3 Balance
Assets:
Cash and cash equivalents $ 23,717 $ 23,717 $ - $ - $ 23,717
Securities 368,674 - 368,674 - 368,674
Loans held for sale 1,119 - 1,119 - 1,119
Loans held for investment, net 822,092 - - 793,440 793,440
Interest receivable 5,034 - 5,034 - 5,034
Bank owned life insurance 22,878 - 22,878 - 22,878
IRLC 81 - 81 - 81
Liabilities:
Deposits $ 1,133,236 $ - $ 1,131,747 $ - $ 1,131,747
Short-term debt 60,000 - - 60,000 60,000
Long-term debt 6,932 - - 6,761 6,761
Interest payable 1,592 - 1,592 - 1,592
Forward sales commitments 22 - 22 - 22
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NOTE 12 EMPLOYEE BENEFITS

Defined Benefit Pension Plan

The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all full-time employees hired before April 1, 2012.  The benefits are primarily based on years of service and earnings. The Company uses December 31^st^ as the measurement date for the defined benefit pension plan. The plan was amended on February 15, 2023 to stop the accrual of future benefits and will be terminated on June 1, 2024. The following is a summary of net periodic pension costs for the three-month periods ended March 31, 2024 and 2023 (dollars in thousands):

Three Months Ended
March 31, 2024 March 31, 2023
Service cost $ - $ -
Interest cost 79 92
Expected return on plan assets (98 ) (130 )
Recognized net actuarial gain (5 ) -
Net periodic pension cost $ (24 ) $ (38 )

Stock Incentive Plan

The Company grants stock awards to directors and employees under the Company’s 2020 Stock Incentive Plan and 2023 Directors Stock Incentive Plan. On March 7, 2024, the Company’s Compensation Committee awarded 33,568 shares with a fair value of $597 thousand from the 2020 Stock Incentive Plan to selected employees. These shares vest 25% over each of the next four years. Unrecognized compensation expense related to the nonvested restricted stock as of March 31, 2024 totaled $1.0 million.

NOTE 13 REVENUE RECOGNITION

The majority of the Company’s noninterest income is generated from short-term contracts for fees on deposit accounts, ATM and check cards, and annuity and insurance commissions that is accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Service charges on deposit accounts consist of account maintenance charges and overdrawn account fees. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or by month-end. Investment services and insurance income consists primarily of commissions received on mutual funds and other investment sales that are recognized on the trade date, which is when the Company has satisfied its performance obligation. Title insurance and real estate settlement services revenue is recognized at the time the real estate transaction is completed. Card services and interchange income primarily consist of debit and credit card income, ATM fees, merchant services income, and other service charges. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or by month-end. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.

Noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for March 31, 2024 and 2023 consisted of the following (dollars in thousands).

Three Months Ended March 31,
2024 2023
Noninterest income
Service charges on deposit accounts $ 273 $ 225
Investment services and insurance income 581 507
Title insurance income 303 248
Card services and interchange income 726 690
Other 63 11
Within scope of ASC 606 1,946 1,681
Not within scope of ASC 606 445 685
Total noninterest income $ 2,391 $ 2,366

NOTE 14 SUBSEQUENT EVENTS

On April 25, 2024, the Company was notified that settlement accounting was triggered on its defined benefit pension plan. Under FASB Accounting Standards Codification 715, settlement accounting is triggered when the lump sum payments during the year exceed the sum of the plan’s service cost and interest cost. The impact of settlement accounting is that a percentage of any outstanding gains or losses the plan is currently amortizing must be recognized immediately. As a result, the Company recognized a gain of $547,345 in the second quarter of 2024. On May 8, 2024, the gain was increased to $577,305 due to an additional lump sum distribution.

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

F & M Bank Corp. (“Company”), incorporated in Virginia in 1983, is a financial holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (“Bank”). Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba “F&M Mortgage”) are wholly owned subsidiaries of the Bank.

The Bank is a full-service commercial bank offering a wide range of banking and financial services through its fourteen branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). FMFS provides brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Woodstock, and Winchester, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg and Charlottesville, Virginia.

The Company’s primary trade area services customers in the counties of Rockingham, Shenandoah, Augusta and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro, and Winchester.

Management’s discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company.  The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 1, Part 1 of this Form 10-Q and in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

Forward-Looking Statements

Certain statements in this report may contain “forward-looking statements” as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “will,” “estimate,” “project” or similar expressions. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in local and national economies or market conditions; changes in interest rates; regulations and accounting principles; changes in policies or guidelines; loan demand and asset quality, including values of real estate and other collateral; deposit flow; the impact of competition from traditional or new sources; and other factors. Readers should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements.

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Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.

The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of March 31, 2024 were unchanged from the policies disclosed in the 2023 Form 10-K within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.

Results of Operations

Net income for first quarter 2024 was $1.2 million or $0.35 per share, compared to $1.1 million or $0.30 per share for first quarter 2023.

Interest income for first quarter 2024 was $15.5 million, an increase of $2.5 million over first quarter 2023, due to higher loan volume and higher interest rates. Higher rates on interest bearing deposits, specifically money market accounts and time deposits, coupled with interest paid on short-term borrowings, increased the Bank’s interest expense by $2.3 million  over  first quarter 2023.

During first quarter 2024, the Bank recorded an $823,000 provision for credit losses compared to no provision in first quarter 2023. The current quarter provision was the result of net loan charge-offs of $807,000, and minimal changes to the economic, credit quality, and collateral dependent qualitative factors used in the Bank’s ACLL model. The provision also included a recovery of $71,000 in the reserve for unfunded commitments that resulted from a decline in outstanding loan commitments. At March 31, 2024, the ACLL totaled $8.4 million or 1.02% of gross loans outstanding.

Noninterest income, which includes gains and losses, totaled $2.4 million for first quarter 2024. Compared to first quarter 2023, noninterest income increased by $25,000. The increase resulted from increases of $48,000 in service charges on deposit accounts, $74,000 in investment services and insurance income, $55,000 in title insurance income and $36,000 in ATM and check card fees. There were decreases of $152,000 in mortgage banking income and $47,000 in other operating income. Other smaller year over year changes netted to increase noninterest income by another $11,000.

Noninterest expenses totaled $8.4 million for first quarter 2024, compared to $9.2 million for the first quarter in 2023, a decrease of $766,000. As a result of the early retirement program announced in the fourth quarter 2023, salary expense declined by $562,000. Employee benefits expense declined by $177,000 due to the combination of the early retirement program and a refund of $162,000 recorded in March 2024 due to better than projected group health claims in 2023. There were other changes in noninterest expense categories that combined to decrease total noninterest expenses by $27,000.

For first quarter 2024, tax equivalent net interest income^1^ totaled $8.1 million. Compared to first quarter 2023, tax equivalent net interest income increased by $240,000, while our tax equivalent net interest margin decreased by eleven basis points. Tax equivalent interest income and fees on loans for first quarter 2024 totaled $13.4 million, $2.5 million higher than the same quarter last year due to higher rates on adjustable rate loans and growth of $74.0 million in the average balance of loans since March 31, 2023. Interest expense grew by $2.3 million from the same quarter last year due to higher interest rates on deposits, specifically time deposits due to product specials. Since last March, we have seen a shift from noninterest-bearing demand deposits to interest-bearing deposits, with noninterest-bearing deposits declining by $17.0 million and interest-bearing deposits increasing by $68.1 million.

_________________

^1^ Tax equivalent net interest income is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for additional information and a reconciliation to the most closely related GAAP measure.

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The following table shows tax equivalent interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Three Months Ended<br><br>March 31, 2024 Three Months Ended<br><br>March 31, 2023
Average Balance^5^ Income/<br><br>Expense Average<br><br>Rates^1^ Average Balance^5^ Income/<br><br>Expense Average<br><br>Rates^1^
Interest income
Loans held for investment^2,3^ $ 823,859 $ 13,362 6.52 % $ 749,790 $ 10,866 5.88 %
Loans held for sale 1,252 17 5.46 % 1,308 22 6.82 %
Federal funds sold 10,840 157 5.83 % 6,376 74 4.71 %
Interest bearing deposits 9,589 116 4.87 % 5,673 10 0.71 %
Investments
Taxable 371,855 1,773 1.92 % 381,915 1,908 2.03 %
Tax exempt^4^ 16,264 132 3.26 % 15,052 134 3.61 %
Total earning assets $ 1,233,659 $ 15,557 5.07 % $ 1,160,114 $ 13,014 4.55 %
Interest Expense
Demand deposits 139,257 605 1.75 % 168,781 674 1.62 %
Savings 498,140 3,259 2.63 % 500,988 2,977 2.41 %
Time deposits 237,483 2,473 4.19 % 121,600 391 1.30 %
Federal funds purchased 833 8 3.86 % 354 5 5.73 %
Short-term debt 72,582 988 5.47 % 71,111 987 5.63 %
Long-term debt 6,934 116 6.73 % 6,895 112 6.59 %
Total interest bearing liabilities $ 955,229 $ 7,449 3.14 % $ 869,729 $ 5,146 2.40 %
Tax equivalent net interest income^6^ $ 8,108 $ 7,868
Net interest margin 2.64 % 2.75 %

_________________

^1^ Annualized.
^2^ Interest income on loans includes loan fees.
^3^ Loans held for investment include nonaccrual loans.
^4^ Income tax rate of 21% was used to calculate the tax equivalent income on nontaxable investments and loans.
^5^ Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.
^6^ Tax equivalent net interest income is a non-GAAP financial measure. For more information, see “Non-GAAP Financial Measures” below.”
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Non-GAAP Financial Measures

This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies and are supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP. Details on non-GAAP measures follow.

The following table reconciles tax equivalent net interest income, which is not a measurement under GAAP, to net interest income (dollars in thousands):

GAAP Financial Measurements: March 31,<br><br>2024 March 31,<br><br>2023
Interest Income – Loans $ 13,369 $ 10,876
Interest Income - Securities and Other Interest-Earnings Assets 2,151 2,097
Interest Expense – Deposits (6,337 ) (4,042 )
Interest Expense - Other Borrowings (1,112 ) (1,104 )
Total Net Interest Income $ 8,071 $ 7,827
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities 37 41
Total Tax Benefit on Tax-Exempt Interest Income 37 41
Tax Equivalent Net Interest Income $ 8,108 $ 7,868

Balance Sheet Review

Overview

On March 31, 2024, assets totaled $1.32 billion, an increase of $21.6 million since December 31, 2023. Total loans increased by $3.8 million to $825.9 million, including increases of $5.1 million in other construction and land loans, $2.2 million in 1-to-4 family adjustable rate mortgage loans, $2.5 million in multifamily loans and $2.3 million in commercial and industrial loans. These increases were offset by decreases of $3.1 million in automobile loans and $8.6 million in commercial real estate loans. Investment securities decreased by $9.7 million due to paydowns on U.S. Agency mortgage-backed securities and expected bond maturities. Total deposits grew by $23.1 million to $1.16 billion, with noninterest bearing deposits increasing by $2.9 million and interest bearing deposits growing by $20.3 million. Short-term debt and long-term debt remained consistent at $60 million and $6.9 million, respectively. Total shareholders’ equity declined by $589,000 to $77.7 million.

Securities Available for Sale (“AFS”)

Our AFS securities portfolio is reported at fair value, which is determined based on market prices of similar instruments. The portfolio is made up of primarily U.S. Treasury, U.S Agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities. Total securities available for sale were $359.0 million at March 31, 2024, compared to $368.7 million at December 31, 2023. This represents a decrease of $9.7 million or 2.62%. The average balance during the first quarter of 2024 was $388.1 million, compared to $397.0 million during the first quarter of 2023. The average AFS securities portfolio represented 31.5% and 34.2% of average earning assets in the first quarter of 2024 and 2023, respectively. The year-over-year decrease in average AFS securities is due to maturities and normal paydowns of mortgage-backed securities and municipal bond maturities. There is $84.2 million of scheduled maturities and paydowns expected during the remainder of 2024 and another $55.5 million expected in 2025.

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Net unrealized losses related to the fair value of securities AFS increased $1.3 million in the first quarter of 2024 to $41.5 million, from $40.2 million at December 31, 2023. The unrealized loss is driven by the increase in market interest rates, not credit quality. The average maturity and modified duration of the portfolio is 4.64 years and 3.67 years, respectively.

Loan Portfolio

The local economy that the Company operates in benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid-size businesses and farms within its primary service area.  The Bank also makes automobile and recreational vehicle loans through its Dealer Finance division.

Loans Held for Investment of $825.9 million increased $3.8 million during the quarter ended March 31, 2024 compared to $822.1 million at December 31, 2023. As a percentage of average earning assets, average loans were 66.8% for the quarter ended March 31, 2024, compared with 64.6% for the quarter ended March 31, 2023.

Loans Held for Sale totaled $1.4 million on March 31, 2024, an increase of $300,000 compared to $1.1 million at December 31, 2023. Loans Held for Sale consists of F&M Mortgage loans, which are subject to changes in interest rates, seasonal fluctuations, and refinance activity. All the mortgage loans held for sale have been precommitted to investors, which minimizes the interest rate risk.

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses and the reserve for unfunded commitments. The amount of the allowance for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses based on internal and peer data, forecasted economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. The amount of the reserve for unfunded commitments considers the probability that those commitments will fund.

Management has developed a comprehensive analytical process to monitor the adequacy of the allowance for credit losses. The process and guidelines were developed utilizing, among other factors, the guidance from federal banking regulatory agencies, relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. Refer to additional detail regarding these forecasts in the “Allowance for Credit Losses - Loans" section of Note 1 to the Consolidated Financial Statements.

The results of this process, in combination with conclusions of the Bank’s external loan review of the risk inherent in the loan portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date. Please refer to the discussion under “Critical Accounting Policies” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table, “Allowance for Credit Losses” in Note 4 to the Consolidated Financial Statements which reflects activity in the allowance for credit losses.

The Bank recorded a provision for credit losses of $823,000 in first quarter 2024, compared no provision for credit losses in first quarter 2023. The provision was the result of net loan charge-offs of $807,000, loan growth of $3.8 million and minimal changes to qualitative factors. The ACLL was $8.4 million at March 31, 2024, up $87,000 from December 31, 2023. The ACLL as a percentage of total loans was 1.02% at March 31, 2024, compared to 1.01% at December 31, 2023. The reserve for unfunded commitments decreased from $690,0000 at December 31, 2023 to $619,000 at March 31, 2024 due to decreases of $3.5 million in commitments for 1-4 family construction, $1.4 million in commercial construction, $3.9 million in commercial and industrial construction loans which were offset by an increase of $3.3 million in commitments for owner occupied commercial real estate.

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Nonperforming Assets

Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $6.2 million on March 31, 2024 compared to $6.4 million at December 31, 2023. On both dates, nonperforming loans included a large relationship that totaled $3.9 million, that is secured by owner occupied commercial real estate and equipment. At March 31, 2024, there were smaller loans totaling $2.3 million that were nonperforming. The non-performing coverage ratio increased to 134.59% from 129.87%. See “Loans and Credit Quality” in Note 3  to the Consolidated Financial Statements for additional information about non-performing loans by segment.

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

March 31,<br><br>2024 December 31,<br><br>2023
Allowance for credit losses $ 8,408 $ 8,321
Nonaccrual loans $ 6,238 $ 6,438
Nonperforming loans $ 6,247 $ 6,469
Nonperforming assets $ 6,247 $ 6,524
Total loans $ 825,872 $ 822,092
Allowance for credit losses to total loans 1.02 % 1.01 %
Nonaccrual loans to total loans 0.76 % 0.78 %
Allowance for credit losses to nonaccrual loans 134.79 % 129.25 %

Deposits and Other Borrowings

The Company's main source of funding consists 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 were $1.16 billion and $1.13 billion at March 31, 2024 and December 31, 2023, respectively.  Noninterest bearing deposits increased $2.9 million while interest bearing deposits increased $20.3 million, for a total increase of $23.1 million from the end of 2023.

The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits.  At March 31, 2024 and December 31, 2023, the Company had a total of $258 thousand in CDARS accounts; and, $77.1 million and $95.5 million in ICS accounts, respectively. At March 31, 2024, 11.09% of the Company’s total deposits were uninsured deposits.

Short-term borrowings

The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short-term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the needs of the Company. There was $60.0 million of FHLB advances at March 31, 2024 and December 31, 2023.

Long-term borrowings

On July 29, 2020, the Company sold and issued to an institutional accredited investor a 6.00% fixed to floating rate subordinated note due July 31, 2030 with an aggregate principal amount of $7.0 million. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 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 will 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 note may be redeemed, at the Company’s option, on any scheduled interest payment date. The note will mature on July 31, 2030. The subordinated note, net of issuance costs totaled $6.9 million at March 31, 2024 and December 31, 2023.

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Capital

Banking regulators have established a uniform system to address the adequacy of capital for financial institutions. The rules require minimum capital levels based on risk-adjusted assets. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts, and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer requirement is 2.50%. The Company’s capital conservation buffer for March 31, 2024 was 4.89% and for December 31, 2023 was 4.58%. 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 to avoid restrictions on capital distributions and other payments.

At March 31, 2024, the Bank exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations. The Bank’s common equity Tier 1 and Tier 1 capital ratios were both 11.96%, its total capital ratio was 12.89%; the leverage ratio was 8.11%.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, LHFS, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary, through federal funds lines with several correspondent banks, a line of credit with the FHLB, credit availability at the Federal Reserve Bank, the purchase of brokered certificates of deposit, a corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

The Company’s on-balance sheet asset liquidity includes cash and cash equivalents, unpledged investment securities, and loans held for sale, which totaled $179.6 million at March 31, 2024, up from $178.0 million at December 31, 2023. In 2023, the Bank pledged investment securities with a par value totaling $220.8 million to the Federal Reserve System’s Bank Term Funding Program (BTFP). In March 2023, the Board of Governors of the Federal Reserve System established the BTFP to provide any U.S. federally insured depository institution, including the Bank, with a line of credit equal to the par value of securities pledged to the BTFP. Advances from the BTFP could be requested by the Bank for up to one year until March 31, 2024. The Bank also pledged securities with a market value of $19.5 million to the Federal Reserve Discount Window in 2023. The BTFP expired on March 11, 2024.

The Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million at March 31, 2024, and December 31, 2023. The Bank has a secured line of credit with the Federal Home Loan Bank (FHLB) with available credit of $104.8 million as of March 31, 2024, and $90.1 million as of December 31, 2023. The FHLB line of credit is secured by a blanket lien on qualifying loans in the residential, commercial, agricultural real estate, and home equity portfolios.

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The Bank is scheduled to receive $84.2 million from bond paydowns and maturities by the end of 2024 which can be used to fund future loan growth and for other purposes.

The Bank has a Funding and Liquidity Risk Management policy that limits the amount of short-term and long-term alternative funding to no more than 25% of total assets.

Market Risk Management

Market risk is the sensitivity of a financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, exchange rates, and equity prices. The Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations impact the amount of interest income and expense the Bank pays or receives on the majority of its assets. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest-bearing liabilities and interest earning assets.

The Company manages interest rate risk through an asset and liability committee (“ALCO”) composed of members of its Board of Directors and executive management. The ALCO is responsible for monitoring and managing the Company’s interest rate risk and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Management uses a simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides an additional analysis of the sensitivity of the earnings to changes in interest rates to static gap analysis. Assumptions used in the model rates are derived from historical trends, peer analysis, and management’s outlook, and include loans and deposit growth rates and projected yields and rates. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different assets and liability accounts move differently when the prime rate changes and is reflected in different rate scenarios.

The following table represents interest rate sensitivity on the Company’s net interest income using different rate scenarios:

Change in Prime Rate % Change in Net<br><br>Interest Income
+ 400 basis points -18.10 %
+ 300 basis points -11.88 %
+ 200 basis points -7.28 %
+ 100 basis points -3.26 %
- 100 basis points 2.70 %
- 200 basis points 6.07 %
- 300 basis points 7.68 %
- 400 basis points 7.72 %

Market value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net market value is the market value of all assets minus the market value of all liabilities. The change in net market value over different rate environments is an indication of the longer-term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation.

The following table reflects the change in net market value over different rate environments (dollars in thousands):

Change in Prime Rate % Change in Net<br><br>Economic Value
+ 400 basis points -15.66 %
+ 300 basis points -10.73 %
+ 200 basis points -6.51 %
+ 100 basis points -2.86 %
- 100 basis points 1.31 %
- 200 basis points -0.97 %
- 300 basis points -6.35 %
- 400 basis points -19.49 %

Prudent balance sheet management requires processes that monitor and protect the Company against unanticipated or significant changes in the level of market interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk is kept to an acceptable level. The ability to reprice our interest-sensitive assets and liabilities over various time intervals is of critical importance.

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The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the “gap” between interest-sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect us from unanticipated rate movements, by understanding the dynamic nature of our balance sheet components.

An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At March 31, 2024, the Company had $166.0 million in assets repricing than liabilities subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required

Item 4. Controls and Procedures

The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of March 31, 2024. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC and that such information is accumulated and communicated to management including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II Other Information

Item 1. Legal Proceedings.
There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject.
Item 1A. Risk Factors. Not required
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Mine Safety Disclosures. None
Item 5. Other Information. None
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Item 6. Exhibits.

(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
--- ---
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101 The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).
104 The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, 2024, formatted in Inline XBRL (included with Exhibit 101).
43
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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

F & M BANK CORP. <br>(Registrant)
By: /s/ Aubrey M. Wilkerson
Aubrey M. Wilkerson <br>Director and Chief Executive Officer<br><br>(Principal Executive Officer)
By: /s/ Lisa F. Campbell
Lisa F. Campbell<br><br>Executive Vice President<br><br>and Chief Financial Officer<br><br>(Principal Financial Officer<br><br>and Principal Accounting Officer)

May 15, 2024

44

fmbm_ex311.htm 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, Aubrey M. Wilkerson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;
2. 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;
3. 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;
4. 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(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;
(b) Designed such internal control 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;
(c) 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
(d) 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
5. 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):
(a) 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
(b) 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: May 15, 2024 /s/ Aubrey M. Wilkerson

| | Aubrey M. Wilkerson |

| | 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.

fmbm_ex312.htm 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, Lisa F. Campbell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;
2. 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;
3. 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;
4. 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(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;
(b) Designed such internal control 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;
(c) 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
(d) 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
5. 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):
(a) 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
(b) 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: May 15, 2024 /s/ Lisa F. Campbell

| | Lisa F. Campbell |

| | Executive Vice President & Chief Financial 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.

fmbm_ex321.htm EXHIBIT 32

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,

EXECUTIVE 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 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 March 31, 2024, 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.

/s/ Aubrey M. Wilkerson

| Aubrey M. Wilkerson<br> <br>Chief Executive Officer | | /s/ Lisa F. Campbell |

| Lisa F. Campbell<br> <br>Executive Vice President<br> <br>and Chief Financial Officer | | May 15, 2024 |

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