Equibles

10-Q

F&M BANK CORP (FMBM)

10-Q 2025-05-15 For: 2025-03-31
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, 2025

☐ 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 13, 2025
Common Stock, par value ‑ $5 per share 3,563,150 shares

F & M BANK CORP.

Quarterly Report on Form 10-Q

For the quarterly period ended March 31, 2025

Table of Contents

Page
Part I Financial Information 3
Item 1. Financial Statements
Consolidated Balance Sheets – March 31, 2025 and December 31, 2024 3
Consolidated Statements of Income – Three Months Ended March 31, 2025 and 2024 4
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2025 and 2024 5
Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2025 and 2024 6
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2025 and 2024 7
Notes to Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
Item 4. Controls and Procedures 39
Part II Other Information 40
Item 1. Legal Proceedings 40
Item 1A. Risk Factors 40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
Item 3. Defaults Upon Senior Securities 40
Item 4. Mine Safety Disclosures 40
Item 5. Other Information 40
Item 6. Exhibits 40
Signatures 41
Certifications 42
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 share data)

December 31,
2024*
Assets
Cash and due from banks 21,848 $ 18,685
Money market funds and interest-bearing deposits in other banks 319 298
Federal funds sold 67,296 37,524
Cash and cash equivalents 89,463 56,507
Securities Available for sale, at fair value 321,158 327,670
Other investments 2,254 2,399
Loans held for sale, at fair value 634 2,283
Loans held for investment, net of deferred fees and costs 827,007 839,949
Less: allowance for credit losses (7,762 ) (8,129 )
Net loans held for investment 819,245 831,820
Bank premises and equipment, net 21,998 22,192
Other real estate owned 77 77
Interest receivable 4,957 4,939
Goodwill 3,082 3,082
Bank owned life insurance 23,796 23,607
Deferred tax asset, net 8,445 9,465
Other assets 17,050 17,970
Total Assets 1,312,159 $ 1,302,011
Liabilities
Deposits:
Noninterest bearing 271,400 $ 260,301
Interest bearing 928,621 934,804
Total deposits 1,200,021 1,195,105
Long-term debt 6,986 6,975
Other liabilities 13,841 13,793
Total Liabilities 1,220,848 1,215,873
Commitments and contingencies
Shareholders’ Equity
Common stock, 5 par value, 6,000,000 shares authorized, 3,563,910 (2025) and 3,525,649 (2024) shares issued and outstanding 17,466 17,383
Additional paid in capital 11,476 11,463
Retained earnings 86,209 84,669
Accumulated other comprehensive loss (23,840 ) (27,377 )
Total Shareholders’ Equity 91,311 86,138
Total Liabilities and Shareholders’ Equity 1,312,159 $ 1,302,011

All values are in US Dollars.

*2024 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 2025 2024
Interest and fees on loans held for investment $ 13,465 $ 13,352
Interest and fees on loans held for sale 24 17
Interest from money market funds and federal funds sold 652 158
Interest and dividends on interest bearing deposits and other investments 30 173
Interest from debt securities 2,093 1,877
Total interest and dividend income 16,264 15,577
Interest expense
Total interest on deposits 6,700 6,337
Interest on short-term debt 3 995
Interest on long-term debt 117 116
Total interest expense 6,820 7,448
Net interest income 9,444 8,129
(Recovery of) provision for credit losses - loans (180 ) 894
Provision for (recovery of) credit losses – unfunded commitments 76 (70 )
Total (Recovery of) Provision for Credit Losses (104 ) 824
Net Interest Income After (Recovery of) Provision for Credit Losses 9,548 7,305
Noninterest income
Service charges on deposit accounts 312 273
Wealth management income 676 581
Mortgage banking income 602 388
Title insurance income 356 303
Income on bank owned life insurance 209 182
Low income housing partnership amortization (196 ) (197 )
ATM and check card fees 764 727
Other operating income 124 77
Total noninterest income 2,847 2,334
Noninterest expense
Salaries 4,127 3,780
Employee benefits 1,116 866
Occupancy expense 408 374
Equipment expense 328 323
FDIC assessment 265 258
Legal and professional expense 479 484
ATM and check card fees 327 292
Data processing fees 916 720
Other operating expenses 1,558 1,326
Total noninterest expense 9,524 8,423
Income before income taxes 2,871 1,216
Income tax expense (benefit) 414 (1 )
Net Income $ 2,457 $ 1,217
Per Common Share Data
Net income (basic and diluted) $ 0.70 $ 0.35
Cash dividends on common stock 0.26 0.26
Weighted average common shares outstanding (basic and diluted) 3,530,700 3,490,371

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)
2024
Net Income 2,457 $ 1,217
Other comprehensive income (loss):
Unrealized gain (loss) on available-for sale securities, net of income tax expense of 940 and income tax benefit of 270 for the three months ended March 31, 2025 and 2024, respectively 3,537 (1,010 )
Total other comprehensive income (loss) 3,537 (1,010 )
Total comprehensive income 5,994 $ 207

All values are in US Dollars.

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, 2025 and 2024.

Accumulated
Additional Other
Common Stock Paid in Retained Comprehensive
Shares Amount Capital Earnings Loss Total
Balance December 31, 2023 3,485,570 $ 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 2,714 14 36 - - 50
Net restricted common stock activity 27,729 - - - - -
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 3,516,013 $ 17,318 $ 11,097 $ 81,346 $ (32,027 ) $ 77,734
Balance December 31, 2024 3,525,649 $ 17,383 $ 11,463 $ 84,669 $ (27,377 ) $ 86,138
Net income - - - 2,457 - 2,457
Other comprehensive income - - - - 3,537 3,537
Dividends on common stock - - - (917 ) - (917 )
Common stock issued 5,090 25 76 - - 101
Net restricted common stock activity 33,171 - - - - -
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes - 58 (135 ) - - (77 )
Stock-based compensation expense - - 72 - - 72
Balance, March 31, 2025 3,563,910 $ 17,466 $ 11,476 $ 86,209 $ (23,840 ) $ 91,311

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,
2025 2024
Cash flows from operating activities
Net income $ 2,457 $ 1,217
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 325 356
Amortization of intangibles 8 3
Amortization of securities 192 180
Proceeds from loans held for sale 10,849 11,544
Loans held for sale originated (8,763 ) (11,659 )
Gain on sale of loans held for sale (437 ) (151 )
(Recovery of) provision for credit losses (104 ) 823
Increase in interest receivable (18 ) (60 )
Decrease (Increase) in deferred tax asset 80 (2 )
Decrease in other assets 929 1,467
Increase in other liabilities (28 ) (840 )
Amortization of limited partnership investments 196 197
Amortization of debt issuance costs 11 11
Income from life insurance investment (209 ) (182 )
Gain on the sale of assets held for sale (43 ) -
Gain on the sale of OREO - (21 )
Stock-based compensation expense 72 59
Net cash provided by operating activities 5,517 2,942
Cash flows from investing activities
Proceeds from maturity of investments available for sale 21,360 5,000
Purchases of investments available for sale (15,359 ) -
Proceeds from paydowns of mortgage-backed securities 4,796 3,189
Investment in restricted stock, net (5 ) (33 )
Net decrease (increase) loans held for investment 12,755 (4,587 )
Proceeds from the sale of OREO - 76
Net purchase of property and equipment (131 ) (70 )
Net cash provided by investing activities 23,416 3,575
Cash flows from financing activities
Net change in deposits 4,916 23,107
Dividends paid in cash (917 ) (905 )
Proceeds from issuance of common stock 24 50
Net cash provided by financing activities 4,023 22,252
Net increase in Cash and Cash Equivalents 32,956 28,769
Cash and cash equivalents, beginning of period 56,507 23,717
Cash and cash equivalents, end of period $ 89,463 $ 52,486
Supplemental Cash Flow information:
Cash paid for: Interest $ 7,388 $ 7,248
Taxes - -
Supplemental non-cash disclosures:
Change in unrealized loss on securities available for sale $ 4,477 $ (1,280 )

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”),  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. FMFS was dissolved effective April 25, 2024, and its legal existence was subsequently terminated on June 7, 2024. The operations, assets, and liabilities of FMFS were transferred to the Bank.

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.

Basis of Presentation and 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. The unaudited consolidated financial statements in this report have been prepared in accordance with GAAP for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented.

All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

Segment Reporting

The Company's revenue is primarily derived from the business of banking. The Company's financial performance is monitored on a consolidated basis by the Chief Executive Officer, who is designated the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered. The segments are also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if the operating performance of products and customers are similar. The CODM evaluates the financial performance of the Company’s business components such as revenue streams, significant expenses, and budget to actual results in assessing the Company’s segments and in determination of allocated resources. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's Consolidated Balance Sheets and Consolidated Statements of Income. Additionally, the Company's significant expenses are adequately segmented by category and amount in the Consolidated Statements of Income to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include salaries and employee benefits, occupancy expense, equipment expense, data processing fees and legal and professional expenses.

All of the Company's financial results are similar and considered by management to be aggregated into one reportable operating segment. While the Company has assigned certain management responsibilities by region and business-line, the Company's CODM evaluates financial performance on a Company-wide basis. The majority of the Company's revenue is from the business of banking and the Company's assigned regions have similar economic characteristics, products, services and customers. Accordingly, all of the Company's operations are considered by management to be aggregated in one reportable operating segment.

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 or shareholders’ equity.

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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, money market funds 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.

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, 2025 and December 31, 2025, 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 $1.3 million and $1.5 million at March 31, 2025 and December 31, 2024, respectively, 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 and $3.5 million at March 31, 2025 and December 31, 2024, respectively, 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.

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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.

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.

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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.

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 consolidated statements of income. 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.

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Recent Accounting Pronouncements

Accounting Standards Pending Adoption:

In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect these amendments to have a material effect on its 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.

Other accounting standards that have been issued or proposed 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.

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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, 2025 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
U. S. Treasuries $ 15,076 $ - $ 1,214 $ 13,862
U. S. Government agencies 57,996 - 4,424 53,572
Municipal securities 39,731 - 2,324 37,407
Mortgage-backed securities 208,540 233 21,423 187,350
Corporate debt securities 30,550 - 1,583 28,967
Total Securities Available for Sale $ 351,893 $ 233 $ 30,968 $ 321,158
December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
--- --- --- --- --- --- --- --- ---
U. S. Treasuries $ 20,072 $ - $ 1,458 $ 18,614
U. S. Government agencies 72,995 5,270 67,725
Municipal securities 40,674 - 2,467 38,207
Mortgage-backed securities 198,591 158 23,800 174,949
Corporate debt securities 30,550 - 2,375 28,175
Total Securities Available for Sale $ 362,882 $ 158 $ 35,370 $ 327,670

The amortized cost and fair value of securities at March 31, 2025, 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 $ 16,948 $ 16,769
Due after one year through five years 100,174 94,568
Due after five years 70,222 65,132
Due after ten years 164,549 144,689
Total $ 351,893 $ 321,158

There were no sales of available for sale securities in the first quarter of 2025 or 2024.

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The following tables show the present fair value and gross unrealized losses (dollars in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated. The reference point for determining when securities are in an unrealized loss position is period-end; therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the past twelve-month period. Excluded from the tables below were securities whose amortized cost equaled their fair value or were in an unrealized gain position as of the dates stated totaling $28.8 million and $9.0 million, as of March 31, 2025 and December 31, 2024, respectively.

Less than 12 Months More than 12 Months Total
March 31, 2025 Fair<br><br>Value Unrealized<br><br>Losses Fair<br><br>Value Unrealized<br><br>Losses Fair<br><br>Value Unrealized<br><br>Losses
U. S. Treasuries $ - $ - $ 13,862 $ 1,214 $ 13,862 $ 1,214
U. S. Government agencies - - 53,572 4,424 53,572 4,424
Municipal securities 8,583 171 28,362 2,153 36,945 2,324
Mortgage-backed securities 34,421 343 124,636 21,080 159,057 21,423
Corporate debt securities 995 5 27,972 1,578 28,967 1,583
Total Securities Available for Sale $ 43,999 $ 519 $ 248,404 $ 30,449 $ 292,403 $ 30,968
Less than 12 Months More than 12 Months Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
December 31, 2024 Fair<br><br>Value Unrealized<br><br>Losses Fair<br><br>Value Unrealized<br><br>Losses Fair<br><br>Value Unrealized<br><br>Losses
U. S. Treasuries $ - $ - $ 18,614 $ 1,458 $ 18,614 $ 1,458
U. S. Government agencies - - 67,725 5,270 67,725 5,270
Municipal securities 9,971 139 28,236 2,328 38,207 2,467
Mortgage-backed securities 39,461 603 126,470 23,197 165,931 23,800
Corporate debt securities 1,463 37 26,712 2,338 28,175 2,375
Total Securities Available for Sale $ 50,895 $ 779 $ 267,757 $ 34,591 $ 318,652 $ 35,370

At March 31, 2025 and December 31, 2024, the majority of securities in an unrealized loss position were of investment grade; however, a portion of the portfolio does not have a third-party investment grade available (securities with fair values of $24.4 million and $23.7 million, respectively). These securities were primarily subordinated debt instruments issued by bank holding companies and are classified as corporate debt securities in the tables above. The Company evaluated the issuers of these individually, observing that each issuer had strong capital ratios and profitability, thereby indicating limited exposure to asset quality or liquidity issues and resulted in no identifiable credit losses. Contractual cash flows for mortgage-backed securities and U.S. Treasury and agencies are guaranteed and/or funded by the U.S. government and government agencies. State and municipal securities showed no indication that the contractual cash flows would not be received when due. The Company does not intend to sell, nor does it believe that it will be required to sell, any of its impaired securities prior to the recovery of the amortized cost. As of March 31, 2025 and December 31, 2024, there was no allowance for credit losses ("ACL") for the Company's securities AFS portfolio. Any impairment that has not been recorded through an ACL is recognized in accumulated other comprehensive income (loss).

The Company had securities with a market value of $120.3 million pledged to the Federal Reserve Discount Window as of March 31, 2025. 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 2025. Additionally, the Company had securities with a market value of $9.1 million pledged to the Federal Reserve Bank of Richmond as collateral for deposits of the Department of Justice U.S. Bankruptcy Trustee.

As of March 31, 2025, other investments consisted of restricted stock in the Federal Reserve Bank (“FRB”) (carrying basis of $1.1 million at March 31, 2025 and December 31, 2024), Federal Home Loan Bank (“FHLB”) (carrying basis of $925 thousand and $920 thousand at March 31, 2025 and December 31, 2024, respectively), in Farmer Mac stock (carrying basis of $4 thousand at March 31, 2025 and December 31, 2024), and in the Company correspondent bank (carrying value of $50 thousand at March 31, 2025 and December 31, 2024). Additionally, the Company has an equity investment in the community bank stock of National Bankshares Inc. totaling $135 thousand at March 31, 2025 and December 31, 2024. Other investments are carried at cost.

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NOTE 3 LOANS AND CREDIT QUALITY

The following is a summary of the major categories of total loans outstanding at March 31, 2025 and December 31, 2024 (dollars in thousands):

March 31,<br><br>2025 December 31,<br><br>2024
1-4 Family residential construction $ 24,377 $ 25,102
Other construction, land development and land 61,275 58,208
Secured by farmland 88,323 86,016
Home equity – open end 50,245 49,542
Real estate 219,105 213,081
Home equity – closed end 6,362 6,137
Multifamily 10,670 10,804
Owner-occupied commercial real estate 81,724 86,169
Other commercial real estate 97,177 98,189
Agricultural loans 16,450 17,928
Commercial and industrial 55,948 64,901
Credit cards 3,267 3,524
Automobile loans 97,637 104,271
Other consumer loans 10,441 11,915
Municipal loans 4,649 4,901
Gross loans 827,650 840,688
Unamortized net deferred loan fees (643 ) (739 )
Less allowance for credit losses 7,762 8,129
Net loans $ 819,245 $ 831,820

The table above does not include loans held for sale of $634 thousand and $2.3 million at March 31, 2025 and December 31, 2024, 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 $3.5 million at March 31, 2025 and 2024, respectively. For the quarters ended March 31, 2025, and 2024, 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 $322.2 million and $306.7 million as of March 31, 2025, and 2024, 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 present the aging of the recorded investment of loans held for investment by loan category as of the dates stated (dollars in thousands).

March 31, 2025
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 $ - $ - $ - $ - $ 24,377 $ 24,377
Other construction, land development and land 158 - - 23 61,094 61,275
Secured by farmland - - - - 88,323 88,323
Home equity – open end 301 - - 405 49,539 50,245
Real estate 2,240 224 - 1,643 214,998 219,105
Home Equity – closed end - - - - 6,362 6,362
Multifamily - - - - 10,670 10,670
Owner-occupied commercial real estate 89 1,387 - 4,640 75,608 81,724
Other commercial real estate 77 - - 785 96,315 97,177
Agricultural loans - - - 171 16,279 16,450
Commercial and industrial 264 783 - 709 54,192 55,948
Credit Cards 23 43 6 - 3,195 3,267
Automobile loans 1,843 402 - 517 94,875 97,637
Other consumer loans 76 46 - 48 10,271 10,441
Municipal loans - - - - 4,649 4,649
Gross loans 5,071 2,885 6 8,941 810,747 827,650
Less: Unamortized net deferred loan fees - - - - (643 ) (643 )
Total $ 5,071 $ 2,885 $ 6 $ 8,941 $ 810,104 $ 827,007
December 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 $ - $ - $ - $ - $ 25,102 $ 25,102
Other construction, land development and land - 10 - 14 58,184 58,208
Secured by farmland - - - 53 85,963 86,016
Home equity – open end 130 - - 501 48,911 49,542
Real estate 1,799 877 - 916 209,489 213,081
Home Equity – closed end - - - - 6,137 6,137
Multifamily - - - - 10,804 10,804
Owner-occupied commercial real estate 124 - - 3,416 82,629 86,169
Other commercial real estate - - - 785 97,404 98,189
Agricultural loans - - - 171 17,757 17,928
Commercial and industrial 849 46 - 768 63,238 64,901
Credit Cards 41 19 32 - 3,432 3,524
Automobile loans 2,153 304 - 397 101,417 104,271
Other consumer loans 95 10 - 24 11,786 11,915
Municipal loans - - - - 4,901 4,901
Gross loans 5,191 1,266 32 7,045 827,154 840,688
Less: Unamortized net deferred loan fees - - - - (739 ) (739 )
Total $ 5,191 $ 1,266 $ 32 $ 7,045 $ 826,415 $ 839,949

There were $8.9 million and $7.0 million in nonaccrual loans at March 31, 2025 and 2024, respectively.  There was no income recognized on nonaccrual loans during the three months ended March 31, 2025 and 2024.

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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, 2025 December 31, 2024
Nonaccrual loans Nonaccrual loans
With no Allowance With an Allowance Total With no Allowance With an Allowance Total
Other construction, land development and land $ 23 $ - $ 23 $ 14 $ - $ 14
Secured by farmland - - - 53 - 53
Home equity – open end 405 - 405 501 - 501
Real estate 1,643 - 1,643 916 - 916
Owner-occupied commercial real estate 3,400 1,240 4,640 2,147 1,269 3,416
Other commercial real estate 785 - 785 785 - 785
Agricultural loans 171 - 171 171 - 171
Commercial and industrial 709 - 709 768 - 768
Automobile loans 517 - 517 397 - 397
Other consumer loans 48 - 48 24 - 24
Total loans $ 7,701 $ 1,240 $ 8,941 $ 5,776 $ 1,269 $ 7,045

Troubled Loan Modifications

The Company closely monitors the performance of borrowers experiencing financial difficulty and grants certain loan modifications it would not otherwise consider. The Company refers to such loan modifications as troubled loan modifications (“TLMs”). There were no loans modified for borrowers experiencing financial difficulty in the three months ended March 31, 2025 or 2024.

The following tables present an aging analysis of the amortized cost of TLMs as of the dates stated (dollars in thousands).

March 31, 2025
Current Loans 30-89 Days<br><br>Past Due Greater than 90 Days Past Due & Accruing Nonaccrual Total
Real estate $ - $ 6 $ - $ - $ 6
Owner occupied commercial real estate 5,433 - - 1,205 6,638
Automobile loans 41 - - 12 53
Total modified loans $ 5,474 $ 6 $ - $ 1,217 $ 6,697
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Current Loans 30-89 Days<br><br>Past Due Greater than 90 Days Past Due & Accruing Nonaccrual Total
Real estate $ 7 $ - $ - $ - $ 7
Owner occupied commercial real estate 6,653 - - - 6,653
Other commercial real estate 10 - - - 10
Automobile loans 62 35 - - 111
Total modified loans $ 6,732 $ 49 $ - $ - $ 6,781

At March 31, 2025 and December 31, 2024, there were no unfunded commitments to borrowers with TLMs.

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The following table presents the amortized cost of TLMs modified in the preceding twelve months and had a payment default during the periods stated (dollars in thousands).

For the three months ended March 31,
2025 2024
Number of Loans Amortized Cost % of Amortized Cost to Gross Loans by Category Number of Loans Amortized Cost % of Amortized Cost to Gross Loans by Category
Term extension and deferral
Real estate 1 $ 6 0.01% - - 0.00 %
Automobile loans 2 14 0.03% - - 0.00 %
Total term extension and deferral 3 $ 20 - -
Other than temporary payment delay
Owner occupied commercial real estate 1 $ 1,205 1.47% - - 0.00 %
Total other than temporary payment delay 1 $ 1,205 - -
Total 4 $ 1,225 - -

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. 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):

March 31, 2025 December 31, 2024
Real Estate Business/Other Assets Real Estate Business/Other Assets
Real estate $ 799 $ - $ - $ -
Owner-occupied commercial real estate 4,592 - 3,416 -
Other commercial real estate 785 - 785 -
Commercial and industrial - 605 - 605
Total loans $ 6,176 $ 605 $ 4,201 $ 605

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.

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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, 2025 (dollars in thousands):

Term Loans by Year of Origination
2025 2024 2023 2022 2021 Prior Revolving Total
1-4 Family residential construction
Pass $ - $ - $ 779 $ - $ - $ - $ 23,598 $ 24,377
Watch - - - - - - - -
Substandard - - - - - - - -
Total 1-4 Family residential construction - - 779 - - - 23,598 24,377
Current period gross write-offs - - - - - - - -
Other construction, land development and land
Pass 512 2,507 14,500 7,128 4,443 9,034 21,956 60,080
Watch - - - - - - 126 126
Substandard - - - - - 533 536 1,069
Total Other construction, land development and land 512 2,507 14,500 7,128 4,443 9,567 22,618 61,275
Current period gross write-offs - - - - - - - -
Secured by farmland
Pass 2,315 5,677 9,252 12,806 12,733 32,932 9,615 85,330
Watch - 155 - 1,667 - 737 - 2,559
Substandard - - - 319 - - 115 434
Total Secured by farmland 2,315 5,832 9,252 14,792 12,733 33,669 9,730 88,323
Current period gross write-offs - - - - - - - -
Home equity – open end
Pass - - - - - 106 49,570 49,676
Watch - - - - - - 569 569
Substandard - - - - - - - -
Total Home equity - open end - - - - - 106 50,139 50,245
Current period gross write-offs - - - - - - - -
Real estate
Pass 6,371 21,892 58,942 43,355 13,204 68,892 - 212,656
Watch - 1,442 1,450 - - 219 - 3,111
Substandard - - 302 85 809 2,142 - 3,338
Total Real estate 6,371 23,334 60,694 43,440 14,013 71,253 - 219,105
Current period gross write-offs - - - - - - - -
Home Equity – closed end
Pass 416 705 2,444 210 84 2,503 - 6,362
Watch - - - - - - - -
Substandard - - - - - - - -
Total Home Equity - closed end 416 705 2,444 210 84 2,503 - 6,362
Current period gross write-offs - - - - - - - -
Multifamily
Pass - 2,122 - 2,616 1,300 2,373 2,259 10,670
Watch - - - - - - - -
Substandard - - - - - - - -
Total Multifamily - 2,122 - 2,616 1,300 2,373 2,259 10,670
Current period gross write-offs - - - - - - - -
Owner-occupied commercial real estate
Pass - 7,428 2,193 16,949 15,388 24,155 2,165 68,278
Watch - - - - - 1,083 - 1,083
Substandard - 1,163 - - - 9,005 2,195 12,363
Total Owner-occupied commercial real estate - 8,591 2,193 16,949 15,388 34,243 4,360 81,724
Current period gross write-offs - - - - - - - -
Other commercial real estate
Pass - 382 9,201 29,223 11,549 35,033 1,989 87,377
Watch - - - - - 1,005 - 1,005
Substandard - 7,924 - - - 871 - 8,795
Total Other commercial real estate - 8,306 9,201 29,223 11,549 36,909 1,989 97,177
Current period gross write-offs - - - - - - - -
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Term Loans by Year of Origination
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2025 2024 2023 2022 2021 Prior Revolving Total
Agricultural loans
Pass 1,286 2,534 1,901 1,492 266 143 8,091 15,713
Watch 417 - - 13 - 24 - 454
Substandard - - 112 21 - - 150 283
Total Agricultural loans 1,703 2,534 2,013 1,526 266 167 8,241 16,450
Current period gross write-offs - - - - - - - -
Commercial and industrial
Pass 2,767 14,172 3,990 6,300 3,427 887 22,283 53,826
Watch - 405 - 59 - - 447 911
Substandard - - 342 27 608 - 234 1,211
Total Commercial and industrial 2,767 14,577 4,332 6,386 4,035 887 22,964 55,948
Current period gross write-offs - - - - - - - -
Credit Cards
Pass - - - - - - 3,261 3,261
Substandard - - - - - - 6 6
Total Credit cards - - - - - - 3,267 3,267
Current period gross write-offs - - - - - - 15 15
Automobile loans
Pass 5,006 24,422 33,967 22,011 8,892 2,805 - 97,103
Watch - - - - - - - -
Substandard - 80 137 141 117 59 - 534
Total Automobile loans 5,006 24,502 34,104 22,152 9,009 2,864 - 97,637
Current period gross write-offs - 83 139 135 16 24 - 397
Other consumer loans
Pass 596 3,257 2,697 2,186 757 551 349 10,393
Watch - - - - - - - -
Substandard - - 11 25 12 - - 48
Total Other consumer loans 596 3,257 2,708 2,211 769 551 349 10,441
Current period gross write-offs - - - 1 - - - 1
Municipal loans
Pass - - - - 576 4,073 - 4,649
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - - - - 576 4,073 - 4,649
Current period gross write-offs - - - - - - - -
Total loans $ 19,686 $ 96,267 $ 142,220 $ 146,633 $ 74,165 $ 199,165 $ 149,514 827,650
Less: Unamortized net deferred loan fees (643 )
Loans held for investment $ 827,007
Current period gross write-offs $ - $ 83 $ 139 $ 136 $ 16 $ 24 $ 15 $ 413
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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, 2024 (dollars in thousands):

Term Loans by Year of Origination
2024 2023 2022 2021 2020 Prior Revolving Total
1-4 Family residential construction
Pass $ - $ 1,224 $ - $ - $ - $ 92 $ 23,786 $ 25,102
Watch - - - - - - - -
Substandard - - - - - - - -
Total 1-4 Family residential construction - 1,224 - - - 92 23,786 25,102
Current period gross write-offs - 362 - - - - - 362
Other construction, land development and land
Pass 2,668 13,898 7,417 4,530 1,727 8,580 18,251 57,071
Watch - - - - - - 128 128
Substandard - - - - - 525 484 1,009
Total Other construction, land development and land 2,668 13,898 7,417 4,530 1,727 9,105 18,863 58,208
Current period gross write-offs - - - - - - - -
Secured by farmland
Pass 5,462 10,038 13,283 12,908 25,209 8,413 8,074 83,387
Watch 155 - 1,667 - - 754 - 2,576
Substandard - - - - - 53 - 53
Total Secured by farmland 5,617 10,038 14,950 12,908 25,209 9,220 8,074 86,016
Current period gross write-offs - - - - - - - -
Home equity – open end
Pass - - - - - 153 48,589 48,742
Watch - - - - - - 249 249
Substandard - - - - - - 551 551
Total Home equity - open end - - - - - 153 49,389 49,542
Current period gross write-offs - - - - - - - -
Real estate
Pass 21,150 59,160 43,895 13,643 11,595 59,013 1,671 210,127
Watch - - - - - - - -
Substandard - 203 86 528 - 2,137 - 2,954
Total Real estate 21,150 59,363 43,981 14,171 11,595 61,150 1,671 213,081
Current period gross write-offs - - - - - - - -
Home Equity – closed end
Pass 727 2,469 252 87 786 1,816 - 6,137
Watch - - - - - - - -
Substandard - - - - - - - -
Total Home Equity - closed end 727 2,469 252 87 786 1,816 - 6,137
Current period gross write-offs - - - - - - - -
Multifamily
Pass 2,130 - 4,854 1,368 866 1,586 - 10,804
Watch - - - - - - - -
Substandard - - - - - - - -
Total Multifamily 2,130 - 4,854 1,368 866 1,586 - 10,804
Current period gross write-offs - - - - - - - -
Owner-occupied commercial real estate
Pass 7,187 2,207 17,127 15,754 6,697 19,933 5,042 73,947
Watch 1,165 - - - - - - 1,165
Substandard - - - - - 8,613 2,444 11,057
Total Owner-occupied commercial real estate 8,352 2,207 17,127 15,754 6,697 28,546 7,486 86,169
Current period gross write-offs - - - - - - - -
Other commercial real estate
Pass 386 9,258 29,385 11,767 3,739 31,885 1,938 88,358
Watch - - - - - 1,018 - 1,018
Substandard 7,942 - - - - 871 - 8,813
Total Other commercial real estate 8,328 9,258 29,385 11,767 3,739 33,774 1,938 98,189
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 3,522 2,181 1,818 333 180 - 9,673 17,707
Watch - - 13 - 24 - 13 50
Substandard - - 21 - - - 150 171
Total Agricultural loans 3,522 2,181 1,852 333 204 - 9,836 17,928
Current period gross write-offs - - - - - - - -
Commercial and industrial
Pass 14,798 4,817 6,766 3,738 878 376 28,934 60,307
Watch - 348 63 32 - - 3,328 3,771
Substandard - - 57 609 - - 157 823
Total Commercial and industrial 14,798 5,165 6,886 4,379 878 376 32,419 64,901
Current period gross write-offs - 57 176 47 24 6 - 310
Credit Cards
Pass - - - - - - 3,524 3,524
Substandard - - - - - - - -
Total Credit Cards - - - - - - 3,524 3,524
Current period gross write-offs - - - - - - 27 27
Automobile loans
Pass 26,426 37,698 25,096 10,563 3,121 975 - 103,879
Watch - - - - - - - -
Substandard 22 66 147 110 36 11 - 392
Total Automobile loans 26,448 37,764 25,243 10,673 3,157 986 - 104,271
Current period gross write-offs 194 1,119 760 503 115 64 - 2,755
Other consumer loans
Pass 3,604 3,102 2,633 989 210 994 359 11,891
Watch - - - - - - - -
Substandard - 7 6 11 - - - 24
Total Other consumer loans 3,604 3,109 2,639 1,000 210 994 359 11,915
Current period gross write-offs 7 99 62 23 15 7 - 213
Municipal loans
Pass - - - 775 1,032 3,094 - 4,901
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - - - 775 1,032 3,094 - 4,901
Current period gross write-offs - - - - - - - -
Total loans $ 97,344 $ 146,676 $ 154,586 $ 77,745 $ 56,100 $ 150,892 $ 157,345 $ 840,688
Less: Unamortized net deferred loan fees (739 )
Loans held for investment $ 839,949
Current period gross write-offs $ 201 $ 1,637 $ 998 $ 573 $ 154 $ 77 $ 27 $ 3,667

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.

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. 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 ACL . The ACL for unfunded commitments is classified on the balance sheet within Other liabilities.

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The following tables detail the changes in the ACL for the three months ended March 31, 2025 and 2024 (dollars in thousands).

For the three months ended March 31, 2025
Beginning Balance Charge-offs Recoveries Recovery of provision for loan credit losses Ending Balance
1-4 Family residential construction $ 258 $ - $ - $ (6 ) $ 252
Other construction, land development and land 1,551 - - 107 1,658
Secured by farmland 946 - - 97 1,043
Home equity – open end 197 - 24 (30 ) 191
Real estate 606 - 1 85 692
Home Equity – closed end 99 - - (16 ) 83
Multifamily 190 - - (158 ) 32
Owner-occupied commercial real estate 809 - - (96 ) 713
Other commercial real estate 105 - - (22 ) 83
Agricultural loans 27 - - (2 ) 25
Commercial and industrial 982 - 3 (159 ) 826
Credit Cards 87 15 6 1 79
Automobile loans 1,956 397 164 171 1,894
Other consumer loans 301 1 28 (137 ) 191
Municipal loans 15 - - (15 ) -
Total allowance for credit losses - loans $ 8,129 $ 413 $ 226 $ (180 ) $ 7,762
Allowance for credit losses – unfunded commitments $ 649 $ - $ - $ 76 $ 725
For the three months ended March 31, 2024
--- --- --- --- --- --- --- --- --- --- --- ---
Beginning Balance Charge-offs Recoveries Provision for loan credit losses Ending 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 allowance for credit losses - loans $ 8,321 $ 1,011 $ 204 $ 894 $ 8,408
Allowance for credit losses – unfunded commitments $ 690 $ - $ - $ (70 ) $ 620

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 adjusted for prepaid rent, initial direct costs, and any incentives received from the lessor. The right-of-use assets are included in other assets and the lease liability in other liabilities in the consolidated balance sheets.

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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 three operating leases for office properties.

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

March 31,<br><br>2025
Lease Liabilities $ 558
Right-of-use assets $ 524
Weighted average remaining lease term (years) 9.13 years
Weighted average discount rate 3.47%
For the Three Months Ended March 31,
--- --- --- --- ---
2025 2024
Operating lease cost $ 30 $ 52
Total lease cost $ 30 $ 52
Cash paid for amounts included in the measurement of lease liabilities $ 34 $ 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,<br><br>2025
Nine months ending December 31, 2025 $ 79
Twelve months ending December 31, 2026 70
Twelve months ending December 31, 2027 56
Twelve months ending December 31, 2028 57
Twelve months ending December 31, 2029 59
Thereafter 346
Total undiscounted cash flows $ 667
Discount (109 )
Lease liabilities $ 558

NOTE 6 REGULATORY CAPITAL MATTERS

Banks and financial holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, “prompt corrective action” regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on AFS securities is not included in computing regulatory capital. Management believes as of March 31, 2025, the Bank meets all capital adequacy requirements to which they are subject.

“Prompt corrective action” regulations provide five classifications: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”, although these terms are not used to represent overall financial condition. If “adequately capitalized”, regulatory approval is required to accept brokered deposits. If “undercapitalized”, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of March 31, 2025, and December 31, 2024, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

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Actual Minimum Required Capital Minimum Required to be Well Capitalized
--- --- --- --- --- --- --- --- --- --- --- --- ---
March 31, 2025 Amount Ratio Amount Ratio Amount Ratio
Total risk-based ratio $ 122,096 13.50% $ 72,331 8.00% $ 90,414 10.00%
Tier 1 risk-based ratio 113,610 12.57% 54,248 6.00% 72,331 8.00%
Common equity tier 1 113,610 12.57% 40,686 4.50% 58,769 6.50%
Tier 1 leverage ratio 113,610 8.50% 53,442 4.00% 66,803 5.00%
December 31, 2024
Total risk-based ratio $ 120,892 13.39% $ 72,223 8.00% $ 90,279 10.00%
Tier 1 risk-based ratio 112,114 12.42% 54,168 6.00% 72,223 8.00%
Common equity tier 1 112,114 12.42% 40,626 4.50% 58,682 6.50%
Tier 1 leverage ratio 112,114 8.23% 54,472 4.00% 68,090 5.00%

NOTE 7 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.

Fair Value – Recurring Basis

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

Securities - When quoted market prices are not available, fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discount cash flow methods. Level 2 securities included U.S. agency securities, mortgage-backed agency securities, obligations of state and political subdivisions, and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The carrying value of restricted stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans held for sale – Mortgage loans originated and intended for sale in the secondary market are carried fair value, which  is based on the price secondary markets are currently offering for similar loans using observable market data. Changes in fair value are recognized in mortgage banking income on the consolidated statements of income (Level 2).

Derivative financial instruments - Derivative instruments used to hedge residential mortgage loans held for sale and the related interest rate lock commitments include forward commitments to sell mortgage loans and are reported at fair value utilizing Level 2 inputs. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments.

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

March 31, 2025 Carrying Value Level 1 Level 2 Level 3
Securities available for sale
U. S. Treasury securities $ 13,862 $ - $ 13,862 $ -
U.S. Government agencies 53,572 - 53,572 -
Municipal securities 37,407 - 37,407 -
Mortgage-backed securities 187,350 - 187,350 -
Corporate debt securities 28,967 - 4,552 24,415
Total securities available for sale $ 321,158 $ - $ 296,743 $ 24,415
Other assets
Loans held for sale $ 634 $ - $ 634 $ -
Forward sales commitments 46 - 46 -
Other liabilities
IRLC $ 17 $ - $ 17 $ -
December 31, 2024 Carrying Value Level 1 Level 2 Level 3
--- --- --- --- --- --- --- --- ---
Securities available for sale
U. S. Treasury securities $ 18,614 $ - $ 18,614 $ -
U.S. Government agencies 67,725 - 67,725 -
Municipal securities 38,207 - 38,207 -
Mortgage-backed securities 174,949 - 174,949 -
Corporate debt securities 28,175 - 4,512 23,663
Total securities available for sale $ 327,670 $ - $ 304,007 $ 23,663
Other assets
Loans held for sale $ 2,283 $ - $ 2,283 $ -
IRLC 18 - 18 -
Forward sales commitments 41 - 41 -

Fair Value - Nonrecurring Basis

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. 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 - Collateral-dependent loans are carried at fair value, which equals the estimated market value of the collateral less estimated costs to sell. Collateral may be in the form of real estate, securities, or business assets, including equipment, inventory, and accounts receivable. A loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of operations.

Other Real Estate Owned (“OREO”)- Certain assets such as OREO are measured at fair value less estimated costs to sell. Valuation of OREO is generally determined using current appraisals from independent parties, a Level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal, 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.

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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, 2025 and December 31, 2024 (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 tables summarize assets that were measured at fair value on a nonrecurring basis as of the dates stated (dollars in thousands).

March 31, 2025
Balance Level 1 Level 2 Level 3
Collateral dependent loans $ 6,781 $ - $ - $ 6,781
OREO 77 - - 77
December 31, 2024
--- --- --- --- --- --- --- --- ---
Balance Level 1 Level 2 Level 3
Collateral dependent loans $ 4,806 $ - $ - $ 4,806
OREO 77 - - 77

The following tables present quantitative information about Level 3 fair value measurements as of the dates stated (dollars in thousands).

Balance at<br><br>March 31,<br><br>2025 Unobservable Input Discount
Collateral dependent loans
Discounted appraised value technique $ 6,781 Discount rate 25%
Selling costs 9% - 29%
OREO
Discounted sales price technique 77 Discount rate 25%
Selling costs 8%
Balance at<br><br>December 31,<br><br>2024 Unobservable Inputs Discount
Collateral dependent loans
Discounted appraised value technique $ 4,806 Discount rate 25%
Selling costs 9% - 10%
OREO
Discounted sales price technique 77 Discount rate 25%
Selling costs 8%

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The carrying values of cash and due from banks, federal funds sold, and restricted cash are of such short duration that carrying value reasonably approximates fair value (Level 1).

The carrying values of accrued interest receivable and accrued interest payable are of such short duration that carrying value reasonably approximates fair value (Level 2).

The carrying value of restricted equity investments approximates fair value based on the redemption provisions of the issuer (Level 2). The fair value of other investments is approximated by its carrying value (Level 3).

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The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans, and all other loans. The results are then adjusted to account for credit risk as described above. The fair value of the Company’s loan portfolio also considers illiquidity risk through the use of a discounted cash flow model to compensate for, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. This consideration of both credit risk and illiquidity risk provides an estimated exit price for the Company’s loan portfolio. Loans held for investment are reported as Level 3.

The carrying value of BOLI reasonably approximates fair value, as these policies are reported at their cash surrender value, which is estimated based on information provided by insurance carriers (Level 3).

The carrying value of noninterest-bearing deposits approximates fair value (Level 1). The carrying values of interest-bearing demand, money market, and savings deposits approximates fair value based on their current pricing and are reported as Level 2. The fair values of time deposits were obtained using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for time deposits that mature in the same period. Time deposits are reported as Level 3.

The fair value of the FHLB borrowings is estimated by discounting the future cash flows using current interest rates offered for similar advances (Level 2).

The fair value of the Company’s subordinated notes is estimated by utilizing recent issuance interest rates for subordinated debt offerings of similar issuer size (Level 3).

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Borrowers with fixed rate obligations may be less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates may be more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

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The following tables (dollars in thousands) present estimated fair values and related carrying amounts of the Company’s financial instruments as of the dates indicated presented in accordance with the applicable accounting guidance.

March 31, 2025
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
Financial Assets
Cash and cash equivalents $ 89,463 $ 89,463 $ - $ - $ 89,463
Securities available for sale 321,158 - 321,158 - 321,158
Other investments 2,254 - - 2,254 2,254
Loans held for sale 634 - 634 - 634
Loans held for investment, net 819,245 - - 805,414 805,414
Interest receivable 4,957 - 4,957 - 4,957
Bank owned life insurance 23,796 - 23,796 - 23,796
Forward sales commitments 46 - 46 - 46
Financial Liabilities
Noninterest-bearing demand deposits $ 271,400 $ 271,400 $ - $ - $ 271,400
Interest checking 133,537 - 133,537 - 133,537
Savings deposits 541,247 - 541,247 - 541,247
Time deposits 253,837 - - 253,398 253,398
Long-term debt 6,986 - - 6,950 6,950
Interest payable 1,332 - 1,332 - 1,332
IRLC 17 - 17 - 17
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
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
Financial Assets
Cash and cash equivalents $ 56,507 $ 56,507 $ - $ - $ 56,507
Securities available for sale 327,670 - 327,670 - 327,670
Loans held for sale 2,283 - 2,283 - 2,283
Loans held for investment, net 831,820 - - 808,812 808,812
Interest receivable 4,939 - 4,939 - 4,939
Bank owned life insurance 23,607 - 23,607 - 23,607
IRLC 18 - 18 - 18
Forward sales commitments 41 - 41 - 41
Financial Liabilities
Noninterest-bearing demand deposits $ 260,301 $ 260,301 $ - $ - $ 260,301
Interest checking 138,919 - 138,919 - 138,919
Savings deposits 497,577 - 497,577 - 497,577
Time deposits 298,308 - - 297,920 297,920
Long-term debt 6,975 - - 6,917 6,917
Interest payable 1,900 - 1,900 - 1,900
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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. (the “Company”), incorporated in Virginia in 1983, is a one-bank holding company under the Bank Holding Company Act of 1956 that has elected to become a financial holding company. The Company owns 100% of the outstanding stock of its banking subsidiary and VST. F&M Mortgage is a wholly owned subsidiary of the Bank.

The Company, through its subsidiary Bank, operates under a charter issued by the Commonwealth of Virginia and provides financial products and services to consumers and businesses. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the FRB. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a dealer finance division loan production office. The Company offers insurance, mortgage lending, and title insurance through its subsidiaries F&M Mortgage, and VST. 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, 2024 (the “2024 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,” “plan” or similar expressions or other statements concerning opinions or judgements of the Company and its management about future events. 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.

All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

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.

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The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of March 31, 2025 were unchanged from the policies disclosed in the 2024 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

Overview

Net income for the first quarter of 2025 was $2.5 million, or $0.70 per share, compared to $1.2 million, or $0.35 per share, for the first quarter of 2024—an increase of $1.2 million, or $0.35 per share. Return on average assets was 0.76% and return on average equity was 11.31% for the three months ended March 31, 2025, both improving from the prior-year period. The increase in net income was primarily driven by two factors: (1) lower total interest expense following the redemption of short-term debt, and (2) a recovery of provision for credit losses of $104,000, compared to a provision of $823,000 in the prior year, resulting in a net improvement of $927,000 in provision expense. These factors, coupled with an increase of $687,000 in interest income, increased net interest income to $9.4 million at March 31, 2025 from $8.1 million at March 31, 2024.

Net Interest Income and Net Interest Margin

Net interest income for first quarter 2025 was $9.4 million, an increase of $1.3 million over first quarter 2024. Interest income for first quarter 2025 increased $687,000 due to higher interest rates, while interest expense decreased $628,000 due to no short-term debt. Net interest margin for the quarter ended March 31, 2025 was 3.15%, up 45 basis points from the quarter ended March 31, 2024. Higher average balances in loans held for investment and federal funds sold were offset by a decline in average balances of investments and interest-bearing deposits in banks. The earning asset yield increased 26 basis points to 5.43% from 5.17%. Cost of interest-bearing liabilities decreased 20 basis points to 2.94%. Interest expense on deposits increased $363,000 due to an increase in the average balance of savings and time deposits; however, interest expense on debt decreased $991,000 due to redemption of short-term FHLB advances.

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The following table shows 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, 2025 and 2024 (dollars in thousands):

Three Months ended March 31,
2025 2024
Balance^4^ Interest Rate^1^ Balance^4^ Interest Rate^1^
ASSETS
Loans held for investment^2,3^ $ 831,168 $ 13,465 6.57% $ 823,529 $ 13,352 6.52%
Loans held for sale 1,425 24 6.83% 2,799 17 2.44%
Federal funds sold 60,159 652 4.40% 10,840 158 5.86%
Interest bearing deposits in banks and other investments 3,176 30 3.83% 10,200 173 6.82%
Investment securities^3^
Taxable 302,917 1,988 2.66% 349,228 1,772 2.04%
Tax exempt 16,145 105 2.64% 16,264 105 2.60%
Total investment securities 319,062 2,093 2.66% 365,492 1,877 2.07%
Total earning assets 1,214,990 16,264 5.43% 1,212,860 15,577 5.17%
Allowance for credit losses (8,004 ) (8,427 )
Nonearning assets 99,270 100,229
Total assets $ 1,306,256 $ 1,304,662
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand-interest bearing $ 137,616 $ 580 1.71% $ 139,257 $ 605 1.75%
Savings 517,628 3,380 2.65% 497,645 3,291 2.66%
Time deposits 279,585 2,740 3.97% 237,278 2,441 4.14%
Total interest-bearing deposits 934,829 6,700 2.91% 874,180 6,337 2.92%
Federal funds purchased - - - 833 8 3.86%
Short‑term debt - 3 - 72,582 987 5.47%
Long-term debt 6,980 117 6.80% 6,937 116 6.73%
Total interest-bearing liabilities 941,809 6,820 2.94% 954,532 7,448 3.14%
Noninterest bearing deposits 262,708 257,383
Other liabilities 13,654 15,180
Total liabilities 1,218,171 1,227,095
Shareholders’ equity 88,085 77,567
Total liabilities and shareholders’ equity $ 1,306,256 $ 1,304,662
Net interest earnings $ 9,444 $ 8,129
Net Interest Margin 3.15% 2.70%

___________________________

^1^ Annualized.
^2^ Interest income on loans includes loan fees.
^3^ Loans held for investment include nonaccrual loans.
^4^ Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

(Recovery of) Provision for Credit Losses

During first quarter 2025, the Bank recorded a recovery of provision for credit losses of $104,000, compared to a provision of $823,000 in first quarter 2024. The current quarter recovery of provision was the result of a $12.9 million decrease in total loans held for investment and decreased net loan charge-offs during the first three months of 2025. The recovery of provision also included a provision of $76,000 in the reserve for unfunded commitments that resulted from an increase in outstanding loan commitments. At March 31, 2025, the ACL totaled $7.8 million or 0.94% of gross loans outstanding.

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Non-interest income

Non-interest income totaled $2.8 million for first quarter 2025, an increase of $513,000. The increase resulted from increases across all categories, notably $214,000 in mortgage banking income, $95,000 in wealth management, and $53,000 in title insurance income. Non-interest income to average assets increased to 0.88% at March 31, 2025 compared to 0.72% at March 31, 2024.

Non-interest Expense

Non-interest expenses totaled $9.5 million for first quarter 2025, compared to $8.4 million for the first quarter 2024, an increase of $1.1 million. Salaries increased $347,000 largely due to higher commissions paid related to wealth management and mortgage banking income, and an increase in bonus accruals. Employee benefits increased $250,000 due to a higher refund (rebate) of health insurance expenses in 2024, and a change from pension income in 2024 to pension expense in 2025. Data processing expense increased $196,000 primarily due to a shift in statement processing costs to data processing as part of our core vendor contract; additionally, new software was implemented to improve financial reporting and efficiency. Other operating expenses rose $154,000 due to an increase in fraud losses and collection expenses. Non-interest expense to average assets increased from 2.60% at March 31, 2024 to 2.96% at March 31, 2025.

Balance Sheet Review

Overview

On March 31, 2025, assets totaled $1.31 billion, a decrease of $10.1 million since December 31, 2024. Total loans decreased by $12.9 million to $827.0 million, including decreases of $9.0 million in commercial and industrial loans, $6.6 million in automobile loans, and $4.4 million in owner-occupied commercial real estate loans. These decreases were offset by increases of $6.1 million in real estate loans, $3.1 million in other construction and land loans, and $2.3 million in loans secured by farmland. Investment securities decreased by $6.5 million due to paydowns on U.S. Agency mortgage-backed securities and bond maturities, which were offset by purchases of $15.4 million. Total deposits grew by $4.9 million to $1.2 billion, with noninterest bearing deposits increasing by $11.1 million and interest-bearing deposits declining by $6.2 million. Long-term debt remained consistent at $7.0 million. Total shareholders’ equity rose by $5.2 million to $91.3 million.

Securities Available for Sale (“AFS”)

The Company’s available-for-sale (AFS) securities portfolio is reported at fair value, based on market prices of comparable instruments. This portfolio mainly includes U.S. Treasury securities, U.S. agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities. As of March 31, 2025, the total AFS securities were $321.2 million, down from $327.7 million on December 31, 2024.

This represents a decrease of $6.5 million, or 2.0%. The average balance of the AFS securities portfolio during the first three months of 2025 was $319.1 million, compared to $365.5 million during the same period in 2024. The average AFS securities portfolio accounted for 26.3% and 30.1% of average earning assets for the three months ended March 31, 2025, and 2024, respectively. The decrease in AFS securities is primarily due to maturities and expected paydowns on mortgage-backed securities in the bond portfolio. Net unrealized losses related to the fair value of AFS securities were $30.7 million as of March 31, 2025, compared to $35.2 million as of December 31, 2024. This unrealized loss is attributed to rising market interest rates rather than credit quality. During the period, $26.2 million in mortgage-backed securities and municipal bonds matured or were paid down, of which $15.4 million was reinvested in higher-yielding bonds. Scheduled maturities and paydowns are expected to total $35.2 million in the remaining nine months of 2025. The portfolio’s weighted average life is 5.07 years, with a modified duration of 4.04 years.

Loan Portfolio

The Company operates in a diverse local economy supported by various industries, including agribusiness, manufacturing, services, and several universities and colleges. The Bank is an active lender for residential mortgages and residential construction and typically provides commercial loans to small and mid-size businesses and farms within its primary service area. Additionally, the Bank offers automobile and recreational vehicle loans through its dealer finance division.

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Loans Held for Investment totaled $827.0 million at March 31, 2025 and decreased $12.9 million from $839.9 million at December 31, 2024. As a percentage of average earning assets, average loans were 68.4% for the three months ended March 31, 2025, compared with 67.9% for the three months ended March 31, 2024.

Loans Held for Sale totaled $634,000 as of March 31, 2025, a decrease of $1.6 million from $2.3 million on December 31, 2024. This category consists of F&M Mortgage loans, which are affected by interest rate changes, seasonal trends, and refinancing activity. All mortgage loans held for sale have been pre-committed to investors, effectively minimizing interest rate risk.

The Company’s loans held for investment portfolio is well-diversified, with first-lien, amortizing residential mortgage loans as the largest segment, representing 26.47% of total loans. Commercial real estate loans, including both owner-occupied and non-owner-occupied properties, comprise $178.9 million, or 21.62% of the portfolio. Automobile loans, originated through the Company’s dealer finance division, total $97.6 million, accounting for 11.80% of the portfolio. Following is a breakdown of the loan portfolio composition as of March 31, 2025, and December 31, 2024 (dollars in thousands):

March 31, 2025 December 31, 2024
Loan Segment Balance Percentage of Portfolio Balance Percentage of Portfolio
1-4 Family residential construction $ 24,377 2.95% $ 25,102 2.99%
Other construction, land development and land 61,275 7.40% 58,208 6.92%
Secured by farmland 88,323 10.67% 86,016 10.23%
Home equity – open end 50,245 6.07% 49,542 5.89%
Real estate 219,105 26.47% 213,051 25.34%
Home Equity – closed end 6,362 0.77% 6,137 0.73%
Multifamily 10,670 1.29% 10,804 1.29%
Owner-occupied commercial real estate 81,724 9.87% 86,169 10.25%
Other commercial real estate 97,177 11.74% 98,189 11.68%
Agricultural loans 16,450 1.99% 17,928 2.13%
Commercial and industrial 55,948 6.76% 64,901 7.72%
Credit Cards 3,267 0.39% 3,524 0.42%
Automobile loans 97,637 11.80% 104,271 12.40%
Other consumer loans 10,441 1.27% 11,915 1.43%
Municipal loans 4,649 0.56% 4,901 0.58%
Gross loans $ 827,650 100.00% $ 840,658 100.00%
Unamortized deferred net loan fees (643 ) (739 )
Loans held for investment, net of deferred loan fees $ 827,007 $ 839,919

Allowance for Credit Losses

Management has implemented a comprehensive analytical process to evaluate the adequacy of the allowance for credit losses. Refer to the discussion in Note 1 Summary of Significant Accounting Policies in Notes to the Consolidated Financial Statements for management’s approach to estimating the ACL.

The Company maintains the ACL at a level deemed adequate by management for expected credit losses. The Company’s ACL is calculated quarterly with any adjustment recorded to the provision for credit losses in the consolidated Statement of Income. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, non-performing loans and other risk assets, and qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated.

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The current quarter recovery of provision for credit losses of $104,000 was a combination of $180,000 recovery of provision for the allowance for loan credit losses, plus $76,000 provision for the allowance for unfunded commitments. The current quarter recovery of provision of $180,000 was driven by net loan charge-offs of $187,000 and decreased loan balances of $12.9 million. There were changes that increased environmental factors for credit quality in the owner and non-owner occupied commercial real estate; for loan review in commercial construction, secured by farmland, real estate, owner and non-owner occupied commercial real estate, loans to farmers, and commercial and industrial; and for other factors in loans secured by farmers. The economic forecast from the Federal Reserve showed improvement in gross domestic product for the next twelve months, lowering the environmental economic factor for non-owner occupied commercial real estate, commercial and industrial, and municipal loans.

As of March 31, 2025, year-to-date net charge-offs totaled $187,000, down from $807,000 during the same period ended March 31, 2024. Gross loans decreased by $12.9 million in the first quarter of 2025 and loans individually analyzed increased $2.0 million. As of March 31, 2025, the ACL was $7.8 million, or 0.94% of loans held for investment, compared to $8.1 million, or 0.97% of loans held for investment, as of December 31, 2024.

The reserve for unfunded commitments increased from $648,000 at December 31, 2024, to $724,000 March 31, 2025 due to increases in loan commitments of $6.2 million in commercial and industrial loans, $2.8 million in owner-occupied commercial real estate, and $2.6 million in 1-4 family construction, coupled with increased environmental factors previously mentioned for these segments.

Asset Quality

Management classifies nonperforming loans as nonaccrual loans and loans that are 90 days or more past due. Nonaccrual loans are those on which interest accruals have been suspended or permanently discontinued. The Company’s nonaccrual loans increased $1.9 million from December 31, 2024, primarily due to one real estate loan ($727,000) and one owner-occupied commercial real estate loan ($1.2 million). The Company determined no reserve was necessary for either loan based on estimated collateral values. For more details on nonperforming loans by segment, see Note 3 Loans and Credit Quality in Notes to the Consolidated Financial Statements.

The following table summarizes the Company’s non-performing assets as of March 31, 2025, and December 31, 2024 (in thousands):

March 31,<br><br>2025 December 31,<br><br>2024
Nonaccrual loans $ 8,941 $ 7,045
Loans past due 90 days and accruing interest 6 32
Total nonperforming loans 8,947 7,077
Other real estate owned 77 77
Total nonperforming assets $ 9,024 $ 7,154
Allowance for credit losses $ 7,762 $ 8,129
Total Loans $ 827,007 $ 839,949
Ratios:
Allowance for credit losses to Total Loans 0.94% 0.97%
Allowance for credit losses to Total nonperforming assets 86.02% 113.58%
Allowance for credit losses to Nonaccrual loans 86.81% 115.39%
Nonaccrual Loans to Total Loans 1.08% 0.84%

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 $1.20 billion at March 31, 2025 and December 31, 2024, however, noninterest bearing deposits increased $11.1 million while interest bearing deposits decreased $6.2 million.

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The following table shows the balance of each category of deposits as of the dates indicated (dollars in thousands).

March 31, 2025 December 31, 2024
Balance % of total deposits Balance % of total deposits
Noninterest-bearing demand $ 271,400 22.6% $ 260,301 21.8%
Interest Checking 133,537 11.1% 138,919 11.6%
Savings Accounts 541,247 45.1% 497,577 41.6%
Time Deposits 253,837 21.2% 298,308 25.0%
Total deposits $ 1,200,021 $ 1,195,105

Estimated uninsured deposits totaled approximately $148.4 million and $131.9 million at March 31, 2025, and December 31, 2024, respectively.

The following table shows the average balances of deposits and average interest rates paid as of March 31, 2025 (dollars in thousands).

March 31, 2025
Average<br><br>Balance Rate
Noninterest-bearing $ 262,708 -
Interest-bearing:
Interest Checking $ 137,616 1.71%
Savings Accounts 517,628 2.65%
Time Deposits 279,585 3.97%
Total interest-bearing deposits 934,829 2.91%
Total average deposits $ 1,197,537 2.27%

The following table sets forth maturity ranges of time deposits, as of March 31, 2025, that meet or exceed the FDIC insurance limit (in thousands).

Maturity period: March 31,<br><br>2025
3 months or less $ 12,846
Over 3 months through 6 months 13,790
Over 6 months through 12 months 15,215
Over 12 months 8,494
Total $ 50,345

Long-term borrowings

Long-term debt remained stable at $7.0 million from December 31, 2024 to March 31, 2025 and consisted solely of one subordinated debt note. The note bears interest at 6.00% per annum through July 30, 2025, payable semi-annually in arrears. From July 31, 2025 through July 30, 2030, 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.

Shareholders’ Equity

Total Shareholders’ equity at March 31, 2025, was $91.3 million, compared to $86.1 million at December 31, 2024. Shareholders’ equity increased $5.2 million due to net income of $2.5 million and other comprehensive income of $3.5 million, offset by dividends to shareholders of $917,000. Other comprehensive income was the result of an increase in the unrealized gains on securities available for sale.

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, loans held for sale, 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, 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.

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The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Deposits have remain a steady source of liquidity. The Company may use other means of borrowings or other liquidity sources to fund any liquidity needs based on declines in deposit balances. The Company is also closely tracking the potential impacts on the Company’s liquidity due to declines in fair value of the Company’s securities portfolio due to rising market interest rates.

As of March 31, 2025, liquid assets totaled $106.2 million, or 8.1% of total assets, and liquid earning assets totaled $84.4 million, or 6.4% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $35.2 million from bond paydowns and maturities by the end of 2025 which can be used to fund future loan growth and for other purposes.

At March 31, 2025 the Bank pledged investment securities with a par value totaling $120.3 million to the Federal Reserve System’s Discount Window. 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 2025. In addition to the Discount Window, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million, and a secured line of credit with the FHLB with $179.8 million in available credit at March 31, 2025. 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.

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.

Uninsured deposits at March 31, 2025 were $148.4 million or 12% to total deposits. In the unlikely event that uninsured deposit balances leave the Bank over a short period of time, management could more than satisfy the demand with liquid assets and FHLB borrowing capacity.

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 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.

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

As of March 31, 2025 As of December 31, 2024
Change in Interest Rates (in Basis Points) Percent Change in Earnings Percent Change in Earnings
400 -4.09% -9.93%
300 -2.89% -7.38%
200 -1.86% -4.76%
100 -0.80% -2.28%
(100) 0.57% 1.89%
(200) 0.48% 3.14%
(300) -0.34% 3.79%
(400) -3.26% 1.80%

Economic 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 economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value (“EVE”) 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 economic value over different rate environments:

As of March 31, 2025 As of December 31, 2024
Change in Interest Rates (in Basis Points) Percentage Change in EVE Percentage Change in EVE
400 -14.68% -20.65%
300 -10.80% -15.73%
200 -6.77% -10.40%
100 -3.03% -5.04%
(100) 1.07% 3.63%
(200) -0.62% 4.51%
(300) -4.42% 2.87%
(400) -9.31% -2.32%

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.

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, 2025, the Company had $121.1 million more in liabilities repricing than assets 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, 2025. 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, 2025 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
Item 6. Exhibits. None
(a) Exhibits
--- ---
3.1 Amended and Restated Bylaws of F&M Bank Corp., incorporated by reference from Exhibit 3.1 to F&M Bank Corp.'s Current Report on Form 8-K, filed January 28, 2025.
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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, 2025, 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, 2025, formatted in Inline XBRL (included with Exhibit 101).
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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><br>(Registrant)
By: /s/ Aubrey M. Wilkerson
Aubrey M. Wilkerson
Director and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Lisa F. Campbell
Lisa F. Campbell
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
May 15, 2025
41
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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 control 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, 2025 By: /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 control 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, 2025 By: /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_ex32.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, 2025, 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 and Chief Financial Officer<br> <br><br> <br>May 15, 2025 |

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