Equibles

10-Q

F&M BANK CORP (FMBM)

10-Q 2025-11-13 For: 2025-09-30
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 September 30, 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 (I.R.S. Employer
Incorporation or Organization) 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 November 4, 2025
Common Stock, par value ‑ $5 per share 3,556,658 shares

F & M BANK CORP.

Quarterly Report on Form 10-Q

For the quarterly period ended September 30, 2025

Table of Contents

Page
Part I Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheets – September 30, 2025 and December 31, 2024 3
Consolidated Statements of Income – Three Months Ended September 30, 2025 and 2024 4
Consolidated Statements of Income – Nine Months Ended September 30, 2025 and 2024 5
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2025 and 2024 6
Consolidated Statements of Changes in Shareholders’ Equity - Three and Nine Months Ended September 30, 2025 and 2024 7
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2025 and 2024 8
Notes to Consolidated Financial Statements 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34
Item 3. Quantitative and Qualitative Disclosures about Market Risk 45
Item 4. Controls and Procedures 45
Part II Other Information
Item 1. Legal Proceedings 46
Item 1A. Risk Factors 46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46
Item 3. Defaults Upon Senior Securities 46
Item 4. Mine Safety Disclosures 46
Item 5. Other Information 46
Item 6. Exhibits 47
Signatures 48
Certifications
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 18,862 $ 18,685
Money market funds and interest-bearing deposits in other banks 982 298
Federal funds sold 64,091 37,524
Cash and cash equivalents 83,935 56,507
Securities available for sale, at fair value 329,423 327,670
Other investments 2,254 2,249
Loans held for sale, at fair value 1,288 2,283
Loans held for investment, net of deferred fees and costs 872,308 839,949
Less: allowance for credit losses (7,848 ) (8,129 )
Net loans held for investment 864,460 831,820
Bank premises and equipment, net 21,568 22,192
Other real estate owned - 77
Interest receivable 4,929 4,939
Goodwill 3,082 3,082
Bank owned life insurance 24,191 23,607
Deferred tax asset, net 6,857 9,465
Other assets 16,122 18,120
Total Assets 1,358,109 $ 1,302,011
Liabilities
Deposits:
Noninterest bearing 280,937 $ 260,301
Interest bearing 954,404 934,804
Total deposits 1,235,341 1,195,105
Long-term debt 7,000 6,975
Other liabilities 14,275 13,793
Total Liabilities 1,256,616 1,215,873
Commitments and contingencies
Shareholders’ Equity
Common stock, 5 par value, 6,000,000 shares authorized, 3,559,084 (2025) and 3,525,649 (2024) shares issued and outstanding 17,451 17,383
Additional paid in capital 11,661 11,463
Retained earnings 90,241 84,669
Accumulated other comprehensive loss (17,860 ) (27,377 )
Total Shareholders’ Equity 101,493 86,138
Total Liabilities and Shareholders’ Equity 1,358,109 $ 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 share and per share data)

(Unaudited)

Three Months Ended<br><br>September 30,
Interest and dividend income 2025 2024
Interest and fees on loans held for investment $ 14,130 $ 13,833
Interest and fees on loans held for sale (3 ) 60
Interest from money market funds and federal funds sold 468 518
Interest and dividends on interest bearing deposits and other investments 59 55
Interest from securities available for sale 2,398 1,824
Total interest and dividend income 17,052 16,290
Interest expense
Total interest on deposits 6,399 7,440
Interest on short-term debt - 241
Interest on long-term debt 158 116
Total interest expense 6,557 7,797
Net interest income 10,495 8,493
Provision for credit losses - loans 595 869
(Recovery of) provision for credit losses – unfunded commitments (56 ) 33
Total Provision for Credit Losses 539 902
Net Interest Income After Provision for Credit Losses 9,956 7,591
Noninterest income
Service charges on deposit accounts 347 317
Wealth management income 498 481
Mortgage banking income 426 671
Title insurance income 520 423
Income on bank-owned life insurance 160 191
Low income housing partnership amortization (196 ) (196 )
ATM and check card fees 884 773
Other operating income 95 88
Total noninterest income 2,734 2,748
Noninterest expense
Salaries 4,084 4,056
Employee benefits 939 1,011
Occupancy expense 362 401
Equipment expense 290 323
FDIC assessment 221 257
Legal and professional expense 547 303
ATM and check card fees 384 296
Data processing fees 914 904
Other operating expenses 1,580 2,106
Total noninterest expense 9,321 9,657
Income before income taxes 3,369 682
Income tax expense (benefit) 445 (110 )
Net Income $ 2,924 $ 792
Per Common Share Data
Net income (basic and diluted) $ 0.82 $ 0.23
Cash dividends on common stock 0.26 0.26
Weighted average common shares outstanding (basic and diluted) 3,558,868 3,519,182

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Income

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

(Unaudited)

Nine Months Ended<br><br>September 30,
Interest and dividend income 2025 2024
Interest and fees on loans held for investment $ 41,566 $ 40,678
Interest and fees on loans held for sale 42 123
Interest from money market funds and federal funds sold 1,505 891
Interest and dividends on interest bearing deposits and other investments 147 357
Interest from securities available for sale 6,869 5,537
Total interest and dividend income 50,129 47,586
Interest expense
Total interest on deposits 19,270 20,728
Interest on short-term debt 4 1,691
Interest on long-term debt 390 347
Total interest expense 19,664 22,766
Net interest income 30,465 24,820
Provision for credit losses - loans 1,497 1,350
Provision for (recovery of) credit losses – unfunded commitments 125 (82 )
Total Provision for Credit Losses 1,622 1,268
Net Interest Income After Provision for Credit Losses 28,843 23,552
Noninterest income
Service charges on deposit accounts 967 881
Wealth management income 1,734 1,692
Mortgage banking income 1,386 1,821
Title insurance income 1,460 1,153
Income on bank-owned life insurance 584 558
Low income housing partnership amortization (589 ) (589 )
ATM and check card fees 2,523 2,300
Other operating income 304 272
Total noninterest income 8,369 8,088
Noninterest expense
Salaries 11,915 11,682
Employee benefits 2,978 2,229
Occupancy expense 1,156 1,186
Equipment expense 916 1,002
FDIC assessment 731 778
Legal and professional expense 1,553 1,260
ATM and check card fees 940 811
Data processing fees 2,820 2,540
Other operating expenses 4,547 4,767
Total noninterest expense 27,556 26,255
Income before income taxes 9,656 5,385
Income tax expense 1,315 360
Net Income $ 8,341 $ 5,025
Per Common Share Data
Net income (basic and diluted) $ 2.35 $ 1.44
Cash dividends on common stock 0.78 0.78
Weighted average common shares outstanding (basic and diluted) 3,551,339 3,508,958

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

Nine Months Ended<br><br>September 30,
2024 2025 2024
Net Income 2,924 $ 792 $ 8,341 $ 5,025
Other comprehensive income:
Unrealized gain on available-for sale securities, net of income tax expense of 1,279 and 2,213 for the three months and 2,530 and 2,402 for the nine months ended September 30, 2025 and 2024, respectively 4,811 8,325 9,517 9,044
Total other comprehensive income 4,811 8,325 9,517 9,044
Total comprehensive income 7,735 $ 9,117 $ 17,858 $ 14,069

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 September 30, 2025 and 2024.

Common Stock Additional Paid in Retained Accumulated Other Comprehensive
Shares Amount Capital Earnings Loss Total
Balance, June 30, 2024 3,519,117 $ 17,333 $ 11,134 $ 83,447 $ (30,298 ) $ 81,616
Net income - - - 792 - 792
Other comprehensive income - - - - 8,325 8,325
Dividends on common stock - - - (915 ) - (915 )
Common stock issued 1,236 23 81 - - 104
Stock-based compensation expense - - 72 - - 72
Balance, September 30, 2024 3,520,353 $ 17,356 $ 11,287 $ 83,324 $ (21,973 ) $ 89,994
Balance, June 30, 2025 3,567,056 $ 17,491 $ 11,674 $ 88,247 $ (22,671 ) $ 94,741
Net income - - - 2,924 - 2,924
Other comprehensive income - - - - 4,811 4,811
Dividends on common stock - - - (920 ) - (920 )
Common stock issued 4,139 21 81 - - 102
Common stock repurchased (12,111 ) (61 ) (208 ) - - (269 )
Stock-based compensation expense - - 114 - - 114
Balance, September 30, 2025 3,559,084 $ 17,451 $ 11,661 $ 90,241 $ (17,860 ) $ 101,493

Nine Months Ended September 30, 2025 and 2024.

Common Stock Additional Paid in Retained Accumulated Other 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 - - - 5,025 - 5,025
Other comprehensive income - - - - 9,044 9,044
Dividends on common stock - - - (2,735 ) - (2,735 )
Common stock issued 10,421 52 154 - - 206
Net restricted common stock activity 24,362 - - - - -
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes - 41 (41 ) - - -
Stock-based compensation expense - - 131 - - 131
Balance, September 30, 2024 3,520,353 $ 17,356 $ 11,287 $ 83,324 $ (21,973 ) $ 89,994
Balance December 31, 2024 3,525,649 $ 17,383 $ 11,463 $ 84,669 $ (27,377 ) $ 86,138
Net income - - - 8,341 - 8,341
Other comprehensive income - - - - 9,517 9,517
Dividends on common stock - - - (2,769 ) - (2,769 )
Common stock issued 14,245 71 233 - - 304
Common stock repurchased (12,111 ) (61 ) (208 ) (269 )
Net restricted common stock activity 31,301 - - - - -
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 - - 308 - - 308
Balance, September 30, 2025 3,559,084 $ 17,451 $ 11,661 $ 90,241 $ (17,860 ) $ 101,493

See Notes to Consolidated Financial Statements

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F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Nine Months Ended<br><br>September 30,
2025 2024
Cash flows from operating activities
Net income $ 8,341 $ 5,025
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,004 1,127
Amortization of intangibles 23 22
Amortization of securities 500 554
Proceeds from loans held for sale 38,259 47,645
Loans held for sale originated (36,404 ) (47,767 )
Gain on sale of loans held for sale (860 ) (1,091 )
Provision for credit losses 1,622 1,268
Decrease (increase) in interest receivable 10 (32 )
Decrease (increase) in deferred tax asset 80 (7 )
Decrease (increase) in other assets 1,429 (1,623 )
Increase (decrease) in other liabilities 355 (1,675 )
Amortization of limited partnership investments 589 589
Amortization of debt issuance costs 25 33
Income from life insurance investment (584 ) (558 )
Gain on sale of fixed assets - (12 )
Gain on the sale of assets held for sale (43 ) -
Gain on the sale of OREO (73 ) (21 )
Stock-based compensation expense 308 131
Net cash provided by operating activities 14,581 3,608
Cash flows from investing activities
Proceeds from maturity of investments available for sale 32,320 10,500
Purchases of investments available for sale (40,863 ) (18,026 )
Proceeds from paydowns of investments available for sale 18,337 10,932
Investment in restricted stock, net (5 ) 2,105
Net increase in loans held for investment (34,137 ) (10,268 )
Proceeds from the sale of fixed assets - 372
Proceeds from the sale of OREO 150 76
Net purchase of property and equipment (380 ) (219 )
Net cash used in investing activities (24,578 ) (4,528 )
Cash flows from financing activities
Net change in deposits 40,236 85,052
Net change in short-term debt - (45,000 )
Dividends paid in cash (2,769 ) (2,735 )
Proceeds from issuance of common stock 227 206
Purchases of common stock (269 ) -
Net cash provided by financing activities 37,425 37,523
Net increase in Cash and Cash Equivalents 27,428 36,603
Cash and cash equivalents, beginning of period 56,507 23,717
Cash and cash equivalents, end of period $ 83,935 $ 60,320
Supplemental Cash Flow information:
Cash paid for: Interest $ 20,199 $ 22,100
Taxes 450 608
Supplemental non-cash disclosures:
Change in net unrealized loss on securities available for sale $ 12,047 $ 11,446

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. Effective on May 15, 2025, the operations, assets, and liabilities of F&M Mortgage 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 – Securities Available for Sale

For securities available for sale, 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 a security available for sale is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2025 and December 31, 2024, there was no allowance for credit loss related to the securities available for sale portfolio.

Accrued interest receivable on securities available for sale totaled $1.3 million and $1.5 million at September 30, 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 $3.6 million and $3.5 million at September 30, 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, all segments 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 evaluates 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 date 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 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 consolidated financial statements.

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

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):

September 30, 2025 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
U. S. Treasuries $ 15,085 $ - $ 887 $ 14,198
U. S. Government agencies 57,997 - 3,267 54,730
Municipal securities 32,621 25 1,823 30,823
Mortgage-backed securities 219,085 1,277 17,328 203,034
Corporate debt securities 27,800 1 1,163 26,638
Total Securities Available for Sale $ 352,588 $ 1,303 $ 24,468 $ 329,423
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 September 30, 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 $ 26,973 $ 26,498
Due after one year through five years 83,126 79,779
Due after five years 64,310 60,699
Due after ten years 178,179 162,447
Total $ 352,588 $ 329,423

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

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 $76.9 million and $9.0 million, as of September 30, 2025 and December 31, 2024, respectively.

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Less than 12 Months More than 12 Months Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
September 30, 2025
U. S. Treasuries $ - $ - $ 14,198 $ 887 $ 14,198 $ 887
U. S. Government agencies - - 54,730 3,267 54,730 3,267
Municipal securities 5,884 126 20,699 1,697 26,583 1,823
Mortgage-backed securities 4,575 6 125,814 17,322 130,389 17,328
Corporate debt securities 999 2 25,639 1,161 26,638 1,163
Total Securities Available for Sale $ 11,458 $ 134 $ 241,080 $ 24,334 $ 252,538 $ 24,468
Less than 12 Months More than 12 Months Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
December 31, 2024 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized 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 September 30, 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 $22.1 million and $23.7 million at September 30, 2025 and December 31, 2024, 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 September 30, 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 $120.0 million pledged to the Federal Reserve Discount Window as of September 30, 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 nine months of 2025. Additionally, the Company had securities with a market value of $9.4 million pledged to the Federal Reserve Bank of Richmond as collateral for deposits of the Department of Justice U.S. Bankruptcy Trustee.

As of September 30, 2025, other investments consisted of restricted stock in the Federal Reserve Bank (“FRB”) (carrying basis of $1.1 million at September 30, 2025 and December 31, 2024), Federal Home Loan Bank (“FHLB”) (carrying basis of $925 thousand and $920 thousand at September 30, 2025 and December 31, 2024, respectively), in Farmer Mac stock (carrying basis of $4 thousand at September 30, 2025 and December 31, 2024), and in a correspondent bank (carrying value of $50 thousand at September 30, 2025 and December 31, 2024). Additionally, the Company has an equity investment in National Bankshares Inc. totaling $135 thousand at September 30, 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 September, 2025 and December 31, 2024 (dollars in thousands):

September 30,<br><br>2025 December 31,<br><br>2024
1-4 Family residential construction $ 31,805 $ 25,102
Other construction, land development and land 42,281 58,208
Secured by farmland 111,163 86,016
Home equity – open end 50,401 49,542
Real estate 233,859 213,081
Home equity – closed end 6,280 6,137
Multifamily 14,621 10,804
Owner-occupied commercial real estate 92,302 86,169
Other commercial real estate 114,375 98,189
Agricultural loans 18,562 17,928
Commercial and industrial 56,548 64,901
Credit cards 3,193 3,524
Automobile loans 83,458 104,271
Other consumer loans 9,621 11,915
Municipal loans 4,410 4,901
Gross loans 872,879 840,688
Unamortized net deferred loan fees (571 ) (739 )
Less allowance for credit losses 7,848 8,129
Net loans $ 864,460 $ 831,820

The table above does not include loans held for sale of $1.3 million and $2.3 million at September 30, 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 $3.6 million and $3.5 million at September 30, 2025 and December 31, 2024, respectively. For the quarter and nine months ended September 30, 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 $304.2 million and $306.7 million as of September 30, 2025, and December 31, 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 in loans held for investment by loan category as of the dates stated (dollars in thousands).

September 30, 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 $ - $ - $ - $ - $ 31,805 $ 31,805
Other construction, land development and land 157 - - - 42,124 42,281
Secured by farmland 51 - - 1,305 109,807 111,163
Home equity – open end 76 - - 562 49,763 50,401
Real estate 1,350 191 - 2,242 230,076 233,859
Home equity – closed end 31 - - - 6,249 6,280
Multifamily - - - - 14,621 14,621
Owner-occupied commercial real estate 540 1,153 - 2,608 88,001 92,302
Other commercial real estate - - - - 114,375 114,375
Agricultural loans - 60 - 112 18,390 18,562
Commercial and industrial 318 33 - - 56,197 56,548
Credit cards 39 1 - - 3,153 3,193
Automobile loans 1,558 450 1 564 80,885 83,458
Other consumer loans 94 43 - 58 9,426 9,621
Municipal loans - - - - 4,410 4,410
Gross loans 4,214 1,931 1 7,451 859,282 872,879
Less: Unamortized net deferred loan fees - - - - (571 ) (571 )
Total $ 4,214 $ 1,931 $ 1 $ 7,451 $ 858,711 $ 872,308
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 $7.5 million and $7.0 million in nonaccrual loans at September 30, 2025 and December 31, 2024, respectively.  There was no income recognized on nonaccrual loans during the three months or nine months ended September 30, 2025 and 2024.

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The following table is a summary of the Company’s nonaccrual loans by major categories as of the dates stated (dollars in thousands).

September 30, 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 $ - $ - $ - $ 14 $ - $ 14
Secured by farmland 871 434 1,305 53 - 53
Home equity – open end 538 24 562 501 - 501
Real estate 2,140 102 2,242 916 - 916
Owner-occupied commercial real estate 2,608 - 2,608 2,147 1,269 3,416
Other commercial real estate - - - 785 - 785
Agricultural loans - 112 112 171 - 171
Commercial and industrial - - - 768 - 768
Automobile loans 564 - 564 397 - 397
Other consumer loans 58 - 58 24 - 24
Total loans $ 6,779 $ 672 $ 7,451 $ 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”). The following table presents the amortized cost basis of loan modifications to borrowers experiencing financial difficulty for the nine months ended September 30, 2025 and 2024 (dollars in thousands).

Term Extensions for the Nine Months Ended September 30, 2025

Amortized Cost Basis % of Total Loan Type Financial Effect
Automobile loans $ 35 0.04 % Added a weighted-average of 11.2 months to the life of the loans.
Total Term Extensions $ 35

Other than Insignificant Payment Delays for the Nine Months Ended September 30, 2025

Amortized Cost Basis % of Total Loan Type Financial Effect
Owner-occupied commercial real estate $ 735 0.80 % Changed from amortizing to interest-only payments for 5 months.
Total Other than Insignificant Payment Delays $ 735

Amortized Cost of Basis of Loan Modifications Made to Borrowers Experiencing Financial Difficulty

For the Nine Months Ended September 30, 2024

Amortized Cost Basis % of Total Loan Type Financial Effect
Owner-occupied commercial real estate $ 16 0.02 % Added a weighted-average of 13.0 months to the life of the loans.
Automobile loans 53 0.05 % Added a weighted-average of 4.1 months to the life of the loans.
Total Term Extension $ 69
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The following tables present an aging analysis of the amortized cost of TLMs as of the dates stated (dollars in thousands).

September 30, 2025
Current Loans 30-89 Days Past Due Greater than 90 Days Past Due & Accruing Nonaccrual Total
Real estate $ - $ - $ - $ 2 $ 2
Owner occupied commercial real estate 6,120 - - 1,192 7,312
Automobile loans 47 21 - 10 78
Total modified loans $ 6,167 $ 21 $ - $ 1,204 $ 7,392
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Current Loans 30-89 Days 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 49 - - 111
Total modified loans $ 6,732 $ 49 $ - $ - $ 6,781

At September 30, 2025 and December 31, 2024, there were no unfunded commitments to borrowers with TLMs.

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

For the Nine Months Ended September 30, 2025
Number of Loans Amortized Cost % of Amortized Cost to Gross Loans by Category
Term extension and deferral
Real estate 1 $ 3 0.01 %
Automobile loans 4 29 0.03 %
Total term extension and deferral 5 $ 32
Other than temporary payment delay
Owner occupied commercial real estate 1 $ 1,192 1.29 %
Total other than temporary payment delay 1 $ 1,192
Total 6 $ 1,224

There were no TLMs modified in the preceding twelve months that had a payment default during the three and nine months ended September 30, 2024.

The Company’s credit loss model incorporates the impact of significant modifications made to borrowers experiencing financial difficulty that result in default during the period, both in loans evaluated individually and through the quantitative factors applied to pooled loans.

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.

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

September 30, 2025 December 31, 2024
Real Estate Business/Other Assets Real Estate Business/Other Assets
Secured by farmland $ 1,305 $ - $ - $ -
Home equity – open end 200 - - -
Real estate 1,024 - - -
Owner-occupied commercial real estate 2,543 - 3,416 -
Other commercial real estate - - 785 -
Agricultural loans - 112 - -
Commercial and industrial - - - 605
Total loans $ 5,072 $ 112 $ 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.

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 September 30, 2025 (dollars in thousands):

Term Loans by Year of Origination
2025 2024 2023 2022 2021 Prior Revolving Total
1-4 Family residential construction
Pass $ - $ - $ 780 $ - $ - $ - $ 31,025 $ 31,805
Watch - - - - - - - -
Substandard - - - - - - - -
Total 1-4 Family residential construction - - 780 - - - 31,025 31,805
Current period gross write-offs - - - - - - - -
Other construction, land development and land
Pass 5,561 2,977 11,841 976 459 3,389 17,003 42,206
Watch - - - - - - - -
Substandard - - - - - - 75 75
Total Other construction, land development and land 5,561 2,977 11,841 976 459 3,389 17,078 42,281
Current period gross write-offs - - - - - 23 - 23
Secured by farmland
Pass 13,610 9,665 10,987 13,046 13,370 35,471 10,510 106,659
Watch - - - 1,667 1,533 - - 3,200
Substandard - - - 319 871 - 114 1,304
Total Secured by farmland 13,610 9,665 10,987 15,032 15,774 35,471 10,624 111,163
Current period gross write-offs - - - - - - - -
Home equity – open end
Pass - - - - - 121 49,619 49,740
Watch - - - - - - - -
Substandard - - - - - - 661 661
Total Home equity - open end - - - - - 121 50,280 50,401
Current period gross write-offs - - - - - - - -
Real estate
Pass 30,131 26,058 55,333 40,629 12,212 62,359 389 227,111
Watch - 1,425 1,441 - - 213 - 3,079
Substandard - - 292 83 801 2,493 - 3,669
Total Real estate 30,131 27,483 57,066 40,712 13,013 65,065 389 233,859
Current period gross write-offs - - - - - - - -
Home equity – closed end
Pass 569 681 2,382 198 59 2,336 - 6,225
Watch - - - - - - - -
Substandard 55 - - - - - - 55
Total Home equity - closed end 624 681 2,382 198 59 2,336 - 6,280
Current period gross write-offs - - - - - - - -
Multifamily
Pass 3,080 2,692 - 2,577 1,260 2,294 2,718 14,621
Watch - - - - - - - -
Substandard - - - - - - - -
Total Multifamily 3,080 2,692 - 2,577 1,260 2,294 2,718 14,621
Current period gross write-offs - - - - - - - -
Owner-occupied commercial real estate
Pass 10,039 10,272 2,377 16,531 14,655 21,460 5,074 80,408
Watch - - 735 - - - - 735
Substandard 65 1,153 - - - 9,893 48 11,159
Total Owner-occupied commercial real estate 10,104 11,425 3,112 16,531 14,655 31,353 5,122 92,302
Current period gross write-offs - - - - - - - -
Other commercial real estate
Pass 11,885 375 9,062 37,241 11,235 33,561 2,112 105,471
Watch - - - - - 979 - 979
Substandard - 7,840 - - - 85 - 7,925
Total Other commercial real estate 11,885 8,215 9,062 37,241 11,235 34,625 2,112 114,375
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 4,108 2,006 1,558 1,145 190 86 9,320 18,413
Watch - - - 13 - 24 - 37
Substandard - - 112 - - - - 112
Total Agricultural loans 4,108 2,006 1,670 1,158 190 110 9,320 18,562
Current period gross write-offs - - - 171 - - - 171
Commercial and industrial
Pass 16,833 6,949 3,186 5,201 2,618 330 18,107 53,224
Watch - - - 48 - - 2,245 2,293
Substandard 42 - 311 - - - 678 1,031
Total Commercial and industrial 16,875 6,949 3,497 5,249 2,618 330 21,030 56,548
Current period gross write-offs - 408 - 75 - - - 483
Credit cards
Pass - - - - - - 3,193 3,193
Substandard - - - - - - - -
Total Credit cards - - - - - - 3,193 3,193
Current period gross write-offs - - - - - - 53 53
Automobile loans
Pass 13,507 19,461 26,367 16,509 5,682 1,290 - 82,816
Watch - - - - - - - -
Substandard - 154 135 213 85 55 - 642
Total Automobile loans 13,507 19,615 26,502 16,722 5,767 1,345 - 83,458
Current period gross write-offs 47 713 688 443 141 72 - 2,104
Other consumer loans
Pass 2,454 2,523 1,957 1,438 401 399 391 9,563
Watch - - - - - - - -
Substandard - - 21 30 7 - - 58
Total Other consumer loans 2,454 2,523 1,978 1,468 408 399 391 9,621
Current period gross write-offs - 4 17 36 5 2 - 64
Municipal loans
Pass - - - - 525 3,885 - 4,410
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - - - - 525 3,885 - 4,410
Current period gross write-offs - - - - - - - -
Total loans $ 111,939 $ 94,231 $ 128,877 $ 137,864 $ 65,963 $ 180,723 $ 153,282 872,879
Less: Unamortized net deferred loan fees (571 )
Loans held for investment $ 872,308
Current period gross write-offs $ 47 $ 1,125 $ 705 $ 725 $ 146 $ 97 $ 53 $ 2,898
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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
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
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
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
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
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
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
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
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
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
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
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Term Loans by Year of Origination
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2024 2023 2022 2021 2020 Prior Revolving Total
Credit cards
Pass - - - - - - 3,524 3,524
Substandard - - - - - - - -
Total Credit cards - - - - - - 3,524 3,524
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
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
Municipal loans
Pass - - - 775 1,032 3,094 - 4,901
Watch - - - - - - - -
Substandard - - - - - - - -
Total Municipal loans - - - 775 1,032 3,094 - 4,901
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

NOTE 4 ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses (“ACL”) consists of the allowance for credit losses on loans and the allowance for unfunded commitments. The Company’s ACL is governed by the Bank’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 periods indicated (dollars in thousands).

For the three months ended September 30, 2025
Beginning Balance Charge-offs Recoveries Provision for (recovery of) loan credit losses Ending Balance
1-4 Family residential construction $ 271 $ - $ - $ 31 $ 302
Other construction, land development and land 1,047 13 14 65 1,113
Secured by farmland 1,477 - - 80 1,557
Home equity – open end 170 - - 11 181
Real estate 883 - 1 (42 ) 842
Home Equity – closed end 73 - - (2 ) 71
Multifamily 34 - - 10 44
Owner-occupied commercial real estate 842 - 13 (121 ) 734
Other commercial real estate 90 - - 58 148
Agricultural loans 137 171 - 174 140
Commercial and industrial 1,258 398 7 (46 ) 821
Credit Cards 80 21 10 8 77
Automobile loans 1,774 972 463 409 1,674
Other consumer loans 176 23 31 (40 ) 144
Municipal loans - - - - -
Total allowance for credit losses - loans $ 8,312 $ 1,598 $ 539 $ 595 $ 7,848
Allowance for credit losses – unfunded commitments $ 830 $ - $ - $ (56 ) $ 774
For the three months ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- ---
Beginning Balance Charge-offs Recoveries Provision for loan credit losses Ending Balance
1-4 Family residential construction $ 602 $ - $ - $ 21 $ 623
Other construction, land development and land 1,448 - 69 141 1,658
Secured by farmland 817 - - 23 840
Home equity – open end 177 - - 3 180
Real estate 780 - 1 (33 ) 748
Home Equity – closed end 102 - - 2 104
Multifamily 251 - - 5 256
Owner-occupied commercial real estate 848 - - (45 ) 803
Other commercial real estate 174 - - (39 ) 135
Agricultural loans 22 - - 2 24
Commercial and industrial 801 - 3 61 865
Credit Cards 83 6 4 1 82
Automobile loans 1,469 838 194 572 1,397
Other consumer loans 225 85 2 155 297
Municipal loans 16 - - - 16
Total allowance for credit losses - loans $ 7,815 $ 929 $ 273 $ 869 $ 8,028
Allowance for credit losses – unfunded commitments $ 576 $ - $ - $ 33 $ 609
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For the nine months ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- ---
Beginning Balance Charge-offs Recoveries (Recovery of) provision for loan credit losses Ending Balance
1-4 Family residential construction $ 258 $ - $ - $ 44 $ 302
Other construction, land development and land 1,551 23 24 (439 ) 1,113
Secured by farmland 946 - - 611 1,557
Home equity – open end 197 - 24 (40 ) 181
Real estate 606 - 3 233 842
Home Equity – closed end 99 - - (28 ) 71
Multifamily 190 - - (146 ) 44
Owner-occupied commercial real estate 809 - 13 (88 ) 734
Other commercial real estate 105 - - 43 148
Agricultural loans 27 171 - 284 140
Commercial and industrial 982 483 154 168 821
Credit Cards 87 53 21 22 77
Automobile loans 1,956 2,104 818 1,004 1,674
Other consumer loans 301 64 63 (156 ) 144
Municipal loans 15 - - (15 ) -
Total allowance for credit losses - loans $ 8,129 $ 2,898 $ 1,120 $ 1,497 $ 7,848
Allowance for credit losses – unfunded commitments $ 649 $ - $ - $ 125 $ 774
For the nine months ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- ---
Beginning Balance Charge-offs Recoveries (Recovery of) provision for loan credit losses Ending Balance
1-4 Family residential construction $ 714 $ - $ - $ (91 ) $ 623
Other construction, land development and land 1,287 - 69 302 1,658
Secured by farmland 815 - - 25 840
Home equity – open end 180 - 25 (25 ) 180
Real estate 810 - 4 (66 ) 748
Home Equity – closed end 77 - - 27 104
Multifamily 181 - - 75 256
Owner-occupied commercial real estate 1,221 - - (418 ) 803
Other commercial real estate 166 - - (31 ) 135
Agricultural loans 20 - - 4 24
Commercial and industrial 1,034 209 44 (4 ) 865
Credit Cards 81 27 19 9 82
Automobile loans 1,443 2,061 572 1,443 1,397
Other consumer loans 292 152 73 84 297
Municipal loans - - - 16 16
Total allowance for credit losses - loans $ 8,321 $ 2,449 $ 806 $ 1,350 $ 8,028
Allowance for credit losses – unfunded commitments $ 691 $ - $ - $ (82 ) $ 609
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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.

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):

September 30,<br><br>2025
Lease Liabilities $ 901
Right-of-use assets $ 867
Weighted average remaining lease term (years) 9.49 years
Weighted average discount rate 3.82 %
For the three months ended September 30, For the nine months ended September 30,
--- --- --- --- --- --- --- --- ---
2025 2024 2025 2024
Operating lease cost $ 30 $ 23 $ 89 $ 75
Total lease cost $ 30 $ 23 $ 89 $ 75
Cash paid for amounts included in the measurement of lease liabilities $ 35 $ 30 $ 104 $ 89

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):

September 30,<br><br>2025
Three months ending December 31, 2025 $ 27
Twelve months ending December 31, 2026 115
Twelve months ending December 31, 2027 101
Twelve months ending December 31, 2028 103
Twelve months ending December 31, 2029 106
Thereafter 638
Total undiscounted cash flows $ 1,090
Discount (189 )
Lease liabilities $ 901

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 September 30, 2025, the Bank meets all capital adequacy requirements to which it is 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 September 30, 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
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, 2025 Amount Ratio Amount Ratio Amount Ratio
Total risk-based ratio $ 126,125 13.70 % $ 73,671 8.00 % $ 92,089 10.00 %
Tier 1 risk-based ratio 117,503 12.76 % 55,253 6.00 % 73,671 8.00 %
Common equity tier 1 117,503 12.76 % 41,440 4.50 % 59,858 6.50 %
Tier 1 leverage ratio 117,503 8.69 % 54,061 4.00 % 67,576 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 discounted cash flow methods. Level 2 securities included U.S. government 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 security 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 at 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):

September 30, 2025 Carrying Value Level 1 Level 2 Level 3
Securities available for sale
U. S. Treasuries $ 14,198 $ - $ 14,198 $ -
U.S. Government agencies 54,730 - 54,730 -
Municipal securities 30,823 - 30,823 -
Mortgage-backed securities 203,034 - 203,034 -
Corporate debt securities 26,638 - 4,553 22,085
Total securities available for sale $ 329,423 $ - $ 307,338 $ 22,085
Other assets
Loans held for sale $ 1,288 $ - $ 1,288 $ -
Interest rate lock commitments 37 - 37 $ -
Forward sales commitments 44 - 44 -
December 31, 2024 Carrying Value Level 1 Level 2 Level 3
--- --- --- --- --- --- --- --- ---
Securities available for sale
U. S. Treasuries $ 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 $ -
Interest rate lock commitments 18 - 18 -
Forward sales commitments 41 - 41 -

The following table presents the change in corporate debt securities as of and for the periods stated (dollars in thousands).

Corporate debt securities
Balance as of December 31, 2024 $ 23,663
Called security available for sale 2,750
Fair value adjustments 1,172
Balance as of September 30, 2025 $ 22,085

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 receivable 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.

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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.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 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).

September 30, 2025
Balance Level 1 Level 2 Level 3
Collateral-dependent loans $ 5,184 $ - $ - $ 5,184
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>September 30,<br><br>2025 Unobservable Input Discount
Collateral-dependent loans
Discounted appraised value technique $ 5,184 Discount rate 25%-100 %
Selling costs 11% - 22 %
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 each security (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 bank-owned life insurance 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.

September 30, 2025
Carrying Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
Value Level 1 Level 2 Level 3 Balance
Financial Assets
Cash and cash equivalents $ 83,935 $ 83,935 $ - $ - $ 83,935
Securities available for sale 329,423 - 307,338 22,085 329,423
Other investments 2,254 - - 2,254 2,254
Loans held for sale 1,288 - 1,288 - 1,288
Loans held for investment, net 864,460 - - 856,124 856,124
Interest receivable 4,929 - 4,929 - 4,929
Bank owned life insurance 24,191 - 24,191 - 24,191
Forward sales commitments 44 - 44 - 44
Interest rate lock commitments 37 - 37 - 37
Financial Liabilities
Noninterest-bearing demand  deposits $ 280,937 $ 280,937 $ - $ - $ 280,937
Interest checking deposits 146,087 - 146,087 - 146,087
Savings deposits 573,985 - 573,985 - 573,985
Time deposits 234,332 - - 233,962 233,962
Long-term debt 7,000 - - 7,008 7,008
Interest payable 1,365 - 1,365 - 1,365
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Carrying Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
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
Other investments 2,249 - - 2,249 2,249
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
Interest rate lock commitments 18 - 18 - 18
Forward sales commitments 41 - 41 - 41
Financial Liabilities
Noninterest-bearing demand deposits $ 260,301 $ 260,301 $ - $ - $ 260,301
Interest checking deposits 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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NOTE 8 – SUBSEQUENT EVENTS

On October 23, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share of common stock. The dividend is payable on November 28, 2025 to common shareholders of record as of November 14, 2025.

On October 24, 2025, the Company entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company issued and sold $10.0 million in aggregate principal amount of 7.55% fixed to floating rate subordinated notes due November 1, 2035 (the “Notes”).

The Notes will initially bear interest at 7.55% per annum, beginning May 1, 2026 to but excluding November 1, 2030, payable semi-annually in arrears. From and including November 1, 2030 to but excluding November 1, 2035, or up to an early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate plus 424.5 basis points, payable quarterly in arrears. Beginning on November 1, 2030 through maturity, the Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The Notes will mature on November 1, 2035. The Purchase Agreement contains certain customary representations, warranties and covenants.

If certain events of default occur, such as the bankruptcy of the Company, the principal amount of the Notes will become and be immediately due and payable without any declaration or other act on the part of the holder of a Note. The Notes will be unsecured, subordinated obligations of the Company and will rank junior in right of payment to the Company’s existing and future senior indebtedness. The Notes are not convertible into common stock or preferred stock, and are not callable by the holders.

The Notes have been structured to qualify as Tier 2 capital under regulatory guidelines for bank holding companies. The Company intends to use the proceeds from the sale of the Notes to redeem the Company’s existing subordinated debt and for such other general corporate purposes as the Company may determine.

The Notes were offered and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

The foregoing descriptions of the Purchase Agreement and the Notes do not purport to be complete and are qualified in their entirety by reference to the forms of the Purchase Agreement and the Note which are included as Exhibits 10.1 and 4.1 to the Company’s Current Report on Form 8-K, filed on October 29, 2025, respectively, and incorporated herein by reference.

On October 31, 2025 the Company redeemed in full the $7.0 million subordinated note due on July 31, 2030. The Company sold and issued to an institutional accredited investor a 6.00% fixed to floating rate subordinated note on July 29, 2020 that was due July 31, 2030 with an aggregate principal amount of $7.0 million. The note initially bore interest at 6.00% per annum, beginning July 29, 2020 but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate reset quarterly to an interest rate per annum equal to the current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the note could be redeemed, at the Company’s option, on any scheduled interest payment date. On September 30, 2025, the Company gave notice of full redemption on October 31, 2025 to the holder of the subordinated note.

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

F & M Bank Corp. (the “Company”), incorporated in Virginia in 1983, is a one-bank holding company registered 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. During the second quarter of 2025, the operations, assets, and liabilities of F&M Mortgage were transferred to 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 at fourteen branch offices and at mortgage and dealer finance loan production offices. The Company offers title insurance through its subsidiary 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 Part 1, Item 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 judgments 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.

The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of September 30, 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.

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Results of Operations

Overview

Comparing the Three-Month Periods Ending September 30, 2025 and September 30, 2024

Net income increased $2.1 million to $2.92 million, or $0.82 per share, for the three months ended September 30, 2025, compared to $792,000, or $0.23 per share, for the same period in 2024. Return on average assets was 0.87% and return on average equity was 11.99% for the third quarter of 2025, compared to 0.24% and 3.66%, respectively, for the same period in 2024.

The $2.1 million increase in net income resulted from a $2.0 million increase in net interest income, a $363,000 decrease in provision for credit losses, a $14,000 decrease in noninterest income, and a $336,000 decrease in noninterest expenses.

Net interest income increased by $2.0 million as total interest income increased by $762,000 and interest expense decreased by $1.2 million. Net interest income was positively impacted by a $15.0 million decrease in short-term debt, which was partially offset by a $17.0 million increase in deposits. The net interest margin increased 61-basis points to 3.36%.

Provision for credit losses decreased by $363,000. For the third quarter of 2025, provision for credit losses totaled $539,000 and consisted of a $595,000 provision for credit losses on loans and a $56,000 recovery of provision for credit losses on unfunded commitments. For the same period of 2024, the provision for credit losses totaled $902,000.

Noninterest income decreased by $14,000 in the third quarter of 2025 due to a decrease in mortgage banking income that was offset by increases in card services and interchange income and title insurance income.

Noninterest expenses decreased by $336,000, which was primarily attributable to an external fraud event in third quarter 2024. The resulting decrease in other operating expenses of $526,000 was partially offset by an increase in legal and professional fees of $244,000.

Comparing the Nine-Month Periods Ending September 30, 2025 and September 30, 2024

Net income increased $3.3 million to $8.3 million, or $2.35 per share, for the nine months ended September 30, 2025, compared to $5.0 million, or $1.44 per share, for the same period in 2024. Return on average assets was 0.85% and return on average equity was 12.04% for the nine months ended September 30, 2025, compared to 0.51% and 8.37%, respectively, for the same period in 2024.

The $3.3 million increase in net income resulted from a $5.6 million increase in net interest income and a $281,000 increase in noninterest income, which was partially offset by a $354,000 increase in provision for credit losses, a $1.3 million increase in noninterest expenses, and a $955,000 increase in income tax expense.

Net interest income increased $5.6 million resulting from a $2.5 million increase in total interest income and a $3.1 million decrease in interest expense. Net interest income was positively impacted by a $41.2 million decrease in average borrowings coupled with an $8.0 million increase in average earning assets. Net interest margin increased 60-basis points to 3.33% at September 30, 2025, from 2.73% for the same period in 2024.

Provision for credit losses increased by $354,000 for the first nine months of 2025 as compared to the same period in 2024. For the nine months ended September 30, 2025, provision for credit losses totaled $1.6 million and consisted of a $1.5 million provision for credit losses on loans and a $125,000 provision for credit losses on unfunded commitments. For the same period in 2024, the provision for credit losses totaled $1.3 million.

Noninterest income increased by $281,000 primarily from an increase in title insurance income, card services and interchange income, income on bank-owned life insurance, and service charges on deposit accounts. The increases were partially offset by a decrease in mortgage banking income.

Noninterest expenses increased by $1.3 million and were primarily attributable to an increase in salaries and employee benefits, legal and professional fees, and data processing expense. Expenses related to the Company’s pension plan increased $749,000 due to an increase in net periodic pension cost and pension settlement gains of $580,000 received in 2024. Other expenses decreased due to an external fraud loss of $731,000 in 2024.

Net Interest Income

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, and subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing net interest income by average earning assets. The provision for credit losses, noninterest income, and noninterest expense are the other components that determine net income. Noninterest income and expense primarily consist of income from service charges on deposit accounts, revenue from wealth management services, mortgage banking income, title insurance income, ATM and check card income, income from bank-owned life insurance, and general and administrative expenses.

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Three Month Period Ended September 30, 2025

Net interest income increased by $2.0 million, or 24%, to $10.5 million for the three months ended September 30, 2025, as compared to the same period in the prior year. Total interest income increased by $762,000 and interest expense decreased by $1.2 million.

The increase in total interest income was attributed to a $574,000 increase in interest from securities available for sale and a $297,000 increase in interest and fees on loans held for investment. The increase in interest income from securities available for sale was attributable to an 83-basis point increase in yield compared to the same period in the prior year. The increase in interest income on loans held for investment was attributable to a $36.3 million, or 4%, increase in average balance offsetting a 17-basis point decrease in yield.

The decrease in total interest expense was attributable to a $1.0 million decrease in interest expense on deposits and a $241,000 decrease in interest expense on short-term debt. The lower interest expense on deposits resulted from a 47-basis point decrease in the cost of interest-bearing deposits and a decrease in average time deposit balances replaced with an increase in lower cost saving deposits. The decrease in cost of deposits was impacted by a decrease in rates paid on deposits and a change in the composition of the deposit portfolio as lower cost demand and savings deposit balances increased, while higher cost time deposit balances decreased. The lower interest expense on borrowings resulted from a $17.3 million decrease in the average balance of short-term borrowings.

The net interest margin was 3.36% for the third quarter of 2025 compared to 2.75% for the same period in the prior year as the yield on earning assets increased 17-basis points and the cost of funds decreased 40-basis points.

Nine Month Period Ended September 30, 2025

Net interest income increased $5.6 million, or 23%, to $30.5 million for the first nine months of 2025 compared to $24.8 million for the same period in the prior year. Total interest income increased by $2.5 million and total interest expense decreased by $3.1 million.

The increase in total interest income was attributable to a $1.3 million increase in interest income from securities available for sale, an $888,000 increase in interest income and fees on loans held for investment, and a $614,000 increase in interest income on federal funds sold. The increase in interest income from securities available for sale was attributable to a 74-basis point increase in yield. The increase in interest income on federal funds sold is attributable to a 110% increase in average balance. The increase in interest income on loans held for investment was attributable to a 2% increase in average balance.

The decrease in total interest expense was attributable to a $1.5 million decrease in interest expense on deposits and a $1.7 million decrease in interest expense on short-term debt. The lower interest expense on deposits resulted from a 30-basis point decrease in the cost of interest-bearing deposits. The decrease in the cost of interest-bearing deposits was the result of a decrease in rates paid on deposits and a change in composition of the deposit portfolio as higher cost time deposit balances decreased, while lower cost savings deposit balances increased. The lower interest expense on borrowings resulted from a $41.1 million decrease in average balances of borrowings.

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The following tables show 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 periods indicated (dollars in thousands):

Three Months ended
September 30, 2025 September 30, 2024
Average Balance^4^ Interest Income<br><br>/Expense Yield /Rate^1^ Average Balance^4^ Interest Income /Expense Yield /Rate^1^
ASSETS
Loans held for investment^2,3^ $ 861,788 $ 14,130 6.50 % $ 825,511 $ 13,833 6.67 %
Loans held for sale 2,512 (3 ) -0.47 % 3,796 60 6.29 %
Federal funds sold 42,236 468 4.40 % 38,425 518 5.36 %
Interest-bearing deposits in banks and other investments 3,226 59 7.26 % 3,880 55 5.64 %
Investment securities^4^
Taxable 314,428 2,214 2.79 % 339,701 1,645 1.93 %
Tax exempt 16,500 184 4.42 % 16,189 179 4.40 %
Total investment securities 330,928 2,398 2.87 % 355,890 1,824 2.04 %
Total earning assets 1,240,690 17,052 5.45 % 1,227,502 16,290 5.28 %
Allowance for credit losses (8,201 ) (7,790 )
Nonearning assets 95,435 99,433
Total assets $ 1,327,924 $ 1,319,145
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand-interest bearing $ 135,230 $ 558 1.64 % $ 137,458 $ 646 1.87 %
Savings 567,111 3,875 2.71 % 482,333 3,219 2.66 %
Time deposits 234,318 1,966 3.33 % 309,968 3,575 4.59 %
Total interest-bearing deposits 936,659 6,399 2.71 % 929,759 7,440 3.18 %
Short‑term debt - - - 17,283 241 5.55 %
Long-term debt 6,999 158 8.96 % 6,958 116 6.63 %
Total interest-bearing liabilities 943,658 6,557 2.76 % 954,000 7,797 3.25 %
Noninterest bearing deposits 273,338 265,188
Other liabilities 14,193 14,763
Total liabilities 1,231,189 1,223,951
Shareholders’ equity 96,735 85,194
Total liabilities and shareholders’ equity $ 1,327,924 $ 1,319,145
Net interest income $ 10,495 $ 8,493
Interest rate spread 3.31 % 2.74 %
Cost of funds 2.14 % 2.54 %
Net interest margin 3.36 % 2.75 %

_______________________

^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.
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Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, 2025 September 30, 2024
Average Balance^4^ Interest Income<br><br>/Expense Yield /Rate^1^ Average Balance^4^ Interest Income /Expense Yield /Rate^1^
ASSETS
Loans held for investment^2,3^ $ 843,875 $ 41,566 6.59 % $ 824,967 $ 40,678 6.59 %
Loans held for sale 2,255 42 2.49 % 3,092 123 5.31 %
Federal funds sold 45,631 1,505 4.41 % 21,748 891 5.47 %
Interest-bearing deposits in banks and other investments 2,816 147 6.98 % 6,241 357 7.64 %
Investment securities^4^
Taxable 311,957 6,548 2.81 % 342,684 5,223 2.04 %
Tax exempt 16,396 321 2.62 % 16,226 314 2.58 %
Total investment securities 328,353 6,869 2.80 % 358,910 5,537 2.06 %
Total earning assets 1,222,930 50,129 5.48 % 1,214,958 47,586 5.23 %
Allowance for credit losses (7,982 ) (8,242 )
Nonearning assets 97,320 100,978
Total assets $ 1,312,268 $ 1,307,694
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand-interest bearing $ 134,770 $ 1,665 1.65 % $ 135,463 $ 1,807 1.78 %
Savings 543,665 10,892 2.68 % 487,910 9,690 2.65 %
Time deposits 250,856 6,713 3.58 % 278,868 9,231 4.42 %
Total interest-bearing deposits 929,291 19,270 2.77 % 902,241 20,728 3.07 %
Federal funds purchased - - - 277 8 3.86 %
Short‑term debt - 4 - 40,894 1,683 5.50 %
Long-term debt 6,990 390 7.46 % 6,948 347 6.67 %
Total interest-bearing liabilities 936,281 19,664 2.81 % 950,360 22,766 3.20 %
Noninterest bearing deposits 269,458 262,293
Other liabilities 13,935 14,832
Total liabilities 1,219,674 1,227,485
Shareholders’ equity 92,594 80,209
Total liabilities and shareholders’ equity $ 1,312,268 $ 1,307,694
Net interest income $ 30,465 $ 24,820
Interest rate spread 3.30 % 2.72 %
Cost of funds 2.18 % 2.51 %
Net interest margin 3.33 % 2.73 %

________________________

^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.
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Provision for (Recovery of) Credit Losses

Three-Month Period Ended September 30, 2025

The provision for credit losses totaled $539,000 for the three-month period ended September 30, 2025, compared to a provision of $902,000 for the same period of the prior year. The provision consisted of $595,000 provision for credit losses on loans and $56,000 recovery of provision for credit losses on unfunded commitments. The decrease in the provision for credit losses on loans resulted primarily from net charge-offs totaling $1.1 million and partially offset by a decrease in the specific reserve component of the allowance for credit losses on loans.

Nine Month Period Ended September 30, 2025

The provision for credit losses totaled $1.6 million for the nine-month period ended September 30, 2025, compared to $1.3 million for the same period in the prior year. The provision consisted of $1.5 million provision for credit losses on loans and $125,000 provision for credit losses on unfunded commitments. The increase in the provision for credit losses on loans resulted primarily from net charge-offs totaling $1.8 million, a decrease in the specific reserve component of the allowance for credit losses, an increase in the general reserve component of the allowance during the period resulting from a change in a qualitative factors related to classified loans, loan review, and loan volume, which were partially offset by decreases in the qualitative factor related to economic conditions. The qualitative factor for classified loans increased in the commercial real estate, commercial and industrial loans, and automobile loan segments due to increases in nonaccrual and classified loans. The qualitative factor for loan review increased in other construction, loans secured by farmland, loans secured by first liens, commercial real estate, loans to finance agricultural production, and commercial and industrial loans due to the results of an external loan review. The qualitative factor for loan volume increased in loans secured by farmland, loans secured by first liens, and other commercial real estate segments due to increased year over year portfolio increases; this increase was partially offset by a decrease in the automobile segment due to strategic reduction in the portfolio balance. The decrease in economic conditions was due to an improvement in the forecast for real gross domestic product that affected the commercial real estate, commercial and industrial loans, and municipal loan segments.

Noninterest Income

Three-Month Period Ended September 30, 2025

Noninterest income decreased $14,000, or 1%  compared to the same period of 2024. The decrease resulted from a $245,000 decrease in mortgage banking income due to a decrease in loans held for sale. The decrease in mortgage banking income was offset by a $97,000 increase in title insurance income due to increased title premium and loan closing volume, and a $111,000 increase in card services and interchange income.

Nine-Month Period Ended September 30, 2025

Total noninterest income increased $281,000, or 3%, to $8.4 million for the nine months ended September 30, 2025, compared $8.1 million for the same period in 2024. The increase resulted from a $307,000 increase in title insurance income due to increased title premiums and loan closing volume and a $223,000 increase in card services and interchange income due to renegotiated interchange contracts. These increases in title income and card services and interchange income were offset by a $435,000 decrease in mortgage banking income. The decrease in mortgage banking income was due to a decrease in originations of loans held for sale.

Noninterest Expense

Three-Month Period Ended September 30, 2025

Noninterest expenses decreased $336,000, or 3%, to $9.3 million for the three-month period ended September 30, 2025, compared to $9.7 million for the same period one year ago. The decrease was primarily attributable to a $526,000 decrease in other operating expenses coupled with a $244,000 increase in legal and professional fees. Other operating expenses decreased due to an external fraud event in 2024 that totaled $731,000. The increase in legal and professional fees, as compared to the same period in 2024, was due to increased audit costs and increased federal examination assessment fees, as well as a recovery in legal fees that occurred in 2024 due to the payoff of a nonperforming loan.

Nine-Month Period Ended September 30, 2025

Noninterest expenses increased $1.3 million, or 5%, to $27.6 million for the nine-month period ended September 30, 2025, compared to $26.3 million for the same period one year ago. The increase was primarily attributable to a $982,000 increase in combined salaries and employee benefits, a $293,000 increase in legal and professional fees, and a $280,000 increase in data processing expense. These increases were partially offset by a $220,000 decrease in other operating expenses. Salaries and employee benefits increased due to increased net periodic pension costs of $187,000, no pension settlement gains in 2025, and a lower refund (rebate) of health insurance expenses. The increase in legal and professional fees, as compared to the same period in 2024, was due to increased audit costs and increased federal examination assessment fees, as well as a recovery in legal fees in 2024 due to the payoff of a nonperforming loan. Data processing expenses increased due to new products provided by our core provider and additional software contracts process improvements. The decrease in other operating expenses is attributable to an external fraud loss in 2024 that totaled $731,000.

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Income Taxes

Three-Month Period Ended September 30, 2025

Income tax expense increased $555,000 for the third quarter of 2025, compared to the same period one year ago. The effective tax rate, before tax credits, for the third quarter of 2025 was 19.00% compared to 12.75% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended September 30, 2025, and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and low-income housing credits. A more detailed discussion of the Company’s tax calculation is contained in Note 18 to the Consolidated Financial Statements included in the 2024 Form 10-K.

Nine-Month Period Ended September 30, 2025

Income tax expense, before tax credits, increased $955,000, or 265%, for the first nine months of 2025 compared with the same period in 2024. The effective tax rate, before tax credits, for the first nine months of 2025 was 19.50% compared with 17.65% for the same period in 2024. The increased effective tax rate for 2025 was the result of increased income in 2025 compared to 2024.

Balance Sheet Review

General

Assets totaled $1.4 billion at September 30, 2025, which was an increase of $56.1 million or 4%, from December 31, 2024. The asset composition changed during the first nine months of the year as loans held for investment, net of the allowance for credit losses, increased by $32.6 million and federal funds sold increased by $26.6 million.

Total liabilities increased $40.7 million during the nine-month period ended September 30, 2025 from December 31, 2024, due to an increase in deposits during the first nine months of 2025. Composition of deposits as of September 30, 2025, changed as non-interest bearing deposits increased $20.6 million, savings accounts increased $76.4 million, interest checking increased $7.2 million, and time deposits decreased $64.0 million.

Total shareholders’ equity increased $15.4 million during the first nine months of 2025, primarily from a $5.6 million increase in retained earnings and a $9.5 million decrease in accumulated other comprehensive loss. Retained earnings increased as $8.3 million of net income was partially offset by $2.8 million of cash dividends on common stock. The decrease in accumulated other comprehensive loss was attributable to lower unrealized losses in the available-for-sale securities portfolio. The Bank’s capital ratios continued to exceed the minimum capital requirements for regulatory purposes.

Loans

Loans held for investment totaled $872.3 million at September 30, 2025, which was a $32.4 million, or 4% increase from December 31, 2024. The loan portfolio is primarily composed of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, loans secured by farmland, and indirect automobile loans. The growth of loans since December 31, 2024 has shifted the composition of the loan portfolio by decreasing indirect automobile loans and increasing loans secured by farmland and other commercial real estate.

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Following is a breakdown of the loan portfolio composition as of the periods indicated (dollars in thousands):

September 30, 2025 December 31, 2024
Loan Segment Balance Percentage of Portfolio Balance Percentage of Portfolio
1-4 Family residential construction $ 31,805 3.64 % $ 25,102 2.99 %
Other construction, land development and land 42,281 4.84 % 58,208 6.92 %
Secured by farmland 111,163 12.74 % 86,016 10.23 %
Home equity – open end 50,401 5.77 % 49,542 5.89 %
Real estate 233,859 26.79 % 213,081 25.35 %
Home Equity – closed end 6,280 0.72 % 6,137 0.73 %
Multifamily 14,621 1.68 % 10,804 1.29 %
Owner-occupied commercial real estate 92,302 10.57 % 86,169 10.25 %
Other commercial real estate 114,375 13.10 % 98,189 11.68 %
Agricultural loans 18,562 2.13 % 17,928 2.13 %
Commercial and industrial 56,548 6.48 % 64,901 7.72 %
Credit Cards 3,193 0.37 % 3,524 0.42 %
Automobile loans 83,458 9.56 % 104,271 12.40 %
Other consumer loans 9,621 1.10 % 11,915 1.42 %
Municipal loans 4,410 0.51 % 4,901 0.58 %
Gross loans 872,879 100.00 % $ 840,688 100.00 %
Unamortized deferred net loan fees (571 ) (739 )
Loans held for investment, net of deferred loan fees $ 872,308 $ 839,949

Loans held for sale totaled $1.3 million at September 30, 2025 and $2.3 million at December 31, 2024. Loans held for sale consist of one-to-four family residential real estate loans to investors at pre-committed rates. The volume of loans held for sale originated are affected by interest rate changes, seasonal trends, and refinancing activity.

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. Nonperforming loans totaled $7.5 million and $7.1 million at September 30, 2025 and December 31, 2024. Nonaccrual loans totaled $7.5 million and $7.0 million representing 0.85% and 0.84% of total loans, at September 30, 2025 and December 31, 2024, respectively. There was no other real estate owned (“OREO”) at September 30, 2025 compared to $77,000 in OREO at December 31, 2024. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through local realtors. The Bank had one consumer mortgage loan totaling $186,000 secured by real estate for which formal foreclosure proceedings were in process as of September 30, 2025.

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The following table summarizes the Company’s non-performing loans and assets as of the periods indicated (in thousands):

September 30,<br><br>2025 December 31,<br><br>2024
Nonaccrual loans $ 7,451 $ 7,045
Loans past due 90 days and accruing interest 1 32
Total nonperforming loans 7,452 7,077
Other real estate owned - 77
Total nonperforming assets $ 7,452 $ 7,154
Allowance for credit losses $ 7,848 $ 8,129
Total Loans $ 872,308 $ 839,949
Ratios:
Allowance for credit losses to Total Loans 0.90 % 0.97 %
Allowance for credit losses to Total nonperforming assets 105.31 % 113.63 %
Allowance for credit losses to Nonaccrual loans 105.33 % 115.39 %
Nonaccrual Loans to Total Loans 0.85 % 0.84 %

Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, externally generated loan quality reports, and other relevant factors when evaluating the loan portfolio. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the allowance for credit losses, see “Critical Accounting Policies” above.

Securities Available for Sale (“AFS”)

The securities portfolio plays a primary role in the management of the Company’s interest rate sensitivity and serves as a source of liquidity. The portfolio is used as needed to meet collateral requirements, such as those related to secure balances with the FRB. The Company’s AFS portfolio is reported at fair value, based on market prices of comparable instruments. The portfolio consists primarily of U.S. Treasury securities, U.S. government agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities.

On September 30, 2025, the AFS portfolio totaled $329.4 million, an increase of $1.8 million, or 1%, from $327.7 at December 31, 2024. The increase is primarily attributable to purchases of $40.9 million in AFS securities during the first nine months of 2025 and a $12.0 million decrease in unrealized losses in the investment securities portfolio. The change in the unrealized losses of investment securities from December 31, 2024 to September 30, 2025 was related to changes in market interest rates and maturities of lower yielding bonds. These increases were partially offset by maturities and calls of $32.3 million, paydowns on mortgage-backed securities of $18.3 million, and amortization of $500,000.

Other Investments

Restricted securities, including FHLB, FRB, and Community Bankers’ Bank stock, are generally viewed as long-term investments because there is minimal market for the stock and they are carried at cost. Other investments totaled $2.3 million and $2.2 million at September 30, 2025 and December 31, 2024, respectively.

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Deposits

Deposits totaled $1.2 billion on September 30, 2025, which was a $40.2 million increase from December 31, 2024. The composition of the deposit portfolio has shifted from time deposits to savings accounts. The following table shows the balance of each category of deposits as of the dates indicated (dollars in thousands):

September 30, 2025 December 31, 2024
Balance % of total deposits Balance % of total deposits
Noninterest-bearing demand $ 280,937 22.8 % $ 260,301 21.8 %
Interest Checking 146,088 11.8 % 138,919 11.6 %
Savings Accounts 573,985 46.4 % 497,577 41.6 %
Time Deposits 234,332 19.0 % 298,308 25.0 %
Total deposits $ 1,235,341 $ 1,195,105

Estimated uninsured deposits totaled approximately $163.2 million and $131.9 million at September 30, 2025, and December 31, 2024, respectively.

The following table shows the average balances of deposits and average interest rates paid as of the periods indicated (dollars in thousands):

Three months ended<br><br>September 30, 2025 Nine months ended<br><br>September 30, 2025
Average Balance Rate Average Balance Rate
Noninterest-bearing $ 273,338 - $ 269,458 -
Interest-bearing:
Interest Checking $ 135,230 1.64 % $ 134,770 1.65 %
Savings Accounts 567,111 2.71 % 543,665 2.68 %
Time Deposits 234,318 3.33 % 250,856 3.58 %
Total interest-bearing deposits 936,659 2.71 % 929,291 2.77 %
Total average deposits $ 1,209,997 2.10 % $ 1,198,749 2.15 %

The following table sets forth maturity ranges of time deposits, as of September 30, 2025, that meet or exceed the FDIC insurance limit (in thousands):

Maturity period:
3 months or less $ 8,203
Over 3 months through 6 months 22,841
Over 6 months through 12 months 11,647
Over 12 months 893
Total $ 43,584

Long-term borrowings

Long-term debt totaled $7.0 million on September 30, 2025 and December 31, 2024, and consisted of one subordinated debt note. The note bore interest at 6.00% per annum through July 30, 2025, payable semi-annually in arrears. On August 1, 2025, the interest rate converted from a fixed interest rate of 6.00% to a floating interest rate of Secured Overnight Financing Rate (SOFR) plus 593 basis points, or 10.25.  From August 1, 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. On September 30, 2025, the Company gave notice of full redemption on October 31, 2025 to the holder of the subordinated note.

On October 24, 2025, the Company entered a subordinated note purchase agreement pursuant to which the Company issued and sold $10.0 million in aggregate principal amount of 7.55% fixed to floating rate subordinated notes due November 1, 2035. The note will initially bear interest at 7.55% per annum, beginning May 1, 2026 to but excluding November 1, 2030, payable semi-annually in arrears. From and including November 1, 2030 to but excluding November 1, 2035, or up to an early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate plus 424.5 basis points, payable quarterly in arrears. Beginning on November 1, 2030 through maturity, the notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The notes will mature on November 1, 2035.

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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 FRB, the purchase of brokered certificates of deposit, a corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Deposits have remained 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 September 30, 2025, liquid assets totaled $110.4 million, or 8.13% of total assets, and liquid earning assets totaled $91.6 million, or 6.74% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows.

At September 30, 2025, the Bank pledged investment securities with a par value totaling $135.6 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 nine 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 $168.3 million in available credit at September 30, 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.

Market Risk Management

Market risk is the sensitivity of a financial institution’s earnings or 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 September 30, 2025 As of December 31, 2024
Change in Interest Rates (in Basis Points) Percent Change in Earnings Percent Change in Earnings
400 -6.74 % -9.93 %
300 -4.98 % -7.38 %
200 -3.20 % -4.76 %
100 -1.55 % -2.28 %
(100 ) 1.02 % 1.89 %
(200 ) 1.51 % 3.14 %
(300 ) 1.06 % 3.79 %
(400 ) -1.54 % 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 of equity (“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 September 30, 2025 As of December 31, 2024
Change in Interest Rates (in Basis Points) Percentage Change in EVE Percentage Change in EVE
400 -19.74 % -20.65 %
300 -15.26 % -15.73 %
200 -10.68 % -10.40 %
100 -6.37 % -5.04 %
(100 ) 1.65 % 3.63 %
(200 ) 0.28 % 4.51 %
(300 ) -4.17 % 2.87 %
(400 ) -8.34 % -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 September 30, 2025, the Company had $73.0 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

Disclosure under this item is not required for smaller reporting companies.

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 September 30, 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 September 30, 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.
Disclosure under this item is not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Sales of Unregistered Securities – None during the quarterly period ended September 30, 2025.

(b) Use of Proceeds – Not Applicable

(c) Issuer Purchases of Securities

The following table provides information about the Company’s purchases of equity securities for the periods indicated:

Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (1) Approximate dollar value of shares that may yet be purchased under the plans or programs (1)
6/01 – 6/30/2025 - $ - - $ 2,200,000
7/01 – 7/31/2025 10,000 21.89 10,000 1,981,101
8/01 – 8/31/2025 2,111 23.75 2,111 1,930,959
Total 12,111 $ 22.21 12,111
(1) In June of 2025, the Company’s Board of Directors approved a repurchase plan to repurchase up to $2.2 million of the Company’s common stock (the “2025 Plan”). The timing, price and quantity of purchases under the 2025 Plan is at the discretion of management. The plan was effective June 4, 2025 and expires on May 31, 2026.
--- ---
Item 3. Defaults Upon Senior Securities. None
--- ---
Item 4. Mine Safety Disclosures. None
Item 5. Other Information.

Insider Trading Arrangements

During the quarterly period ended September 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K).

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Item 6. Exhibits.

(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101 The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 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 September 30, 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.
(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)

November 13, 2025

48

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: November 13, 2025 /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: November 13, 2025 /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 September 30, 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 |

| Chief Executive Officer | | /s/ Lisa F. Campbell |

| Lisa F. Campbell |

| Executive Vice President and Chief Financial Officer | | November 13, 2025 |

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