F&M Bank Corp 10-Q for FY2021 Q1
F&M Bank Corp (FMBM)
About this 10-Q
F&M Bank Corp filed this 10-Q on May 11, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $3.8M
- up 203.8% from net income of $1.25M a year earlier
- Diluted EPS
- $1.11
- up 217.1% from $0.35 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For the quarterly period ended
Commission File Number:
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(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(
(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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | 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
State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at May 5, 2021 |
|
F & M BANK CORP.
Index
| 2 |
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
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| March 31, |
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| December 31, |
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| 2021 |
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| 2020* |
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Assets |
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Cash and due from banks |
| $ |
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| $ |
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Money market funds and interest-bearing deposits in other banks |
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Federal funds sold |
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Cash and cash equivalents |
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Securities: |
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Held to maturity, at amortized cost – fair value of $ |
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Available for sale, at fair value |
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Other investments |
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Loans held for sale, at fair value |
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Loans held for sale, participations |
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Loans held for investment |
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Less: allowance for loan losses |
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Net loans held for investment |
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Bank premises and equipment, net |
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Bank premises held for sale |
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Interest receivable |
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Goodwill |
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Bank owned life insurance |
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Other assets |
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Total assets |
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| $ |
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Liabilities |
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Deposits: |
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Noninterest bearing |
| $ |
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| $ |
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Interest bearing |
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Total deposits |
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Long-term debt |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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| - |
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| - |
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Stockholders’ Equity |
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Series A Preferred Stock, $ |
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Common stock $ |
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Additional paid in capital – common stock |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
| $ |
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| $ |
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________
*2020 derived from audited consolidated financial statements.
See Notes of Consolidated Financial Statements
| 3 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
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| March 31, |
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Interest and Dividend income |
| 2021 |
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| 2020 |
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Interest and fees on loans held for investment |
| $ |
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| $ |
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Interest and fees on loans held for sale |
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Interest from money market funds and federal funds sold |
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Interest on debt securities |
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Total interest and dividend income |
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Interest expense |
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Total interest on deposits |
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Interest from short-term debt |
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Interest from long-term debt |
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Total interest expense |
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Net interest income |
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(Recovery of) Provision for Loan Losses |
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Net Interest Income After (Recovery of) Provision for Loan Losses |
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Noninterest income |
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Service charges on deposit accounts |
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Investment services and insurance income, net |
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Mortgage banking income, net |
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Title insurance income |
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Income on bank owned life insurance |
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Low-income housing partnership losses |
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ATM and check card fees |
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Other operating income |
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Total noninterest income |
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Noninterest expense |
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Salaries |
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Employee benefits |
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Occupancy expense |
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Equipment expense |
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FDIC insurance assessment |
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Other real estate owned, net |
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Advertising expense |
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Legal and professional fees |
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ATM and check card fees |
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Telecommunication and data processing expense |
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Directors fees |
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Bank franchise tax |
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Other operating expenses |
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Total noninterest expense |
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Income before income taxes |
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Income tax expense (benefit) |
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Net Income |
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Net (income) attributable to noncontrolling interest |
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| ( | ) | |
Net Income attributable to F & M Bank Corp. |
| $ |
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| $ |
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Dividends paid/accumulated on preferred stock |
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Net income available to common stockholders |
| $ |
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| $ |
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Per Common Share Data |
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Net income – basic |
| $ |
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| $ |
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Net income – diluted |
| $ |
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| $ |
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Cash dividends on common stock |
| $ |
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| $ |
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Weighted average common shares outstanding – basic |
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Weighted average common shares outstanding – diluted |
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See Notes of Consolidated Financial Statements
| 4 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended March 31, |
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| 2021 |
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| 2020 |
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Net Income attributable to F & M Bank Corp. |
| $ |
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| $ |
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Other comprehensive loss: |
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Unrealized holding losses on available-for sale securities |
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Tax effect |
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Unrealized holding losses, net of tax |
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Total other comprehensive (loss) |
| $ | ( | ) |
| $ | ( | ) |
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Comprehensive income attributable to F&M Bank Corp. |
| $ |
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| $ |
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Comprehensive income attributable to noncontrolling interests |
| $ |
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| $ |
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Total comprehensive income |
| $ |
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| $ |
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See Notes of Consolidated Financial Statements
| 5 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2021 and 2020
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| Accumulated |
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| Additional |
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| Non |
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| Other |
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| Preferred |
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| Common |
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| Paid in |
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| Retained |
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| controlling |
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| Comprehensive |
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| Stock |
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| Stock |
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| Capital |
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| Earnings |
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| Interest |
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| Loss |
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| Total |
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Balance December 31, 2019 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Net income |
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Other comprehensive loss |
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Distributions to noncontrolling interest |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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| - |
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Dividends on preferred stock ($.32 per share) |
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Dividends on common stock ($.26 per share) |
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Common stock repurchased (18,472 shares) |
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Common stock issued (2,438 shares) |
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Balance, March 31, 2020 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance December 31, 2020 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Net income |
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Other comprehensive loss |
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Dividends on preferred stock ($.32 per share) |
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Dividends on common stock ($.26 per share) |
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Common stock issued (2,450 shares) |
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Common stock issued for Stock-based Compensation (1,332 shares) |
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Common stock to vest for Stock-based Compensation (3,270 shares) |
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Balance, March 31, 2021 |
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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See Notes of Consolidated Financial Statements
| 6 |
| Table of Contents |
F & M BANK CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
|
| Three Months Ended March 31, |
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| 2021 |
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| 2020 |
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Cash flows from operating activities |
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Net income |
| $ |
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| $ |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Amortization of intangibles |
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Amortization of securities |
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Proceeds from loans held for sale originated |
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Loans held for sale originated |
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Gain on sale of loans held for sale originated |
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(Recovery of) Provision for loan losses |
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Decrease in interest receivable |
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(Increase) in deferred taxes |
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Increase in taxes payable |
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Decrease in other assets |
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Decrease in accrued expenses |
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Amortization of limited partnership investments |
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Income from life insurance investment |
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Loss on sale of fixed assets |
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Impairment of long-lived assets |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Purchase of investments available for sale and other investments |
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Proceeds from maturity of investments available for sale |
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Proceeds from the redemption of restricted stock, net |
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Net decrease (increase) in loans held for investment |
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Net decrease in loans held for sale participations |
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Proceeds from the sale of other real estate owned |
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Net purchase of property and equipment |
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Net cash (used in) provided by investing activities |
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Cash flows from financing activities |
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Net change in deposits |
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Net change in short-term debt |
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Dividends paid in cash |
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Proceeds from issuance of common stock |
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Repurchase of common stock |
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Repayments of long-term debt |
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Net cash provided by financing activities |
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Net increase in Cash and Cash Equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
| $ |
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| $ |
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Supplemental Cash Flow information: |
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Cash paid for: Interest |
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Supplemental non-cash disclosures: |
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Change in unrealized (loss) gain on securities available for sale |
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See Notes of Consolidated Financial Statements
| 7 |
| Table of Contents |
DOLLARS ARE REPORTED IN THOUSANDS THROUGHOUT THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), and VSTitle, LLC and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). On May 1, 2020 the Bank purchased the noncontrolling interest of VBS Mortgage, LLC and VSTitle, the minority interest for 2020 covers January 1 through March 31, 2020. Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Nature of Operations
The Company, through its subsidiary Farmers & Merchants Bank (the “Bank”), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at twelve branch offices and a Dealer Finance Division. A loan production office in Winchester is slated to open during second quarter 2021. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc. (“FMFS”), F&M Mortgage, and VSTitle, LLC (“VST”).
Basis of Presentation
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and fair value. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.
Risk and Uncertainties
The coronavirus (“COVID-19”) pandemic spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operating businesses in March 2020 with branch lobby closings, operations and administrative staff working remotely and the use of virtual meetings. Branches reopened on April 12, 2021 for regular business hours and staff returned to their normal office locations. The continuing effects of COVID-19 will likely affect our operations throughout the remainder of 2021, although the extent and significance remain unknown. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic may adversely affect our future earnings, cash flows and financial condition, including among others, credit losses resulting from financial stress on borrowers, decreased demand for products and operational failures. In addition, significant assumptions, judgments, and estimates used in the preparation of our financial statements, including those associated with evaluations of goodwill for impairment, and allowance for loan losses, may be subject to adjustments in future periods due to the rapidly changing, uncertain and unprecedented nature of the pandemic.
| 8 |
| Table of Contents |
Note 1. Summary of Significant Accounting Policies, continued
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.
Earnings per Share
Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. In calculating diluted EPS, net income available to common stockholders is used as the numerator and the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued. The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per share calculation for the three-month periods ended March 31, 2021 and 2020.
Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared. The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:
|
| For the Three months ended |
| |||||
(dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Earnings available to common stockholders: |
|
|
|
|
|
| ||
Net income |
| $ |
|
| $ |
| ||
Non-controlling interest income |
|
|
|
|
|
| ||
Preferred stock dividends |
|
|
|
|
|
| ||
Net income available to common stockholders |
| $ |
|
| $ |
| ||
The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:
|
| Three months ended March 31, 2021 |
|
| Three months ended March 31, 2020 |
| ||||||||||||||||||
(dollars in thousands) |
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
|
| Income |
|
| Weighted Average Shares |
|
| Per Share Amounts |
| ||||||
Basic EPS |
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||||
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||||
Diluted EPS |
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||||
Note 2. Investment Securities
Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at March 31, 2021 and December 31, 2020 are as follows:
(dollars in thousands) |
|
|
| Gross |
|
| Gross |
|
|
| ||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 9 |
| Table of Contents |
Note 2. Investment Securities, continued
The amortized cost and fair value of securities available for sale are as follows:
(dollars in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
U. S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Securities issued by States and political subdivisions in the U.S. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt security |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Securities Available for Sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government sponsored enterprises |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Securities issued by States and political subdivisions of the U.S. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Securities Available for Sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The amortized cost and fair value of securities at March 31, 2021, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(dollars in thousands) |
| Securities Held to Maturity |
|
| Securities Available for Sale |
| ||||||||||
|
| Amortized |
|
| Fair |
|
| Amortized |
|
| Fair |
| ||||
|
| Cost |
|
| Value |
|
| Cost |
|
| Value |
| ||||
Due in one year or less |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Due after one year through five years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Due after five years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Due after ten years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
There were no sales of available for sale securities in the period ended March 31, 2021 or 2020. Securities held that are U.S. Agency and Government Sponsored Entities and Agency MBS which carry an implicit government guarantee and are not subject to other than temporary impairment evaluation. Other securities were reviewed for impairment, the majority of the twenty-four securities that are in an unrealized loss positions are U.S. Government sponsored enterprises or mortgage-backed obligations of federal agencies. One Security issued by States and political subdivisions in the U.S. was in an unrealized loss position for less than 12 months with minimal loss. Therefore, no securities were determined to be other than temporarily impaired.
A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of March 31, 2021 and December 31, 2020 were as follows:
(dollars in thousands) |
| Less than 12 Months |
|
| More than 12 Months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U. S. Government treasuries |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
U. S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities issued by States and political subdivisions of the U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29 |
| |||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Corporate debt security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
| 10 |
| Table of Contents |
Note 2. Investment Securities, continued
|
| Less than 12 Months |
|
| More than 12 Months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U. S. Government sponsored enterprises |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
As of March 31, 2021, other investments consist of investments in fourteen low-income housing and historic equity partnerships (carrying basis of $
Note 3. Loans
During the first three months of 2021, we executed 35 modifications allowing principal and interest deferrals in connection with COVID-19 relief to our customers, for a total of 1,266 deferrals since COVID began. Of those modifications, 52 remain in deferral as of March 31, 2021 with balances of $
Loans held for investment outstanding at March 31, 2021 and December 31, 2020 are summarized as follows:
(dollars in thousands) |
| 2021 |
|
| 2020 |
| ||
Construction/Land Development |
| $ |
|
| $ |
| ||
Farmland |
|
|
|
|
|
| ||
Real Estate |
|
|
|
|
|
| ||
Multi-Family |
|
|
|
|
|
| ||
Commercial Real Estate |
|
|
|
|
|
| ||
Home Equity – closed end |
|
|
|
|
|
| ||
Home Equity – open end |
|
|
|
|
|
| ||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
| ||
Consumer |
|
|
|
|
|
| ||
Dealer Finance |
|
|
|
|
|
| ||
Credit Cards |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $
Loans held for sale consists of loans originated by F&M Mortgage for sale in the secondary market, and the Bank’s commitment to purchase residential mortgage loan participations from Northpointe Bank. The volume of loans purchased from Northpointe fluctuates due to a number of factors including changes in secondary market rates, which affects demand for mortgage loans; the number of participating banks involved in the program; the number of mortgage loan originators selling loans to the lead bank and the funding capabilities of the lead bank. Loans held for sale as of March 31, 2021 and December 31, 2020 were $
| 11 |
| Table of Contents |
Note 3. Loans, continued
The following is a summary of information pertaining to impaired loans (dollars in thousand):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
|
|
| Unpaid |
|
|
|
|
|
| Unpaid |
|
|
| ||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Principal |
|
| Related |
| ||||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
| ||||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Impaired loans with a valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total impaired loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
________
1The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.
| 12 |
| Table of Contents |
Note 3. Loans Held for Investment, continued
The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| Average Recorded |
|
| Interest Income |
|
| Average Recorded |
|
| Interest Income |
| ||||
|
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
| ||||
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans with a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit card |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Impaired Loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 13 |
| Table of Contents |
Note 3. Loans, continued
The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of March 31, 2021 and December 31, 2020:
|
| 30-59 Days Past due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loan Receivable |
|
| Non-Accrual Loans |
|
| Recorded Investment >90 days & accruing |
| ||||||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial & Industrial – Non- Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
| 30-59 Days Past due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loan Receivable |
|
| Non-Accrual Loans |
|
| Recorded Investment >90 days & accruing |
| ||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial & Industrial – Non- Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
On March 31, 2021 and December 31, 2020, other real estate owned did not include any foreclosed residential real estate. The Company had $
Nonaccrual loans on March 31, 2021 would have earned approximately $
| 14 |
| Table of Contents |
Note 4. Allowance for Loan Losses
A summary of changes in the allowance for loan losses (dollars in thousands) for March 31, 2021 and December 31, 2020 is as follows:
March 31, 2021 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
| ||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
| ||||||
December 31, 2020 |
| Beginning Balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 15 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of March 31, 2021 and December 31, 2020:
March 31, 2021 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
| |||
Farmland |
|
|
|
|
|
|
|
|
| |||
Real Estate |
|
|
|
|
|
|
|
|
| |||
Multi-Family |
|
|
|
|
|
|
|
|
| |||
Commercial Real Estate |
|
|
|
|
|
|
|
|
| |||
Home Equity – closed end |
|
|
|
|
|
|
|
| 6,962 |
| ||
Home Equity – open end |
|
|
|
|
|
|
|
|
| |||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
|
|
|
|
|
| |||
Dealer Finance |
|
|
|
|
|
|
|
|
| |||
Credit Cards |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
December 31, 2020 |
| Loan Receivable |
|
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
| |||
Farmland |
|
|
|
|
|
|
|
|
| |||
Real Estate |
|
|
|
|
|
|
|
|
| |||
Multi-Family |
|
|
|
|
|
|
|
|
| |||
Commercial Real Estate |
|
|
|
|
|
|
|
|
| |||
Home Equity – closed end |
|
|
|
|
|
|
|
|
| |||
Home Equity –open end |
|
|
|
|
|
|
|
|
| |||
Commercial & Industrial – Non-Real Estate |
|
|
|
|
|
|
|
|
| |||
Consumer |
|
|
|
|
|
|
|
|
| |||
Dealer Finance |
|
|
|
|
|
|
|
|
| |||
Credit Cards |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
| 16 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of March 31, 2021 and December 31, 2020:
March 31, 2021 |
| Grade 1 Minimal Risk |
|
| Grade 2 Modest Risk |
|
| Grade 3 Average Risk |
|
| Grade 4 Acceptable Risk |
|
| Grade 5 Marginally Acceptable |
|
| Grade 6 Watch |
|
| Grade 7 Substandard |
|
| Grade 8 Doubtful |
|
| Total |
| |||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial & Industrial (Non-Real Estate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 75,495 |
| ||||||||
Consumer (excluding dealer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
| $ |
|
| $ |
| ||
Non-performing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| 17 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
December 31, 2020 |
| Grade 1 Minimal Risk |
|
| Grade 2 Modest Risk |
|
| Grade 3 Average Risk |
|
| Grade 4 Acceptable Risk |
|
| Grade 5 Marginally Acceptable |
|
| Grade 6 Watch |
|
| Grade 7 Substandard |
|
| Grade 8 Doubtful |
|
| Total |
| |||||||||
Construction/Land Development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – closed end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Equity – open end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial & Industrial (Non-Real Estate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer (excluding dealer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Cards |
|
| Dealer Finance |
| ||
Performing |
| $ |
|
| $ |
| ||
Non-performing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Description of internal loan grades:
Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.
Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.
Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.
Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long-term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.
Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.
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.
| 18 |
| Table of Contents |
Note 4. Allowance for Loan Losses, continued
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. Loans rated substandard and in aggregate relationships of $
Grade 8 – Doubtful: The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.
Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.
Note 5. Employee Benefit Plan
The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31st as the measurement date for the defined benefit pension plan. The Bank does not expect to contribute to the pension plan in 2021.
The following is a summary of net periodic pension costs for the three month periods ended March 31, 2021 and 2020:
|
| Three Months Ended |
| |||||
(dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Service cost |
| $ |
|
| $ |
| ||
Interest cost |
|
|
|
|
|
| ||
Expected return on plan assets |
|
| ( | ) |
|
| ( | ) |
Amortization of prior service cost |
|
|
|
|
| ( | ) | |
Amortization of net loss |
|
|
|
|
|
| ||
Net periodic pension cost |
| $ |
|
| $ |
| ||
Note 6. Fair Value
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.
| 19 |
| Table of Contents |
Note 6. Fair Value, continued
The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
| Level 1 – |
| Valuation is based on quoted prices in active markets for identical assets and liabilities. |
| Level 2 – |
| Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. |
| Level 3 – |
| Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.
Loans Held for Sale
During the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using fair value accounting for its entire portfolio of originated loans held for sale in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s originated loans held for sale through F&M Mortgage is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale through F&M Mortgage is classified as Level 2. Gains and losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of Income.
Derivative assets – IRLCs
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to recognize IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 2.
Derivative Asset/Liability – Forward Sale Commitments
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best-efforts commitments are valued using the committed price to the counter-party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All the Company’s forward sale commitments are classified Level 2.
| 20 |
| Table of Contents |
Note 6. Fair Value, continued
Derivative Asset/Liability – Indexed Certificate of Deposit
The Company’s derivatives, which are associated with the Indexed Certificate of Deposit (ICD) product once offered, are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs. This product is no longer offered, however there are a few certificates of deposits that have not matured.
The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans held for sale, F&M Mortgage |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
IRLC |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government treasuries |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
U. S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Securities issued by States and political subdivisions in the U. S. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Forward sales commitments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - ICD |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Liabilities at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale, F&M Mortgage |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
IRLC |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Securities issued by States and political subdivisions of the US |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed obligations of federal agencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – ICD |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Forward Sales Commitments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities at Fair Value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:
| 21 |
| Table of Contents |
Note 6. Fair Value, continued
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.
The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.
Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “liquidation” value of independent appraisals or evaluations.
The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach. Appraisals conducted by an independent, licensed appraiser outside of the Company as observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of March 31, 2021 and December 31, 2020, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.
The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):
March 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Farmland |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Farmland |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer Finance |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
| 22 |
| Table of Contents |
Note 6. Fair Value, continued
The following table presents information about Level 3 Fair Value Measurements for March 31, 2021:
|
| Fair Value at March 31, 2021 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
| |||||||
Impaired Loans |
| $ |
|
|
|
| |||||
The following table presents information about Level 3 Fair Value Measurements for December 31, 2020:
|
| Fair Value at December 31, 2020 |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | ||
(dollars in thousands) |
|
|
|
| |||||||
Impaired Loans |
| $ |
|
|
|
| |||||
Assets Held for Sale
Assets held for sale were transferred from bank premises at the lower of cost less accumulated depreciation or fair value at the date of transfer. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the assets held for sale as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the asset held for sale as nonrecurring Level 3.
March 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
December 31, 2020 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.
The Company markets other real estate owned and assets held for sale both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.
The Company did not have any other real estate owned as of March 31, 2021 and December 31, 2020.
Note 7. Disclosures about Fair Value of Financial Instruments
The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2021 and December 31, 2020. Fair values for March 31, 2021 and December 31, 2020 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities."
| 23 |
| Table of Contents |
Note 7. Disclosures about Fair Value of Financial Instruments, continued
The estimated fair values, and related carrying amounts (dollars in thousands), of the Company’s financial instruments are as follows:
|
|
|
|
| Fair Value Measurements at March 31, 2021 Using |
| ||||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Fair Value at March 31, 2021 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for investment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
|
|
|
| Fair Value Measurements at December 31, 2020 Using |
| ||||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Fair Value at December 31, 2020 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans held for investment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Note 8. Troubled Debt Restructuring
In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which are considered in the qualitative factors within the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance for loan loss methodology. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.
During the three months ended March 31, 2021, there was one loan modification that were considered to be a troubled debt restructuring. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.
| 24 |
| Table of Contents |
Note 8. Troubled Debt Restructuring, continued
|
| March 31, 2021 |
| |||||||||
(dollars in thousands) |
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
|
| Outstanding |
|
| Outstanding |
| ||||
Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
Real Estate |
|
|
|
| $ |
|
| $ |
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
On March 31, 2021, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.
During the three months ended March 31, 2020, there was one loan modification that was considered to be a troubled debt restructuring. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.
|
| March 31, 2020 |
| |||||||||
(dollars in thousands) |
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
|
| Outstanding |
|
| Outstanding |
| ||||
Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
Consumer |
|
|
|
| $ |
|
| $ |
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
At March 31, 2020, there were one loan restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.
|
| March 31, 2020 |
| |||||||||
(dollars in thousands) |
|
|
| Pre-Modification |
|
| Post-Modification |
| ||||
|
|
|
| Outstanding |
|
| Outstanding |
| ||||
Troubled Debt Restructurings |
| Number of Contracts |
|
| Recorded Investment |
|
| Recorded Investment |
| |||
Consumer |
|
|
|
| $ |
|
| $ |
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
Note 9. Accumulated Other Comprehensive Loss
The balances in accumulated other comprehensive loss (dollars in thousands) are shown in the following tables for March 31, 2021 and 2020:
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2020 |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Change in unrealized securities gains, net of tax |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance at March 31, 2021 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
| Unrealized Securities Gains (Losses) |
|
| Adjustments Related to Pension Plan |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at December 31, 2019 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Change in unrealized securities gains (losses), net of tax |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance at March 31, 2020 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
There were no reclassifications adjustment reported on the consolidated statements of income during the three months ended March 31, 2021 or 2020.
| 25 |
| Table of Contents |
Note 10. Business Segments
The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided. The Company purchased the noncontrolling interest of F&M Mortgage and VSTitle during the second quarter of 2020.
The following tables (dollars in thousands) represent revenues and expenses by segment for the three months ended March 31, 2021 and 2020.
|
| Three Months Ended March 31, 2021 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| F&M Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Total income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
(Recovery of) Provision for loan losses |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net Income attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Total Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Goodwill |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 26 |
| Table of Contents |
Note 10. Business Segments, continued
|
| Three Months Ended March 31, 2020 |
| |||||||||||||||||||||||||
|
| F&M Bank |
|
| VBS Mortgage |
|
| TEB Life/FMFS |
|
| VS Title |
|
| Parent Only |
|
| Eliminations |
|
| F&M Bank Corp. Consolidated |
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest Income |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment services and insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Mortgage banking income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Title insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Salary and benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Total expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Income tax expense (benefit) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net (income) loss attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net Income (loss) attributable to F & M Bank Corp. |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ |
| ||||||
Total Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Goodwill |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
| 27 |
| Table of Contents |
Note 11. Debt
Short-term Debt
The Company utilizes short-term debt such as Federal funds purchased and Federal Home Loan Bank of Atlanta (“FHLB”) short term borrowings to support the loans held for sale participation program and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the need of the Company. There was no short term debt at March 31, 2021 and December 31, 2020.
Long-term Debt
The Company utilizes the FHLB advance program to fund loan growth and provide liquidity. The interest rates on long-term debt are fixed at the time of the advance and range from
On July 29, 2020, the Company sold and issued to certain institutional accredited investors $
Note 12. Revenue Recognition
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Investment Services and Insurance Income
Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.
Title Insurance Income
VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.
| 28 |
| Table of Contents |
Note 12. Revenue Recognition, continued
ATM and Check Card Fees
ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.
Other
Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Gains/Losses on sale of OREO
The Company records a gain or loss from the sale of OREO when the control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. The Company recorded no losses on the sale of OREO property as of March 31, 2021 and $
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2021 and 2020.
|
| Three Months Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Noninterest Income (in thousands) |
|
|
|
|
|
| ||
In-scope of Topic 606: |
|
|
|
|
|
| ||
Service Charges on Deposits |
| $ |
|
| $ |
| ||
Investment Services and Insurance Income |
|
|
|
|
|
| ||
Title Insurance Income |
|
|
|
|
|
| ||
ATM and check card fees |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
Noninterest Income (in-scope of Topic 606) |
|
|
|
|
|
| ||
Noninterest Income (out-of-scope of Topic 606) |
|
|
|
|
| ( | ) | |
Total Noninterest Income |
| $ |
|
| $ |
| ||
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 2021 and December 31, 2020, the Company did not have any significant contract balances.
| 29 |
| Table of Contents |
Note 12. Revenue Recognition, continued
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.
Note 13. Leases
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases:
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Lease Liabilities |
| $ |
|
| $ |
| ||
Right-of-use assets |
| $ |
|
| $ |
| ||
Weighted average remaining lease term |
|
|
|
| ||||
Weighted average discount rate |
|
| % |
|
| % | ||
|
|
|
|
|
|
|
|
|
Lease cost |
|
|
|
|
|
|
|
|
Operating lease cost |
| $ |
|
| $ |
| ||
Total lease cost |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
| $ |
|
| $ |
| ||
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):
|
| As of |
| |
|
| March 31, 2021 |
| |
Nine months ending December 31, 2021 |
| $ |
| |
Twelve months ending December 31, 2022 |
|
|
| |
Twelve months ending December 31, 2023 |
|
|
| |
Twelve months ending December 31, 2024 |
|
|
| |
Twelve months ending December 31, 2025 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted cash flows |
| $ |
| |
Discount |
|
|
| |
Lease liabilities |
| $ |
| |
| 30 |
| Table of Contents |
Note 14. Mortgage Banking and Derivatives
Loans Held for Sale
The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. During the second quarter of 2020, the Company elected to begin using fair value accounting for its entire portfolio of loans held for sale (LHFS) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business total $
Interest Rate Lock Commitments and Forward Sales Commitments
The Company, through F&M Mortgage Company, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment). The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate loan commitments will close. The fair value of these derivative instruments is reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2021, and totaled $
During the second quarter of 2020, the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments is reported in “Other Assets” in the Consolidated Balance Sheet at March 31, 2021, and totaled $
Note 15. Stock-Based Compensation
The Company maintains the F & M Bank Corp. 2020 Stock Incentive Plan, which was designed to further the long-term stability and financial success of the Company by attracting and retaining personnel, including employees, directors, and consultants, through the use of stock and stock-based incentives. It was adopted by the Company’s Board, effective upon shareholder approval on May 2, 2020 and will expire on
The Company’s Stock Plan Committee administers the plan, identifies which participants will be granted awards, and determines the terms and conditions applicable to the awards. No shares were awarded during 2020. On March 5, 2021 the Company’s Stock Plan Committee awarded
| 31 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands)
F & M Bank Corp. (“Company”), incorporated in Virginia in 1983, is a financial holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (“Bank”). TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba F&M Mortgage) are wholly owned subsidiaries of the Bank. F & M Bank Corp. holds a majority ownership in VSTitle LLC (“VST”), with the remaining minority interest owned by F&M Mortgage.
The Bank is a full-service commercial bank offering a wide range of banking and financial services through its twelve branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). A loan production office will open in Winchester, Virginia in the second quarter of 2021. TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Fishersville, and Woodstock, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg, Fishersville, and Charlottesville, Virginia.
The Company’s primary trade area services customers in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester.
Management’s discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 1, Part 1 of this Form 10-Q and in conjunction with the audited Consolidated Financial Statements included in the Company’s December 31, 2020 Form 10-K.
Forward-Looking Statements
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning opinions or judgment of the Company and its management about future events.
Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: rapidly changing uncertainties related to the COVID-19 pandemic, general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, the financial strength of borrowers, and consumer spending and savings habits.
We do not update any forward-looking statements that may be made from time to time by or on behalf of the Company.
| 32 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.
In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summary of the Company’s significant accounting policies that are highly dependent on estimates, assumptions and judgments.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 “Receivables”, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either ASC 450 or ASC 310. Management’s estimate of each ASC 450 component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the dealer loan portfolio; maturity of lending staff; the findings of internal credit quality assessments, results from external bank regulatory examinations and third-party loan reviews. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.
Allowances for loans are determined by applying estimated loss factors to the portfolio based on management’s evaluation and “risk grading” of the loan portfolio. Specific allowances, if required are typically provided on all impaired loans in excess of a defined loan size threshold that are classified in the Substandard or Doubtful risk grades and on all troubled debt restructurings. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of the Company’s exposure for each credit, given the current payment status of the loan and the value of any underlying collateral.
While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Critical Accounting Policies (continued)
Fair Value
The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques using significant assumptions that are observable in the market or (3) model-based techniques that use significant assumptions not observable in the market. When observable market prices and parameters are not fully available, management’s judgment is necessary to arrive at fair value including estimates of current market participant expectations of future cash flows, risk premiums, among other things. Additionally, significant judgment may be required to determine whether certain assets measured at fair value are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
COVID-19
The World Health Organization declared a global pandemic in the first quarter of 2020 due to the spread of the coronavirus (“COVID-19”) around the globe. As a result, the state of Virginia issued a stay-at-home order in March requiring all nonessential businesses to shut down and nonessential workers to stay home. The Company, while considered an essential business, implemented procedures to protect its employees, customers and the community and still serve their banking needs. Branch lobbies were closed until April 12, 2021. The Company continues to utilize drive through windows and courier service to handle transactions, new accounts can be opened electronically with limited in person contact for document signing and verification of identification, and lenders are taking applications by appointment.
The Small Business Administration (“SBA”) implemented the Paycheck Protection Program (“PPP”) to support small business operations with loans during the pandemic. The Company worked diligently to support both our customers and noncustomers within our footprint with these loans. As of March 31, 2021, there were 437 PPP loans outstanding for a total of $37,000. The Company has recognized a total of $2,169 in fee income from the SBA for PPP loans with $684 recorded in first quarter 2021 and $1,506 recorded in 2020. These fees are recognized over the life of the associated loans; unamortized fees at March 31, 2021 totaled $1,531.
COVID-19 continues to impact local, national, and foreign economies. Many foreign countries and states in the United States continue to be under restrictions for employment, recreation and gatherings. The unemployment rate has declined from the recent high in April 2020 but is still higher than the pre-pandemic level in February 2020.
The Company is closely monitoring the effects of the pandemic on our customers. Management is focused on assessing the risks in our loan portfolio and working with our customers to minimize losses. At the beginning of the pandemic, additional resources were allocated to analyze higher risk segments in our loan portfolio, monitor and track loan payment deferrals and customer status. As of March 31, 2021 the Company has identified customers impacted by the pandemic and incorporated them into the bank’s normal monitoring and tracking procedures.
As of April 29, 2021, the Company has executed 37 modifications allowing principal and interest deferrals in 2021 related to COVID-19; the Company has granted 1,268 total modifications under the CARES Act. These modifications, 77% of which were short-term dealer loan modifications, were consistent with regulatory guidance and the CARES Act. As of April 29, 2021, 21 loans remain in deferral with a balance of $9,782.
Based on the Company’s capital levels, conservative underwriting policies, low loan-to-deposit ratio, loan concentration diversification and rural operating environment, management believes that it is well positioned to support its customers and communities and to manage the economic risks and uncertainties associated with COVID-19 pandemic and remain adequately capitalized.
Given the rapidly changing and unprecedented nature of the pandemic, however, the Company could experience material and adverse effects on its business, including as a result of credit deterioration, operational disruptions, decreased demand for products and services, or other reasons. Further, our loan deferral program could delay or make it difficult to identify the extent of current credit quality deterioration during the deferral period. The extent to which the pandemic impacts the Company will depend on future developments, which are uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Overview
Net income for the three months ended March 31, 2021 was $3,801 or $1.11 per diluted share, compared to $1,189 or $0.35 in the same period in 2020, an increase of 219.68%. During the three months ended March 31, 2021, noninterest income increased 38.12% and noninterest expense increased 7.95% during the same period.
Results of Operations
As shown in Table I, the 2021 year to date tax equivalent net interest income increased $285 or 3.83% compared to the same period in 2020. The tax equivalent adjustment to net interest income totaled $29 for the first three months of 2021. The yield on earning assets decreased .96%, while the cost of funds decreased .57% compared to the same period in 2020.
Year to date, the combination of the decrease in yield on assets and the decrease in cost of funds coupled with changes in balance sheet structure, including PPP loans which were at a rate of 1.00% and building an investment portfolio that has an average yield of .89%, resulted in the net interest margin decreasing to 3.44% for the three months ended March 31, 2021, a decrease of 53 basis points when compared to the same period in 2020. A schedule of the net interest margin for the three-month periods ended March 31, 2021 and 2020 can be found in Table I.
The following table provides detail on the components of tax equivalent net interest income (dollars in thousands):
GAAP Financial Measurements: |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Interest Income – Loans |
| $ | 8,270 |
|
| $ | 8,722 |
|
Interest Income - Securities and Other Interest-Earnings Assets |
|
| 476 |
|
|
| 388 |
|
Interest Expense – Deposits |
|
| 795 |
|
|
| 1,452 |
|
Interest Expense - Other Borrowings |
|
| 273 |
|
|
| 254 |
|
Total Net Interest Income |
|
| 7,678 |
|
|
| 7,404 |
|
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities |
|
| 29 |
|
|
| 18 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
| 29 |
|
|
| 18 |
|
Tax-Equivalent Net Interest Income |
| $ | 7,707 |
|
| $ | 7,422 |
|
The Interest Sensitivity Analysis contained in Table II indicates the Company is in an asset sensitive position in the one-year time horizon. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. Approximately 35.50% of rate sensitive assets and 34.22% of rate sensitive liabilities are subject to repricing within one year. Due to the relatively low-rate environment, management has continued to decrease deposit rates. The growth in earning assets and the growth in noninterest bearing accounts has resulted in an increase in the positive GAP position in the one-year time period.
The increase in noninterest income of $926 for the three-month period March 31, 2021 compared to the same period in 2020 is due primarily to growth in mortgage banking income ($742), and investment and insurance income ($163). Increase in mortgage banking income was primarily due to increased business due to the low-rate environment. Increase in investment and insurance income was primarily due to a dividend received from the Company’s investment in Bankers Insurance LLC.
Noninterest expense for the three months ended March 31, 2021 increased $566 as compared to 2020. Expenses increased primarily in the areas of salaries ($284), employee benefits ($194), legal and professional fees ($50), and directors fees ($36). Salary and benefit increases were due to expansion into the Winchester and Waynesboro markets.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Federal Funds Sold and Interest-Bearing Bank Deposits
The Company’s subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest-bearing bank deposits. Federal funds sold offer daily liquidity and pay market rates of interest that at quarter end were benchmarked at 0.00% to 0.25% by the Federal Reserve. Actual rates received vary slightly based upon money supply and demand among banks. Interest bearing bank deposits are held either in money market accounts or as short-term certificates of deposits. The Company held $90,099 and $65,983 in federal funds sold at March 31, 2021 and December 31, 2020, respectively. Growth in excess funds is due to strong deposit growth, and the Company is deploying these funds into the investment portfolio. Interest bearing bank deposits have increased by $335 since year end from $1,244 to $1,579.
Balance Sheet
Securities
The Company’s securities portfolio serves to assist the Company with asset liability management. With the tremendous growth in deposits during the past twelve months, the Company has worked to strategically invest the excess funds into an investment portfolio. This has resulted in an increase in the investments available for sale of $64,804.
The securities portfolio consists of investment securities commonly referred to as securities held to maturity and securities available for sale. Securities are classified as Held to Maturity investment securities when management has the intent and ability to hold the securities to maturity. Held to Maturity Investment securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, liquidity needs and other similar factors. Securities available for sale are recorded at fair value. Unrealized holding gains and losses on available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of stockholders’ equity. The low-income housing projects included in other investments are held for the tax losses and credits that they provide.
As of March 31, 2021, the fair value of securities available for sale was below their cost by $393. The portfolio is made up of primarily treasuries, agencies and mortgage-backed obligations of federal agencies, as well as Securities issued by States and political subdivisions in the U.S. and Corporate debt securities. The average maturity is 4.90 years. Efforts to deploy excess funds in an uncertain rate environment has resulted in a mixture of maturities.
In reviewing investments as of March 31, 2021, there were no securities which met the definition for other than temporary impairment. Management continues to re-evaluate the portfolio for impairment on a quarterly basis.
Loan Portfolio
The Company operates primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in western Virginia. The local economy benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid-size businesses and farms within its primary service area. There are no loan concentrations as defined by regulatory guidelines.
Loans Held for Investment of $659,373 decreased $1,956 on March 31, 2021 compared to December 31, 2020. Loan growth in the commercial non-real estate (PPP loans), farmland and dealer finance segments of the portfolio was offset by declines in residential and commercial real estate.
Loans Held for Sale totaled $15,654 on March 31, 2021, a decrease of $43,025 compared to December 31, 2020. The Northpointe participation loan program, as well as F&M mortgage loans, are typically subject to seasonal fluctuations. Both experienced tremendous volume at year end with the largest portion being Northpointe.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $5,783 on March 31, 2021 compared to $6,537 at December 31, 2020. The decrease in nonperforming loans from year end is primarily due to one commercial relationship which was paid off due to the sale of the collateral. Although the potential exists for loan losses beyond what is currently provided for in the allowance for loan losses and what has previously been charged off, management believes the Bank is generally well secured and continues to actively work with its customers to effect payment.
As of March 31, 2021 and December 31, 2020, the Company did not hold any real estate which was acquired through foreclosure.
The following is a summary of information pertaining to risk elements and nonperforming loans (in thousands):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Nonaccrual Loans: |
|
|
|
|
|
| ||
Construction/Land Development |
| $ | 168 |
|
| $ | 251 |
|
Farmland |
|
| 1,678 |
|
|
| 1,737 |
|
Real Estate |
|
| 801 |
|
|
| 368 |
|
Multi-Family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 2,890 |
|
|
| 3,820 |
|
Home Equity – Closed-end |
|
| 30 |
|
|
| - |
|
Home Equity – Open-end |
|
| 143 |
|
|
| 212 |
|
Commercial & Industrial – Non-Real Estate |
|
| 1 |
|
|
| 3 |
|
Consumer |
|
| - |
|
|
| - |
|
Dealer Finance |
|
| 44 |
|
|
| 44 |
|
Credit Cards |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more: |
|
|
|
|
|
|
|
|
Construction/Land Development |
| $ | - |
|
| $ | - |
|
Farmland |
|
| - |
|
|
| - |
|
Real Estate |
|
| - |
|
|
| 102 |
|
Multi-Family |
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
Home Equity – Closed-End |
|
| - |
|
|
| - |
|
Home Equity – Open-End |
|
| 25 |
|
|
| - |
|
Commercial & Industrial – Non-Real Estate |
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
Dealer Finance |
|
| - |
|
|
| - |
|
Credit Cards |
|
| 3 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total Nonperforming loans |
| $ | 5,783 |
|
| $ | 6,537 |
|
|
|
|
|
|
|
|
|
|
Restructured Loans current and performing: |
|
|
|
|
|
|
|
|
Real Estate |
| $ | 3,040 |
|
| $ | 2,989 |
|
Home Equity |
|
| 678 |
|
|
| 687 |
|
Commercial |
|
| 1,909 |
|
|
| 1,922 |
|
Consumer |
|
| 126 |
|
|
| 150 |
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans held for investment |
|
| .88 | % |
|
| .99 | % |
Net charge offs to total loans held for investment1 |
|
| .03 | % |
|
| .18 | % |
Allowance for loan and lease losses to nonperforming loans |
|
| 167.80 | % |
|
| 160.24 | % |
1 – Annualized for three-month period ended March 31, 2021
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Allowance for Loan Losses
The allowance for loan losses provides for the risk that borrowers will be unable to repay their obligations. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies and consumer confidence, and the value of the underlying collateral. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies.
Management evaluates the allowance for loan losses on a quarterly basis in light of national and local economic trends, changes in the nature and volume of the loan portfolio and trends in past due and criticized loans. Specific factors evaluated include internally generated loan review reports, past due reports, historical loan loss experience and changes in the financial strength of individual borrowers that have been included on the Bank’s watch list or schedule of classified loans.
In evaluating the portfolio, loans are segregated by segment with identified potential losses, pools of loans by type, with separate weighting for past dues and a general allowance based on a variety of criteria. Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of $500,000 and loans identified as troubled debt restructurings are reviewed individually for impairment under ASC 310. A variety of factors are considered when reviewing these credits, including borrower cash flow, payment history, fair value of collateral, company management, industry and economic factors.
Loans that are not reviewed for impairment are categorized by call report code into unimpaired and classified loans. For both unimpaired and classified loans an estimate is calculated based on actual loss experience over the last two years. The classified Dealer finance loans are given a higher risk factor for past due and adverse risk ratings based on back testing of the risk factors.
A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio. The general allowance is calculated using nine qualitative factors identified in the 2006 Interagency Policy Statement on the allowance for loan losses. The general allowance assists in managing recent changes in portfolio risk that may not be captured in individually impaired loans, or in the homogeneous pools based on loss histories. The Board approves the loan loss provision for each quarter based on this evaluation.
The allowance for loan losses of $9,704 at March 31, 2021 is equal to 1.47% of loans held for investment, or 1.56% of loans held for investment excluding PPP loans. This compares to an allowance of $10,475 (1.58%) at December 31, 2020. During the first quarter 2021, one new relationship was individually reviewed for impairment with no reserve required. Another relationship paid off due to the sale of the collateral at a foreclosure sale; two relationships previously reviewed recognized improvements in their collateral position, which resulted in decreased reserves. The Company’s two-year loss history improved as there have been less charge-offs in the most recent 24 months.
Due to COVID-19, the Company had added or increased qualitative factors for the economy and concentrations in industries specifically affected by the virus. The Company was able to decrease these factors in the first quarter due to a low number of CARES Act payment deferrals, improvements in industries most likely to be affected by the pandemic, and improvements in past dues and nonperforming loans. Past due loans have decreased $4,494 since December 31, 2020 and as stated previously, the Company experienced a decrease in nonperforming loans during 2021. As a result, the Bank recorded a negative provision for loan losses of $725 in the first three months of 2021. Management will continue to monitor nonperforming and past due loans and will make necessary adjustments to specific reserves and provision for loan losses should conditions change regarding collateral values or cash flow expectations.
Deposits and Other Borrowings
The Company’s main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company’s service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. Total deposits at March 31, 2021 have increased $44,170 since December 31, 2020. Noninterest bearing deposits increased $15,350 while interest bearing increased $28,820. The increase in deposits in the first three months is due to a focus on deposit growth as an organization and general savings of customers due to the economic uncertainty. The Bank participates in the CDARS (Certificate of Deposit Account Registry Service)
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Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Deposits and Other Borrowings, continued
and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50,000 in deposits. At March 31, 2021 and December 31, 2020 the Company had a total of $256 and $256 in CDARS funding and $34,546 and $35,943 in ICS funding, respectively.
Short-term borrowings
Short-term debt consists of federal funds purchased, daily rate credit obtained from the Federal Home Loan Bank (“FHLB”), and short-term fixed rate FHLB borrowings. Federal funds purchased are overnight borrowings obtained from the Bank’s primary correspondent bank to manage short-term liquidity needs. Borrowings from the FHLB have been used to finance loans held for sale. As of March 31, 2021, there were no short-term borrowings. There were no balances in FHLB daily rate credit at March 31, 2021 or December 31, 2020.
Long-term borrowings
Borrowings from the FHLB have been an important source of funding. The Company’s subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to support the Bank’s lending program and allow the Bank to manage interest rate risk by laddering maturities and matching funding terms to the terms of various types in the loan portfolio. FHLB long term advances totaled $20,411 and $21,268 on March 31, 2021 and December 31, 2020, respectively.
On July 29, 2020, the Company sold and issued to certain institutional accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000 in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”). The 2027 Notes will bear interest at 5.75% per annum, payable semi-annually in arrears. Beginning on July 31, 2022 through maturity, the 2027 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2027 Notes will mature on July 31, 2027. The 2030 Notes will initially bear interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The 2030 Notes will mature on July 31, 2030. The subordinated notes, net of issuance costs totaled $11,748 at March 31, 2021.
Capital
The Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and grow at a manageable level.
In March 2015, the Bank implemented the Basel III capital requirements, which introduced the Common Equity Tier I ratio in addition to the two previous capital guidelines of Tier I capital (referred to as core capital) and Tier II capital (referred to as supplementary capital). At March 31, 2021, the Bank had Common Equity Tier I capital of 14.80% of risked weighted assets, Tier I capital of 14.80% of risk weighted assets and combined Tier I and II capital of 16.05% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. At December 31, 2020, the Bank had Common Equity Tier I capital of 13.55% of risk weighted assets, Tier I capital of 13.55% of risk weighted assets and combined Tier I and II capital of 14.81% of risk weighted assets. The Bank has maintained capital levels far above the minimum requirements. In the unlikely event that such capital levels are not met, regulatory agencies are empowered to require the Bank to raise additional capital and/or reallocate present capital.
In addition, the regulatory agencies have issued guidelines requiring the maintenance of a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by average total assets. The regulators have established a minimum of 4% for this ratio but can increase the minimum requirement based upon an institution’s overall financial condition. At March 31, 2021, the Bank reported a leverage ratio of 10.13%, compared to 9.93% at December 31, 2020. The Bank’s leverage ratio was substantially above the minimum. The Bank also reported a capital conservation buffer of 8.05% at March 31, 2021 and 6.81% at December 31, 2020. The capital conservation buffer is designed to strengthen an institution’s financial resilience during economic cycles. Financial institutions are required to maintain a minimum buffer as required by the Basel III final rules in order to avoid restrictions on capital distributions and other payments.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Community Bank Leverage Ratio
On September 17, 2019, the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital.
The CBLR framework was temporarily modified under the CARES Act to provide relief to banks.
The CBLR framework was made available for banks to use beginning in their March 31, 2020, Call Report; to date, the Company has elected not to adopt the CBLR framework.
Liquidity
Liquidity is the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments and loans maturing within one year. The Company’s ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.
Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds. To further meet its liquidity needs, the Company’s subsidiary bank also maintains a line of credit with its primary correspondent financial institution and with Pacific Coast Bankers Bank. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings. Additionally, the Bank can utilize the Federal Reserve Discount Window.
Interest Rate Sensitivity
In conjunction with maintaining a satisfactory level of liquidity, management must also control the degree of interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of interest sensitive assets relative to interest sensitive liabilities over specific time intervals. The Company monitors its interest rate sensitivity periodically and makes adjustments as needed. There are no off-balance sheet items that will impair future liquidity.
As of March 31, 2021, the Company had a cumulative Gap Rate Sensitivity Ratio of 12.06% for the one year repricing period. This generally indicates that earnings would increase in an increasing interest rate environment as assets reprice more quickly than liabilities. However, in actual practice, this may not be the case as balance sheet leverage, funding needs and competitive factors within the market could dictate the need to raise deposit rates more quickly. Management constantly monitors the Company’s interest rate risk and has decided the current position is acceptable for a well-capitalized community bank.
A summary of asset and liability repricing opportunities is shown in Table II.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Effect of Newly Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements and is in the set-up stage with expectations of running parallel in 2021. All data has been archived under the current model.
Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company is in the process of transitioning away from LIBOR for its loan and other financial instruments.
| 41 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Effect of Newly Issued Accounting Standards, continued
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” These amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-14 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, ”Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. ASU 2019-12 was effective for the Company on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.
| 42 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)
Effect of Newly Issued Accounting Standards, continued
In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 was effective for the Company on January 1, 2021. The adoption of ASU 2020-01 did not have a material impact on the Company’s consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company does not expect the adoption of ASU 2020-08 to have a material impact on its consolidated financial statements.
In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. The COVID-19 discussion following the Critical Accounting Policies at the beginning of the Management’s Discussion and Analysis and note 3 provide more details on what the Company is doing to prepare for the impact.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.
Existence of Securities and Exchange Commission Web Site
The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including F & M Bank Corp. and the address is (http: //www.sec.gov).
| 43 |
| Table of Contents |
TABLE I
F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
(Dollar Amounts in Thousands)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||||||||||||||||||
| Average |
|
| Income/ |
|
| Average |
|
| Average |
|
| Income/ |
|
| Average |
| |||||||
|
| Balance2,4 |
|
| Expense |
|
| Rates |
|
| Balance2,4 |
|
| Expense |
|
| Rates |
| ||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans held for investment1,2 |
| $ | 673,744 |
|
| $ | 8,196 |
|
|
| 4.93 | % |
| $ | 610,174 |
|
| $ | 8,469 |
|
|
| 5.58 | % |
Loans held for sale |
|
| 13,221 |
|
|
| 94 |
|
|
| 2.88 | % |
|
| 33,490 |
|
|
| 270 |
|
|
| 3.24 | % |
Federal funds sold |
|
| 87,157 |
|
|
| 15 |
|
|
| 0.07 | % |
|
| 94,964 |
|
|
| 294 |
|
|
| 1.25 | % |
Interest bearing deposits |
|
| 884 |
|
|
| 0 |
|
|
| 0.11 | % |
|
| 1,278 |
|
|
| 3 |
|
|
| .94 | % |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable 3 |
|
| 126,973 |
|
|
| 427 |
|
|
| 1.37 | % |
|
| 11,637 |
|
|
| 91 |
|
|
| 3.15 | % |
Partially taxable |
|
| 125 |
|
|
| 1 |
|
|
| 1.62 | % |
|
| 125 |
|
|
| 1 |
|
|
| 3.22 | % |
Tax exempt |
|
| 6,237 |
|
|
| 42 |
|
|
| 2.73 | % |
|
| - |
|
|
| - |
|
|
| - |
|
Total earning assets |
| $ | 908,341 |
|
| $ | 8,775 |
|
|
| 3.92 | % |
| $ | 751,668 |
|
| $ | 9,128 |
|
|
| 4.88 | % |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 114,699 |
|
|
| 44 |
|
|
| 0.16 | % |
|
| 96,060 |
|
|
| 63 |
|
|
| .26 | % |
Savings |
|
| 347,332 |
|
|
| 351 |
|
|
| 0.41 | % |
|
| 254,053 |
|
|
| 794 |
|
|
| 1.26 | % |
Time deposits |
|
| 129,142 |
|
|
| 400 |
|
|
| 1.26 | % |
|
| 136,502 |
|
|
| 595 |
|
|
| 1.75 | % |
Short-term debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,143 |
|
|
| 41 |
|
|
| 2.31 | % |
Long-term debt |
|
| 32,531 |
|
|
| 273 |
|
|
| 3.40 | % |
|
| 45,570 |
|
|
| 213 |
|
|
| 1.88 | % |
Total interest bearing liabilities |
| $ | 623,704 |
|
| $ | 1,068 |
|
|
| 0.70 | % |
| $ | 539,328 |
|
| $ | 1,706 |
|
|
| 1.27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income |
|
|
|
|
| $ | 7,707 |
|
|
|
|
|
|
|
|
|
| $ | 7,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.44 | % |
|
|
|
|
|
|
|
|
|
| 3.97 | % |
___________
1 | Interest income on loans includes loan fees. |
2 | Loans held for investment include nonaccrual loans. |
3 | Income tax rate of 21% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans. |
4 | Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized. |
| 44 |
| Table of Contents |
TABLE II
F & M BANK CORP.
Interest Sensitivity Analysis
March 31, 2021
(Dollars In Thousands)
The following table presents the Company’s interest sensitivity.
|
| 0 – 3 |
|
| 4 – 12 |
|
| 1 – 5 |
|
| Over 5 |
|
| Not |
|
|
| |||||||
|
| Months |
|
| Months |
|
| Years |
|
| Years |
|
| Classified |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Uses of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| $ | 69,836 |
|
| $ | 27,547 |
|
| $ | 107,083 |
|
| $ | 70,856 |
|
| $ | - |
|
| $ | 275,322 |
|
Installment |
|
| 771 |
|
|
| 1,374 |
|
|
| 77,700 |
|
|
| 24,546 |
|
|
| - |
|
|
| 104,391 |
|
Real estate |
|
| 75,460 |
|
|
| 46,025 |
|
|
| 139,966 |
|
|
| 15,575 |
|
|
| - |
|
|
| 277,026 |
|
Loans held for sale |
|
| 15,654 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 15,654 |
|
Credit cards |
|
| 2,634 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,634 |
|
Interest bearing bank deposits |
|
| 1,580 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,580 |
|
Federal funds sold |
|
| 90,099 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 90,099 |
|
Investment securities |
|
| 125 |
|
|
| 2,059 |
|
|
| 97,596 |
|
|
| 72,048 |
|
|
| - |
|
|
| 171,828 |
|
Total |
|
| 256,159 |
|
|
| 77,005 |
|
|
| 422,345 |
|
|
| 183,025 |
|
|
| - |
|
|
| 938,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
| - |
|
|
| 23,815 |
|
|
| 71,446 |
|
|
| 23,815 |
|
|
| - |
|
|
| 119,076 |
|
Savings deposits |
|
| - |
|
|
| 144,202 |
|
|
| 194,184 |
|
|
| 24,991 |
|
|
| - |
|
|
| 363,377 |
|
Certificates of deposit |
|
| 13,285 |
|
|
| 35,207 |
|
|
| 79,542 |
|
|
| - |
|
|
| - |
|
|
| 128,034 |
|
Short-term borrowings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Long-term borrowings |
|
| 857 |
|
|
| 2,572 |
|
|
| 18,605 |
|
|
| 10,125 |
|
|
| - |
|
|
| 32,159 |
|
Total |
|
| 14,142 |
|
|
| 205,796 |
|
|
| 363,777 |
|
|
| 58,931 |
|
|
| - |
|
|
| 642,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete Gap |
|
| 242,017 |
|
|
| (128,791 | ) |
|
| 58,568 |
|
|
| 124,094 |
|
|
| - |
|
|
| 295,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap |
| $ | 242,017 |
|
| $ | 113,226 |
|
| $ | 171,794 |
|
| $ | 295,888 |
|
| $ | 295,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative Gap to Total Earning Assets |
|
| 25.79 | % |
|
| 12.06 | % |
|
| 18.30 | % |
|
| 31.53 | % |
|
| 31.53 | % |
|
|
|
|
Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of March 31, 2021. In preparing the above table, no assumptions were made with respect to loan prepayments. Loan principal payments are included in the earliest period in which the loan matures or can reprice. Investment securities included in the table consist of securities held to maturity and securities available for sale. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities of deposits, which have no stated maturity dates, were derived from regulatory guidance.
| 45 |
| Table of Contents |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates. Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes. There have not been any changes which would significantly alter the results disclosed as of December 31, 2020 in the Company’s 2020 Form 10-K, Item 7A or Part II.
Item 4. Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2021. 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 in SEC rules and forms. There were no significant changes in the Company’s internal controls over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
| 46 |
| Table of Contents |
Part II Other Information
Item 1. | Legal Proceedings |
|
|
|
|
|
|
|
|
| There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject. | |||
|
|
|
|
|
Item 1a. | Risk Factors |
| Not required |
|
|
|
|
|
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| None |
|
|
|
|
|
|
Item 3. | Defaults Upon Senior Securities |
| None |
|
|
|
|
|
|
Item 4. | Mine Safety Disclosures |
| None |
|
|
|
|
|
|
Item 5. | Other Information |
| None |
|
|
|
|
|
|
Item 6. | Exhibits |
|
|
|
| (a) | Exhibits | |
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith). | |
|
|
|
|
|
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). | |
|
|
|
|
|
| ||
|
|
|
|
|
| 101 | The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, 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 Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith). |
|
|
|
|
|
| 104 | The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, formatted in Inline XBRL (included with Exhibit 101) |
| 47 |
| Table of Contents |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 11, 2021 | F & M BANK CORP. | ||
| /s/ Mark C. Hanna | |||
|
| Mark C. Hanna | |
| President and Chief Executive Officer | |||
|
| /s/ Carrie A. Comer |
|
|
| Carrie A. Comer |
|
|
| Executive Vice President and Chief Financial Officer |
|
| 48 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 USC Section 1350 (A) and (B)
I, Mark C. Hanna, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; |
|
|
|
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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; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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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)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(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 |
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(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 |
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(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 |
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(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. |
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Dated: May 11, 2021 |
/s/ Mark C. Hanna |
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Mark C. Hanna |
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President & Chief Executive Officer |
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A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 USC Section 1350 (A) and (B)
I, Carrie A. Comer, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; |
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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; |
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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; |
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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)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(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 |
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(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 |
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(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 |
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(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. |
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Dated: May 11, 2021 |
/s/ Carrie A. Comer |
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Carrie A. Comer |
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Executive Vice President & Chief Financial Officer |
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A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
The undersigned, as the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual’s knowledge and belief, the Quarterly Report on Form 10-Q for the period ended March 31, 2021, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
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May 11, 2021 |
/s/ Mark C. Hanna |
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Mark C. Hanna |
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President and Chief Executive Officer |
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/s/ Carrie A. Comer |
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Carrie A. Comer |
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Executive Vice President and Chief Financial Officer |
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