ANNUAL
REPORT
2019
FMGOLOCAL
01 WELCOME
AN INTRODUCTION BY F&M BANK PRESIDENT & CEO MARK HANNA
Dear Stockholder,
We are pleased to share our 2019 financial performance which includes earnings for the
year of $4.613 million. While our financial performance fell short of our lofty
expectations, we accomplished several key strategic initiatives in the past year to
position F&M for future success. Those include significantly growing core deposits,
reducing our non-performing assets, and enhancing deposit product technology.
As you review our financial performance, it is important to note that our 2019
earnings were negatively impacted by $7.4 million in additional loan loss pro-
visioning related to disposing of problem credits and changes in the method-
ology. Additionally, the Bank incurred several non-recurring expenses related
to dealer deferred cost amortization, pension costs and severance benefits.
Despite a very challenging environment to grow core deposits to fund our
asset growth, total deposits increased over $50 million for the year. And, while
asset quality has negatively weighed on earnings, F&M made great progress
in addressing our problem assets and reducing our non-performing
assets 43% from $12.648 million (1.62%) at 12/31/18 to just $7.217
million (0.89%) at 12/31/19. Additionally, 2019 saw F&M Mortgage
and VS Title make significant contributions to our financial success as
both organizations achieved significant growth and notable profitability.
With our improving asset quality and the growth of core deposit
relationships, we are excited about the opportunities that lie ahead.
Going forward, we aim to grow and succeed as a dynamic,
high-performing financial institution focused on serving the needs of
the communities in the Shenandoah Valley.
Mark C. Hanna
President & CEO
GROWTH 02
EXPANSION AND DEPOSIT GROWTH
2019 was a year of deposit growth for F&M Bank. Total deposits
increased $50.4 million, fueled by the extremely competitive 1.79%
APY Money Market special. The promotion brought new deposits
into branches thus giving F&M Bank associates the opportunity to
cross-sell additional products and services.
Deposits were also an area of focus for commercial lenders.
The business development team re-committed to gaining deposit
relationships while working through the loan process with new and
existing clients.
F&M Bank extended its presence in the Augusta County market,
opening its 14th branch location in Stuarts Draft. During the month
of August, branch opening was promoted through four weeks of
giveaways all leading up to a grand opening ceremony co-hosted by
the Greater Augusta Regional Chamber of Commerce.
FINANCIALS
FINANCIAL HIGHLIGHTS OF 2019
2
9
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1
1
0
1
.
1
1
2
4
.
0
1
4
3
.
1
1
2
.
1
5
1
.
1
3
2
.
5
5
6
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4
3
5
.
4
3
3
.
4
4
3
.
4
7
5
.
2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
ROATCE
ROAA NET INTEREST MARGIN
4
5
.
3
6
4
0
.
6
6
3
0
.
9
6
8
7
.
0
6
7
7
.
2
3
6
.
2
0
6
.
2
2
3
.
1
DIVIDENDS
DECLARED
F&M
BANK CORP.
2016 2017 2018 2019 2016 2017 2018 2019
EFFICIENCY RATIO PER SHARE DATA
2018 includes reclass of subsidiary income
03 AGRICULTURAL
AND RURAL PROGRAMS
F&M Bank was founded in 1908 as a local venture to serve the financial needs of both farmers and
merchants. Going back to its roots, F&M Bank renewed its commitment to agriculture in 2019.
The first step was hiring Paul Eberly, Senior Vice President and Agricultural & Rural Programs Leader.
The Agricultural Division, consisting of Paul Eberly, Jordan Dean, Tom Campbell and Matt Hill, put
boots on the ground and have been actively involved in the community making farm visits and
attending agriculture-centered events.
To assist with agriculture referrals, Paul Eberly established an agriculture community board.
This group of knowledgeable, established industry professionals meet quarterly with the Division.
PAUL EBERLY MATT HILL JORDAN DEAN TOM CAMPBELL
$27M+
THE BANK HAD STRONG GROWTH IN
THE AGRICULTURAL SECTOR IN 2019,
WITH NEW LOANS ORIGINATED DIRECTLY
TO FARMERS OR OTHER AGRICULTURAL
ENTERPRISES TOTALING OVER $27M.
VOLUNTEERED DURING
AGRICULTURE LITERACY
WEEK READING BOOKS
ABOUT THE INDUSTRY
TO LOCAL ELEMENTARY
STUDENTS IN
ROCKINGHAM AND
SHENANDOAH COUNTIES.
DEVELOPED AGRICULTURE
SWEEP PROGRAM ALLOWING
CUSTOMERS TO SWEEP FUNDS
BETWEEN AN OPERATING
ACCOUNT, LINE OF CREDIT AND
INTEREST SAVINGS.
F&M’S GEOGRAPHIC FOOTPRINT ENCOMPASSES
4 OF THE 5 TOP PRODUCING AGRICULTURAL
MARKETS IN VIRGINIA.
05 COMMUNITY
OUR LOCAL PROMISE
One of F&M Bank’s core values is community –
to make the communities we serve better. In 2019,
our dedication to community was illustrated through
our commitment to education, philanthropy and
volunteerism.
One of the organization’s greatest wins during the
year was being selected as the regionally exclusive
Affinity Banking Partner of the James Madison
University Alumni Association. In addition to serving
as the preferred financial institution, F&M Bank is an
engaged and responsive Purple Partner, with active
participation at various events on campus. F&M Bank
associates are excited to continue involvement with
current students, alumni, and faculty and staff of JMU
through special promotions, engagement
opportunities, educational events and more.
F&M Bank continues to support the community
through donations and sponsorships. Through the
F&M Bank Community Fund managed by area
Community Foundations, F&M Bank distributed $30K
in grants to various nonprofits. The bank continues to
sponsor and attend numerous nonprofit galas, little
league teams and events, county fairs, community
festivals and more.
33 AREA SENIOR CITIZENS ADOPTED IN DECEMBER FOR THE SANTA TO A SENIOR DRIVE.
2019 NAMED CORPORATE PHILANTHROPIST BY THE ASSOCIATION OF FUNDRAISING PROFESSIONALS SHENANDOAH CHAPTER.
44 COMMUNITY EVENTS SUPPORTED BY F&M BANK’S SOLAR POWERED MOBILE ATM SERVICE.
$5,500 RAISED BY EMPLOYEES FOR AREA NONPROFITS THROUGH OUR “DRESS DOWN” FRIDAYS.
39 LOCAL STUDENTS LEARNED ABOUT COMMUNITY BANKING AS PART OF BANK DAY SCHOLARSHIP PROGRAM INITIATIVE.
2019 PLATINUM SPONSORS OF THE HARRISONBURG-ROCKINGHAM GREAT COMMUNITY GIVE.
07 COMMERCIAL
BUILDING COMMERCIAL RELATIONSHIPS
Building commercial relationships was a strategic goal for F&M Bank in 2019.
Current employees Sarah Prusak and Mary Pavlovskaya transitioned to become
the business deposit services team in an effort to increase commercial deposits.
The marketing department worked alongside the business deposit services team
to repackage and rebrand current treasury management tools and introduced the
Business Solutions suite.
To boost awareness for locally owned businesses and to market to potential
commercial customers, F&M Bank hosted its first “Local Business You Love” contest in
August. Residents in the bank’s market area were asked to nominate their favorite
local businesses on social media to win a $10,000 grand prize. The top 10
businesses with the most nominations were then invited to a reception at the
Capital Ale House in Harrisonburg to celebrate the winner announcement.
From the 3,400 public nominations, three businesses emerged in close competition.
In addition to the top prize award of $10,000, President Mark Hanna surprised
guests with a $1,500 award for second place and a $1,000 award for third runner up.
1st Place - Pufferbellies Toys & Books, 568 votes
2nd Place - Overlook Farms & Produce LLC, 492 votes
3rd Place - Massanutten Produce LLC, 477 votes
LOCAL BUSINESS
YOU LOVE CONTEST
RECEIVED COVERAGE
ON TV-3 NEWS,
TV-3 SOCIAL MEDIA,
AND NEWS RELEASE
PUBLISHED IN THE
DAILY NEWS RECORD
942
BUSINESS NOMINATIONS
RECEIVED FOR 1ST ROUND
OF LOCAL BUSINESS YOU
LOVE CONTEST.
FACEBOOK ADVERTISING FOR THE LOCAL
BUSINESS YOU LOVE CONTEST REACHED 17,379
PEOPLE, AND 3,227 PEOPLE ENGAGED WITH
THE ADVERTISEMENT.
2,475
BUSINESS VOTES RECEIVED FOR
2ND ROUND OF LOCAL BUSINESS
YOU LOVE CONTEST.
HOSTED THE LARGEST RECORDED
ORGANIZED CORPORATE TAILGATE
FOR COMMERCIAL CLIENTS IN JAMES
MADISON UNIVERSITY HISTORY.
SARAH PRUSAK MARY PAVLOVSKAYA
SOLUTIONS 10
A FOCUSED APPROACH ON INTEGRATED SOLUTIONS
F&M FINANCIAL SERVICES
The Wealth Management division
experienced great success in 2019.
Financial Advisors, Calan Jansen and
Matt Robinson, were both ranked
in the top 10% of Infinex Advisors
nationwide. F&M Financial Services
as a program is ranked 4th out of 33
banks in the same asset class.
Through partnership with Infinex
Investments, Inc., Calan and Matt
manage 2,700 investment accounts
and guide clients through
retirement planning, personal
insurance and short-term financial
goals to create a committed plan.
DEALER FINANCE DIVISION
The Dealer Finance Division of F&M
Bank continues to perform at a
superior level year after year.
In 2019, the division originated
$59.6M from 4,019 loans, an
increase of 238 Dealer Finance
Division loans from 2018.
F&M MORTGAGE
The combination of low interest rates
and a hot housing market led to a
record year for the bank’s mortgage
division. In 2019, F&M Mortgage closed
600 loans, generating $124M in loan
volume compared to 465 loans and
$91M in volume one year prior.
The division also established a
community advisory board consisting
of well-known realtors, builders and
developers serving the Shenandoah
Valley. This experienced team will be a
valuable source of industry knowledge
and referrals for F&M Mortgage in the
2020 calendar year.
VSTITLE
VSTitle experienced a year of growth in
2019. Offering real estate settlement
services and title insurance, the division
increased total revenue 16% from one
year prior. The annual revenue goal for
the year was $1.4M, but VSTitle finished
the year at $1.5M. Closed transactions
also increased 11%, from 1,049 in 2018
to 1,165 in 2019. To help manage the
significant increase in business, VSTitle
added 6 experienced staff members to
the team throughout the year.
INVESTMENT AND INSURANCE PRODUCTS AND SERVICES ARE OFFERED
THROUGH INFINEX INVESTMENTS, INC., MEMBER FINRA/SIPC. F&M
FINANCIAL SERVICES, INC. IS A NONBANK SUBSIDIARY OF F&M BANK.
INFINEX IS NOT AFFILIATED WITH EITHER ENTITY.
11K SOCIAL MEDIA FOLLOWERS.
6th BY ROAE (AMONG VIRGINIA BANKS) ON THE AMERICAN BANKER’S TOP 200 PUBLICLY TRADED COMMUNITY BANKS LIST.
#1 HELD THE TOP SPOT IN DEPOSIT SHARE IN THE HARRISONBURG-ROCKINGHAM COUNTY MARKET FOR A THIRD CONSECUTIVE YEAR.
2019 EDINBURG BRANCH RELOCATES TO STONEY CREEK BOULEVARD, ALLOWING CUSTOMERS A MORE SPACIOUS, CONTEMPORARY SETTING.
+30% NEW ORGANIC WEBSITE VISITORS FROM VIRGINIA INCREASED. REPRESENTING AN INCREASE OF OVER 13,000 NEW WEBSITE VISITORS.
2019 CORPORATE OFFICE COMPLETES ITS REMODEL FOLLOWING THE TIMBERVILLE BRANCH MOVE, CREATING ADDITIONAL OFFICE AND MEETING SPACE.
11 MILESTONES
OVER 110 YEARS OF WORKING TOGETHER
Congratulations to Jean Estep on her retirement after 66 years of
service. Jean joined F&M Bank in 1953 as a teller and worked her way
through the ranks. In 1973 she was promoted to Assistant Cashier,
Assistant Vice President in 1975, Vice President in 1978, and in 2008 she
transitioned into an operations role within the bank’s customer support
center.
Chuck Foltz, Senior Operations Officer, retired after 37 years of service.
Betty Bryant, Senior Teller, retired after 15 years of service.
Cathy Lindamood, Branch Manager, retired after 14 years of service.
Victoria Young, Branch Specialist, retired after 13 years of service.
Vickie Shifflett, Teller, retired after 6 years of service.
5
JOHN MEYER
INFORMATION SECURITY
OFFICER
5
CAROLLEE HINKLE
HEAD TELLER
5
SHAINA PRICE
NEW ACCOUNTS
SPECIALIST
5
JESSICA FLETCHER
LENDER
5
CARROLL CONLEY
COURIER
35
CYNTHIA SHERMAN
SR. LOAN OPERATIONS
OFFICER
15
JUDY GETZ
OPERATIONS SPECIALIST
25
FRANCES SHOWALTER
TELLER
15
JOYCE SHIFLET
OPERATIONS SPECIALIST
25
MIKE PUGH
DIRECTOR
15
DEAN WITHERS
DIRECTOR
10
AMANDA HENSLEY
NEW ACCOUNTS
COORDINATOR
10
ROBERT SCOTT
COURIER
40
BRENDA SWARTZ
BRANCH MANAGER
40
KATHRYN SMITH
CUSTODIAN-BROADWAY
5
MATTHEW ROBINSON
INVESTMENT REP
5
LORI FLICK
LOAN PROCESSOR
5
MATTHEW BEAHM
COMMERCIAL
RELATIONSHIP
MANAGER
10
JASON TAYLOR
FACILITIES ASSISTANT
10
ROBIN LAYMAN
BRANCH SPECIALIST
10
TONJA PAINTER
OPERATIONS SPECIALIST
5
MARY GIRA
TELLER
13 OUR VALUES
MISSION, VISION & VALUES
At F&M Bank, we create value in every
service we offer and product we sell.
We apply sound banking principles to
encourage our local economy and
strengthen our relationships.
From comprehensive personal and
commercial banking to loan options for
individuals and businesses, our team is
committed to building brighter futures
in the community we call home.
OUR MISSION
F&M Bank will be a strong, independent financial
organization committed to solid shareholder value,
exceptional customer service, active community
involvement and a fulfilling employee experience.
OUR VISION
Building our loyal customer base by developing lasting
relationships in order to be the strongest bank in our
communities.
OUR VALUES
Making the communities we serve better.
Providing flexible financial solutions.
Responding quickly to all requests and opportunities.
Bringing enthusiam and a positive attitude to our endeavors.
Adding fun into banking and our workplace!
HONEST BANKING
ALLOWS FOR CAREFUL
PLANNING
OUR VALUES DRIVE US
TO PROVIDE
UNPARALLELED
SERVICE
THE HEART OF
F&M BANK IS
OUR TEAM
CONFIDENT BANKING
STARTS WITH SUPPORT
AND TRUST
OUR BRAND IS
ROOTED IN OUR
COMMUNITY
BOARDS 16
COMMUNITY BOARDS FOR BUSINESS DEVELOPMENT
AUGUSTA COUNTY
ANGELA V. WHITESELL
Esquire, Vellines, Glick & Whitesell, P.C.
CAROLYN BRAGG
Retired
Augusta County Board of Supervisors
GREG SEE
General Manager
Ironwood Country Club
JEFF SLAVEN
Owner, Cattleman’s Supply
LARRY HOWDYSHELL
Retired
Shenandoah Valley Electric Cooperative
RICHARD “DICKIE” BELL
Retired
VA 20th District House of Delegates
RICK WILLIAMS
President, R.G. Williams Insurance Agency,
Inc. representing Rockingham Insurance
STEVE MCDONOUGH
Owner, McDonough Toyota
THOMAS WHITE
Vice President & CPA
White, Withers & Masencup
HARRISONBURG/ROCKINGHAM
ABBEY DOBES
Owner, Siren Song Marketing Group
AGRICULTURE
BETH BAZZLE
Owner, Mountain Valley Farm
ADAM SHIFFLETT
Co-owner, Brothers Craft Brewing
ANDY MYERS
General Manager, Dick Myers
Chrysler Dodge Jeep Ram
BRAYDON HOOVER
Director of Development & Annual Giving
Eastern Mennonite University
CHRISTIAN HERRICK
CEO, Randy’s Do It Best Hardware
HANNAH HUTMAN
Partner & Creditor/Debtor Rights Attorney
Hoover Penrod, PLC
LINDSAY KING
Marketing Lecturer
James Madison University
BYARD LUEBBEN
Owner, Edge, ITM
MORGAN SLAVEN
Public Affairs
Shenandoah Valley Electric Cooperative
NICK LANGRIDGE
Vice President, University Advancement
James Madison University
QUINTON CALLAHAN
Partner, Business Law & Litigation Attorney
Clark & Bradshaw, P.C.
RENEE WHITMORE
Realtor & Associate Broker
Old Dominion Realty
BUFF SHOWALTER
Vice President, Poultry Specialties Inc.
Beef & Poultry Farmer
DOUG BERRY
Accountant, Specializing in Income Tax
Preparation; Owner/Operator,
Wolf Run Farms, LLC
JARED BURNER
Vice President, Trio Farms, Inc.
Owner, Burner’s Beef LLC
JOHN BOWMAN
Realtor/Auctioneer
LARRY POWELL
Owner/Operator, L P Solutions, Beef Farmer
LEWIS HORST
Agriculture Community Board Member
RICK REEVES
Agriculture Community Board Member
WILLIAM MEYERHOEFFER
Dairy Nutritionist
MORTGAGE
BERNARD HAMANN
Owner, Realtor & CMCA
Rocktown Realty
GARY CRUMMETT
Owner, Gary Crummett & Sons, LLC
JILL MCGLAUGHLIN
President, Classic Kitchen & Bath
JM MONGER
Owner, R.S. Monger & Sons Inc.
JM SNELL
Executive Vice President, Valley Renovators, Inc.
NATALIE CAMPBELL
Real Estate Broker Associate
Old Dominion Realty
RONALD FLORES
Realtor, Funkhouser Real Estate Group
SCOTT WILLIAMS
Managing Partner
Crescent Development Group
17 OUR PEOPLE
OFFICERS AND DIRECTORS
DIRECTORS
MICHAEL PUGH
Board Chair, President, Old Dominion
Realty, Inc; VP, Colonial Appraisal
Service, Inc
DEAN WITHERS
Vice Board Chair
LARRY CAPLINGER
Retired EVP, F&M Bank
RAY BURKHOLDER
Owner, Balzer & Associates, Inc.
JOHN CRIST
Partner, Hoover Penrod, PLC-Attorneys
DANIEL HARSHMAN
Manager, Town of Edinburg
RICHARD MYERS
President, Dick Myers Chrysler
Dodge Jeep Ram
OFFICERS
MARK HANNA
President & CEO
CARRIE COMER
EVP/Chief Financial Officer
STEPHANIE SHILLINGBURG
EVP/Chief Banking Officer
EDWARD STRUNK
EVP/Chief Credit Officer
BARTON BLACK
EVP/Chief Strategy & Risk Officer
JEFFREY LAM
SVP/Retail Loan Administrator
CYNTHIA SHERMAN
SVP/Loan Operations Manager
KEVIN RUSSELL
SVP/President F&M Mortgage
CHRISTOPHER RUNION
President, Eddie Edwards Signs, Inc.
GREG BERKSHIRE
SVP/Dealer Finance Manager
VICE PRESIDENTS
DEBORAH ANDES
SARA BERRY
JACQUELINE BURNER
KAY DEAN
SARA BERRY
KEITH DEEDS
CAROLYN DOVE
PAUL EBERLY
CHRIS GUNTER
TERESA HELMICK
JOHN MEYER
KITTY PURCELL
SEAN RYMAN
GREGORY SPITLER
NATALIE STRICKLER-ALT
HOLLY THORNE
ASST. VICE PRESIDENTS
BARBARA BARTLEY
MATTHEW BEAHM
LEIGH BLEVINS
DONNA BROWN
THOMAS CAMPBELL
JOSEPH ERICKSON
KATHY GRUBBS
RENEE HARTLESS
CALAN JANSEN
ANTHONY KEYSER
GLENNA LAWHORN
RYAN MAY
CHARLES NESLER
SARAH PRUSAK
MATTHEW ROBINSON
BRENDA SWARTZ
RONALD WAMPLER
Partner, Dove Ohio Farms, LLC and
WWTD Ohio Farms, LLC
PETER WRAY
Principal Broker, Triangle Realtors
ANNE KEELER
Vice President for Finance and Treasurer
Bridgewater College
J.T. BISHOP
SVP/Market Leader
MELODY EMSWILER
SVP/Director of HR
AARON GREEN
SVP/Market Leader
KATE PASCARELLA
SVP/Senior Credit Officer
KAREN ROSE
SVP/Deposit Operations
KRISTA SUTER
SVP/Senior Risk Officer
DALE SHOOP
President, VSTitle
BANK OFFICERS
MARY CAMPBELL
JOHN COFFMAN
JORDAN DEAN
KELSEY DEAN
SHARRIE HARRISON
DEBRA KOOGLER
ASHLEY LAM
JESSICA LUCE
ASHLEY MCCLURE
YVETTE MCCOY
DONNA O’BYRNE
ANGELA SMITH
LOCATIONS
F&M BANK BRANCHES AND OFFICES
BRANCHES
Bridgewater
100 Plaza Drive
540-828-6300
Broadway
126 Timber Way
540-896-7071
Craigsville
125 West Craig Street
540-997-4162
Edinburg
300 Stoney Creek Boulevard
540-984-4128
Elkton
127 West Rockingham Street
540-298-1251
Grottoes
200 Augusta Avenue
540-249-7237
Harrisonburg
80 Cross Keys Road
540-433-7575
2030 Legacy Lane
540-433-0112
Luray
700 East Main Street
540-743-1130
Staunton
2813 N. Augusta Street
540-213-8686
30 Gosnell Crossing
540-946-8160
Stuarts Draft
2782 Stuarts Draft Highway
540-609-2363
Timberville
165 New Market Road
540-896-1716
Woodstock
161 South Main Street
540-459-3707
OFFICES
INVESTOR INFORMATION
Headquarters
205 South Main Street
Timberville, VA
540-896-8941
NMLS# 414464
F&M Mortgage
2040 Deyerle Avenue, Suite 207
Harrisonburg, VA
540-442-8583
19 Myers Corner Drive, Suite 105
Staunton, VA
540-446-8540
161 South Main Street
Woodstock, VA
540-459-3707
NMLS# 275173
Dealer Finance Division
4759 Spotswood Trail
Penn Laird, VA
540-437-3480
VS Title Agency
410 Neff Avenue
Harrisonburg, VA
540-434-8571
1707 Jefferson Highway
Fishersville, VA
540-213-0419
154 Hansen Road
Charlottesville, VA
434-202-4336
Transfer Agent for F&M Bank Corp. Stock (FMBM)
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
P: 844-318-0135
F: 215-553-5402
E: shareholder@broadridge.com
W: http://shareholder.broadridge.com/FMBM
NMLS# 414464 / NMLS# 275173
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2019
Commission file number: 0-13273
F & M BANK CORP.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
54-1280811
(I.R.S. Employer Identification No.)
P. O. Box 1111, Timberville, Virginia 22853
(Address of principal executive offices) (Zip Code)
(540) 896-8941
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $5 Par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Sarbanes Act. Yes [ ] No [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The registrant’s Common Stock is quoted on the OTC Market’s OTCQX tier under the symbol FMBM. The aggregate market value
of the 2,823,448 shares of Common Stock of the registrant issued and outstanding held by non-affiliates on June 30, 2019 was
approximately $79,621,228 based on the closing sales price of $28.20 per share on that date. For purposes of this calculation, the term
“affiliate” refers to all directors and executive officers of the registrant.
As of the close of business on March 11, 2020, there were 3,192,462 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2020 (the “Proxy
Statement”).
Table of Contents
PART I
Page
Item 1
Business .............................................................................................................................................................. 2
Item 1A Risk Factors ........................................................................................................................................................ 9
Item 1B Unresolved Staff Comments…………………………………………………..……………………………16
Item 2
Properties………………………………………………………………………………………….………..16
Item 3
Legal Proceedings ............................................................................................................................................. 16
Item 4 Mine Safety Disclosures ................................................................................................................................... 17
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities……………….……………………………………………………………………...……17
Item 6
Selected Financial Data .................................................................................................................................... 19
Item 7 Management’s Discussion and Analysis of Financial Condition
and Results of Operations ............................................................................................................................. 20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .......................................................................... 42
Item 8
Financial Statements and Supplementary Data…………….. ......................................................................... 43
Item 9
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ..................................................................................................... 98
Item 9A Controls and Procedures ................................................................................................................................... 98
Item 9B Other Information ............................................................................................................................................. 99
PART III
Item 10 Directors, Executive Officers and Corporate Governance .............................................................................. 99
Item 11
Executive Compensation .................................................................................................................................. 99
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...... 99
Item 13 Certain Relationships and Related Transactions, and Director Independence ............................................... 99
Item 14
Principal Accounting Fees and Services .......................................................................................................... 99
PART IV
Item 15
Exhibits, Financial Statement Schedules ....................................................................................................... 100
Item 16
Form 10-K Summary……………………………………………………………………………………...101
Signatures .......................................................................................................................................................................... 102
PART I
Item 1. Business
General
F & M Bank Corp. (the “Company” or “we”), incorporated in Virginia in 1983, is a one bank holding company under
the Bank Holding Company Act of 1956 that has elected to become a financial holding company. The Company owns
100% of the outstanding stock of its banking subsidiary, Farmers & Merchants Bank (“Bank”) and a majority interest in
VSTitle, LLC (“VST”). TEB Life Insurance Company (“TEB”) and Farmers & Merchants Financial Services, Inc.
(“FMFS”) are wholly owned subsidiaries of the Bank. The Bank also holds a majority ownership in VBS Mortgage, LLC
( “F&M Mortgage”).
The Bank was chartered on April 15, 1908, as a state chartered bank under the laws of the Commonwealth of Virginia.
TEB was incorporated on January 27, 1988, as a captive life insurance company under the laws of the State of Arizona.
FMFS is a Virginia chartered corporation and was incorporated on February 25, 1993. F&M Mortgage was incorporated
on May 11, 1999. The Bank purchased a majority interest in F&M Mortgage on November 3, 2008 and the Company
purchased a majority interest in VST on January 1, 2017. F&M Mortgage owns the remaining minority interest in VST.
As a commercial bank, the Bank offers a wide range of banking services including commercial and individual demand
and time deposit accounts, commercial and individual loans, internet and mobile banking, drive-in banking services,
ATMs at all branch locations and several off-site locations, as well as a courier service for its commercial banking
customers. TEB was organized to re-insure credit life and accident and health insurance currently being sold by the Bank
in connection with its lending activities. FMFS was organized to write title insurance but now provides brokerage
services, commercial and personal lines of insurance to customers of the Bank. F&M Mortgage originates conventional
and government sponsored mortgages through their offices in Harrisonburg, Woodstock and Fishersville. VST provides
title insurance and real estate settlement services through their offices in Harrisonburg, Fishersville and Charlottesville,
Virginia.
The Bank makes various types of commercial and consumer loans and has a large portfolio of residential mortgages and
indirect auto lending. The local economy is relatively diverse with strong employment in the agricultural, manufacturing,
service and governmental sectors.
The Company’s and the Bank’s principal executive office is located at 205 South Main Street, Timberville, Virginia
22853, and its phone number is (540) 896-8941.
Filings with the SEC
The Company files annual, quarterly and other reports under the Securities Exchange Act of 1934 with the Securities
and Exchange Commission (“SEC”). These reports are posted and are available at no cost on the Company’s website,
www.FMBankVA.com, as soon as reasonably practicable after the Company files such documents with the SEC. The
Company’s filings are also available through the SEC’s website at www.sec.gov.
Employees
On December 31, 2019, the Bank had 173 full-time and part-time employees, including executive officers, loan and
other banking officers, branch personnel, operations personnel and other support personnel. None of the Company’s
employees is represented by a union or covered under a collective bargaining agreement. Management of the Company
considers their employee relations to be excellent. No one employee devotes full-time services to F & M Bank Corp.
Competition
The Bank's offices face strong competition from numerous other financial institutions. These other institutions include
large national and regional banks, other community banks, nationally chartered savings banks, credit unions, consumer
finance companies, mortgage companies, loan production offices, marketplace lenders and other financial technology
firms, mutual funds and life insurance companies. Competition for loans and deposits is affected by a variety of factors
including interest rates, types of products offered, the number and location of branch offices, marketing strategies and
the reputation of the Bank within the communities served.
2
PART I, continued
Item 1. Business, continued
Regulation and Supervision
General. The operations of the Company and the Bank are subject to federal and state statutes, which apply to bank
holding companies, financial holding companies and state member banks of the Federal Reserve System. The common
stock of the Company is registered pursuant to and subject to the periodic reporting requirements of the Securities
Exchange Act of 1934 (the “Exchange Act”). These include, but are not limited to, the filing of annual, quarterly, and
other current reports with the SEC. As an Exchange Act reporting company, the Company is directly affected by the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). The Company believes it is in compliance with SEC and other rules
and regulations implemented pursuant to Sarbanes-Oxley and intends to comply with any applicable rules and
regulations implemented in the future.
The Company, as a bank holding company and a financial holding company, is subject to the provisions of the Bank
Holding Company Act of 1956, as amended (the "Act") and is supervised by the Board of Governors of the Federal
Reserve System (the “Federal Reserve Board”). The Act requires the Company to secure the prior approval of the Federal
Reserve Board before the Company acquires ownership or control of more than 5% of the voting shares or substantially
all of the assets of any institution, including another bank.
As a financial holding company, the Company is required to file with the Federal Reserve Board an annual report and
such additional information as it may require pursuant to the Act. The Federal Reserve Board may also conduct
examinations of F & M Bank Corp. and any or all of its subsidiaries. Under the Act and the regulations of the Federal
Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with an extension of credit, provision of credit, sale or lease of property or furnishing of services.
The permitted activities of a bank holding company are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve
Board determines by regulation or order to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding
companies, such as the Company, may engage in any activity, or acquire and retain the shares of a company
engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by
the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial
activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial
system generally (as solely determined by the Federal Reserve Board). Activities that are financial in nature include
but are not limited to securities underwriting and dealing, insurance underwriting, and making merchant banking
investments. Since 1994, the Company has entered into agreements with the Virginia Community Development
Corporation to purchase equity positions in several Low-Income Housing Funds; these funds provide housing for low-
income individuals throughout Virginia. Approval of the Federal Reserve Board is necessary to engage in certain of
the activities described above or to acquire interests engaging in these activities.
The Bank as a state member bank is supervised and regularly examined by the Virginia Bureau of Financial Institutions
and the Federal Reserve Board; such supervision and examination by the Virginia Bureau of Financial Institutions and
the Federal Reserve Board is intended primarily for the protection of depositors and not the stockholders of the
Company.
Payment of Dividends. The Company is a legal entity, separate and distinct from its subsidiaries. A significant portion
of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations
applicable to the payment of dividends by the Bank to the Company. Under the current regulatory guidelines, prior
approval from the Federal Reserve Board is required if cash dividends declared in any given year exceed net income
for that year, plus retained net profits of the two preceding years. A bank also may not declare a dividend out of or in
excess of its net undivided profits without regulatory approval. The payment of dividends by the Bank or the Company
may also be limited by other factors, such as requirements to maintain capital above regulatory guidelines.
Bank regulatory agencies have the authority to prohibit the Bank or the Company from engaging in an unsafe or
unsound practice in conducting their businesses. The payment of dividends, depending on the financial condition of
the Bank, or the Company, could be deemed to constitute such an unsafe or unsound practice. Based on the Bank’s
current financial condition, the Company does not expect that any of these laws will have any impact on its ability to
obtain dividends from the Bank.
3
PART I, continued
Item 1. Business, continued
Regulation and Supervision, continued
The Company also is subject to regulatory restrictions on payment of dividends to its shareholders. Regulators have
indicated that bank holding companies should generally pay dividends only if the organization’s net income available
to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of
earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial
condition. Further, a bank holding company should inform and consult with the Federal Reserve Board prior to
declaring a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that
could result in a material adverse change to the organization’s capital structure.
Capital Requirements. Effective January 1, 2015, the Federal Reserve, the Federal Deposit Insurance Company
(“FDIC”) and the Office of the Comptroller of the Currency (“OCC”) adopted a new rule that substantially amended
the regulatory risk-based capital rules applicable to us. The final rule implemented the "Basel III" regulatory capital
reforms and changes required by the Dodd-Frank Act (see definition below). The final rule includes new minimum
risk-based capital and leverage ratios and refines the definition of what constitutes "capital" for purposes of calculating
these ratios. The minimum capital requirements currently applicable to the Bank are: (i) a new common equity Tier 1
("CET1") capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%;
and (iv) a Tier 1 leverage ratio of 4%. The final rule established a "capital conservation buffer" of 2.5% above the new
regulatory minimum capital ratios, and when fully effective on January 1, 2019, results in the following minimum
ratios: (a) a common equity Tier 1 capital ratio of 7.0%; (b) a Tier 1 to risk-based assets capital ratio of 8.5%; and
(c) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share
repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will
establish a maximum percentage of eligible retained income that can be utilized for such activities.
The CETI and Tier 1 leverage ratio of the Bank as of December 31, 2019, were 13.30% and 10.89%, respectively,
which are significantly above the minimum requirements. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible assets.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III
post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these
standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights
and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused
credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the proposed
framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing-in
through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor
apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV on the Company
and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.
As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth
Act”), the federal banking regulators in 2019 jointly issued a final rule that permits qualifying banks that have less
than $10 billion in total consolidated assets to elect to be subject to a 9% “community bank leverage ratio.” A
qualifying bank that has chosen the proposed framework would not be required to calculate the existing risk-based
and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well
capitalized” under prompt corrective action rules, provided it has a community bank leverage ratio greater than 9%.
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy
Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the
Company, are not subject to consolidated regulatory capital requirements
4
PART I, continued
Item 1. Business, continued
Regulation and Supervision, continued
Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of
financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory
requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including
at times when the Company may not be in a financial position to provide such resources. Any capital loans by a
bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain
other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to priority of payment.
Safety and Soundness. There are a number of obligations and restrictions imposed on bank holding companies and
their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of
such depository institutions and the FDIC insurance fund in the event of a depository institution default. For example,
under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of an insured
depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary
bank that may become "undercapitalized" with the terms of any capital restoration plan filed by such subsidiary with
its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized or (ii) the amount that is necessary (or would have been
necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the Federal Deposit Insurance Act, the federal bank
regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish
general standards relating to internal controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified
in the guidelines.
The Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (the “GLB Act”) allows a bank holding company or
other company to certify status as a financial holding company, which will allow such company to engage in activities
that are financial in nature, that are incidental to such activities, or are complementary to such activities. The GLB Act
enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker; dealing in or making markets in securities; and engaging in merchant banking
under certain restrictions. It also authorizes the Federal Reserve to determine by regulation what other activities are
financial in nature, or incidental or complementary thereto.
USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks
in New York, Pennsylvania and Northern Virginia which occurred on September 11, 2001. The Patriot Act is intended
to strengthen U.S. law enforcements’ and the intelligence communities’ abilities to work cohesively to combat
terrorism on a variety of fronts. The continuing and potential impact of the Patriot Act and related regulations and
policies on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-
money laundering and financial transparency laws, and imposes various regulations, including standards for verifying
client identification at account opening, and rules to promote cooperation among financial institutions, regulators and
law enforcement entities in identifying parties that may be involved in terrorism or money laundering.
Community Reinvestment Act. The requirements of the Community Reinvestment Act are also applicable to the Bank.
The act imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of
those institutions. A financial institution’s efforts in meeting community needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility.
5
PART I, continued
Item 1. Business, continued
Regulation and Supervision, continued
Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was signed into law on July 21,
2010. Its wide-ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the
American financial services industry. Among the provisions of the Dodd-Frank Act that directly impact the Company
is the creation of an independent Consumer Financial Protection Bureau (“CFPB”), which has the ability to implement,
examine and enforce complaints with federal consumer protection laws, which govern all financial institutions. For
smaller financial institutions, such as the Company and the Bank, their primary regulators will continue to conduct its
examination activities.
The Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of
additional disclosures for consumer mortgages. In addition, the Federal Reserve has issued new rules that have the
effect of limiting the fees charged to merchants for debit card transactions. The result of these rules will be to limit
the amount of interchange fee income available explicitly to larger banks and indirectly to us. The Dodd-Frank Act
also contains provisions that affect corporate governance and executive compensation.
In May 2018, the Economic Growth Act was enacted to modify or remove certain regulatory financial reform rules
and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act
maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the
regulatory framework for small depository institutions with assets of less than $10 billion, such as the Bank, and for
large banks with assets of more than $50 billion.
Among other matters, the Economic Growth Act expands the definition of qualified mortgages which may be held
by a financial institution with total consolidated assets of less than $10 billion, exempts community banks from the
Volcker Rule, and includes additional regulatory relief regarding regulatory examination cycles, call reports,
mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Consumer Financial Protection. The Bank is subject to a number of federal and state consumer protection laws that
extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the
Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate
Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws
governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure
laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial institutions must deal with customers
when taking deposits, making loans, collecting loans and providing other services. If the Bank fails to comply with
these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection
requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition
transactions the Company may wish to pursue or being prohibited from engaging in such transactions even if
approval is not required.
Cybersecurity. The federal banking agencies have adopted guidelines for establishing information security standards
and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of
directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and
processes related to information technology and the use of third parties in the provision of financial products and
services. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their
risk management processes also address the risk posed by compromised customer credentials, and also expect
financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery,
resumption and maintenance of the institution’s operations after a cyber-attack. If the Bank fails to meet the
expectations set forth in this regulatory guidance, it could be subject to various regulatory actions and any
remediation efforts may require significant resources of the Bank. In addition, all federal and state bank regulatory
agencies continue to increase focus on cybersecurity programs and risks as part of regular supervisory exams.
6
PART I, continued
Item 1. Business, continued
Regulation and Supervision, continued
Future Legislation and Regulation. Congress may enact legislation from time to time that affects the regulation of
the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation
of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also
periodically propose and adopt changes to their regulations or change the manner in which existing regulations are
applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be
predicted, although enactment of the proposed legislation could impact the regulatory structure under which the
Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business
processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to
pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies
applicable to the Company or the Bank could have a material adverse effect on the business, financial condition and
results of operations of the Company and the Bank.
Forward-Looking Statements
Certain information contained in this report may include “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking
statements are generally identified by phrases such as “we expect,” “we believe” or words of similar import. Such
forward-looking statements are subject to known and unknown risks including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
Changes in the quality or composition of our loan or investment portfolios, including adverse developments
in borrower industries, declines in real estate values in our markets, or in the repayment ability of individual
borrowers or issuers;
The strength of the economy in our target market area, as well as general economic, market, or business
conditions;
An insufficient allowance for loan losses as a result of inaccurate assumptions;
Our ability to maintain our “well-capitalized” regulatory status;
Changes in the interest rates affecting our deposits and our loans;
Changes in our competitive position, competitive actions by other financial institutions, financial technology
forms and others and the competitive nature of the financial services industry and our ability to compete
effectively in our banking markets;
Our ability to manage growth;
Our potential growth, including our entrance or expansion into new markets, the opportunities that may be
presented to and pursued by us and the need for sufficient capital to support that growth;
Our exposure to operational risk;
Our ability to raise capital as needed by our business;
Changes in laws, regulations and the policies of federal or state regulators and agencies;
Other circumstances, many of which are beyond our control; and
Other factors identified in “Risk Factors” below and in other reports the Company files with the SEC from
time to time.
Although we believe that our expectations with respect to the forward-looking statements are based upon reliable
assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that our
actual results, performance or achievements will not differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Operating Revenue
The following table displays components that contributed 15% or more of the Company’s total operating revenue for
the years ended December 31, 2019 and 2018:
Period
Class of Service
Percentage of Total Revenues
December 31, 2019
Interest and fees on loans held for investment
December 31, 2018
Interest and fees on loans held for investment
73.75%
78.26%
7
PART I, continued
Item 1. Business, continued
Executive Officers of the Company
Mark C. Hanna, 51, has served as President/CEO of the Bank since July 1, 2018. Prior to that he served as President
since December 2017. Prior to joining the Company, he served as Executive Vice President and Tidewater Regional
President of EVB and its successor, Sonabank from November 2014 through October 2017. Previously, he served
as President and Chief Executive Officer of Virginia Company Bank from November 2006 through November 2014.
Carrie A. Comer, 50, has served as Executive Vice President and Chief Financial Officer of the Bank and the Company
since March 1, 2018. Prior to that she served as Senior Vice President/Chief Financial Officer of the Company and
Bank since June 2013. Ms. Comer served as Vice President/Controller of the Bank from March 2009 to June 2013.
From December 2005 to March 2009, Ms. Comer served as Assistant Vice President/Controller of F&M Bank.
Stephanie E. Shillingburg, 58, has served as Executive Vice President/Chief Banking Officer of the Bank and the
Company since July 2016, Executive Vice President/Chief Retail Officer from June 2013 until July 2016 and Senior
Vice President/Branch Administrator from February 2005 until June 2013. She also served as Vice President/Branch
Administrator from March 2003 until February 2005 and as Branch Manager of the Edinburg Branch from February
2001 until March 2003.
Edward Strunk, 63, has served as Executive Vice President and Chief Credit Officer of the Bank and the Company
since March 1, 2018. Prior to that he served as Senior Vice President/Senior Lending Officer since July 2006, Senior
Vice President/Commercial Loan Administrator from May 2011 until July 2016, Vice President/Commercial Loan
Administrator from February 2011 until May 2011 and Vice Present/Business Development Officer III from May
2007 until February 2011.
Barton E. Black, 49, has served as Executive Vice President and Chief Strategy & Risk Officer of the Bank and the
Company since March 1, 2019. Prior to joining the company, he served as Managing Director at Strategic Risk
Associates, a financial services consulting company based in Virginia, from August 2012 through February 2019.
Item 1A. Risk Factors
Not required.
8
PART I, continued
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The locations of F & M Bank Corp. and its subsidiaries are shown below.
Corporate Offices 205 South Main Street Timberville, VA 22853
Timberville Branch 165 New Market Road Timberville, VA 22853
Elkton Branch 127 West Rockingham Street Elkton, VA 22827
Broadway Branch 126 Timberway Broadway, VA 22815
Bridgewater Branch 100 Plaza Drive Bridgewater, VA 22812
Edinburg Branch 300 Stoney Creek Blvd. Edinburg, VA 22824
Woodstock Branch 161 South Main Street Woodstock, VA 22664
Crossroads Branch 80 Cross Keys Road Harrisonburg, VA 22801
Coffman’s Corner Branch 2030 Legacy Lane Harrisonburg, VA 22801
Luray Branch 700 East Main Street Luray, VA 22835
Myers Corner Branch 30 Gosnell Crossing Staunton, VA 24401
North Augusta Branch 2813 North Augusta Street Staunton, VA 22401
Craigsville Branch 125 W. Craig Street Craigsville, VA 24430
Grottoes Branch 200 Augusta Avenue Grottoes, VA 24441
Stuarts Draft 2782 Stuarts Draft Highway Stuarts Draft, VA 24477
Dealer Finance Division 4759 Spotswood Trail Penn Laird, VA 22846
F&M Mortgage offices are located at:
Harrisonburg Office 2040 Deyerle Avenue, Suite 107 Harrisonburg, VA 22801
Fishersville Office 19 Myers Corner Drive, Suite 105 Staunton, VA 24401
Woodstock Office 161 South Main Street Woodstock, VA 22664
VSTitle offices are located at:
Harrisonburg Office 410 Neff Avenue Harrisonburg, VA 22801
Fishersville Office 1707 Jefferson Highway Fishersville, VA 22939
Charlottesville Office 154 Hansen Rd., Suite 202-C Charlottesville, VA 22911
With the exception of the Luray Branch, Dealer Finance Division, and the North Augusta Branch, the remaining facilities
are owned by Farmers & Merchants Bank. ATMs are available at all branch locations. The Woodstock office of F&M
Mortgage is leased from F&M Bank. All offices of VST are leased.
Through an agreement with FCTI, Inc., the Bank also operates cash only ATMs at three Food Lion grocery stores, one
in Mt. Jackson, Virginia and two in Harrisonburg, Virginia.
Item 3. Legal Proceedings
In the normal course of business, the Company may become involved in litigation arising from banking, financial, or
other activities of the Company. Management after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of these matters will have a material effect on the Company’s financial condition,
operating results or liquidity.
9
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Stock Listing
The Company’s Common Stock is quoted under the symbol “FMBM” on the OTCQX Market. The bid and ask price is
quoted at www.OTCMARKETS.com/Stock/FMBM/quote. Any over-the-counter market quotations reflect iner-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. With
its inclusion on the OTCQX Markets, there are now several active market makers for FMBM stock.
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions
PO Box 1342
Brentwood, NY 11717
Stock Performance
The following graph compares the cumulative total return to the shareholders of the Company for the last five fiscal years
with the total return of the Russell 2000 Index and the SNL Bank Index, as reported by SNL Financial, LC, assuming an
investment of $100 in the Company’s common stock on December 31, 2014, and the reinvestment of dividends.
Total Return Performance
F & M Bank Corp.
Russell 2000 Index
SNL Bank Index
200
150
100
e
u
l
a
V
x
e
d
n
I
50
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
Period Ending
Index
F & M Bank Corp.
Russell 2000 Index
SNL Bank Index
12/31/14
100.00
100.00
100.00
12/31/15
120.47
95.59
101.71
12/31/16
142.79
115.95
128.51
12/31/17
187.16
132.94
151.75
12/31/18
175.50
118.30
126.12
12/31/19
175.67
148.49
170.79
10
PART II, continued
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,
continued
Dividends
Dividends to common shareholders totaled $3,272 and $3,890 in 2019 and 2018, respectively. In addition to regular dividends totaling
$1.00 per share, a special dividend of $0.20 per share was paid in 2018 to mark the Bank’s 110th anniversary. Preferred stock dividends
were $315 and $413 in 2019 and 2018, respectively. Regular quarterly dividends have been declared for at least 26 years. The payment of
dividends depends on the earnings of the Company and its subsidiaries, the financial condition of the Company and other factors including
capital adequacy, regulatory requirements, general economic conditions and shareholder returns. The ratio of dividends per common share
to net income per common share was 77.27% in 2019 compared to 46.15% (including special dividend) in 2018.
Refer to Payment of Dividends in Item 1. Business, Regulation and Supervision section above for a summary of applicable restrictions on
the Company’s ability to pay dividends.
Stock Repurchases and Holders
On October 20, 2016, the Company’s Board of Directors approved a plan to repurchase up to 150,000 shares of common stock. Shares
repurchased through the end of 2019 totaled 131,528 shares; of this amount, 60,104 were repurchased in 2019 at an average price of
$29.90 per share. During the fourth quarter of 2019, 14,200 shares were repurchased on 11/8/19.
The number of common shareholders was approximately 2,142 as of March 6, 2020. This amount includes all shareholders, whether titled
individually or held by a brokerage firm or custodian in street name.
11
PART II, continued
Item 6. Selected Financial Data
Five Year Summary of Selected Financial Data
(Dollars and shares in thousands, except per share data)
Income Statement Data:
Interest and Dividend Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income6
Low income housing partnership losses
Noninterest Expenses6
Income before income taxes
Income Tax Expense (Benefit)
Net income attributable to noncontrolling interest
Net Income attributable to F & M Bank Corp.
Per Common Share Data:
Net Income – basic
Net Income - diluted
Dividends Declared
Book Value per Common Share
Balance Sheet Data:
Assets
Loans Held for Investment
Loans Held for Sale
Securities
Deposits
Short-Term Debt
Long-Term Debt
Stockholders’ Equity
Average Common Shares Outstanding – basic
Average Common Shares Outstanding – diluted
Financial Ratios:
Return on Average Assets1
Return on Average Equity1
Net Interest Margin
Efficiency Ratio 2
Dividend Payout Ratio - Common
Capital and Credit Quality Ratios:
Average Equity to Average Assets1
Allowance for Loan Losses to Loans3
Nonperforming Loans to Total Assets4
Nonperforming Assets to Total Assets5
Net Charge-offs to Total Loans3
1 Ratios are primarily based on daily average balances.
2
2019
20187
20177
20166
20156
$ 38,210 $ 36,377
4,832
6,818
31,545
31,392
2,930
7,405
28,615
23,987
8,770
10,759
(767)
(839)
26,744
29,518
9,874
4,389
1,041
(250)
(130)
(10)
$ 4,509 $ 8,823
$ 33,719
3,897
29,822
-
29,822
8,517
(625)
24,719
12,995
4,202
(31)
$ 8,762
$ 32,150
3,599
28,551
-
28,551
6,313
(731)
21,272
12,861
3,099
(194)
$ 9,568
29,404
2,876
26,528
300
26,228
5,412
(619)
19,554
11,467
2,886
(164)
$ 8,417
$ 1.32 $ 2.60
2.45
1.30
1.20
1.02
26.68
27.11
$ 2.68
2.41
.94
25.65
$ 2.77
2.57
.80
24.18
$ 2.40
2.25
.73
22.38
$ 813,999 $ 779,743
638,799
55,910
21,844
591,325
40,116
40,218
91,401
3,238
3,596
603,425
66,798
18,015
641,709
10,000
53,201
91,575
3,189
3,460
$ 752,894
616,974
39,775
41,243
569,177
25,296
49,733
91,027
3,270
3,632
$ 744,889
591,636
62,735
39,475
537,085
40,000
64,237
86,682
3,282
3,717
$ 665,357
544,053
57,806
25,329
494,670
24,954
48,161
82,950
3,291
3,735
0.57%
4.93%
4.33%
69.03%
77.27%
1.15%
9.67%
4.65%
66.04%
46.15%
1.17%
9.89%
4.48%
64.27%
35.07%
1.34%
11.18%
4.34%
60.78%
28.88%
1.31%
10.46%
4.43%
60.97%
30.42%
11.48%
1.39%
0.70%
0.89%
0.71%
11.90%
0.82%
1.31%
1.62%
0.58%
12.10%
0.98%
0.94%
1.21%
0.24%
11.97%
1.27%
0.65%
0.94%
0.21%
12.49%
1.61%
0.98%
1.34%
0.04%
The Efficiency Ratio equals noninterest expenses divided by the sum of tax equivalent net interest income and noninterest income.
Noninterest income excludes gains (losses) on securities transactions and LIH Partnership losses. Noninterest expense excludes
amortization of intangibles.
3 Calculated based on Loans Held for Investment, excludes Loans Held for Sale.
4 Calculated based on 90 day past due and non-accrual to Total Assets.
5 Calculated based on 90 day past due, non-accrual and OREO to Total Assets.
6 Data for 2015 and 2016 does not reflect the reclassification of F&M Mortgage to report gross income/expense rather than net
7
The 2018 and 2017 financial information has been adjusted to reflect the correction of a prior periods error (see Note 3 to the
Consolidated Financial Statements).
12
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands)
The following discussion provides information about the major components of the results of operations and financial
condition, liquidity and capital resources of F & M Bank Corp. and its subsidiaries. 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 8, Financial Statements and Supplementary Information, of this Form 10-K.
Lending Activities
Credit Policies
The principal risk associated with each of the categories of loans in our portfolio is the creditworthiness of our
borrowers. Within each category, such risk is increased or decreased, depending on prevailing economic conditions.
In an effort to manage the risk, our loan policy gives loan amount approval limits to individual loan officers based on
their position and level of experience and to our loan committees based on the size of the lending relationship. The
risk associated with real estate and construction loans, commercial loans and consumer loans varies, based on market
employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the
ability of borrowers to repay indebtedness. The risk associated with real estate construction loans varies, based on the
supply and demand for the type of real estate under construction.
We have written policies and procedures to help manage credit risk. We have a loan review policy that includes regular
portfolio reviews to establish loss exposure and to ascertain compliance with our loan policy.
We use a management loan committee and a directors’ loan committee to approve loans. The management loan
committee is comprised of members of senior management, and the directors’ loan committee is comprised of any six
directors. Both committees approve new, renewed and or modified loans that exceed officer loan authorities. The
directors’ loan committee also reviews any changes to our lending policies, which are then approved by our board of
directors.
Construction and Development Lending
We make construction loans, primarily residential, and land acquisition and development loans. The construction loans
are secured by residential houses under construction and the underlying land for which the loan was obtained. The
average life of a construction loan is approximately 12 months, and it is typically re-priced as the prime rate of interest
changes. Construction lending entails significant additional risks, compared with residential mortgage lending.
Construction loans often involve larger loan balances concentrated with single borrowers or groups of related
borrowers. Another risk involved in construction lending is attributable to the fact that loan funds are advanced upon
the security of the land or home under construction, which value is estimated prior to the completion of construction.
Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-
value ratios. To mitigate the risks associated with construction lending, we generally limit loan amounts to 75% to
90% of appraised value, in addition to analyzing the creditworthiness of our borrowers. We also obtain a first lien on
the property as security for our construction loans and typically require personal guarantees from the borrower’s
principal owners.
13
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in our market area, including
multi-family residential buildings, commercial buildings and offices, shopping centers and churches. Commercial real
estate lending entails significant additional risks, compared with residential mortgage lending. Commercial real estate
loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers.
Additionally, the payment experience on loans secured by income producing properties is typically dependent on the
successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse
conditions in the real estate market or in the economy in general. Our commercial real estate loan underwriting criteria
require an examination of debt service coverage ratios and the borrower’s creditworthiness, prior credit history and
reputation. We also evaluate the location of the property securing the loan and typically require personal guarantees
or endorsements of the borrower’s principal owners.
Business Lending
Business loans generally have a higher degree of risk than residential mortgage loans but have higher yields. To
manage these risks, we generally obtain appropriate collateral and personal guarantees from the borrower’s principal
owners and monitor the financial condition of our business borrowers. Residential mortgage loans generally are made
on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real
estate whose value tends to be readily ascertainable. In contrast, business loans typically are made on the basis of the
borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as
real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of
business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for business
loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
We offer various consumer loans, including personal loans and lines of credit, automobile loans, deposit account
loans, installment and demand loans, and home equity loans and lines of credit. Such loans are generally made to
clients with whom we have a pre-existing relationship. We currently originate all of our consumer loans in our
geographic market area.
The underwriting standards employed by us for consumer loans include a determination of the applicant’s payment
history on other debts and an assessment of their ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income
from primary employment and additionally from any verifiable secondary income. Although creditworthiness of the
applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security
in relation to the proposed loan amount. For home equity lines of credit and loans we require title insurance, hazard
insurance and, if required, flood insurance.
Residential Mortgage Lending
The Bank makes residential mortgage loans for the purchase or refinance of existing loans with loan to value limits
ranging between 80 and 90% depending on the age of the property, borrower’s income and credit worthiness. Loans
that are retained in our portfolio generally carry adjustable rates that can change every three to five years, based on
amortization periods of twenty to thirty years.
14
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Loans Held for Sale
The Bank makes fixed rate mortgage loans with terms of typically fifteen or thirty years through its subsidiary F&M
Mortgage. These loans are funded by F&M Mortgage utilizing a line of credit at the Bank until sold to investors in
the secondary market. Similarly, the Bank also has a relationship with Northpointe Bank in Grand Rapids, MI whereby
it purchases fixed rate conforming 1-4 family mortgage loans for short periods of time pending those loans being sold
to investors in the secondary market. These loans have an average duration of ten days to two weeks, but occasionally
remain on the Bank’s books for up to 60 days. The Bank began its relationship with Northpointe Bank in 2014 and
had a similar program with a prior bank since 2003. This relationship allows the Bank to achieve a higher rate of
return than is available on other short term investment opportunities.
Dealer Finance Division
In September 2012, the Bank started a loan production office in Penn Laird, VA which specializes in providing
automobile financing through a network of automobile dealers. The Dealer Finance Division was originally staffed
with three officers that have extensive experience in Dealer Finance. Based on the strong growth of this division the
staff has been increased to six employees. This office is serving the automobile finance needs for customers of dealers
throughout the existing geographic footprint of the Bank. Approximately fifty dealers have signed contracts to
originate loans on behalf of the Bank. As of year end 2019, the division had total loans outstanding of $78,976.
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“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; the findings of
internal credit quality assessments, results from external bank regulatory examinations and third-party loan reviewer.
These factors, as well as historical losses and current economic and business conditions, are used in developing
estimated loss factors used in the calculations.
15
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), continued
Allowance for Loan Losses, continued
Allowances for loan losses are determined by applying estimated loss factors to the portfolio based on management’s
evaluation and “risk grading” of the loan portfolio. Specific allowances, if required are typically provided on all impaired
loans in excess of a defined loan size threshold that are classified in the Substandard, Watch or Doubtful risk grades and
on all troubled debt restructurings. The specific reserves are determined on a loan-by-loan basis based on management’s
evaluation of the Company’s exposure for each credit, given the current payment status of the loan and the value of any
underlying collateral.
While management uses the best information available to establish the allowance for loan and lease losses, future
adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in
making the valuations or, if required by regulators, based upon information available to them at the time of their
examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and
other relevant considerations indicate that loss levels may vary from previous estimates.
Fair Value
The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2)
quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques using significant assumptions that are observable in the
market or (3) model-based techniques that use significant assumptions not observable in the market. When observable
market prices and parameters are not fully available, management’s judgment is necessary to arrive at fair value
including estimates of current market participant expectations of future cash flows, risk premiums, among other things.
Additionally, significant judgment may be required to determine whether certain assets measured at fair value are
classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of
the amounts involved result in this item being identified as critical.
Pension Plan Accounting
The accounting guidance for the measurement and recognition of obligations and expense related to pension plans
generally applies the concept that the cost of benefits provided during retirement should be recognized over the
employees’ active working life. Inherent in this concept is the requirement to use various actuarial assumptions to
predict and measure costs and obligations many years prior to the settlement date. Major actuarial assumptions that
require significant management judgment and have a material impact on the measurement of benefits expense and
accumulated benefit obligation include discount rates, expected return on assets, mortality rates, and projected salary
increases, among others. Changes in assumptions or judgments related to any of these variables could result in
significant volatility in the Company’s financial condition and results of operations. As a result, accounting for the
Company’s pension expense and obligation is considered a significant estimate. The estimation process and the
potential materiality of the amounts involved result in this item being identified as critical.
Other Real Estate Owned (OREO)
OREO is held for sale and represents real estate acquired through or in lieu of foreclosure. OREO is initially recorded
at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real
estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of
foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed
in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to carry OREO on its balance
sheet at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
16
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), continued
Overview
The Company’s net income for 2019 totaled $4,509 or $1.32 per common share (basic), a decrease of 49% from $8,823
or $2.60 a share in 2018. Return on average equity decreased in 2019 to 4.93% versus 9.67% in 2018, and the return on
average assets decreased from 1.15% in 2018 to .57% in 2019. The Company’s net income per share (dilutive) totaled
$1.30 in 2019, a decrease from $2.45 in 2018.
Changes in Net Income per Common Share (Basic)
Prior Year Net Income Per Common Share (Basic)
$ 2.60 $ 2.68
2019
to 2018
2018
to 2017
Change from differences in:
Net interest income
Provision for loan losses
Noninterest income, excluding securities gains
Security gains (losses), net
Noninterest expenses
Income taxes
Effect of preferred stock dividend
Change in average shares outstanding
Total Change
Net Income Per Common Share (Basic)
Net Interest Income
(0.05)
(1.40)
0.56
.37
(0.90)
0 .03
0 .01
(0.63)
(.87)
1.02
0.40
-
0.03
0 .02
0 .05
(1.28)
(0.08)
$ 1.32 $ 2.60
The largest source of operating revenue for the Company is net interest income, which is calculated as the difference
between the interest earned on earning assets and the interest expense paid on interest bearing liabilities. Net interest
income decreased 0.49% from 2018 to 2019 following an increase of 5.78% from 2017 to 2018. The net interest margin
is the net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest
earning assets and interest bearing liabilities, along with their yields and rates, have a significant impact on the level of
net interest income. Tax equivalent net interest income for 2019 was $31,466 representing a decrease of $160 or 0.51%
over the prior year. A 3.24% increase in 2018 versus 2017 resulted in total tax equivalent net interest income of $31,626.
In this discussion and in the tabular analysis of net interest income performance, entitled “Consolidated Average
Balances, Yields and Rates,” the interest earned on tax exempt loans and investment securities has been adjusted to reflect
the amount that would have been earned had these investments been subject to normal income taxation. This is referred
to as tax equivalent net interest income. For a reconciliation of tax equivalent net interest income to GAAP measures,
see the following table.
Tax equivalent income on earning assets increased $1,826 in 2019 compared to 2018. Loans held for investment,
expressed as a percentage of total earning assets, decreased in 2019 to 87.41% as compared to 92.72% in 2018. During
2019, yields on earning assets decreased 3 basis points (BP), primarily due to changes in the earning asset categories,
specifically an increase in loans held for sale, federal funds sold and interest bearing deposits, while loans held for
investment decreased. The average cost of interest bearing liabilities increased 28BP in 2019, following an increase of
19BP in 2018. The increase in 2019 is due to increased cost of deposits and growth in interest bearing deposits, as well
as increased cost of borrowings from FHLB.
17
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
The following table provides detail on the components of tax equivalent net interest income:
GAAP Financial Measurements:
(Dollars in thousands).
Interest Income – Loans
Interest Income - Securities and Other Interest-Earnings Assets
Interest Expense – Deposits
Interest Expense - Other Borrowings
Total Net Interest Income
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income – Loans
Total Tax Benefit on Tax-Exempt Interest Income
Tax-Equivalent Net Interest Income
Interest Income
2019
2018
$ 37,348 $ 35,798
579
3,425
1,407
31,545
862
5,170
1,648
31,392
74
74
$ 31,466
81
81
$ 31,626
Tax equivalent interest income decreased $160 or 0.51% in 2019, after increasing 4.23% or $1,284 in 2018. Overall, the
yield on earning assets decreased 0.03%, from 5.30% to 5.27%. Average loans held for investment declined during 2019,
with average loans outstanding decreasing $2,318 to $635,110. Average real estate loans decreased 4.17%, commercial
loans decreased 1.62% and consumer installment loans increased 14.28% on average. The increase in average consumer
loans is a result of the growth in our Dealer Finance Division despite the fourth quarter sale of a portion of the dealer
portfolio. The decrease in tax equivalent net interest income is due primarily to the increase in deposit cost related to the
8.30% growth in average interest bearing deposits.
Interest Expense
Interest expense increased $1,986 or 41.10% during 2019. The average cost of funds of 1.30% increased 28BP compared
to 2018, which followed an increase of 19BP in 2018. Average interest bearing liabilities increased $47,683 or 10.02%
in 2019. Changes in the cost of funds attributable to rate and volume variances are in a following table.
The analysis on the next page reveals a decrease in the net interest margin to 4.33% in 2019 from 4.60% in 2018, primarily
due to changes in balance sheet mix during the year and rising costs of interest bearing deposits and borrowings.
18
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands),
Continued
Consolidated Average Balances, Yields and Rates1
2019
Balance
Interest
Rate
Balance
2018
Interest
Rate
ASSETS
Loans2
Commercial
Real estate
Consumer
Loans held for investment4
Loans held for sale
Investment securities3
Fully taxable
Partially taxable
$ 184,954$ 10,145
17,810
329,825
5.19%
5.21%
120,321 7,614 6.33% 105,288 _ 7,115 6.77%
5.49% $ 187,999 $ 9,754
17,946
5.40%
344,191
635,110
58,307
35,569
1,853
5.60%
3.18%
637,478
29,971
34,815
1,064
5.46%
3.48%
3.34%
124 3 2.42% 124 2 1.61%-
13,702
13,290
3.70%
457
492
Total investment securities
13,414
495
3.69%
13,826
459
3.32%
Interest bearing deposits in banks
Federal funds sold
Total Earning Assets
Allowance for loan losses
Nonearning assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand –interest bearing
Savings
Time deposits
2.05%
1.62%
33
1,610
18,145 334
1.84% 5,364 105 1.96%
726,586 38,284 5.27% 687,563 36,458 5.30%
924
15
(6,815)
77,100
$ 796,871
(6,416)
85,172
$ 766,319
.17%
.74%
147,107 2,418 1.64% 161,635 2,067 1.28%
.24% $ 87,079 $ 149
1,209
162,718
1.22%
$89,823 $ 212
2,539
208,551
Total interest bearing deposits
445,581 5,170
1.16%
411,432
3,425
.83%
Short-term debt
Long-term debt
1.87%
50,496 960 1.90% 40,210 951 2.37%
27,684
24,336
2.49%
456
688
Total interest bearing liabilities
523,661 6,818 1.30% 475,978 4,832 1.02%
Noninterest bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
165,731
15,991
705,383
91,488
161,860
37,267
675,105
91,214
Total liabilities and stockholders’ equity
$ 796,871
$ 766,319
Net interest earnings
$ 31,466
$ 31,626
Net yield on interest earning assets (NIM)
4.33%
4.60%
Income and yields are presented on a tax-equivalent basis using the applicable federal income tax rate of 21%.
Interest income on loans includes loan fees.
1
2
3 Average balance information is reflective of historical cost and has not been adjusted for changes in market value.
4
Includes nonaccrual loans.
19
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
The following table illustrates the effect of changes in volumes and rates.
2019 Compared to 2018
Increase (Decrease)
Due to Change
in Average:
Volume
Rate
Increase
Or
(Decrease)
Interest income
Loans held for investment
Loans held for sale
Investment securities
Fully taxable
Partially taxable
Interest bearing deposits in banks
Federal funds sold
Total Interest Income
Interest expense
Deposits
Demand - interest bearing
Savings
Time deposits
Short-term debt
Long-term debt
Total Interest Expense
Net Interest Income
$ (129) $ 883 $ 754
789
(217)
1,006
(14)
-
49
1
35
1
11
251
1,125
7
(22)
701
18
229
1,826
3
454
485
60
876
(134)
63
1,330
351
63
244
1,249
$ (124)
169
232
(234)
10
1,986
737
$ (36) $ (160)
Note: Volume changes have been determined by multiplying the prior years’ average rate by the change in average
balances outstanding. The rate change is determined by multiplying the current year average balance outstanding by the
change in rate from the prior year to the current year.
Noninterest Income
Noninterest income continues to be an increasingly important factor in maintaining and growing profitability.
Management is conscious of the need to constantly review fee income and develop additional sources of complementary
revenue.
Noninterest income increased 23.95% or $1,917, in 2019. Included in 2019 was a onetime gain on the sale of a portion
of the dealer portfolio of $618. The 2019 increase, net of the gain on the dealer portfolio, is due to growth in the gross
revenue of VST Title, F & M Financial services and F&M Mortgage and service charges on deposit accounts. The losses
on low income housing projects increased 9.39% in 2019 which is consistent with growth in the underlying investments.
20
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Noninterest Expense
Noninterest expenses increased from $26,744 in 2018 to $29,518 in 2019, a 10.37% increase. Salary and benefits
increased 4.99% to $17,151 in 2019. This increase was the result of normal salary increases, pension settlement costs
and severance packages expensed during the year. Other real estate owned, net increased $548 due to an increased
effort to dispose of properties. Other areas of increase include data processing, legal and professional and other
operating expenses. Total noninterest expense as a percentage of average assets totaled 3.70% and 3.49% in 2019 and
2018, respectively. Peer group averages (as reported in the most recent Uniform Bank Performance Report) were 2.81%
for 2019 and 2018.
Provision for Loan Losses
Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and
volume of the portfolio and industry standards. Specific factors considered by management in determining the
adequacy of the level of the allowance for loan losses include internally generated and third-party loan review reports,
past due reports and historical loan loss experience. This review also considers concentrations of loans in terms of
geography, business type and level of risk. Management evaluates nonperforming loans relative to their collateral
value, when deemed collateral dependent, and makes the appropriate adjustments to the allowance for loan losses
when needed. Based on the factors outlined above, the current year provision for loan losses totaled $7,405 compared
to $2,930 for 2018. The current levels of the allowance for loan losses reflect increased net charge-off activity and
other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses. During
2019, management has made a tremendous effort to lower nonperforming loans, including through charge-off of loan
balances after disposal. As a result nonperforming loans decreased from 1.60% of loans held for investment at
December 31, 2018 to 0.94% at December 31, 2019. There has been an increase in substandard loans during 2019
and that along with loan review results have increased the allowance for loan losses despite the improvements in
nonperforming loans. Management will continue to monitor nonperforming, adversely classified 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.
Net loan charge-offs were $4,255 in 2019 and $3,734 in 2018. The increase reflects management’s efforts or reduce
nonperforming loans throughout 2019. Net charge-offs as a percentage of loans held for investment totaled 0.71%
and 0.58% in 2019 and 2018, respectively. The construction and development charge-off percentage is the largest
category at 0.38% of loans held for investment and dealer finance was 0.16%. As stated in the most recently available
Uniform Bank Performance Report (UPBR), peer group loss averages were 0.09% in 2019 and 0.08% in 2018. The
Bank anticipates losses will remain above peer due to the Dealer Finance Division, however losses in this segment
have been in line with expectations and are closely monitored.
Balance Sheet
Total assets increased 4.39% during the year to $813,999, an increase of $34,256 from $779,743 in 2018. Cash and
cash equivalents increased $64,892, Net loans held for investment declined $38,524, Loans held for sale increased
$10,888, and other asset categories experienced modest fluctuations. Average earning assets increased 5.68% to
$726,586 at December 31, 2019. The increase in earning assets is due largely to the growth in the loans held for sale,
which is the short-term loan participation program with Northpointe Bank and the growth in federal funds sold as a
result of deposit growth. Deposits grew $50,384 and other liabilities decreased $16,302 in 2019. Average interest
bearing deposits increased $34,149 for 2019 or 8.30%, with increases in interest-bearing demand accounts and savings
while time deposits declined. The Company continues to utilize its assets well, with 91.18% of average assets
consisting of earning assets.
21
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Investment Securities
Total securities decreased $3,829 or 17.53% in 2019 to $18,015 at December 31, 2019 from $21,844 at December 31,
2018. Average balances in investment securities decreased 2.98% in 2019 to $13,414. At year end, 1.85% of average
earning assets of the Company were held as investment securities, all of which are unpledged. Management strives to
match the types and maturities of securities owned to balance projected liquidity needs, interest rate sensitivity and to
maximize earnings through a portfolio bearing low credit risk. Portfolio yields averaged 3.69% for 2019, up from 3.32%
in 2018.
There were no Other Than Temporary Impairments (OTTI) write-downs in 2019 or 2018. There were no security
gains or losses in 2019 or 2018.
The composition of securities at December 31 was:
(Dollars in thousands)
Available for Sale1
U.S. Treasury and Agency
Mortgage-backed obligations of federal agencies2
Other debt securities
Total
Held to Maturity
U.S. Treasury and Agency
Total
Other Equity Investments
Total Securities
2019
2018
$ 1,989
319
2,058
4,366
$ 7,886
403
-
8,289
124
124
123
123
13,525
13,432
$ 18,015 $ 21,844
1
2
At estimated fair value. See Note 4 to the Consolidated Financial Statements for amortized cost.
Issued by a U.S. Government Agency or secured by U.S. Government Agency collateral.
Maturities and weighted average yields of securities at December 31, 2019 are presented in the table below. Amounts are
shown by contractual maturity; expected maturities will differ as issuers may have the right to call or prepay obligations.
Maturities of other investments are not readily determinable due to the nature of the investment; see Note 5 to the
Consolidated Financial Statements for a description of these investments.
(Dollars in thousands)
Amount Yield Amount
Yield
Amount
Yield
Less
Than one Year
One to
Five Years
Five to
Ten Years
Over
Ten Years
Amount Yield
Total
Yield
Debt Securities Available for
Sale
U.S. Treasury & Agency
Mortgage-backed obligations of
federal agencies
Other debt securities
Total
$ -
-
-
$ -
$ 1,989
-
3.00% $ -
319
2.49%
$ -
-
2,058
$ 4,047
1.07%
-
2.66% $ 319
-
2.49% $ -
$1,989
319
3.00%
2.49%
2,058
$4,366
1.07%
2.65%
Debt Securities Held to
Maturity
U.S. Treasury & Agency
Total
$ 124
$ 124
2.42%
2.42%
$
$
$ -
$ -
$ -
$ -
$124
$124
2.42%
2.42%
22
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Analysis of Loan Portfolio
The Company’s market area has a relatively stable economy which tends to be less cyclical than the national economy.
Major industries in the market area include agricultural production and processing, higher education, retail sales, services
and light manufacturing.
The Company’s portfolio of loans held for investment totaled $603,425 at December 31, 2019 compared with $638,799
at December 31, 2018. Collateral required by the Company is determined on an individual basis depending on the
purpose of the loan and the financial condition of the borrower. Real estate mortgages decreased $20,950 or 8.17%.
Construction loans increased $15,472 or 25.09%. Commercial loans, including agricultural and multifamily loans,
decreased 5.52% during 2019 to $198,467. The Bank also has loan participation arrangements with several other banks
within the region to aid in diversification of the loan portfolio geographically, by collateral type and by borrower.
Consumer loans decreased $18,320 or 17.08% mainly due to the sale of a portion of the dealer finance division loans,
resulting in a December 31, 2019 balance in this portfolio of $78,976. A gain of $618 thousand was recognized on the
sale. Consumer loans include personal loans, auto loans and other loans to individuals. Credit card balances decreased
$62 to $3,122 but are a minor component of the loan portfolio. The following table presents the changes in the loan
portfolio over the previous five years categorized in business segments, rather than regulatory call report as in footnote.
(Dollars in thousands)
2019
2018
December 31
2017
2016
2015
Real estate – mortgage
Real estate – construction
Consumer
Commercial
Agricultural
Multi-family residential
Credit cards
Other
Total Loans
$ 235,564 $ 256,514
61,659
77,131
107,248
88,928
179,476
158,466
20,917
34,637
9,665
5,364
3,184
3,122
213
136
$ 603,425 $ 638,799
$ 250,891
71,620
81,458
182,360
17,064
10,298
2,939
344
$ 616,974
$ 238,631
76,172
72,048
178,392
15,876
7,605
2,822
90
$ 591,636
$ 232,321
69,759
62,239
153,691
15,672
7,559
2,745
67
$ 544,053
The following table shows the Company’s loan maturity and interest rate sensitivity as of December 31, 2019:
(Dollars in thousands)
Commercial and
agricultural loans
Multi-family residential
Real Estate – mortgage
Real Estate – construction
Consumer – dealer/credit cards/other
Total
Loans with predetermined rates
Loans with variable or adjustable rates
Total
Less Than
1 Year
1-5
Years
Over
5 Years
Total
$ 57,806 $ 114,232 $ 21,065
-
4,193
10,325
15,981
$193,103
5,364
61
235,564
77,592
77,131
45,465
6,844
92,263
$ 187,768 $ 364,093 $ 51,564 $ 603,425
5,303
153,779
21,341
69,438
$ 25,484 $ 84,873 $ 33,203 $ 143,560
162,284
459,865
$ 187,768 $ 364,093 $ 51,564 $ 603,425
279,220
18,361
23
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Analysis of Loan Portfolio, continued
Residential real estate loans are made for a period up to 30 years and are secured by a first deed of trust which normally
does not exceed 90% of the appraised value. If the loan to value ratio exceeds 90%, the Company requires additional
collateral, guarantees or mortgage insurance. On approximately 88% of the real estate loans, interest is adjustable after
each one, three or five-year period. The remainder of the portfolio is comprised of fixed rate loans that are generally
made for a fifteen-year or a twenty-year period with an interest rate adjustment after ten years.
Fixed rate real estate loans have been partially funded with fixed rate borrowings from the Federal Home Loan Bank,
which allows the Company to control its interest rate risk. In addition, the Company makes home equity loans secured
by second deeds of trust with total indebtedness not to exceed 90% of the appraised value. Home equity loans are made
for three, five or ten year periods at a fixed rate or as a revolving line of credit.
Construction loans may be made to individuals, who have arranged with a contractor for the construction of a residence,
or to contractors that are involved in building pre-sold, spec-homes or subdivisions. The majority of commercial loans
are made to small retail, manufacturing and service businesses. Consumer loans are made for a variety of reasons;
however, approximately 74% of the loans are secured by automobiles and trucks.
Approximately 79% of the Company’s loans are secured by real estate; however, policies relating to appraisals and loan
to value ratios are adequate to control the related risk. Market values continue to be stable with increases in sales prices,
reduction in inventory and reduction in days on the market. Unemployment rates in the Company’s market area continue
to be below both the national and state averages.
The Bank has not identified any loan categories that would be considered loan concentrations of greater than 25% of
capital. While the Bank has not developed a formal policy limiting the concentration level of any particular loan type or
industry segment, it has established target limits on both a nominal and percentage of capital basis. Concentrations are
monitored and reported to the board of directors quarterly. Concentration levels have been used by management to
determine how aggressively we may price or pursue new loan requests.
Nonaccrual and Past Due Loans
Nonperforming loans include nonaccrual loans and loans 90 days or more past due still accruing. Nonaccrual loans
are loans on which interest accruals have been suspended or discontinued permanently. The Company would have
earned approximately $531 in additional interest income in 2019 had the loans on nonaccrual status been current and
performing. Nonperforming loans totaled $5,729 at December 31, 2019 compared to $10,205 at December 31, 2018.
At December 31, 2019, there were $722 of loans 90 days or more past due and accruing. Nonperforming loans have
decreased approximately $4,476 since December 31, 2018. Management has made a concerted effort to reduce
nonperforming loans during 2019, some of this is reflected in the growth in charge-offs during the year.
Approximately 91% of these nonperforming loans are secured by real estate and were in the process of collection.
The Bank believes that it is generally well secured or specific reserves have been established and continues to actively
work with its customers to effect payment. As of December 31, 2019, the Company holds $1,489 of real estate which
was acquired through foreclosure.
24
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Nonaccrual and Past Due Loans, continued
The following is a summary of information pertaining to nonperforming loans:
(Dollars in thousands)
Nonaccrual Loans:
Real Estate
Commercial
Home Equity
Other
Loans past due 90 days or more:
Real Estate
Commercial
Home Equity
Other
2019
2018
2017
2016
2015
$ 1,721 $ 3,804 $ 5,628 $ 4,204
$ 5,698
3,036
5,172
-
250
619
-
15
269
160
726
-
63
599
451
226
143
-
-
70
311
178
81
-
-
109
40
108
272
25
107
88
11
55
26
67
Total Nonperforming loans
$ 5,729 $ 10,205 $ 7,102 $ 4,870
$ 6,526
Restructured Loans current and performing:
Real Estate
Commercial
Home Equity
Other
3,644
1,223
716
167
6,574
7,710
8,641
8,713
1,249
-
1,121
1,463
-
205
-
78
-
76
1,414
91
Nonperforming loans as a percentage of loans held for investment
.94%
1.60%
1.15%
.82%
1.20%
Net Charge Offs to Total Loans Held for Investment
.71%
.58%
.24%
.21%
.04%
Allowance for loan and lease losses to nonperforming loans
146.47%
51.34%
85.10% 154.89% 134.55%
Potential Problem Loans
As of December 31, 2019, management is not aware of any potential problem loans which are not already classified for
regulatory purposes or on the watch list as part of the Bank’s internal grading system.
25
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Loan Losses and the Allowance for Loan Losses
In evaluating the portfolio, loans are segregated into loans with identified potential losses, pools of loans by type, with
separate weighting for past dues and adverse rated loans, 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
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.
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 reviews
the allowance for loan loss calculation and approves the loan loss provision for each quarter based on this evaluation.
The allowance for loan losses of $8,390 at December 31, 2019 is equal to 1.39% of total loans held for investment.
This compares to an allowance of $5,240 or .82% of total loans at December 31, 2018. Nonaccrual loans at December
31, 2019 totaled $5,007 compared to $9,405 at December 31, 2018; however, the decline in nonaccrual loans is
primarily attributable to one large commercial relationship of approximately $4.3 million as of December 31, 2018
that was taken out of the bank during the third quarter 2019. Absent this one large relationship, nonaccrual loans at
December 31, 2019 remained relatively consistent with December 31, 2018. In addition, classified loans (internally
rated substandard or watch) increased significantly from a total of $23.0 million at December 31, 2018 to $38.5 million
at December 31, 2019, or 67.47%. Recent external loan reviews have resulted in several downgrades in internal risk
ratings, policy underwriting exceptions have increased, and Management has become more aggressive in loan
workouts and charging off loans. Enhancements to the credit culture of the Company that Management feels will
greatly improve the Company’s ability to monitor and identify problem credits have been put in place. Past due and
adversely risk rated loans that are not considered impaired have historically received higher allocation factors within
the Company’s allowance for loan losses calculation. However, with the large increase in classified loans during the
third quarter of 2019, Management increased the qualitative factors to reflect the risk of rising classified loans and
underwriting exceptions. Also, during the second quarter of 2019, Management changed the lookback period for
calculating the allowance for loan losses from five years to two years as a shorter lookback period is considered more
indicative of the risk remaining in the loan portfolio given the increased charge-offs experienced.
The change in the lookback period resulted in an increase of $1,098 in the allowance for loan losses from December
31, 2018 and increases in qualitative factor adjustments described above regarding the level of underwriting exceptions
and classified loans resulted in a $1,932 increase in the allowance for loan losses from December 31, 2018 to
December 31, 2019. The level of specific reserves included in the allowance for loan losses was approximately $1.8
million at December 31, 2019 and $1.6 million at December 31, 2018. As a result of management’s analysis and
change in the allowance methodology to reduce the historical lookback period, the Company recorded a $7,405
provision for loan losses for 2019 compared to $2,930 for 2018. Management will continue to monitor nonperforming,
adversely classified 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.
Loan losses, net of recoveries, totaled $4,255 in 2019 which is equivalent to .71% of total loans outstanding
26
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Loan Losses and the Allowance for Loan Losses, continued
A summary of the activity in the allowance for loan losses follows:
(Dollars in thousands)
2019
2018
2017
2016
2015
Balance at beginning of period
Provision charged to expenses
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 loan losses
Recoveries:
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 recoveries
Net loan losses
Balance at end of period
Allowance for loan losses as a
percentage of loans held for investment
$ 5,240 $ 6,044
2,930
7,405
$ 7,543
-
$ 8,781
-
$ 8,725
300
2,319
-
32
-
677
1
126
127
116
2,118
110
5,626
489
-
99
-
1,546
3
-
573
51
2,083
76
4,920
122
50
-
-
12
4
-
-
1
16
4
2
8
1
91
81
41
44
861
1,144
46
29
1,186
1,371
(3,734)
(4,255)
$ 8,390 $ 5,240
620
-
-
-
-
7
26
179
136
1,806
98
2,872
-
-
2
-
13
25
53
72
28
1,143
37
1,373
(1,499)
$ 6,044
356
-
25
-
19
8
370
293
37
1,081
74
2,261
7
-
4
-
135
-
120
267
19
417
54
1,023
(1,238)
$ 7,543
156
-
25
-
-
26
51
-
32
251
60
601
85
-
37
-
65
6
-
62
32
24
46
357
(244)
$ 8,781
1.39%
.82%
.98%
1.27%
1.61%
Net loan losses to loans held for investment
.71%
.58%
.24%
.21%
.04%
27
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Loan Losses and the Allowance for Loan Losses, continued
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
2019
2018
2017
2016
2015
Balance Percentage
Balance Percentage
Balance Percentage
Balance
of Loans
in Each
Category
of Loans
in Each
Category
of Loans
in Each
Category
Percentage
of Loans
in Each
Category
Balance Percentage
of Loans
in Each
Category
$1,190
14.18% $ 2,094
39.97% $ 2,547
42.14%
$ 3,381
44.82% $ 4,442
50.59%
18.75%
292
5.56%
719
11.90%
843
11.18%
806
9.18%
36.81%
633
12.08%
863
14.28%
1,348
17.88%
1,666
18.97%
Allowance for
loan losses:
(dollars in
thousands)
Construction/Land
Development
Real Estate
Commercial,
Financial and
Agricultural
Dealer Finance
Consumer
1,573
3,088
1,786
254
21.28%
1,974
37.67%
1,440
23.83%
1,289
17.09%
3.03%
108
2.06%
200
3.31%
136
1.80%
836
223
9.52%
2.54%
9.20%
Home Equity
499
5.95%
139
2.66%
275
4.55%
545
7.22%
808
Total
$ 8,390
100.00% $ 5,240
100.00% $ 6,044
100.00%
$ 7,543
100.00% $ 8,781
100.00%
Deposits and Borrowings
The average deposit balances and average rates paid for 2019 and 2018 were as follows:
Average Deposits and Rates Paid (Dollars in thousands)
Noninterest-bearing
Interest-bearing:
Interest Checking
Savings Accounts
Time Deposits
Total interest-bearing deposits
Total deposits
December 31,
2019
Average
Balance
Rate
2018
Average
Balance
Rate
$ 165,731
$ 161,860
$ 89,823
208,551
147,107
445,481
$ 611,212
.24%
1.22%
1.64%
1.16%
.85%
$ 87,079
162,718
161,635
411,432
$ 573,292
.17%
.74%
1.28%
.83%
.60%
Average noninterest-bearing demand deposits, which are comprised of checking accounts, increased $3,871 or 2.39%
from $161,860 at December 31, 2018 to $165,731 at December 31, 2019. Average interest-bearing deposits, which
include interest checking accounts, money market accounts, regular savings accounts and time deposits, increased
$34,049 or 8.28% from $411,432 at December 31, 2018 to $445,481 at December 31, 2019. Total average interest
checking account balances increased $2,744 or 3.15% from $87,079 at December 31, 2018 to $89,823 at December 31,
2019. Total average savings account balances (including money market accounts) increased $45,833 or 28.17% from
$162,718 at December 31, 2018 to $208,551 at December 31, 2019.
Average time deposits decreased $14,528 or 8.99% from $161,635 at December 31, 2018 to $147,107 at December 31,
2019.
28
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Deposits and Borrowings, continued
The maturity distribution of certificates of deposit of $100,000 or more is as follows:
(Actual Dollars in thousands)
Less than 3 months
3 to 6 months
6 to 12 months
1 year to 5 years
Total
2019
2018
$ 2,600 $ 1,885
5,838
9,262
34,667
6,407
11,867
24,971
$ 45,845
$ 51,652
Non-deposit borrowings include federal funds purchased, Federal Home Loan Bank (FHLB) borrowings, (both short
term and long term), a note to purchase real estate and VST debt. Non-deposit borrowings are an important source of
funding for the Bank. These sources assist in managing short and long-term funding needs, often at rates that are more
favorable than raising additional funds within the deposit portfolio.
Borrowings from the FHLB 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 loan types in the loan portfolio.
The Company borrowed an additional $30,000 in 2019 and had no additional long-term borrowings in 2018.
Repayment of amortizing and fixed maturity loans through FHLB totaled $17,017 during 2019. These long-term
loans carry an average rate of 1.82% at December 31, 2019.
Contractual Obligations and Scheduled Payments (dollars in thousands)
Less than
One Year
One Year Through Three Years Through
Three Years
Five Years
More than
Five Years
Total
December 31, 2019
Federal funds purchased
FHLB Short term advances
FHLB long term advances and other debt
Total
$ -
10,000
14,433
$ - $ - $ - $ -
10,000
53,201
$ 24,433 $ 18,643 $ 8,875 $ 11,250 $ 63,201
-
11,250
-
18,643
-
8,875
See Note 12 (Short Term Debt) and Note 13 (Long Term Debt) to the Consolidated Financial Statements for a discussion
of the rates, terms, and conversion features on these advances.
29
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Stockholders’ Equity
Total stockholders' equity increased $174 or 0.19% in 2019. Capital was increased by net income totaling $4,509, net of
noncontrolling interest of $130, issuance of common stock totaled $259, pension adjustment of $671 and unrealized gains
on available for sale securities of $87. Capital was reduced by common and preferred dividends totaling $3,587,
repurchases of common stock of $1,798, repurchase of preferred stock $42, minority interest distributions of $55. As of
December 31, 2019, book value per common share was $27.11 compared to $26.68 as of December 31, 2018. Dividends
are paid to stockholders on a quarterly basis in uniform amounts unless unexpected fluctuations in net income indicate a
change to this policy is needed.
Banking regulators have established a uniform system to address the adequacy of capital for financial institutions. The
rules require minimum capital levels based on risk-adjusted assets. Simply stated, the riskier an entity's investments, the
more capital it is required to maintain. The Bank is required to maintain these minimum capital levels. Beginning in
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 December 31, 2019, the Bank had Common Equity Tier I capital of 13.30%, Tier I risked
based capital of 13.30% and total risked based capital of 14.55% of risk weighted assets. Regulatory minimums at this
date were 4.5%, 6% and 8%, respectively. The Bank has maintained capital levels far above the minimum requirements
throughout the year. 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 December 31, 2019, the Bank reported a leverage ratio of 10.89%. The Bank's leverage ratio was also
substantially above the minimum. The Bank also reported a capital conservation buffer of 6.55% at December 31,
2019. The capital conservation buffer is designed to strengthen an institution’s financial resilience during economic
cycles. Financial institutions are required to maintain a minimum buffer as required by the Basel III final rules in
order to avoid restrictions on capital distributions and other payments. The capital conservations buffer was fully
phased in on January 1, 2019 at 2.5%.
30
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Market Risk Management
Most of the Company’s net income is dependent on the Bank’s net interest income. Rapid changes in short-term interest
rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances
exist between the maturities or repricing of interest bearing liabilities and interest earning assets. The Company’s net
interest margin decreased .27% in 2019 following an increase of .07% in 2018. This decrease is due to decreases in
interest rates as well as changes in balance sheet structure including a decrease in loans held for investment and substantial
deposit growth which led to excess funds on hand. In 2019, the Federal Open Market Committee elected to decrease the
short-term rates target 100BP to 1.50 to 2.75%.
Net interest income is also affected by changes in the mix of funding that supports earning assets. For example, higher
levels of non-interest bearing demand deposits and leveraging earning assets by funding with stockholder’s equity would
result in greater levels of net interest income than if most of the earning assets were funded with higher cost interest-
bearing liabilities, such as certificates of deposit and borrowings.
Liquid assets, which include cash and cash equivalents, federal funds sold, interest bearing deposits and short term
investments averaged $43,358 for 2019. The Bank historically has had a stable core deposit base and, therefore, does
not have to rely on volatile funding sources. Because of growth in the core deposit base, liquid assets have grown over
prior year. While this helps liquidity, the higher priced deposits have had an effect on the net interest margin. The Bank's
membership in the Federal Home Loan Bank has historically provided liquidity as the Bank borrows money that is repaid
over a five to ten-year period and uses the money to make fixed rate loans. With excess funds provided by deposit
growth, FHLB borrowings will continue to mature without replacement. The matching of the long-term receivables and
liabilities helps the Bank reduce its sensitivity to interest rate changes. The Company reviews its interest rate gap
periodically and makes adjustments as needed. There are no off-balance sheet items that will impair future liquidity.
The following table depicts the Company’s interest rate sensitivity, as measured by the repricing of its interest sensitive
assets and liabilities as of December 31, 2019. 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. The analysis indicates an asset sensitive one-year
cumulative GAP position of 17.16% of total earning assets, compared to 11.39% in 2018. Approximately 43.42% of rate
sensitive assets and 36.37% of rate sensitive liabilities are subject to repricing within one year. Short term assets (less
than one year) decreased $54,061 during the year, while total earning assets increased $37,887. The increase is attributed
to growth in federal fund sold due to deposit growth. Short term deposits increased $29,655 and short term borrowings
decreased $22,701. Increases are due to growth in core deposits primarily from a money market special and overall
growth in deposits. Short term borrowings decreased as advances matured and were not renewed.
31
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Market Risk Management, continued
The following GAP analysis shows the time frames as of December 31, 2019, in which the Company’s assets and
liabilities are subject to repricing:
(Dollars in thousands)
Rate Sensitive Assets:
Loans held for investment
Loans held for sale
Federal funds sold
Investment securities
Credit cards
Interest bearing bank deposits
1-90
Days
91-365
Days
1-5
Years
Over 5
Years
Not
Classified
Total
$ 106,342 $ 78,304 $ 364,093 $ 51,564 $ - $ 600,303
66,798
66,559
4,490
3,122
1,126
-
-
4,047
-
-
-
-
-
-
-
-
-
-
-
-
-
-
319
-
-
66,798
66,559
124
3,122
1,126
Total
244,071
78,304
368,140
51,883
-
742,398
Rate Sensitive Liabilities:
Interest bearing demand deposits
Savings deposits
Certificates of deposit
Total Deposits
Short-term debt
Long-term debt
Total
Discrete Gap
Cumulative Gap
As a % of Earning Assets
-
-
12,357
19,255
89,249
49,719
57,767
128,621
77,086
19,255
19,685
-
-
-
-
96,277
237,555
139,162
12,357
158,223
263,474
38,940
-
472,994
10,000
6,107
-
8,322
-
27,522
-
11,250
-
-
10,000
53,201
28,464
215,607
215,607
29.04%
166,545
(88,241)
127,366
17.16%
290,996
77,144
204,510
27.55%
50,190
1,693
206,203
27.78%
-
-
536,195
206,203
206,203
27.78%
In preparing the above table, no assumptions are made with respect to loan prepayments or deposit run off. Loan
principal payments are included in the earliest period in which the loan matures or can be repriced. 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 on deposits which have no stated maturity dates were derived from regulatory guidance.
See accompanying Notes to the Consolidated Financial Statements.
32
Item 8. Financial Statements and Supplementary Data
F & M Bank Corp. and Subsidiaries
Consolidated Balance Sheets (dollars in thousands, except per share data)
As of December 31, 2019 and 2018
Assets
Cash and due from banks
Money market funds and interest bearing deposits in other banks
Federal funds sold
Cash and cash equivalents
Securities:
Held to maturity, at amortized cost - fair value of $124 and $123 in 2019 and
2018, respectively
Available for sale, at fair value
Other investments
Loans held for sale
Loans held for investment
Less: allowance for loan losses
Net loans held for investment
Other real estate owned, net
Bank premises and equipment, net
Interest receivable
Goodwill
Bank owned life insurance
Other assets
Total Assets
Liabilities
Deposits:
Noninterest bearing
Interest bearing
Total deposits
Short-term debt
Accrued and other liabilities
Long-term debt
Total Liabilities
Commitments and contingencies
Stockholders’ Equity
Preferred Stock $25 par value, 400,000 shares authorized, 206,660 and 249,860 shares
issued and outstanding at December 31, 2019 and 2018, respectively
Common stock $5 par value, 6,000,000 shares authorized, 3,208,498 and 3,213,132
shares issued and outstanding at December 31, 2019 and 2018, respectively
Additional paid in capital – common stock
Retained earnings
Noncontrolling interest in consolidated subsidiaries
Accumulated other comprehensive loss
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
See accompanying Notes to the Consolidated Financial Statements.
33
2019
2018
$ 8,119 $ 9,522
1,390
-
10,912
1,126
66,559
75,804
124
123
4,366
13,525
66,798
603,425
(8,390)
595,035
8,289
13,432
55,910
638,799
(5,240)
633,559
1,489
18,931
2,044
2,884
20,050
12,949
2,443
17,766
2,078
2,884
19,464
12,883
$ 813,999 $ 779,743
$ 168,715 $ 157,146
434,179
472,994
591,325
641,709
10,000
17,514
53,201
722,424
40,116
16,683
40,218
688,342
-
-
4,592
5,672
16,066
16,042
7,987
7,510
65,086
66,008
559
634
(3,969)
(3,211)
91,575
91,401
$ 813,999 $ 779,743
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Income (dollars in thousands, except per share data)
For the years ended 2019 and 2018
Interest and Dividend Income
Interest and fees on loans held for investment
Interest from loans held for sale
Interest from money market funds, federal funds sold and deposits in other banks
Interest from debt securities – taxable
Total interest and dividend income
Interest Expense
Total interest on deposits
Interest from short-term debt
Interest from long-term debt
Total interest expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
Service charges on deposit accounts
Insurance, other commissions and mortgage banking, net
Other operating income
Income from bank owned life insurance
Low income housing partnership losses
Total noninterest income
Noninterest Expenses
Salaries
Employee benefits
Occupancy expense
Equipment expense
FDIC insurance assessment
Other real estate owned, net
Director’s fees
Data processing expense
Advertising expense
Legal and professional expense
Bank Franchise tax
Other operating expenses
Total noninterest expenses
Income before income taxes
Income Tax Expense (Benefit)
Net Income
Net Income attributable to noncontrolling interests
Net Income attributable to F & M Bank Corp.
Dividends paid/accumulated on preferred stock
Net income available to common stockholders
Per Common Share Data
Net income - basic
Net income - diluted
Cash dividends on common stock
Weighted average common shares outstanding – basic
Weighted average common shares outstanding – diluted
See accompanying Notes to the Consolidated Financial Statements.
34
2019
2018
$ 35,495
1,853
367
495
38,210
$ 34,734
1,064
120
459
36,377
5,170
688
960
6,818
31,392
3,425
456
951
4,832
31,545
7,405
23,987
2,930
28,615
1,691
5,211
3,256
601
(839)
9,920
1,496
4,505
2,242
527
(767)
8,003
12,284
4,867
1,172
1,173
155
517
437
2,500
701
852
673
4,187
29,518
12,622
3,814
1,116
1,044
294
(31)
468
2,197
622
597
522
3,479
26,744
4,389
9,874
(250)
4,639
1,041
8,833
(130)
4,509
(10)
8,823
(315)
(413)
$ 4,194 $ 8,410
$ 1.32 $ 2.60
$ 1.30 $ 2.45
$ 1.02 $ 1.20
3,238,177
3,596,017
3,189,288
3,460,234
F & M BANK CORP.
Consolidated Statements of Comprehensive Income (dollars in thousands)
For the years ended 2019 and 2018
Net Income
Other comprehensive income:
Pension plan adjustment
Tax effect
Pension plan adjustment, net of tax
Unrealized holding gains (losses)
on available-for-sale securities
Tax effect
Unrealized holding gains (losses), net of tax
Years Ended December 31,
2019
2018
$ 4,509 $ 8,823
849
(178)
671
313
(66)
247
110
(23)
87
(94)
20
(74)
Total other comprehensive income
758
173
Comprehensive income attributable to F&M Bank Corp.
$ 5,267 $ 8,996
Comprehensive income attributable to noncontrolling interests
$ 130 $ 10
Total comprehensive income
$ 5,397 $ 9,006
See accompanying Notes to the Consolidated Financial Statements.
35
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (dollars in thousands, except share
and per share data)
For the years ended December 31, 2019 and 2018
Preferred
Common
Stock
Stock
Additional
Paid in
Capital
Retained
Noncontrolling Comprehensive
Earnings
Interest
Loss
Total
Accumulated
Other
Balance, December 31, 2017
$ 7,529
$ 16,275
$ 10,225
$ 60,566
$ 574
$ (4,142)
$ 91,027
Net income
Other comprehensive income
Distributions to noncontrolling interest
Dividends on preferred stock ($1.28 per share)
Dividends on common stock ($1.20 per share)
Common stock repurchased (49,446 shares)
Common stock issued (7,542 shares)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(247)
38
(1,535)
228
8,823
-
-
(413)
(3,890)
-
-
10
-
(25)
-
-
-
-
-
173
-
-
-
-
-
8,833
173
(25)
(413)
(3,890)
(1,782)
266
Preferred stock repurchased (74,290 shares)
(1,857)
-
(931)
-
-
-
(2,788)
Balance, December 31, 2018
$ 5,672
$ 16,066
$ 7,987
$ 65,086
$ 559
$ (3,969)
$ 91,401
Net Income
Other comprehensive income
Distributions to noncontrolling interest
Dividends on preferred stock ($1.28 per share)
Dividends on common stock ($1.02 per share)
Common stock repurchased (60,104 shares)
Common stock issued (8,763 shares)
-
-
-
-
-
-
-
-
-
-
-
-
(301)
44
Preferred stock converted to common (42,000 shares)
(1,050)
233
-
-
-
-
-
(1,497)
215
817
4,509
-
-
(315)
(3,272)
-
-
-
130
-
(55)
-
-
-
-
-
-
758
-
-
-
-
-
-
4,639
758
(55)
(315)
(3,272)
(1,798)
259
-
Preferred stock repurchased (1,200 shares)
(30)
-
(12)
-
-
-
(42)
Balance, December 31, 2019
$ 4,592 $ 16,042 $ 7,510 $ 66,008 $ 634 $ (3,211) $ 91.575
See accompanying Notes to the Consolidated Financial Statements.
36
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Cash Flows (dollars in thousands)
For the years ended December 31, 2019 and 2018
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of intangibles
Amortization of securities
Proceeds from sale of loans held for sale originated
Gain on sale of loans held for sale originated
Loans held for sale originated
Provision for loan losses
(Benefit) expense for deferred taxes
Decrease (increase) in interest receivable
Decrease (increase) in other assets
Increase (decrease) in accrued liabilities
Amortization of limited partnership investments
Gain on sale of fixed assets
Loss (gain) on sale and valuation adjustments of other real estate owned
Gain on sale of dealer loans
Income from life insurance investment
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Proceeds from maturities of securities available for sale
Purchases of securities available for sale and other investments
Net decrease (increase) in loans held for investment
Proceeds from sale of dealer loans
Net increase in loans held for sale participations
Net purchase of property and equipment
Purchase of bank owned life insurance
Purchase of title company
Proceeds from sale of other real estate owned
Net Cash Provided by (Used in) Investing Activities
Cash Flows from Financing Activities
Net change in deposits
Net change in short-term debt
Dividends paid in cash
Proceeds from long-term debt
Distributions to non-controlling interest
Proceeds from issuance of common stock
Repurchase of preferred stock
Repurchase of common stock
Repayments of long-term debt
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Supplemental Cash Flow information:
Cash paid for:
Interest
Income taxes
Supplemental non-cash disclosures:
Transfers from loans to other real estate owned
Unrealized gain (loss) on securities available for sale, net
Minimum pension liability adjustment, net
Initial recognition of right-of-use asset and lease liability
See accompanying Notes to the Consolidated Financial Statements.
37
2019
2018
$ 4,639 $ 8,833
1,299
74
7
128,102
(2,944)
(124,588)
7,405
(1,179)
34
784
1,679
839
(13)
452
(618)
(601)
15,371
8,256
(5,163)
5,680
25,923
(11,458)
(2,380)
-
-
635
21,493
50,384
(30,116)
(3,587)
30,000
(55)
259
(42)
(1,798)
(17,017)
28,028
1,137
66
2
94,129
(2,222)
(91,806)
2,930
55
(71)
(514)
(794)
767
(9)
(94)
-
(527)
11,882
21,897
(3,361)
(26,065)
-
(16,237)
(3,000)
(5,000)
(75)
141
( 31,700)
22,149
14,820
(4,303)
-
(25)
266
(2,788)
(1,782)
(9,514)
18,823
64,892
(995)
10,912
11,907
$ 75,804 $ 10,912
$ 6,812 $ 4,744
1,957
300
133
87
671
1,034
506
(74)
247
-
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 1
NATURE OF OPERATIONS:
F & M Bank Corp. (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 located mainly in Rockingham, Shenandoah, Page and Augusta Counties in
Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division loan production office. The
Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life
Insurance, Inc., Farmers & Merchants Financial Services, Inc, F&M Mortgage, LLC and VSTitle, LLC.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting
principles and to accepted practice within the banking industry. The following is a summary of the more significant
policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Farmers & Merchants Bank, TEB Life Insurance
Company, Farmers & Merchants Financial Services, Inc., F&M Mortgage, LLC, (net of noncontrolling interest) and
VSTitle, LLC. Significant inter-company accounts and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, fair value, pension accounting and the valuation of foreclosed real estate.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market funds whose initial maturity is ninety days or less and
Federal funds sold.
Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent
and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before
maturity. Securities available for sale are carried at fair value, the unrealized holding gains and losses are reported in
other comprehensive income, net of tax. Equity securities are carried at fair value, with changes in fair value reported in
net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, in any, plus
or minus changes resulting from observable price changes in an orderly transaction for the identical or a similar
investment.
The Company follows the accounting guidance related to recognition and presentation of other-than-temporary
impairment. The guidance specifies that if (a) an entity does not have the intent to sell a debt security prior to recovery
and (b) it is more likely than not that the entity will not have to sell the debt security prior to recovery, the security would
not be considered other-than-temporarily impaired, unless there is a credit loss. When criteria (a) and (b) are met, the
entity will recognize the credit component of other-than-temporary impairment of a debt security in earnings and the
remaining portion in other comprehensive income.
38
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Securities, continued
For held-to-maturity debt securities, the amount of other-than-temporary impairment recorded in other comprehensive
income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the
remaining life of the security on the basis of the timing of future estimated cash flows of the security.
For available-for-sale securities, when the Company has decided to sell an impaired available-for-sale security and the
Company does not expect the fair value of the security to fully recover before the expected time of sale, the security is
deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an
impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made. The
Company had no other than temporary impairment in 2019 or 2018.
Other Investments
The Company periodically invests in low income housing partnerships whose primary benefit is the distribution of federal
income tax credits to partners. The Company recognizes these benefits and the cost of the investments over the life of
the partnership. In addition, state and federal historic rehabilitation credits are generated from some of the partnerships.
Amortization of these investments is prorated based on the amount of benefits received in each year to the total estimated
benefits over the life of the projects.
Due to the nature and restrictions placed on the Company's investment in common stock of the Federal Home Loan Bank
of Atlanta ("FHLB") and the Federal Reserve Bank of Richmond, these securities are considered restricted and carried
at cost.
Income Taxes
Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income
tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law
to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of
the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are
recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms
examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position
that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of
tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has
full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-
than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is
subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of
evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties, if any, on income taxes as a component of income tax expense.
39
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Loans Held for Investment
The Company, through its banking subsidiary, provides mortgage, commercial, and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans, particularly commercial and residential
mortgages. The ability of the Company’s debtors to honor their contracts is largely dependent upon the real estate and
general economic conditions in the Company’s market area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off,
generally are reported at their outstanding unpaid principal balance adjusted for the allowance for loan losses, and any
unearned income. Interest income is accrued on the unpaid principal balance. The accrual of interest on loans is
generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of
collection. Loans are typically charged off when the loan is 120 days past due, unless secured and in process of
collection. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest
is considered doubtful.
The Company’s loans are grouped into eleven segments: 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 and dealer finance. Each segment is subject to certain risks that influence the
establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management. The
Company does not segregate the portfolio further.
Construction and land development loans are subject to general risks from changing commercial building and housing
market trends and economic conditions that may impact demand for completed properties and the costs of completion.
Completed properties that do not sell or become leased within originally expected timeframes may impact the
borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates,
housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated,
including previous repayment history, debt service ability, and current and projected loan-to value ratios for the
collateral.
Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value
of the underlying farmland and the cash flows of the borrower’s farming operations.
Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with
the value of the underlying property as well as the successful operation and management of the property.
Real estate loans are for consumer residential real estate where the credit quality is subject to risks associated with the
borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and
bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by
previous repayment history, loan-to-value ratios, and debt-to-income ratios.
40
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Loans Held for Investment, continued
The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower,
and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by
economic risks from changing commercial real estate markets, rental markets for commercial buildings, business
bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the
commercial real estate.
The Company’s home-equity loan portfolios (closed end and open end) carry risks associated with the creditworthiness
of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and
procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for
appraisers.
Commercial and industrial non-real estate loans are secured by collateral other than real estate or are unsecured. Credit
risk for commercial non-real estate loans is subject to economic conditions, generally monitored by local business
bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).
Consumer non-real estate includes non-dealer financed automobile loans and other consumer loans. Certain consumer
loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems
primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All
consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general
risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.
Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the
economic environment. The Company manages these risks through policies and procedures such as experienced
underwriting, maximum debt to income ratios, and minimum borrower credit scores.
Dealer finance lending generally carries certain risks associated with the values of the collateral and borrower’s ability
to repay the loan. The Company focuses its dealer finance lending on used vehicles where substantial depreciation
has already occurred thereby minimizing the risk of significant loss of collateral values in the future.
Interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against
interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying
for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
A loan is considered past due when a payment of principal or interest or both is due but not paid. Management closely
monitors past due loans in timeframes of 30-59 days, 60-89 days, and 90 or more days past due.
These policies apply to all loan portfolio segments.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the
loan agreement. Factors considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest
owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price,
or the fair value of the collateral if the loan is collateral dependent. Troubled debt restructurings are considered
impaired loans.
41
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Loans Held for Sale
These loans consist of fixed rate loans made through the Company’s subsidiary, F&M Mortgage, and loans held for sale
participations with Northpointe Bank, Grand Rapids, Michigan.
F&M Mortgage originates conforming mortgage loans for sale in the secondary market. These loans consist primarily of
fixed-rate, single-family residential mortgage loans which meet the underwriting characteristics of the investors. F&M
Mortgage enters into mortgage loan commitments whereby the interest rate on the loan is determined prior to funding
(rate lock commitments).
The period of time between issuance of a loan commitment and sale of the loan generally ranges from two to three
weeks. F&M Mortgage protects itself from changes in interest rates through the use of best efforts forward delivery
contracts, by committing to sell a loan at the time the borrower commits to an interest rate with the intent that the
buyer has assumed the interest rate risk on the loan. As a result, the Company is not generally exposed to significant
losses nor will it realize significant gains related to its rate lock commitments due to changes in interest rates. The
correlation between the rate lock commitments and the best efforts contracts is very high due to their similarity. The
market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because
rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. F&M Mortgage
determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the estimated
value of the underlying assets while taking into consideration the probability that the loan will be funded. The fair
value of rate lock commitments and best efforts contracts was considered immaterial at December 31, 2019 and 2018.
These loans are pre-sold with servicing released and no interest is retained after the loans are sold. Because of the
short holding period, these loans are carried at the lower of cost or market and no market adjustments were deemed
necessary in 2019 or 2018. Gains on sales of loans and commission expense are recognized at the loan closing date
and are included in insurance, other commissions and mortgage banking income, net on the Company’s consolidated
income statement. At December 31, 2019 and 2018, there was $2,975 and $3,544, respectively, of these loans included
in loans held for sale on the Company’s consolidated balance sheet.
The Bank participates in a Mortgage Purchase Program with Northpointe Bank (Northpointe), a Michigan banking
corporation. Pursuant to the terms of a participation agreement, the Bank purchases participation interests in loans made
by Northpointe related to fully underwritten and pre-sold mortgage loans originated by various prescreened mortgage
loan originators located throughout the United States. A takeout commitment is in place at the time the loans are
purchased. The Bank has participated in similar arrangements since 2003 as a higher yielding alternative to federal funds
sold or investment securities. These loans are short-term, residential real estate loans that have an average life in our
portfolio of approximately two weeks. The Bank holds these loans during the period of time between loan closing and
when the loan is paid off by the ultimate secondary market purchaser. As of December 31, 2019, and 2018, there were
$63,823 and $52,366 million of these loans included in loans held for sale on the Company’s consolidated balance sheet.
Troubled Debt Restructuring
In situations where, for economic or legal reasons related to a borrower's financial condition, management may grant
a concession to the borrower that it would not otherwise consider, the related loan is classified as a troubled debt
restructuring ("TDR"). Management strives to identify borrowers in financial difficulty early and work with them to
modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may
include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the
economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new
terms that provide for a reduction of either interest or principal, management measures any impairment on the
restructuring as noted above for impaired loans. The Company has $5.75 million in loans classified as TDRs that are
current and performing as of December 31, 2019, and $8.03 million as of December 31, 2018.
42
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Allowance for Loan and Losses
The allowance for loan losses represents management’s estimate of probable losses inherent in the Company’s loan
portfolio. A provision for estimated losses is charged to earnings to establish and maintain the allowance for loan
losses at a level reflective of the estimated credit risk. When management determines that a loan balance or portion of
a loan balance is not collectible, the loss is charged against the allowance. Subsequent recoveries, if any, are credited
to the allowance.
Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the
loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and
other risk factors. Management evaluates the allowance each quarter through a methodology that estimates losses on
individual impaired loans and evaluates the effect of numerous factors on the credit risk of each segment of loans.
The Company’s allowance for loan losses has two basic components: the general allowance and the specific allowance.
Each of these components is determined based upon estimates and judgments. The general allowance uses historical loss
experience as an indicator of future losses, along with various qualitative factors, including levels and trends in
delinquencies, nonaccrual loans, charge-offs and recoveries, trends in volume and terms of loans, effects of changes in
underwriting standards, experience of lending staff, economic conditions, and portfolio concentrations.
Except for credit card, all loans are assigned an internal risk rating based on certain credit quality indicators. The period-
end balances for each loan segment are multiplied by the adjusted loss factor. Specific allowances are established for
individually evaluated impaired loans based on the excess of the loan balance relative to the fair value of the collateral,
if the loan is deemed collateral dependent.
Management believes that the allowance for loan losses is adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary based on changes in economic
conditions, particularly those affecting real estate values. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about information available to them at the
time of their examination.
Other Real Estate Owned (OREO)
OREO is held for sale and represents real estate acquired through or in lieu of foreclosure. OREO is initially recorded
at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real
estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of
foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed
in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to carry OREO on its balance
sheet at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
43
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Bank Premises and Equipment
Land is carried at cost and bank premises and equipment are stated at cost less accumulated depreciation. Depreciation
is charged to income over the estimated useful lives of the assets on a combination of the straight-line and accelerated
methods. The ranges of the useful lives of the premises and equipment are as follows:
Premises and Improvements
Furniture and Equipment
10 - 40 years
5 - 20 years
Maintenance, repairs, and minor improvements are charged to operations as incurred. Gains and losses on dispositions
are reflected in other income or expense.
Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets under ASC 805, “Business Combinations” and ASC 350,
“Intangibles”, respectively. Goodwill is subject to at least an annual assessment for impairment by applying a fair
value-based test. Additionally, acquired intangible assets are separately recognized if the benefit of the assets can be
sold, transferred, licensed, rented, or exchanged, and amortized over their useful lives. The Company recorded
goodwill and intangible assets in 2018 related to the purchase of VS Title which was valued by an independent third
party. The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets
acquired. Impairment testing is performed annually, as well as when an event triggering impairment may have
occurred. The Company performs its annual analysis as of December 31 each fiscal year. Accounting guidance permits
preliminary assessment of qualitative factors to determine whether a more substantial impairment testing is required.
The Company chose to bypass the preliminary assessment and utilized a two-step process for impairment testing of
goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. No
indicators of impairment were identified during the years ended December 31, 2019 and 2018.
Pension Plans
The Bank has a qualified noncontributory defined benefit pension plan which covers all full-time employees hired prior
to April 1, 2012. The benefits are primarily based on years of service and earnings. The Company complies with ASC
325-960 “Defined Benefit Pension Plans” which requires recognition of the over-funded or under-funded status of
pension and other postretirement benefit plans on the balance sheet. Under ASC 325-960, gains and losses, prior service
costs and credits, and any remaining transition amounts that have not yet been recognized through net periodic benefit
cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a
component of net periodic cost.
Advertising Costs
The Company follows the policy of charging the cost of advertising to expense as incurred. Total advertising costs
included in other operating expenses for 2019 and 2018 were $701 and $622, respectively.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain employees. Bank owned life insurance is recorded at
the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender
value adjusted for other charges or other amounts due that are probable at settlement.
44
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company – put
presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return
specific assets.
Comprehensive Income
Comprehensive income is shown in a two-statement approach, the first statement presents total net income and its
components followed by a second statement that presents all the components of other comprehensive income such as
unrealized gains and losses on available for sale securities and changes in the funded status of a defined benefit pension
plan.
Derivative Financial Instruments
Under ASC 815, the gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as well as
the offsetting gain or loss on the hedging item attributable to the risk being hedged, is recognized currently in earnings
in the same accounting period. The effective portion of the gain or loss on a derivative designated and qualifying as a
cash flow hedging instrument is initially reported as a component of other comprehensive income and subsequently
reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently in earnings.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge
and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities
identified as exposing the Company to risk. Those derivative financial instruments that do not meet the hedging criteria
discussed below would be classified as trading activities and would be recorded at fair value with changes in fair value
recorded in income. Derivative hedge contracts must meet specific effectiveness tests. Changes in fair value of the
derivative financial instruments must be effective at offsetting changes in the fair value of the hedging items due to the
designated hedge risk during the term of the hedge. Further, if the underlying financial instrument differs from the hedged
asset or liability, there must be a clear economic relationship between the prices of the two financial instruments. If
periodic assessment indicates derivatives no longer provide an effective hedge, the derivatives contracts would be closed
out and settled or classified as a trading activity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as
liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated.
Management does not believe there are any such matters that will have a material effect on the consolidated financial
statements.
Fair Value Measurements
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involved uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets of
particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
45
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Reclassifications
Certain reclassifications have been made in prior years’ financial statements to conform to classifications used in the
current year. These reclassifications had no impact on net income or earnings per share.
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. Diluted EPS is similar to the computation of basic EPS except that 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 common share
calculation.
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:
Dollars in thousands
Earnings Available to Common Stockholders:
Net Income
Net Income attributable to noncontrolling interest
Dividends paid/accumulated on preferred stock
Net Income Available to Common Stockholders
For the year ended
December 31, 2019 December 31, 2018
$ 4,639 $ 8,833
(130)
(10)
(315)
(413)
$ 4,194 $ 8,410
The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for
the periods indicated:
For the year ended
December 31, 2019
December 31, 2018
Net Income
Available to
Common
Stockholders
Weighted
Average
Shares
Per
Share
Amounts
Net Income
Available to
Common
Stockholders
Weighted
Average
Shares
Per
Share
Amounts
Dollars in thousands
Basic EPS
$ 4,194 3,189,288
$ 1.32 $ 8,410
3,238,177
$ 2.60
Effect of Dilutive Securities:
Convertible Preferred Stock
315
270,946
(.02)
413
357,840
(0.15)
Diluted EPS
$ 4,509 3,460,234
$ 1.30 $ 8,823
3,596,017
$ 2.45
46
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements
During June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require
the measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations
will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation
techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full
amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale
debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for
SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. All other
entities will be 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 for all of 2020 and all data has
been archived under the current model.
During January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to
test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill
impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that
goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option
to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments
in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—
Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments modify the disclosure
requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative
description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified.
The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively.
Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 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.
47
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements, continued
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—
Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies and
improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and
measurement including improvements resulting from various TRG Meetings. The amendments are effective for fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.
The Company is currently assessing the impact that ASU 2019-04 will have on its consolidated financial statements.
In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted
Transition Relief.” The amendments in this ASU provide entities that have certain instruments within the scope of
Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-
by-instrument basis for eligible instruments, upon the adoption of Topic 326. The fair value option election does not
apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently measure those
instruments at fair value with changes in fair value flowing through earnings. The amendments are effective for fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be
applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of
retained earnings balance in the balance sheet. Early adoption is permitted. The Company is currently assessing the
impact that ASU 2019-05 will have on its consolidated financial statements.
In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments
– Credit Losses.” This ASU addresses issues raised by stakeholders during the implementation of ASU No. 2016-13,
“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries.
“Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the
amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that
amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected
recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known
as PCD assets). In response to this question, the ASU permits organizations to record expected recoveries on PCD
assets. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits
organizations from recording negative allowances for available-for-sale debt securities. The ASU includes effective
dates and transition requirements that vary depending on whether or not an entity has already adopted ASU 2016-13.
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 for all of 2020 and all data has been archived under the
current model.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for
Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by
removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze
whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain
income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope
simplifications and improvements to accounting standards through a series of short-term projects. For public business
entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within
those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-05
will have on its consolidated financial statements.
48
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements, continued
In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions
between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force
and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted
improvements to accounting for financial instruments, including providing an entity the ability to measure certain
equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting
from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Among other topics, the amendments clarify that an entity should consider observable transactions that require it to
either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU
are effective for fiscal years beginning after December 31, 2020, and interim periods within those fiscal years. Early
adoption is permitted The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated
financial statements.
NOTE 3 – CORRECTION OF PRIOR PERIOD IMMATERIAL ERROR
In November 2019, the Company identified an immaterial error in its previously issued Consolidated Financial
Statements related to the amortization of dealer commissions paid to originate indirect auto loans due to a system
input error that was not previously identified. As a result, the Company determined the date of the system input error
and the proper amount of the amortization that should have been recorded for 2018 and the amount related to prior
periods.
In evaluating whether the previously issued Consolidated Financial Statements were materially misstated for the
interim or annual periods prior to December 31, 2019, the Company applied the guidance of ASC 250, Accounting
Changes and Error Corrections, SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Assessing Materiality and SAB
Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements and concluded that the effect of the errors on prior period annual financial statements was
immaterial; however, the cumulative effect of correcting all of the prior period misstatements in the current year would
be material to the current year consolidated financial statements. The guidance states that prior-year misstatements
which, if corrected in the current year would materially misstate the current year’s financial statements, must be
corrected by adjusting prior year financial statements, even though such correction previously was and continues to
be immaterial to the prior-year financial statements. Correcting prior-year financial statements for such immaterial
misstatements does not require previously filed reports to be amended.
The cumulative effect of adjustments required to correct the misstatements in the financial statements for years prior
to 2019 are reflected in the 2018 financial statements. The cumulative effect of those adjustments on all periods prior
to 2018 decreased retained earnings as of December 31, 2017 by $248 thousand. The Consolidated Balance Sheet and
Statements of Income, Changes in Stockholders' Equity, and Cash Flows have been adjusted to reflect the correction
for the year ended December 31, 2018.
49
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 3 – CORRECTION OF PRIOR PERIOD IMMATERIAL ERROR (CONTINUED)
The Company’s consolidated financial statements have been adjusted from the amounts previously reported to
correct these errors as follows:
Consolidated Balance Sheets
As of December 31, 2018
Other assets
Retained earnings
Consolidated Statements of Income
For the year ended December 31, 2018
Interest and fees on loans held for investment
Income Tax Expense
Net Income
Net Income attributable to F & M Bank Corp
Net income available to common stockholders
Net income – basic
Net income – diluted
Consolidated Statements of Cash Flows
For the year ended December 31, 2018
Net income
Originally
Reported Adjustment Corrected
As
$
$
13,393 $
65,596 $
(510) $ 12,883
(510) $ 65,086
Originally
Reported Adjustment Corrected
As
$
$
$
$
$
$
$
35,065 $
1,110 $
9,095 $
9,085 $
8,672 $
2.68 $
2.53 $
(331) $ 34,734
1,041
8,833
8,823
8,410
2.60
2.45
69 $
(262) $
(262) $
(262) $
(0.08) $
(0.08) $
Originally
Reported Adjustment Corrected
As
$
9,095 $
(262) $
8,833
The correction of the errors affected Regulatory Capital as follows:
Actual
Minimum Capital
Requirement
Minimum to be Well
Capitalized Under Prompt
Corrective Action
Provisions
December 31, 2018
originally reported
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total risk-based ratio
Tier 1 risk-based ratio
Common equity tier 1
Total assets leverage ratio
$ 95,597 14.44%
$ 90,357 13.65%
$ 90,357 13.65%
$ 90,357 11.79%
$ 52,955
$ 39,717
$ 29,787
$ 30,659
8.00%
6.00%
4.50%
4.00%
$ 66,194 10.00%
$ 52,955 8.00%
$ 43,026 6.50%
$ 38,324 5.00%
December 31, 2018 as
corrected
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total risk-based ratio
Tier 1 risk-based ratio
Common equity tier 1
Total assets leverage ratio
$ 95,335 14.41%
$ 90,095 13.62%
$ 90,095 13.62%
$ 90,095 11.76%
$ 52,915
$ 39,686
$ 29,764
$ 30,639
8.00%
6.00%
4.50%
4.00%
$ 66,143 10.00%
$ 52,915 8.00%
$ 42,993 6.50%
$ 38,299 5.00%
See Note 22 for additional information on Regulatory Matters.
NOTE 4
CASH AND DUE FROM BANKS:
The Bank may be required to maintain average reserve balances based on a percentage of deposits. Due to the deposit
reclassification procedures implemented by the Bank, there is no Federal Reserve Bank reserve requirement for the years
ended December 31, 2019 and 2018.
50
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 5
SECURITIES:
The amortized cost and fair value, with unrealized gains and losses, of securities held to maturity were as follows:
December 31, 2019
U. S. Treasuries
December 31, 2018
U. S. Treasuries
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 124
$ - $ -
$ 124
$ 123
$ -
$ -
$ 123
The amortized cost and fair value of securities available for sale are as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
December 31, 2019
U. S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Corporate debt security
Total Securities Available for Sale
December 31, 2018
U. S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Total Securities Available for Sale
$ 2,000 $ - $ 11
-
2
1
-
$ 2 $ 12 $ 4,366
$ 1,989
319
2,058
317
2,059
4,376
$
7,999
409
$ 8,408
-
-
$ -
113
6
$ 119
7,886
403
$ 8,289
The amortized cost and fair value of securities at December 31, 2019, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Securities Held to Maturity
Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair Value
Due in one year or less
$ 124 $ 124 $ - $ -
Due after one year through five years
Due after five years through ten years
-
-
-
-
4,059
317
4,047
319
Due after ten years
Total
-
-
-
-
$ 124 $ 124 $ 4,376 $ 4,366
There were no sales of debt or equity securities during 2019 or 2018. There were no pledged securities at December 31,
2019 or 2018.
Other investments consist of investments in twenty-one low-income housing and historic equity partnerships (carrying
basis of $8,529), stock in the Federal Home Loan Bank (carrying basis of $3,392), and various other investments
(carrying basis of $1,469). The interests in the low-income housing and historic equity partnerships have limited
transferability and the interests in the other stocks, except for $135, are restricted as to sales. The market values of these
securities are estimated to approximate their carrying values as of December 31, 2019. At December 31, 2019, the
Company was committed to invest an additional $3,351 in five low-income housing limited partnerships. These funds
will be paid as requested by the general partner to complete the projects. This additional investment has been reflected
in the above carrying basis and in accrued liabilities on the balance sheet.
51
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 5
SECURITIES (CONTINUED):
The primary purpose of the investment portfolio is to generate income and meet liquidity needs of the Company through
readily saleable financial instruments. The portfolio includes fixed rate bonds, whose prices move inversely with rates
and variable rate bonds. At the end of any accounting period, the investment portfolio has unrealized gains and losses.
The Company monitors the portfolio, which is subject to liquidity needs, market rate changes and credit risk changes for
other than temporary impairment. The primary concern in a loss situation is the credit quality of the issuer behind the
instrument. Bonds deteriorate in value due to credit quality of the individual issuer and changes in market conditions.
A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of
December 31, 2019 and 2018 were as follows:
Less than 12 Months
Unrealized
Losses
Fair
Value
More than 12 Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
December 31, 2019
U. S. Government sponsored enterprises
Other debt securities
Total
$ 1,989 $ 11 $ - $ - $ 1,989 $ 11
1
2,058
$ 12
$ 4,047
2,058
-
$ - $ 4,047
1
$ 12
-
$ -
December 31, 2018
U. S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Total
Less than 12 Months
More than 12 Months
Fair
Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Unrealized
Losses
Fair Value
$ -
-
$ -
$ -
-
$ -
$ 7,886 $ (113) $ 7,886
403
(6)
403
$ (119) $ 8,289
$ 8,289
$ (113)
(6)
$ (119)
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently
when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the
extent to which the fair value has been less than the cost, (2) the financial condition and near-term prospects of the issuer,
and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery of fair value. The Company does not intend to sell these securities and it is more likely than
not that the Company will not be required to sell these securities before recovery of their amortized cost. As of December
31, 2019, the Company did not hold any security that was other-than-temporarily impaired. There were two securities
in an unrealized loss position, these securities were not in an unrealized loss position for more than twelve months. The
Company did not recognize any other-than-temporary impairment losses in 2019 or 2018.
NOTE 6
LOANS:
Loans held for investment as of December 31, 2019, and 2018 were as follows:
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
52
2018
2019
$ 61,659
$ 77,131
17,030
29,718
192,278
178,267
9,665
5,364
147,342
129,850
11,039
9,523
53,197
47,774
36,021
33,535
9,861
10,165
97,523
78,976
3,122
3,184
$ 603,425 $ 638,799
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 6
LOANS (CONTINUED):
The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of
Atlanta totaling $178,253 and $186,673 as of December 31, 2019 and 2018, respectively. The Company maintains a
blanket lien on its entire residential real estate portfolio and certain commercial and home equity loans.
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
December 31, 2019, and 2018 were $66,798 and $55,910, respectively.
The following is a summary of information pertaining to impaired loans:
December 31, 2019
Recorded
Investment
Unpaid
Principal
Balance
December 31, 2018
Unpaid
Related
Recorded
Principal
Related
Allowance
Investment
Balance
Allowance
Impaired loans without a valuation allowance:
Construction/Land Development
$ 2,042
$ 2,042 $ - $ 2,414
$ 2,414
$ -
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
-
5,131
-
1,302
716
-
17
-
-
-
5,131
-
1,302
716
-
17
-
-
-
-
-
-
-
-
-
-
-
1,941
1,932
-
1,941
1,932
-
6,176
6,176
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
79
79
-
32
32
-
9,287
9,287
-
12,495
12,495
-
1,036
1,933
10,404
-
638
-
151
192
4
-
2,061
1,933
10,404
-
638
-
151
192
4
-
85
537
569
-
213
-
151
192
1
-
4,311
-
422
-
-
-
-
-
8
4,871
1,627
-
422
-
1,500
-
-
-
8
-
7
-
-
-
-
-
2
-
-
-
136
136
7
194
194
10
14,494
15,519
1,755
4,935
6,995
1,646
Total impaired loans
$ 23,781
$ 24,806 $ 1,755 $ 17,430 $ 19,490
$ 1,646
The Recorded Investment is defined as the principal balance less principal payments and charge-offs.
53
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 6
LOANS (CONTINUED):
The following is a summary of the average investment and interest income recognized for impaired loans (dollars in
thousands):
December 31, 2019
December 31, 2018
Average
Recorded
Investment
Interest
Income
Average
Recorded
Interest
Income
Recognized
Investment
Recognized
Impaired loans without a valuation allowance:
Construction/Land Development
$ 1,957 $ 130 $ 3,586
$ 89
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
971
-
1,963
80
5,965
312
1,542
98
-
1,605
539
40
15
-
-
-
72
57
-
2
-
-
-
2,304
-
-
-
-
-
-
286
-
-
-
-
-
55
5
28
5
11,147
2,248
967
3,121
-
2,542
-
38
97
4
-
578
68
16
589
-
36
-
10
13
-
-
9,423
6,352
-
554
-
4,167
558
91
-
23
-
-
-
-
-
-
10
-
-
1
-
-
166
11
206
14
9,183
743
11,289
129
Total impaired loans
$ 20,330 $ 1,321 $ 20,712
$ 687
54
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 6
LOANS (CONTINUED):
The following table presents the aging of the recorded investment of past due loans:
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
$ 117 $ 45 $ 1,255 $ 1,417 $ 75,714 $ 77,131 $ 1,301 $ -
27
2,440
-
563
-
429
726
-
1,035
-
-
-
296
4
1,933
837
-
137
-
15
-
1,960
4,312
-
700
-
740
730
27,758
173,955
5,364
129,150
9,523
47,034
32,805
29,718
178,267
5,364
129,850
9,523
47,774
33,535
1,933
420
-
900
-
-
203
-
619
-
-
-
15
-
-
89
84
1,943
31
4
$ 6,365 $ 1,794 $ 4,379 $ 12,538 $ 590,887 $ 603,425 $ 5,007 $ 722
1
10,165
249
78,976
3,122 -
10,062
76,435
3,087
103
2,541
35
14
400
-
-
198
4
December 31, 2019
Construction/Land
Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed
end
Home Equity – open end
Commercial & Industrial
– Non- Real Estate
Consumer
Dealer Finance
Credit Cards
Total
30-59
Days Past
due
60-89
Days
Past
Due
Greater
than 90
Days
Total Past
Due
Current
Total Loan
Receivable
Recorded
Investment
>90 days
&
accruing
Non-
Accrual
Loans
$ 290
$ -
$ 1,767
$ 2,057 $ 59,602
$ 61,659 $ 2,327
$ -
-
3,074
-
479
-
148
40
-
677
-
189
-
171
22
-
1,729
-
5,073
12
320
80
-
5,480
-
5,741
12
639
142
17,030
186,798
9,665
141,601
11,027
52,558
35,879
17,030
192,278
9,665
147,342
11,039
53,197
36,021
-
1,477
-
5,074
-
269
98
-
726
-
-
12
51
-
89
2,763
50
$ 6,933
26
337
11
$ 1,433
3
96
9
$ 9,089
118
3,196
70
$ 17,455
9,743
94,327
3,114
$ 621,344
9,861
97,523
3,184
5
155
-
$ 638,799 $ 9,405
2
9
-
$ 800
December 31, 2018
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
55
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 7 ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses (in thousands) for the years ended December 31, 2019 and 2018
is as follows:
December 31, 2019
Allowance for loan losses:
Beginning
Balance
Charge-
offs
Recoveries
Provision
for Loan
Losses
Ending
Balance
Individually
Evaluated
for
Impairment
Collectively
Evaluated
for
Impairment
Construction/Land Development
$ 2,094 $ 2,319 $ 50 $ 1,365 $ 1,190 $ 85 $ 1,105
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
292
10
416
13
126
192
70
1,974
-
32
-
677
1
126
127
116
2,118
-
4
-
16
2
1
81
44
1,144
653
1,309
10
2,060
28
456
439
188
786
668
1,573
20
1,815
42
457
585
186
1,786
537
131
569
1,004
-
213
-
151
192
1
7
20
1,602
42
306
393
185
1,779
38
110
29
111
68 -
68
$ 5,240 $ 5,626 $ 1,371 $ 7,405 $ 8,390 $ 1,755 $ 6,635
December 31, 2018
Allowance for loan losses:
Beginning
Balance
Charge-
offs
Recoveries
Provision
for Loan
Losses
Ending
Balance
Individually
Evaluated
for
Impairment
Collectively
Evaluated
for
Impairment
Construction/Land Development
$ 2,547 $ 489 $ 122 $ (86) $ 2,094 $ 1,627 $ 467
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
25
719
19
482
66
209
337
148
1,440
- -
(10)
(340)
(9)
1,479
(54)
(91)
337
99
-
1,546
3
-
573
51
2,083
12
-
1
4
8
91
41
861
(68)
1,756
70
1,974
15
292
10
416
13
126
192
-
7
-
-
-
-
-
2
10
15
285
10
416
13
126
192
68
1,964
52
76
46
16
38 -
38
$ 6,044 $ 4,920 $ 1,186 $ 2,930 $ 5,240 $ 1,646 $ 3,594
56
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 7
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
The following table presents the recorded investment in loans (in thousands) based on impairment method as of
December 31, 2019 and 2018:
December 31, 2019
Loan Receivable
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
Construction/Land Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed end
Home Equity –open end
Commercial & Industrial – Non-Real Estate
Consumer
Dealer Finance
Credit Cards
Total
December 31, 2018
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
$ 77,131 $ 3,078 $ 74,053
29,718
178,267
5,364
129,850
9,523
47,774
33,535
10,165
78,976
3,122
$ 603,425
1,933
15,535
-
1,940
716
151
209
4
215
-
$ 23,781
27,785
162,732
5,364
127,910
8,807
47,623
33,326
10,161
78,761
3,122
$ 579,644
Loan Receivable
$ 61,659
17,030
192,278
9,665
147,342
11,039
53,197
36,021
9,861
97,523
3,184
$ 638,799
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
$ 6,725
1,941
2,354
-
6,176
-
-
-
8
226
-
$ 17,430
$ 54,934
15,089
189,924
9,665
141,166
11,039
53,197
36,021
9,853
97,297
3,184
$ 621,369
57
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
NOTE 7
During the second quarter of 2019, Management reduced the historical net charge off lookback period from five years
to two years for all segments given recent asset quality trends and charge off experience. Management believes the
two-year lookback period is more indicative of the risk remaining in the loan portfolio.
Calculated Provision
Based on Prior
Methodology
This change and the effect on provision expense for the twelve months ended December 31, 2019 was as follows:
Calculated Provision
Based on Current
Methodology
$ 1,365
653
1,309
10
2,060
28
456
439
188
786
111
$ 7,405
$ 1,008 $ 357
-
653
25
1,284
-
10
587
1,473
(2)
30
(19)
475
116
323
23
165
-
786
100
11
$ 6,307 $ 1,098
Construction and Development
Farmland
Real Estate
Multi-Family
Commercial RE
Home Equity - Closed End
Home Equity - Open End
C&I - Non - RE
Consumer
Dealer Finance
Credit Cards
Difference
The following table shows the Company’s loan portfolio broken down by internal loan grade (in thousands) as of
December 31, 2019 and 2018:
December 31, 2019
Construction/Land
Development
Farmland
Real Estate
Multi-Family
Commercial Real
Estate
Home Equity –
closed end
Home Equity – open
end
Commercial &
Industrial (Non-Real
Estate)
Consumer (excluding
dealer)
Total
Performing
Non performing
Total
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
$ - $ 615 $ 21.904
9,479
48,308
1,327
363
1,900
-
60
-
-
$ 41,693 $ 8,218
2,942
23,876
153
13,754
81,371
3,711
$ 2,434 $ 2,267
1,932
17,177
-
1,188
5,635
173
$ - $ 77,131
29,718
178,267
5,364
-
-
-
-
-
2,465
40,227
67,626
14,139
4,397
189
2,999
3,816
1,154
1,365
17
1,965
17,789
22,705
3,769
1,198
142
2,042
12,818
15,035
2,877
373
996
-
331
248
-
-
-
-
129,850
9,523
47,774
33,535
170
6
$ 225 $ 9,709
3,476
$158,327
4,726
$ 254,437
1,729
56
$ 58,857 $16,819
2
-
$ 22,953 $ -
10,165
$ 521,327
Credit Cards
Dealer
Finance
$ 3,118 $ 78,529
4
$ 3,122 $ 78,976
447
58
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2018 and 2017
NOTE 7
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
December 31, 2018
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
Performing
Non performing
Total
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
$ - $ 1,148 $ 15,857
4,953
55,429
2,895
-
1,644
-
62
-
-
$ 29,301
6,376
106,387
6,604
$ 9,353
3,205
22,679
166
$ -
493
1,531
-
$ 6,000 $ -
-
-
-
1,941
4,608
-
-
2,437
44,065
81,916
11,564
2,286
5,074
-
31
3,245
5,842
60
1,554
19,464
27,347
1,909
4,157
-
223
12
392
193
2,291
17,144
13,254
2,704
337
98
-
-
-
-
Total
$ 61,659
17,030
192,278
9,665
147,342
11,039
53,197
36,021
190
27
$ 342 $ 9,295
2,648
$165,700
5,192
$ 282,219
1,800
$ 57,537
-
$ 4,870
4
-
$ 18,129 $ -
9,861
$538,092
Credit Cards Dealer Finance
$ 3,175 $ 97,368
155
$ 3,184 $ 97,523
9
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 by 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.
59
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 7
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income
statement trends. There may be a lack of effective control over collateral or the existence of documentation
deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other
reasons supporting this classification include adverse economic or market conditions, pending litigation or
any other material weakness. Existing loans that become 60 or more days past due are placed in this category
pending a return to current status.
Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is
possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or
terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately
protected by the current net worth and paying capacity of the borrower and there is the likelihood that
collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is
considered collectible as to both principal and interest, primarily because of collateral coverage, however, if
the deficiencies are not corrected quickly; there is a probability of loss.
Grade 8 – Doubtful: Loans having 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 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 for loan loss methodology. Defaults resulting in charge-offs affect the
historical loss experience ratios which are a component of the allowance calculation. Additionally, specific reserves
may be established on troubled debt restructured loans which are evaluated individually for impairment.
During the twelve months ended December 31, 2019, the Bank modified 7 loans that were considered to be troubled
debt restructurings. These modifications 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.
(dollars in thousands)
Troubled Debt Restructurings
Real Estate
Home Equity
Commercial
Consumer
Total
Number of Contracts
1
1
1
4
7
December 31, 2019
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
$ 190 $ 190
716
17
716
17
$ 29 $ 29
$ 952 $ 952
60
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2018 and 2017
NOTE 8
TROUBLED DEBT RESTRUCTURING (CONTINUED):
As of December 31, 2019, there were 2 loans restructured in the previous twelve months, in default. A restructured
loan is considered in default when it becomes 30 days past due.
(dollars in thousands)
Troubled Debt Restructurings
Number of Contracts
December 31, 2019
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
Consumer
Total
2
2
$ 18
$ 18
$ 18
$ 18
During the twelve months ended December 31, 2018, the Bank modified 21 loans that were considered to be troubled
debt restructurings. These modifications 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.
(dollars in thousands)
Troubled Debt Restructurings
Number of Contracts
December 31, 2018
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
Real Estate
Commercial
Consumer
Total
1
2
18
21
$ 742 $ 742
1,248
$ 183 $ 183
$ 2,173 $ 2,173
1,248
As of December 31, 2018, there were 5 loans restructured in the previous twelve months, in default. A restructured
loan is considered in default when it becomes 30 days past due.
(dollars in thousands)
Troubled Debt Restructurings
Number of Contracts
December 31, 2018
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
Real Estate
Consumer
Total
2
3
5
$ 142 $ 142
12
12
$ 154
$ 154
NOTE 9
BANK PREMISES AND EQUIPMENT:
Bank premises and equipment as of December 31 are summarized as follows:
Land
Buildings and improvements
Furniture and equipment
Less - accumulated depreciation
Net
2019
2018
$ 4,508
16,038
10,425
30,971
(12,040)
$ 18,931
$ 3,887
14,370
10,438
28,695
(10,929)
$ 17,766
Depreciation of $1,228 in 2019 and $1,137 in 2018 were charged to operations.
61
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 10
OTHER REAL ESTATE OWNED:
The table below reflects other real estate owned (OREO) activity for 2019 and 2018:
Other Real Estate Owned
Balance as of January 1
Loans transferred to OREO
Capital improvements
Sale of OREO
Write down of OREO or losses on sale
Balance as of December 31
Activity in the valuation allowance was as follows:
Balance as of January 1
Provision (recoveries) charged/(credited) to expense
Reductions from sales of real estate owned
Balance as of December 31
(Income) expenses related to foreclosed assets include:
Net loss (gain) on sales
Gain on foreclosure
Provision/(recoveries) for unrealized losses
Operating expenses, net of rental income
(Income) expenses related to foreclosed assets
2019
2018
$ 2,443 $ 1,984
600
133
-
-
(132)
(635)
(9)
(452)
$ 1,489 $ 2,443
2019
2018
$ 861 $ 885
(10)
354
(36)
(34)
$ 1,181 $ 861
2019
2018
$ 122 $ 9
(94)
(24)
354
(10)
64
65
$ 517 $ (31)
At December 31, 2019, the balance of real estate owned includes $133 of foreclosed residential real estate properties
recorded as a result of obtaining physical possession of the property. At December 31, 2019, the recorded investment of
consumer mortgage loans secured by residential real estate properties for which formal foreclosure procedures are in
process is $643.
NOTE 11
DEPOSITS:
Time deposits that meet or exceed the FDIC insurance limit of $250 at year end 2019 and 2018 were $9,386 and $13,464.
At December 31, 2019, the scheduled maturities of all time deposits are as follows:
2020
2021
2022
2023
2024
Thereafter
Total
$ 62,076
42,578
13,938
10,478
10,092
-
$ 139,162
62
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 12
SHORT-TERM DEBT:
Short-term debt, all maturing within 12 months, as of December 31, 2019 and 2018 is summarized as follows:
2019
Federal funds purchased
FHLB short term
Totals
2018
Federal funds purchased
FHLB short term
Totals
Maximum Outstanding
at any Month End
Outstanding
At
Average
Balance
Year End Outstanding
Yield
$ 10,715 $ -
10,000
45,000
$ 10,000
$ 861 2.67%
2.48%
26,822
2.49%
$ 27,683
$ 11,906
46,000
$ 10,116
30,000
$ 40,116
$ 1,399
22,937
$ 24,336
2.51%
1.83%
1.87%
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 needs of the Company.
As of December 31, 2019, the Company had unsecured lines of credit with correspondent banks totaling $41,000 which
may be used in the management of short-term liquidity, on which none was outstanding.
NOTE 13
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 .81% to 2.56%; the weighted average interest rate was
1.85% and 1.96% at December 31, 2019 and December 31, 2018, respectively. The balance of these obligations at
December 31, 2019 and 2018 were $53,197 and $40,125 respectively. FHLB advances include a $6,000 letter of credit
at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.
The maturities of long-term Federal Home Loan Bank long term debt as of December 31, 2019, were as follows:
2020
2021
2022
2023
2024
Thereafter
Total
$ 14,429
5,929
12,714
7,000
1,875
11,250
$ 53,197
VSTitle, LLC has a note payable for vehicle purchases with a balance of $4 and $8 at December 31, 2019 and 2018,
respectively.
63
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 14
INCOME TAX EXPENSE:
The components of income tax expense were as follows:
Current expense
Deferred expense (benefit)
Total deferred (benefit) expense
Total Income Tax Expense (Benefit)
The components of deferred taxes as of December 31, were as follows:
Deferred Tax Assets:
Allowance for loan losses
Split Dollar Life Insurance
Nonqualified deferred compensation
Low income housing partnerships losses
Core deposit amortization
Other real estate owned
Lease Liability
Net unrealized loss on securities available for sale
Unfunded pension benefit obligation
Total Assets
Deferred Tax Liabilities:
Unearned low income housing credits
Depreciation
Prepaid pension
Goodwill tax amortization
Right of Use Asset
Total Liabilities
Net Deferred Tax Asset (included in Other Assets on Balance Sheet)
2019
2018
$ 929 $ 985
55
(1,179)
55
(1,179)
$ 1,041
$ (250)
2019
2018
$ 1,757 $ 1,096
3
3
564
692
279
320
13
19
173
178
-
192
25
2
852
1,030
$ 4.015 $ 3,183
2019
2018
$ 118 $ 158
403
849
564
-
1,974
$ 2,186 $ 1,209
487
464
568
192
1,829
The following table summarizes the differences between the actual income tax expense and the amounts computed using
the federal statutory tax rates:
Tax expense at federal statutory rates
Increases (decreases) in taxes resulting from:
Partially tax-exempt income
Tax-exempt income
LIH and historic credits
Other
Total Income Tax Expense (Benefit)
2019
2018
$ 904 $ 2,104
(49)
(44)
(146)
(161)
(900)
(966)
17
32
$ (250) $ 1,041
The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no
liability related to uncertain tax positions in accordance with accounting guidance related to income taxes.
The Company and its subsidiaries file federal income tax returns and state income tax returns. With few exceptions,
the Company is no longer subject to federal or state income tax examinations by tax authorities for years before 2016.
64
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 15
EMPLOYEE BENEFITS:
Defined Benefit Pension Plan
The Company has a qualified noncontributory defined benefit pension plan which covers substantially all of its
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 following table provides a reconciliation of the changes in the benefit obligations and fair value of plan assets for
2019 and 2018:
Change in Benefit Obligation
Benefit obligation, beginning
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Settlement (gain) loss
Benefit obligation, ending
Change in Plan Assets
Fair value of plan assets, beginning
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets, ending
Funded status at the end of the year
2019
2018
$ 14,219 $ 15,103
768
738
497
548
(1,562)
2,056
(587)
(3,910)
(336)
-
$ 13,315 $ 14,219
$ 12,445 $ 13,645
(613)
2,008
-
-
(3,910)
(587)
$ 10,543 $ 12,445
$ (2,772) $ (1,774)
The fair value of plan assets is measured based on the fair value hierarchy as discussed in Note 21, “Fair Value
Measurements” to the Consolidated Financial Statements. The valuations are based on third party data received as of
the balance sheet date. All plan assets are considered Level 1 assets, as quoted prices exist in active markets for
identical assets.
65
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 15
EMPLOYEE BENEFITS (CONTINUED):
Defined Benefit Pension Plan, continued
Amount recognized in the Consolidated Balance Sheet
Prepaid benefit cost
Unfunded pension benefit obligation under ASC 325-960
Deferred taxes
Amount recognized in accumulated other
comprehensive income (loss)
Net loss
Prior service cost
Amount recognized
Deferred taxes
Amount recognized in accumulated comprehensive (loss)
Prepaid benefit detail
Benefit obligation
Fair value of assets
Unrecognized net actuarial loss
Unrecognized prior service cost
Prepaid benefits
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net loss due to settlement
Recognized net actuarial loss
Net periodic benefit cost
2019
2018
$ 1,286 $ 3,131
(4,905)
1,030
(4,056)
852
$ (4,067) $ (4,932)
27
11
(4,905)
(4,056)
852 1,030
$ (3,204) $ (3,875)
$ (13,313) $ (14,219)
12,445
10,543
4,932
4,067
(27)
(11)
$ 1,286 $ 3,131
$ 738 $ 768
496
548
(923)
(807)
(15)
(15)
-
1,100
281
303
$ 1,845 $ 629
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss)
Net loss
Amortization of prior service cost
Total recognized in other comprehensive (loss)
$ (864) $ (328)
15
15
$ (849) $ (313)
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
$ 996 $ 316
Additional disclosure information
Accumulated benefit obligation
Vested benefit obligation
Discount rate used for net pension cost
Discount rate used for disclosure
Expected return on plan assets
Rate of compensation increase
Average remaining service (years)
$ 9,720 $ 10,992
$ 9,713 $ 10,983
3.50%
4.25%
7.25%
3.00%
12
4.25%
3.25%
7.25%
3.00%
12.35
66
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 15
EMPLOYEE BENEFITS (CONTINUED):
Funding Policy
Due to the current funding status of the plan, the Company did not make a contribution in 2019 or 2018. The net periodic
pension cost of the plan for 2020 will be approximately $703. In 2019, due to recent retirements, the Company was
subject to a settlement charge totaling $1,100. The Company is not expected to be subject to settlement accounting in
2020.
Long-Term Rate of Return
The Company, as plan sponsor, selects the expected long-term rate of return on assets assumption in consultation with
investment advisors and the plan actuary. This rate is intended to reflect the average rate of earnings expected to be
earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially
with respect to real rates of return (net of inflation) for the major asset classes held or anticipated to be held by the trust.
Undue weight is not given to recent experience, which may not continue over the measurement period, with higher
significance placed on current forecasts of future long-term economic conditions.
Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, and solely for this
purpose, the plan is assumed to continue in force and not terminate during the period during which the assets are
invested. However, consideration is given to the potential impact of current and future investment policy, cash flow
into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the
extent such expenses are not explicitly estimated within periodic cost).
Asset Allocation
The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return,
with a targeted asset allocation of 39% fixed income and 61% equity. The Investment Manager selects investment fund
managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the
implementation of the Plan’s investment strategy. The Investment Manager will consider both actively and passively
managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.
The pension plan’s allocations as of December 31, 2019 and 2018 were 60% equity and 40% fixed and 58% equity and
42% fixed, respectively.
Estimated Future Benefit Payments, which reflect expected future service, as appropriate, as of December 31, 2019,
are as follows:
2020
2021
2022
2023
2024
2025-2029
$ 855
101
1,759
906
134
5,967
$ 9,722
67
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 15
EMPLOYEE BENEFITS (CONTINUED):
Employee Stock Ownership Plan (ESOP)
The Company sponsors an ESOP which provides stock ownership to substantially all employees of the Company. The
Plan provides total vesting upon the attainment of five years of service. Contributions to the plan are made at the
discretion of the Board of Directors and are allocated based on the compensation of each employee relative to total
compensation paid by the Company. All shares issued and held by the Plan are considered outstanding in the computation
of earnings per share. Dividends on Company stock are allocated and paid to participants at least annually. Shares of
Company stock, when distributed, have restrictions on transferability. The Company contributed $406 in 2019 and $443
in 2018 to the Plan and charged this expense to operations. The shares held by the ESOP totaled 193,549 and 203,147
at December 31, 2019 and 2018, respectively.
401(K) Plan
The Company sponsors a 401(k) savings plan under which eligible employees may choose to save up to 20 percent of
their salary on a pretax basis, subject to certain IRS limits. Under the Federal Safe Harbor rules employees are
automatically enrolled at 3% (this increases by 1% per year up to 6%) of their salary unless elected otherwise. The
Company matches one hundred percent of the first 1% contributed by the employee and fifty percent from 2% to 6% of
employee contributions. Vesting in the contributions made by the Company is 100% after two years of service.
Contributions under the plan amounted to $289 and $283 in 2019 and 2018, respectively.
Deferred Compensation Plan
The Company has a nonqualified deferred compensation plan for several of its key employees and directors. The
Company may make annual contributions to the plan, and the employee or director has the option to defer a portion of
their salary or bonus based on qualifying annual elections. Contributions to the plan totaled $125 in 2019 and $125 in
2018. A liability is accrued for the obligation under the plan and totaled $3,713 and $3,170 at December 31, 2019 and
2018, respectively.
Investments in Life Insurance Contracts
The Bank currently offers a variety of benefit plans to all full-time employees. While the costs of these plans are generally
tax deductible to the Bank, the cost has been escalating greatly in recent years. To help offset escalating benefit costs and
to attract and retain qualified employees, the Bank purchased Bank Owned Life Insurance (BOLI) contracts that will
provide benefits to employees during their lifetime. Dividends received on these policies are tax-deferred and the death
benefits under the policies are tax exempt. Rates of return on a tax-equivalent basis are very favorable when compared
to other long-term investments which the Bank might make. The accrued liability related to the BOLI contracts was
$477 and $466 for December 31, 2019 and 2018, respectively.
NOTE 16
CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks in excess of FDIC insurance limits totaling $975 and $2,195
at December 31, 2019 and 2018, respectively.
The Company grants commercial, residential real estate and consumer loans to customers located primarily in the
northwestern portion of the State of Virginia. There were no loan concentration areas greater than 25% of capital.
Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the
financial condition of the borrower. As of December 31, 2019, approximately 79% of the loan portfolio was secured by
real estate.
68
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 17
COMMITMENTS:
The Company makes commitments to extend credit in the normal course of business and issues standby letters of credit
to meet the financing needs of its customers. The amount of the commitments represents the Company's exposure to
credit loss that is not included in the consolidated balance sheet. As of the December 31, 2019 and 2018, the Company
had the following commitments outstanding:
Commitments to extend credit
Standby letters of credit
2019
2018
$ 174,925 $ 169,863
2,119
2,369
The Company uses the same credit policies in making commitments to extend credit and issue standby letters of credit
as it does for the loans reflected in the consolidated balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. Collateral required, if any, upon extension of credit is based on management's
credit evaluation of the borrower’s ability to pay. Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment.
NOTE 18 ON BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
Mortgage Banking Derivatives
Commitments to fund certain mortgage loans originated by F&M Mortgage (rate lock commitments) to be sold into
the secondary market and best efforts commitments for the future delivery of mortgage loans to third party investors
are considered derivatives. It is the practice of F&M Mortgage to enter into best efforts commitments for the future
delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically
hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking
derivatives are not designated hedge relationships. The fair value of the mortgage banking derivatives were estimated
based on changes in interest rates from the date of the commitments and were considered immaterial at December 31,
2019 and 2018, and were not recorded on the Company’s consolidated balance sheet.
Derivative Financial Instruments
The Company has stand alone derivative financial instruments in the form of forward option contracts. These transactions
involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value
of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited
to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents
the fair value of the derivative instruments, is reflected on the Company’s consolidated balance sheet as derivative assets
and derivative liabilities.
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these
agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and
monitoring procedures, and does not expect any counterparties to fail their obligations. The Company deals only with
primary dealers.
Derivative instruments are generally either negotiated Over-the-Counter (OTC) contracts or standardized contracts
executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two
counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and
maturity.
69
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 18 ON BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
(CONTINUED):
The Company issues to customer’s certificates of deposit with an interest rate that is derived from the rate of return on
the stock of the companies that comprise The Dow Jones Industrial Average. In order to manage the interest rate risk
associated with this deposit product, the Company has purchased a series of forward option contracts. These contracts
provide the Company with a rate of return commensurate with the return of The Dow Jones Industrial Average from the
time of the contract until maturity of the related certificates of deposit. These contracts are accounted for as fair value
hedges. Because the certificates of deposit can be redeemed by the customer at any time and the related forward options
contracts cannot be cancelled by the Company, the hedge is not considered effective. The ineffective portion of the gain
or loss on the derivative instrument, if any, is recognized currently in earnings. There was no ineffective portion included
in the consolidated income statement for the years ended December 31, 2019 and 2018.
At December 31, the information pertaining to the forward option contracts, included in other assets and other liabilities
on the balance sheet, is as follows:
Notional amount
Fair value of contracts, included in other assets
2019
2018
$ 184 $ 184
44
72
70
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 19
TRANSACTIONS WITH RELATED PARTIES:
During the year, executive officers and directors (and companies controlled by them) were customers of and had
transactions with the Company in the normal course of business. Management believes these transactions were made on
substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.
Loan transactions with related parties are shown in the following schedule:
Total loans, beginning of year
New loans
Relationship change
Repayments
Total loans, end of year
2019
2018
$ 20,565 $ 20,377
5,785
5,532
169
(443)
(5,766)
(3,932)
$ 21,722 $ 20,565
Deposits of executive officers and directors and their affiliates were $5,524 and $4,110 on December 31, 2019 and
2018 respectively. Management believes these deposits were made under the same terms available to other customers
of the bank.
NOTE 20
DIVIDEND LIMITATIONS ON SUBSIDIARY BANK:
The principal source of funds of F & M Bank Corp. is dividends paid by the Farmers & Merchants Bank. The Federal
Reserve Act restricts the amount of dividends the Bank may pay. Approval by the Board of Governors of the Federal
Reserve System is required if the dividends declared by a state member bank, in any year, exceed the sum of (1) net
income of the current year and (2) income net of dividends for the preceding two years. As of January 1, 2020,
approximately $2,000 was available for dividend distribution without permission of the Board of Governors. Dividends
paid by the Bank to the Company totaled $6,000 in 2019 and $8,874 in 2018.
NOTE 21
FAIR VALUE MEASUREMENTS:
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 – Valuation is based on observable inputs including quoted prices in active markets for similar assets and
liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-
based valuation techniques for which significant assumptions can be derived primarily from or
corroborated by observable data in the market.
Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that
are unobservable in the market.
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:
71
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 21
FAIR VALUE MEASUREMENTS (CONTINUED):
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, such as U. S. Treasuries. 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.
Derivatives
The Company’s derivatives 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.
The following tables present the balances of financial assets measured at fair value on a recurring basis as of December
31, 2019, and 2018 (dollars in thousands):
December 31, 2019
Total
Level 1
Level 2
Level 3
U.S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Other debt securities
Total securities available for sale
Derivatives
December 31, 2018
U.S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Total securities available for sale
Derivatives
$ 1,989 $ - $ 1,989 $ -
-
319
2,058
-
$ 4,366 $ - $ 4,366 $ -
$ 72 $ - $ 72 $ -
-
-
319
2,058
Total
Level 2
Level 1
$ 7,886 $ - $ 7,886
403
-
403
$ 8,289 $ - $ 8,289
$ 44 $ - $ 44
Level 3
$ -
-
$ -
$ -
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:
Loans Held for Sale
Loans held for sale are short-term loans purchased at par for resale to investors at the par value of the loan and loans
originated by F&M Mortgage for sale in the secondary market. Loan participations are generally repurchased within
15 days. Loans originated for sale by F&M Mortgage are recorded at lower of cost or market. No market adjustments
were required at December 31, 2019 or 2018; therefore, loans held for sale were carried at cost. Because of the short-
term nature and fixed repurchase price, the book value of these loans approximates fair value at December 31, 2019
and 2018.
72
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 21 FAIR VALUE MEASUREMENTS (CONTINUED):
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it
is probable that all amounts due will not be collected according to the contractual terms of the loan agreement.
Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If
an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan
losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated
Statements of Income.
The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable
market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable
market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a
Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows,
which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt
restructure.
Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of
real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate.
The Company bases collateral method fair valuation upon the “as-is” value of independent appraisals or evaluations.
The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation
approach. The Company discounts appraised value by estimated selling costs to arrive at net fair value. Appraisals
conducted by an independent, licensed appraiser outside of the Company using 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 December 31, 2019 and 2018, 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):
December 31, 2019
Total
Level 1
Level 2
Level 3
Construction/Land Development
Farmland
Real Estate
Commercial Real Estate
Consumer
Dealer Finance
Impaired loans
$ 951
1,396
9,835
425
3
129
$ 12,739
- $ 951
-
-
-
1,396
-
-
9,835
-
425
-
-
3
-
-
-
129
- - $ 12,739
December 31, 2018
Total
Level 1
Level 2
Level 3
Construction/Land Development
Real Estate
Consumer
Dealer Finance
Impaired loans
-
-
-
-
- $ 2,684
-
415
6
-
184
- $ 3289
$ 2,684
415
6
184
$ 3,289
73
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 21 FAIR VALUE MEASUREMENTS (CONTINUED):
The following table presents information about Level 3 Fair Value Measurements for December 31, 2019 and 2018:
Fair Value at
December 31, 2019
Valuation Technique
Significant Unobservable Inputs
Range
Impaired Loans $ 12,739 Discounted appraised value Discount for selling costs and
marketability
0%-58.98%
(Average 24.04%)
Fair Value at
December 31, 2018
Valuation Technique
Significant Unobservable Inputs
Range
Impaired Loans $ 3,289 Discounted appraised value Discount for selling costs and
marketability
2%-9% (Average
4.21%)
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 three 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 both independently and with local realtors. Properties marketed by
realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by
selling costs.
The following table summarizes the Company’s other real estate owned that were measured at fair value on a
nonrecurring basis during the period.
December 31, 2019
Total
Level 1
Level 2
Level 3
Other real estate owned
$ 1,489
December 31, 2018
Total
Level 1
Other real estate owned
$ 2,443
-
-
- $ 1,489
Level 2
Level 3
- $ 2,443
The following table presents information about Level 3 Fair Value Measurements for December 31, 2019 and 2018:
Fair Value at
December 31, 2019
Valuation Technique
Significant Unobservable
Inputs
Range
Other real estate owned $ 1,489 Discounted appraised value Discount for selling costs
5%-10% (Average 8%)
Fair Value at
December 31, 2018
Valuation Technique
Significant Unobservable
Inputs
Range
Other real estate owned $ 2,443 Discounted appraised value Discount for selling costs
5%-15% (Average 8%)
74
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 21 FAIR VALUE MEASUREMENTS (CONTINUED)
The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s
financial instruments as of December 31, 2019 and 2018. For short-term financial assets such as cash and cash
equivalents and short-term liabilities, the carrying amount is a reasonable estimate of fair value due to the relatively
short time between the origination of the instrument and its expected realization. For financial liabilities such as
noninterest bearing demand, interest bearing demand and savings deposits, the carrying amount is a reasonable
estimate of fair value due to these products having no stated maturity. Fair values for December 31, 2019 and 2018
are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of
Financial Assets and Financial Liabilities.”
The estimated fair values, and related carrying amounts (in thousands), of the Company’s financial instruments are
as follows:
(dollars in thousands)
Assets:
Carrying
Amount
Fair Value Measurements at December 31, 2019 Using
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Fair Value at
December 31, 2019
Cash and cash equivalents
$ 75,804
$75,804 $ - $ - $ 75,804
Securities
Loans held for sale
4,490
66,798
Loans held for investment, net
595,035
Interest receivable
2,044
-
-
-
-
4,490
66,798
-
2,044
-
-
580,903
-
4,490
66,798
580,903
2,044
Bank owned life insurance
20,050
-
20,050
-
20,050
Total
Liabilities:
Deposits
Short-term debt
Long-term debt
Interest payable
Total
$ 764,221 $ 75,804 $ 93,382 $ 580,903 $ 750,089
$ 641,709 $ - $ 504,522 $ 139,713 $ 644,235
10,000
53,201
-
-
10,000
-
-
53,543
10,000
53,543
354
-
354
-
354
$ 705,264 $ -
$ 514,876 $ 193,256 $ 708,132
75
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 21 FAIR VALUE MEASUREMENTS (CONTINUED)
(dollars in thousands)
Assets:
Carrying
Amount
Fair Value Measurements at December 31, 2018 Using
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, 2018
Cash and cash equivalents
$ 10,912
$ 10,912
$ - $ - $ 10,912
Securities
Loans held for sale
8,412
55,910
-
8,412
-
-
55,910
-
Loans held for investment, net
633,559
-
-
613,717
Interest receivable
2,078
-
2,078
-
8,412
55,910
613,717
2,078
Bank owned life insurance
19,464
-
19,464
- 19,464
Total
Liabilities:
Deposits
Short-term debt
Long-term debt
Interest payable
Total
$ 730,335
$ 10,912
$ 85,864
$ 613,717 $ 710,493
$591,325
$ - $ 441,319
$ 153,848 $ 595,167
40,116
40,218
-
40,116
-
-
-
39,609
40,116
39,609
348
- 348
- 348
$ 672,007 $ -
$ 481,783
$ 193,457 $ 675,240
76
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 22
REGULATORY MATTERS
The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s
Small Bank Holding Company Policy Statement issued in February 2015 and is not obligated to report consolidated
regulatory capital. The Bank is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off balance-
sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel
III rules) became effective January 1, 2015, with full compliance of all the requirements being phased in over a multi-
year schedule and fully phased in on January 1, 2019. Under the Basel III rules, the Company must hold a capital
conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was
fully phased in at 2.50% January 1, 2019. The capital conservation buffer for 2019 was 6.55% and for 2018 was
6.44%. The net unrealized gain on securities available for sale and the unfunded pension liability are not included in
computing regulatory capital.
Quantitative measures established by regulation, to ensure capital adequacy, require the Bank to maintain minimum
amounts and ratios. These ratios are defined in the regulations and the amounts are set forth in the table below.
Management believes, as of December 31, 2019 and 2018, that the Bank meets all capital adequacy requirements to
which they are subject.
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 will be available for banks to use in their March 31, 2020, Call Report. The Company is
currently evaluating whether to opt into the CBLR framework.
As of the most recent notification from the Federal Reserve Bank, the Bank was categorized as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the institution’s category.
77
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 22
REGULATORY MATTERS, CONTINUED
The actual capital ratios for the Bank are presented in the following table (dollars in thousands):
December 31, 2019
Amount
Ratio
Amount
Ratio
Amount
Ratio
Actual
Minimum Capital
Requirement
Minimum to be Well Capitalized Under
Prompt Corrective Action Provisions
Total risk-based ratio
Tier 1 risk-based ratio
Common equity tier 1
Tier 1 leverage ratio
$ 96,619
88,319
88,319
88,319
14.55% $ 53,116
39,837
13.30%
29,877
13.30%
32,452
10.89%
8.00%
6.00%
4.50%
4.00%
$ 66,394
53,116
43,156
40,565
10.00%
8.00%
6.50%
5.00%
December 31, 2018
Amount
Ratio
Amount
Ratio
Amount
Ratio
Actual
Minimum Capital
Requirement
Minimum to be Well Capitalized Under
Prompt Corrective Action Provisions
Total risk-based ratio
Tier 1 risk-based ratio
Common equity tier 1
Tier 1 leverage ratio
$ 95,335
90,095
90,095
90,095
14.41% $ 52,915
39,686
13.62%
29,764
13.62%
30,639
11.76%
8.00%
6.00%
4.50%
4.00%
$ 66,143
52,915
42,993
38,299
10.00%
8.00%
6.50%
5.00%
NOTE 23
BUSINESS SEGMENTS:
Revenues:
Interest Income
F&M Bank
F&M
Mortgage
TEB
Life/FMFS
VSTitle
Parent
Only
Eliminations
F&M Bank Corp.
Consolidated
December 31, 2019
$ 38,110 $ 183 $ 164 $ - $ -
$ (247)
$38,210
Service charges on deposits
Investment services and insurance income
Mortgage banking income, net
Title insurance income
1,691
2
-
-
-
-
3,031
-
-
694
-
-
-
-
-
1,503
-
-
-
-
-
(19)
-
-
1,691
677
3,031
1,503
Other operating income
3,011
7
-
-
-
-
3,018
Total income
Expenses:
Interest Expense
Provision for loan losses
Salaries and benefits
42,814
3,221
858
1,503
6,851
7,405
214
-
-
-
-
-
13,943
1,897
285
1,026
-
-
-
-
(266)
(247)
-
-
48,130
6,818
7,405
17,151
Other operating expenses
11,274
726
67
266
53
(19)
12,367
Total expense
39,473
2,837
352
1,292
53
(266)
43,741
Income before income taxes
3,341
384
506
211
(53)
-
4,389
Income tax expense (benefit)
(356)
-
65
-
41
-
(250)
Net income
Net income attributable to noncontrolling
interest
Net Income attributable to F & M Bank
Corp.
Total Assets
Goodwill
$ 3,697 $ 384 $ 441 $ 211 $ (94)
$ -
$ 4,639
-
(130)
-
51
(51)
-
(130)
$ 3,697 $ 254
$ 441 $ 160 $ (43)
$ - $ 4,509
$ 818,273 $ 7,980 $ 7,591 $ 1,504 $ 91,093 $ (112,444) $ 813,999
$ 2,670 $ 47 $ - $ 3
$ 164 $ - $ 2,884
78
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2018 and 2017
NOTE 23
BUSINESS SEGMENTS (CONTINUED):
December 31, 2018
F&M Bank
F&M
Mortgage
TEB
Life/FMFS
VSTitle
Parent
Only
Eliminations
F&M Bank Corp.
Consolidated
Revenues:
Interest Income
$ 36,219 $ 139
$ 144
$ - $ -
$ (125)
$ 36,377
Service charges on deposits
1,496
Investment services and insurance income
Mortgage banking income, net
Title insurance income
-
-
-
-
-
2,348
-
-
918
-
-
-
-
-
-
-
-
(19)
-
(36)
1,294
-
-
1,496
899
2,312
1,294
Other operating income
2,002
-
-
-
-
-
2,002
Total income
Expenses:
Interest Expense
Provision for loan losses
Salaries and benefits
39,717
2,487
1,062
1,294
-
(180)
44,380
4,839
2,930
118
-
-
-
-
-
13,153
2,004
579
700
-
-
-
(125)
-
-
4,832
2,930
16,436
Other operating expenses
9,448
332
56
442
49
(19)
10,308
Total expense
30,370
2,454
635
1,142
49
(144)
34,506
Income before income taxes
9,347
33
427
152
(49)
(36)
9,874
Income tax expense (benefit)
952
-
57
-
32
-
1,041
Net income
$ 8,395
$ 33
$ 370 $ 152
$ (81)
$ (36) $ 8,833
Net income attributable to noncontrolling
interest
Net Income attributable to F & M Bank
Corp.
Total Assets
-
(10)
-
36
-
(36)
(10)
$ 8,395
$ 23
$ 370
$ 116
$ (81)
$ -
$ 8,823
$ 782,273
$ 7,449
$ 7,237
$ 458
$ 91,072 $ (108,746)
$ 779,743
Goodwill
$ 2,670 $ 48
$ -
$ 2
$ 164
$ -
$ 2,884
79
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 24
PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Balance Sheets
December 31, 2019 and 2018
Assets
Cash and cash equivalents
Investment in subsidiaries
Other investments
Income tax receivable (including due from subsidiary)
Goodwill and intangibles
Total Assets
Liabilities
Deferred income taxes
Accrued expenses
Total Liabilities
Stockholders’ Equity
Preferred stock par value $25 per share, 400,000 shares authorized,
206,660 and 249,860 issued and outstanding at December 31, 2019 and
2018, respectively.
Common stock par value $5 per share, 6,000,000 shares authorized,
3,208.498 and 3,213,132 shares issued and outstanding for 2019 and
2018, respectively
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss
Noncontrolling interest in consolidated subsidiaires
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
2019
2018
$ 540 $ 749
89,468
88,864
135
135
946
1,904
274
327
$ 91,717 $ 91,625
151
108
34
73
$ 142 $ 224
$ 4,592 $ 5,672
16,042
16,066
7,987
7,510
65,086
66,008
(3,969)
(3,211)
559
634
91,575
91,401
$ 91,717 $ 91,625
Statements of Income
For the years ended December 31, 2019 and 2018
Income
Dividends from affiliate
Total Income
Expenses
Total Expenses
Net income before income tax expense
and undistributed subsidiary net income
2019
2018
$ 6,000 $ 8,874
8,874
6,000
53
49
5,947
8,825
Income Tax Expense
41
32
Income before undistributed subsidiary net income
Undistributed subsidiary net income
Net Income F&M Bank Corp.
5,906
8,793
30
(1,397)
$ 4,509 $ 8,823
80
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 24
PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED):
Statements of Cash Flows
For the years ended December 31, 2019 and 2018
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed subsidiary income
Deferred tax (benefit) expense
Increase in other assets
Decrease in other liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Net Cash Used in Investing Activities
Cash Flows from Financing Activities
Repurchase of preferred stock
Repurchase of common stock
Proceeds from issuance of common stock
Dividends paid in cash
Net Cash Used in Financing Activities
2019
2018
$ 4,509 $ 8,823
1,397
(5)
(905)
(38)
4,958
(30)
235
(576)
(13)
8,439
-
-
(42)
(1,798)
259
(3,587)
(5,167)
(2,788)
(1,782)
266
(4,303)
(8,607)
Net (decrease) increase in Cash and Cash Equivalents
(209)
(168)
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
749
917
$ 540 $ 749
NOTE 25
INVESTMENT IN F&M MORTGAGE, LLC
On November 3, 2008, the Bank acquired a 70% ownership interest in VBS Mortgage, LLC (DBA F&M Mortgage).
F&M Mortgage originates both conventional and government sponsored mortgages for sale in the secondary market.
Accordingly, the Company consolidated the assets, liabilities, revenues and expenses of F&M Mortgage and reflected
the issued and outstanding interest not held by the Company in its consolidated financial statements as noncontrolling
interest.
81
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 26
INVESTMENT IN VSTITLE, LLC
On January 1, 2017, the Company acquired a 76% ownership interest in VSTitle, LLC (VST). VST provides title
insurance services to the customers in our market area, including F&M Mortgage and the Bank. F&M Mortgage is the
minority owner in VST and accordingly, the Company consolidated the assets, liabilities, revenues and expenses of VST
as of December 31, 2019 and 2018, however there is no noncontrolling interest reflected as the 24% is included in VBS
Mortgage’s operating results. On January 1, 2018 VST purchased a small title company in Harrisonburg.
NOTE 27 ACCUMULATED OTHER COMPREHENSIVE LOSS
The balances in accumulated other comprehensive loss are shown in the following table:
dollars in thousands
Balance at December, 31, 2017
Change in unrealized securities gains (losses), net of tax
Unrealized
Securities Gains
(Losses)
$ (20)
(74)
Accumulated
Adjustments
Other
Related to
Comprehensive
Pension Plan
Loss
$ (4,142)
$ (4,122)
- (74)
Change in unfunded pension liability, net of tax
-
247
247
Balance at December, 31, 2018
$ (94)
$ (3,875)
$ (3,969)
Change in unrealized securities gains (losses), net of tax
87
87
Change in unfunded pension liability, net of tax
-
671
671
Balance at December, 31, 2019
$ (7)
$ (3,204)
$ (3,211)
There were no reclassifications adjustments reported on the consolidated statements of income during 2019 or 2018.
NOTE 28 REVENUE RECOGNITION
On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic
606) and all subsequent ASUs that modified Topic 606. 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. However, the recognition of these
revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue
is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
82
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 28 REVENUE RECOGNITION (CONTINUED)
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), overdraft fees, monthly service fees, check orders, and other deposit account related fees.
The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and
the related revenue recognized, over the period in which the service is provided. Check orders and other deposit
account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied,
and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily
received immediately or in the following month through a direct charge to customers’ accounts.
Investment Services and Insurance Income
Investment services and insurance income primarily consists of commissions received on mutual funds and other
investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date,
which is when the Company has satisfied its performance obligation.
Title Insurance Income
VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate
transaction is completed.
ATM and Check Card Fees
ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services
income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned
whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM
fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder
uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit
and credit card transactions, in addition to account management fees.
Other
Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other
service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon
receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time,
revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges
include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other
services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied,
and related revenue recognized, when the services are rendered or upon completion. Payment is typically received
immediately or in the following month.
83
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 28 REVENUE RECOGNITION (CONTINUED)
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606,
for December 31, 2019 and 2018.
Noninterest Income
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)
Twelve Months Ended December 31,
2019
2018
$ 1,691 $ 1,496
678
901
1,503
1,293
1,760
1,537
1,195
525
6,826
5,752
Noninterest Income (out-of-scope of Topic 606)
3,094
2,251
Total Noninterest Income
Contract Balances
$ 9,920 $ 8,003
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 December 31, 2019
and 2018, the Company did not have any significant contract balances.
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into
expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered.
The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer
that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company
utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset
that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption
of Topic 606, the Company did not capitalize any contract acquisition cost.
84
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 29 LEASES
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that
modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did
not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and
consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not
reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for
existing leases. As stated in the Company’s 2018 Form 10-K, the implementation of the new standard resulted in
recognition of a right-of-use asset and lease liability of $1.03 million at the date of adoption, which is related to the
Company’s lease of premises used in operations. The right-of-use asset and lease liability 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 each 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)
December 31, 2019
Lease Liabilities (included in accrued and other liabilities)
$ 917
Right-of-use assets (included in other assets)
$ 912
Weighted average remaining lease term
Weighted average discount rate
Lease cost (in thousands)
Operating lease cost
Total lease cost
6.26 years
3.51%
2019
2018
$ 128
$ 217
$ 128
$ 217
Cash paid for amounts included in the measurement of lease
liabilities
$ 148
85
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2018
NOTE 29 LEASES (CONTINUED)
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating
lease liabilities is as follows:
Lease payments due (in thousands)
Twelve months ending December 31, 2020
Twelve months ending December 31, 2021
Twelve months ending December 31, 2022
Twelve months ending December 31, 2023
Twelve months ending December 31, 2024
Thereafter
Total undiscounted cash flows
Discount
Lease liabilities
As of
December 31, 2019
128
110
105
93
92
627
1,155
(238)
917
$
$
86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
F&M Bank Corp.
Timberville, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of F&M Bank Corp. and Subsidiaries (the Company)
as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes
in stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013, and our report dated March 14, 2019 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company’s auditor since 2016.
Winchester, Virginia
March 14, 2019
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
F&M Bank Corp.
Timberville, Virginia
Opinion on the Internal Control over Financial Reporting
We have audited F&M Bank Corp. and Subsidiaries' (the Company) internal control over financial reporting as of December 31,
2018, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity and cash flows for the years then ended of the Company, and the related
notes to the consolidated financial statements, and our report dated March 14, 2019 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 14, 2019
88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. The Company, under the supervision and with the participation of management,
including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for maintaining
disclosure records and procedures that are designed to ensure that information required to be disclosed in reports filed
or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated
to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.
In connection with the preparation of this Annual Report on Form 10-K, management evaluated the Company’s
disclosure controls and procedures. The evaluation was performed under the direction of the Company’s Chief
Executive Officer and Chief Financial Officer to determine the effectiveness, as of December 31, 2019, of the design
and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, at December 31, 2019 the Company’s disclosure controls and
procedures were not effective due to the material weakness in internal control over financial reporting described below.
In the fourth quarter of 2019, the Company identified a material weakness in the design effectiveness of its control
environment. The material weakness resulted from the failure to design appropriate controls to identify in a timely
manner a system input error that prevented the deferred costs associated with indirect dealer auto loans originated
after a certain date from amortizing properly. Management determined this deficiency represents a material weakness
in internal controls over financial reporting on the basis that it resulted in a correction of an immaterial error in prior
period financial statements that if corrected in the current year would materially misstate the current year’s financial
statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. All
necessary adjustments have been recorded and reported in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019.
Remediation for Reported Material Weakness. The Company has implemented a remediation plan to address the
material weakness described above with respect to unamortized indirect dealer finance commissions. To address the
material weakness, the Company analyzed all data inputs required by the core processing system in order to accurately
amortize commissions paid to dealers for indirect auto loans. As of the date of this filing, the system inputs have been
verified for all active loans to ensure amortization is being calculated and recorded appropriately.
Changes in Internal Control over Financial Reporting. Except as disclosed above, there were no changes in the
Company’s internal control over financial reporting during the Company’s quarter ended December 31, 2019 that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting. Because of the inherent limitations in all control systems, the Company believes that no system of controls,
no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.
Management’s Report on Internal Control over Financial Reporting. Management is responsible for the preparation
and fair presentation of the financial statements included in the annual report. The financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America and reflect
management’s judgements and estimates concerning effects of events and transactions that are accounted for or
disclosed.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting.
The Company's internal control over financial reporting includes those policies and procedures that pertain to the
Company's ability to record, process, summarize and report reliable financial data. Management recognizes that there
are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility
of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control
over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that the Company's internal control over financial reporting is effective, management regularly
assesses such controls and did so most recently for its financial reporting as of December 31, 2019. This assessment
was based on criteria for effective internal control over financial reporting described in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations (COSO, 2013) of the Treadway Commission. Based
on this assessment, management concluded the Company’s internal control over financial reporting was not effective
as of December 31, 2019.
89
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited
by Yount, Hyde & Barbour, P.C., the independent registered public accounting firm which also audited the Company’s
consolidated financial statements included in this Annual Report on Form 10-K. Yount, Hyde & Barbour’s attestation
report on the Company’s internal control over financial reporting is included in Item 8 “Financial Statements and
Supplemental Data” on this Form 10-K.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding directors, executive officers and the audit committee financial expert is incorporated by
reference from the Company’s definitive proxy statement for the Company’s 2020 Annual Meeting of Shareholders
to be held May 2, 2020 (“Proxy Statement”), under the captions “Election of Directors,” “Board of Directors and
Committees,” and “Executive Officers.”
Information on Section 16(a) beneficial ownership reporting compliance for the directors and executive officers of the
Company is incorporated by reference from the Proxy Statement under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance.”
The Company has adopted a broad based code of ethics for all employees and directors. The Company has also adopted
a code of ethics tailored to senior officers who have financial responsibilities. A copy of the codes may be obtained
without charge by request from the corporate secretary.
Item 11. Executive Compensation
This information is incorporated by reference from the Proxy Statement under the caption “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information is incorporated by reference from the Proxy Statement under the caption “Ownership of Company
Common Stock” and “Executive Compensation” and from Item 5 of this 10-K.
Item 13. Certain Relationships and Related Transactions, and Directors Independence
This information is incorporated by reference from the Proxy Statement under the caption “Interest of Directors and
Officers in Certain Transactions.”
Item 14. Principal Accounting Fees and Services
This information is incorporated by reference from the Proxy Statement under the caption “Principal Accounting
Fees.”
90
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following financial statements are filed as a part of this report:
(a)(1) Financial Statements
The following consolidated financial statements and reports of independent auditors of the Company are in Part II,
Item 8 on pages 43 thru 97:
Consolidated Balance Sheets - December 31, 2019 and 2018 ..................................................................................... 43
Consolidated Statements of Income - Years ended December 31, 2019 and 2018 ...................................................... 44
Consolidated Statements of Comprehensive Income - Years ended December 31, 2019 and 2018 ............................ 45
Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2019,
2018 and 2017……………………………………………………………………………………………………....46
Consolidated Statements of Cash Flows - Years ended December 31, 2019,
2018 and 2017 .......................................................................................................................................................... 47
Notes to the Consolidated Financial Statements .......................................................................................................... 48
Reports of Independent Registered Public Accounting Firms ..................................................................................... 96
(a)(2) Financial Statement Schedules
All schedules are omitted since they are not required, are not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits are filed as a part of this form 10-K:
Exhibit No.
3.1
3.2
3.2
Restated Articles of Incorporation of F & M Bank Corp., incorporated herein by reference from F & M Bank
Corp.’s, Quarterly Report on Form 10-Q, filed November 14, 2013.
Articles of Amendment to the Articles of Incorporation of F&M Bank Corp. designating the Series A
Preferred Stock incorporated herein by reference from F&M Bank Corp,’s current report on Form 8-K filed
December 4, 2014.
Amended and Restated Bylaws of F & M Bank Corp., incorporated herein by reference from F & M Bank
Corp.’s, Annual Report on Form 10-K, filed March 8, 2002.
4.1 Description of Securities (filed herewith)
10.1
10.2
10.3
10.4
Change in Control Severance Plan, incorporated herein by reference from Exhibit 10.1 to F&M Bank Corp.’s
Registration Statement on Form S-1, filed December 22, 2010.
VBA Executives Deferred Compensation Plan for Farmers & Merchants Bank, incorporated herein by
reference from F & M Bank Corp.’s Annual Report on Form 10-K, filed March 28, 2014.
VBA Directors Non-Qualified Deferred Compensation Plan for Farmers & Merchants Bank, incorporated
herein by reference from F & M Bank Corp.’s Annual Report on Form 10-K, filed March 28, 2014.
Separation Agreement and General Release, by and between Farmers and Merchants Bank and Neil W.
Hayslett, incorporated herein by reference from F&M Bank Corp.’s Current Report on Form 8-K filed
November 1, 2019.
Subsidiaries of the Registrant
21.0
Consent of Yount, Hyde & Barbour, P.C.
23.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-
101
Oxley Act of 2002.
The following materials from F&M Bank Corp.’s Annual Report on Form 10-K for the year ended December
31, 2019, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv)
Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows
and (vi) related notes (furnished herewith).
91
PART IV
Item 16 Form 10-K Summary
Not Required
Shareholders may obtain, free of charge, a copy of the exhibits to this Report on Form 10-K by writing Stephanie
E. Shillingburg, Corporate Secretary, at F & M Bank Corp., P.O. Box 1111, Timberville, VA 22853 or our website
at www.fmbankva.com.
92
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
F & M Bank Corp.
(Registrant)
By:
/s/ Mark C. Hanna
Mark C. Hanna
Director and Chief Executive Officer
By:
/s/ Carrie A. Comer
Carrie A. Comer
Executive Vice President and Chief Financial Officer
March 16, 2020
March 16, 2020
Date
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and as of the date indicated.
Signature
Larry A. Caplinger
John N. Crist
Dean W. Withers
Daniel J. Harshman
Michael W. Pugh
Christopher S. Runion
E. Ray Burkholder
Peter H. Wray
Anne Keeler
Title
Director
Director
Director
Director
Date
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
Director, Chair
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
Director
Director
Director
Director
102
Exhibit 21 List of Subsidiaries of the Registrant
Farmers & Merchants Bank (incorporated in Virginia)
VSTitle, LLC (a Virginia Limited Liability Company)
TEB Life Insurance Company (incorporated in Arizona), a subsidiary of Farmers & Merchants Bank
Farmers & Merchants Financial Services (incorporated in Virginia), a subsidiary of Farmers & Merchants Bank
VBS Mortgage, LLC, DBA F&M Mortgage (a Virginia Limited Liability Company), a subsidiary of Farmers &
Merchants Bank
103
DESCRIPTION OF SECURITIES
Exhibit 4.1
As of December 31, 2019, the common stock, par value $5.00 per share, was the only class of securities of F&M Bank
Corp. (the “Company”) registered under Section 12 of the Securities Exchange Act of 1934, as amended.
The following section describes the general terms and provisions of the shares of the Company’s common stock. You
should read the Company’s articles of incorporation and bylaws for additional information about the common stock.
The articles of incorporation and bylaws are included as exhibits to the Company’s Annual Report on Form 10-K, to
which this exhibit also is attached.
General
The Company’s authorized capital stock consists of 6,000,000 shares of common stock, par value $5.00 per share, and
2,000,000 shares of preferred stock, par value $5.00 per share. As of December 31, 2019, there were 3,208,498 shares
of common stock outstanding and 206,660 shares of preferred stock outstanding.
Common Stock
Dividend Rights. The Company may pay dividends as declared from time to time by the board out of funds that are
legally available, subject to certain restrictions imposed by state and federal laws.
Voting Rights. In all elections of directors, a shareholder has the right to cast one vote for each share of stock held by
him or her for as many persons as there are directors to be elected. The Company does do not have cumulative voting
rights. On any other question to be determined by a vote of shares at any meeting of shareholders, each shareholder is
entitled to one vote for each share of stock held by him or her and entitled to vote.
Preemptive Rights. Holders of common stock do not have preemptive rights with respect to issues of common stock.
Liquidation Rights. Upon liquidation, after payment of all creditors, the remaining assets of the Company would be
distributed to the holders of common stock on a pro-rata basis, subject to the rights of the holders of any share of the
Company’s preferred stock that may be issued from time to time.
Calls and Assessments. All common stock outstanding is fully paid and non-assessable.
Preferred Stock
The Company’s board of directors may, from time to time, by action of a majority, issue shares of the authorized,
undesignated preferred stock, in one or more class or series. In connection with any such issuance, the board of
directors may by resolution determine the designation, voting rights, preferences as to dividends, in liquidation or
otherwise, participation, redemption, sinking fund, conversion, dividend or other special rights or powers, and the
limitations, qualifications and restrictions of such shares of preferred stock. As of December 31, 2019, there were
2,000,000 authorized shares of preferred stock, par value $5.00 per share, and the only class or series of preferred
stock created or designated by the Company’s board of directors was 400,000 shares designated as 5.10% Series A
Noncumulative Mandatorily Convertible Preferred Stock (the “Series A Preferred Stock”). As of December 31, 2019,
206,660 shares of Series A Preferred Stock were outstanding.
The preferences and other terms of any series of preferred stock will be fixed by an amendment to the Company’s
articles of incorporation designating the terms of that series. Because the Company’s board of directors has the power
to establish the preferences and rights of each series of preferred stock, it may afford the holders of any series of
preferred stock preferences and rights, voting or otherwise, senior to the rights of holders of the Company’s common
stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of
holders of common stock until the Company’s board of directors determines the specific rights of the holders of
preferred stock. However, the effects might include:
Exhibit 4.1, continued
105
restricting dividends on the Company’s common stock;
diluting the voting power of the Company’s common stock;
impairing liquidation rights of the Company’s common stock; or
discouraging, delaying or preventing a change in control of the Company without further action by its
shareholders.
Certain Provisions of the Company’s Articles of Incorporation and Bylaws
General. The following is a summary of the material provisions of the Company’s articles of incorporation and bylaws
that address matters of corporate governance and the rights of shareholders. In addition, Virginia has two antitakeover
statutes, the Affiliated Transactions Statute and the Control Share Acquisitions Statute, that could make it more
difficult for another party to acquire the Company without the approval of the Company’s board of directors. Certain
of these provisions may delay or prevent takeover attempts not first approved by the Company’s board of directors
(including takeovers which certain shareholders may deem to be in their best interests). These provisions also could
delay or frustrate the removal of incumbent directors or the assumption of control by certain shareholders.
Issuance of Additional Shares. The Company’s board of directors may issue additional authorized shares of the
Company’s capital stock to deter future attempts to gain control of the Company, and the board has the authority to
determine the terms of any one or more series of preferred stock, such as voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of preferred stock, the board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order
to attempt to block a merger or other transaction by which a third party seeks control, and thereby assist the incumbent
board of directors and management to retain their respective positions.
No Cumulative Voting. The Company’s articles of incorporation do not provide for cumulative voting in the election
of directors.
Advance Notice for Shareholder Proposals or Nominations at Meetings. The Company’s bylaws also prescribe the
procedure a shareholder must follow to nominate directors or to bring other business before shareholders’ meetings.
For a shareholder to nominate a candidate for director or to bring other business before a meeting, notice must be
received by the Company not less than 60 days and not more than 90 days prior to the date of the meeting; provided,
that if less than 70 days’ notice or prior public disclosure of the meeting date is given, then the shareholder’s notice
must be received by the Company not less than 10 days following the Company’s notice or public disclosure. Notice
of a nomination for director must describe various matters regarding the nominee and the shareholder giving the notice.
Notice of other business to be brought before the meeting must include a description of the proposed business, the
reasons therefor and other specified matters.
Classified Board of Directors. The Company’s articles of incorporation and bylaws currently provide that the board
of directors shall be divided into three classes as nearly equal in number as possible. The members of each class are
elected for a term of three years and until their successors are elected and qualified. As a result, approximately one
third of the members of the board of directors are elected each year, and two annual meetings are required for the
Company’s shareholders to change a majority of the members constituting the board of directors.
Special Voting Provisions. The Company’s articles of incorporation currently provide that, unless the following
actions have been approved by a majority of the Company’s directors as described in further detail below, the
affirmative vote of the holders of more than two-thirds of the Company’s capital stock, issued, outstanding and entitled
to vote shall be required to approve the following actions:
any merger or consolidation of the Company with or into any other corporation; or
any share exchange in which a corporation, person or entity acquires the issued or outstanding shares of
capital stock of the Company pursuant to a vote of shareholders; or
any issuance of shares of the Company that results in an acquisition of control of the Company by any person,
firm or corporation or group of one or more thereof that previously did not control the Company; or
any sale, lease, exchange, mortgage, pledge or other transfer, in one transaction or a series of transactions, of
all, or substantially all, of the assets of the Company to any other corporation, person or entity; or
the adoption of a plan for the liquidation or dissolution of the Company proposed by any other corporation,
person or entity.
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Exhibit 4.1, continued
If any of the transactions identified above, or having a similar effect as any of the foregoing transactions, is with a
corporation, person or entity that is the beneficial owner, directly or indirectly, of more than 5% of the Company’s
shares of capital stock issued, outstanding and entitled to vote, then the affirmative vote of the holders of 80% of the
shares of the Company’s capital stock issued, outstanding and entitled to vote shall be required to approve any of such
transactions, unless the following actions have been approved by a majority of the Company’s directors as described
in further detail below.
These special voting provisions shall not apply to a transaction which is approved in advance by a majority of directors
(i) who were directors before the corporation, person or entity acquired beneficial ownership of 5% or more of the
shares of the Company’s capital stock and who are not affiliates of such corporation, person or entity and (ii) who
became directors at the recommendation of directors referred to in (i) above.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (No. 333‐160715) on Form S‐1 and
Form S‐8 (No. 333‐159074) of F&M Bank Corp. and Subsidiaries of our reports, dated March 14, 2019, relating
to our audits of the consolidated financial statements and internal control over financial reporting, appearing in
the Annual Report on Form 10‐K of F&M Bank Corp. and Subsidiaries for the year ended December 31, 2018.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 14, 2019
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Exhibit 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
Pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 USC Section 1350 (A) and (B)
I, Mark C. Hanna, certify that:
1.
I have reviewed this annual report on Form 10-K of F & M Bank Corp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and as of a date within 90 days prior to the
filing date of this quarterly report (the “Evaluation Date”); and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers 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 function):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal controls over financial reporting.
Date: March 16, 2020
/s/ Mark C. Hanna
109
Mark C. Hanna
Chief Executive Officer
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been
provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.
110
Exhibit 31.2
CERTIFICATION
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:
1.
I have reviewed this annual report on Form 10-K of F & M Bank Corp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and as of a date within 90 days prior to the
filing date of this quarterly report (the “Evaluation Date”); and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers 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 function):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal controls over financial reporting.
Date: March 16, 2020
/s/ Carrie A. Comer
Carrie A. Comer
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been
provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.
111
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of F & M Bank Corp. (the “Company”) on Form 10-K for the period ending
December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their knowledge and belief: 1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company as of and for the periods covered in the Report.
/s/ Mark C. Hanna
Mark C. Hanna
Chief Executive Officer
/s/ Carrie A. Comer
Carrie A. Comer
Executive Vice President & Chief Financial Officer
March 16, 2020
107