Staunton
2813 N. Augusta Street
540-213-8686
30 Gosnell Crossing
540-946-8160
Transfer Agent for
F&M Bank Corp. Stock (FMBM)
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
P: 844-318-0135
E: shareholder@broadridge.com
F: 215-553-5402
W: http://shareholder.broadridge.com/FMBM
ANNUAL REPORT
2020
01 WELCOME
AN INTRODUCTION BY F&M BANK PRESIDENT & CEO MARK HANNA
FINANCIALS 02
FINANCIAL HIGHLIGHTS OF 2020
Dear Stockholder,
As we enter the spring of 2021, with hopefully
the worst of the global pandemic behind us, I am
pleased to share with you the 2020 F&M Bank Corp.
annual report. Last year was trying and turbulent,
to say the least, but despite the hardships our
communities and nation experienced, in many
ways, F&M Bank has emerged from it far better
than we were before.
Just over a year ago, as the economy began to
experience the early effects of COVID-19, we acted
quickly by contributing $100,000 towards the
formation of local Business Support Taskforces to
help alleviate the financial pressure small, local
businesses were starting to face. At the same time,
our associates stepped into action as we navigated
the new CARES ACT and Paycheck Protection
Program (PPP). During “round one” of PPP, F&M
Bank processed 717 loans, which totaled $62.7
million. In addition to an insignificant amount of
PPP loan pay offs, the Company processed $27.8
million of loan forgiveness on 266 loans resulting in
a remaining balance of PPP loans of $34.9 million.
From those efforts, we witnessed many small
businesses remain operational and built many
solid, new banking relationships in the process.
Exceptional years at F&M Mortgage and VSTitle, as
well as well as our ability to maintain a stable, low-
cost funding base have driven positive year-to-date
financial results. Total deposits increased $176.9
million annually with total loans increasing $23.0
million (excluding PPP loans). Non-performing
assets decreased to 0.68% of total assets at the end
of the quarter from 0.89% on 12/31/19. Allowance
for loan losses totaled 1.58% of loans held for
investment (1.67% excluding PPP loans).
Additionally, our net interest margin of 3.61%
shows a historical decline but remains strong
especially given the changes in our balance sheet
and the current rate environment. Due to efforts
made across the organization, we are pleased to
report 2020 year-to-date earnings of $8.79 million.
F&M’s liquidity has increased significantly over the
last four quarters and we are implementing
strategic solutions to leverage these assets,
including deploying $99.9 million into the
investment portfolio since year end 2019.
Despite the current low-rate environment, current
strategies to leverage our liquid funds should
augment our net interest margin in the future.
Throughout the height of the pandemic and into
the new year, the executive team has continued to
evaluate company procedures to maintain the safe-
ty of our customers, employees, and communities.
Associates have frequently gone above and beyond
to accommodate clients within their comfort level,
from making home visits for document signatures
to setting up virtual meetings for account
openings. During this same time, a special projects
team was also working hard to implement a
digital banking upgrade that improved our online
and mobile functionalities as more folks were
banking and working from home. As of March
2021, our branches remain in a drive-thru only
capacity, supplemented with courier pick up and
by appointment lobby visits.
In January 2021, we announced our expansion
into the Winchester/Frederick County market
under the leadership of Mike Wilkerson, Chief
Strategy Officer and Northern Market executive.
Mike and his team have hit the ground running
and we are excited to add his experience and
energy in a strong market in the Northern
Shenandoah Valley. We also recently announced
the acquisition of a branch in Waynesboro which
will expand our coverage in Augusta County.
Today, we remain committed to being a strong
independent community bank in the Shenandoah
Valley and together, we look forward to an even
better future ahead.
I look forward to seeing you in person once we
can gather safely again. Until then, on behalf of
Chairman Mike Pugh, the Board of Directors, and
the Executive Team, we are pleased to invite you
to attend the 2021 Virtual Shareholders Meeting
at 10:00am on Tuesday, May 4.
Sincerely,
Mark Hanna
0
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2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020
ROATCE
ROAA NET INTEREST MARGIN
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0
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0
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DIVIDENDS
DECLARED
F&M
BANK CORP.
2017 2018 2019 2020 2017 2018 2019 2020
EFFICIENCY RATIO EARNINGS
2018 includes re-class of subsidiary income
03 BANKING YOU LOVE FROM PEOPLE WHO CARE
SMALL BUSINESS & NONPROFIT FUNDING
Just over a year ago, during a time of
unease and uncertainty, with no idea
how quickly our daily lives would be
transformed, our team of associates got
to work supporting clients. At the same
time, the management team focused on
solutions that would maintain excellent
service standards while keeping
employees and our community safe.
In April of last year, a special projects
team shifted their focus towards F&M’s
digital banking experience as more
customers were banking and working
from home. The committee fast-tracked
an overhaul to the Bank’s online and
mobile banking system, which provided
customers with sophisticated
transactional and security features.
Offices and locations transitioned to
drive-thru and by-appointment visits,
and non-customer facing employees
adjusted to remote work.
Perhaps most impactful was the Bank’s
commitment of $100,000 to foster grant
and loan programs spearheaded by local
chambers of commerce and economic
development outlets. The Bank’s financial
contribution provided support and
resources to local businesses based in the
Shenandoah Valley.
In addition to the $100,000 commitment
to fund grant and loan programs in its
market footprint, F&M Bank contributed
over $6,000 to strategically deploy
resources to help nonprofits organize and
respond during the crisis.
PAYCHECK PROTECTION PROGRAM
In early 2020, Congress enacted the
Paycheck Protection Program (PPP)
through the Small Business
Administration (SBA), and F&M Bank
quickly emerged as a local resource for
clients and non-clients alike. Although
there were new processes to learn and the
need to adapt along the way, from the
outside looking in, the process appeared
seamless. So seamless that large, national
institutions began referring their
customers to F&M Bank.
Stacy and Rachael Rose, owners of Hanks
Grille & Catering and the Thunderbird Café
in McGaheysville, Virginia, share their
experience. “When COVID-19 forced us to
close our dining rooms, F&M Bank quickly
and efficiently helped us to get the ball
rolling on the PPP loan application.
Because of their responsiveness, we were
able secure our loans and began re-hiring
our dedicated staff. We will continue to
use F&M for our banking, lending and
credit card processing needs.
Situations like this solidify why it is good
to bank local.”
During the first round of PPP, F&M Bank
processed 717 PPP loans totaling $62.7
million. The bank began accepting
applications on January 15, 2021, for
additional PPP loans pursuant to the
Consolidated Appropriations Act of 2021
and continues to work with clients on
processing forgiveness applications.
05 BANKING YOU LOVE FROM PROFESSIONALS YOU TRUST
COMMERCIAL SUCCESS
PRIORITIZING RELATIONSHIPS AND PROVIDING SOLUTIONS
Q&A WITH GARTH KNIGHT
Question: Is there one thing you’d
recommend or advise for small business
owners related to finances?
I am going to augment the rule here and
give two. One, have a plan and vision for
what you want to do and how you want
to do it. Your plan and vision will always
serve as a guidepost for what direction
you take your business and be there for
you during good times and challenges.
That rings true today more than ever.
The second would be to have a bank that is an
advocate for your vision and growth. Building
that relationship and creating synergy will allow
for open and honest dialogue and will be the
catalyst for growth and success.
Question: Beyond business financing, how can
local companies across the Shenandoah Valley
benefit from F&M Bank?
Cash Management Solutions is an area that all
businesses can benefit from and a topic
that most are thinking about right
now due to business interruptions and
some being forced to work from home.
F&M Bank has many solutions to help
maximize efficiency and move money
effectively in and out of your business.
Financing and cashmanagement are
two of the most critical conversations a
business can have in my opinion.
GARTH KNIGHT
Chief Lending Officer
gknight@fmbankva.com
LOCAL BUSINESS YOU LOVE CONTEST
F&M Bank hosted the second annual Local Business You Love
contest in 2020. This is a $10,000 giveaway for locally-owned
small businesses operating in the Shenandoah Valley.
The Bank received over 600 small business nominations,
and 2,300 votes to determine the contest winners.
On October 5th, a COVID-safe reception was held at the
Inn at MeadowCroft in Swoope, VA.
When we received an overwhelming public voting
response, we opted to include additional prizes and
surprised our guests with second through fifth place
awards ranging from $1,500 to $500.
1st Place – Gloria’s Pupuseria, Staunton
2nd Place – Crossroads Cafe & Catering, Penn Laird
3rd Place – LTD7, Staunton
4th Place – Woodstock Cafe, Woodstock
5th Place – Lowery’s Guttering, Siding, and Windows, Stuarts Draft
AGRICULTURAL AND RURAL PROGRAMS
The Agricultural and Rural Programs Division experienced
another highly successful year in 2020, generating $46M in
new loans originated directly to farmers and other agricultural
enterprises. This resulted in $26M in net outstanding loan
growth in the agricultural sector from 2019 to 2020 with
opportunity for additional growth in 2021.
In April of 2020, F&M Bank announced the addition of Bobby
Williams to the team, and his connection to the agricultural
community has proven to be an asset. He assumed the position
of Agricultural and Rural Programs Leader in September of 2020
in conjunction with Paul Eberly’s promotion to Executive Vice
President and Chief Credit Officer. Paul remains an integral part
of the Agricultural Division and continues to provide
consultative credit solutions to the community in his new role.
BOBBY WILLIAMS
Agriculture & Rural Programs Leader
bwilliams@fmbankva.com
07 GROWTH AND EXPANSION
WINCHESTER
F&M Bank announced its intention to open a production office
in the Winchester, VA, market in the first quarter of 2021. Mike
Wilkerson joined F&M to lead an experienced team as the Bank
enters a very strong and growing economy in the Northern
Shenandoah Valley.
OVERALL BANK NUMBERS
Reached $1B in assets
Net income of $8.79 million
Total deposits increased $176.9 million for 2020
Total loans increased $23.0 million for 2020
(excluding PPP loans)
WAYNESBORO
On January 27, 2021, F&M Bank announced a purchase and
assumption agreement with Carter Bankshares, Inc. for a
banking office in the City of Waynesboro, Virginia.
Expanding into the Waynesboro market was a strategic
initiative for F&M Bank due the market opportunity and
client base in Augusta County.
Q&A WITH MIKE WILKERSON
Why F&M Bank?
The team and I are proud and excited
to join F&M Bank! What attracted us to
the institution is its long history and
commitment to the Shenandoah Valley.
F&M Bank has a tradition of focusing
on being a customer and community
service-based organization. At the same
time, to the credit of the executive
leadership team and board, the bank is
very progressive regarding new
financial products, services, and
technology. F&M Bank truly represents
the best of past traditions and modern
financial services.
Why is the Winchester/Frederick
County market a good fit for F&M
Bank?
My family and I moved to Winchester,
VA, in January 2002 knowing very little
about the area. What we found is that
Winchester is a thriving community
steeped in tradition and very advanced
regarding commerce, culture, education,
and healthcare. Trex Co. and American
Woodmark are both publicly traded
companies based in Winchester. The Apple
Blossom Festival - now in its 94th year
promotes the unique culture of the area.
Shenandoah University and its renowned
music, theater, and dance conservatory, as
well as Lord Fairfax Community College,
with tailored education programs to
support the business and medical sectors,
provide educational opportunities for local
students. Winchester Medical Center, part
of Valley Health Systems, is located in the
heart of the community.
What excites you most about leading
F&M Bank into a new market?
The Winchester community and
F&M Bank seem to be a perfect match.
Both are very similar in history and
tradition, believe in community service,
and are forward thinkers, progressing
into the future.
MIKE WILKERSON
Chief Strategy Officer &
Northern Market Executive
mwilkerson@fmbankva.com
09 F&M DIVISIONS
F&M FINANCIAL SERVICES, INC
The Wealth Management Division experienced great success in
2020. Financial Advisors, Calan Jansen and Matt Robinson, were
both ranked in the top 10% of Infinex advisors nationwide. F&M
Financial Services, Inc. as a program is ranked 5th out of 26 banks
in the same asset class. Through partnership with Infinex Invest-
ments, Inc., Calan and Matt manage 2,951 investment accounts
and are passionate about helping clients along their financial
journey.
DEALER FINANCE
The auto industry demonstrated extreme resilience amid a
pandemic. The Dealer Finance Division finished the year strong
with 3,583 loans originated totaling $53.8M. The department
recognized $12.9M in overall loan growth and $2.162M in net
income.
F&M MORTGAGE
Low rates and a hot housing market resulted in a record-breaking
year for F&M Mortgage. In 2020, the division closed 971 loans,
generating $218M in loan volume compared to 600 loans and
$124M in volume one year prior. Momentum continues at a steady
rate in 2021 as low housing inventory drives consumer demand to
construction lending.
VSTITLE
Offering real estate settlement services and title insurance,
VSTitle experienced a year of paramount growth. The revenue
goal for 2020 was set at $1.65M, however at year-end, actual
revenue surpassed that at $1.977M, a 32% increase from 2019!
The Division closed 1,546 transactions, up 33% compared to the
previous year.
11 BOARDS
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
ROGER DECKER
Principle Broker & Owner,
Decker Realty
STEVE MCDONOUGH
Owner, McDonough Toyota
THOMAS WHITE
Vice President & CPA
White, Withers
& Masincup
LARRY POWELL
Owner/Operator, L P Solutions,
Beef Farmer
LEWIS HORST
President, Shen-Valley Custom
RICK REEVES
Turkey Farmer
WILLIAM MEYERHOEFFER
Dairy Nutritionist
AGRICULTURE
BETH BAZZLE
Owner, Mountain Valley Farm
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
MORTGAGE
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
HARRISONBURG/ROCKINGHAM
ABBEY DOBES
Owner, Siren Song Marketing Group
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
DAPHYNE THOMAS
Professor, Department
of Finance and Business Law,
James Madison University
BYARD LUEBBEN
Owner, Edge, ITM
MORGAN SLAVEN
Director of External Affairs &
Communication, Shenandoah
Valley Electric Cooperative
JACK BROADDUS
Retired President & CEO of
Sunnyside Communities
QUINTON CALLAHAN
Partner, Business Law &
Litigation Attorney
Clark & Bradshaw, P.C.
RENEE WHITMORE
Realtor & Associate Broker
Old Dominion Realty
13 OUR PEOPLE
OFFICERS AND DIRECTORS
DIRECTORS
MARK HANNA
President & Chief
Executive Officer
MICHAEL PUGH
Board Chair, President,
Old Dominion Realty, Inc;
VP, Colonial Appraisal
Service, Inc
DEAN WITHERS
Vice Board Chair, Retired
F&M CEO
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
CHRISTOPHER RUNION
President, Eddie Edwards
Signs, Inc.
PETER WRAY
Principal Broker,
Triangle Realtors
ANNE KEELER
Vice President for Finance
and Treasurer
Bridgewater College
OFFICERS
MARK HANNA
President & Chief
Executive Officer
CARRIE COMER
EVP/Chief Financial Officer
STEPHANIE SHILLINGBURG
EVP/Chief Banking Officer
PAUL EBERLY
EVP/Chief Credit Officer
BARTON BLACK
EVP/Chief Operating Officer
KATHERINE PRESTON
SVP/Valley Market Executive
MELODY EMSWILER
SVP/Director of HR
JEFFREY LAM
SVP/Retail Loan Administrator
KATE PASCARELLA
SVP/Senior Credit Officer
CYNTHIA SHERMAN
SVP/Loan Operations Manager
KAREN ROSE
SVP/Deposit Operations
GREG BERKSHIRE
SVP/Dealer Finance Manager
KRISTA SUTER
SVP/Senior Risk Officer
NATALIE STRICKLER-ALT
SVP/Northern Area
Market Manager
BOBBY WILLIAMS
SVP/Agriculture & Rural Programs Leader
DALE SHOOP
President, VSTitle
KEVIN RUSSELL
EVP/President F&M Mortgage,
Title & Financial Services
SARA BERRY
SVP/Southern Area
Market Manager
GARTH KNIGHT
EVP/Chief Lending Officer
MIKE WILKERSON
EVP/Chief Strategy Officer,
Northern Market Executive
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, 2020
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 2,890,404 shares of Common Stock of the registrant issued and outstanding held by non-affiliates on June 30, 2020 was
approximately $55,062,203 based on the closing sales price of $19.05 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 14, 2021, there were 3,204,024 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 4, 2021 (the “Proxy
Statement”).
Table of Contents
PART I
Page
Item 1
Business .............................................................................................................................................................. 2
Item 1A Risk Factors ...................................................................................................................................................... 10
Item 1B Unresolved Staff Comments……………..…………………………………..……………………………..10
Item 2
Properties…………………………………………………………………………………………………...10
Item 3
Legal Proceedings………………………………………………………………………………………….10
Item 4 Mine Safety Disclosures ................................................................................................................................... 10
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities……………….……………………………………………………………………...……11
Item 6
Selected Financial Data .................................................................................................................................... 13
Item 7 Management’s Discussion and Analysis of Financial Condition
and Results of Operations ............................................................................................................................. 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .......................................................................... 36
Item 8
Financial Statements and Supplementary Data…………….. ......................................................................... 37
Item 9
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ..................................................................................................... 93
Item 9A Controls and Procedures ................................................................................................................................... 93
Item 9B Other Information ............................................................................................................................................. 94
PART III
Item 10 Directors, Executive Officers and Corporate Governance…………………………………………………..94
Item 11
Executive Compensation .................................................................................................................................. 94
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...... 94
Item 13 Certain Relationships and Related Transactions, and Director Independence ............................................... 94
Item 14
Principal Accountant Fees and Services .......................................................................................................... 94
PART IV
Item 15
Exhibits and Financial Statement Schedules ................................................................................................... 94
Item 16
Form 10-K Summary…………………………………………………………………………………….....95
Signatures ............................................................................................................................................................................ 96
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”). VBS Mortgage, LLC ( “F&M Mortgage”), TEB Life Insurance Company (“TEB”) and Farmers
& Merchants Financial Services, Inc. (“FMFS”) are wholly owned subsidiaries of the Bank.
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 remaining
minority interest on April 30, 2020. The Company purchased a majority interest in VST on January 1, 2017; F&M
Mortgage, owned entirely by the Bank, 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, Virginia. 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, 2020, the Bank had 151 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 Securities and Exchange Commission (“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 in companies 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 Board, the Federal Deposit Insurance
Corporation (“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 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, resulted 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, 2020, were 13.55% and 9.93%, 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%. The community bank
leverage ratio rules were modified in response to COVID-19. See Coronavirus Aid, Relief and Economic Security Act
that follows.
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 Board 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.
Anti-Money Laundering Laws and Regulations. The Bank is subject to several federal laws that are designed to combat
money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated
by U.S. authorities (“AML laws”). This category of laws includes the Bank Secrecy Act of 1970, the Money
Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. The
Anti-Money Laundering Act of 2020, the most sweeping anti-money laundering legislation in 20 years, requires
various federal agencies to promulgate regulations implementing a number of its provisions.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain
other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering
and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions,
between federal law enforcement agencies and financial institutions, as well as among financial institutions, for
counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company
acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities
of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices,
procedures, and controls.
Community Reinvestment Act. The requirements of the Community Reinvestment Act (“CRA”) 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
5
PART I, continued
Item 1. Business, continued
Regulation and Supervision, continued
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. The Bank was rated “satisfactory” in the most
recent CRA evaluation.
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
In December 2020, the federal banking agencies issued a notice of proposed rulemaking that would require banking
organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident”
or a “notification incident.” The proposed rule also would require specific and immediate notifications by bank service
providers that become aware of similar incidents.
To date, the Bank has not experienced a significant compromise, significant data loss or any material financial losses
related to cybersecurity attacks, but the Bank’s systems and those of its customers and third-party service providers
are under constant threat and it is possible that the Bank could experience a significant event in the future. Risks and
exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly
evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile
banking and other technology-based products and services by the Bank and its customers.
Privacy Laws. Several laws and regulations issued by federal banking agencies also provide protections against the
transfer and use of customer information by financial institutions. A financial institution must provide to its customers
information regarding its policies and procedures with respect to the handling of customers’ personal information.
Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy
provisions generally prohibit a financial institution from providing a customer’s personal financial information to
unaffiliated parties without prior notice and approval from the customer.
Coronavirus Aid, Relief, and Economic Security Act. In response to the COVID-19 pandemic, President Trump signed
into law the CARES Act on March 27, 2020. Among other things, the CARES Act included the following provisions
impacting financial institutions:
Community Bank Leverage Ratio. The CARES Act directs federal bank regulators to adopt interim final
rules to lower the threshold under the community bank leverage ratio from 9% to 8% and to provide a
reasonable grace period for a community bank that falls below the threshold to regain compliance, in each
case until the earlier of the termination date of the national emergency or December 31, 2020. In April 2020,
the federal bank regulators issued two interim final rules implementing this directive. One interim final rule
provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and
that meet the other existing qualifying criteria) may elect to use the community bank leverage ratio
framework. It also establishes a two-quarter grace period for qualifying community banking organizations
whose leverage ratios fall below the 8% community bank leverage ratio requirement, so long as the banking
organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition
from the temporary 8% community bank leverage ratio requirement to a 9% community bank leverage ratio
requirement. It establishes a minimum community bank leverage ratio of 8% for the second through fourth
quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying
community banking organizations whose leverage ratios fall no more than 100 basis points below the
applicable community bank leverage ratio requirement.
Temporary Troubled Debt Restructurings (“TDR”) Relief. The CARES Act allows banks to elect to suspend
requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were
not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR,
including impairment for accounting purposes, until the earlier of 60 days after the termination date of the
national emergency or December 31, 2020. Federal banking regulators are required to defer to the
determination of the banks making such suspension. The Consolidated Appropriations Act, 2021, signed
into law on December 27, 2020, extended this temporary relief until the earlier of 60 days after the termination
date of the national emergency or January 1, 2022.
Small Business Administration (“SBA”) Paycheck Protection Program. The CARES Act created the SBA’s
Paycheck Protection Program. Under the Paycheck Protection Program, funds were authorized for small
business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments,
utilities, and interest on other debt. The loans are provided through participating financial institutions,
including the Bank, that process loan applications and service the loans.
7
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. With the incoming Biden administration, a Democratic controlled Congress, and
changes in leadership at federal agencies such as the CFPB, we expect that financial institutions will remain heavily
regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking
practices. 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The effects of the COVID-19 pandemic, including its potential adverse effect on economic conditions and
the Company’s employees, customers, credit quality, and financial performance;
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 need for sufficient capital
to support that growth, difficulties or disruptions expanding into new markets or integrating the operations
of acquired branches or business, and the inability to obtain the expected benefits of such 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 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.
8
PART I, continued
Item 1. Business, continued
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, 2020 and 2019:
Period
Class of Service
Percentage of Total Revenues
December 31, 2020
Interest and fees on loans held for investment
December 31, 2019
Interest and fees on loans held for investment
69.62%
73.75%
Executive Officers of the Company
Mark C. Hanna, 52, 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, 51, 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, 59, 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.
Barton E. Black, 50, has served as the Executive Vice President and Chief Operating Officer of the Bank and the
Company since June 16, 2020. Prior to that he served as Executive Vice President and Chief Strategy & Risk Officer
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.
F. Garth Knight, 38, has served as Executive Vice President and Chief Lending Officer since June of 2020. Prior to
joining F&M Bank, he spent 15 years at Wells Fargo Bank serving as Vice President and Business Acquisition
Manager for Mid-Atlantic and Greater Philadelphia from May 2017 until May of 2020, Vice President and Business
Banking Manager for North and South Carolina from September of 2010 to May of 2017, and Retail Market Leader
from June 2005 to September 2010.
Paul E. Eberly, 38, has served as Executive Vice President/Chief Credit Officer since September 2020, Senior Vice
President/Agricultural & Rural Programs Leader from January 2020 until September 2020, and Vice
President/Agricultural & Rural Programs Leader from January 2019 until January 2020. He also served in various
sales, lending, credit, risk management and other leadership roles within the Farm Credit System from June 2005 until
January 2019. Mr. Eberly has been in the banking and finance industry since 2005.
Kevin Russell, 43, has served as the Executive Vice President and President of Mortgage, Title and Financial Services
at the Bank and the Company since June 16, 2020. Prior to that he served as the President of F&M Mortgage since
2000.
Aubrey Michael (Mike) Wilkerson, 63, joined F&M Bank on January 4, 2021. He serves as the Chief Strategy Officer
and Northern Shenandoah Valley Market Executive. Mr. Wilkerson began his banking career at Wachovia Bank on
January 4, 1982. Mr. Wilkerson’s 39 years in banking includes experience in Dealer Financial Services, Retail Banking,
Private Banking, Commercial Banking and senior strategic leadership positions. From 2012 to 2018, Mr. Wilkerson
was the Business Banking Division Executive for Virginia, Maryland & Washington DC at Wachovia. Most recently,
Mr. Wilkerson served as the Commercial Banking Market Executive from 2018 through 2020 for Western Mid-Atlantic
Region at Wells Fargo.
9
Item 1A. Risk Factors
Not required.
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
Myers Corner Branch 30 Gosnell Crossing Staunton, VA 24401
North Augusta Branch 2813 North Augusta Street Staunton, VA 22401
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 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 four Food Lion grocery stores, one in
Mt. Jackson, Virginia and three 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.
Item 4. Mine Safety Disclosures
None.
10
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, 2015, 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
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Period Ending
Index
F & M Bank Corp.
Russell 2000 Index
SNL Bank Index
12/31/15
100.00
100.00
100.00
12/31/16
118.52
121.31
126.35
12/31/17
155.35
139.08
149.21
12/31/18
145.68
123.76
124.00
12/31/19
145.82
155.35
167.93
12/31/20
121.39
186.36
145.49
11
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 $3,328 and $3,272 in 2020 and 2019, respectively. For 2020, the regular dividends
totaled $1.04 per share. Preferred stock dividends were $263 and $315 in 2020 and 2019, respectively. Regular quarterly
dividends have been declared for at least 27 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 39.10% in 2020 compared to 77.27% in 2019.
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 2020 totaled 150,000 shares; of this amount, 18,472 were repurchased in first
quarter 2020 at an average price of $25.64 per share. This share repurchase plan has not been modified or extended.
The number of common shareholders was approximately 2,182 as of March 16, 2021. This amount includes all shareholders,
whether titled individually or held by a brokerage firm or custodian in street name.
12
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
2020
2019
20187
20177
20166
$ 36,792
5,728
31,064
3,300
27,764
13,103
(893)
29,939
10,035
1,142
(105)
$ 8.788
$ 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
$ 2.66
2.56
1.04
28.43
$ 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
$ 966,930
661,329
58,679
117,898
818,582
-
33,202
95,629
3,200
3,429
0.95%
9.46%
3.61%
67.51%
39.10%
10.51%
1.58%
0.68%
0.68%
0.18%
$ 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
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%
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%
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 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.
13
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 segments of loans in our portfolio is the creditworthiness of our
borrowers. Within each segment, 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, 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 residential
construction loans are secured by residential houses under construction and the underlying land for which the loan
was obtained. The land acquisition and development loans are secured by the 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.
14
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.
Commercial & Industry – Non-Real Estate
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
generally 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.
15
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. F&M Bank does not share in the gains on sale
of loans for the Northpointe participation and only earns interest during the holding period.
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 seven employees. This office is serving the automobile finance needs for customers of
dealers throughout the existing geographic footprint of the Bank. Approximately sixty-nine dealers have signed
contracts to originate loans on behalf of the Bank. As of year end 2020, the division had total loans outstanding of
$91,861.
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; economic conditions, borrower and industry concentrations; changes in the experience and depths of lending
management and staff; effects of any concentrations of credit; 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.
16
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 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 change 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 Obligations
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.
17
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), continued
COVID-19
The World Health Organization declared a global pandemic in the first quarter of 2020 due to the spread of the coronavirus
(“COVID-19”) around the globe. As a result, the state of Virginia issued a stay at home order in March 2020 requiring
all nonessential businesses to shut down and nonessential workers to stay home. The Company, while considered an
essential business, implemented procedures to protect its employees, customers and the community and still serve their
banking needs. Branch lobbies are closed and the Company is utilizing drive through windows and courier service to
handle transactions, new accounts are opened electronically with limited in person contact for document signing and
verification of identification, and lenders are taking applications by appointment with limited in person contact as well.
The SBA implemented the Paycheck Protection Program (“PPP”) to support small business operations with loans during
the shutdown and into the following months. The Company worked diligently to support both our customers and
noncustomers within our footprint with these loans. As of December 31, 2020, there were 451 PPP loans outstanding for
a total of $34,907 through the SBA program, with unamortized fee income related to these loans of $946. These fees will
be recognized over the life of the associated loans. On January 19, 2021 the SBA began accepting application for the
second round of PPP loans. As of February 28, 2021, the bank has originated 199 second round PPP loans totaling
$17,927.
The Company initially funded PPP loans through the Federal Reserve’s PPP liquidity facility (“PPPLF”); this facility
allows Banks to borrow funds to support the PPP program at a rate of .35%, reduce the leverage ratio reported by the
amount of the debt and maintain liquidity for core loan growth and investment opportunities. As of September 30, 2020,
the Company had borrowed $59,903 under the PPPLF program. The Company paid off the PPPLF facility on October
30, 2020.
While the full impact of COVID-19 remains uncertain at this time, end of the year data indicated that the economy is in
a recession. Many foreign countries and states in the United States continue to be under restriction as far as employment,
recreation and gatherings. Unemployment claims remain higher than normal, but less than original estimates.
The Company is closely monitoring the effects of the pandemic on our customers. Management is focused on assessing
the risks in our loan portfolio and working with our customers to minimize losses. Additional resources have been
allocated to analyze higher risk segments in our loan portfolio, monitor and track loan payment deferrals and customer
status.
The industries most likely to be affected by COVID-19, which include lodging, food service, assisted living facilities,
recreation, multi-family, retail, childcare and education services, have been identified and reviewed. Management
determined there is a concentration in low-end budget hotels and as they reopen may have more vacancies than normal.
There are also a couple of large recreational facilities that were closed and missed the summer camp season. There were
approximately $89,076 in closed/restricted businesses that are considered non-essential. Multi-family may struggle with
collecting rents from tenants; however, our portfolio has not seen any indication.
As of February 9, 2021, we had executed 1,250 modifications allowing principal and interest deferrals on outstanding
loan balances of $88,632 in connection with the COVID-19 related needs. These modifications, 75% of which were
short-term dealer loan modifications, were consistent with regulatory guidance and/or the CARES Act. As of February
28, 2021, 70 loans remain in deferral with a balance of $9,339, 741 modified loans are current on their payment, 197
have paid off, 43 have charged off, 6 are matured, 6 are on non-accrual and 194 are past due.
18
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), continued
COVID-19, continued
The table below shows the impacted industries identified by management, the percent of the loan portfolio and the loan
deferrals in those categories as of December 31, 2020:
Loan Category
Construction
Land development
Commercial owner occupied
Commercial owner occupied - office
Commercial owner occupied - campgrounds
Commercial owner occupied - restaurants
Commercial owner occupied - school
Commercial owner occupied - church
Commercial nonowner occupied - other
Commercial hotel/motel
Commercial assisted living
Commercial nonowner occupied - retail
Consumer - auto, truck, motorcycle (1)
Consumer other
Poultry Farm
Raw Farm Land
Multifamily
Farmland residential
Municipals
(1) Includes dealer finance
Loan Balance
(in thousands)
$ 19,019
8,767
33,973
6,700
5,208
5,028
960
5,389
23,609
14,279
2,625
22,156
88,484
6,497
21,853
17,163
5,918
2,222
7,747
Percent of Total
Loans Held for
Investment
2.88%
1.33%
5.14%
1.01%
0.79%
0.76%
0.15%
0.81%
3.57%
2.16%
0.40%
3.35%
13.38%
0.98%
3.30%
2.60%
0.89%
0.34%
1.17%
Number of
Loans
Extended
1
1
4
-
4
8
-
1
9
13
-
9
946
41
3
2
2
-
-
Loan Balance of
Extended Loans
$ 8,260
-
7,347
-
4,015
5,440
-
1,071
2,532
12,722
-
13,261
9,710
159
296
1,340
975
-
-
$ 297,596
45.00% 1,044
$ 67,127
Based on the Company’s capital levels, current underwriting policies, low loan-to-deposit ratio, loan concentration
diversification and rural operating environment, management believes that it is well positioned to support its customers
and communities and to manage the economic risks and uncertainties associated with COVID-19 pandemic and remain
adequately capitalized.
Given the rapidly changing and unprecedented nature of the pandemic, however, the Company could experience
material and adverse effects on its business, including as a result of credit deterioration, operational disruptions,
decreased demand for products and services, or other reasons. Further, our loan deferral program could delay or make
it difficult to identify the extent of current credit quality deterioration during the deferral period. The extent to which
the pandemic impacts the Company will depend on future developments, which are highly uncertain and are difficult
to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how
quickly and to what extent normal economic and operating conditions can resume.
19
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 2020 totaled $8,788 or $2.66 per common share (basic), an increase of 95% from $4,509
or $1.32 a share (basic) in 2019. Return on average equity increased in 2020 to 9.39% versus 4.93% in 2019, and the
return on average assets increased from .57% in 2019 to .99% in 2020. The Company’s net income per share (dilutive)
totaled $2.56 in 2020, an increase from $1.30 in 2019.
Changes in Net Income per Common Share (Basic)
Prior Year Net Income Per Common Share (Basic)
$ 1.32 $ 2.60
2020
to 2019
2019
to 2018
Change from differences in:
Net interest income
Provision for loan losses
Noninterest income, excluding securities gains
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
(0.10)
1.28
0.72
(0.13)
(0.44)
0.02
(.01)
1.34
(0.05)
(1.40)
0.56
(0.87)
0.40
0.03
0.05
(1.28)
$ 2.66 $ 1.32
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 1.04% from 2019 to 2020 following a decrease of 0.49% from 2018 to 2019. 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 2020 was $31,154 representing a decrease of $312 or 0.99%
over the prior year. A 0.51% decrease in 2019 versus 2018 resulted in total tax equivalent net interest income of $31,466.
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 accompanying table.
Tax equivalent income on earning assets decreased $1,402 in 2020 compared to 2019. Loans held for investment,
expressed as a percentage of total earning assets, decreased in 2020 to 76.37% as compared to 87.41% in 2019. During
2020, yields on earning assets decreased 100 basis points (BP) and the average cost of interest-bearing liabilities
decreased 36BP. Both are a result of the declining interest rate environment experienced in 2020.
20
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
2020
2019
$35,411
1,381
4,615
1,113
31,064
$ 37,348
862
5,170
1,648
31,392
90
90
$ 31,154
74
74
$ 31,466
Tax equivalent interest income decreased $312 or 0.99% in 2020, after decreasing 0.51% or $160 in 2019. Overall, the
yield on earning assets decreased 1.00%, from 5.27% to 4.27%. Average loans held for investment increased during
2020, with average loans outstanding increasing $23,999 to $659,109. Average real estate loans decreased 5.38%,
commercial loans increased 29.07%, primarily due to PPP loans with an average yield of 1%. Consumer installment
loans decreased 9.99% on average. The decrease in tax equivalent net interest income is due primarily to the decrease in
deposit cost, in spite a of 20.39% growth in average interest-bearing deposits.
Interest Expense
Interest expense decreased $1,090 or 15.99% during 2020. The average cost of funds of 0.94% decreased 36BP compared
to 2019, which followed an increase of 28BP in 2019. Average interest-bearing liabilities increased $86,952 or 16.60%
in 2020. 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 3.61% in 2020 from 4.33% in 2019, due to
changes in balance sheet mix during the year and decreases in interest rates in earning assets and interest-bearing
liabilities.
21
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
ASSETS
Loans2
Commercial
Real estate
Consumer
Loans held for investment4
Loans held for sale
Investment securities3
Fully taxable
Partially taxable
Balance
2020
Interest
Rate
Balance
2019
Interest
Rate
$ 238,722
312,092
108,295
$ 11,165
15,893
7,124
4.68%
5.09%
6.58%
$ 184,954
329,825
120,321
$ 10,145
17,810
7,614
5.49%
5.40%
6.33%
659,109
45,784
34,182
1,298
5.19%
2.84%
635,110
58,307
35,569
1,853
5.60%
3.18%
60,700
125
1,051
2
1.73%
1.60%
13,290
124
492
3.70%
3 2.42%
Total investment securities
60,825
1,053
1.73%
13,414
495
3.69%
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
1,227
96,127
863,072
3
346
36,882
0.24%
0.36%
4.27%
1,610
18,145
726,586
33
2.05%
334 1.84%
38,284 5.27%
(9,433)
67,645
$ 921,284
(6,815)
77,100
$ 796,871
$ 107,961
296,403
132,081
$ 292
2,190
2,133
0.27%
0.74%
$89,823
208,551
1.61% 147,107
$ 212
2,539
2,418
0.24%
1.22%
1.64%
Total interest-bearing deposits
536,445
4,615
0.86%
445,581
5,170
1.16%
Short-term debt
Long-term debt
1,776
72,392
41
1,072
2.31%
27,684
1.48% 50,496
688
960
2.49%
1.90%
Total interest-bearing liabilities
610,613
5,728
0.94% 523,661
6,818
1.30%
Noninterest bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
203,312
14,484
828,409
92,875
Total liabilities and stockholders’ equity
$ 921,284
165,731
15,991
705,383
91,488
$ 796,871
Net interest earnings
$31,154
$ 31,466
Net yield on interest earning assets (NIM)
3.61%
4.33%
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.
22
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.
2020 Compared to 2019
Increase (Decrease)
Due to Change
in Average:
Volume
Rate
Increase
Or
(Decrease)
$ 1,344 $ (2,731) $ (1,387)
(555)
(157)
(398)
1,754
-
(1,195)
(1)
559
(1)
Interest income
Loans held for investment
Loans held for sale
Investment securities
Fully taxable
Partially taxable
Interest bearing deposits in banks
Federal funds sold
(8)
1,435
(22)
(1,423)
(30)
12
Total Interest Income
4,127
(5,529)
(1,402)
Interest expense
Deposits
Demand - interest bearing
Savings
Time deposits
Short-term debt
Long-term debt
Total Interest Expense
Net Interest Income
44
1,072
2,369
36
(1,421)
(2,654)
80
(349)
(285)
(645)
416
3,256
(2)
(305)
(4,346)
(647)
111
(1,090)
$ 871 $ (1,183) $ (312)
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 23.08% or $2,290, in 2020. The 2020 increase is due to primarily to growth in the gross
revenue of F&M Mortgage. The Company also experienced growth in VST Title, F & M Financial Services, as well as
increased volumes in ATM and check card fees.
23
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 $29,518 in 2019 to $29,939 in 2020, a 1.43% increase. Areas of increase include
FDIC insurance due to the expiration of credits, telecommunication and data processing, and other operating expenses,
which increased primarily due to prepayment costs of FHLB advances. These growing expense areas were offset by
a decrease in salary and benefits of 3.89% or $16,484 in 2020, and other real estate owned, net of $170. The salary
and benefits decrease was the result lower pension settlement costs and severance packages expensed during the year
2019 that were not repeated in 2020, and an increased effort to dispose of other real estate owned properties. Total
noninterest expense as a percentage of average assets totaled 3.36% and 3.70% in 2020 and 2019, respectively. Peer
group averages (as reported in the most recent Uniform Bank Performance Report) were 2.60% for 2020 and 2.81% for
2019.
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. During 2020, the Company increased environmental factors for the economy and concentrations in
industries specifically impacted by the COVID-19 pandemic. This is reflective of the negative effect on the economy
from continued government restrictions on businesses, higher than normal weekly unemployment claims and deferred
loan payments. Additionally, the Company has continued to analyze the loan portfolio for industries most likely to be
affected by COVID-19 such as hotels, restaurants, recreations facilities, assisted living facilities, retail establishments,
childcare and education facilities, and multi-family properties. Based on loans in these industry segments, the
environmental factor was increased for five segments of the loan portfolio. Past due loans have remained at 2019
levels, while nonperforming loans and classified loans have increased. In addition, the full impact of loan payment
deferrals will not be known until these borrowers return to their normal scheduled payments.
Based on the factors outlined above, the current year provision for loan losses totaled $3,300 compared to $7,405 for
2019. During 2019, Management made a concerted effort to reduce nonperforming loans, including through charge-off
of loan balances after disposal. This led to an increased provision in 2019. Net charge offs decreased from $4,255 in 2019
to $1,215 in 2020. Net charge-offs as a percentage of loans held for investment totaled 0.18% and 0.71% in 2020 and
2019, respectively. The dealer finance charge-off percentage is the largest category at 0.12% of loans held for
investment. As stated in the most recently available Uniform Bank Performance Report (UPBR), peer group loss
averages were 0.08% in 2020 and 0.09% in 2019. The Bank anticipates losses will remain above peer due to the
Dealer Finance Division, however losses in this segment are closely monitored, and due to payment deferrals, have
declined in 2020.
The current levels of the allowance for loan losses reflect net charge-off activity and other credit risk factors that the
Company considers in assessing the adequacy of the allowance for loan losses. 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.
Balance Sheet
Total assets increased 18.79% during the year to $966,930, an increase of $152,931 from $813,999 in 2019. Cash and
cash equivalents increased $2,604, the AFS security portfolio grew $102,533, net loans held for investment increased
$55,819, and loans held for sale declined $8,119. Average earning assets increased 18.78% to $863,072 at December
31, 2020. The increase in earning assets is due largely to the growth in the loans held for investment, investment
securities and federal funds sold. Deposits grew $176,873 and liabilities decreased $27,996 in 2020. Short term debt
and FHLB advances declined due to regular scheduled payments and prepayments, while the bank increased long-
term debt with the issuance of subordinated debt. Average interest-bearing deposits increased $90,864 for 2020 or
24
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
20.39%, with increases in interest-bearing demand accounts and savings while time deposits declined. The Company
continues to utilize its assets well, with 93.68% of average assets consisting of earning assets.
In January 2021, the Bank entered into an agreement to purchase the operations of a branch office in Waynesboro,
Virginia from Carter Bankshares, Inc. The branch purchase is expected to add approximately $13,500 of deposits. No
loans are included in the transaction. Subject to regulatory approvals and the satisfaction of customary closing
conditions, the transaction is expected to close early in the second quarter of 2021.
Investment Securities
Due to the deposit growth initiatives implemented in recent years and the COVID-19 pandemic, management has
invested excess funds into securities during 2020. Total securities increased $99,883 or 554.44% in 2020 to $117,898 at
December 31, 2020 from $18,015 at December 31, 2019. Average balances in investment securities increased 353.44%
in 2020 to $60,825. At year end, 7.05% 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 1.73% for 2020, compared to 3.69% in 2019; this is due to the overall market declines in 2020.
There were no Other Than Temporary Impairments (OTTI) write-downs in 2020 or 2019. There were no realized
security gains or losses on sale of securities in 2020 or 2019.
The composition of securities at December 31 was:
(Dollars in thousands)
Available for Sale1
U.S. Government Sponsored Enterprises
Securities issued by States & political subdivisions of the U.S.
Mortgage-backed obligations of federal agencies2
Corporate debt securities
Total
Held to Maturity
U.S. Treasury and Agency
Total
Other Equity Investments
Total Securities
2020
2019
$ 6,047 $ 1,989
-
319
2,058
4,366
17,692
73,771
9,389
106,899
125
125
124
124
10,874
13,525
$ 117,898 $ 18,015
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, 2020 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 4 to the
Consolidated Financial Statements for a description of these investments.
25
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in
thousands), Continued
Investment Securities, continued
(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. Government sponsored
enterprises
Securities issued by States &
political subdivisions of the U.S.
Mortgage-backed obligations of
federal agencies
Corporate debt securities
Total
$ -
$ -
$ 6,047
1.25%
$ -
$ 6,047
1.25%
-
-
7,716
.93%
1,536
3.99%
8,440
2.46%
17,692
1.93%
5,263
(1.35%)
15,900
1.05%
52,608
0.99%
73,771
0.84%
-
$ -
3,078
$ 16,057
2.70%
0.50%
6,311
-
3.75%
$29,794 1.70% $ 61,048
1.19%
9,389
$106,899
3.41%
1.23%
Debt Securities Held to Maturity:
U.S. Treasury & Agency
Total
$ 125 1.60%
$ 125 1.60%
$ -
$ -
$ -
$ -
$ -
$ -
$ 125
$ 125
1.60%
1.60%
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 $661,329 at December 31, 2020 compared with $603,425
at December 31, 2019. 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 $17,457 or 7.41%.
Construction loans decreased $5,664 or 7.34%. Commercial loans, including agricultural and multifamily loans,
increased 34.85% during 2020 to $267,632, primarily due to PPP loans of $34,908 at December 31, 2020.
Consumer loans increased $12,197 or 13.72% mainly due to the dealer finance division loans, resulting in a December
31, 2020 balance in this portfolio of $91,861. Consumer loans include personal loans, auto loans and other loans to
individuals. The following table presents the changes in the loan portfolio over the previous five years.
(Dollars in thousands)
2020
2019
December 31
2018
2017
2016
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 Loans
$ 71,467
53,728
163,018
5,918
142,516
8,476
46,613
65,470
$ 71,131
29,718
178,267
5,364
129,850
9,523
47,774
33,535
$ 61,659
17,030
192,278
9,665
147,342
11,039
53,197
36,021
$ 71,620
13,606
184,546
10,298
148,906
11,606
54,739
36,912
$ 76,172
12,901
172,758
7,605
150,061
11,453
54,420
31,306
9,861
10,165
9,405
97,523
78,976
91,861
2,857
3,184
3,122
$ 661,329 $ 603,425 $ 638,799
6,633
75,169
2,939
$ 616,974
6,643
65,495
2,822
$ 591,636
26
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
The following table shows the Company’s loan maturity and interest rate sensitivity as of December 31, 2020:
(Dollars in thousands)
Less Than
1 Year
1-5
Years
Over
5 Years
Total
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
$ 95,277 $ 103,553 $ 62,884 $ 261,714
5,918
1,638
218,107
77,826
71,467
50,840
6,460
104,123
$ 232,041 $ 326,705 $ 102,583 $ 661,329
4,280
127,371
16,228
75,273
-
12,910
4,399
22,390
$ 35,093 $ 115,581 $ 86,110 $ 236,784
196,948
424,545
$ 232,041 $ 326,705 $ 102,583 $ 661,329
211,124
16,473
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 81% 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, except for dealer loans
that generally have a term of 5 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. The Company has not had a need for additional funding from
the FHLB, but there may be a time where we match the maturities in the future. 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 ten or twenty year periods 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. Commercial construction loans are made to construct
commercial and agricultural buildings. Consumer loans are made for a variety of reasons; however, approximately 75%
of the loans are secured by automobiles and trucks.
Approximately 74% 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. The Bank has an approved limit of 16% for dealer loans as a percentage of total loans. The Bank has not developed
a formal policy limiting the concentration level of any other 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.
27
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
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 $366 in additional interest income in 2020 had the loans on nonaccrual status been current and
performing. Nonperforming loans totaled $6,537 at December 31, 2020 compared to $5,729 at December 31, 2019.
At December 31, 2020, there were $102 of loans 90 days or more past due and accruing compared to $722 at December
31, 2019. The remainder of nonperforming loans were on nonaccrual. Nonperforming loans have increased
approximately $808 since December 31, 2019. While Management continues their efforts to reduce nonperforming
loans, there was an increase in 2020 due primarily to loans affected by COVID-19.
Approximately 100% of these nonperforming loans are secured by real estate and were in the process of collection.
The Bank believes that adequate specific reserves have been established on impaired loans and continues to actively
work with its customers to effect payment. As of December 31, 2020, the Company holds $0 of real estate acquired
through foreclosure.
28
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:
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
Loans past due 90 days or more:
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
2020
2019
2018
2017
2016
$ 251 $ 1,301 $ 2,327 $ 3,908
-
1,720
-
-
3
448
599
-
226
-
1,933
420
-
900
-
-
203
1
249
-
-
1,477
-
5,074
-
269
98
5
155
-
1,737
368
-
3,820
-
212
3
-
44
-
$ -
-
102
-
-
-
-
-
-
-
-
$ - $ - $ -
-
143
-
-
-
-
-
-
54
1
-
726
-
-
12
51
-
2
9
-
-
619
-
-
-
15
-
-
84
4
$ 2,805
-
1,399
-
-
32
279
70
-
178
-
$ -
-
81
-
-
-
-
-
-
26
-
Total Nonperforming loans
$ 6,537 $ 5,729 $ 10,205 $ 7,102
$ 4,870
Restructured Loans current and performing:
Real Estate
Home Equity
Commercial
Consumer
2,989
687
1,922
150
3,644
716
1,223
167
6,574
-
1,249
205
7,710
-
-
78
8,641
-
1,121
76
Nonperforming loans as a percentage of loans held for investment
Net Charge Offs to Total Loans Held for Investment
Allowance for loan and lease losses to nonperforming loans
.99%
.18%
.94%
.71%
160.24% 146.47%
1.60%
.58%
51.34%
1.15%
.24%
.82%
.21%
85.10% 154.89%
Potential Problem Loans
As of December 31, 2020, 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.
29
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
Management evaluates the allowance for loan losses on a quarterly basis in light of national and local economic trends,
changes in the nature and volume of the loan portfolio and trends in past due and criticized loans. Specific factors
evaluated include internally generated loan review reports, past due reports, historical loan loss experience and
changes in the financial strength of individual borrowers that have been included on the Bank’s watch list or schedule
of classified loans.
In evaluating the portfolio, loans are segregated by segment with identified potential losses, pools of loans by type,
with separate weighting for past dues and a general allowance based on a variety of criteria. Loans with identified
potential losses include examiner and bank classified loans. Classified relationships in excess of $500,000 and loans
identified as troubled debt restructurings are reviewed individually for impairment under ASC 310. A variety of factors
are considered when reviewing these credits, including borrower cash flow, payment history, fair value of collateral,
company management, industry and economic factors.
Loans that are not reviewed for impairment are categorized by call report code into unimpaired and classified loans.
For both unimpaired and classified loans an estimate is calculated based on actual loss experience over the last two
years. The classified Dealer finance loans are given a higher risk factor for past due and adverse risk ratings based on
back testing of the risk factors.
A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio.
The general allowance is calculated using nine qualitative factors identified in the 2006 Interagency Policy Statement
on the allowance for loan losses. The general allowance assists in managing recent changes in portfolio risk that may
not be captured in individually impaired loans, or in the homogeneous pools based on loss histories. The Board
approves the loan loss provision for each quarter based on this evaluation.
The allowance for loan losses of $10,475 at December 31, 2020 is equal to 1.58% of total loans held for investment,
or 1.67% of total loans held for investment net of PPP loans. This compares to an allowance of $8,390 or 1.39% of
total loans at December 31, 2019. PPP loans are 100% guaranteed by the SBA; thus, they do not have an allowance.
During 2020, four impaired loan relationships were added and one was paid off; new appraisals on two relationships
increased the calculated impairment. Due to COVID-19, the bank increased the qualitative factor for the economy and
concentrations in industries specifically affected by the virus. The bank increased the environmental factor for
COVID-19's negative impact on the economy, such as continued government restrictions on businesses, high weekly
unemployment filings, and deferred loan payments. Additionally, the bank analyzed the loan portfolio for industries
most likely to be affected by COVID-19, such as hotels, restaurants, recreations facilities, assisted living facilities,
retail establishments, childcare and education facilities, and multi-family properties. Based on the Bank’s loans in
these industry segments, the environmental factor was increased for three segments of the loan portfolio. Nonaccrual
loans at December 31, 2020 totaled $6,435 compared to $5,007 at December 31, 2019. In addition, classified loans
(internally rated substandard or watch) increased significantly from a total of $39,772 at December 31, 2019 to
$67,592 at December 31, 2020, or 69.49%. Management is closely monitoring the effects of COVID-19 on the loan
portfolio and added loans in industries impacted by COVID-19 to the classified loan list. These include hotels,
restaurants, and commercial real estate.
Loan losses, net of recoveries, totaled $1,215 in 2020 which is equivalent to .18% of total loans outstanding.
30
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)
2020
2019
2018
2017
2016
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
Excluding PPP loans
Net loan losses to loans held for investment
Excluding PPP loans
$ 8,390 $ 5,240 $ 6,044
2,930
7,405
3,300
7
-
158
-
64
-
34
138
89
1,551
123
2,164
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
7
-
-
-
1
16
11
4
2
-
8
1
3
91
81
19
41
44
50
861
1,144
784
46
29
75
1,186
1,371
949
(3,734)
(4,255)
(1,215)
$ 10,475 $ 8,390 $ 5,240
$ 7,543
-
$ 8,781
-
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
1.39%
.82%
.98%
1.27%
.71%
.58%
.24%
.21%
1.58%
1.64%
.18%
.19%
31
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
2020
2019
2018
2017
2016
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
$ 1,249
11.92%
$1,190
14.18% $ 2,094
39.96%
$ 2,547
42.14% $ 3,381
44.82%
731
1,624
54
6.98%
668
7.96%
15.50%
1,573
18.75%
.52%
20
.24%
3,662
34.96%
1,815
21.63%
15
292
10
416
.29%
5.57%
25
719
.41%
11.90%
34
843
.19%
19
.31%
23
7.94%
482
7.97%
705
.45%
11.18%
.30%
9.35%
55
.53%
42
.50%
13
.25%
66
1.09%
75
.99%
463
4.42%
457
5.45%
126
2.40%
209
3.46%
470
6.23%
363
3.46%
585
6.97%
192
3.66%
337
5.58%
586
7.77%
521
4.98%
186
2.22%
70
1.34%
148
2.45%
78
1.03%
Allowance for
loan losses:
(dollars in
thousands)
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
1,674
15.96%
1,786
21.29%
1,974
37.67%
1,440
23.83%
1,289
17.09%
Credit Cards
79
.76%
68
.81%
38
.73%
52
.86%
59
.78%
Total
$10,475
100.00% $ 8,390
100.00% $ 5,240
100.00%
$ 6,044
100.00% $ 7,543
100.00%
Deposits and Borrowings
The average deposit balances and average rates paid for 2020 and 2019 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,
2020
Average
Balance
Rate
2019
Average
Balance
Rate
$ 203,312
$ 165,731
$107,961
296,403
132,081
536,445
$ 739,757
0.27%
0.74%
1.61%
0.86%
0.61%
$ 89,823
208,551
147,107
445,481
$ 611,212
0.24%
1.22%
1.64%
1.16%
0.85%
32
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
Average noninterest-bearing demand deposits, which are comprised of checking accounts, increased $37,581 or
22.68% from $165,731 at December 31, 2019 to $203,312 at December 31, 2020. Average interest-bearing deposits,
which include interest checking accounts, money market accounts, regular savings accounts and time deposits,
increased $90,964 or 20.42% from $445,481 at December 31, 2019 to $536,445 at December 31, 2020. Total average
interest checking account balances increased $18,138 or 20.19% from $89,823 at December 31, 2019 to $107,961 at
December 31, 2020. Total average savings account balances (including money market accounts) increased $87,852
or 42.12% from $208,551 at December 31, 2019 to $296,403 at December 31, 2020. The bank has a competitive
money market rate to maintain and attract core deposits.
Average time deposits decreased $15,026 or 10.21% from $147,107 at December 31, 2019 to $132,081 at
December 31, 2020. The money market rate has been attractive and as time deposits matured, customers moved their
deposits to the money market account.
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
2020
$ 3,206
3,443
6,239
37,375
$ 50,263
2019
$ 2,600
6,407
11,867
24,971
$ 45,845
Non-deposit borrowings include federal funds purchased, Federal Home Loan Bank (FHLB) borrowings, (both short
term and long term), a note to purchase the minority interest in F&M Mortgage and subordinated debt notes. Non-deposit
borrowings are an important source of funding for the Bank. These sources assist in managing short and long-term
funding needs.
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 2020.
Repayment of amortizing and fixed maturity loans through FHLB totaled $31,929 during 2020. These long-term
loans carried an average rate of 1.39% at December 31, 2020.
Other long-term debt includes a final payment of $194 due on the minority interest purchase of F&M Mortgage and
$11,740 of subordinated notes, net of unamortized costs at December 31, 2020. On July 29, 2020, the Company issued
$5,000 in aggregate principal amount of 5.75% fixed rate subordinated notes due July 31, 2027 and $7,000 in
aggregate principal amount of 6% fixed to floating rate subordinated notes due July 31, 2030.
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, 2020
FHLB long term advances
Subordinated debt
Other debt
Total
3,429
-
194
21,268
11,740
194
$ 3,623 $ 4,714 $ 2,875 $ 21,990 $ 33,202
10,250
11,740
-
2,875
-
-
4,714
-
-
See Note 11 (Short Term Debt) and Note 12 (Long Term Debt) to the Consolidated Financial Statements for a discussion
of the rates, terms, and conversion features on these advances.
33
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 $4,054 or 4.43% in 2020. Capital was increased by net income totaling $8,788, net
of noncontrolling interest of $105, issuance of common stock totaled $258, pension adjustment of ($617) and unrealized
gains on available for sale securities of $811. Capital was reduced by common and preferred dividends totaling $3,591,
repurchases of common stock of $473, and minority interest distributions of $177. As of December 31, 2020, book value
per common share was $28.43 compared to $27.11 as of December 31, 2019. Dividends are paid to stockholders on a
quarterly based on decisions by the Board of Directors 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, 2020, the Bank had Common Equity Tier I capital of 13.55%, Tier I risked
based capital of 13.55% and total risked based capital of 14.81% 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, 2020, the Bank reported a leverage ratio of 9.93%. The Bank's leverage ratio was also
substantially above the minimum. The Bank also reported a capital conservation buffer of 6.81% at December 31,
2020. The capital conservation buffer is designed to strengthen an institution’s financial resilience during economic
cycles. Financial institutions are required to maintain a minimum buffer as required by the Basel III final rules in
order to avoid restrictions on capital distributions and other payments. The capital conservations buffer requirement
was fully phased in on January 1, 2019 at 2.5%.
34
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 .72% in 2020 following a decrease of .27% in 2019. This decrease is primarily due to decreases
in interest rates as well as changes in balance sheet structure including a decrease in loans held for investment, establishing
an investment portfolio, and substantial deposit growth which led to excess funds on hand. In 2020, the Federal Open
Market Committee elected to decrease the short-term rates target 150BP to 0% from 1.50%.
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 $77,106 for 2020. 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
the prior year. The Company has increased efforts to raise deposits and depositors have changed their savings habits
during 2020 due to the COVID-19 pandemic. While this helps liquidity, the investment options and rate market in general
have hurt the new interest margin. The Company has lowered core deposit rates throughout 2020 to mitigate the decline
in 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, management anticipates that 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. Management is
not aware of any 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, 2020. 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 17.03% of total earning assets, compared to 17.16% in 2019. Approximately 40.04% of rate
sensitive assets and 33.46% of rate sensitive liabilities are subject to repricing within one year. Short term assets (less
than one year) increased $35,637 during the year, while total earning assets increased $151,801. The growth in earning
assets is primarily due to the utilization of excess funds created by deposit growth. Short term deposits, maturities less
than 365 days, increased $31,514 and short-term borrowings decreased $20,806. Short term borrowings decreased as
advances matured and were not renewed.
35
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, 2020, 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
Interest bearing money market and bank
deposits in other banks
Total
Rate Sensitive Liabilities:
Interest bearing demand deposits
Savings deposits
Certificates of deposit
Total Deposits
Short-term debt
Long-term debt
Total
Discrete Gap
1-90
Days
91-365
Days
1-5
Years
Over 5
Years
Not
Classified
Total
$ 162,734 $ 69,307
-
-
125
-
58,619
65,983
-
1,244
$ 326,705 $ 102,583
-
-
-
-
32,575
74,324
-
-
$ - $ 661,329
58,679
65,983
107,024
1,244
-
-
-
-
288,580
69,432
401,029
135,158
-
-
9,005
23,066
132,549
37,474
69,196
179,999
83,178
23,066
23,726
408
9,005
193,089
332,373
47,200
-
1,051
-
2,572
-
19,329
-
10,250
-
-
-
-
-
-
-
894,199
115,328
336,274
130,065
581,667
-
33,202
1,051
278,524
2,572
(126,229)
19,329
49,327
10,250
77,708
-
-
33,202
279,330
Cumulative Gap
As a % of Earning Assets
278,524
31.15%
152,295
17.03%
201,622
22.55%
279,330
31.24%
279,330
31.24%
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Note Applicable
36
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, 2020 and 2019
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 $125 and $124 in 2020 and 2019,
respectively
Available for sale, at fair value
Other investments
Loans held for sale, at fair value
Loans held for sale, participations
Loans held for investment
Less: allowance for loan losses
Net loans held for investment
Other real estate owned, net
Bank premises and equipment, net
Bank premises held for sale
Interest receivable
Goodwill
Bank owned life insurance
Other assets
Total Assets
Liabilities
Deposits:
Noninterest bearing
Interest bearing
Total deposits
Short-term debt
Long-term debt
Other liabilities
Total Liabilities
Commitments and contingencies
2020
2019
$ 11,181 $ 8,119
1,244
65,983
78,408
1,126
66,559
75,804
125
124
106,899
10,874
14,307
44,372
661,329
(10,475)
650,854
-
17,909
520
2,727
2,884
22,647
14,404
4,366
13,525
2,974
63,824
603,425
(8,390)
595,035
1,489
18,931
-
2,044
2,884
20,050
12,949
$966,930 $ 813,999
$ 236,915 $ 168,715
581,667
818,582
472,994
641,709
-
33,202
19,517
871,301
10,000
53,201
17,514
722,424
-
-
Stockholders’ Equity
Series A Preferred Stock, $25 liquidation preference, 400,000 shares authorized, 205,327
shares issued and outstanding at December 31, 2020 and 206,660 shares issued
and outstanding at December 31, 2019
Common stock $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,203,372
and 3,208,498shares issued and outstanding at December 31, 2020 and 2019,
respectively
Additional paid in capital – common stock
Retained earnings
Non-controlling interest in consolidated subsidiaries
Accumulated other comprehensive loss
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
4,558
4,592
16,017
6,866
71,205
-
(3,017)
95,629
$ 966,930 $ 813,999
16,042
7,510
66,008
634
(3,211)
91,575
See accompanying Notes to the Consolidated Financial Statements.
37
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Income (dollars in thousands, except per share data)
For the years ended 2020 and 2019
Interest and Dividend Income
Interest and fees on loans held for investment
Interest from loans held for sale
Interest from money market funds and federal funds sold
Interest from debt securities
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
Investment services and insurance income, net
Mortgage banking income, net
Title insurance income
Income on bank owned life insurance
Low income housing partnership losses
ATM and check card fees
Other operating income
Total noninterest income
Noninterest Expenses
Salaries
Employee benefits
Occupancy expense
Equipment expense
FDIC insurance assessment
Other real estate owned, net
Marketing expense
Legal and professional expense
ATM and check card fees
Telecommunication and data processing expense
Directors fees
Bank Franchise tax
Impairment of long-lived assets
Other operating expenses
Total noninterest expenses
Income before income taxes
Income Tax Expense (Benefit)
Net Income
Net Income attributable to noncontrolling interest
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.
38
2020
2019
$ 34,113 $ 35,495
1,298
349
1,032
36,792
1,853
367
495
38,210
4,615
41
1,072
5,728
31,064
5,170
688
960
6,818
31,392
3,300
27,764
7,405
23,987
1,191
669
6,154
1,978
614
(893)
1,900
597
12,210
12,738
3,746
1,167
1,180
378
346
604
662
1,047
2,266
428
733
19
4,625
29,939
1,691
678
3,031
1,503
601
(839)
1,760
1,495
9,920
12,039
5,112
1,150
1,169
155
516
685
849
900
1,680
421
673
-
4,169
29,518
10,035
1,142
8,893
(105)
8,788
(263)
$ 8,525 $ 4,194
4,389
(250)
4,639
(130)
4,509
(315)
$ 2.66 $ 1.32
$ 2.56 $ 1.30
$ 1.04 $ 1.02
3,199,883
3,428,765
3,189,288
3,460,234
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income (dollars in thousands)
For the years ended 2020 and 2019
Net Income
Other comprehensive income:
Pension plan adjustment
Tax effect
Pension plan adjustment, net of tax
Unrealized holding gains on available-for-sale securities
Tax effect
Unrealized holding gains, net of tax
Total other comprehensive income
Years Ended December 31,
2020
2019
$ 8,788 $ 4,509
(781)
164
(617)
849
(178)
671
1,027
(216)
811
110
(23)
87
194
758
Comprehensive income attributable to F&M Bank Corp.
$ 8,982 $ 5,267
Comprehensive income attributable to noncontrolling interests
$ 105 $ 130
Total comprehensive income
$ 9,087 $ 5,397
See accompanying Notes to the Consolidated Financial Statements.
39
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, 2020 and 2019
Preferred
Common
Stock
Stock
Additional
Paid in
Capital
Retained
Noncontrolling Comprehensive
Earnings
Interest
Loss
Total
Accumulated
Other
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)
-
-
-
-
-
-
-
Preferred stock converted to common (42,000 shares)
(1,050)
-
-
-
-
-
(301)
44
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
Net Income
Other comprehensive income
Distributions to noncontrolling interest
Dividends on preferred stock ($1.27 per share)
Dividends on common stock ($1.04 per share)
Common stock repurchased (18,472 shares)
Common stock issued (11,866 shares)
Preferred stock converted to common (1,333 shares)
Purchase of Minority Interest
Balance, December 31, 2020
-
-
-
-
-
-
-
-
-
-
-
-
(92)
59
-
-
-
-
-
(381)
199
8,788
-
-
(263)
(3,328)
-
-
105
-
(177)
-
-
-
-
-
194
-
-
-
-
-
8,893
194
(177)
(263)
(3,328)
(473)
258
(34)
-
8
-
26
(488)
-
-
-
(562)
-
-
-
(1,050)
$ 4,558 $ 16,017
$ 6,866 $ 71,205 $ - $ (3,017) $ 95,629
See accompanying Notes to the Consolidated Financial Statements.
40
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Cash Flows (dollars in thousands)
For the years ended December 31, 2020 and 2019
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) for deferred taxes
(Increase) decrease in interest receivable
(Increase) decrease in other assets
Increase in accrued liabilities
Amortization of limited partnership investments
Gain on sale of fixed assets, net
Loss 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
Proceeds from the redemption of restricted stock, net
Proceeds from maturities of securities held to maturity
Purchases of securities held to maturity
Net (increase) decrease in loans held for investment
Proceeds from sale of dealer loans
Net increase (decrease) in loans held for sale participations
Net purchase of property and equipment
Purchase of bank owned life insurance
Purchase of minority interest
Proceeds from sale of other real estate owned
Net Cash (Used in) Provided by 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 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
See accompanying Notes to the Consolidated Financial Statements.
41
2020
2019
$ 8,893 $ 4,639
1,241
59
284
212,180
(5,576)
(217,937)
3,300
(670)
(683)
(670)
836
893
(14)
326
-
(614)
1,848
24,513
(126,304)
1,758
125
(125)
(59,119)
-
19,452
(742)
(2,000)
(856)
1,163
(142,135)
176,873
(10,000)
(3,591)
71,903
(177)
258
-
(473)
(91,902)
142,891
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
2,604
64,892
75,804
10,912
$ 78,408 $ 75,804
$ 5,816 $ 6,812
595
300
Supplemental non-cash disclosures:
Transfers from loans to other real estate owned
Unrealized gain on securities available for sale, net
Minimum pension liability adjustment, net
Bank premises and equipment transferred to held for sale
Initial recognition of right-of-use asset and lease liability
-
811
(617)
537
-
133
87
671
-
1,034
See accompanying Notes to the Consolidated Financial Statements.
42
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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 eleven 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 Company, Farmers & Merchants Financial Services, Inc, VBS Mortgage, LLC (dba F&M Mortgage) 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, 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, and pension accounting.
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
At the time of purchase, debt securities are classified into the following categories: held to maturity, available for sale or
trading. Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as held
to maturity. Held to maturity securities are stated at amortized cost adjusted for amortization of premiums and accretion
of discounts on purchase using a method that approximates the effective interest method. Investments classified as
trading or available for sale are stated at fair value. Changes in fair value of trading investments are included in current
earnings while changes in fair value of available for sale investments are excluded from current earnings and reported,
net of taxes, as a separate component of other comprehensive income. Presently, the Company does not maintain a
portfolio of trading securities.
The fair value of investment securities available for sale is estimated based on quoted prices for similar assets determined
by bid quotations received from independent pricing services. Declines in the fair value of securities below their
amortized cost that are other than temporary are reflected in earnings or other comprehensive income, as appropriate. For
those debt securities whose fair value is less than their amortized cost basis, we consider our intent to sell the security,
whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to
recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider
whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies
have occurred and the results of reviews of the issuer’s financial condition.
43
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Securities, continued
Interest income is recognized when earned. Realized gains and losses for securities classified as available-for-sale and
are included in earnings and are derived using the specific identification method for determining the cost of securities
sold.
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 2020 or 2019.
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.
44
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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.
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.
45
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2019 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Loans Held for Investment, continued
Commercial and industrial non-real estate loans are secured by collateral other than real estate or are unsecured.
During 2020, the bank participated in the Payroll Protection Program (“PPP”) sponsored by the SBA. These loans
are unsecured at a fixed interest rate of 1% and 100% guaranteed by the SBA. 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, regardless of type,
are considered impaired loans.
46
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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. 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.
These loans are pre-sold with servicing released and no interest is retained after the loans are sold. During the second
quarter of 2020, the Company elected to begin using fair value accounting for its portfolio of loans held for sale (LHFS)
originated by F&M Mortgage in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value is
based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which
the Company conducts business total $14,307 as of December 31, 2020 of which $14,380 is related to unpaid principal.
The Company’s portfolio of LHFS is classified as Level 2. These loans were previously carried as of December 31, 2019
at the lower of cost or estimated fair value on an aggregate basis as determined by outstanding commitments from
investors and totaled $2,974.
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, 2020, and
2019, there were $44,372 and $63,824 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 $5,748 in loans classified as TDRs that are current
and performing as of December 31, 2020, and of December 31, 2019.
47
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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 cards and dealer finance, 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.
On March 27, 2020, the CARES Act allowed banks to elect to suspend requirements under GAAP for loan modifications
related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that
would otherwise be categorized as a TDR. During 2020, the bank executed 1,231 modification of principal and interest
deferrals in connection with COVID-19 relief to our customers. Of those modifications, 70 remain in deferral as of
February 28, 2021 totaling $9,339.
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.
Assets Held for Sale
There were no Assets held for sale at December 31, 2019. Assets held for sale at December 31, 2020 included two branch
buildings that were closed during 2020. The Company periodically evaluates the value of assets held for sale and records
an impairment charge for any subsequent declines in fair value less selling costs.
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.
48
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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 VSTitle, LLC 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 states
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 should recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-
deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if
applicable. For December 31, 2020 the Company had an independent, third-party review of goodwill. Based on the
results of this review and management’s analysis, no impairment was deemed necessary.
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 2020 and 2019 were $604 and $685, 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.
49
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
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.
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.
Risk and Uncertainties
The coronavirus (“COVID-19”) pandemic spread rapidly across the world in the first quarter of 2020 and was declared
a pandemic by the World Health Organization. The government and private sector responses to contain its spread
began to significantly affect our operating businesses in March 2020 with branch lobby closings, operations and
administrative staff working remotely and the use of virtual meetings and continued to impact the Company through
December 31, 2020. The duration and extent of the effects over longer terms cannot be reasonably estimated at this
time. The risks and uncertainties resulting from the pandemic may adversely affect our future earnings, cash flows
and financial condition, including among others, credit losses resulting from financial stress on borrowers, decreased
demand for products and operational failures. In addition, significant assumptions, judgments, and estimates used in
the preparation of our financial statements, including those associated with evaluations of goodwill for impairment,
and allowance for loan losses, may be subject to adjustments in future periods due to the rapidly changing, uncertain
and unprecedented nature of the pandemic.
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.
50
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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:
Earnings Available to Common Stockholders:
Net Income
Non-controlling interest income
Preferred stock dividends
For the year ended
December 31, 2020 December 31, 2019
$ 8,893 $ 4,639
105
130
263
315
Net Income Available to Common Stockholders
$ 8,525 $ 4,194
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, 2020
December 31, 2019
Net Income
Available to
Common
Stockholders
Weighted
Average
Shares
Per
Share
Amounts
Net Income
Available to
Common
Stockholders
Weighted
Average
Shares
Per
Share
Amounts
Basic EPS
$ 8,525
3,199,883
$ 2.66
$ 4,194
3,189,288
$ 1.32
Effect of Dilutive Securities:
Convertible Preferred Stock
263
228,882
(0.10)
315
270,946
(0.02)
Diluted EPS
$ 8,788
3,428,765
$ 2.56
$ 4,509
3,460,234
$ 1.30
51
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No.
2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses
for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. Financial institutions and other organizations will now use forward-looking information to
better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted,
although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the
ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with
credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s
2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical
corrections and improvements to the codification as well as other transition matters. Smaller reporting companies
who file with the U.S. Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC
are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December
15, 2022. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial
statements and is in the set-up stage with a new provider with expectations of running parallel beginning second
quarter 2021. Data has been archived under the current model.
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 15, 2020, and interim periods within those fiscal years. Early
adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its
consolidated financial statements.
In March 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide
temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides
optional expedients and exceptions for applying generally accepted accounting principles to contract modifications
and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected
to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period.
The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January
2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01
“Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in
Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting
transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences
of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting
transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used
for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim
period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period
that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.
An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the
interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning
of the interim period that includes March 12, 2020. The Company is assessing ASU 2020-04 and its impact on the
Company’s transition away from LIBOR for its loan and other financial instruments.
52
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements, continued
In August 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-
40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies
accounting for convertible instruments by removing major separation models required under current U.S. GAAP.
Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible
preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope
exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per
share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for
convertible instruments to increase the information transparency. For public business entities, excluding smaller
reporting companies, the amendments in the ASU are effective for fiscal years beginning after December 15, 2021,
and interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.
The Company does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial
statements.
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables –
Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should reevaluate whether a callable debt
security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities,
the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.
Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning
of the period of adoption for existing or newly purchased callable debt securities. The Company does not expect the
adoption of ASU 2020-08 to have a material impact on its consolidated financial statements.
In 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.
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 adoption of ASU 2017-04 did not have a material impact on its consolidated financial statements.
Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of
SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics
including (1) measuring current expected credit losses; (2) development, governance, and documentation of a
systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic
methodology.
53
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements, continued
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.
On March 12, 2020, the SEC finalized amendments to the definitions of its “accelerated filer” and “large accelerated
filer” definitions. The amendments increase the threshold criteria for meeting these filer classifications and are
effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report
filed with the SEC subsequent to the effective date The rule change excludes from the definition of “accelerated
filer” entities with public float of less than $700 million and less than $100 million in annual revenues. If the
Company’s annual revenues exceed $100 million, its category will change back to “accelerated filer”. The
classifications of “accelerated filer” and “large accelerated filer” require a public company to obtain an auditor
attestation concerning the effectiveness of internal control over financial reporting (“ICFR”) and include the opinion
on ICFR in its annual report on Form 10-K. Non-accelerated filers also have additional time to file quarterly and
annual financial statements. All public companies are required to obtain and file annual financial statement audits, as
well as provide management’s assertion on effectiveness of internal control over financial reporting, but the external
auditor attestation of internal control over financial reporting is not required for non-accelerated filers.
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 adoption of ASU 2018-13 did not have a material impact on the Company’s
consolidated financial statements.
54
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements, continued
In March 2020 (Revised in April 2020), various regulatory agencies, including the Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on
loan modifications and reporting for financial institutions working with customers affected by the Coronavirus. The
interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting
Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a
restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons
related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The
agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response
to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-
term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other
delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on
their contractual payments at the time a modification program is implemented. In August 2020, a joint statement on
additional loan modifications was issued. Among other things, the Interagency Statement addresses accounting and
regulatory reporting considerations for loan modifications, including those accounted for under Section 4013 of the
Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act was signed into law on March
27, 2020 to help support individuals and businesses through loans, grants, tax changes and other types of relief. The
most significant impacts of the Act related to accounting for loan modifications and establishment of the Paycheck
Protection Program (“PPP”). On December 21, 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was
passed. The CAA extends or modifies many of the relief programs first created by the CARES Act, including the PPP
and treatment of certain loan modifications related to the COVID-19 pandemic. This interagency guidance is expected
to have a material impact on the Company’s consolidated financial statements; however, this impact cannot be
quantified at this time. The COVID-19 discussion following the Critical Accounting Policies at the beginning of the
Management’s Discussion and Analysis and notes 5 and 6 provide more details on what the Company is doing to
prepare for the impact.
NOTE 3
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, 2020 and 2019.
NOTE 4
SECURITIES:
The amortized cost and fair value, with unrealized gains and losses, of securities held to maturity were as follows:
December 31, 2020
U. S. Treasuries
December 31, 2019
U. S. Treasuries
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 125
$ - $ -
$ 125
$ 124
$ - $ -
$ 124
55
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 4
SECURITIES (CONTINUED):
The amortized cost and fair value of securities available for sale are as follows:
December 31, 2020
U. S. Government sponsored enterprises
Securities issued by States and political subdivisions of the U.S.
Mortgage-backed obligations of federal agencies
Corporate debt securities
Total Securities Available for Sale
December 31, 2019
U. S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Corporate debt securities
Total Securities Available for Sale
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 6,000
17,177
73,422
9,282
$ 105,881
$ 47 $ -
-
515
153
502
121
14
$ 1,185 $ 167
$ 6,047
17,692
73,771
9,389
$ 106,899
$ 2,000
317
2,059
$ 4,376
$ -
2
-
$ 2
$ 11
-
1
$ 12
$ 1,989
319
2,058
$ 4,366
The amortized cost and fair value of securities at December 31, 2020, 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
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Amortized
Cost
Amortized
Cost
Fair
Value
$ 125 $ 125 $ -
16,014
-
-
29,587
-
-
-
60,280
-
$ 125 $ 125 $ 105,881
Fair Value
$ -
16,057
29,794
61,048
$ 106,899
There were no sales of debt or equity securities during 2020 or 2019. There were no pledged securities at December 31,
2020 or 2019.
As of December 31, 2020, other investments consist of investments in fourteen low-income housing and historic equity
partnerships (carrying basis of $7,635), stock in the Federal Home Loan Bank (carrying basis of $1,641), and various
other investments (carrying basis of $1,598). 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, 2020. At December 31,
2020, the Company was committed to invest an additional $2,091 in six 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 consolidated balance sheet.
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, 2020 and 2019 were as follows:
56
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 4
SECURITIES (CONTINUED):
Less than 12 Months
Unrealized
Losses
Fair
Value
More than 12 Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
December 31, 2020
Mortgage-backed obligations of federal agencies
Corporate debt securities
Total
$73,771
9,389
$83,160
$ 153
14
$ 167
$ -
-
$ -
$ - $ 73,771
9,389
-
$ - $ 83,160
$ 153
14
$ 167
December 31, 2019
U. S. Government sponsored enterprises
Corporate debt securities
Total
Less than 12 Months
More than 12 Months
Fair
Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Unrealized
Losses
Fair Value
$ 1,989
2,058
$ 4,047
$ 11
1
$ 12
$ - $ - $ 1,989
2,058
-
$ - $ 4,047
-
$ -
$ 11
1
$ 12
As of December 31, 2020, there were no individual available for sale securities that had been in a continuous loss position
for more than 12 months.
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, 2020, the Company did not hold any security that was temporarily impaired. The Company did not recognize any
other-than-temporary impairment losses in 2020 or 2019. There were $83,160 and $4,047 securities in a loss position
less than 12 months at December 31, 2020 and 2019, respectively.
NOTE 5
LOANS:
During 2020, we executed 1,231 modifications allowing principal and interest deferrals in connection with COVID-
19 relief to our customers. Of those modification, 198 remain in deferral as of December 31, 2020 with balances of
$14,611. These modifications and deferrals were not considered troubled debt restructurings pursuant to interagency
guidance issued in March 2020 and/or the CARES Act.
Loans held for investment as of December 31, 2020, and 2019 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
2020
2019
$ 71,467 $ 77,131
29,718
178,267
5,364
129,850
9,523
47,774
33,535
10,165
78,976
3,122
53,728
163,018
5,918
142,516
8,476
46,613
65,470
9,405
91,861
2,857
$ 661,329 $ 603,425
57
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 5
LOANS (CONTINUED):
The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of
Atlanta totaling $173,029 and $178,253 as of December 31, 2020 and 2019, 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, 2020, and 2019 were $58,679 and $66,798, respectively.
The following is a summary of information pertaining to impaired loans:
December 31, 2020
Recorded
Investment
Unpaid
Principal
Balance
December 31, 2019
Unpaid
Related
Recorded
Principal
Related
Allowance
Investment
Balance
Allowance
Impaired loans without a valuation allowance:
Construction/Land Development
$ 1,693
$ 1,693
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed end
Home Equity – open end
Commercial & Industrial – Non-Real Estate
Consumer
-
6,648
-
8,592
687
151
8
-
-
6,648
-
8,656
687
151
8
-
-
-
5,131
5,131
$ - $ 2,042 $ 2,042 $ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
-
1,302
17
-
1,302
716
716
-
-
-
-
Credit cards
Dealer Finance
-
8
-
8
-
-
-
79
-
79
-
-
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
17,787
17,851
-
1,737
7,143
-
7,464
-
-
-
1
-
-
1,737
7,143
-
7,464
-
-
-
1
-
-
-
370
365
-
1,833
-
-
-
1
-
9,287
9,287
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
-
147
147
15
136
136
7
16,492
16,492
2,584
14,494
15,519
1,755
Total impaired loans
$ 34,279
$ 34,343
$ 2,584
$ 23,781 $ 24,806 $ 1,755
The Recorded Investment is defined as the principal balance less principal payments and charge-offs.
58
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 5
LOANS (CONTINUED):
The following is a summary of the average investment and interest income recognized for impaired loans (dollars in
thousands):
December 31, 2020
December 31, 2019
Average
Recorded
Investment
Interest
Income
Average
Recorded
Interest
Income
Recognized
Investment
Recognized
Impaired loans without a valuation allowance:
Construction/Land Development
$ 1,598
$ 103
$ 1,957 $ 130
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
-
5,520
-
3,296
522
38
55
-
-
-
356
-
229
34
7
1
-
-
971
5,965
-
1,605
539
40
15
-
-
-
312
-
72
57
-
2
-
-
24
1
55
5
11,053
243
1,797
8,956
-
4,108
177
113
17
2
-
731
-
233
413
-
237
-
-
-
-
-
11,147
2,248
967
3,121
-
2,542
-
38
97
4
-
578
68
16
589
-
36
-
10
13
-
-
146
13
166
11
15,559
896
9,183
743
Total impaired loans
$ 26,612
$ 1,627
$ 20,330 $ 1,321
59
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 5
LOANS (CONTINUED):
The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of December
31, 2020 and 2019:
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
$ 2,557 $ -
$ -
$ 2,557 $ 68,910 $ 71,467 $ 251 $ -
-
1,724
-
554
3
716
95
-
512
-
-
30
-
44
-
304
-
920
-
212
-
-
2,540
-
1,474
33
928
139
53,728
160,478
5,918
141,042
8,443
45,685
65,331
53,728
163,018
5,918
142,516
8,476
46,613
65,470
1,737
368
-
3,820
-
212
3
-
102
-
-
-
-
-
39
694
45
$ 6,427
-
157
-
$ 743
-
-
-
$ 1,436
39
851
45
$ 8,606
9,366
91,010
2,812
$ 652,723
-
9,405
44
91,861
2,857
-
$ 661,329 $ 6,435
-
-
-
$ 102
December 31, 2020
Construction/Land
Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed
end
Home Equity – open end
Commercial & Industrial
– Non- Real Estate
Consumer
Dealer Finance
Credit Cards
Total
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
$ 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
10,165
78,976
3,122
10,062
76,435
3,087
103
2,541
35
-
198
4
14
400
-
1
249
-
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
60
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 6
ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses (in thousands) for the years ended December 31, 2020 and 2019
is as follows:
December 31, 2020
Allowance for loan losses:
Construction/Land Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed end
Home Equity – open end
Commercial & Industrial – Non-
Real Estate
Consumer
Dealer Finance
Credit Cards
Total
December 31, 2019
Allowance for loan losses:
Construction/Land Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed end
Home Equity – open end
Commercial & Industrial – Non-
Real Estate
Consumer
Dealer Finance
Credit Cards
Total
Beginning
Balance
Charge-
offs
Recoveries
Provision
for Loan
Losses
Ending
Balance
Individually
Evaluated
for
Impairment
Collectively
Evaluated
for
Impairment
$ 1,190 $ 7 $ -
$ 66 $ 1,249 $ -
$ 1,249
668
1,573
20
1,815
42
457
585
186
1,786
-
158
-
64
-
34
138
89
-
7
-
11
-
3
19
50
1,551
784
63
202
34
1,900
13
37
(103)
374
655
731
1,624
54
3,662
55
463
363
521
1,674
370
365
-
1,833
-
-
-
1
15
361
1,259
54
1,829
55
463
363
520
1,659
68
123
75
59
79
-
79
$ 8,390 $ 2,164
$ 949
$ 3,300
$ 10,475
$ 2,584 $ 7,891
Beginning
Balance
Charge-
offs
Recoveries
Provision
for Loan
Losses
Ending
Balance
Individually
Evaluated
for
Impairment
Collectively
Evaluated
for
Impairment
$ 2,094 $ 2,319 $ 50 $ 1,365 $ 1,190 $ 85 $ 1,105
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
61
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 6
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
The following table presents the recorded investment in loans (in thousands) based on impairment method as of
December 31, 2020 and 2019:
December 31, 2020
Construction/Land Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity – closed end
Home Equity –open end
Commercial & Industrial – Non-Real Estate
Consumer
Dealer Finance
Credit Cards
Total
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
Loan Receivable
$ 71,467
53,728
163,018
5,918
142,516
8,476
46,613
65,470
9,405
91,861
2,857
$ 661,329
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
$ 1,693
1,737
13,791
-
16,056
687
151
8
1
155
-
$ 34,279
$ 69,774
51,991
149,227
5,918
126,460
7,789
46,462
65,462
9,404
91,706
2,857
$ 627,050
Individually
Evaluated for
Loan Receivable
Impairment
$ 77,131 $ 3,078 $ 74,053
Collectively
Evaluated for
Impairment
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
62
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 6
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
The following table shows the Company’s loan portfolio broken down by internal loan grade (in thousands) as of
December 31, 2020 and 2019:
December 31, 2020
Construction/Land
Development
Farmland
Real Estate
Multi-Family
Commercial Real
Estate
Home Equity –
closed end
Home Equity – open
end
Commercial &
Industrial (Non-Real
Estate)
Consumer (excluding
dealer)
Total
Performing
Nonperforming
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
$ - $ 142 $ 8,448
11,707
39,223
1,075
459
2,283
-
58
-
-
$ 40,126
26,899
66,698
3,509
$ 18,226
11,846
32,302
1,334
$ 4,274
1,022
6,977
-
$ 251 $ -
-
-
-
1,737
15,535
-
$ 71,467
53,728
163,018
5,918
-
-
-
4,114
31,205
47,477
26,677
18,637
14,406
124
2,479
3,289
759
1,795
1,705
17,716
22,014
3,171
1,477
-
-
-
-
142,516
8,476
46,613
65,470
30
530
2
90
1,524
7,601
17,050
38,290
913
-
3,461
173
$ 148 $10,524 $122,915
3,975
$ 231,037
1,790
$ 134,395
6
$35,101
-
-
$ 32,491 $ -
9,405
$ 566,611
Credit Cards
$ 2,857
-
$ 2,857
Dealer
Finance
$ 91,817
44
$ 91,861
63
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 6
ALLOWANCE FOR LOAN LOSSES (CONTINUED):
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
Nonperforming
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 $ - $ 77,131
29,718
178,267
5,364
1,932
17,177
-
1,188
5,635
173
-
-
-
-
-
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
6
3,476
170
$ 225 $ 9,709 $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
4
$ 3,122
$ 78,529
447
$ 78,976
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.
64
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 6
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 7
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. Loans
modified under the regulatory guidance and CARES Act due to the pandemic were not considered troubled debt
restructurings.
During the twelve months ended December 31, 2020, the Bank modified 6 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, 2020
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
Real Estate
Consumer
Total
1
5
6
$ 186
$ 186
37 37
$ 222 $ 222
65
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 7
TROUBLED DEBT RESTRUCTURING (CONTINUED):
As of December 31, 2020, there were no loans restructured in the previous twelve months, in default. A restructured
loan is considered in default when it becomes 30 days past due.
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
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
NOTE 8
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
2020
$ 4,369
16,192
10,086
30,647
(12,738)
$ 17,909
2019
$ 4,508
16,038
10,425
30,971
(12,040)
$ 18,931
Depreciation of $1,232 in 2020 and $1,228 in 2019 were charged to operations.
66
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 9
OTHER REAL ESTATE OWNED:
The table below reflects other real estate owned (OREO) activity for 2020 and 2019:
Other Real Estate Owned
2020
2019
Balance as of January 1
Loans transferred to OREO
Sale of OREO
Write down of OREO and losses on sale
Balance as of December 31
$ 1,489
-
(1,163)
(326)
$ -
$ 2,443
133
(635)
(452)
$ 1,489
Activity in the valuation allowance was as follows:
Balance as of January 1
Provision charged to expense
Reductions from sales of real estate owned
Balance as of December 31
(Income) expenses related to foreclosed assets include:
Net loss on sales
Gain on foreclosure
Provision for unrealized losses
Operating expenses, net of rental income
(Income) expenses related to foreclosed assets
2020
2019
$ 1,181 $ 861
354
116
(1,297)
(36)
$ - $ 1,181
2020
2019
$ 205 $ 121
(24)
-
354
116
25
65
$ 346 $ 516
There were no real estate owned properties at December 31, 2020. At December 31, 2019, the balance of real estate
owned included $133 of foreclosed residential real estate properties recorded as a result of obtaining physical possession
of the property. At December 31, 2020, the recorded investment of consumer mortgage loans secured by residential real
estate properties for which formal foreclosure procedures are in process is $275.
NOTE 10
DEPOSITS:
Time deposits that meet or exceed the FDIC insurance limit of $250 at year end 2020 and 2019 were $12,283 and $9,386.
At December 31, 2020, the scheduled maturities of all time deposits are as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$ 50,936
30,494
26,647
12,689
9,299
-
$ 130,065
67
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 11
SHORT-TERM DEBT:
Short-term debt, all maturing within 12 months, as of December 31, 2019 is summarized as follows:
2020
Federal funds purchased
FHLB short term
Totals
2019
Federal funds purchased
FHLB short term
Totals
Maximum Outstanding
at any Month End
$ -
10,000
Outstanding
At
Average
Balance
Year End Outstanding
Yield
$ -
$ -
-
1,776
$ - $ 1,776
-%
2.31%
2.31%
$ 10,715 $ -
10,000
45,000
$ 10,000
$ 861 2.67%
2.48%
26,822
2.49%
$ 27,683
The Company utilizes short-term debt such as Federal funds purchased and 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. With the
growth in deposits and excess liquidity the Company did not utilize the short-term debt facilities after the first quarter of
2020.
As of December 31, 2020, the Company had unsecured lines of credit with correspondent banks totaling $30,000 which
may be used in the management of short-term liquidity, on which none was outstanding.
NOTE 12
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 2.39%; the weighted average interest rate was
1.47% and 1.85% at December 31, 2020 and December 31, 2019, respectively. The balance of these obligations at
December 31, 2020 and 2019 were $21,268 and $53,197 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, 2020, were as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$ 3,429
2,714
2,000
1,875
1,000
10,250
$ 21,268
VSTitle, LLC had a note payable for vehicle purchases with a balance of $4 December 31, 2019 that was paid off at
December 31, 2020.
In April 2020, the Company purchased the minority interest in F&M Mortgage with a final payment of $194 due on
January 1, 2021. This balance was outstanding at December 31, 2020.
68
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 12
LONG-TERM DEBT (CONTINUED):
On July 29, 2020, the Company sold and issued to certain institutional accredited investors $5,000 in aggregate
principal amount of 5.75% fixed rated subordinated notes due July 31, 2027 (the “2027 Notes”) and $7,000 in
aggregate principal amount of 6.00% fixed to floating rate subordinated notes due July 31, 2030 (the “2030 Notes”).
The 2027 Notes bear interest at 5.75% per annum, payable semi-annually in arrears. Beginning on July 31, 2022
through maturity, the 2027 Notes may be redeemed, at the Company’s option, on any scheduled interest payment date.
The 2027 Notes will mature on July 31, 2027. The 2030 Notes will initially accrue interest at 6.00% per annum,
beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July
31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest
rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears.
Beginning on July 31, 2025 through maturity, the 2030 Notes may be redeemed, at the Company’s option, on any
scheduled interest payment date. The 2030 Notes will mature on July 31, 2030. The subordinated notes, net of issuance
costs totaled $11,740 at December 31, 2020.
NOTE 13
INCOME TAX EXPENSE:
The components of income tax expense were as follows:
Current expense
Deferred expense (benefit)
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
SBA fees
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
Net unrealized gain on securities available for sale
Total Liabilities
Net Deferred Tax Asset (included in Other Assets on Balance Sheet)
69
2020
$ 1,812
(670)
$ 1,142
2019
$ 929
(1,179)
$ (250)
2020
2019
$ 2,195
3
847
293
24
-
198
140
-
1,016
$ 4,716
$ 1,757
3
692
320
19
178
-
192
2
852
$ 4.015
2020
2019
$ 93 $ 118
487
464
568
192
-
1,829
$ 2,804 $ 2,186
584
294
571
156
214
1,912
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 13
INCOME TAX EXPENSE (CONTINUED):
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)
2020
$ 2,107
2019
$ 922
(36)
(176)
(892)
139
$ 1,142
(44)
(161)
(966)
(1)
$ (250)
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 2017.
NOTE 14
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
2020 and 2019:
Change in Benefit Obligation
Benefit obligation, beginning
Service cost
Interest cost
Actuarial loss
Benefits paid
Settlement (gain)
Benefit obligation, ending
Change in Plan Assets
Fair value of plan assets, beginning
Actual return on plan assets
Benefits paid
Fair value of plan assets, ending
Funded status at the end of the year
2020
2019
$ 13,313
808
419
1,554
(638)
-
$ 15,456
$ 14,219
738
548
2,054
(3,910)
(336)
$ 13,313
$ 10,543 $ 12,445
2,008
1,296
(3,910)
(638)
$ 11,201
$ 10,543
$ (4,255) $ (2,772)
The fair value of plan assets is measured based on the fair value hierarchy as discussed in Note 20, “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.
70
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 14
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
2020
2019
$ 583 $ 1,286
(4,056)
852
(4,837)
1,016
$ (4,837)
-
(4,837)
1,016
$ (3,821)
$ (4,067)
11
(4,056)
852
$ (3,204)
$ (13,313)
$ (15,455)
10,543
11,201
4,067
4,837
(11)
-
$ 583 $ 1,286
$ 808 $ 738
548
419
(807)
(734)
(15)
(11)
1,100
-
221
281
$ 703 $ 1,845
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss)
Net (loss) gain
Amortization of prior service cost
Total recognized in other comprehensive income (loss)
$ 770
11
$ 781
$ (864)
15
$ (849)
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
$ 1,484 $ 996
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)
$ 11,784 $ 9,720
$ 9,713
$ 11,784
4.25%
3.25%
3.25%
2.50%
7.25%
7.25%
3.00%
3.00%
12.35
11.40
71
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 14
EMPLOYEE BENEFITS (CONTINUED):
Funding Policy
Due to the current funding status of the plan, the Company did not make a contribution in 2020 or 2019. The net periodic
pension cost of the plan for 2021 will be approximately $739. In 2019, due to recent retirements, the Company was
subject to a settlement charge totaling $1,100. The Company was not subject to settlement accounting in 2020 and does
not anticipate being subject to settlement accounting in 2021.
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, 2020 and 2019 were 63% equity and 37% fixed and 60% equity and
40% fixed, respectively.
Estimated Future Benefit Payments, which reflect expected future service, as appropriate, as of December 31, 2020, are
as follows:
2021
2022
2023
2024
2025
2026-2030
$ 579
1,821
823
142
928
5,871
$ 10,164
72
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 14
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 $447 in 2020 and $406
in 2019 to the Plan and charged this expense to operations. The shares held by the ESOP totaled 183,659 and 189,349
at December 31, 2020 and 2019, 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 $295 and $289 in 2020 and 2019, 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 2020 and $125 in
2019. A liability is accrued for the obligation under the plan and totaled $3,683 and $3,713 at December 31, 2020 and
2019, 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
$488 and $477 for December 31, 2020 and 2019, respectively.
NOTE 15
CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks in excess of FDIC insurance limits totaling $4,714 and $975
at December 31, 2020 and 2019, 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, 2020, approximately 74% of the loan portfolio was secured by
real estate.
73
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 16
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, 2020 and 2019, the Company
had the following commitments outstanding:
Commitments to extend credit
Standby letters of credit
2020
2019
$ 233,182 $ 174,925
2,369
1,689
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 17 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
Mortgage Banking Derivatives
Loans Held for Sale
The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage Company, originates residential
mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent
investor with the mortgage servicing rights released. During the second quarter of 2020, the Company elected to begin
using fair value accounting for its entire portfolio of loans held for sale (LHFS) in accordance with ASC 820 – Fair Value
Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for the identical
instruments traded in the secondary mortgage loan markets in which the Company conducts business total $14,307 as of
December 31, 2020 of which $14,381 is related to unpaid principal. The Company’s portfolio of LHFS is classified as
Level 2. These loans were previously carried as of December 31, 2019 at the lower of cost or estimated fair value on an
aggregate basis as determined by outstanding commitments from investors and totaled $3,000.
Interest Rate Lock Commitments and Forward Sales Commitments
The Company, through F&M Mortgage Company, enters into commitments to originate residential mortgage loans in
which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such
rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon
entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the
period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed
(forward sales commitment). The Company locks in the loan and rate with an investor and commits to deliver the loan if
settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails
to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the
Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs
based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis
while taking into consideration the probability that the rate loan commitments will close. The fair value of these derivative
instruments is reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2020, and totaled $816,
74
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 17 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED):
with a notional amount of $31,000 and total positions of 134. The fair value of the IRLCs was considered immaterial at
December 31, 2019. Changes in fair value are recorded as a component of “Mortgage banking, net” in the Consolidated
Income Statement for the period ended December 31, 2020. The Company’s IRLCs are classified as Level 2. At
December 31, 2020 and December 31, 2019, each IRLC and all LHFS were subject to a forward sales commitment on a
best efforts basis.
During the second quarter of 2020, the Company elected to begin using fair value accounting for its forward sales
commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments is
reported in “Other Liabilities” in the Consolidated Balance Sheet at December 31, 2020, and totaled $60, with a notional
amount of $46,000 and total positions of 205.
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.
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, 2020 and 2019.
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
2020
2019
$ 7 $ 184
72
2
75
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 18
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
2020
2019
$ 21,722 $ 20,565
5,634
(3)
(4,668)
$ 22,685 $ 21,722
5,532
(443)
(3,932)
Deposits of executive officers and directors and their affiliates were $6,033 and $5,524 on December 31, 2020 and
2019, respectively. Management believes these deposits were made under the same terms available to other customers
of the bank.
NOTE 19
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, 2021,
approximately $5,563 was available for dividend distribution without permission of the Board of Governors. Dividends
paid by the Bank to the Company totaled $1,500 in 2020 and $6,000 in 2019.
NOTE 20
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:
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.
76
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 20 FAIR VALUE MEASUREMENTS (CONTINUED):
The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value
based upon the redemption provisions of each entity and is therefore excluded from the following table.
Loans Held for Sale
During the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage, the
Company elected to begin using fair value accounting for its entire portfolio of originated loans held for sale in
accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s origin loans held
for sale through F&M Mortgage is based on observable market prices for similar instruments traded in the secondary
mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale
through F&M Mortgage is classified as Level 2. At December 31, 2019, these loans were carried at the lower of cost
or estimated fair value on an aggregate basis as determined by outstanding commitments from investors. Gains and
losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of
Income.
Derivative assets – IRLCs
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M
Mortgage, the Company elected to recognize IRLCs at fair value based on the price of the underlying loans obtained
from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability
that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 2. The fair value of
interest rate lock commitments was considered immaterial at December 31, 2019.
Derivative Asset/Liability – Forward Sale Commitments
Beginning with the second quarter of 2020, simultaneous with the purchase of the minority interest in F&M Mortgage,
the Company elected to begin using fair value accounting for its forward sales commitments related to IRLCs and
LHFS. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time
the borrower commitment is made. The best efforts commitments are valued using the committed price to the counter-
party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All the
Company’s forward sale commitments are classified Level 2.
Derivative Asset/Liability – Indexed Certificate of Deposit
The Company’s derivatives, which are associated with the Indexed Certificate of Deposit (ICD) product once offered,
are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from
observable-market based inputs, which are considered Level 2 inputs. This product is no longer offered, however
there are a few certificates of deposits that have not matured.
77
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 20 FAIR VALUE MEASUREMENTS (CONTINUED):
The following tables present the balances of financial assets measured at fair value on a recurring basis as of December
31, 2020, and 2019 (dollars in thousands):
December 31, 2020
Total
Level 1
Level 2
Level 3
Assets:
Loans held for sale, F&M Mortgage
IRLC
U.S. Government sponsored enterprises
Securities issued by States and political subdivisions of the US
Mortgage-backed obligations of federal agencies
Corporate debt securities
Assets at Fair Value
Liabilities:
Derivatives – ICD
Forward Sales Commitments
Liabilities at Fair Value
816
6,047
17,692
73,771
$ 14,307 $ - $ 14,307 $ -
-
-
-
-
-
-
-
-
9,389 -
-
$ 122,022 $ - $ 122,022 $ -
816
6,047
17,692
73,771
9,389
$ 2 $ - $ 2 $ -
60
-
$ 62 $ - $ 62 $ -
-
60
December 31, 2019
Total
Level 1
Level 2
Level 3
Assets:
U.S. Government sponsored enterprises
Mortgage-backed obligations of federal agencies
Other debt securities
Assets at Fair Value
Liabilities:
Derivatives - ICD
Liabilities at Fair Value
$ 1,989 $ - $ 1,989 $ -
-
319
-
2,058
$ 4,366 $ - $ 4,366 $ -
-
-
319
2,058
$ 72 $ - $ 72 $ -
$ 72 $ - $ 72 $ -
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:
Assets Held for Sale
Assets held for sale were transferred from bank premises at the lower of cost less accumulated depreciation or fair
value at the date of transfer. The Company periodically evaluates the value of assets held for sale and records an
impairment charge for any subsequent declines in fair value less selling costs. Fair value is based upon independent
market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the
fair value of the collateral is based on an observable market price or a current appraised value, the Company records
the assets held for sale as nonrecurring Level 2. When an appraised value is not available or management determines
the fair value of the collateral is further impaired below the appraised value and there is no observable market price,
the Company records the asset held for sale as nonrecurring Level 3.
78
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 20 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, 2020 and 2019, 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, 2020
Construction/Land Development
Farmland
Real Estate
Commercial Real Estate
Consumer
Dealer Finance
Impaired loans
Bank premises held for sale
December 31, 2019
Construction/Land Development
Farmland
Real Estate
Commercial Real Estate
Consumer
Dealer Finance
Impaired loans
Total
$ -
1,367
6,778
5,631
-
132
$ 13,908
$ 520
Level 1
Level 2
Level 3
- $ -
-
-
-
1,367
-
-
6,778
-
5,631
-
-
-
-
-
132
-
- - $ 13,908
- $ 520
-
Total
$ 951
1,396
9,835
425
3
129
$ 12,739
Level 1
-
-
-
-
-
-
-
Level 2
Level 3
-
$ 951
-
1,396
-
9,835
-
425
-
3
-
129
- $ 12,739
79
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 20 FAIR VALUE MEASUREMENTS (CONTINUED):
The following table presents information about Level 3 Fair Value Measurements for December 31, 2020 and 2019:
Fair Value at
December 31, 2020
Valuation Technique
Significant Unobservable Inputs
Range
Impaired Loans $ 13,908 Discounted appraised value Discount for selling costs and
marketability
9.25%-62.00%
(Average 24.39%)
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%)
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, 2020
Other real estate owned
Total
$ -
Level 1
Level 2
Level 3
- $ -
-
-
December 31, 2019
Other real estate owned
Total
$ 1,489
Level 1
Level 2
Level 3
- $ 1,489
The following table presents information about Level 3 Fair Value Measurements for December 31, 2020 and 2019:
Fair Value at
December 31, 2020
Valuation Technique
Significant Unobservable
Inputs
Other real estate owned $ - Discounted appraised value Discount for selling costs
Range
n/a
Fair Value at
December 31, 2019
Valuation Technique
Significant Unobservable
Inputs
Other real estate owned $ 1,489 Discounted appraised value Discount for selling costs
Range
5%-10% (Average 8%)
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, 2020 and 2019. Fair values for December 31, 2020 and 2019 are estimated
under the exit price notion in accordance with the adoption of ASU 2016-01, “Recognition and Measurement of
Financial Assets and Financial Liabilities.
80
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 20 FAIR VALUE MEASUREMENTS (CONTINUED):
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, 2020 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, 2020
Cash and cash equivalents
$ 78,408
$78,408 $ - $ - $ 78,408
Securities
Loans held for sale
107,024
58,679
Loans held for investment, net
650,854
Interest receivable
2,727
-
-
-
-
107,024
58,679
-
2,727
-
-
639,472
-
107,024
58,679
639,472
2,727
Bank owned life insurance
22,647
-
22,647
-
22,647
Total
Liabilities:
Deposits
Long-term debt
Interest payable
Total
$ 920,339 $ 78,408 $ 191,077 $ 639,472 $ 908,957
$ 818,582 $ -
$702,940
$131,917 $ 834,857
33,202
-
-
33,834
33,834
261
-
261
-
261
$ 852,045 $ -
$ 703,201 $ 165,751 $ 868,951
(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
81
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 21
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
requirement was fully phased in at 2.50% January 1, 2019. The Company’s capital conservation buffer for 2020 was
6.81% and for 2019 was 6.55%. 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, 2020 and 2019, 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 introduced an optional
simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank
leverage ratio (CBLR) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection
Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting
risk-based capital ratios for qualifying community banking organizations that opt into the framework.
In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of
greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet
exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR
framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio
requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based
capital.
The CBLR framework was temporarily modified under the CARES Act to provide relief to banks.
The CBLR framework was available for banks to use in their March 31, 2020, Call Report; to date, the Company has
elected not to adopt 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.
82
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 21
REGULATORY MATTERS, (CONTINUED):
The actual capital ratios for the Bank are presented in the following table (dollars in thousands):
December 31, 2020
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
$103,838
95,051
95,051
95,051
14.81% $ 56,104
42,078
13.55%
31,559
13.55%
38,275
9.93%
8.00%
6.00%
4.50%
4.00%
$ 70,131
56,104
45,585
47,844
10.00%
8.00%
6.50%
5.00%
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%
NOTE 22
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, 2020
$ 36,702
$ 332
$ 146
$ -
$ -
$ (388)
$ 36,792
Service charges on deposits
1,191
Investment services and insurance
income
Mortgage banking income, net
Title insurance income
1
-
-
-
-
6,154
-
-
709
-
-
-
-
-
1,978
-
-
-
-
-
(41)
-
-
1,191
669
6,154
1,978
Other operating income
2,189
182
-
-
(153)
-
2,218
Total income
Expenses:
Interest Expense
Provision for loan losses
Salaries and benefits
40,083
6,668
855
1,978
(153)
(429)
49,002
5,483
3,300
357
-
-
-
-
-
12,923
2,236
298
1,027
276
(388)
-
-
-
-
5,728
3,300
16,484
Other operating expenses
12,182
920
73
270
51
(41)
13,455
Total expense
33,888
3,513
371
1,297
327
(429)
38,967
Income before income taxes
6,195
3,155
484
681
(480)
-
10,035
Income tax expense (benefit)
925
-
98
-
119
-
1,142
Net income
$ 5,270
$ 3,155
$ 386
$ 681
$ (599)
$ -
$ 8,893
Net income attributable to noncontrolling
interest
Net Income attributable to F & M Bank
Corp.
Total Assets
-
105
-
-
-
-
105
$ 5,270
$ 3,050
$ 386
$ 681
$ (599)
$ -
$ 8,788
$ 972,129
$ 20,157
$ 8,023
$ 2,992
$ 107,726
$ (144,108)
$ 966,930
Goodwill
$ 2,670
$ 47
$ -
$ 3
$ 164
$ -
$ 2,884
83
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 22
BUSINESS SEGMENTS (CONTINUED):
Revenues:
Interest Income
Service charges on deposits
Investment services and insurance income
Mortgage banking income, net
Title insurance income
Other operating income
Total income
Expenses:
Interest Expense
Provision for loan losses
Salaries and benefits
Other operating expenses
Total expense
Income before income taxes
Income tax expense (benefit)
Net income
Net income attributable to noncontrolling
interest
Net Income attributable to F & M Bank
Corp.
Total Assets
Goodwill
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
1,691
2
-
-
-
-
3,031
-
-
694
-
-
-
-
-
1,503
-
-
-
-
-
(19)
-
-
1,691
677
3,031
1,503
3,011
7
-
-
-
-
3,018
42,814
3,221
858
1,503
-
(266)
48,130
6,851
7,405
214
-
-
-
-
-
13,943
1,897
285
1,026
-
-
-
(247)
-
-
6,818
7,405
17,151
11,274
726
67
266
53
(19)
12,367
39,473
2,837
352
1,292
53
(266)
43,741
3,341
384
506
211
(53)
-
4,389
(356)
-
65
-
41
-
(250)
$ 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
84
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 23
PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Balance Sheets
December 31, 2020 and 2019
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
Accrued interest
Long-term liability
Total Liabilities
Stockholders’ Equity
Series A Preferred stock, $25 liquidation preference, 400,000 shares
authorized, 205,327 and 206,660 issued and outstanding at December
31, 2020 and 2019, respectively.
Common stock par value $5 per share, 6,000,000 shares authorized,
200,000 designated, 3,203,372 and 3,208,498 shares issued and
outstanding for 2020 and 2019, respectively
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss
Noncontrolling interest in consolidated subsidiaries
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
2020
2019
$ 11,555 $ 540
88,864
135
1,904
274
95,643
135
156
237
$ 107,726 $ 91,717
81
-
276
11,740
108
34
-
-
$ 12,097 $ 142
$ 4,558 $ 4,592
16,017
16,042
6,866
71,205
(3,017)
-
95,629
$ 107,726 $ 91,717
7,510
66,008
(3,211)
634
91,575
Statements of Income
For the years ended December 31, 2020 and 2019
Income
Dividends from affiliate
Other income
Total Income
Expenses
Total Expenses
Net income before income tax expense
and undistributed subsidiary net income
2020
2019
$ 1,500 $ 6,000
-
11
6,000
1,511
328
53
1,183
5,947
Income Tax Expense
119
41
Income before undistributed subsidiary net income
Undistributed (distributed) subsidiary net income
Net Income F&M Bank Corp.
1,064
7,724
$ 8,788 $ 4,509
5,906
(1,397)
85
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 23
PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED):
Statements of Cash Flows
For the years ended December 31, 2020 and 2019
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed (distributed) subsidiary income (loss)
Deferred tax expense (benefit)
Increase (decrease) in other assets
Decrease (increase) in other liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Purchase of minority interest
Net Cash Used in Investing Activities
Cash Flows from Financing Activities
Proceeds from long-term debt
Repurchase of preferred stock
Repurchase of common stock
Proceeds from issuance of common stock
Dividends paid in cash
Net Cash Provided by (Used in) Financing Activities
2020
2019
$ 8,788 $ 4,509
(7,724)
478
1,785
610
3,937
1,397
(5)
(905)
(38)
4,958
(856)
(856)
-
-
11,740
-
(473)
258
(3,591)
7,934
-
(42)
(1,798)
259
(3,587)
(5,167)
Net increase (decrease) in Cash and Cash Equivalents
11,015
(209)
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
540
749
$ 11,555 $ 540
NOTE 24
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). On
April 30, 2020, the bank acquired the remaining 30% interest to have 100% ownership of 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, prior to 100% ownership, in its consolidated financial
statements as noncontrolling interest.
NOTE 25
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, 2020 and 2019.
86
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 26 ACCUMULATED OTHER COMPREHENSIVE LOSS:
The balances in accumulated other comprehensive loss are shown in the following table:
dollars in thousands
Balance at December, 31, 2018
Change in unrealized securities gains (losses), net of tax
Unrealized
Securities Gains
(Losses)
$ (94)
87
Accumulated
Adjustments
Other
Related to
Comprehensive
Pension Plan
Loss
$ (3,969)
$ (3,875)
- 87
Change in unfunded pension liability, net of tax
-
671
671
Balance at December, 31, 2019
$ (7)
$ (3,204)
$ (3,211)
Change in unrealized securities gains (losses), net of tax
811
-
811
Change in unfunded pension liability, net of tax
-
(617)
(617)
Balance at December, 31, 2020
$ 804
$ (3,821)
$ (3,017)
There were no reclassifications adjustments reported on the consolidated statements of income during 2020 or 2019.
NOTE 27 REVENUE RECOGNITION:
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and
securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights,
financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is
applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity
and insurance commissions. Substantially all of the Company’s revenue is generated from contracts with customers.
Noninterest revenue streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and
public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s
performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related
revenue recognized, over the period in which the service is provided. Check orders and other deposit account related
fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related
revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received
immediately or in the following month through a direct charge to customers’ accounts.
Investment Services and Insurance Income
Investment services and insurance income primarily consists of commissions received on mutual funds and other
investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date,
which is when the Company has satisfied its performance obligation.
Title Insurance Income
VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate
transaction is completed.
87
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 27 REVENUE RECOGNITION (CONTINUED):
ATM and Check Card Fees
ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services
income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned
whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM
fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder
uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit
and credit card transactions, in addition to account management fees.
Other
Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other
service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon
receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time,
revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges
include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other
services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied,
and related revenue recognized, when the services are rendered or upon completion. Payment is typically received
immediately or in the following month.
Gains/Losses on sale of OREO
The Company records a gain or loss from the sale of OREO when the control of the property transfers to the buyer,
which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer,
the Company assesses whether the buyer is committed to perform their obligations under the contract and whether
collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and
the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. The Company recorded
losses on the sales of OREO property of $205 and $97 in 2020 and 2019, respectively, which is presented on the
consolidated income statement as a noninterest expense and therefore not reflected in the table below.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606,
for December 31, 2020 and 2019.
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)
Noninterest Income (out-of-scope of Topic 606)
Total
Twelve Months Ended December 31,
2020
2019
$ 1,191
669
1,978
1,900
547
6,285
5,925
$ 1,691
678
1,503
1,760
1,195
6,826
3,094
$ 12,210 $ 9,920
88
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 27 REVENUE RECOGNITION (CONTINUED):
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays
consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract
liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received
payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on
transactional activity. Consideration is often received immediately or shortly after the Company satisfies its
performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue
contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2020
and 2019, 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.
NOTE 28 LEASES:
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that
modified Topic 842. The Right-of-use assets and lease liabilities are included in other assets and other liabilities,
respectively, in the Consolidated Balance Sheets.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date
as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s
incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the
Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and
if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option
to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the
extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value
guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial
obligations.
The following tables present information about the Company’s leases:
(Dollars in thousands)
Lease Liabilities (included in other liabilities)
Right-of-use assets (included in other assets)
Weighted average remaining lease term
Weighted average discount rate
Lease cost (in thousands)
Operating lease cost
Total lease cost
December 31, 2020
December 31, 2019
$ 859 $ 917
$ 840 $ 912
6.26 years
3.51%
4.12 years
3.48%
2020
2019
$ 112 $ 128
$ 112 $ 128
Cash paid for amounts included in the measurement of lease
liabilities
$ 130 $ 148
89
F & M Bank Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (dollars in thousands)
December 31, 2020 and 2019
NOTE 28 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, 2021
Twelve months ending December 31, 2022
Twelve months ending December 31, 2023
Twelve months ending December 31, 2024
Twelve months ending December 31, 2025
Thereafter
Total undiscounted cash flows
Discount
Lease liabilities
As of
December 31, 2020
$ 126
130
93
92
53
574
1,068
(209)
859
$
$
NOTE 29 STOCK INCENTIVE PLAN:
The Company maintains the F & M Bank Corp. 2020 Stock Incentive Plan, which was designed to further the long-
term stability and financial success of the Company by attracting and retaining personnel, including employees,
directors, and consultants, through the use of stock and stock-based incentives. It was adopted by the Company’s
Board, effective upon shareholder approval on May 2, 2020 and will expire on March 18, 2030. The plan provides
for the granting of an option, restricted stock, restricted stock unit, stock appreciation right, or stock award to
employees, directors, and consultants. It authorizes the issuance of up to 200,000 shares of the Company’s common
stock.
The Company’s Stock Plan Committee administers the plan, identifies which participants will be granted awards, and
determines the terms and conditions applicable to the awards. No shares were awarded during 2020. On March 5, 2021
the Company’s Stock Plan Committee awarded 15,832 shares with a fair value of $423,506 from this plan to selected
employees. These shares vest 25% over each of the next four years. The Committee also awarded 1,332 shares with a
fair value of $35,631 to directors. These shares will vest upon issuance.
NOTE 30 SUBSEQUENT EVENTS:
On January 14, 2021 the Bank announced its expansion into the Northern Shenandoah Valley market via a loan
production office in Winchester, VA.
On January 27, 2021, the Bank announced it has entered into a purchase and assumption agreement with Carter
Bankshares, Inc to acquire a banking office in the city of Waynesboro, VA.
90
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, 2020 and 2019, 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, 2020 and 2019, 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.
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 Public Company Accounting Oversight Board (United States) (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 audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no opinion.
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses – Loans Collectively Evaluated for Impairment - Qualitative Factors
Description of the Matter
As described in Note 2 (Summary of Significant Accounting Policies) and Note 6 (Allowance for Loan Losses) to the
consolidated financial statements, the Company maintains an allowance for loan losses that represents management’s
91
estimate of the probable losses inherent in the Company’s loan portfolio. The Company’s allowance for loan losses
has two basic components: the general allowance and the specific allowance. At December 31, 2020, the general
allowance represented $7,891,000 of the total allowance for loan losses of $10,475,000. The general allowance is
applied to non-impaired loans and uses historical loss experience along with qualitative factors, including changes in
lending policies and procedures, the nature and volume of the portfolio, experience of lending management, levels
and trends in delinquencies, nonaccrual loans, charge-offs and adversely rated loans, the loan review system, portfolio
concentrations, economic conditions, collateral values, and the competitive and legal environment. The qualitative
adjustments to the historical loss rates are established by applying an additional loss factor to the loan segments
identified by management based on their assessment of shared risk characteristics within similar groups of non-
impaired loans. Qualitative factors are determined based on management’s continuing evaluation of inputs and
assumptions underlying the quality of the loan portfolio and contribute significantly to the allowance for loan losses.
Management exercised significant judgment when assessing the qualitative factors in estimating the allowance for
loan losses. We identified the assessment of the qualitative factors as a critical audit matter as auditing the qualitative
factors involved especially complex and subjective auditor judgment in evaluating management’s assessment of the
inherently subjective estimates.
How We Addressed the Matter in Our Audit
The primary audit procedures we performed to address this critical audit matter included:
Substantively testing management’s process, including evaluating their judgments and assumptions for
developing the qualitative factors, which included:
o Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.
o Evaluating the reasonableness of management’s judgments related to the determination of qualitative factors.
o Evaluating the qualitative factors for directional consistency and for reasonableness.
o Testing the mathematical accuracy of the allowance calculation, including the application of the qualitative
factors.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company’s auditor since 2016.
Winchester, Virginia
March 18, 2021
92
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, 2020, 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, 2020 the Company’s disclosure controls and
procedures were effective.
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, 2020. 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 effective as
of December 31, 2020.
93
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 2021 Annual Meeting of Shareholders
to be held virtually May 4, 2021 (“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 Accountant Fees and Services
This information is incorporated by reference from the Proxy Statement under the caption “Principal Accounting
Fees.”
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, 2020 and 2019 ..................................................................................... 43
Consolidated Statements of Income - Years ended December 31, 2020 and 2019 ...................................................... 44
Consolidated Statements of Comprehensive Income - Years ended December 31, 2020 and 2019 ............................ 45
Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2020 and 2019….…....46
Consolidated Statements of Cash Flows - Years ended December 31, 2020 and 2019……………………………….47
Notes to the Consolidated Financial Statements .......................................................................................................... 48
Reports of Independent Registered Public Accounting Firms ..................................................................................... 96
94
PART IV, continued
Item 15. Exhibits and Financial Statement Schedules
(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, Current Report on Form 8-K, filed March 24, 2020.
4.1 Description of Securities, incorporated herein by reference from Exhibit 4.1 to F&M Bank Corp’s Annual
10.2
10.1
10.3
10.4
10.5
Report on Form 10-K, filed March 16, 2020.
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.
Employment Agreement, dated December 30, 2020, by and between F&M Bank Corp. and Mark C. Hanna,
incorporated herein by reference from Exhibit 10.1 to F&M Bank Corp.’s Current Report on Form 8-K,
filed January 6, 2021.
Employment Agreement, dated December 30, 2020, by and between F&M Bank Corp. and Barton E.
Black, incorporated herein by reference from Exhibit 10.2 to F&M Bank Corp.’s Current Report on Form
8-K, filed January 6, 2021.
F&M Bank Corp. 2020 Stock Incentive Plan, incorporated herein by reference from Exhibit 10.1 to F&M
Bank Corp.’s Quarterly Report on Form 10-Q, filed August 11, 2020.
Form of Restricted Stock Award Agreement, filed herewith.
10.7
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-
10.6
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, 2020, 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).
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.
95
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 18, 2021
March 18, 2021
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
/s/ Larry A. Caplinger
Larry A. Caplinger
/s/ John N. Crist
John N. Crist
/s/ Dean W. Withers
Dean W. Withers
/s/ Daniel J. Harshman
Daniel J. Harshman
/s/ Michael W. Pugh
Michael W. Pugh
/s/ Christopher S. Runion
Christopher S. Runion
/s/ E. Ray Burkholder
E. Ray Burkholder
/s/ Peter H. Wray
Peter H. Wray
/s/ Anne Keeler
Anne Keeler
Title
Director
Director
Director
Director
Date
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
Director, Chair
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
Director
Director
Director
Director
96
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
97
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-16075 on Form S-3 and No. 333-
244322 and No. 333-159074 on Form S-8 of F&M Bank Corp. and Subsidiaries of our report dated March 18, 2021,
relating to the consolidated financial statements, appearing in the Annual Report on Form 10-K of F&M Bank Corp. and
Subsidiaries for the year ended December 31, 2020.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
March 18, 2021
98
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 18, 2021
/s/ Mark C. Hanna
Mark C. Hanna
Chief Executive Officer
99
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been
provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION
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 18, 2021
/s/ Carrie A. Comer
Carrie A. Comer
Executive Vice President and Chief Financial Officer
100
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been
provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.
Exhibit 32.1
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 18, 2021
101
LOCATIONS
F&M BANK BRANCHES AND OFFICES
BRANCHES
Bridgewater
100 Plaza Drive
540-828-6300
Stuarts Draft
2782 Stuarts
Draft Highway
540-609-2363
OFFICES
Headquarters
205 South Main Street
Timberville, VA
540-896-8941
Broadway
126 Timber Way
540-896-7071
Timberville
165 New Market Road
540-896-1716
Edinburg
300 Stoney Creek
Boulevard
540-984-4128
Woodstock
161 South Main Street
540-459-3707
Elkton
127 West
Rockingham Street
540-298-1251
Harrisonburg
80 Cross Keys Road
540-433-7575
Staunton
2813 N. Augusta Street
540-213-8686
2030 Legacy Lane
540-433-0112
30 Gosnell Crossing
540-946-8160
F&M Mortgage
2040 Deyerle Avenue, Suite 207
Harrisonburg, VA
540-442-8583
Dealer Finance Division
4759 Spotswood Trail
Penn Laird, VA
540-437-3480
VS Title Agency
410 Neff Avenue
Harrisonburg, VA
540-434-8571
19 Myers Corner Drive, Suite 105
Staunton, VA
540-446-8540
161 South Main Street
Woodstock, VA
540-459-3707
1707 Jefferson Hwy
Fishersville, VA
540-213-0419
154 Hansen Road
Charlottesville, VA
434-202-4336
INVESTOR INFORMATION
Transfer Agent for
F&M Bank Corp. Stock (FMBM)
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
P: 844-318-0135
E: shareholder@broadridge.com
F: 215-553-5402
W: http://shareholder.broadridge.com/FMBM
NMLS# 414464
NMLS# 275173
WWW.FMBANKVA.COM
FARMERSAND
MERCHANTSBANK
FMBANKVA
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